As
filed with the Securities and Exchange Commission on November 8, 2010
Registration
No. 333-170259
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
Amendment No. 1
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ANCESTRY.COM INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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7379
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26-1235962
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(State or other jurisdiction
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(Primary Standard Industrial
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(I.R.S. Employer
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of incorporation or organization)
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Classification Code Number)
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Identification No.)
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360 West 4800 North
Provo, UT 84604
(801) 705-7000
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Timothy Sullivan
Chief Executive Officer
360 West 4800 North
Provo, UT 84604
(801) 705-7000
(Name, address, including zip code, and telephone number, including area code, of agent for
service)
Copies to:
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Barbara L. Becker
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Jeffrey D. Saper
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Andrew L. Fabens
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Robert G. Day
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Gibson, Dunn & Crutcher LLP
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Wilson Sonsini Goodrich & Rosati
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200 Park Avenue
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Professional Corporation
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New York, NY 10166
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650 Page Mill Road
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Tel: (212) 351-4000
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Palo Alto, CA 94304
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Fax: (212) 351-4035
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Tel: (650) 493-9300
Fax: (650) 493-6811
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Approximate date of commencement of proposed sale to the public:
As soon as practicable
after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
o
If this form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same
offering.
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If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
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If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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The registrant hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become effective in
accordance with
Section 8(a)
of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission acting pursuant to such
Section 8(a)
may
determine.
The
information in this prospectus is not complete and may be
changed. The selling stockholders may not sell these securities
until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an
offer to sell these securities and the selling stockholders are
not soliciting offers to buy these securities in any state where
the offer or sale is not permitted.
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PROSPECTUS
(Subject to Completion)
Issued
November 8, 2010
3,564,842 Shares
COMMON STOCK
The selling stockholders are offering
3,564,842 shares of Ancestry.com Inc. common stock. We will
not receive any proceeds from the sale of shares of our common
stock by the selling stockholders.
Our common stock is listed on The Nasdaq Global Select
Market under the symbol ACOM. On November 5, 2010, the last
sale price of the shares on The Nasdaq Global Select Market was
$26.56 per share.
Investing in the common stock involves risks. See
Risk Factors beginning on page 14.
PRICE
$
A SHARE
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Underwriting
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Price to
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Discounts and
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Proceeds to Selling
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Public
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Commissions
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Stockholders
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Per Share
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$
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$
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$
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Total
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$
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$
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$
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The selling stockholders have granted the underwriters the right
to purchase up to an additional 534,726 shares of common
stock to cover over-allotments. We expect to enter into an
agreement with the selling stockholders, including affiliates of
Spectrum Equity Investors V, L.P., to repurchase approximately
$25 million worth of our common stock,
or shares,
directly from the selling stockholders in a private,
non-underwritten transaction at a price per share equal to the
net proceeds per share the selling stockholders receive in this
offering.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of common stock to
purchasers
on , 2010.
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MORGAN
STANLEY
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BofA MERRILL LYNCH
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CITI
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JEFFERIES & COMPANY
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PIPER JAFFRAY
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,
2010
TABLE OF
CONTENTS
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F-1
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EX-1.1
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EX-5.1
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EX-23.2
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You should rely only on the information contained in this
prospectus or in any free-writing prospectus we may authorize to
be delivered or made available to you. We have not, the selling
stockholders have not and the underwriters have not authorized
anyone to provide you with additional or different information.
We and the selling stockholders are offering to sell, and
seeking offers to buy, shares of our common stock only in
jurisdictions where offers and sales are permitted. The
information in this prospectus or any free-writing prospectus is
accurate only as of its date, regardless of its time of delivery
or of any sale of shares of our common stock. Our business,
financial condition, results of operations and prospects may
have changed since that date.
For investors outside the United States: We have not, the
selling stockholders have not and the underwriters have not done
anything that would permit this offering, or possession or
distribution of this prospectus, in any jurisdiction where
action for that purpose is required, other than in the United
States. Persons outside the United States who come into
possession of this prospectus must inform themselves about, and
observe any restrictions relating to, the offering of the shares
of common stock and the distribution of this prospectus outside
of the United States.
i
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus and does not contain all of the information that
you should consider in making your investment decision. Before
investing in our common stock, you should carefully read this
entire prospectus, including our consolidated financial
statements and the related notes and the information set forth
under the headings Risk Factors and
Managements Discussion and Analysis of Financial
Condition and Results of Operations, in each case included
elsewhere in this prospectus.
ANCESTRY.COM
INC.
Mission
Ancestry.coms mission is to help everyone discover,
preserve and share their family history.
Overview
Ancestry.com is the worlds largest online family history
resource, with nearly 1.4 million paying subscribers around
the world as of September 30, 2010. We have been a leader
in the family history market for over 20 years and have
helped pioneer the market for online family history research. We
believe that most people have a fundamental desire to understand
who they are and from where they came, and that anyone
interested in discovering, preserving and sharing their family
history is a potential user of Ancestry.com. We strive to make
our service valuable to individuals ranging from the most
committed family historians to those taking their first steps
towards satisfying their curiosity about their family stories.
The foundation of our service is an extensive and unique
collection of billions of historical records that we have
digitized, indexed and put online over the past 14 years.
Our subscribers use our proprietary online platform, extensive
digital historical record collection, and easy-to-use technology
to research their family histories, build their family trees,
collaborate with other subscribers, upload their own records and
publish and share their stories with their families. We offer
our service on a subscription basis, typically annually or
monthly. These subscribers are our primary source of revenue. We
charge each subscriber for their subscription at the
commencement of their subscription period and at each renewal
date. Although monthly subscribers have become an increasing
proportion of our subscribers, the annual commitments of a
majority of our subscribers enhance managements near-term
visibility on our revenues and provide working capital benefits,
which we believe enable us to more effectively manage the growth
of our business. We provide ongoing value to our subscribers by
regularly adding new historical content, enhancing our Web sites
with new tools and features and enabling greater collaboration
among our users through the growth of our global community.
Our goal is to remain the leading online resource for family
history and to grow our subscriber base in the United States and
around the world by offering a superior value proposition to
anyone interested in learning more about their family history.
We have focused on, and will continue to focus on, retaining our
loyal base of existing subscribers, on acquiring new subscribers
and on expanding the market to new consumers. We believe our
previous investments in technology and content have provided a
foundation for a scalable business model that will help us to
increase our margins over the long term and effectively manage
our costs as our business grows. However, we expect to continue
to devote substantial resources and funds to improving our
technologies and product offerings, acquiring new and relevant
content and talent, and expanding the awareness of our brand and
category through global marketing, any of which may adversely
affect our margin expansion in the near term.
Recent
Developments
On July 15, 2010, we acquired Genline AB
(Genline), owner and operator of the Swedish family
history Web site Genline.se, for approximately $7.2 million
in cash consideration, which increased our presence in the
Swedish market.
On August 6, 2010, we acquired genealogy research firm
ProGenealogists, Inc. (ProGenealogists), a leading
professional genealogy research firm that specializes in
genealogical, forensic and family history research for
approximately $1.1 million in cash consideration.
1
On September 9, 2010, we terminated and paid in full the
$76.2 million outstanding under our previous credit
facility from cash on hand, including the proceeds from our
initial public offering. Also, on September 9, 2010, in
connection with the payoff of the previous credit facility, we
entered into a new
three-year
$100.0 million principal amount senior secured revolving
credit facility with Bank of America, N.A., as administrative
agent and certain other financial institutions. The new credit
facility includes a $5.0 million sublimit for the issuance
of letters of credit and a $7.0 million sublimit for
swingline loans. As of November 8, 2010, we have not drawn
any funds under the new credit facility.
On September 22, 2010, we entered into an agreement to
acquire iArchives, Inc. (iArchives), a leading
digitization service provider that also operates Footnote.com, a
leading American history Web site, and on October 20, 2010,
we completed the acquisition. The purchase price was
approximately $31.6 million, consisting of the issuance of
approximately 1.022 million shares of our common stock
(valued at approximately $24.6 million, based on the
closing price on October 20, 2010) and approximately
$7.0 million of cash consideration. We believe that the
acquisition will provide Ancestry.com with a complementary
consumer brand, expanded content offerings and enhanced
digitization and image-viewing technologies.
On September 23, 2010, we announced a share repurchase
program, under which we may spend up to $25.0 million to
repurchase shares of our common stock, depending on market
conditions, the stock price and other factors. Under this
program, we expect to enter into an agreement with the selling
stockholders, including affiliates of Spectrum Equity Investors
V, L.P., to purchase shares
directly from the selling stockholders in a private,
non-underwritten transaction at a price per share equal to the
net proceeds per share the selling stockholders receive in this
offering for an aggregate purchase price of $25.0 million.
The purchase from the selling stockholders is conditioned on
completion of this offering and the satisfaction of certain
other closing conditions. The share repurchase program is
intended in part to offset the issuance of shares of our common
stock as a result of the iArchives acquisition.
We expect to incur non-recurring professional fees and costs of
approximately $1 million in connection with this offering,
which will negatively affect our adjusted EBITDA for the quarter
and full year ending December 31, 2010.
Industry
Background
Societies around the world have historically documented the
names, dates and places associated with important events of
their citizenry. However, due to the vast, dispersed and
disorganized nature of these data collections, the process of
researching family history generally has been time consuming,
painstaking and expensive. The introduction of Web-based
technologies greatly enhances opportunities to make family
history research easier, but businesses attempting to leverage
the Internet must tailor their products and services to address
the distinctive challenges of family history research.
The
Ancestry.com Solution
Through the design and development of a unique consumer Internet
application and underlying proprietary technologies, substantial
investment in content and the aggregation of network scale, we
are revolutionizing how people discover, preserve and share
their family history. Our solution includes:
Consumer
Benefits
Easy-to-Use
Web Site.
Our technology platform makes family
history research and networking easier, more enjoyable and more
rewarding. We seek to make Ancestry.com relevant and easy to use
for both new and experienced subscribers, and we continue to
advance our online tools to help our subscribers efficiently
search our content, organize their research, collaborate with
others and share their stories.
Easy Access to Comprehensive Data Sources.
We
have aggregated and organized a comprehensive collection of
historical records, with a particular emphasis on records from
the United States, the United Kingdom, Canada and Australia. Our
technologies allow subscribers to locate relevant family history
records quickly and easily, resulting in a rewarding experience
for new subscribers and experienced family historians
2
alike. Subscribers input information that they know about their
relatives, however limited, and can immediately view the vast
content sources available to populate their family trees. Our
proprietary record hinting technology suggests content to our
subscribers, alerting them through hints delivered
online and by email of potential matches to further populate
their trees from our company-acquired and user-generated content.
Valuable Community.
Our community of family
history enthusiasts is a significant component of our
subscription value proposition. Our subscribers can collaborate,
contribute content and assist each other with family history
research. The publicly available family trees created by our
registered users can provide new subscribers with a substantial
head start researching their families and the opportunity to
connect with relatives interested and engaged in the discovery
and preservation of a shared family lineage.
Competitive
Advantages
Proprietary Technology Platform Provides Robust Search
Capability and Ease of Use.
We have built a
scalable, proprietary technology platform. Our search technology
is designed to deal with the inherent difficulties of searching
historical content. Our record hinting technology locates and
pushes relevant content to our registered users. Our
digitization and indexing processes streamline the complex and
time-consuming task of putting historical records online.
Extensive and Accessible Content
Collection.
We have digitized and indexed the
largest online collection of family history records in the
world, with collections from the United States, the United
Kingdom, Canada and Australia, as well as Sweden, Germany,
France, Italy and China. We have invested approximately
$95 million to date in making this content available to
subscribers and continue to invest a substantial amount of time
and money to acquire or license, digitize, index and publish
additional records for our subscribers. In total, our
collections represent over six billion records.
Community of Dedicated and Highly Engaged Subscribers
Enhances Our Value Proposition.
We have an active
and dedicated community of subscribers. Our registered users
have created over 20 million family trees containing two
billion profiles. They have uploaded and attached to their trees
over 45 million photographs, scanned documents and written
stories. We believe our online community is highly valuable to
our subscribers, because the ever expanding pool of
user-generated content and collaboration and sharing
opportunities can significantly enhance the family history
research process.
Growth
Strategy
Our goal is to remain the leading online resource for family
history and to grow our subscriber base in the United States and
around the world by offering a superior value proposition to
anyone interested in learning more about their family history.
Our plan to achieve long-term and sustainable growth is to
increase our subscriber base in the United States and around the
world by serving our loyal base of existing subscribers, by
attracting new subscribers and by expanding the market to new
consumers. In pursuit of these goals, we will continue to focus
on the following objectives:
Continue to Build our Premium Brand and Drive Category
Awareness.
We continue to expand and improve our
consumer marketing activities in the United States, which we
believe have substantially increased our brand awareness. As
part of our marketing efforts, we have again purchased product
integration in the television show Who Do You Think You
Are? in the United States, which originally premiered on
NBC primetime television in March 2010 and is scheduled to air
again in the
2010-2011
season. We believe that the program will continue to increase
awareness of the family history category and our brand. We
believe that continued investments in broadcast media and
consumer marketing will allow us to enhance our premium brand,
increase awareness of the family history category and enhance
our ability to acquire new subscribers.
Further Improve Our Product and User
Experience.
We believe that investments in our
product platform can make family history research easier, more
enjoyable and more accessible. We continuously seek to advance
and improve our core search and hinting technologies, our
document image viewer, our family tree building and viewing
experience and our sharing and publishing capabilities. We
believe that we can leverage the latest Web technologies to
further transform the way people discover family history online.
3
Regularly Add New Content.
A vast universe of
historical records around the world is yet to be digitized, and
we intend to continue to expand our collection of digital
historical records. We will seek to maintain and extend our
existing relationships with archives and other holders of
content throughout the world and to find new sources of unique
family history content. We also plan to continue to promote the
growth of user-generated content by making the Ancestry.com Web
sites even better places to upload and share personal family
history documents and memories.
Enhance Our Collaboration Technologies.
With
nearly 1.4 million subscribers around the world as of
September 30, 2010, we believe that we have the scale to
further expand our unique family history collaboration network
and to help relatives share insights and discoveries about
common ancestors. We believe that collaboration is a fundamental
part of family history research and that social networking
technologies applied to family history research can provide our
subscribers with even greater value. We intend to make family
history research more collaborative and appealing to a larger
market.
Grow Our Business Internationally.
We believe
that our business model of digitizing historical content and
making records available online has appeal in multiple markets
around the world. On July 15, 2010, we acquired Genline,
owner and operator of the Swedish family history Web site
Genline.se, which increased our presence in the Swedish market.
We continue to invest in Mundia.com, our global, multi-language
family history networking service, to build our international
growth. We will continue to seek to implement our business model
in other international markets.
Risks
Associated with Our Business
Our business is subject to numerous risks and uncertainties, as
discussed more fully in the section entitled Risk
Factors immediately following this prospectus summary. We
generate substantially all of our revenue from subscriptions to
our services. We must continue to retain existing and attract
new subscribers. If our efforts to satisfy our existing
subscribers are not successful, we may not be able to retain
them, and as a result, our revenues would be adversely affected.
We face competition from a number of sources, some of which
provide genealogical records free of charge. Because we depend
upon our online family history services for substantially all of
our revenue, factors such as changes in consumer preferences for
these products may have a disproportionately greater impact on
us than if we offered multiple services. Our efforts to grow
internationally may prove difficult due to, among other things,
different and conflicting legal and regulatory regimes, cultural
differences and technical difficulties and costs associated with
the localization of our service offerings. Additionally, our
recent performance may not be sustainable.
Other
Information
Our principal executive offices are located at 360 West
4800 North, Provo, UT 84604, and our telephone number at that
address is
(801) 705-7000.
Our corporate Web site address is
http://corporate.ancestry.com
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The contents of our Web sites are not incorporated in, or
otherwise to be regarded as part of, this prospectus. We were
originally incorporated in Utah in 1983 under the name Ancestry,
Inc. We changed our name to Ancestry.com, Inc. in July 1998 and
reincorporated in Delaware in November 1998. Our name was
subsequently changed to MyFamily.com, Inc. in November 1999, and
then to The Generations Network, Inc. in November 2006.
In July 2009, to better align our corporate identity with the
premier branding of Ancestry.com, we changed our name to
Ancestry.com Inc. References herein to Ancestry.com,
the company, we, our and
us refer to the operations of Ancestry.com Inc. and
its consolidated subsidiaries in both the predecessor and
successor periods, unless otherwise specified. We are a holding
company, and substantially all of our operations are conducted
by our wholly-owned subsidiary Ancestry.com Operations Inc.,
which we refer to as the operating company, and its subsidiaries.
Our investor relations Web site is located at
http://ir.ancestry.com
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We make available, free of charge, on our investor relations Web
site under Financials/SEC Filings, our Annual
Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to these reports as soon as reasonably
practicable after electronically filing or furnishing those
reports to the Securities and Exchange Commission, or SEC.
4
Terminology
In this prospectus we use the terms subscriber, registered user,
Ancestry.com Web sites, record and database.
A subscriber is an individual who pays for renewable access to
one of our Ancestry.com Web sites, and a registered user is a
person who has registered on one of our Ancestry.com Web sites,
and includes subscribers. Our operations consist primarily of
our flagship Web site Ancestry.com, which is part of a global
family of Web sites that includes Ancestry.co.uk,
Ancestry.com.au, Ancestry.ca, Ancestry.de, Ancestry.fr,
Ancestry.it, and Ancestry.se. We refer to these Web sites
collectively as the Ancestry.com Web sites.
We use the term record in different ways depending
on the content source. When referring to a number of records in
certain of our company-acquired content collections, such as a
census record, we mean information about each specific person.
For example, a draft card will typically be counted as one
record, as will each line in a census, because each contains
information about a specific individual. When referring to
unstructured data, such as a newspaper, we define each page in
those data sources as a record. When referring to a number of
databases, we mean groups of records we have distinguished as
unique sets based on one or more common characteristics shared
by the records in each set, such as a common time period, place
or subject matter.
5
THE
OFFERING
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Common stock offered by the selling stockholders
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3,564,842 shares
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Total common stock to be outstanding after this offering
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45,780,523 shares
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Over-allotment option
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534,726 shares
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Use of proceeds
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The selling stockholders will receive all of the net proceeds
from the offering and we will not receive any proceeds from the
sale of shares in this offering. See Use of Proceeds.
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Risk factors
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See Risk Factors for a discussion of factors that
you should consider carefully before deciding whether to
purchase shares of our common stock.
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Exercise of certain options
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Certain options granted to six optionholders under our existing
equity incentive plans to purchase 200,756 shares
(230,870 shares if the underwriters over-allotment
option is exercised in full) of our common stock, will be
exercised by the selling stockholders to acquire shares being
sold in the offering.
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Nasdaq Global Select Market symbol
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ACOM
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We expect to enter into an agreement with the selling
stockholders, including affiliates of Spectrum Equity Investors
V, L.P., to repurchase approximately $25.0 million worth of
common stock, or shares,
directly from the selling stockholders in a private,
non-underwritten transaction at a price per share equal to the
net proceeds per share the selling stockholders receive in this
offering.
The number of shares beneficially owned after the offering does
not reflect shares we expect to repurchase from the selling
stockholders upon the completion of this offering. After the
offering and after giving effect to our repurchase
of shares
of our common stock from the selling stockholders, there will
be shares
outstanding.
Except as otherwise indicated, all information in this
prospectus:
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assumes that the underwriters will not exercise their option to
purchase 534,726 additional shares from the selling stockholders;
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excludes 8,405,994 shares issuable upon the exercise of
options outstanding as of September 30, 2010, that will not
be exercised by the selling stockholders, with a weighted
average exercise price of $5.99 per share;
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excludes 449,581 restricted stock units outstanding as of
September 30, 2010; and
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excludes an estimated 2,957,471 shares reserved for
issuance pursuant to future grants of awards under our 2009
Stock Incentive Plan as of September 30, 2010.
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6
SUMMARY
CONSOLIDATED HISTORICAL FINANCIAL DATA
The following tables summarize the consolidated historical
financial and operating data for the periods indicated. The
summary consolidated statements of operations data presented
below for the predecessor period from January 1, 2007
through December 5, 2007, the successor period from
December 6, 2007 through December 31, 2007 and the
years ended December 31, 2008 and 2009 have been derived
from our consolidated financial statements which have been
audited by Ernst & Young LLP, an independent
registered public accounting firm, and included elsewhere in
this prospectus. The summary consolidated statements of
operations data for the nine month periods ended
September 30, 2009 and 2010 and the balance sheet data at
September 30, 2010 are derived from our unaudited interim
consolidated financial statements included elsewhere in this
prospectus and include all adjustments, consisting of normal and
recurring adjustments, that we consider necessary for a fair
presentation of the financial position and results of operations
as of and for such periods. Operating results for the nine
months ended September 30, 2010 are not necessarily
indicative of the results that may be expected for the full 2010
fiscal year.
We operated as The Generations Network, Inc., which we refer to
as the predecessor, until December 5, 2007. On
December 5, 2007, Generations Holding, Inc., which we refer
to as the successor, acquired The Generations Network, Inc. in
connection with an investment by Spectrum Equity
Investors V, L.P. and certain of its affiliates, which we
refer to collectively as Spectrum. The successor was created for
the sole purpose of acquiring the predecessor and had no prior
operations. The total purchase price for this transaction, which
we refer to as the Spectrum investment, was $354.8 million,
at an effective per share price of $5.40. As a result of the
accounting for the Spectrum investment, our fiscal year 2007 is
divided into a predecessor period from January 1, 2007
through December 5, 2007 and a successor period from
December 6, 2007 through December 31, 2007.
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan. 1, 2007
|
|
|
|
Dec. 6, 2007
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
|
through
|
|
|
|
through
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
Dec. 5, 2007
|
|
|
|
Dec. 31, 2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands, except per share data)
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription revenues
|
|
$
|
141,141
|
|
|
|
$
|
11,692
|
|
|
$
|
181,391
|
|
|
$
|
207,707
|
|
|
$
|
152,506
|
|
|
$
|
204,343
|
|
Product and other revenues
|
|
|
12,269
|
|
|
|
|
1,278
|
|
|
|
16,200
|
|
|
|
17,195
|
|
|
|
12,287
|
|
|
|
13,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
153,410
|
|
|
|
|
12,970
|
|
|
|
197,591
|
|
|
|
224,902
|
|
|
|
164,793
|
|
|
|
218,196
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription revenues
|
|
|
33,590
|
|
|
|
|
2,462
|
|
|
|
38,187
|
|
|
|
40,183
|
|
|
|
29,755
|
|
|
|
33,996
|
|
Cost of product and other revenues
|
|
|
2,552
|
|
|
|
|
500
|
|
|
|
5,427
|
|
|
|
6,140
|
|
|
|
4,213
|
|
|
|
3,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
36,142
|
|
|
|
|
2,962
|
|
|
|
43,614
|
|
|
|
46,323
|
|
|
|
33,968
|
|
|
|
37,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
117,268
|
|
|
|
|
10,008
|
|
|
|
153,977
|
|
|
|
178,579
|
|
|
|
130,825
|
|
|
|
180,271
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and development
|
|
|
31,255
|
|
|
|
|
3,517
|
|
|
|
33,206
|
|
|
|
36,236
|
|
|
|
26,690
|
|
|
|
30,447
|
|
Marketing and advertising
|
|
|
42,400
|
|
|
|
|
3,157
|
|
|
|
52,341
|
|
|
|
61,625
|
|
|
|
44,226
|
|
|
|
71,061
|
|
General and administrative
|
|
|
20,723
|
|
|
|
|
2,142
|
|
|
|
28,931
|
|
|
|
32,540
|
|
|
|
24,569
|
|
|
|
24,915
|
|
Amortization of acquired intangible assets
|
|
|
2,132
|
|
|
|
|
1,542
|
|
|
|
23,779
|
|
|
|
16,217
|
|
|
|
12,165
|
|
|
|
11,149
|
|
Transaction related expenses
|
|
|
9,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
106,040
|
|
|
|
|
10,358
|
|
|
|
138,257
|
|
|
|
146,618
|
|
|
|
107,650
|
|
|
|
137,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
11,228
|
|
|
|
|
(350
|
)
|
|
|
15,720
|
|
|
|
31,961
|
|
|
|
23,175
|
|
|
|
42,699
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(756
|
)
|
|
|
|
(1,146
|
)
|
|
|
(12,355
|
)
|
|
|
(6,139
|
)
|
|
|
(4,784
|
)
|
|
|
(4,896
|
)
|
Interest income
|
|
|
2,051
|
|
|
|
|
289
|
|
|
|
872
|
|
|
|
792
|
|
|
|
746
|
|
|
|
340
|
|
Other income (expense), net
|
|
|
266
|
|
|
|
|
7
|
|
|
|
(8
|
)
|
|
|
21
|
|
|
|
14
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
12,789
|
|
|
|
|
(1,200
|
)
|
|
|
4,229
|
|
|
|
26,635
|
|
|
|
19,151
|
|
|
|
38,541
|
|
Income tax (expense) benefit
|
|
|
(5,018
|
)
|
|
|
|
(103
|
)
|
|
|
(1,845
|
)
|
|
|
(5,340
|
)
|
|
|
(6,927
|
)
|
|
|
(14,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,771
|
|
|
|
$
|
(1,303
|
)
|
|
$
|
2,384
|
|
|
$
|
21,295
|
|
|
$
|
12,224
|
|
|
$
|
24,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
$
|
0.06
|
|
|
$
|
0.55
|
|
|
$
|
0.32
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
$
|
0.06
|
|
|
$
|
0.51
|
|
|
$
|
0.30
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In connection with the Spectrum
investment, we were recapitalized. As a result, the capital
structure of our predecessor is not comparable to that of the
successor. Accordingly, net income per common share is not
comparable or meaningful for periods prior to 2008 and has not
been presented.
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan. 1, 2007
|
|
|
|
Dec. 6, 2007
|
|
|
|
Year Ended
|
|
|
|
Year Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
through
|
|
|
|
through
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
September 30,
|
|
|
|
|
Dec. 5, 2007
|
|
|
|
Dec. 31, 2007
|
|
|
|
2008
|
|
|
|
2009
|
|
|
|
2009
|
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
$
|
39,344
|
|
|
|
$
|
3,755
|
|
|
|
$
|
62,645
|
|
|
|
$
|
71,585
|
(1)
|
|
|
$
|
52,878
|
(1)
|
|
|
$
|
71,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
|
|
14,025
|
|
|
|
|
1,774
|
|
|
|
|
31,712
|
|
|
|
|
29,613
|
(1)
|
|
|
|
23,848
|
(1)
|
|
|
|
46,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription revenues
|
|
|
$
|
73
|
|
|
|
$
|
3
|
|
|
|
$
|
80
|
|
|
|
$
|
96
|
|
|
|
$
|
78
|
|
|
|
$
|
134
|
|
Technology and development
|
|
|
|
260
|
|
|
|
|
23
|
|
|
|
|
1,132
|
|
|
|
|
1,631
|
|
|
|
|
1,223
|
|
|
|
|
1,437
|
|
Marketing and advertising
|
|
|
|
279
|
|
|
|
|
27
|
|
|
|
|
254
|
|
|
|
|
370
|
|
|
|
|
273
|
|
|
|
|
390
|
|
General and administrative
|
|
|
|
286
|
|
|
|
|
24
|
|
|
|
|
3,206
|
|
|
|
|
3,377
|
|
|
|
|
2,691
|
|
|
|
|
1,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
|
$
|
898
|
|
|
|
$
|
77
|
|
|
|
$
|
4,672
|
|
|
|
$
|
5,474
|
|
|
|
$
|
4,265
|
|
|
|
$
|
3,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Income from operations and net
income, and therefore adjusted EBITDA and free cash flow,
include an expense related to a settlement in the third quarter
of 2009 of a claim regarding the timeliness and accuracy of a
content index we created. The settlement resulted in an expense
of approximately $2.3 million in 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2007
(1)
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscribers
|
|
|
832,193
|
|
|
|
913,683
|
|
|
|
1,066,123
|
|
|
|
1,028,180
|
|
|
|
1,376,974
|
|
Gross subscriber additions
|
|
|
479,663
|
|
|
|
556,045
|
|
|
|
673,991
|
|
|
|
508,750
|
|
|
|
821,427
|
|
Monthly
churn
(2)
|
|
|
3.5
|
%
|
|
|
4.0
|
%
|
|
|
3.8
|
%
|
|
|
3.9
|
%
|
|
|
3.8
|
%
|
Subscriber acquisition
cost
(3)
|
|
$
|
70.96
|
|
|
$
|
71.99
|
|
|
$
|
72.46
|
|
|
$
|
68.32
|
|
|
$
|
74.84
|
|
Average monthly revenue per
subscriber
(4)
|
|
$
|
14.83
|
|
|
$
|
16.09
|
|
|
$
|
16.55
|
|
|
$
|
16.50
|
|
|
$
|
17.90
|
|
|
|
|
(1)
|
|
In connection with the Spectrum
investment in December 2007, we were recapitalized. As a result,
amounts used to determine subscriber acquisition cost and
average monthly revenue per subscriber are based on both the
predecessor and successor periods as it is not meaningful to
present these metrics separately for the two periods in 2007.
|
(2)
|
|
Monthly churn is a measure
representing the number of subscribers that cancel in the
quarter divided by the sum of beginning subscribers and gross
subscriber additions during the quarter. To arrive at monthly
churn, we divide the result by three.
|
(3)
|
|
Subscriber acquisition cost is
external marketing and advertising expense, divided by gross
subscriber additions in the period.
|
(4)
|
|
Average monthly revenue per
subscriber is total subscription revenues earned in the period
from subscriptions to one of the Ancestry.com Web sites divided
by the average number of subscribers in the period, divided by
the number of months in the period. The average number of
subscribers for the period is calculated by taking the average
of the beginning and ending number of subscribers for the period.
|
9
|
|
|
|
|
|
|
As of September 30,
2010
|
|
|
(in thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
80,089
|
|
Total assets
|
|
|
495,928
|
|
Deferred revenues
|
|
|
90,583
|
|
Long-term debt (including current portion)
|
|
|
|
|
Total liabilities
|
|
|
155,432
|
|
Total stockholders equity
|
|
|
340,496
|
|
Definitions
of Other Financial Data
Adjusted EBITDA.
We define adjusted EBITDA as
net income (loss) plus net interest expense; income tax expense;
non-cash charges including depreciation, amortization,
impairment of intangible assets and stock-based compensation
expense; other (income) expense; and expenses associated with
the Spectrum investment, such as in-process research and
development and transaction expenses.
Free Cash Flow.
We define free cash flow as
net income plus net interest expense; income tax expense;
non-cash charges including depreciation, amortization,
impairment of intangible assets and stock-based compensation
expense; other (income) expense; and other expenses associated
with the Spectrum investment, such as in-process research and
development and transaction expenses; minus capitalization of
content database costs, capital expenditures and cash paid for
income taxes and interest.
Discussion
of Other Financial Data
Management believes that adjusted EBITDA and free cash flow are
useful measures of operating performance because they exclude
items that we do not consider indicative of our core
performance. In the case of adjusted EBITDA, we adjust net
income for such things as interest, income taxes, stock-based
compensation and certain non-cash and non-recurring items. Free
cash flow subtracts from adjusted EBITDA the capitalization of
content database costs, capital expenditures and cash paid for
income taxes and interest expense. However, these financial
measures are not prepared in accordance with accounting
principles generally accepted in the United States, or
GAAP, and should be considered in addition to, not
as a substitute for or superior to, net income and net cash
provided by operating activities, or other financial measures
prepared in accordance with GAAP. A reconciliation to net
income, the most directly comparable GAAP financial measure, is
contained in tabular form below.
Our management uses adjusted EBITDA and free cash flow as
measures of operating performance; for planning purposes,
including the preparation of our annual operating budget; to
allocate resources to enhance the financial performance of our
business; to evaluate the effectiveness of our business
strategies; to provide consistency and comparability with past
financial performance; to facilitate a comparison of our results
with those of other companies; and in communications with our
board of directors concerning our financial performance. We also
use adjusted EBITDA and free cash flow as factors when
determining managements incentive compensation.
Management also uses adjusted EBITDA to evaluate compliance with
the financial ratios in our credit facility, which use EBITDA as
a component. The definition of EBITDA under our credit facility
is substantially similar to our definition of adjusted EBITDA in
this prospectus, and differs primarily because the definition in
the credit facility does not exclude interest income (though it
does exclude interest expense) and other income (expense). See
Managements Discussion and Analysis of Financial
Condition Liquidity and Capital Resources for
a description of our credit facility.
Management believes that the use of adjusted EBITDA and free
cash flow provides consistency and comparability with our past
financial performance, facilitates period to period comparisons
of operations, and also facilitates comparisons with other peer
companies, many of which use similar non-GAAP financial measures
to
10
supplement their GAAP results. Management believes that it is
useful to exclude non-cash charges such as depreciation,
amortization, impairment of intangible assets and acquired
in-process research and development and stock-based compensation
from adjusted EBITDA and free cash flow because (i) the
amount of such non-cash expenses in any specific period may not
directly correlate to the underlying performance of our business
operations and (ii) such expenses can vary significantly
between periods as a result of new acquisitions, full
amortization of previously acquired tangible and intangible
assets or the timing of new stock-based awards, as the case may
be.
More specifically, we believe it is appropriate to exclude
stock-based compensation expense from adjusted EBITDA and free
cash flow because non-cash equity grants made at a certain price
and point in time do not reflect how our business is performing
at any particular time. While we believe that stockholders
should have information about any dilutive effect of outstanding
options and the cost of that compensation, we also believe that
stockholders should have the ability to view the non-GAAP
financial measures that exclude these costs that management uses
to evaluate our business. The determination of stock-based
compensation expense is based on many subjective inputs at a
point in time and many of these inputs are not necessarily
directly related to the performance of our business. Therefore,
excluding this cost gives us a clearer view of the operating
performance of our business. Because of varying available
valuation methodologies, subjective assumptions and the variety
of award types that companies may use under GAAP, as well as the
impact of non-operational factors such as our share price, on
the magnitude of this expense, management believes that
providing non-GAAP financial measures that exclude this
stock-based compensation expense allows investors and analysts
to make meaningful comparisons between our operating results
with those of other companies. Stock-based compensation has been
a significant non-cash recurring expense in our business and has
been used as a key incentive offered to our employees. We
believe such compensation contributed to the revenues earned
during the periods presented and also believe it will contribute
to the generation of future period revenues. Stock-based
compensation expense will recur in future periods for GAAP
purposes. There are material limitations to our exclusion of
stock-based compensation from adjusted EBITDA and free cash
flow, primarily that these expenses reduce our GAAP net income.
See below for a further discussion of these limitations on our
use of adjusted EBITDA and free cash flow as an analytical tool,
as well as the manner in which management compensates for these
limitations.
We believe it is appropriate to exclude depreciation and
amortization from adjusted EBITDA and free cash flow because
depreciation is a function of our capital expenditures which are
included in our cash flow measure, while amortization reflects
other asset acquisitions made at a point in time and their
associated costs. In analyzing the performance of our business
currently, management believes it is helpful also to consider
the business without taking into account costs or benefits
accruing from historical decisions on infrastructure and
capacity. While these matters do affect the overall financial
health of our company, they are separately evaluated and relate
to historic decisions that do not affect current operations of
our business on a cash flow basis. Further, depreciation and
amortization do not result in ongoing cash expenditures.
Investors should note that the use of assets being depreciated
or amortized contributed to revenues earned during the periods
presented and will continue to contribute to future period
revenues. This depreciation and amortization expense will recur
in future periods for GAAP purposes. There are material
limitations to our exclusion of depreciation and amortization
from adjusted EBITDA and free cash flow, primarily that these
expenses reduce our GAAP net income and the assets being
depreciated or amortized will often have to be replaced in the
future, resulting in future cash requirements. See below for a
further discussion of these limitations on our use of adjusted
EBITDA and free cash flow as an analytical tool, as well as the
manner in which management compensates for these limitations.
We believe it is appropriate to exclude impairment of intangible
assets and acquired in-process research and development from
adjusted EBITDA and free cash flow because these charges relate
to specific past events. In analyzing the performance of our
business currently, management believes it is helpful also to
consider the business without taking into account costs or
benefits accruing from historical decisions or acquisitions.
Further, these charges do not result in ongoing cash
expenditures. There are material limitations to our exclusion of
impairment of intangible assets and in-process research and
design from adjusted EBITDA and free cash flow, primarily that
these expenses reduce our GAAP net income. See below for a
further discussion of these limitations on our use of adjusted
EBITDA and free cash flow as an analytical tool, as well as the
manner in which management compensates for these limitations.
11
Management believes that it is useful to exclude other income
(expense) from adjusted EBITDA and free cash flow because that
line item consists of items that do not correlate to the
underlying performance of our business, such as retirement and
disposal of non-operating assets and gain or loss on
non-operating investments. Management also believes that it is
useful to exclude transaction expenses and in-process research
and development expense associated with the Spectrum investment
because these expenses were incurred in connection with the
investment and therefore do not occur regularly. There are
material limitations to our exclusion of other income (expense)
from adjusted EBITDA and free cash flow, primarily that these
may include cash income or expense that increase or reduce our
GAAP net income. See below for a further discussion of these
limitations on our use of adjusted EBITDA and free cash flow as
an analytical tool, as well as the manner in which management
compensates for these limitations.
We believe adjusted EBITDA and free cash flow are useful to
investors in evaluating our operating performance because
securities analysts use adjusted EBITDA and free cash flow as
supplemental measures to evaluate the overall operating
performance of companies.
Material
Limitations of Non-GAAP Measures
Although adjusted EBITDA and free cash flow are frequently used
by investors and securities analysts in their evaluations of
companies, adjusted EBITDA and free cash flow each have
limitations as an analytical tool, and you should not consider
them in isolation or as a substitute for analysis of our results
of operations as reported under GAAP.
Some of these limitations are:
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adjusted EBITDA and free cash flow do not reflect our future
requirements for contractual commitments and adjusted EBITDA
does not reflect our cash expenditures or future requirements
for capital expenditures;
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adjusted EBITDA and free cash flow do not reflect changes in, or
cash requirements for, our working capital;
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adjusted EBITDA does not reflect interest income or interest
expense;
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adjusted EBITDA does not reflect cash requirements for income
taxes;
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adjusted EBITDA and free cash flow do not reflect the non-cash
component of employee compensation;
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although depreciation, amortization and impairment of intangible
assets and acquired in-process research and development are
non-cash charges, the assets being depreciated or amortized will
often have to be replaced in the future, and adjusted EBITDA
does not reflect any cash requirements for these
replacements; and
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other companies in our industry may calculate adjusted EBITDA or
free cash flow or similarly titled measures differently than we
do, limiting their usefulness as comparative measures.
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Management compensates for the inherent limitations associated
with using the adjusted EBITDA and free cash flow measures
through disclosure of such limitations, presentation of our
financial statements in accordance with GAAP and reconciliation
of adjusted EBITDA and free cash flow to the most directly
comparable GAAP measure, net income (loss). Further, management
also reviews GAAP measures, and evaluates individual measures
that are not included in adjusted EBITDA such as our level of
capital expenditures, equity issuance and interest expense,
among other measures.
12
The following table presents a reconciliation of adjusted EBITDA
and free cash flow to net income, the most comparable GAAP
measure, for each of the periods indicated:
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Predecessor
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Successor
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Period from
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Period from
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Jan. 1, 2007
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Dec. 6, 2007
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Year Ended
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Year Ended
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Nine Months Ended
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through
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through
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December 31,
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December 31,
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September 30,
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Dec. 5, 2007
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Dec. 31, 2007
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2008
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2009
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2009
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2010
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(in thousands)
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Reconciliation of adjusted EBITDA and free cash flow to net
income:
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Net income (loss)
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$
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7,771
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$
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(1,303
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)
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$
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2,384
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$
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21,295
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$
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12,224
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$
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24,294
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Interest (income) expense, net
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(1,295
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)
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857
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11,483
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5,347
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4,038
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4,556
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Income tax expense
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5,018
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103
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1,845
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5,340
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6,927
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14,247
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Depreciation expense
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10,594
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754
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10,732
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10,936
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8,092
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8,355
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Amortization expense
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7,094
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1,974
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30,046
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23,214
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17,346
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16,713
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Stock-based compensation
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898
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77
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4,672
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5,474
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4,265
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3,541
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Other (income) expense, net
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(266
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)
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(7
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)
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8
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(21
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)
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(14
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)
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(398
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)
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Impairment of intangible assets and acquired in-process research
and development
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1,300
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1,475
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Transaction related expenses
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9,530
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Adjusted EBITDA
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$
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39,344
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$
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3,755
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$
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62,645
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$
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71,585
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(1)
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$
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52,878
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(1)
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$
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71,308
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Capitalization of content database costs
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$
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(10,591
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)
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$
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(1,129
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)
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$
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(8,965
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)
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$
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(9,398
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)
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$
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(5,855
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)
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$
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(8,534
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)
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Capital expenditures
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(10,572
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)
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(852
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)
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(11,621
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)
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(13,362
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)
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(7,566
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)
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(7,897
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)
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Cash paid for interest
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(756
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)
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(10,068
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)
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(7,740
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)
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(6,624
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)
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(2,528
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Cash paid for income taxes
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(3,400
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)
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(279
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)
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(11,472
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)
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(8,985
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)
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(6,345
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)
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Free cash flow
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$
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14,025
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$
|
1,774
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$
|
31,712
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$
|
29,613
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(1)
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$
|
23,848
|
(1)
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|
$
|
46,004
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(1)
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Income from operations and net
income, and therefore adjusted EBITDA and free cash flow,
include an expense related to settlement in the third quarter of
2009 of a claim regarding the timeliness and accuracy of a
content index we created. The settlement resulted in an expense
of approximately $2.3 million in 2009.
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13
RISK
FACTORS
An investment in our common stock involves a high degree of
risk. You should carefully consider the risks described below
and all of the other information contained in this prospectus
before deciding whether to purchase our stock. Our business,
prospects, financial condition or operating results could be
materially adversely affected by any of these risks, as well as
other risks not currently known to us or that we currently
consider immaterial. The trading price of our common stock could
decline due to any of these risks, and you may lose all or part
of your investment. In assessing the risks described below, you
should also refer to the other information contained in the
prospectus, including our consolidated financial statements and
the related notes, before deciding to purchase any shares of our
common stock.
Risks
Related to Our Business
If our
efforts to retain and attract subscribers are not successful,
our revenues will be adversely affected.
We generate substantially all of our revenue from subscriptions
to our services. We must continue to retain existing and attract
new subscribers. If our efforts to satisfy our existing
subscribers are not successful, we may not be able to retain
them, and as a result, our revenues would be adversely affected.
For example, if consumers do not perceive our services to be
reliable, valuable and of high quality, if we fail to regularly
introduce new and improved services, or if we introduce new
services that are not favorably received by the market, we may
not be able to retain existing or attract new subscribers. We
rely on our marketing and advertising efforts, including
television and online and offline performance-based and
fixed-cost programs, to attract new subscribers and retain
existing subscribers. If we are unable to effectively retain
existing subscribers and attract new subscribers, our business,
financial condition and results of operations would be adversely
affected.
The relative service levels, pricing and related features of
competitors to our products and services are some of the factors
that may adversely impact our ability to retain existing
subscribers and attract new subscribers. Some of our current
competitors provide genealogical records free of charge. Some
governments or private organizations may make historical records
available online at no cost to consumers and some commercial
entities could choose to make such records available on an
advertising-supported basis rather than a subscription basis. If
consumers are able to satisfy their family history research
needs at no or lower cost, they may not perceive value in our
products and services. If our efforts to satisfy and retain our
existing subscribers are not successful, we may not be able to
continue to attract new subscribers through
word-of-mouth
referrals. Further, subscriber growth may decrease as a result
of a decline in interest in family history research. Any of
these factors could cause our subscriber growth rate to fall,
which would adversely impact our business, financial condition
and results of operations.
Our
recent performance may not be sustainable, which could
negatively affect our stock price or financial condition and
results of operations.
Our revenues have grown rapidly, increasing from
$140.3 million in 2005 to $224.9 million in 2009,
representing a compound annual growth rate of 12.5%. In the
third quarter of 2010 and the nine months ended
September 30, 2010, our revenue growth was 39% and 32%,
respectively, over the prior year periods. We may not be able to
sustain our recent growth rate in future periods and you should
not rely on the revenue growth of these periods or any prior
period or year as an indication of our future performance.
Additionally, we expect to continue to devote substantial
resources and funds to improving our technologies and product
offerings and acquiring new and relevant content, and also to
expanding awareness of our brand and category through marketing,
such as the increased advertising we have undertaken in
connection with the television program Who Do You Think
You Are? which may reduce our margins in the near term. If
our margins or our future growth resulting from our
implementation of these strategies fail to meet investor or
analyst expectations, it could have a negative effect on our
stock price. If our growth rate were to decline significantly or
become negative, it could adversely affect our financial
condition and results of operations.
14
If we
experience excessive rates of subscriber cancellation, or churn,
our revenues and business will be harmed.
We must continually add new subscribers both to replace
subscribers who choose to cancel their subscriptions and to grow
our business beyond our current subscriber base. Subscribers
choose to cancel their subscriptions for many reasons, including
a desire to reduce discretionary spending or a perception that
they do not have sufficient time to use the service or otherwise
do not use the service sufficiently, the service is a poor
value, competitive services provide a better value or
experience, or subscriber service issues are not satisfactorily
resolved. Subscribers may choose to cancel their subscription at
any time prior to the renewal date. When we add subscribers as
rapidly as we have in the first three quarters of 2010, the rate
of subscriber cancellation, or churn, may also increase as it
did beginning in the second quarter of 2010 with churn rising
from 3.3% in the first quarter of 2010 to 4.3% in the second
quarter of 2010 and 4.0% in the third quarter of 2010. If we are
unable to attract new subscribers in numbers greater than our
subscriber churn, our subscriber base will decrease and our
business, financial condition and results of operations will be
adversely affected.
If our subscriber churn increases, we may be required to
increase the rate at which we add new subscribers in order to
maintain and grow our revenues. If excessive numbers of
subscribers cancel our service, we may be required to incur
significantly higher marketing and advertising expenses than we
currently anticipate to replace these subscribers with new
subscribers. A significant increase in our subscriber churn
would have an adverse effect on our business, financial
condition and results of operations.
A
change in our mix of subscription durations could have a
significant impact on our revenue, churn and revenue
visibility.
A majority of our subscribers has annual subscriptions. At any
point in time, however, the majority of new subscribers
generally signs up for monthly subscriptions and may or may not
choose to renew. We generally experience higher rates of churn
for monthly subscribers than for annual subscribers. As of
September 30, 2010, the percentage of overall subscribers
that are monthly subscribers had increased as compared to
September 30, 2009. If this trend continues, more of our
revenue would become dependent on monthly renewals, and we would
likely have higher churn. We continually evaluate the types of
subscriptions that are most appropriate for us and our
subscribers. As we make these evaluations, we may more
aggressively market subscriptions that are shorter than our
annual subscriptions. Any material change in our mix of
subscription duration could have a significant impact on our
revenue and churn.
Additionally, the largely annual commitments of our subscribers
enhance our near-term visibility on our revenues, which we
believe enables us to more effectively manage the growth of our
business and provide working capital benefits. A shift in
subscriber mix towards more monthly subscriptions may result in
diminished visibility with respect to forecasting revenue, which
could make it more difficult to manage our growth and
effectively budget future working capital requirements.
Because
we recognize revenues from subscriptions to our service over the
term of the subscription, downturns or upturns in subscriptions
may not be immediately reflected in our operating results and
therefore could affect our operating results in later
periods.
We recognize revenues from subscribers ratably over the term of
their subscriptions. Given that annual subscriptions still
represent a substantial majority of our subscriptions, a large
portion of our revenues for each quarter reflects deferred
revenue from subscriptions entered into during previous
quarters. Consequently, a decline in new or renewed
subscriptions in any one quarter will not necessarily be fully
reflected in the revenues in that quarter but will negatively
affect our revenues in future quarters. Accordingly, the effect
of significant downturns or upturns in subscriptions or market
acceptance of our service, or changes in subscriber churn, may
not fully impact our results of operations until future periods.
15
If our
marketing and advertising efforts fail to generate additional
revenues on a cost-effective basis, or if we are unable to
manage our marketing and advertising expenses, it could harm our
results of operations and growth.
Our future growth and profitability, as well as the maintenance
and enhancement of our brands, will depend in large part on the
effectiveness and efficiency of our marketing and advertising
expenditures and the continued success of television programming
related to family history. We use a diverse mix of online and
offline performance-based and fixed-cost marketing and
advertising programs to promote our products and services, and
we periodically adjust our mix of marketing and advertising
programs to reflect our television demographic. We have recently
experienced price increases in some of our marketing and
advertising channels. Significant increases in the pricing of
one or more of our marketing and advertising channels would
increase our marketing and advertising expense or cause us to
choose less expensive but potentially less effective marketing
and advertising channels. As we implement new marketing and
advertising strategies, we have expanded into television
advertising, which may have significantly higher costs than
other channels and which could adversely affect our
profitability. Further, we may over time become
disproportionately reliant on one channel or partner, such as
NBC in future seasons of Who Do You Think You Are?
which could increase our operating expenses. We have incurred
and may in the future incur marketing and advertising expenses
significantly in advance of the time we anticipate recognizing
revenue associated with such expenses, as in the case of
television programming, and our marketing and advertising
expenditures may not continue to result in increased revenue or
generate sufficient levels of brand awareness. If we are unable
to maintain our marketing and advertising channels on
cost-effective terms or replace existing marketing and
advertising channels with similarly effective channels, our
marketing and advertising expenses could increase substantially,
our subscriber levels could be affected adversely, and our
business, financial condition and results of operations may
suffer.
In addition, our expanded marketing efforts may increase our
subscriber acquisition cost. For example, our decision to expand
our international marketing and advertising efforts will lead to
a significant increase in our marketing and advertising
expenses. Any of these additional expenses may not result in
sufficient customer growth to offset cost, which would have an
adverse effect on our business, financial condition and results
of operations.
We
cannot predict whether the television show Who Do You
Think You Are? will continue to have an impact on our
business in the future.
We purchased product integration in the television show
Who Do You Think You Are? in the United States,
which originally premiered in March 2010. Although the original
airing of this series, together with our increased television
advertising, caused increased interest in our core business that
resulted in a greater number of subscribers, we cannot guarantee
that the show will have a long-term favorable effect on our net
income. NBC has announced a second season of Who Do You
Think You Are? and we again have purchased product
integration, but we cannot guarantee that the second season of
the show will in fact air or have the same effect on our
business. If we do not receive lasting benefits from these and
future shows, or if the show is poorly received or cancelled, it
could have a negative effect on our business or our stock price.
Because
we generate substantially all of our revenue from online family
history resources, particularly in the United States and United
Kingdom, a decline in demand for our services or for online
family history resources in general, and particularly of the
United States and United Kingdom, could cause our revenue to
decline.
We generate substantially all of our revenue from our online
family history services, and we expect that we will continue to
depend upon our online family history services for substantially
all of our revenue in the foreseeable future. Because we depend
on our online family history services, factors such as changes
in consumer preferences for these products may have a
disproportionately greater impact on us than if we offered
multiple services. The market for online family history
resources, and for consumer services in general, is subject to
rapidly changing consumer demand and trends in preferences. If
consumer interest in our online family history services
declines, or if consumer interest in family history in general
declines, we would likely experience a significant loss of
revenue and
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net income. Some of the potential factors that could affect
interest in and demand for online family history services
include:
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individuals interest in, and their willingness to spend
time and money, conducting family history research;
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availability of discretionary funds;
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awareness of our brand and the family history category;
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the appeal and reliability of our services;
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the price, performance and availability of competing family
history products and services;
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public concern regarding privacy and data security;
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our ability to maintain high levels of customer
satisfaction; and
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the rate of growth in online commerce generally.
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In addition, substantially all of our revenues are from
subscribers in the United States, the United Kingdom, and to a
lesser extent, Canada and Australia. Consequently, a decrease of
interest in and demand for online family history services in
these countries could have a disproportionately greater impact
on us than if our geographical mix of revenue was less
concentrated.
Challenges
in acquiring historical content and making it available online
could adversely affect our ability to retain and expand our
subscriber base, and therefore adversely affect our business,
financial condition and results of operations.
In order to retain and expand our subscriber base, both
domestically and internationally, we must continue to expend
significant resources to acquire significant amounts of
additional historical content, digitize it and make it available
to our subscribers online. We face legal, logistical, cultural
and commercial challenges in acquiring new content. Relevant
governmental records may be widely dispersed and held at a
national, state or local level.
Religious and private records are even more widely dispersed.
These problems often pose particular challenges in acquiring
content internationally. Desirable content may not be available
to us on favorable terms, or at all, due to competition for a
particular collection, privacy concerns relative to information
contained in a given collection or our lack of negotiating
leverage with a certain content provider. For example, some of
our most popular databases include so-called vital
records content namely, birth, marriage and
death records made available by certain governmental agencies.
To help prevent identity theft, or even terrorist activities,
governments may attempt to restrict the release of all or
substantial portions of their vital records content, and
particularly birth records, to third parties. If these efforts
are successful, it may limit or altogether prevent us from
acquiring these types of vital record content or continuing to
make them available online. In many cases, we will be the first
commercial entity that may have approached the keeper of the
records, often a governmental body. In some cases, we have to
lobby for legislation to be changed to enable government or
other bodies to grant us access to records.
While we own or license most of the images in our database, we
generally do not own the underlying historical documents. If
owners of content have sold or licensed it for digitization
purposes on an exclusive basis to a third party, we would not be
able to acquire this content. The owners of such historical
records generally can allow one or more parties to digitize
those records. If owners of content have sold or licensed the
rights to digitize that content, even on a non-exclusive basis,
they often elect not to sell or license it for digitization
purposes to any other person. Therefore, if one of our
competitors acquires rights to digitize a set of content, even
on a non-exclusive basis, we may be unable to acquire rights to
digitize that content. In some cases, acquisition of content
involves competitive bidding, and we have in the past and may in
the future choose not to bid or may not successfully bid to
acquire content rights. In addition, a number of governmental
bodies and other organizations are interested in making
historical content available for free and owners of historical
records may license or sell their records to such governmental
bodies and organizations in addition to or instead of licensing
or selling their content to us. Our inability to offer vital
records or other valuable content as part of our family history
research databases or the widespread availability of such
content elsewhere at lower cost or for free could result in our
subscription services
17
becoming less valuable to consumers, which could have an adverse
impact on our number of subscribers or subscriber churn, and
therefore on our business, financial condition and results of
operations.
We
depend in part upon third party licenses for some of our
historical content, and a loss of these licenses, or disputes
regarding royalties under these licenses, could adversely affect
our ability to retain and expand our subscriber base, and
therefore adversely affect our revenues, financial condition and
results of operations.
Though we own or license most of the images in our databases, in
some cases on a non-exclusive basis, we acquire a portion of our
content pursuant to ongoing license agreements. Some of these
agreements have finite terms and we may not be able to renew the
agreements on terms that are advantageous to us or at all. For
example, we license a significant amount of our United Kingdom
content from the United Kingdom National Archives under several
license agreements that generally have ten year terms, with
varying automatic extension periods. These agreements with the
United Kingdom National Archives generally have initial
expiration dates from 2012 to 2026. The agreements are generally
terminable by either party for breach by the other party and by
the United Kingdom National Archives upon our insolvency or
bankruptcy. Some of these agreements permit the United Kingdom
National Archives to terminate these licenses if we undergo a
change of control.
If a current or future license for a significant content
collection were to be terminated, we may not be able to obtain a
new license on terms advantageous to us or at all and we could
be required to remove the relevant content from our Web sites,
either immediately or after some period of time. If a content
provider were to license or sell us content in violation of that
content providers agreements with other parties, we could
be required to remove that content from our Web sites. If we
were required to remove a material amount of content from our
Web sites, as a result of the termination of one or more
licenses or otherwise, it could adversely affect our business
and results of operations. Some of these license agreements
restrict the manner in which we use the applicable content,
which could limit our ability to leverage that content for new
uses as we expand our business. We pay royalties under some of
these license agreements, and the other party to those
royalty-bearing agreements may have a right to audit the
calculation of our royalty payments. If there were to be a
disagreement regarding the calculation of royalty payments, we
could be required to make additional payments under those
agreements. We also have indemnification obligations under many
of these agreements. We could experience claims in the future
which, if material, could have a negative impact on our results
of operations and financial condition.
Digitizing
and indexing new content can take a significant amount of time
and expense, and can expose us to risks associated with the loss
or damage of historical documents. Our inability to maintain or
acquire content or make new content available online in a timely
and cost-effective manner, or liability for loss of historical
documents, could have an adverse effect on our business,
financial condition and results of operations.
Digitizing and indexing new historical content can take a
significant amount of time and expense and we generally incur
the expenses related to such content significantly in advance of
the time we can make it available to our subscribers. We have
invested approximately $95.0 million in content to date and
expect to continue to spend significant resources on content.
Increases in the cost or time required to digitize and index new
content could harm our financial results. Currently, two
transcription vendors perform substantially all of our data
transcription as measured by cost. We do not have long-term
contracts with any of our transcription vendors. If we were to
replace one of these transcription vendors for any reason, we
would be required to provide extensive training to the new
vendor, which could delay our ability to make our new content
available to our subscribers, and our relationships with the new
transcription vendors may be on financial or other terms less
favorable to us than our existing arrangements. Our inability to
maintain or acquire content or to make new content available
online in a timely and cost-effective manner would have an
adverse effect on our business, financial condition and results
of operations.
In addition, if we acquire content that ultimately generates
only minimal subscriber interest, the cost of acquiring and
processing that content may exceed the incremental revenues
produced by the content, which would adversely affect our
profitability.
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While we are digitizing content, we may be in possession of
valuable and irreplaceable original historical documents. While
we maintain insurance with respect to such documents, any loss
or damage to such documents, while in our possession, could
cause us significant expense and could have a material adverse
effect on our reputation and the potential willingness of
content owners to sell, license or lend their content to us.
We
face competition from a number of different sources, and our
failure to compete effectively with current and future
competitors could adversely affect our ability to retain and
expand our subscriber base, and therefore adversely impact our
revenues, results of operations and financial
condition.
We face competition in our business from a variety of online and
offline organizations, some of which provide genealogical
records free of charge. We expect competition to increase in the
future. We generally compete on the basis of content,
technology, ease of use, brand recognition, quality and breadth
of products, service and support, price and the number of
network users with whom other users can collaborate.
Ancestry.com and our similar international Web sites face
competition from:
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FamilySearch, and its Web site FamilySearch.org, a genealogy
organization that is part of The Church of Jesus Christ of
Latter-day
Saints. FamilySearch has an extensive collection of paper and
microfilm records. FamilySearch has digitized a large quantity
of these records and has published them online at
FamilySearch.org, where it makes them available to the public
for free and through thousands of family history centers located
throughout the world. FamilySearch is a well funded organization
and is undertaking a massive digitization project to bring most
of its collection online.
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Commercial entities, including online genealogical research
services, library content distributors, search engines and
portals, retailers of books and software related to genealogical
research and family tree creation and family history oriented
social networking Web sites.
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Non-profit entities and organizations, genealogical societies,
governments and agencies that may make vital statistics or other
records available to the public for free.
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We expect our competition to grow, and our competitors may
include other Internet-based and offline businesses, governments
and other entities. Our current and future competitors may have
greater resources, more well-established brand recognition or
more sophisticated technologies, such as search algorithms, than
we do or may more easily obtain relevant records in
international markets. Additionally, our current and future
competitors may offer new categories of content, products or
services before us, or at lower prices, which may give them a
competitive advantage in attracting subscribers. Our current and
future competitors may make historical records available online
at no cost or on an advertising-supported basis rather than a
subscription basis. Our future competitors and their products
and services may be superior to any of our current competition.
There has recently been some consolidation in our industry, and
such consolidation could also increase competition in the
future, including competition with respect to acquisition of
content, exclusivity of content or pricing. To compete
effectively, we may need to expend significant resources on
content acquisition, technology or marketing and advertising,
which could reduce our margins and have a material adverse
effect on our business, financial condition and results of
operations.
Our
failure to attract, integrate and retain highly qualified
personnel in the future could harm our business.
To execute our growth plan, we must attract and retain a
relatively large number of highly qualified personnel.
Competition for these employees is intense, and we may not be
successful in attracting and retaining qualified personnel. We
have from time to time in the past experienced, and we expect to
continue to experience in the future, difficulty in hiring and
retaining highly skilled employees with appropriate
qualifications. Many of the companies with which we compete for
experienced personnel have greater resources than we have. In
addition, in making employment decisions, particularly in the
Internet and high-technology industries, job candidates often
consider the value of the stock options or other equity awards
they may receive in connection with their employment. Accounting
principles generally accepted in the United States relating to
the expensing of stock options may discourage us from granting
the size or type of stock option awards that job candidates may
require to join our
19
company. If we fail to attract new personnel, or fail to retain
and motivate our current personnel, our business and future
growth prospects could be severely harmed.
Our
growth could strain our personnel, technology and infrastructure
resources, and if we are unable to implement appropriate
controls and procedures to manage our growth, and hire and
integrate appropriate personnel, we may not be able to
successfully implement our business plan.
Our growth in operations has placed a significant strain on our
management, administrative, technological, operational and
financial infrastructure. Anticipated future growth, including
growth related to the broadening of our product and service
offerings and our expansion into new geographical areas, will
continue to place similar strains on our personnel, technology
and infrastructure. We have hired a significant number of new
employees in 2010, and we plan to hire additional personnel in
the near future. Particularly when adding staff quickly, we may
not make optimal hiring decisions or may not integrate personnel
effectively. A sudden increase in our number of registered users
could strain our capacity and result in Web site performance
issues. Our success will depend in part upon the management
ability of our officers with respect to growth opportunities. To
manage the expected growth of our operations, we will need to
continue to improve our operational, financial, technological
and management controls and our reporting systems and
procedures. Additional personnel and capital investments will
increase our cost base, which will make it more difficult for us
to offset any future revenue shortfalls by offsetting expense
reductions in the short term. If we fail to successfully manage
our growth, it could adversely affect our business, financial
condition and results of operations.
Competitive
pricing pressures could cause us to fail to retain existing or
attract new subscribers and harm our revenues and results of
operations.
Demand for our products and services is sensitive to price. Many
external factors, including our marketing, content acquisition
and technology costs and our current and future
competitors pricing and marketing strategies, can
significantly affect our pricing strategies, particularly in
markets outside the United States. Some of our competitors
provide genealogical records free of charge. If we fail to meet
our subscribers pricing expectations, we could fail to
retain existing or attract new subscribers, either of which
would harm our business and results of operations. Changes in
our pricing strategies could have a significant impact on our
revenues, financial condition and results of operations.
Any
significant disruption in service on our Web sites or in our
computer systems, which are currently hosted primarily by a
single third party, could damage our reputation and result in a
loss of subscribers, which would harm our business and operating
results.
Registered users and subscribers access our service through our
Web sites, where our family history research databases are
located, and our internal billing software and operations are
integrated with our product and service offerings. Our brand,
reputation and ability to attract, retain and serve our
subscribers depend upon the reliable performance of our Web
sites, network infrastructure, content delivery processes and
payment systems. We have experienced interruptions in these
systems in the past, including server failures that temporarily
slowed down our Web sites performance and users
access to content, or made our Web sites inaccessible, and we
may experience interruptions in the future. Interruptions in
these systems, whether due to system failures, computer viruses
or physical or electronic break-ins, could affect the security
or availability of our Web sites and prevent our registered
users from accessing our data and using our products and
services. Problems with the reliability or security of our
systems may require disclosure to our lenders and could harm our
reputation, and damage to our reputation and the cost of
remedying these problems could negatively affect our business,
financial condition and results of operations.
Substantially all of our communications, network and computer
hardware used to operate our Web sites are co-located in a
facility in Utah. We do not own or control the operation of this
facility. We have established a disaster recovery facility
located at a third-party facility in Denver, Colorado. Our
systems and operations are vulnerable to damage or interruption
from fire, flood, power loss, telecommunications failure,
terrorist attacks, acts of war, electronic and physical
break-ins, computer viruses, earthquakes and similar events. The
occurrence of any of the foregoing events could result in damage
to our systems and hardware or could cause them to fail
completely, and our insurance may not cover such events or may
be insufficient to compensate us for losses that may occur. Our
systems
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are not completely redundant, so a failure of our system at our
primary site could result in reduced functionality for our
registered users, and a total failure of our systems at both
sites could cause our Web sites to be inaccessible by our
registered users. Problems faced by our third-party Web hosting
provider, with the telecommunications network providers with
whom it contracts or with the systems by which it allocates
capacity among its customers, including us, could adversely
affect the experience of our subscribers. Our third-party Web
hosting provider could decide to close its facilities without
adequate notice. In addition, any financial difficulties, such
as bankruptcy reorganization, faced by our third-party Web
hosting provider or any of the service providers with whom it
contracts may have negative effects on our business, the nature
and extent of which are difficult to predict. Additionally, if
our third-party Web hosting provider is unable to keep up with
our growing needs for capacity, this could have an adverse
effect on our business. Any errors, defects, disruptions or
other performance problems with our services could harm our
reputation and have an adverse effect on our business, financial
condition and results of operations.
Businesses
or technologies we acquire could prove difficult to integrate,
disrupt our ongoing business, dilute stockholder value or have
an adverse effect on our results of operations.
As part of our business strategy, we may engage in acquisitions
of businesses or technologies to augment our organic or internal
growth, as we did in July 2010, when we acquired Genline, in
August 2010 when we acquired ProGenealogists and in October
2010, when we acquired iArchives. While we have engaged in some
acquisitions in the past, we do not have extensive experience
with integrating and managing acquired businesses or assets.
Acquisitions involve challenges and risks in negotiation,
execution, valuation and integration. Moreover, we may not be
able to find suitable acquisition opportunities on terms that
are acceptable to us. Even if successfully negotiated, closed
and integrated, certain acquisitions may not advance our
business strategy, may fall short of expected
return-on-investment
targets or may fail. Any recent or future acquisition could
involve numerous risks including:
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potential disruption of our ongoing business and distraction of
management;
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difficulty integrating the operations and products of the
acquired business;
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use of cash to fund the acquisition or for unanticipated
expenses;
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limited market experience in new businesses;
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exposure to unknown liabilities, including litigation against
the companies we acquire;
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additional costs due to differences in culture, geographical
locations and duplication of key talent;
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acquisition-related accounting charges affecting our balance
sheet and operations;
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difficulty integrating the financial reports of the acquired
business in our consolidated financial statements and
implementing our internal controls in the acquired business;
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potential impairment of goodwill;
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dilution to our current stockholders from the issuance of equity
securities; and
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potential loss of key employees or customers of the acquired
company.
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In the event we enter into any acquisition agreements, closing
of the transactions could be delayed or prevented by regulatory
approval requirements, including antitrust review, or other
conditions. We may not be successful in addressing these risks
or any other problems encountered in connection with any
attempted acquisitions, and we could assume the economic risks
of such failed or unsuccessful acquisitions.
We
face many risks associated with our plans to continue to expand
our international offerings and marketing and advertising
efforts, which could harm our business, financial condition and
results of operations.
In addition to our United States and United Kingdom Web sites,
since 2006, we have launched Web sites directed at Canada,
Australia, Sweden, Germany, France, Italy and China and launched
our global Mundia.com Web site. As of September 30, 2010,
approximately 31% of subscribers to our Ancestry.com Web sites,
and, for the
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nine months ended September 30, 2010, approximately 24% of
our revenues from subscribers, were from locations outside the
United States. In addition, in July 2010, we acquired the owner
and operator of the Swedish family history Web site, Genline.se.
We anticipate that our continuing international expansion will
continue to entail increased marketing and advertising of our
products, services and brands, and the development of localized
Web sites throughout our geographical markets. We may not
succeed in these efforts and achieve our subscriber acquisition
or other goals. For some international markets, customer
preferences and buying behaviors may be different, and we may
use business models that are different from our traditional
subscription model that provides company-acquired content to
subscribers. Our revenues from new foreign markets may not
exceed the costs of acquiring, establishing, marketing and
maintaining international offerings, and therefore may not be
profitable on a sustained basis, if at all. We will be subject
to many of the risks of doing business internationally,
including the following:
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difficulties in developing and marketing our offerings and
brands as a result of distance, language and cultural
differences;
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foreign currency exchange rate fluctuations;
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more stringent consumer and data protection laws;
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local socio-economic and political conditions;
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technical difficulties and costs associated with the
localization of our service offerings;
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strong local competitors;
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lack of experience in certain geographical markets;
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different and conflicting legal and regulatory regimes;
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changes in governmental regulations;
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different and conflicting intellectual property laws;
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difficulties in staffing and managing international
operations; and
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risk of business or user fraud.
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One or more of these factors could harm our business, financial
condition and results of operations.
If we
are unable to improve market recognition of and loyalty to our
brands, or if our reputation were to be harmed, we could lose
subscribers or fail to increase the number of subscribers, which
could harm our revenues, results of operations and financial
condition.
We believe that maintaining and enhancing our Ancestry.com brand
and other brands is critical to our success. We believe that the
importance of brand recognition and loyalty will only increase
in light of increasing competition in our markets. We plan to
continue to promote our brands, both domestically and
internationally, but there is no guarantee that our selected
strategies will increase the favorable recognition of our
brands. Some of our existing and potential competitors,
including search engines, media companies and government and
religious institutions have well-established brands with greater
brand recognition than we have. Additionally, from time to time,
our subscribers express dissatisfaction with our service,
including, among other things, dissatisfaction with our
auto-renewal and other billing policies, our handling of
personal data and the way our services operate. To the extent
that dissatisfaction with our service is widespread or not
adequately addressed, our brand may be adversely impacted. If
our efforts to promote and maintain our brand are not
successful, our operating results and our ability to attract and
retain subscribers may be adversely affected. In addition, even
if our brand recognition and loyalty increases, this may not
result in increased use of our products and services or higher
revenues. Many of our subscribers are passionate about family
history research, and many of these subscribers participate in
blogs on this topic both on our Web sites and elsewhere. If
actions we take or changes we make to our products upset these
subscribers, their blogging could negatively affect our brand
and reputation.
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Our
future growth may differ materially from our historic growth
rates and our projections, which could harm our revenues,
results of operations and financial condition.
Online family history research is a relatively new industry and
our operational history in the online family history research
industry is also relatively limited. Consequently, it is
difficult to predict the ultimate size of the industry and the
acceptance by the market of our products and services. Our
business strategy and projections rely on a number of
assumptions, some or all of which may be incorrect. For example,
we believe that consumers will be willing to pay for
subscriptions to our online family history resources,
notwithstanding the fact that some of our current and future
competitors may provide such resources free of charge. We cannot
accurately predict whether our products and services will
achieve significant acceptance by potential users in
significantly larger numbers than at present. You should
therefore not rely on our historic growth rates as an indication
of future growth.
Our
business could be adversely affected if our subscribers are not
satisfied with our products and services. If we lose subscribers
or fail to increase the number of subscribers due to
dissatisfaction with our products and services, it could harm
our revenues, results of operations and financial
condition.
Our business depends on our ability to satisfy our subscribers.
Our subscribers satisfaction may be negatively impacted by
factors that are actual or perceived by them, such as
limitations in our technologies, changes in our products and
services, interruptions or slowness in online capacity of our
Web sites, privacy and data security concerns, speed of search
of our online content and relevance of search results, as well
as perceived ease of search, and our automatic subscription
renewal by credit card policy, including any perceptions of
credit card fraud. If we do not handle subscriber complaints
effectively, our brand and reputation may suffer, we may lose
our subscribers confidence, and they may choose not to
renew their subscriptions. Complaints or negative publicity
about our products, services or billing practices could
adversely impact our business, financial condition and results
of operations.
If we
are unable to continually enhance our products and services and
adapt them to technological changes and subscriber needs, we may
not remain competitive and our business may fail to grow or
decline.
Our business is rapidly changing. To remain competitive, we must
continue to provide relevant content and enhance and improve the
functionality and features of our products and services. If we
fail to do so, or if competitors introduce new solutions
embodying new technologies, our existing products and services
may become obsolete. Our future success will depend, among other
things, on our ability to:
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anticipate demand for new products and services;
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enhance our existing solutions, systems capacity and processing
speed; and
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respond to technological advances on a cost-effective and timely
basis.
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Developing the technologies in our products entails significant
technical and business risks. We may use new technologies
ineffectively, or we may fail to adapt our products and services
to the demands of our subscribers. If we face material delays in
introducing new or enhanced solutions, our subscribers may
forego the use of our solutions in favor of those of our
competitors.
Undetected
product or service errors or defects could result in the loss of
revenues, delayed market acceptance of our products or services
or claims against us.
We offer a variety of Internet-based services and a software
product, Family Tree Maker, all of which are complex and
frequently upgraded. Our Internet-based services and software
product may contain undetected errors, defects, failures or
viruses, especially when first introduced or when new versions
or enhancements are released. Despite product testing, our
products, or third party products that we incorporate into ours,
may contain undetected errors, defects or viruses that could,
among other things:
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require us to make extensive changes to our subscription
services or software product, which would increase our expenses;
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expose us to claims for damages;
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require us to incur additional technical support costs;
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cause a negative registered user reaction that could reduce
future sales;
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generate negative publicity regarding us and our subscription
services and software product; or
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result in subscribers delaying their subscription or software
purchase or electing not to renew their subscriptions.
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Any of these occurrences could have a material adverse effect
upon our business, financial condition and results of operations.
Privacy
concerns could require us to incur significant expense and
modify our operations in a manner that could result in
restrictions and prohibitions on our use of certain information,
and therefore harm our business.
As part of our business, we make biographical and historical
data available through our Web sites, we use registered
users personal data for internal purposes and we host Web
sites and message boards, among other things, that contain
content supplied by third parties. In addition, in connection
with our Ancestry.com DNA product, we obtain biological DNA
samples used for genetic testing. For privacy or security
reasons, privacy groups, governmental agencies and individuals
may seek to restrict or prevent our use or publication of
certain biological or historical information pertaining to
individuals, particularly living persons. We will also face
additional privacy issues as we expand into other international
markets, as many nations have privacy protections more stringent
than those in the United States. We have incurred, and will
continue to incur, expenses to comply with privacy and security
standards and protocols imposed by law, regulation, industry
standards or contractual obligations. Increased domestic or
international regulation of data utilization and distribution
practices, including self-regulation, could require us to modify
our operations and incur significant expense, which could have
an adverse effect on our business, financial condition and
results of operations.
Our
possession and use of personal information presents risks and
expenses that could harm our business. Unauthorized disclosure
or manipulation of such data, whether through breach of our
network security or otherwise, could expose us to costly
litigation and damage our reputation.
Maintaining our network security is of critical importance
because our online systems store confidential registered user,
employee and other sensitive data, such as names, addresses,
credit card numbers and other personal information. In
particular, a substantial majority of our subscribers use credit
and debit cards to purchase our products and services. If we or
our processing vendors were to have problems with our billing
software, it could have an adverse effect on our subscriber
satisfaction and could cause one or more of the major credit
card companies to disallow our continued use of their payment
services. In addition, if our billing software fails to work
properly and, as a result, we do not automatically charge our
subscribers credit cards on a timely basis or at all, our
business, financial condition and results of operations could be
adversely affected.
In addition, our online systems store the content that our
registered users upload onto our Web sites, such as family
records and photos. This content is often personally meaningful,
and our registered users may rely on our online system to store
digital copies of such content. If we were to lose such content,
if our users private content were to be publicly available
or if third parties were able to access and manipulate such
content, we may face liability and harm to our brand and
reputation.
We and our vendors use commercially available encryption
technology to transmit personal information when taking orders.
We use security and business controls to limit access and use of
personal information, including registered users uploaded
content. However, third parties may be able to circumvent these
security and business measures by developing and deploying
viruses, worms and other malicious software programs that are
designed to attack or attempt to infiltrate our systems and
networks. In addition, employee error, malfeasance or other
errors in the storage, use or transmission of personal
information could result in a breach of registered user or
employee privacy.
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If third parties improperly obtain and use the personal
information of our registered users or employees, we may be
required to expend significant resources to resolve these
problems. A major breach of our network security and systems
could have serious negative consequences for our businesses,
including possible fines, penalties and damages, reduced demand
for our products and services, an unwillingness of subscribers
to provide us with their credit card or payment information, an
unwillingness of registered users to upload family records or
photos onto our Web sites, harm to our reputation and brand and
loss of our ability to accept and process subscriber credit card
orders. Similarly, if a well-publicized breach of data security
at any other major consumer Web site were to occur, there could
be a general public loss of confidence in the use of the
Internet for commercial transactions. Any of these events could
have material adverse effects on our business, financial
condition and results of operations.
Any
claims related to activities of registered users and the content
they upload could result in expenses that could harm our results
of operations and financial condition.
Our registered users often upload their own content onto our Web
sites. The terms of use of such content are set forth in the
terms and conditions of our Web sites and a submission agreement
to which registered users must agree when they upload their
content. Disputes or negative publicity about the use of such
content could make members more reluctant to upload personal
content or harm our reputation. We do not review or monitor
content uploaded by our registered users, and could face claims
arising from or liability for making any such content available
on our Web sites. In addition, our collaboration tools and other
features of our site allow registered users to contact each
other. While registered users can choose to remain anonymous in
such communications, registered users may choose to engage with
one another without anonymity. If any such contact were to lead
to fraud or other harm, we may face claims against us and
negative publicity. Litigation to defend these claims or efforts
to counter any negative publicity could be costly and any other
liabilities we incur in connection with any such claims may harm
our business, financial condition and results of operations.
Increases
in credit card processing fees would increase our operating
expenses and adversely affect our results of operations, and the
termination of our relationship with any major credit card
company would have a severe, negative impact on our ability to
collect revenues from subscribers.
The substantial majority of our subscribers pay for our products
and services using credit cards. From time to time, the major
credit card companies or the issuing banks may increase the fees
that they charge for each transaction using their cards. An
increase in those fees would require us to either increase the
prices we charge for our products and services, or suffer a
negative impact on our profitability, either of which could
adversely affect our business, financial condition and results
of operations.
In addition, our credit card fees may be increased by credit
card companies if our chargeback rate or the refund rate exceeds
certain minimum thresholds. If we are unable to maintain our
chargeback rate at acceptable levels, our credit card fees for
chargeback transactions, or for all credit card transactions,
may be increased, and, if the problem significantly worsens,
credit card companies may further increase our fees or terminate
their relationships with us. Any increases in our credit card
fees could adversely affect our results of operations,
particularly if we elect not to raise our subscription rates to
offset the increase. The termination of our ability to process
payments on any major credit or debit card would significantly
impair our ability to operate our business.
Our
operating results depend on numerous factors and may fluctuate
from period to period, which could make them difficult to
predict.
Our quarterly and annual operating results are tied to certain
financial and operational metrics that have fluctuated in the
past and may fluctuate significantly in the future. As a result,
you should not rely upon our past operating results as
indicators of future performance. Our operating results depend
on numerous factors, many of which are outside of our control.
In addition to the other risks described in this Risk
Factors section, the following risks could cause our
operating results to fluctuate:
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our ability to retain existing subscribers and attract new
subscribers;
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the mix of annual and monthly subscribers at any given time and
the mix of packages to which they subscribe;
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the success and timing of television programming relating to
family history and its impact on our market and our marketing
expenditures;
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timing and amount of costs of new and existing marketing and
advertising efforts;
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timing and amount of operating costs and capital expenditures
relating to expansion of our business, operations and
infrastructure, including content acquisition and international
expansion costs;
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the cost and timing of the development and introduction of new
product and service offerings by us or our competitors;
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downward pressure on the pricing of our subscriptions;
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system failures, security breaches or Web site downtime;
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fluctuations in the usage of our Web sites; and
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fluctuations in foreign currency exchange rates.
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For these or other reasons, the results of any prior quarterly
or annual periods should not be relied upon as indications of
our future performance and our revenue and operating results in
the future may differ materially from the expectations of
management or investors.
If
government regulation of the internet or other areas of our
business changes or if consumer attitudes toward use of the
internet change, we may need to change the manner in which we
conduct our business in a manner that is less profitable or
incur greater operating expenses, which could harm our results
of operations.
The adoption, modification or interpretation of laws or
regulations relating to the Internet or other areas of our
business could adversely affect the manner in which we conduct
our business or the overall popularity or growth in use of the
Internet. Such laws and regulations may cover automatic
subscription renewal, credit card processing procedures, sales
and other procedures, tariffs, user privacy, data protection,
pricing, content, copyrights, distribution, electronic
contracts, consumer protection, broadband residential Internet
access and the characteristics and quality of services. In
foreign countries, such as countries in Europe, such laws may be
more restrictive than in the United States. It is not clear how
existing laws governing issues such as property ownership, sales
and other taxes, libel and personal privacy apply to the
Internet. If we are required to comply with new regulations or
legislation or new interpretations of existing regulations or
legislation, this compliance could cause us to incur additional
expenses, make it more difficult to renew subscriptions
automatically, make it more difficult to attract new subscribers
or otherwise alter our business model. Any of these outcomes
could have a material adverse effect on our business, financial
condition or results of operations.
Our
revenues may be adversely affected if we are required to charge
sales taxes in additional jurisdictions and/or other taxes for
our products and services.
We collect or have imposed upon us sales or other taxes related
to the products and services we sell in certain states and other
jurisdictions. Additional states or one or more countries or
other jurisdictions may seek to impose sales or other tax
collection obligations on us in the future, or states or
jurisdictions in which we already pay tax may increase the
amount of taxes we are required to pay. A successful assertion
by any country, state or other jurisdiction in which we do
business that we should be collecting sales or other taxes on
the sale of our products and services could, among other things,
create significant administrative burdens for us, result in
substantial tax liabilities for past sales, discourage
registered users from purchasing from us or otherwise
substantially harm our business and results of operations.
Our
new credit facility contains a number of financial and operating
covenants which could limit our flexibility in operating our
business.
Our new credit facility contains a number of financial and
operating covenants that could limit our flexibility in
operating our business, including a covenant to maintain a
specified ratio of a measure of certain indebtedness to a
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measure of EBITDA (as EBITDA is defined in the new credit
facility) and a covenant to maintain a specified ratio of a
measure of EBITDA to a measure of fixed charges.
To date, we have not drawn any funds under the new credit
facility. Our future indebtedness could:
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make us more vulnerable to unfavorable economic conditions;
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make it more difficult to obtain additional financing in the
future for working capital, capital expenditures or other
general corporate purposes;
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limit our flexibility in planning for, or reacting to, changes
in our business and the markets in which we operate;
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require us to dedicate or reserve a large portion of our cash
flow from operations for making payments on our indebtedness,
which would prevent us from using it for other purposes;
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make us susceptible to fluctuations in market interest rates
that affect the cost of our borrowings to the extent that our
variable rate debt is not covered by interest rate derivative
agreements; and
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make it more difficult to pursue strategic acquisitions,
alliances and collaborations.
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Our obligations under the new credit facility are secured by
collateral, which includes substantially all of our assets,
including our intellectual property. If we draw funds under the
new credit facility and we are not able to satisfy our
obligations under the new credit facility, the creditors could
exercise their rights under the new credit facility, including
taking control of the collateral, including our intellectual
property, which would have a material adverse effect on our
business. In addition, we cannot assure you that our lenders
will have sufficient liquidity to forward funds to us if and
when we try to draw funds under the new credit facility.
We
face risk associated with currency exchange rate fluctuations,
which could adversely affect our operating
results.
For the nine month period ended September 30, 2010,
approximately 21% of our total revenues were received, and
approximately 8% of our total expenses were paid, in currencies
other than the United States dollar, such as the British pound
sterling, the Canadian dollar and the Australian dollar. As a
result, we are at risk for exchange rate fluctuations between
such foreign currencies and the United States dollar, which
could affect our results of operations. We attempt to limit our
exposure by paying our operating expenses incurred in foreign
jurisdictions with revenues received in the applicable currency,
but if we do not have enough local currency to pay all our
expenses in that currency, we are exposed to currency exchange
rate risk with respect to those expenses. We are also exposed to
exchange rate risk with respect to our profits earned in foreign
currency. Even if we were to implement hedging strategies to
mitigate foreign currency risk, these strategies might not
eliminate our exposure to foreign exchange rate fluctuations and
would involve costs and risks of their own, such as ongoing
management time and expertise, external costs to implement the
strategies and potential accounting implications.
Our
business may be significantly impacted by a change in the
economy, including any resulting effect on consumer
spending.
Our business may be affected by changes in the economy
generally, including any resulting effect on consumer spending
specifically. Our products and services are discretionary
purchases, and consumers may reduce their discretionary spending
on our products and services during an economic downturn such as
the recent economic downturn. Although we have not experienced a
material increase in subscription cancellations or a material
reduction in subscription renewals, we may yet experience such
an increase or reduction in the future, especially if employment
and personal income do not improve. Conversely, consumers may
spend more time using the Internet during an economic downturn
and may have less time for our products and services in a period
of economic growth. In addition, media prices may increase in a
period of economic growth, which could significantly increase
our marketing and advertising expenses. As a result, our
business, financial condition and results of operations may be
significantly affected by changes in the economy generally.
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The
loss of one or more of our key personnel could harm our
business.
We depend on the continued service and performance of our key
personnel, including Timothy Sullivan, our President and Chief
Executive Officer. We do not maintain key man insurance on any
of our officers or key employees. We also do not have long-term
employment agreements with any of our officers or key employees.
In addition, much of our key technology and systems are
custom-made for our business by our personnel. The loss of key
personnel, including key members of our management team, as well
as certain of our key marketing, product development or
technology personnel could disrupt our operations and have an
adverse effect on our ability to grow our business.
We are
subject to additional regulatory compliance matters as a result
of becoming a public company, which compliance includes
Section 404 of the Sarbanes-Oxley Act of 2002, and our
management has limited experience managing a public company.
Failure to comply with these regulatory matters could harm our
business.
In November 2009, we became a public company and have incurred
and will continue to incur significant legal, accounting and
other expenses that we did not incur as a private company. Our
management team and other personnel are devoting a substantial
amount of time to new compliance initiatives and to meeting the
obligations that are associated with being a public company, and
we may not successfully or efficiently manage this transition.
Rules and regulations such as the Sarbanes-Oxley Act of
2002 may continue to increase our legal and finance
compliance costs and make some activities more time-consuming
than in the past. Furthermore, Section 404 of the
Sarbanes-Oxley Act of 2002 requires that our management report
on, and our independent auditors attest to, the effectiveness of
our internal control structure and procedures for financial
reporting in our Annual Report on
Form 10-K
for the fiscal year ending December 31, 2010. We may not be
able to successfully complete the procedures and certification
and attestation requirements of Section 404 by the time we
will be required to do so. If we fail to do so, or if in the
future our chief executive officer, chief financial officer or
independent registered public accounting firm determines that
our internal control over financial reporting is not effective,
we could be subject to sanctions or investigations by The Nasdaq
Stock Market, SEC or other regulatory authorities. Furthermore,
investor perceptions of our company may suffer, and this could
cause a decline in the market price of our stock. Furthermore,
whether or not we comply with Section 404, any failure of
our internal controls could have a material adverse effect on
our stated results of operations and harm our reputation. If we
are unable to implement necessary procedures or changes
effectively or efficiently, it could harm our operations,
financial reporting or financial results and could result in an
adverse opinion on internal control over financial reporting
from our independent registered public accounting firm. We
continually seek to identify, assess, monitor, mitigate and
manage risk in our business. As we assess strategic,
operational, financial and legal risks on a regular basis, we
may discover additional risks of which we are not currently
aware, any of which could have a material adverse effect on our
business, financial condition and results of operations. While
we currently have a sufficient number of independent board
members to assign to committees to meet the listing standards of
The Nasdaq Stock Market, we require these directors to serve on
multiple committees to achieve compliance. Although we plan to
seek additional independent board members, our failure to
attract such individuals could impose undue strain on our
current independent directors.
Our
reported financial results may be adversely affected by changes
in accounting principles applicable to us.
Generally accepted accounting principles in the United States
are subject to interpretation by the FASB, the American
Institute of Certified Public Accountants, the SEC and various
bodies formed to promulgate and interpret appropriate accounting
principles. A change in these principles or interpretations
could have a significant effect on our reported financial
results, and could affect the reporting of transactions
completed before the announcement of a change. In addition, the
SEC has announced a multi-year plan that could ultimately lead
to the use of International Financial Reporting Standards by
United States issuers in their SEC filings. Any such change
could have a significant effect on our reported financial
results.
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Expenses
or liabilities resulting from litigation could adversely affect
our results of operations and financial condition.
From time to time, we may be subject to claims or litigation.
Any such claims or litigation may be time-consuming and costly,
divert management resources, require us to change our products
and services, require us to accept returns of software products,
or have other adverse effects on our business. Any of the
foregoing could have a material adverse effect on our results of
operations and could require us to pay significant monetary
damages. For example, in August 2009, we received a letter from
Shutterfly, Inc., alleging infringement of certain of their
patents by our operation of the MyCanvas.com Web site. While
MyCanvas.com revenues have represented a small percentage of our
total revenue and we do not believe that this claim will be
resolved in a manner that would have a material adverse effect
on our business, intellectual property litigation is subject to
inherent uncertainties, and there can be no assurance that the
expenses associated with defending any litigation or the
resolution of this dispute would not have a material adverse
impact on our results of operations or cash flows. We cannot
assure you of the ultimate outcome of any legal proceeding or
contingency in which we are or may become involved. See
Business Legal Proceedings.
Risks
Related to Intellectual Property
If our
intellectual property and technologies are not adequately
protected to prevent use or appropriation by our competitors,
the value of our brand and other intangible assets may be
diminished, and our business may be adversely
affected.
Our future success and competitive position depend in part on
our ability to protect our proprietary technologies and
intellectual property. We rely and expect to continue to rely on
a combination of confidentiality and license agreements with our
employees, consultants and third parties with whom we have
relationships, as well as trademark, copyright, patent and trade
secret protection laws, to protect our proprietary technologies
and intellectual property. In the United States, we currently
have several patents issued, and we have a number of patents
pending relating to digitization, indexing, storage,
correlation, search and display of content. Ancestry.com,
myfamily.com and Family Tree Maker are among our registered
trademarks. In addition, in the United States, we have filed
various trademark applications for each of our products and
services and for aspects of our technologies, and we have also
filed numerous trademark applications in certain foreign
countries for the Ancestry, Ancestry.com, and Mundia trademarks,
many of which have proceeded to registration. Many of our
trademarks contain words or terms having a somewhat common usage
and, as a result, we may have difficulty registering them in
certain jurisdictions. We also possess intellectual property
rights in aspects of our digital content, search technology,
software products and digitization and indexing processes.
However, our digital content is not protected by any registered
copyrights or other registered intellectual property or
statutory rights. Rather, our digital content is protected by
user agreements that limit access to and use of our data, and by
our proprietary indexing and search technology that we apply to
make our digital content searchable. Compliance with use
restrictions is difficult to monitor, and our proprietary rights
in our digital content databases may be more difficult to
enforce than other forms of intellectual property rights.
There can be no assurance that the steps we take will be
adequate to protect our technologies and intellectual property,
that our patent and trademark applications will lead to issued
patents and registered trademarks in all instances, that others
will not develop or patent similar or superior technologies,
products or services, or that our patents, trademarks and other
intellectual property will not be challenged, invalidated or
circumvented by others. Furthermore, the intellectual property
laws of other countries at which our Web sites are or may be in
the future be directed may not protect our products and
intellectual property rights to the same extent as the laws of
the United States. The legal standards relating to the validity,
enforceability and scope of protection of intellectual property
rights in Internet-related industries are uncertain and still
evolving, both in the United States and in other countries. In
addition, third parties may knowingly or unknowingly infringe
our patents, trademarks and other intellectual property rights,
and litigation may be necessary to protect and enforce our
intellectual property rights. Any such litigation could be very
costly and could divert management attention and resources. If
the protection of our technologies and intellectual property is
inadequate to prevent use or appropriation by third parties, the
value of our brand and other intangible assets may be diminished
and competitors may be able to more effectively mimic our
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subscription services and methods of operations. Any of these
events would have a material adverse effect on our business,
financial condition and results of operations.
We also expect that the more successful we are, the more likely
it will become that competitors will try to develop products
that are similar to ours, which may infringe on our proprietary
rights. It may also be more likely that competitors will claim
that our products and services infringe on their proprietary
rights. If we are unable to protect our proprietary rights or if
third parties independently develop or gain access to our or
similar technologies, our business, revenue, reputation and
competitive position could be harmed.
Confidentiality
agreements with employees and others may not adequately prevent
disclosure of trade secrets and other proprietary information.
Failure to protect our proprietary information could make it
easier for third parties to compete with our products and harm
our business.
A substantial amount of our tools and technologies are protected
by trade secret laws. In order to protect our proprietary
technologies and processes, we rely in part on security
measures, as well as confidentiality agreements with our
employees, licensees, independent contractors and other
advisors. These measures and agreements may not effectively
prevent disclosure of confidential information, including trade
secrets, and may not provide an adequate remedy in the event of
unauthorized disclosure of confidential information. We could
potentially lose future trade secret protection if any
unauthorized disclosure of such information occurs. In addition,
others may independently discover our trade secrets and
proprietary information, and in such cases we could not assert
any trade secret rights against such parties. Laws regarding
trade secret rights in certain markets in which we operate may
afford little or no protection to our trade secrets. The loss of
trade secret protection could make it easier for third parties
to compete with our products by copying functionality. In
addition, any changes in, or unexpected interpretations of, the
trade secret and other intellectual property laws in any country
in which we operate may compromise our ability to enforce our
trade secret and intellectual property rights. Costly and
time-consuming litigation could be necessary to enforce and
determine the scope of our proprietary rights, and failure to
obtain or maintain trade secret protection could adversely
affect our business, revenue, reputation and competitive
position.
Intellectual
property claims against us could be costly and result in the
loss of significant rights related to, among other things, our
Web sites, content indexes, and marketing and advertising
activities.
Trademark, copyright, patent and other intellectual property
rights are important to us and other companies. Our intellectual
property rights extend to our technologies, business processes
and the content on our Web sites. We use intellectual property
licensed from third parties in merchandising our products and
marketing and advertising our services. From time to time, third
parties may allege that we have violated their intellectual
property rights. See Business Legal
Proceedings. If there is a claim against us for
infringement, misappropriation, misuse or other violation of
third party intellectual property rights, and we are unable to
obtain sufficient rights or develop non-infringing intellectual
property or otherwise alter our business practices on a timely
basis, our business and competitive position may be adversely
affected. Many companies are devoting significant resources to
obtaining patents that could potentially affect many aspects of
our business. There are numerous patents that broadly claim
means and methods of conducting business on the Internet. We
have not exhaustively searched patents relevant to our
technologies and business. If we are forced to defend ourselves
against intellectual property infringement claims, whether they
are with or without merit or are determined in our favor, we may
face costly litigation, diversion of technical and management
personnel, limitations on our ability to use our current Web
sites or inability to market or provide our products or
services. As a result of any such dispute, we may have to
develop non-infringing technology, pay damages, enter into
royalty or licensing agreements, cease providing certain
products or services, adjust our merchandizing or marketing and
advertising activities or take other actions to resolve the
claims. These actions, if required, may be costly or unavailable
on terms acceptable to us. In addition, many of our co-branding,
distribution and other partnering agreements require us to
indemnify our partners for third-party intellectual property
infringement claims, which could increase the cost to us of an
adverse ruling in such an action.
In addition, as a publisher of online content, we face potential
liability for negligence, copyright, patent or trademark
infringement or other claims based on the nature and content of
data and materials that we publish or distribute. These claims
could potentially arise with respect to both company-acquired
content and user-generated
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content. Litigation to defend these claims could be costly and
any other liabilities we incur in connection with the claims may
harm our business, financial condition and results of operations.
If we
are unable to protect our domain names, our reputation and brand
could be affected adversely, which would adversely affect our
subscriber base, and therefore adversely affect our
revenues.
We have registered domain names for Web site destinations that
we use in our business, such as Ancestry.com, Genealogy.com and
myfamily.com. However, if we are unable to maintain our rights
in these domain names, our competitors could capitalize on our
brand recognition by using these domain names for their own
benefit. In addition, our competitors could capitalize on our
brand recognition by using domain names similar to ours. Domain
names similar to ours have been registered in the United States
and elsewhere, and in many countries the top-level domain names
ancestry or genealogy are owned by other
parties. Though we own the ancestry.co.uk domain
name in the United Kingdom, we might not be able to, or may
choose not to, acquire or maintain other country-specific
versions of the ancestry and genealogy
domain names. Further, the relationship between regulations
governing domain names and laws protecting trademarks and
similar proprietary rights varies from jurisdiction to
jurisdiction and is unclear in some jurisdictions. We may be
unable to prevent third parties from acquiring and using domain
names that infringe on, are similar to, or otherwise decrease
the value of, our brand or our trademarks or service marks.
Protecting and enforcing our rights in our domain names and
determining the rights of others may require litigation, which
could result in substantial costs and divert management
attention. We may not prevail if any such litigation is
initiated.
Delaware
law and our corporate charter and bylaws contain anti-takeover
provisions that could delay or discourage takeover attempts that
stockholders may consider favorable.
Provisions in our certificate of incorporation and bylaws may
have the effect of delaying or preventing a change of control or
changes in our management. For example, our board of directors
has the authority to issue up to five million shares of
preferred stock in one or more series and to fix the powers,
preferences and rights of each series without stockholder
approval. The ability to issue preferred stock could discourage
unsolicited acquisition proposals or make it more difficult for
a third party to gain control of our company, or otherwise could
adversely affect the market price of our common stock. Our
certificate of incorporation requires that any action to be
taken by stockholders must be taken at a duly called meeting of
stockholders, which may only be called by our board of
directors, the chairperson of our board of directors or the
chief executive officer, with the concurrence of a majority of
our board of directors, and may not be taken by written consent.
Our bylaws also require that any stockholder proposals or
nominations for election to our board of directors meet specific
advance notice requirements and procedures, which make it more
difficult for our stockholders to make proposals or director
nominations. In addition, we have a classified board of
directors with three-year staggered terms, which could delay the
ability of stockholders to change membership of a majority of
our board of directors.
Furthermore, because we are incorporated in Delaware, we are
governed by the provisions of Section 203 of the Delaware
General Corporation Law. These provisions may prohibit or
restrict large stockholders, in particular those owning 15% or
more of our outstanding voting stock, from merging or combining
with us. These provisions in our certificate of incorporation
and bylaws and under Delaware law could discourage potential
takeover attempts and could reduce the price that investors
might be willing to pay for shares of our common stock in the
future and result in our market price being lower than it would
without these provisions.
Risks
Related to this Offering and our Common Stock
Our
share price may be volatile, and you may be unable to sell your
shares at or above the offering price, due to fluctuations in
our operating results and other factors, each of which could
cause our stock price to decline.
The market price of shares of our common stock could be subject
to wide fluctuations in response to many risks listed herein and
others beyond our control, including:
|
|
|
|
|
actual or anticipated fluctuations in our key operating metrics,
financial condition and operating results;
|
31
|
|
|
|
|
a greater than expected gain or loss of existing subscribers;
|
|
|
|
a change in one or more of our key metrics;
|
|
|
|
actual or anticipated changes in our growth rate;
|
|
|
|
issuance of new or updated research or reports by securities
analysts;
|
|
|
|
our announcement of actual results for a fiscal period that are
higher or lower than projected or expected results or our
announcement of revenue or earnings guidance that is higher or
lower than expected;
|
|
|
|
fluctuations in the valuation of companies perceived by
investors to be comparable to us;
|
|
|
|
share price and volume fluctuations attributable to inconsistent
trading volume levels of our shares;
|
|
|
|
sales or expected sales of additional common stock;
|
|
|
|
announcements from, or operating results of, our
competitors; or
|
|
|
|
general economic and market conditions.
|
Furthermore, during the last few years, the stock markets have
experienced extreme price and volume fluctuations and the market
prices of some equity securities continue to be volatile. These
fluctuations often have been unrelated or disproportionate to
the operating performance of these companies. These broad market
and industry fluctuations, as well as general economic,
political and market conditions such as recessions, interest
rate changes or international currency fluctuations, may cause
the market price of shares of our common stock to decline. If
the market price of shares of our common stock after this
offering does not exceed the offering price, you may not realize
any return on your investment in us and may lose some or all of
your investment. In the past, companies that have experienced
volatility in the market price of their stock have been subject
to securities class action litigation. We may be the target of
this type of litigation in the future. Securities litigation
against us could result in substantial costs and divert our
managements attention from other business concerns, which
could seriously harm our business.
Our
stock price may be affected by coverage by securities
analysts.
The trading of our common stock is influenced by the reports and
research that industry or securities analysts publish about us
or our business. If analysts stop covering us, or if too few
analysts cover us, the trading price of our stock would likely
decrease. If one or more of the analysts who cover us downgrade
our stock, our stock price will likely decline. If one or more
of these analysts cease coverage of our company or fail to
regularly publish reports on us, we could lose visibility in the
financial markets, which in turn could cause our stock price or
trading volume to decline.
Our
principal stockholder and its affiliates own a substantial
portion of our outstanding common stock, and their interests may
not always coincide with the interests of the other holders of
our common stock.
As of September 30, 2010, Spectrum Equity Investors V,
L.P. and certain of its affiliates beneficially owned in the
aggregate shares representing approximately 52% of our
outstanding voting power. Two persons associated with Spectrum
Equity Investors V, L.P. currently serve on our board of
directors. After this offering and after giving effect to our
repurchase
of
shares of our common stock from the selling stockholders,
Spectrum Equity Investors V, L.P. and certain of its
affiliates will beneficially own in the aggregate shares
representing approximately % of our
outstanding voting power, or
approximately %, if the
underwriters exercise their over-allotment option in full. As a
result, Spectrum Equity Investors V, L.P. and certain of
its affiliates could potentially have significant influence over
all matters presented to our stockholders for approval,
including election and removal of our directors and change of
control transactions. The interests of Spectrum Equity
Investors V, L.P. and certain of its affiliates may not
always coincide with the interests of the other holders of our
common stock.
32
We do
not currently intend to pay dividends on our common stock and,
consequently, your ability to achieve a return on your
investment will depend on appreciation in the price of our
common stock.
We have never declared or paid any cash dividends on our common
stock and do not intend to do so for the foreseeable future. We
currently intend to invest our future earnings, if any, to
finance our growth or share repurchases (including as described
in Managements Discussion and Analysis of Financial
Condition and Results of Operations Share Repurchase
Program). In addition, the provisions of our credit
facility prohibit us from paying cash dividends. Therefore, you
are not likely to receive any dividends on your common stock for
the foreseeable future and the success of an investment in
shares of our common stock will depend upon any future
appreciation in their value. There is no guarantee that shares
of our common stock will appreciate in value or even maintain
the price at which our stockholders have purchased their shares.
Substantial
sales of our common stock by our stockholders, including sales
pursuant to 10b5-1 plans, could depress our stock price
regardless of our operating results.
Sales of substantial amounts of our common stock in the public
market, or the perception that these sales could occur, could
reduce the prevailing market prices for our common stock. On
November 10, 2009 we completed our initial public offering
of approximately 7.4 million shares of common stock on The
Nasdaq Global Select Market. As of September 30, 2010, we
had approximately 44.4 million shares of common stock
outstanding along with vested and exercisable options to
purchase approximately 5.7 million shares of common stock.
Substantially all of our outstanding common stock is eligible
for sale, subject to Rule 144 volume limitations for
holders affected by such limitations, as is common stock
issuable under vested and exercisable stock options. If our
existing stockholders sell a large number of shares of our
common stock or the public market perceives that existing
stockholders might sell shares of common stock, including sales
pursuant to
Rule 10b5-1
plans, the market price of our common stock could decline
significantly. These sales might also make it more difficult for
us to sell equity securities at a time and price that we deem
appropriate.
33
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled
Prospectus Summary, Risk Factors,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and
Business, and the documents incorporated by
reference into the registration statement of which this
prospectus is a part contain forward-looking statements relating
to future events and future performance. All statements other
than those that are purely historical may be forward-looking
statements. We may, in some cases, use words such as
project, believe,
anticipate, continue, plan,
expect, estimate, intend,
should, would, could,
potentially, will or may, or
other words that convey uncertainty of future events or outcomes
to identify these forward-looking statements. Forward-looking
statements in this prospectus include statements about:
|
|
|
|
|
our future financial performance, including our revenues, cost
of revenues, operating expenses and ability to sustain
profitability;
|
|
|
|
our rate of revenue and expense growth;
|
|
|
|
the pool of our potential subscribers;
|
|
|
|
our ability to attract and retain subscribers;
|
|
|
|
our ability to manage growth;
|
|
|
|
our ability to generate additional revenues on a cost-effective
basis;
|
|
|
|
our ability to acquire content and make it available online;
|
|
|
|
our ability to enhance the subscribers experience and
provide value;
|
|
|
|
our success with respect to any future or recent acquisitions;
|
|
|
|
our international expansion plans;
|
|
|
|
our ability to adequately manage costs and control margins and
trends;
|
|
|
|
our investments in technology and the success of our promotional
programs and new products;
|
|
|
|
our development of brand awareness;
|
|
|
|
our ability to retain and hire necessary employees;
|
|
|
|
our competitive position;
|
|
|
|
our liquidity and working capital requirements and the
availability of cash and credit;
|
|
|
|
the seasonality of our business;
|
|
|
|
the impact of external market forces; and
|
|
|
|
the impact of claims or litigation.
|
Although we believe that the assumptions underlying the
forward-looking statements are reasonable, we cannot guarantee
future results, level of activity, performance or achievements.
There are a number of important factors that could cause actual
results to differ materially from the results anticipated by
these forward-looking statements, which statements speak only as
of the date of this prospectus. These important factors include
those that we discuss in this prospectus under the caption
Risk Factors and elsewhere. You should read these
factors and the other cautionary statements made in this
prospectus as being applicable to all related forward-looking
statements wherever they appear in this prospectus. If one or
more of these factors materialize, or if any underlying
assumptions prove incorrect, our actual results, performance or
achievements may vary materially from any future results,
performance or achievements expressed or implied by these
forward-looking statements. All subsequent written or spoken
forward- looking statements attributable to our company or
persons acting on our behalf are expressly qualified in their
entirety by these cautionary statements. The forward-looking
statements included in this prospectus are made only as of the
date of this prospectus, and we undertake no obligation to
publicly update any forward-looking statements, whether as a
result of new information, future events or otherwise, except as
required by law.
34
USE OF
PROCEEDS
The selling stockholders are selling all of the shares of common
stock being sold in the offering, including any shares sold upon
exercise of the underwriters overallotment option.
Accordingly, we will not receive any proceeds from the sale of
shares of our common stock by the selling stockholders in the
offering.
PRICE
RANGE OF COMMON STOCK
Our common stock has traded on The Nasdaq Global Select Market
under the symbol ACOM since it began trading on November 5,
2009. Our initial public offering was priced at $13.50 per share
on November 4, 2009.
The following table sets forth, for the periods indicated, the
high and low sales prices per share of our common stock as
reported on The Nasdaq Global Select Market.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year 2009
|
|
|
|
|
|
|
|
|
Fourth quarter (November 5, 2009
December 31, 2009)
|
|
$
|
16.32
|
|
|
$
|
12.80
|
|
Fiscal Year 2010
|
|
|
|
|
|
|
|
|
First quarter (January 1, 2010 March 31,
2010)
|
|
$
|
19.10
|
|
|
$
|
13.35
|
|
Second quarter (April 1, 2010 June 30,
2010)
|
|
$
|
20.92
|
|
|
$
|
15.23
|
|
Third quarter (July 1, 2010 September 30,
2010)
|
|
$
|
23.58
|
|
|
$
|
16.95
|
|
Fourth quarter (October 1, 2010
November 5, 2010)
|
|
$
|
28.36
|
|
|
$
|
22.22
|
|
On November 5, 2010, the closing price per share of our
common stock on The Nasdaq Global Select Market was $26.56. As
of November 5, 2010, there were approximately 46
stockholders of record of our common stock.
DIVIDEND
POLICY
We have never declared or paid any cash dividends on our capital
stock. Our credit facility prohibits us from paying cash
dividends. We currently expect to retain future earnings to
finance the growth and development of our business or share
repurchases and do not anticipate paying any cash dividends in
the foreseeable future. Any determination to pay dividends in
the future will be at the discretion of our board of directors
and will be dependent on then-existing conditions.
35
SELECTED
CONSOLIDATED FINANCIAL DATA
The tables on the following pages set forth the consolidated
financial and operating data as of and for the periods
indicated. The consolidated statements of operations data
presented below for the years ended December 31, 2005 and
2006 and the balance sheet data as of December 31, 2005,
2006 and 2007 have been derived from our consolidated financial
statements, which have been audited by Ernst & Young
LLP, an independent registered public accounting firm, and which
are not included in this prospectus. The consolidated statements
of operations data presented below for the predecessor period
from January 1, 2007 through December 5, 2007, the
successor period from December 6, 2007 through
December 31, 2007 and the years ended December 31,
2008 and 2009, and the balance sheet data as of
December 31, 2008 and 2009 have been derived from our
consolidated financial statements, which have been audited by
Ernst & Young LLP and which are included in this
prospectus. The consolidated statements of operations data for
the nine month periods ended September 30, 2009 and 2010
and the balance sheet data at September 30, 2010 are
derived from our unaudited interim consolidated financial
statements and include all adjustments, consisting of normal and
recurring adjustments that we consider necessary for a fair
presentation of the financial position and results of operations
as of and for such periods. Operating results for the nine
months ended September 30, 2010 are not necessarily
indicative of the results that may be expected for the full 2010
fiscal year. See Risk Factors and the notes to our
consolidated financial statements. You should read the
consolidated financial data presented on the following pages in
conjunction with our consolidated financial statements, the
notes to our consolidated financial statements and
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan. 1, 2007
|
|
|
|
Dec. 6, 2007
|
|
|
Year
|
|
|
Year
|
|
|
Nine Months Ended
|
|
|
|
Year Ended Dec. 31,
|
|
|
through
|
|
|
|
through
|
|
|
Ended
|
|
|
Ended
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
Dec. 5, 2007
|
|
|
|
Dec. 31, 2007
|
|
|
Dec. 31, 2008
|
|
|
Dec. 31, 2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription revenues
|
|
$
|
126,031
|
|
|
$
|
137,643
|
|
|
$
|
141,141
|
|
|
|
$
|
11,692
|
|
|
$
|
181,391
|
|
|
$
|
207,707
|
|
|
$
|
152,506
|
|
|
$
|
204,343
|
|
Product and other revenues
|
|
|
14,228
|
|
|
|
12,909
|
|
|
|
12,269
|
|
|
|
|
1,278
|
|
|
|
16,200
|
|
|
|
17,195
|
|
|
|
12,287
|
|
|
|
13,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
140,259
|
|
|
|
150,552
|
|
|
|
153,410
|
|
|
|
|
12,970
|
|
|
|
197,591
|
|
|
|
224,902
|
|
|
|
164,793
|
|
|
|
218,196
|
|
Costs of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription revenues
|
|
|
25,205
|
|
|
|
27,344
|
|
|
|
33,590
|
|
|
|
|
2,462
|
|
|
|
38,187
|
|
|
|
40,183
|
|
|
|
29,755
|
|
|
|
33,996
|
|
Cost of product and other revenues
|
|
|
3,367
|
|
|
|
3,695
|
|
|
|
2,552
|
|
|
|
|
500
|
|
|
|
5,427
|
|
|
|
6,140
|
|
|
|
4,213
|
|
|
|
3,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
28,572
|
|
|
|
31,039
|
|
|
|
36,142
|
|
|
|
|
2,962
|
|
|
|
43,614
|
|
|
|
46,323
|
|
|
|
33,968
|
|
|
|
37,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
111,687
|
|
|
|
119,513
|
|
|
|
117,268
|
|
|
|
|
10,008
|
|
|
|
153,977
|
|
|
|
178,579
|
|
|
|
130,825
|
|
|
|
180,271
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and development
|
|
|
20,600
|
|
|
|
28,280
|
|
|
|
31,255
|
|
|
|
|
3,517
|
|
|
|
33,206
|
|
|
|
36,236
|
|
|
|
26,690
|
|
|
|
30,447
|
|
Marketing and advertising
|
|
|
60,821
|
|
|
|
51,421
|
|
|
|
42,400
|
|
|
|
|
3,157
|
|
|
|
52,341
|
|
|
|
61,625
|
|
|
|
44,226
|
|
|
|
71,061
|
|
General and administrative
|
|
|
16,608
|
|
|
|
26,978
|
|
|
|
20,723
|
|
|
|
|
2,142
|
|
|
|
28,931
|
|
|
|
32,540
|
|
|
|
24,569
|
|
|
|
24,915
|
|
Amortization of acquired intangible assets
|
|
|
1,166
|
|
|
|
2,216
|
|
|
|
2,132
|
|
|
|
|
1,542
|
|
|
|
23,779
|
|
|
|
16,217
|
|
|
|
12,165
|
|
|
|
11,149
|
|
Transaction related expenses
|
|
|
|
|
|
|
|
|
|
|
9,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of intangibles
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
99,505
|
|
|
|
108,895
|
|
|
|
106,040
|
|
|
|
|
10,358
|
|
|
|
138,257
|
|
|
|
146,618
|
|
|
|
107,650
|
|
|
|
137,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
12,182
|
|
|
|
10,618
|
|
|
|
11,228
|
|
|
|
|
(350
|
)
|
|
|
15,720
|
|
|
|
31,961
|
|
|
|
23,175
|
|
|
|
42,699
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,357
|
)
|
|
|
(946
|
)
|
|
|
(756
|
)
|
|
|
|
(1,146
|
)
|
|
|
(12,355
|
)
|
|
|
(6,139
|
)
|
|
|
(4,784
|
)
|
|
|
(4,896
|
)
|
Interest income
|
|
|
1,146
|
|
|
|
2,238
|
|
|
|
2,051
|
|
|
|
|
289
|
|
|
|
872
|
|
|
|
792
|
|
|
|
746
|
|
|
|
340
|
|
Other income (expense), net
|
|
|
1,259
|
|
|
|
834
|
|
|
|
266
|
|
|
|
|
7
|
|
|
|
(8
|
)
|
|
|
21
|
|
|
|
14
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
13,230
|
|
|
|
12,744
|
|
|
|
12,789
|
|
|
|
|
(1,200
|
)
|
|
|
4,229
|
|
|
|
26,635
|
|
|
|
19,151
|
|
|
|
38,541
|
|
Income tax (expense)
|
|
|
(5,086
|
)
|
|
|
(4,595
|
)
|
|
|
(5,018
|
)
|
|
|
|
(103
|
)
|
|
|
(1,845
|
)
|
|
|
(5,340
|
)
|
|
|
(6,927
|
)
|
|
|
(14,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
8,144
|
|
|
$
|
8,149
|
|
|
$
|
7,771
|
|
|
|
$
|
(1,303
|
)
|
|
$
|
2,384
|
|
|
$
|
21,295
|
|
|
$
|
12,224
|
|
|
$
|
24,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.06
|
|
|
$
|
0.55
|
|
|
$
|
0.32
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.06
|
|
|
$
|
0.51
|
|
|
$
|
0.30
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In connection with the Spectrum
investment, we were recapitalized. As a result, the capital
structure of our predecessor is not comparable to that of the
successor. Accordingly, net income per common share is not
comparable or meaningful for periods prior to 2008 and has not
been presented.
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
Year
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan. 1, 2007
|
|
|
|
Dec. 6, 2007
|
|
|
Ended
|
|
|
Ended
|
|
|
Nine Months Ended
|
|
|
|
Year Ended Dec. 31,
|
|
|
through
|
|
|
|
through
|
|
|
Dec. 31,
|
|
|
Dec. 31,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
Dec. 5, 2007
|
|
|
|
Dec. 31, 2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
23,513
|
|
|
$
|
30,455
|
|
|
$
|
39,344
|
|
|
|
$
|
3,755
|
|
|
$
|
62,645
|
|
|
$
|
71,585
|
(1)
|
|
$
|
52,878
|
(1)
|
|
$
|
71,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
|
(3,586
|
)
|
|
|
4,212
|
|
|
|
14,025
|
|
|
|
|
1,774
|
|
|
|
31,712
|
|
|
|
29,613
|
(1)
|
|
|
23,848
|
(1)
|
|
|
46,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription revenues
|
|
$
|
(9
|
)
|
|
$
|
31
|
|
|
$
|
73
|
|
|
|
$
|
3
|
|
|
$
|
80
|
|
|
$
|
96
|
|
|
$
|
78
|
|
|
$
|
134
|
|
Technology and development
|
|
|
(1,082
|
)
|
|
|
224
|
|
|
|
260
|
|
|
|
|
23
|
|
|
|
1,132
|
|
|
|
1,631
|
|
|
|
1,223
|
|
|
|
1,437
|
|
Marketing and advertising
|
|
|
(176
|
)
|
|
|
196
|
|
|
|
279
|
|
|
|
|
27
|
|
|
|
254
|
|
|
|
370
|
|
|
|
273
|
|
|
|
390
|
|
General and administrative
|
|
|
(77
|
)
|
|
|
3,338
|
|
|
|
286
|
|
|
|
|
24
|
|
|
|
3,206
|
|
|
|
3,377
|
|
|
|
2,691
|
|
|
|
1,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
(1,344
|
)
|
|
$
|
3,789
|
|
|
$
|
898
|
|
|
|
$
|
77
|
|
|
$
|
4,672
|
|
|
$
|
5,474
|
|
|
$
|
4,265
|
|
|
$
|
3,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Income from operations and net
income, and therefore adjusted EBITDA and free cash flow,
include an expense related to a settlement in the third quarter
of 2009 of a claim regarding the timeliness and accuracy of a
content index we created. The settlement resulted in an expense
of approximately $2.3 million in 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
As of December 31,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
38,113
|
|
|
$
|
43,219
|
|
|
|
$
|
12,277
|
|
|
$
|
40,121
|
|
|
$
|
100,272
|
|
|
$
|
80,089
|
|
Total assets
|
|
|
140,126
|
|
|
|
140,640
|
|
|
|
|
476,212
|
|
|
|
477,975
|
|
|
|
523,348
|
|
|
|
495,928
|
|
Deferred revenues
|
|
|
56,714
|
|
|
|
52,307
|
|
|
|
|
56,730
|
|
|
|
61,178
|
|
|
|
69,711
|
|
|
|
90,583
|
|
Long-term debt (including current portion)
|
|
|
25,000
|
|
|
|
15,000
|
|
|
|
|
140,000
|
|
|
|
133,000
|
|
|
|
100,025
|
|
|
|
|
|
Total liabilities
|
|
|
102,229
|
|
|
|
95,129
|
|
|
|
|
263,830
|
|
|
|
258,187
|
|
|
|
228,458
|
|
|
|
155,432
|
|
Total stockholders equity
|
|
|
37,897
|
|
|
|
45,511
|
|
|
|
|
212,382
|
|
|
|
219,788
|
|
|
|
294,890
|
|
|
|
340,496
|
|
38
The following table presents a reconciliation of adjusted EBITDA
and free cash flow to net income (loss), the most comparable
GAAP measure, for each of the periods identified. For additional
information, please see the discussion of adjusted EBITDA and
free cash flow in Summary Consolidated Historical
Financial Data Definitions of Other Financial
Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
Year
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan. 1, 2007
|
|
|
|
Dec. 6, 2007
|
|
|
Ended
|
|
|
Ended
|
|
|
Nine Months
|
|
|
|
Year Ended Dec. 31,
|
|
|
through
|
|
|
|
through
|
|
|
Dec. 31,
|
|
|
Dec. 31,
|
|
|
Ended September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
Dec. 5, 2007
|
|
|
|
Dec. 31, 2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of adjusted EBITDA and free cash flow to net
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
8,144
|
|
|
$
|
8,149
|
|
|
$
|
7,771
|
|
|
|
$
|
(1,303
|
)
|
|
$
|
2,384
|
|
|
$
|
21,295
|
|
|
$
|
12,224
|
|
|
$
|
24,294
|
|
Interest (income) expense, net
|
|
|
211
|
|
|
|
(1,292
|
)
|
|
|
(1,295
|
)
|
|
|
|
857
|
|
|
|
11,483
|
|
|
|
5,347
|
|
|
|
4,038
|
|
|
|
4,556
|
|
Income tax expense
|
|
|
5,086
|
|
|
|
4,595
|
|
|
|
5,018
|
|
|
|
|
103
|
|
|
|
1,845
|
|
|
|
5,340
|
|
|
|
6,927
|
|
|
|
14,247
|
|
Depreciation expense
|
|
|
7,598
|
|
|
|
9,559
|
|
|
|
10,594
|
|
|
|
|
754
|
|
|
|
10,732
|
|
|
|
10,936
|
|
|
|
8,092
|
|
|
|
8,355
|
|
Amortization expense
|
|
|
4,767
|
|
|
|
6,489
|
|
|
|
7,094
|
|
|
|
|
1,974
|
|
|
|
30,046
|
|
|
|
23,214
|
|
|
|
17,346
|
|
|
|
16,713
|
|
Stock-based compensation
|
|
|
(1,344
|
)
|
|
|
3,789
|
|
|
|
898
|
|
|
|
|
77
|
|
|
|
4,672
|
|
|
|
5,474
|
|
|
|
4,265
|
|
|
|
3,541
|
|
Other (income) expense, net
|
|
|
(1,259
|
)
|
|
|
(834
|
)
|
|
|
(266
|
)
|
|
|
|
(7
|
)
|
|
|
8
|
|
|
|
(21
|
)
|
|
|
(14
|
)
|
|
|
(398
|
)
|
Impairment of intangible assets and acquired in-process research
and development
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
1,300
|
|
|
|
1,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction related expenses
|
|
|
|
|
|
|
|
|
|
|
9,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
23,513
|
|
|
$
|
30,455
|
|
|
$
|
39,344
|
|
|
|
$
|
3,755
|
|
|
$
|
62,645
|
|
|
$
|
71,585
|
|
|
$
|
52,878
|
|
|
$
|
71,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization of content database costs
|
|
$
|
(11,521
|
)
|
|
$
|
(11,285
|
)
|
|
$
|
(10,591
|
)
|
|
|
$
|
(1,129
|
)
|
|
$
|
(8,965
|
)
|
|
$
|
(9,398
|
)
|
|
$
|
(5,855
|
)
|
|
$
|
(8,534
|
)
|
Purchase of property and equipment
|
|
|
(11,873
|
)
|
|
|
(10,127
|
)
|
|
|
(10,572
|
)
|
|
|
|
(852
|
)
|
|
|
(11,621
|
)
|
|
|
(13,362
|
)
|
|
|
(7,566
|
)
|
|
|
(7,897
|
)
|
Cash paid for interest
|
|
|
(1,480
|
)
|
|
|
(1,031
|
)
|
|
|
(756
|
)
|
|
|
|
|
|
|
|
(10,068
|
)
|
|
|
(7,740
|
)
|
|
|
(6,624
|
)
|
|
|
(2,528
|
)
|
Cash paid for income taxes
|
|
|
(2,225
|
)
|
|
|
(3,800
|
)
|
|
|
(3,400
|
)
|
|
|
|
|
|
|
|
(279
|
)
|
|
|
(11,472
|
)
|
|
|
(8,985
|
)
|
|
|
(6,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
(3,586
|
)
|
|
$
|
4,212
|
|
|
$
|
14,025
|
|
|
|
$
|
1,774
|
|
|
$
|
31,712
|
|
|
$
|
29,613
|
|
|
$
|
23,848
|
|
|
$
|
46,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with our
consolidated financial statements and the related notes included
elsewhere in this prospectus. This discussion contains
forward-looking statements about our business and operations.
Our actual results may differ materially from those we currently
anticipate as a result of many factors, including those we
describe under Risk Factors and elsewhere in this
prospectus. See Special Note Regarding Forward Looking
Statements.
Company
Overview
Ancestry.com is the worlds largest online family history
resource, with nearly 1.4 million paying subscribers around
the world as of September 30, 2010. We have been a leader
in the family history market for over 20 years and have
helped pioneer the market for online family history research. We
believe that most people have a fundamental desire to understand
who they are and from where they came, and that anyone
interested in discovering, preserving and sharing their family
history is a potential user of Ancestry.com. We strive to make
our service valuable to individuals ranging from the most
committed family historians to those taking their first steps
towards satisfying their curiosity about their family stories.
The foundation of our service is an extensive and unique
collection of billions of historical records that we have
digitized, indexed and put online over the past 14 years.
Our subscribers use our proprietary online platform, extensive
digital historical record collection, and easy-to-use technology
to research their family histories, build their family trees,
collaborate with other subscribers, upload their own records and
publish and share their stories with their families. We offer
our service on a subscription basis, typically annually or
monthly. These subscribers are our primary source of revenue. We
charge each subscriber for their subscription at the
commencement of their subscription period and at each renewal
date. Although monthly subscribers have become an increasing
proportion of our subscribers, the annual commitments of a
majority of our subscribers enhance managements near-term
visibility on our revenues and provide working capital benefits,
which we believe enable us to more effectively manage the growth
of our business. We provide ongoing value to our subscribers by
regularly adding new historical content, enhancing our Web sites
with new tools and features and enabling greater collaboration
among our users through the growth of our global community.
Our goal is to remain the leading online resource for family
history and to grow our subscriber base in the United States and
around the world by offering a superior value proposition to
anyone interested in learning more about their family history.
We have focused on, and will continue to focus on, retaining our
loyal base of existing subscribers, on acquiring new subscribers
and on expanding the market to new consumers. We believe our
previous investments in technology and content have provided us
a foundation for a scalable business model that will help us to
increase our margins over the long term and effectively manage
our costs as our business grows. However, we expect to continue
to devote substantial resources and funds to improving our
technologies and product offerings, acquiring new and relevant
content and talent, and expanding the awareness of our brand and
category through global marketing, any of which may adversely
affect our margin expansion in the near term.
We operated as The Generations Network, Inc., which we refer to
as the predecessor, until December 5, 2007. On
December 5, 2007, Generations Holding, Inc., which we refer
to as the successor, acquired The Generations Network, Inc. in
connection with an investment by Spectrum Equity
Investors V, L.P. and certain of its affiliates. The
successor was created for the sole purpose of acquiring The
Generations Network, Inc. and had no prior operations. As a
result of that transaction, which we refer to as the Spectrum
investment, Spectrum and certain of its affiliates currently
hold approximately 52% of the outstanding shares of our common
stock. We anticipate that after this offering and after giving
effect to our repurchase of shares from the selling
stockholders, Spectrum will hold
approximately % of our shares of
common stock. As a result of the accounting for the Spectrum
investment, our fiscal year 2007 is divided into a predecessor
period from January 1, 2007 through December 5, 2007
and a successor period from December 6, 2007 through
December 31, 2007.
40
Recent
Developments
Genline
Acquisition
On July 15, 2010, we acquired Genline, owner and operator
of the Swedish family history Web site Genline.se, for
approximately $7.2 million in cash consideration. The
Genline acquisition increased our presence in the Swedish market
and provides our customers with access to millions of Swedish
records. The acquisition of Genline was not material to our
financial position or results of operations.
ProGenealogists
Acquisition
On August 6, 2010, we acquired ProGenealogists for
approximately $1.1 million in cash consideration.
ProGenealogists is a leading professional genealogy research
firm that specializes in genealogical, forensic and family
history research. We believe the acquisition of ProGenealogists
provides us with a premier genealogy research team for internal
projects and gives our customers access to expert genealogists
to assist them in their research. The ProGenealogists
acquisition was not material to our financial position or
results of operations.
New
Credit Facility
On September 9, 2010, we terminated and paid in full the
$76.2 million outstanding under our previous credit
facility from cash on hand including the proceeds from our
initial public offering. Also on September 9, 2010, in
connection with the payoff of the previous credit facility, we
entered into a new three-year $100.0 million principal
amount senior secured revolving credit facility with Bank of
America, N.A., as administrative agent and certain other
financial institutions. The new credit facility includes a
$5.0 million sublimit for the issuance of letters of credit
and a $7.0 million sublimit for swingline loans. As of
November 8, 2010, we have not drawn any funds under the new
credit facility.
Interest under the new credit facility is variable generally
based on LIBOR or the base rate (defined as the highest of
(a) the Federal Funds Rate plus 0.50%, (b) the Bank of
America prime rate and (c) the Eurodollar rate plus 1.00%),
plus a margin based on our consolidated leverage ratio. Each
swingline loan will bear interest at the base rate plus a margin.
The new credit facility matures September 9, 2013 and is
secured by a first-priority security interest in all of the
capital stock of our wholly-owned domestic subsidiaries and 65%
of the capital stock of our material foreign subsidiaries, as
well as our currently owned and hereafter acquired real and
personal property assets, as well as those of our wholly-owned
domestic subsidiaries. Borrowings under the new credit facility
may be used to finance our on-going working capital needs and
those of our subsidiaries and for general corporate purposes,
including permitted business acquisitions and capital
expenditures.
The new credit facility contains financial and other covenants,
including but not limited to, limitations on indebtedness,
liens, mergers, asset sales, dividends and other payments in
respect of equity interests, capital expenditures, investments
and affiliate transactions (subject to qualifications and
baskets) as well as a minimum fixed charge coverage ratio and a
maximum senior secured leverage ratio. A violation of these
covenants or the occurrence of certain other events could result
in a default permitting the termination of the lenders
commitments under the credit facility or the acceleration of any
loan amounts then outstanding. We were in compliance with all
financial and other covenants at September 30, 2010.
Note 6 to our consolidated financial statements describes
further the terms of the new credit facility.
iArchives
Acquisition
On September 22, 2010, we entered into an agreement to
acquire iArchives, a leading digitization service provider that
also operates Footnote.com, a leading American history Web site,
and on October 20, 2010, we completed the acquisition. The
purchase price was approximately $31.6 million, consisting
of the issuance of approximately 1.022 million shares of
our common stock (valued at approximately $24.6 million,
based on the closing price on October 20, 2010) and
approximately $7.0 million of cash consideration.
41
Share
Repurchase Program
On September 23, 2010, we announced a share repurchase
program, under which we may spend up to $25.0 million to
repurchase shares of our common stock, depending on market
conditions, the stock price and other factors. Under this
program, we expect to enter into an agreement with the selling
stockholders, including affiliates of Spectrum Equity Investors
V, L.P., to
repurchase shares
directly from the selling stockholders in a private,
non-underwritten transaction at a price per share equal to the
net proceeds per share the selling stockholders receive in this
offering for an aggregate purchase price of approximately
$25.0 million. The purchase from the selling stockholders
is conditioned on completion of this offering and the
satisfaction of certain other closing conditions. The share
repurchase program is intended in part to offset the issuance of
shares of our common stock as a result of the iArchives
acquisition.
Key
Business Metrics
Our management regularly reviews a number of financial and
operating metrics, including the following key operating metrics
to evaluate our business, determine the allocation of resources,
make decisions regarding corporate strategies and evaluate
forward-looking projections. The following key operating metrics
reflect data with respect to the Ancestry.com Web sites and
exclude our other subscription-based Web sites, such as
myfamily.com, Genline.se, Genealogy.com and Footnote.com.
|
|
|
|
|
Total Subscribers.
A subscriber is an
individual who pays for renewable access to one of our
Ancestry.com Web sites. Total subscribers is defined as the
number of subscribers at the end of the period.
|
|
|
|
Gross Subscriber Additions.
A subscriber
addition is a new customer who purchases a subscription to one
of our Ancestry Web sites, net of any refunds or returns.
|
|
|
|
Monthly Churn.
Monthly churn is a measure
representing the number of subscribers that cancel in the
quarter divided by the sum of beginning subscribers and
subscriber additions during the quarter. To arrive at monthly
churn, we divide the result by three. Management uses this
measure to determine the health of our subscriber base.
|
|
|
|
Subscriber Acquisition Cost.
Subscriber
acquisition cost is external marketing and advertising expense,
divided by gross subscriber additions in the period. Management
uses this metric to determine the efficiency of our marketing
and advertising programs in acquiring new subscribers.
|
|
|
|
Average Monthly Revenue per
Subscriber.
Average monthly revenue per
subscriber is total subscription revenues earned in the period
from subscriptions to one of the Ancestry.com Web sites divided
by the average number of subscribers in the period, divided by
the number of months in the period. The average number of
subscribers for the period is calculated by taking the average
of the beginning and ending number of subscribers for the period.
|
Because we recognize subscription revenues ratably over the
subscription period, a concentration of renewals in the first
half of the year generally has not resulted in a material
seasonal impact on our revenues, but may result in a seasonal
effect on one or more of the key business metrics described
above.
The following represents our performance highlights for the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
|
2007
(1)
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
Total subscribers
|
|
|
832,193
|
|
|
|
913,683
|
|
|
|
1,066,123
|
|
|
|
1,028,180
|
|
|
|
1,376,974
|
|
Gross subscriber additions
|
|
|
479,663
|
|
|
|
556,045
|
|
|
|
673,991
|
|
|
|
508,750
|
|
|
|
821,427
|
|
Monthly churn
|
|
|
3.5
|
%
|
|
|
4.0
|
%
|
|
|
3.8
|
%
|
|
|
3.9
|
%
|
|
|
3.8
|
%
|
Subscriber acquisition cost
|
|
$
|
70.96
|
|
|
$
|
71.99
|
|
|
$
|
72.46
|
|
|
$
|
68.32
|
|
|
$
|
74.84
|
|
Average monthly revenue per subscriber
|
|
$
|
14.83
|
|
|
$
|
16.09
|
|
|
$
|
16.55
|
|
|
$
|
16.50
|
|
|
$
|
17.90
|
|
|
|
|
(1)
|
|
In connection with the Spectrum
investment in December 2007, we were recapitalized. As a result,
amounts used to determine subscriber acquisition cost and
average monthly revenue per subscriber are based on both the
predecessor and successor periods as it is not meaningful to
present these metrics separately for the two periods in 2007.
|
42
Components
of Consolidated Statements of Operations
Revenues
Subscription Revenues.
We derive subscription
revenues primarily from providing access to our services via our
various Ancestry.com Web sites. Subscription revenues are
recognized ratably over the subscription period, which consist
primarily of annual and monthly subscriptions, net of estimated
cancellations. We typically charge each subscribers credit
card for their subscription at the commencement of their
subscription period and at each renewal date (whether annual or
monthly), unless they cancel their subscription before the
renewal date. The amount of unrecognized revenues is recorded in
deferred revenue. We have established an allowance for sales
returns based on historical subscription cancellations. Actual
customer subscription cancellations are charged against the
allowance or deferred revenue to the extent that revenue has not
yet been recognized. When people sign up for trial
subscriptions, we automatically charge their credit card for a
subscription at the end of the trial period unless they cancel
before the end of the trial period. Registered users that accept
the offer of a
14-day
free
trial are not billed for services until after the
14-day
trial
period. Revenue is recognized over the subscription period once
billed. No revenue is recognized or allocated to the
14-day
free
trial period. Subscription revenues from our Ancestry.com Web
sites accounted for 95% of the total subscription revenues for
the year ended December 31, 2009. Subscription revenues
also include subscriptions to our non-Ancestry.com Web sites and
other subscription-based services.
A majority of our subscription revenues is derived from
subscribers in the United States. We attribute subscription
revenues by country based on the billing address of the
subscriber, regardless of the Web site to which the person
subscribes. The following presents subscription revenue by
geographic region (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2007
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
2007 through
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
December 5,
|
|
|
|
December 31,
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
United States
|
|
$
|
106,101
|
|
|
|
$
|
8,633
|
|
|
$
|
134,112
|
|
|
$
|
156,150
|
|
|
$
|
114,968
|
|
|
$
|
154,790
|
|
United Kingdom
|
|
|
27,181
|
|
|
|
|
2,321
|
|
|
|
33,223
|
|
|
|
34,402
|
|
|
|
25,147
|
|
|
|
30,001
|
|
All other countries
|
|
|
7,859
|
|
|
|
|
738
|
|
|
|
14,056
|
|
|
|
17,155
|
|
|
|
12,391
|
|
|
|
19,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscription revenues
|
|
$
|
141,141
|
|
|
|
$
|
11,692
|
|
|
$
|
181,391
|
|
|
$
|
207,707
|
|
|
$
|
152,506
|
|
|
$
|
204,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and Other Revenues.
Product and other
revenues include sales of desktop software (Family Tree Maker),
physical delivery of vital records products (birth, marriage and
death certificates), DNA testing (Ancestry.com DNA), advertising
and other products and services. Revenues related to these
products are recognized upon shipment of product or fulfillment
of services, as applicable.
Cost
of Revenues
Cost of Subscription Revenues.
Cost of
subscription revenues consists of amortization of our database
content costs, depreciation expense on Web servers and
equipment, credit card processing fees, Web hosting costs,
royalty costs on certain content licensed from others and
personnel-related costs for database content support and
subscriber services personnel.
Cost of Product and Other Revenues.
Cost of
product and other revenues consists of our direct costs to
purchase the products, shipping costs, credit card processing
fees, personnel-related costs of warehouse personnel, warehouse
storage costs and royalties on products licensed from others. In
2010, we changed the distribution arrangement for our retail
Family Tree Maker software product to a royalty-based model,
which eliminated our costs of product revenues for retail copies
sold.
43
Personnel-related costs for each category of cost of revenues
and operating expenses include salaries, bonuses, stock-based
compensation, employer payroll taxes and employee benefit costs.
Operating
Expenses
Technology and Development.
Technology and
development expenses consist of personnel-related costs incurred
in product development, maintenance and testing of our Web
sites, enhancing our record search and linking technologies,
developing solutions for new product lines, internal information
systems and infrastructure, third-party development, and other
internal-use software systems. Our development costs are
primarily based in the United States and are primarily devoted
to providing accessibility to content and tools for individuals
to do family history research.
Marketing and Advertising.
Marketing and
advertising expenses consist primarily of direct expenses
related to television and online advertising and
personnel-related expenses.
General and Administrative.
General and
administrative expenses consist principally of personnel-related
expenses for our executive, finance, legal, human resources and
other administrative personnel, as well as outside services
costs, consisting primarily of consultant, legal, and accounting
fees, and other general corporate expenses. In addition, we
expect to incur approximately $1.0 million in expenses in
connection with this offering in the fourth quarter of 2010.
Amortization of Acquired Intangible
Assets.
Amortization of acquired intangible
assets is the amortization expense associated with subscriber
relationships and contracts, core technologies, and intangible
assets, including trademarks and tradenames, resulting from the
Spectrum investment and business acquisitions.
Transaction Related Expenses.
Transaction
related expenses consist of one-time costs of our predecessor
company associated with the Spectrum investment.
Other
Income (Expense) and Income Tax Expense
Interest Expense.
Interest expense includes
the interest expense associated with our long-term debt and
amortization of deferred financing costs. Our interest expense
varies based on the level of debt outstanding and changes in
interest rates.
Interest Income.
Interest income includes
interest earned on cash and cash equivalents and short-term
investments.
Income Tax Expense.
Income tax expense
consists of federal and state income taxes in the United States
and income taxes in certain foreign jurisdictions.
Critical
Accounting Estimates
Our consolidated financial statements are prepared in conformity
with United States generally accepted accounting principles, or
GAAP. The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, costs and
expenses and related disclosures. These estimates and
assumptions are often based on judgments that we believe to be
reasonable under the circumstances at the time made, but all
such estimates and assumptions are inherently uncertain and
unpredictable. Actual results may differ from those estimates
and assumptions, and it is possible that other professionals,
applying their own judgment to the same facts and circumstances,
could develop and support alternative estimates and assumptions
that would result in material changes to our operating results
and financial condition. We evaluate our estimates and
assumptions on an ongoing basis. Our estimates are based on
historical experience and various other assumptions that we
believe to be reasonable under the circumstances.
We consider the assumptions and estimates associated with
recoverability of intangible assets, the period of amortization
of our database content costs, stock-based compensation and
income taxes to be our critical accounting estimates. For
further information on our significant accounting policies, see
Note 1 of the accompanying notes to our consolidated
financial statements. There have been no changes to our
significant accounting policies since December 31, 2009,
except as discussed below in Recent Accounting
Pronouncements.
44
Recoverability
of Intangible Assets, Including Goodwill
Intangible assets consist of content database costs, subscriber
relationships and contracts, technologies, trade names and
trademarks, and other intangible assets. Intangible assets
acquired in a business combination are measured at fair value at
the date of acquisition. We amortize all intangible assets,
except for acquired subscriber relationships, on a straight line
basis over their expected lives. Acquired subscriber
relationships were amortized on a straight-line basis prior to
the acquisition of our predecessor and, subsequent to the
acquisition, are amortized based on the expected annual turnover
rate, or rate of attrition, of acquired subscribers, which
approximates our monthly churn, resulting in an accelerated
basis of amortization. We believe that recognizing amortization
expense in this pattern better matches the amortization expense
with the revenue generated from the acquired subscribers.
We review our indefinite-lived intangible assets for impairment
at least annually or as indicators of impairment exist based on
comparing the fair value of the asset to the carrying value of
the asset in accordance with GAAP. Goodwill is currently our
only indefinite-lived intangible asset. We perform our annual
goodwill impairment test in the fourth quarter. Our goodwill
impairment test requires the use of fair-value techniques, which
are inherently subjective.
We are a single reporting unit therefore goodwill is evaluated
on an enterprise basis using the income and market value
approaches. These approaches use estimated future cash flows and
market multiples for revenue and earnings. Estimates are based
on historical experience, anticipated operating activity, and
weighted average cost of capital. Based on our analysis of
goodwill in the fourth quarter of 2008 and 2009, no impairment
was indicated. No impairment of goodwill is expected for the
year ended December 31, 2010.
We evaluate the recoverability of our long-lived assets in
accordance with GAAP, which requires recognition of impairment
of long-lived assets in the event that the net book value of
such assets exceeds the future undiscounted net cash flows
attributable to such assets. We recognize impairment, if any, in
the period of identification to the extent the carrying amount
of an asset exceeds the fair value of such asset. Based on our
analysis of long-lived assets, we recorded impairment of
approximately $1.5 million for the year ended
December 31, 2008 related to a database content set we were
developing for release in China. The impairment was expensed to
cost of subscription revenues for the year ended
December 31, 2008. No impairment of long-lived assets was
indicated for the year ended December 31, 2009 and no
impairment of long-lived assets is expected for the year ended
December 31, 2010.
Amortization
of our Content Database Costs
Our content database costs consist of historical information
that has been digitized and indexed to allow subscribers to
search and view our content online. Content database costs
include the costs to acquire or license the historical data,
costs incurred by our employees or by third parties to scan the
content, costs to have the content keyed and indexed in order to
be searchable and the fair value allocated to content databases
in business acquisitions. Among the most utilized content in our
databases are the United States and United Kingdom census
records which are ordinarily released by government entities
every ten years. We amortize our content database costs on a
straight-line basis over ten years after the content is released
for viewing on our Web sites.
Stock-Based
Compensation
We have stock-based compensation plans which allow for the
granting of stock options and other stock-based awards,
including restricted stock units, which represent the right to
receive one share of the companys common stock, to
employees, officers, directors, and consultants. We account for
stock-based compensation by amortizing the fair value of each
stock award expected to vest over the requisite service period.
The fair value of each restricted stock unit is based on the
closing price of our common stock on the date of grant. The fair
value of each stock option award is calculated on the date of
grant using the Black-Scholes option-pricing model. The
Black-Scholes model requires various highly judgmental
assumptions including fair value of the underlying stock,
volatility, expected option life, risk-free interest rate, and
expected dividends. As of each stock option grant date, we
reviewed an average of the disclosed year-end volatility of a
group of companies that we considered peers based on a number of
factors including, but not limited to, similarity to us with
respect to industry, business model, stage of growth, financial
risk or other factors, along with considering the future plans
of our company to determine the appropriate
45
volatility. The expected life was based on our historical stock
option activity. The risk-free interest rate was determined by
reference to the United States Treasury rates with the remaining
term approximating the expected life assumed at the date of
grant. In addition, we are required to estimate the expected
forfeiture rate and only recognize expense for those options
expected to vest. We estimate the forfeiture rate based on our
historical experience. To the extent our actual forfeiture rate
is different from our estimate, stock-based compensation expense
is adjusted accordingly. If any of the assumptions used in the
Black-Scholes model change significantly or actual forfeiture
rate is different than our estimate, stock-based compensation
expense may differ materially in the future from that recorded
in the current period.
Prior to November 5, 2009, the date our common stock began
trading on a national exchange, the fair value of common stock
had been determined by the board of directors at each grant date
based on a variety of factors, including arms-length sales
of our common stock, periodic valuations of our common stock,
our financial position, historical financial performance,
projected financial performance, valuations of publicly traded
peer companies and the illiquid nature of common stock. Since
our initial public offering, we determine the fair value of our
common stock based on the closing price of our common stock on
the stock option grant date.
Income
Taxes
We are subject to income taxes in the United States and several
foreign jurisdictions. Significant judgment is required in
evaluating our uncertain tax positions and determining our
provision for income taxes. GAAP has a two-step approach to
recognizing and measuring uncertain tax positions. The first
step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates that
it is more likely than not that the position will be sustained
on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit
as the largest amount that is more than 50% likely of being
realized upon settlement.
Although we believe we have adequately reserved for our
uncertain tax positions, no assurance can be given that the
final tax outcome of these matters will not be different. We
adjust these reserves in light of changing facts and
circumstances, such as the closing of a tax audit, the
refinement of an estimate or changes in tax laws. To the extent
that the final tax outcome of these matters is different than
the amounts recorded, such differences will impact the provision
for income taxes in the period in which such determination is
made. The provision for income taxes includes the impact of
reserve provisions and changes to reserves that are considered
appropriate, as well as the related net interest and penalties.
In evaluating our ability to recover our deferred tax assets, in
full or in part, we consider all available positive and negative
evidence, including our past operating results, our forecast of
future market growth, forecasted earnings, future taxable income
and prudent and feasible tax planning strategies. The
assumptions utilized in determining future taxable income
require significant judgment and are consistent with the plans
and estimates we are using to manage the underlying businesses.
We believe it is more likely than not that the deferred tax
assets recorded on our balance sheet will ultimately be
realized. In the event we were to determine that we would not be
able to realize all or part of our net deferred tax assets in
the future, an adjustment to the deferred tax assets would be
charged to earnings in the period in which we make such
determination.
Our effective tax rates have differed from the statutory tax
rate primarily due to the tax impact of foreign operations,
certain impairment charges, state taxes, and certain benefits
realized related to stock option activity. The effective tax
rates were 39.2%, 43.6% and 20.0% for the period from
January 1, 2007 through December 5, 2007 and the years
ended December 31, 2008 and 2009, respectively, and 36.2%
and 37.0% for the nine months ended September 30, 2009 and
2010, respectively. Our future effective tax rates could be
adversely affected by changes in the valuation of our deferred
tax assets or liabilities, or changes in tax laws, regulations,
accounting principles or interpretations thereof. In addition,
we are subject to the continuous examination of our income tax
returns by the Internal Revenue Service and other tax
authorities. We regularly assess the likelihood of adverse
outcomes resulting from these examinations to determine the
adequacy of our provision for income taxes.
46
Results
of Operations
The following table sets forth, for the periods presented, our
consolidated statements of operations. In the table below and
throughout this Managements Discussion and Analysis
of Financial Condition and Results of Operations,
consolidated statements of operations data for the predecessor
period from January 1, 2007 through December 5, 2007,
the successor period from December 6, 2007 through
December 31, 2007 and the years ended December 31,
2008 and 2009 have been derived from our audited consolidated
financial statements, the consolidated statement of operations
data for the nine month periods ended September 30, 2009
and 2010 have been derived from our unaudited interim
consolidated financial statements. The information contained in
the table below should be read in conjunction with our
consolidated financial statements and the related notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
through
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
|
December 5,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription revenues
|
|
$
|
141,141
|
|
|
|
$
|
11,692
|
|
|
$
|
181,391
|
|
|
$
|
207,707
|
|
|
$
|
152,506
|
|
|
$
|
204,343
|
|
Product and other revenues
|
|
|
12,269
|
|
|
|
|
1,278
|
|
|
|
16,200
|
|
|
|
17,195
|
|
|
|
12,287
|
|
|
|
13,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
153,410
|
|
|
|
|
12,970
|
|
|
|
197,591
|
|
|
|
224,902
|
|
|
|
164,793
|
|
|
|
218,196
|
|
Costs of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription revenues
|
|
|
33,590
|
|
|
|
|
2,462
|
|
|
|
38,187
|
|
|
|
40,183
|
|
|
|
29,755
|
|
|
|
33,996
|
|
Cost of product and other revenues
|
|
|
2,552
|
|
|
|
|
500
|
|
|
|
5,427
|
|
|
|
6,140
|
|
|
|
4,213
|
|
|
|
3,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
36,142
|
|
|
|
|
2,962
|
|
|
|
43,614
|
|
|
|
46,323
|
|
|
|
33,968
|
|
|
|
37,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
117,268
|
|
|
|
|
10,008
|
|
|
|
153,977
|
|
|
|
178,579
|
|
|
|
130,825
|
|
|
|
180,271
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and development
|
|
|
31,255
|
|
|
|
|
3,517
|
|
|
|
33,206
|
|
|
|
36,236
|
|
|
|
26,690
|
|
|
|
30,447
|
|
Marketing and advertising
|
|
|
42,400
|
|
|
|
|
3,157
|
|
|
|
52,341
|
|
|
|
61,625
|
|
|
|
44,226
|
|
|
|
71,061
|
|
General and administrative
|
|
|
20,723
|
|
|
|
|
2,142
|
|
|
|
28,931
|
|
|
|
32,540
|
|
|
|
24,569
|
|
|
|
24,915
|
|
Amortization of acquired intangible assets
|
|
|
2,132
|
|
|
|
|
1,542
|
|
|
|
23,779
|
|
|
|
16,217
|
|
|
|
12,165
|
|
|
|
11,149
|
|
Transaction related expenses
|
|
|
9,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
106,040
|
|
|
|
|
10,358
|
|
|
|
138,257
|
|
|
|
146,618
|
|
|
|
107,650
|
|
|
|
137,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
11,228
|
|
|
|
|
(350
|
)
|
|
|
15,720
|
|
|
|
31,961
|
|
|
|
23,175
|
|
|
|
42,699
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(756
|
)
|
|
|
|
(1,146
|
)
|
|
|
(12,355
|
)
|
|
|
(6,139
|
)
|
|
|
(4,784
|
)
|
|
|
(4,896
|
)
|
Interest income
|
|
|
2,051
|
|
|
|
|
289
|
|
|
|
872
|
|
|
|
792
|
|
|
|
746
|
|
|
|
340
|
|
Other income (expense), net
|
|
|
266
|
|
|
|
|
7
|
|
|
|
(8
|
)
|
|
|
21
|
|
|
|
14
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
12,789
|
|
|
|
|
(1,200
|
)
|
|
|
4,229
|
|
|
|
26,635
|
|
|
|
19,151
|
|
|
|
38,541
|
|
Income tax (expense) benefit
|
|
|
(5,018
|
)
|
|
|
|
(103
|
)
|
|
|
(1,845
|
)
|
|
|
(5,340
|
)
|
|
|
(6,927
|
)
|
|
|
(14,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,771
|
|
|
|
$
|
(1,303
|
)
|
|
$
|
2,384
|
|
|
$
|
21,295
|
|
|
$
|
12,224
|
|
|
$
|
24,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
$
|
0.06
|
|
|
$
|
0.55
|
|
|
$
|
0.32
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
$
|
0.06
|
|
|
$
|
0.51
|
|
|
$
|
0.30
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In connection with the Spectrum
investment, we were recapitalized. As a result, the capital
structure of our predecessor is not comparable to that of the
successor. Accordingly, net income per common share is not
comparable or meaningful for periods prior to 2008 and has not
been presented.
|
47
The following table sets forth, for the periods presented, our
consolidated statements of operations as a percentage of total
revenues. The information contained in the table below should be
read in conjunction with the consolidated financial statements
and the related notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
through
|
|
|
|
through
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
December 5,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription revenues
|
|
|
92.0
|
%
|
|
|
|
90.1
|
%
|
|
|
91.8
|
%
|
|
|
92.4
|
%
|
|
|
92.5
|
%
|
|
|
93.7
|
%
|
Product and other revenues
|
|
|
8.0
|
|
|
|
|
9.9
|
|
|
|
8.2
|
|
|
|
7.6
|
|
|
|
7.5
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription revenues
|
|
|
21.9
|
|
|
|
|
19.0
|
|
|
|
19.3
|
|
|
|
17.9
|
|
|
|
18.0
|
|
|
|
15.6
|
|
Cost of product and other revenues
|
|
|
1.7
|
|
|
|
|
3.8
|
|
|
|
2.8
|
|
|
|
2.7
|
|
|
|
2.6
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
23.6
|
|
|
|
|
22.8
|
|
|
|
22.1
|
|
|
|
20.6
|
|
|
|
20.6
|
|
|
|
17.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
76.4
|
|
|
|
|
77.2
|
|
|
|
77.9
|
|
|
|
79.4
|
|
|
|
79.4
|
|
|
|
82.6
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and development
|
|
|
20.4
|
|
|
|
|
27.1
|
|
|
|
16.8
|
|
|
|
16.1
|
|
|
|
16.2
|
|
|
|
13.9
|
|
Marketing and advertising
|
|
|
27.6
|
|
|
|
|
24.4
|
|
|
|
26.5
|
|
|
|
27.4
|
|
|
|
26.8
|
|
|
|
32.6
|
|
General and administrative
|
|
|
13.5
|
|
|
|
|
16.5
|
|
|
|
14.7
|
|
|
|
14.5
|
|
|
|
14.9
|
|
|
|
11.4
|
|
Amortization of acquired intangible assets
|
|
|
1.4
|
|
|
|
|
11.9
|
|
|
|
12.0
|
|
|
|
7.2
|
|
|
|
7.4
|
|
|
|
5.1
|
|
Transaction related expenses
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
69.1
|
|
|
|
|
79.9
|
|
|
|
70.0
|
|
|
|
65.2
|
|
|
|
65.3
|
|
|
|
63.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
7.3
|
|
|
|
|
(2.7
|
)
|
|
|
7.9
|
|
|
|
14.2
|
|
|
|
14.1
|
|
|
|
19.6
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(0.5
|
)
|
|
|
|
(8.8
|
)
|
|
|
(6.2
|
)
|
|
|
(2.7
|
)
|
|
|
(2.9
|
)
|
|
|
(2.2
|
)
|
Interest income
|
|
|
1.3
|
|
|
|
|
2.2
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
0.1
|
|
Other income (expense), net
|
|
|
0.2
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
8.3
|
|
|
|
|
(9.2
|
)
|
|
|
2.1
|
|
|
|
11.8
|
|
|
|
11.6
|
|
|
|
17.7
|
|
Income tax (expense) benefit
|
|
|
(3.3
|
)
|
|
|
|
(0.8
|
)
|
|
|
(0.9
|
)
|
|
|
(2.3
|
)
|
|
|
(4.2
|
)
|
|
|
(6.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
5.1
|
|
|
|
|
(10.0
|
)
|
|
|
1.2
|
|
|
|
9.5
|
|
|
|
7.4
|
|
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Nine
Months Ended September 30, 2009 and 2010
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2009
|
|
|
2010
|
|
|
2010 Over 2009
|
|
|
|
(in thousands)
|
|
|
|
|
|
Subscription revenues
|
|
$
|
152,506
|
|
|
$
|
204,343
|
|
|
|
34.0
|
%
|
Product and other revenues
|
|
|
12,287
|
|
|
|
13,853
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
164,793
|
|
|
$
|
218,196
|
|
|
|
32.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
Revenues
For the nine months ended September 30, 2010, our
subscription revenues increased $51.8 million as compared
to the nine months ended September 30, 2009. The increase
was primarily the result of an increase in the number of total
subscribers, as well as an increase in average monthly revenue
per subscriber on our Ancestry.com Web sites. Average monthly
revenue per subscriber increased due to both an increase in the
proportion of monthly subscriptions to annual subscriptions, and
an increase in the proportion of premium packages to basic
packages. For the nine months ended September 30, 2010,
changes in foreign currency exchange rates did not have a
significant impact on subscription revenues.
Product
and Other Revenues
For the nine months ended September 30, 2010, product and
other revenues increased $1.6 million as compared to the
nine months ended September 30, 2009. The increases were
primarily due to increased revenues related to our Family Tree
Maker software, vital records products, and DNA testing.
Cost
of Revenues and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2009
|
|
|
2010
|
|
|
2010 Over 2009
|
|
|
|
(in thousands)
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription revenues
|
|
$
|
152,506
|
|
|
$
|
204,343
|
|
|
|
34.0
|
%
|
Product and other revenues
|
|
|
12,287
|
|
|
|
13,853
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
164,793
|
|
|
|
218,196
|
|
|
|
32.4
|
|
Costs of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription revenues
|
|
|
29,755
|
|
|
|
33,996
|
|
|
|
14.3
|
|
Cost of product and other revenues
|
|
|
4,213
|
|
|
|
3,929
|
|
|
|
(6.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
33,968
|
|
|
|
37,925
|
|
|
|
11.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
130,825
|
|
|
$
|
180,271
|
|
|
|
37.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit percentage
|
|
|
79.4
|
%
|
|
|
82.6
|
%
|
|
|
|
|
Cost of
Subscription Revenues
For the nine months ended September 30, 2010, our cost of
subscription revenues increased $4.2 million as compared to
the nine months ended September 30, 2009. The increase was
primarily due to a $1.5 million increase in
personnel-related costs attributable to additional Web
operations personnel, a $1.4 million increase in credit
card
49
processing fees reflecting higher transaction volumes as a
result of increased total subscribers, a $0.7 million
increase in Web hosting costs attributable to greater user
traffic volumes and a $0.4 million increase in content
amortization.
Cost of
Product and Other Revenues
For the nine months ended September 30, 2010, our cost of
product and other revenues decreased slightly as compared to the
nine months ended September 30, 2009 despite increases in
product revenues during the same period in 2010. The decrease
was primarily due to a change in our Family Tree Maker
distribution arrangement.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2009
|
|
|
2010
|
|
|
2010 Over 2009
|
|
|
|
(in thousands)
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and development
|
|
$
|
26,690
|
|
|
$
|
30,447
|
|
|
|
14.1
|
%
|
Marketing and advertising
|
|
|
44,226
|
|
|
|
71,061
|
|
|
|
60.7
|
|
General and administrative
|
|
|
24,569
|
|
|
|
24,915
|
|
|
|
1.4
|
|
Amortization of acquired intangible assets
|
|
|
12,165
|
|
|
|
11,149
|
|
|
|
(8.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
107,650
|
|
|
$
|
137,572
|
|
|
|
27.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
and Development
For the nine months ended September 30, 2010, our
technology and development expenses increased $3.8 million
as compared to the nine months ended September 30, 2009.
The increase was primarily the result of increases in
personnel-related expenses reflecting increases in the number of
technology and development personnel.
Marketing
and Advertising
For the nine months ended September 30, 2010, our marketing
and advertising expenses increased $26.8 million as
compared to the nine months ended September 30, 2009. The
increase was due to increased television and online advertising
in both the domestic and international markets.
General
and Administrative
For the nine months ended September 30, 2010, our general
and administrative expenses remained relatively flat as compared
to the nine months ended September 30, 2009. Excluding the
settlement of a claim related to a content index in the third
quarter of 2009 of $2.3 million, general and administrative
expenses increased primarily due to an increase of
$1.9 million in outside services costs primarily related to
business acquisition activities and costs associated with
operating as a public company. In addition, we had a
$0.5 million change in position from foreign currency gains
in the nine months ended September 30, 2009 to losses in
the nine months ended September 30, 2010.
Amortization
of Acquired Intangible Assets
For the nine months ended September 30, 2010, amortization
of acquired intangible assets decreased $1.0 million as
compared to the nine months ended September 30, 2009. The
decrease was due to decreased amortization of our subscriber
relationship intangible assets, which are amortized on an
accelerated basis.
50
Other
Income (Expense) and Income Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
% Change
|
|
|
2009
|
|
2010
|
|
2010 Over 2009
|
|
|
(in thousands)
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
(4,784
|
)
|
|
$
|
(4,896
|
)
|
|
|
2.3
|
%
|
Interest income
|
|
|
746
|
|
|
|
340
|
|
|
|
(54.4
|
)
|
Other income (expense), net
|
|
|
14
|
|
|
|
398
|
|
|
|
NM
|
|
Income tax expense
|
|
|
(6,927
|
)
|
|
|
(14,247
|
)
|
|
|
105.7
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
36.2
|
%
|
|
|
37.0
|
%
|
|
|
|
|
Interest
Expense
For the nine months ended September 30, 2010, interest
expense remained relatively flat as compared to the nine months
ended September 30, 2009. Interest expense decreased
$1.6 million as a result of our carrying a lower average
debt balance throughout the nine months ended September 30,
2010 as compared to the nine months ended September 30,
2009. However, this decrease was offset by an increase in
interest expense due to the acceleration of $1.3 million of
deferred financing costs related to our long-term debt that was
paid in full on September 9, 2010.
Interest
Income
For the nine months ended September 30, 2010, interest
income decreased $0.4 million as compared to the nine
months ended September 30, 2009. The prior year benefited
from $0.5 million earned on an income tax refund received
in the second quarter of 2009.
Other
Income (Expense), Net
For the nine months ended September 30, 2010, other income
increased $0.4 million as compared the nine months ended
September 30, 2009. The increase was primarily due to the
settlement of a forward contract for Swedish kronor related to
the acquisition of Genline, which resulted in a gain of
$0.4 million in the third quarter of 2010.
Income
Tax Expense
For the nine months ended September 30, 2010, our effective
income tax rate of 37.0% differed from the federal statutory
rate of 35% principally due to state income taxes of 1.5%,
foreign income taxes of 0.7% as a result of net operating losses
in foreign jurisdictions for which no income tax benefit has
been recognized, research and development tax credits of (1.3)%
and other items of 1.1%.
For the nine months ended September 30, 2009, our effective
tax rate of 36.2% differed from the federal statutory rate of
35% principally due to state income taxes of 1.8%, changes in
the state tax apportionment factors resulting from enacted
legislation of (5.5)%, foreign income taxes of 1.4% and other
items of 3.5%.
51
Years
Ended December 31, 2007, 2008 and 2009
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
through
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 5,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Subscription revenues
|
|
$
|
141,141
|
|
|
|
$
|
11,692
|
|
|
$
|
181,391
|
|
|
$
|
207,707
|
|
Product and other revenues
|
|
|
12,269
|
|
|
|
|
1,278
|
|
|
|
16,200
|
|
|
|
17,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
153,410
|
|
|
|
|
12,970
|
|
|
$
|
197,591
|
|
|
$
|
224,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
Revenues
2009 Compared to 2008.
The increase in our
subscription revenues of $26.3 million in the year ended
December 31, 2009 as compared to the year ended
December 31, 2008 was primarily the result of an increase
in the number of total subscribers as well as an increase in
average monthly revenue per subscriber on our Ancestry.com Web
sites. Average monthly revenue per subscriber increased due to
both a shift in mix between annual and monthly subscriptions to
more monthly subscriptions, relative to prior year and a shift
in mix from basic packages to premium packages, relative to
prior year. During the year ended December 31, 2009,
changes in foreign currency exchange rates had an unfavorable
impact on subscription revenues. Had average exchange rates
remained the same in the year ended December 31, 2009 as
average exchange rates in effect in the year ended
December 31, 2008, our reported revenues in the year ended
December 31, 2009 would have been approximately 4% higher.
2008 Compared to 2007.
Subscription revenues
were $181.4 million in the year ended December 31,
2008, compared to $141.1 million for the predecessor period
from January 1, 2007 through December 5, 2007 and
$11.7 million for the successor period from
December 6, 2007 through December 31, 2007. The
increase was primarily the result of an increase in the number
of total subscribers and also to an increase in monthly revenue
per subscriber. A shift in mix between annual and monthly
subscriptions to more monthly subscriptions has resulted in
higher monthly revenue per subscriber in 2008. Foreign currency
exchange rates did not have a material impact on revenues in
2008 compared to revenues in 2007.
Product
and Other Revenues
2009 Compared to 2008.
The increase in product
and other revenues of $1.0 million in the year ended
December 31, 2009 as compared to the year ended
December 31, 2008 was primarily due to an increase in
revenues associated with a new release in August 2009 of our
Family Tree Maker desktop software of $1.9 million, the
growth of vital records products, introduced in the United
Kingdom during August 2008, of $1.3 million and increased
revenues from our MyCanvas.com products of $0.6 million.
These increases were partially offset by decreases in our
royalty revenue of $1.2 million, advertising revenue of
$1.1 million and Ancestry DNA products of $0.6 million.
2008 Compared to 2007.
Product and other
revenues were $16.2 million in the year ended
December 31, 2008, compared to $12.3 million for the
predecessor period from January 1, 2007 through
December 5, 2007 and $1.3 million for the successor
period from December 6, 2007 through December 31,
2007. The increase in our product and other revenues was due to,
among other things, a $2.4 million increase in our DNA
product revenues, a $1.3 million increase in our
advertising services and a $0.7 million increase in sales
of our MyCanvas.com products. This increase was offset by a
$1.6 million decrease in sales of our legacy products
(e.g., CD ROMs, books, posters). Our DNA product was released in
the fourth quarter of 2007.
52
Cost
of Revenues and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Period From
|
|
|
|
Period From
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 5,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription revenues
|
|
$
|
141,141
|
|
|
|
$
|
11,692
|
|
|
$
|
181,391
|
|
|
$
|
207,707
|
|
Product and other revenues
|
|
|
12,269
|
|
|
|
|
1,278
|
|
|
|
16,200
|
|
|
|
17,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
153,410
|
|
|
|
|
12,970
|
|
|
|
197,591
|
|
|
|
224,902
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription revenues
|
|
|
33,590
|
|
|
|
|
2,462
|
|
|
|
38,187
|
|
|
|
40,183
|
|
Cost of product and other revenues
|
|
|
2,552
|
|
|
|
|
500
|
|
|
|
5,427
|
|
|
|
6,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
36,142
|
|
|
|
|
2,962
|
|
|
|
43,614
|
|
|
|
46,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
117,268
|
|
|
|
$
|
10,008
|
|
|
$
|
153,977
|
|
|
$
|
178,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit percentage
|
|
|
76.4
|
%
|
|
|
|
77.2
|
%
|
|
|
77.9
|
%
|
|
|
79.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Subscription Revenues
2009 Compared to 2008.
The increase in our
cost of subscription revenues of $2.0 million in the year
ended December 31, 2009 as compared to the year ended
December 31, 2008 was primarily due to a $1.4 million
increase in our Web hosting costs, an increase in equipment
related costs of $1.1 million and an increase in
amortization of content costs of $0.7 million. These
increases were partially offset by the absence of impairment of
database content costs in 2009 of $1.5 million as a result
of a change in our strategy for our Chinese content included in
2008.
2008 Compared to 2007.
Cost of subscription
revenues was $38.2 million in the year ended
December 31, 2008, compared to $33.6 million for the
predecessor period from January 1, 2007 through
December 5, 2007 and $2.5 million for the successor
period from December 6, 2007 through December 31,
2007. Cost of subscription revenues increased primarily due to
the impairment of database content costs of $1.5 million in
2008 and an increase in database content amortization, merchant
fees and Web hosting costs of $2.1 million. These increases
were partially offset by decreases in personnel-related costs of
$0.9 million and royalty expenses of $0.6 million.
Cost of
Product and Other Revenues
2009 Compared to 2008.
The increase in our
cost of product revenues of $0.7 million in the year ended
December 31, 2009 as compared to the year ended
December 31, 2008 was primarily a result of the growth and
increased revenues of vital records products, introduced in the
United Kingdom in August 2008, and our MyCanvas.com products,
which resulted in an increase in cost of product revenues of
$1.0 million. Additionally, shipping costs increased
$0.4 million. These increases were partially offset by a
decrease in costs associated with our DNA products of
$0.5 million.
2008 Compared to 2007.
Cost of product and
other revenues was $5.4 million in the year ended
December 31, 2008, compared to $2.6 million for the
predecessor period from January 1, 2007 through
December 5, 2007 and $0.5 million for the successor
period from December 6, 2007 through December 31,
2007. Cost of product and other revenues increased primarily due
to $2.2 million related to the introduction of our DNA
product and $0.3 million related to the introduction of our
MyCanvas.com products. Cost of product and other revenues as a
percentage of total revenue increased due to our decision to
sell our DNA product at a reduced price.
53
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
through
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 5,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and development
|
|
$
|
31,255
|
|
|
|
$
|
3,517
|
|
|
$
|
33,206
|
|
|
$
|
36,236
|
|
Marketing and advertising
|
|
|
42,400
|
|
|
|
|
3,157
|
|
|
|
52,341
|
|
|
|
61,625
|
|
General and administrative
|
|
|
20,723
|
|
|
|
|
2,142
|
|
|
|
28,931
|
|
|
|
32,540
|
|
Amortization of acquired intangible assets
|
|
|
2,132
|
|
|
|
|
1,542
|
|
|
|
23,779
|
|
|
|
16,217
|
|
Transaction expenses
|
|
|
9,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
106,040
|
|
|
|
$
|
10,358
|
|
|
$
|
138,257
|
|
|
$
|
146,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
and Development
2009 Compared to 2008.
The increase in
technology and development expenses of $3.0 million in the
year ended December 31, 2009 as compared to the year ended
December 31, 2008 was primarily the result of an increase
in personnel-related expenses resulting from an increase in the
number of technology and development personnel at
December 31, 2009 as compared to December 31, 2008.
2008 Compared to 2007.
Technology and
development expenses were $33.2 million in the year ended
December 31, 2008, compared to $31.3 million for the
predecessor period from January 1, 2007 through
December 5, 2007 and $3.5 million for the successor
period from December 6, 2007 through December 31,
2007. The change in technology and development expenses was
primarily the result of a one-time charge for in-process
research and development of $1.3 million in 2007 related to
the Spectrum investment as well as a decrease in
personnel-related costs of $1.8 million due to a decrease
in development headcount, partially offset by increases in
third-party development expense of $0.9 million to
compensate for the decrease in development headcount and
stock-based compensation of $0.8 million.
Marketing
and Advertising
2009 Compared to 2008.
The increase in
marketing and advertising expenses of $9.3 million in the
year ended December 31, 2009 as compared to the year ended
December 31, 2008 was primarily attributable to a
$8.6 million increase in television and online advertising
in both the domestic and international markets, as well as a
$0.8 million increase in personnel-related expenses
resulting from an increase in the number of marketing and
advertising personnel at December 31, 2009 as compared to
December 31, 2008.
2008 Compared to 2007.
Marketing and
advertising expenses were $52.3 million in the year ended
December 31, 2008, compared to $42.4 million for the
predecessor period from January 1, 2007 through
December 5, 2007 and $3.2 million for the successor
period from December 6, 2007 through December 31,
2007. The increase was primarily driven by an increase in
television and online advertising in both the domestic and
international markets.
General
and Administrative
2009 Compared to 2008.
The increase in general
and administrative expenses of $3.6 million in the year
ended December 31, 2009 as compared to the year ended
December 31, 2008 is primarily the result of a settlement
of a claim related to a content index, which resulted in an
expense of $2.3 million, to increased personnel-related
54
costs of $1.1 million due to an increase in the number of
general and administrative personnel and to increased outside
services such as consultants, legal services and accounting fees
of $0.9 million. These increases were partially offset by a
change in foreign currency gains and losses of $0.8 million
from a loss of $0.4 million in the year ended
December 31, 2008 to a gain of $0.4 million in the
year ended December 31, 2009.
2008 Compared to 2007.
General and
administrative expenses were $28.9 million in the year
ended December 31, 2008, compared to $20.7 million for
the predecessor period from January 1, 2007 through
December 5, 2007 and $2.1 million for the successor
period from December 6, 2007 through December 31,
2007. The increase was the result of an increase in stock-based
compensation of $2.9 million, driven primarily from new
stock option grants in 2008, an increase in personnel-related
costs of $2.5 million, due to additional administrative
personnel, and increased professional fees of $0.9 million.
Amortization
of Acquired Intangible Assets
2009 Compared to 2008.
The decrease in
amortization of acquired intangible assets of $7.6 million
in the year ended December 31, 2009 as compared to the year
ended December 31, 2008 was due to the amortization of our
subscriber relationship intangible asset, which is amortized on
an accelerated basis. Subscriber relationships and contracts are
amortized based on an annual turnover rate, or rate of
attrition, of the subscribers that approximates our monthly
churn, resulting in an accelerated basis of amortization. This
is the same rate of attrition that was used to determine the
fair value of the intangible asset at the acquisition date. We
believe that recognizing amortization expense in this pattern
better matches the amortization expense with the revenue
generated from these subscribers. The subscriber relationship
asset was recorded in connection with the Spectrum investment.
2008 Compared to 2007.
Amortization of
acquired intangibles assets was $23.8 million in the year
ended December 31, 2008, compared to $2.1 million for
the predecessor period from January 1, 2007 through
December 5, 2007 and $1.5 million for the successor
period from December 6, 2007 through December 31,
2007. The change in amortization of acquired intangible assets
is the result of $83.0 million of amortizable intangible
assets from the Spectrum investment in December 2007 being
amortized for a full year in 2008 versus the prior amortizable
intangible assets of $8.2 million being amortized in 2007
along with one month of amortization of the acquired intangible
assets from the Spectrum investment.
Transaction Related Expenses.
In the
predecessor period from January 1, 2007 through
December 5, 2007, we recorded $9.5 million of legal,
accounting and other expenses related to the Spectrum investment.
Other
Income (Expense) and Income Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
through
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 5,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
(756
|
)
|
|
|
$
|
(1,146
|
)
|
|
$
|
(12,355
|
)
|
|
$
|
(6,139
|
)
|
|
|
|
|
Interest income
|
|
|
2,051
|
|
|
|
|
289
|
|
|
|
872
|
|
|
|
792
|
|
|
|
|
|
Other income (expenses), net
|
|
|
266
|
|
|
|
|
7
|
|
|
|
(8
|
)
|
|
|
21
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
(5,018
|
)
|
|
|
|
(103
|
)
|
|
|
(1,845
|
)
|
|
|
(5,340
|
)
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
39.2
|
%
|
|
|
|
n/m
|
|
|
|
43.6
|
%
|
|
|
20.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
Interest
Expense
2009 Compared to 2008.
The decrease in
interest expense of $6.2 million in the year ended
December 31, 2009 as compared to the year ended
December 31, 2008 was due to a decrease in our effective
interest rate from 7.4% as of December 31, 2008 to 4.0% as
of December 31, 2009. In addition, we had a lower debt
balance during the year ended December 31, 2009 due to
principal payments made on our credit facility during the year.
2008 Compared to 2007.
Interest expense was
$12.3 million in the year ended December 31, 2008,
compared to $0.8 million for the predecessor period from
January 1, 2007 through December 5, 2007 and
$1.1 million for the successor period from December 6,
2007 through December 31, 2007. The change was a result of
an increased level of long-term debt. In December 2007, in
connection with the Spectrum investment, we entered into a
credit facility that included a term loan of
$140.0 million. Prior to this arrangement we had
$15.0 million in long-term debt.
Interest
Income
2009 Compared to 2008.
Interest income was
$0.8 million in the year ended December 31, 2009,
compared to $0.9 million in the year ended
December 31, 2008. The change was not significant.
2008 Compared to 2007.
Interest income was
$0.9 million in the year ended December 31, 2008,
compared to $2.1 million for the predecessor period from
January 1, 2007 through December 5, 2007 and
$0.3 million for the successor period from December 6,
2007 through December 31, 2007. The change was due to a
change in the cash balance during 2008.
Other
Income (Expense), Net
2009 Compared to 2008.
Other income (expense)
was not significant in either of the years ended
December 31, 2009 or 2008.
2008 Compared to 2007.
Other income in the
predecessor period from January 1, 2007 through
December 5, 2007 primarily relates to the sale of our
self-publishing subsidiary at a gain. We did not have any
similar events in the year ended December 31, 2008.
Income
Tax Expense
Income tax expense for the year ended December 31, 2009 was
$5.3 million. Our effective tax rate of 20.0% differed from
the federal statutory rate of 35% principally due to utilization
of net operating losses previously thought to be limited due to
previous ownership changes of (19.4)%, due to foreign income
taxes of 1.4% as a result of net operating losses in foreign
jurisdictions for which no income tax benefit has been
recognized and to other items of 3.0%.
Income tax expense for the year ended December 31, 2008 was
$1.8 million. Our effective tax rate of 43.6% differed from
the federal statutory rate of 35% principally due to state
income taxes of 4.7%, to foreign income taxes of 10.7% as a
result of net operating losses in foreign jurisdictions for
which no income tax benefit has been recognized, to deductible
expenses of (17.1)% associated with the Spectrum investment as
reflected in our federal income tax provision
true-up,
to
non-deductible stock-based compensation expenses of 13.7% and to
other items of (3.4)%.
Unaudited
Quarterly Results of Operations
The following table presents our unaudited quarterly
consolidated results of operations for the eight quarters ended
September 30, 2010. This unaudited quarterly consolidated
information has been prepared on the same basis as our audited
consolidated financial statements, and, in the opinion of
management, the statement of operations data includes all
adjustments, consisting of normal recurring adjustments,
necessary for the fair presentation of the results of operations
for these periods. You should read this table in conjunction
with our consolidated financial
56
statements and the related notes located elsewhere in this
prospectus. The results of operations for any quarter are not
necessarily indicative of the results of operations for any
future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription revenues
|
|
$
|
47,775
|
|
|
$
|
49,184
|
|
|
$
|
50,719
|
|
|
$
|
52,603
|
|
|
$
|
55,201
|
|
|
$
|
59,560
|
|
|
$
|
70,544
|
|
|
$
|
74,239
|
|
Product and other revenues
|
|
|
4,658
|
|
|
|
4,049
|
|
|
|
3,854
|
|
|
|
4,384
|
|
|
|
4,908
|
|
|
|
4,861
|
|
|
|
3,916
|
|
|
|
5,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
52,433
|
|
|
|
53,233
|
|
|
|
54,573
|
|
|
|
56,987
|
|
|
|
60,109
|
|
|
|
64,421
|
|
|
|
74,460
|
|
|
|
79,315
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription revenues
|
|
|
10,488
|
|
|
|
9,756
|
|
|
|
9,966
|
|
|
|
10,033
|
|
|
|
10,428
|
|
|
|
11,501
|
|
|
|
11,228
|
|
|
|
11,267
|
|
Cost of product and other revenues
|
|
|
2,135
|
|
|
|
1,514
|
|
|
|
1,310
|
|
|
|
1,389
|
|
|
|
1,927
|
|
|
|
1,494
|
|
|
|
1,280
|
|
|
|
1,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
12,623
|
|
|
|
11,270
|
|
|
|
11,276
|
|
|
|
11,422
|
|
|
|
12,355
|
|
|
|
12,995
|
|
|
|
12,508
|
|
|
|
12,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
39,810
|
|
|
|
41,963
|
|
|
|
43,297
|
|
|
|
45,565
|
|
|
|
47,754
|
|
|
|
51,426
|
|
|
|
61,952
|
|
|
|
66,893
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and development
|
|
|
9,501
|
|
|
|
8,856
|
|
|
|
8,692
|
|
|
|
9,142
|
|
|
|
9,546
|
|
|
|
9,927
|
|
|
|
9,992
|
|
|
|
10,528
|
|
Marketing and advertising
|
|
|
15,707
|
|
|
|
14,921
|
|
|
|
15,065
|
|
|
|
14,240
|
|
|
|
17,399
|
|
|
|
22,446
|
|
|
|
24,490
|
|
|
|
24,125
|
|
General and administrative
|
|
|
7,896
|
|
|
|
7,563
|
|
|
|
6,777
|
|
|
|
10,229
|
|
|
|
7,971
|
|
|
|
7,742
|
|
|
|
8,032
|
|
|
|
9,141
|
|
Amortization of acquired intangible assets
|
|
|
5,947
|
|
|
|
4,058
|
|
|
|
4,055
|
|
|
|
4,052
|
|
|
|
4,052
|
|
|
|
3,679
|
|
|
|
3,679
|
|
|
|
3,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
39,051
|
|
|
|
35,398
|
|
|
|
34,589
|
|
|
|
37,663
|
|
|
|
38,968
|
|
|
|
43,794
|
|
|
|
46,193
|
|
|
|
47,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
759
|
|
|
|
6,565
|
|
|
|
8,708
|
|
|
|
7,902
|
|
|
|
8,786
|
|
|
|
7,632
|
|
|
|
15,759
|
|
|
|
19,308
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(3,028
|
)
|
|
|
(1,841
|
)
|
|
|
(1,515
|
)
|
|
|
(1,428
|
)
|
|
|
(1,355
|
)
|
|
|
(1,216
|
)
|
|
|
(1,493
|
)
|
|
|
(2,187
|
)
|
Interest income
|
|
|
240
|
|
|
|
131
|
|
|
|
567
|
|
|
|
48
|
|
|
|
46
|
|
|
|
63
|
|
|
|
76
|
|
|
|
201
|
|
Other income (expense), net
|
|
|
10
|
|
|
|
8
|
|
|
|
2
|
|
|
|
4
|
|
|
|
7
|
|
|
|
9
|
|
|
|
(12
|
)
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(2,019
|
)
|
|
|
4,863
|
|
|
|
7,762
|
|
|
|
6,526
|
|
|
|
7,484
|
|
|
|
6,488
|
|
|
|
14,330
|
|
|
|
17,723
|
|
Income tax benefit (expense)
|
|
|
903
|
|
|
|
(1,360
|
)
|
|
|
(3,082
|
)
|
|
|
(2,485
|
)
|
|
|
1,587
|
|
|
|
(2,526
|
)
|
|
|
(5,807
|
)
|
|
|
(5,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,116
|
)
|
|
$
|
3,503
|
|
|
$
|
4,680
|
|
|
$
|
4,041
|
|
|
$
|
9,071
|
|
|
$
|
3,962
|
|
|
$
|
8,523
|
|
|
$
|
11,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
The following table presents our unaudited quarterly
consolidated results of operations for the eight quarters ended
September 30, 2010 as a percentage of revenues. You should
read this table in conjunction with our consolidated financial
statements and the related notes located elsewhere in this
prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription revenues
|
|
|
91.1
|
%
|
|
|
92.4
|
%
|
|
|
92.9
|
%
|
|
|
92.3
|
%
|
|
|
91.8
|
%
|
|
|
92.5
|
%
|
|
|
94.7
|
%
|
|
|
93.6
|
%
|
Product and other revenues
|
|
|
8.9
|
|
|
|
7.6
|
|
|
|
7.1
|
|
|
|
7.7
|
|
|
|
8.2
|
|
|
|
7.5
|
|
|
|
5.3
|
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription revenues
|
|
|
20.0
|
|
|
|
18.3
|
|
|
|
18.3
|
|
|
|
17.6
|
|
|
|
17.4
|
|
|
|
17.9
|
|
|
|
15.1
|
|
|
|
14.2
|
|
Cost of product and other revenues
|
|
|
4.1
|
|
|
|
2.9
|
|
|
|
2.4
|
|
|
|
2.4
|
|
|
|
3.2
|
|
|
|
2.3
|
|
|
|
1.7
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
24.1
|
|
|
|
21.2
|
|
|
|
20.7
|
|
|
|
20.0
|
|
|
|
20.6
|
|
|
|
20.2
|
|
|
|
16.8
|
|
|
|
15.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
75.9
|
|
|
|
78.8
|
|
|
|
79.3
|
|
|
|
80.0
|
|
|
|
79.4
|
|
|
|
79.8
|
|
|
|
83.2
|
|
|
|
84.3
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and development
|
|
|
18.1
|
|
|
|
16.7
|
|
|
|
15.9
|
|
|
|
16.0
|
|
|
|
15.9
|
|
|
|
15.4
|
|
|
|
13.4
|
|
|
|
13.3
|
|
Marketing and advertising
|
|
|
30.0
|
|
|
|
28.0
|
|
|
|
27.6
|
|
|
|
25.0
|
|
|
|
28.9
|
|
|
|
34.9
|
|
|
|
32.9
|
|
|
|
30.4
|
|
General and administrative
|
|
|
15.1
|
|
|
|
14.2
|
|
|
|
12.4
|
|
|
|
18.0
|
|
|
|
13.3
|
|
|
|
12.0
|
|
|
|
10.8
|
|
|
|
11.5
|
|
Amortization of acquired intangible assets
|
|
|
11.3
|
|
|
|
7.6
|
|
|
|
7.4
|
|
|
|
7.1
|
|
|
|
6.7
|
|
|
|
5.7
|
|
|
|
4.9
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
74.5
|
|
|
|
66.5
|
|
|
|
63.3
|
|
|
|
66.1
|
|
|
|
64.8
|
|
|
|
68.0
|
|
|
|
62.0
|
|
|
|
60.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
1.4
|
|
|
|
12.3
|
|
|
|
16.0
|
|
|
|
13.9
|
|
|
|
14.6
|
|
|
|
11.8
|
|
|
|
21.2
|
|
|
|
24.3
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(5.7
|
)
|
|
|
(3.5
|
)
|
|
|
(2.8
|
)
|
|
|
(2.5
|
)
|
|
|
(2.2
|
)
|
|
|
(1.8
|
)
|
|
|
(2.1
|
)
|
|
|
(2.8
|
)
|
Interest income
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
1.0
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.3
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(3.8
|
)
|
|
|
9.1
|
|
|
|
14.2
|
|
|
|
11.5
|
|
|
|
12.5
|
|
|
|
10.1
|
|
|
|
19.2
|
|
|
|
22.3
|
|
Income tax benefit (expense)
|
|
|
1.7
|
|
|
|
(2.5
|
)
|
|
|
(5.6
|
)
|
|
|
(4.4
|
)
|
|
|
2.6
|
|
|
|
(3.9
|
)
|
|
|
(7.8
|
)
|
|
|
(7.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(2.1
|
)
|
|
|
6.6
|
|
|
|
8.6
|
|
|
|
7.1
|
|
|
|
15.1
|
|
|
|
6.2
|
|
|
|
11.4
|
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues have increased sequentially over all quarters
presented primarily due to increases in our subscription
revenues from increases in the number of total subscribers.
Total cost of revenues has remained relatively consistent in
absolute terms and has generally decreased as a percentage of
revenues over the eight quarters presented.
Total operating expenses have fluctuated but have generally
decreased as a percentage of revenue over the eight quarters
presented. General and administrative expenses in the quarter
ended September 30, 2009 include a $2.3 million charge
arising from the settlement of a claim related to a content
index.
Our net income (loss) has fluctuated over the quarters presented
for the reasons discussed above, as well as changes in our
effective tax rate.
58
The following table presents certain unaudited other data and
other financial data for the eight quarters ended
September 30, 2010. For additional information, please see
the discussion of adjusted EBITDA and free cash flow in
Summary Consolidated Historical Financial Data
Definitions of Other Financial Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
|
(dollars in thousands, except subscriber acquisition cost and
average monthly revenue per subscriber)
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
13,583
|
|
|
$
|
16,504
|
|
|
$
|
18,443
|
|
|
$
|
17,931
|
|
|
$
|
18,707
|
|
|
$
|
17,013
|
|
|
$
|
25,270
|
|
|
$
|
29,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
|
3,694
|
|
|
|
8,048
|
|
|
|
6,704
|
|
|
|
9,096
|
|
|
|
5,765
|
|
|
|
11,410
|
|
|
|
14,446
|
|
|
|
20,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription revenues
|
|
$
|
20
|
|
|
$
|
29
|
|
|
$
|
32
|
|
|
$
|
17
|
|
|
$
|
18
|
|
|
$
|
28
|
|
|
$
|
49
|
|
|
$
|
57
|
|
Technology and development
|
|
|
341
|
|
|
|
475
|
|
|
|
360
|
|
|
|
388
|
|
|
|
408
|
|
|
|
397
|
|
|
|
490
|
|
|
|
550
|
|
Marketing and advertising
|
|
|
74
|
|
|
|
88
|
|
|
|
81
|
|
|
|
104
|
|
|
|
97
|
|
|
|
68
|
|
|
|
118
|
|
|
|
204
|
|
General and administrative
|
|
|
728
|
|
|
|
934
|
|
|
|
804
|
|
|
|
953
|
|
|
|
686
|
|
|
|
511
|
|
|
|
605
|
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
1,163
|
|
|
$
|
1,526
|
|
|
$
|
1,277
|
|
|
$
|
1,462
|
|
|
$
|
1,209
|
|
|
$
|
1,004
|
|
|
$
|
1,262
|
|
|
$
|
1,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscribers
|
|
|
913,683
|
|
|
|
959,411
|
|
|
|
990,959
|
|
|
|
1,028,180
|
|
|
|
1,066,123
|
|
|
|
1,211,978
|
|
|
|
1,310,562
|
|
|
|
1,376,974
|
|
Gross subscriber additions
|
|
|
143,769
|
|
|
|
188,561
|
|
|
|
160,394
|
|
|
|
159,795
|
|
|
|
165,241
|
|
|
|
279,100
|
|
|
|
290,589
|
|
|
|
251,738
|
|
Monthly churn
|
|
|
4.0
|
%
|
|
|
4.3
|
%
|
|
|
3.8
|
%
|
|
|
3.6
|
%
|
|
|
3.6
|
%
|
|
|
3.3
|
%
|
|
|
4.3
|
%
|
|
|
4.0
|
%
|
Subscriber acquisition cost
|
|
$
|
79.26
|
|
|
$
|
62.23
|
|
|
$
|
73.27
|
|
|
$
|
70.55
|
|
|
$
|
85.21
|
|
|
$
|
69.57
|
|
|
$
|
74.04
|
|
|
$
|
81.58
|
|
Average monthly revenue per subscriber
|
|
$
|
16.45
|
|
|
$
|
16.46
|
|
|
$
|
16.42
|
|
|
$
|
16.48
|
|
|
$
|
16.67
|
|
|
$
|
16.70
|
|
|
$
|
18.02
|
|
|
$
|
17.75
|
|
The following table presents a reconciliation of adjusted EBITDA
and free cash flows to net income (loss), the most comparable
GAAP measure, for the eight quarters ended September 30,
2010. For additional information,
59
please see the discussion of adjusted EBITDA and free cash flow
in Summary Consolidated Historical Financial
Data Definitions of Other Financial Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Reconciliation of adjusted EBITDA and free cash flow to net
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,116
|
)
|
|
$
|
3,503
|
|
|
$
|
4,680
|
|
|
$
|
4,041
|
|
|
$
|
9,071
|
|
|
$
|
3,962
|
|
|
$
|
8,523
|
|
|
$
|
11,809
|
|
Interest expense, net
|
|
|
2,788
|
|
|
|
1,710
|
|
|
|
948
|
|
|
|
1,380
|
|
|
|
1,309
|
|
|
|
1,153
|
|
|
|
1,417
|
|
|
|
1,986
|
|
Income tax (benefit) expense
|
|
|
(903
|
)
|
|
|
1,360
|
|
|
|
3,082
|
|
|
|
2,485
|
|
|
|
(1,587
|
)
|
|
|
2,526
|
|
|
|
5,807
|
|
|
|
5,914
|
|
Depreciation expense
|
|
|
2,579
|
|
|
|
2,643
|
|
|
|
2,687
|
|
|
|
2,762
|
|
|
|
2,844
|
|
|
|
2,864
|
|
|
|
2,740
|
|
|
|
2,751
|
|
Amortization expense
|
|
|
7,607
|
|
|
|
5,770
|
|
|
|
5,771
|
|
|
|
5,805
|
|
|
|
5,868
|
|
|
|
5,513
|
|
|
|
5,509
|
|
|
|
5,691
|
|
Stock-based compensation
|
|
|
1,163
|
|
|
|
1,526
|
|
|
|
1,277
|
|
|
|
1,462
|
|
|
|
1,209
|
|
|
|
1,004
|
|
|
|
1,262
|
|
|
|
1,275
|
|
Other (income) expense, net
|
|
|
(10
|
)
|
|
|
(8
|
)
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
(7
|
)
|
|
|
(9
|
)
|
|
|
12
|
|
|
|
(401
|
)
|
Impairment of intangible assets
|
|
|
1,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
13,583
|
|
|
$
|
16,504
|
|
|
$
|
18,443
|
|
|
$
|
17,931
|
|
|
$
|
18,707
|
|
|
$
|
17,013
|
|
|
$
|
25,270
|
|
|
$
|
29,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization of content database costs
|
|
|
(2,582
|
)
|
|
|
(1,786
|
)
|
|
|
(1,886
|
)
|
|
|
(2,183
|
)
|
|
|
(3,543
|
)
|
|
|
(2,792
|
)
|
|
|
(2,349
|
)
|
|
|
(3,393
|
)
|
Capital expenditures
|
|
|
(4,263
|
)
|
|
|
(2,605
|
)
|
|
|
(3,546
|
)
|
|
|
(1,415
|
)
|
|
|
(5,796
|
)
|
|
|
(1,407
|
)
|
|
|
(2,221
|
)
|
|
|
(4,269
|
)
|
Cash paid for interest
|
|
|
(2,862
|
)
|
|
|
(4,028
|
)
|
|
|
(1,388
|
)
|
|
|
(1,208
|
)
|
|
|
(1,116
|
)
|
|
|
(1,001
|
)
|
|
|
(476
|
)
|
|
|
(1,051
|
)
|
Cash paid for income taxes
|
|
|
(182
|
)
|
|
|
(37
|
)
|
|
|
(4,919
|
)
|
|
|
(4,029
|
)
|
|
|
(2,487
|
)
|
|
|
(403
|
)
|
|
|
(5,778
|
)
|
|
|
(164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
3,694
|
|
|
$
|
8,048
|
|
|
$
|
6,704
|
|
|
$
|
9,096
|
|
|
$
|
5,765
|
|
|
$
|
11,410
|
|
|
$
|
14,446
|
|
|
$
|
20,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity
and Capital Resources
As of September 30, 2010, we had $180.1 million of
total liquidity, comprised of $64.1 million in cash and
cash equivalents, $16.0 million in short-term investments
and the ability to borrow $100.0 million under our new
revolving credit facility. Cash and cash equivalents are
comprised of high quality investments including money market
funds. Short-term investments are classified as
available-for-sale
and are held in high quality investments including
U.S. government agency securities with maturities less than
a year. Note 2 of the accompanying notes to our
consolidated financial statements describes further the
composition of our cash and cash equivalents and short-term
investments. Note 6 to our consolidated financial
statements describes further the terms of our new revolving
credit facility.
As of December 31, 2009, we had $110.3 million of
total liquidity, comprised of $66.9 million in cash and
cash equivalents, $33.3 million in short-term investments
and the ability to borrow $10.0 million under the revolving
portion of our previous credit facility. Note 2 of the
accompanying notes to our consolidated financial statements
describes further the composition of our cash and cash
equivalents and short-term investments. As of December 31,
2009, our borrowings under the term loan portion of our previous
credit facility were $100.0 million.
In December 2007, Spectrum Equity Investors contributed cash and
equity with an aggregate value of $138.6 million and we
entered into a credit facility that included a
$140.0 million term loan as part of a larger transaction,
which we refer to as the Spectrum investment. On
November 4, 2009, we commenced our initial public offering
and completed the offering on November 10, 2009. We
received net proceeds of $47.8 million from the offering,
after deducting the underwriting discounts and commissions and
offering expenses payable by us. Except for our initial public
offering, we have funded our operations primarily from cash
flows from operations during the last five years, which has
satisfied all of our cash requirements.
On September 9, 2010, we terminated and paid in full the
$76.2 million outstanding under our previous credit
facility from cash on hand, including the proceeds from our
initial public offering. Also on September 9, 2010, in
connection with the payoff of the previous credit facility, we
entered into a new three-year $100.0 million principal
60
amount senior secured revolving credit facility with Bank of
America, N.A., as administrative agent, and certain other
financial institutions. Our new revolving credit facility
includes a $5.0 million sublimit for the issuance of
letters of credit and a $7.0 million sublimit for swingline
loans. As of November 8, 2010, we have not drawn any funds
under the new credit facility.
Our primary uses of cash include operating costs such as
personnel-related expenses, marketing and advertising, payments
related to long-term debt, capital expenditures related to
equipment and database content costs, business acquisitions,
expansion of new markets and businesses and Web hosting costs.
Our future capital requirements may vary materially from those
now planned and will depend on many factors, including:
|
|
|
|
|
the development of new services;
|
|
|
|
market acceptance of our services;
|
|
|
|
the levels of advertising and promotion required to retain and
acquire subscribers;
|
|
|
|
the launch of additional services and improvement of our
competitive position in the marketplace;
|
|
|
|
the level of new content acquisition required to retain and
acquire subscribers;
|
|
|
|
the expansion of our development and marketing organizations;
|
|
|
|
our engaging in additional potential business acquisitions;
|
|
|
|
our ability to integrate and operate acquired businesses;
|
|
|
|
future potential stock repurchases by us;
|
|
|
|
the building of infrastructure necessary to support our
growth; and
|
|
|
|
our relationships with subscribers and vendors.
|
We expect to use $25.0 million from our cash on hand to
fund the repurchase of shares described in this prospectus.
We have experienced increases in our expenditures in connection
with the growth in our operations and personnel, and we
anticipate that our expenditures will continue to increase in
the future. We expect cash on hand, internally generated cash
flow, and available credit from our new credit facility will
provide adequate funds for operating and recurring cash needs
(e.g., working capital, and capital expenditures) for at least
the next 12 months.
Summary cash flow information for cash and cash equivalents and
short-term investments for the period from January 1, 2007
through December 5, 2007, the period from December 6,
2007 through December 31, 2007, the years ended
December 31, 2008 and 2009, and the nine months ended
September 30, 2009 and 2010 is set forth below. For the
purpose of this cash flow analysis, we have included our highly
liquid short-term investments, which
61
we believe we can readily convert to cash on a short-term basis.
We consider cash, cash equivalents and short-term investments in
evaluating our overall cash position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2007
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
through
|
|
|
|
Year Ended
|
|
|
|
Year Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
December 5,
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
September 30,
|
|
|
|
|
2007
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2009
|
|
|
|
2009
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Net cash and cash equivalents and short-term investments
provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
$
|
31,311
|
|
|
|
$
|
6,222
|
|
|
|
$
|
55,245
|
|
|
|
$
|
67,604
|
|
|
|
$
|
51,736
|
|
|
|
$
|
87,555
|
|
Investing activities
|
|
|
|
(21,163
|
)
|
|
|
|
(281,505
|
)
|
|
|
|
(20,586
|
)
|
|
|
|
(22,760
|
)
|
|
|
|
(13,421
|
)
|
|
|
|
(24,168
|
)
|
Financing activities
|
|
|
|
(11,615
|
)
|
|
|
|
245,831
|
|
|
|
|
(6,814
|
)
|
|
|
|
15,348
|
|
|
|
|
(17,843
|
)
|
|
|
|
(83,603
|
)
|
Effect of changes in foreign currency exchange rates on cash and
cash equivalents and short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
Increase (decrease) in cash and cash equivalents and short-term
investments
|
|
|
$
|
(1,467
|
)
|
|
|
$
|
(29,452
|
)
|
|
|
$
|
27,845
|
|
|
|
$
|
60,192
|
|
|
|
$
|
20,472
|
|
|
|
$
|
(20,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Analysis
Sources
and Uses of Cash
For the nine months ended September 30, 2010, our cash and
cash equivalents and short-term investments decreased
$20.2 million to $80.1 million, as compared to an
increase of $20.5 million in the nine months ended
September 30, 2009. Net cash provided by operating
activities was used primarily for debt repayments, business
acquisitions and investments in capital equipment and content
databases.
Cash and cash equivalents and short-term investments increased
by $60.2 million to $100.3 million in the year ended
December 31, 2009 as compared to an increase of
$27.8 million in the year ended December 31, 2008.
Cash and cash equivalents and short-term investments were
$40.1 million at December 31, 2008 compared to
$12.3 million at December 31, 2007. Cash and cash
equivalents and short-term investments decreased
$1.5 million in the predecessor period from January 1,
2007 through December 5, 2007 and decreased
$29.5 million in the successor period from December 6,
2007 through December 31, 2007. During the three-year
periods, net cash provided by operating activities was used for
debt repayments, investments in capital, content database costs
and the Spectrum investment.
Net Cash
Provided by Operating Activities
For the nine months ended September 30, 2010, net cash
provided by operating activities was $87.6 million, an
increase of $35.8 million compared to the nine months ended
September 30, 2009. Net cash provided by operating
activities consists of net income as adjusted for non-cash
expenses and changes in operating assets and liabilities. For
the nine months ended September 30, 2010, our net income
totaled $24.3 million, an increase of $12.1 million as
compared to the nine months ended September 30, 2009. Our
non-cash expenses, including depreciation, amortization of
content database costs, amortization of acquired intangible
assets, amortization of deferred financing costs, stock-based
compensation and deferred income taxes, totaled
$32.0 million, an increase of $2.9 million over the
nine months ended September 30, 2009. Our net cash provided
by changes in operating assets and liabilities excluding
deferred revenue totaled $11.7 million, an increase of
$9.9 million. The change in our deferred revenue, which
represents cash received from subscribers but not yet recognized
in revenue, totaled $19.6 million, an increase of
$10.9 million over the nine months ended September 30,
2009. The change in deferred
62
revenue increased primarily due to the growth in subscribers and
the increase in the proportion of premium packages over basic
packages partially offset by a change in proportion from annual
to monthly subscriptions.
For the year ended December 31, 2009, net cash provided by
operating activities was $67.6 million. Net cash provided
by operating activities consists of net income as adjusted for
non-cash expenses and an increase in our deferred revenue
balance. Net income was $21.3 million for the year ended
December 31, 2009. Non-cash expenses, including
depreciation, amortization of content database costs,
amortization of acquired intangible assets, stock-based
compensation and amortization of deferred financing costs,
totaled $40.5 million for year ended December 31, 2009
for a decrease of $7.3 million from the year ended
December 31, 2008. Additionally, an increase in deferred
revenue of $8.5 million for cash received from subscribers,
but not yet recognized in revenue, contributed to the cash
provided by operating activities. Net cash provided by operating
activities increased $12.4 million in the year ended
December 31, 2009 as compared to the year ended
December 31, 2008. The increase in cash provided by
operating activities was due primarily to an increase in net
income.
For the year ended December 31, 2008, net cash provided by
operating activities was $55.2 million. Net income was
$2.4 million for the year ended December 31, 2008.
Non-cash expenses, including depreciation, amortization of
content database costs, amortization of acquired intangible
assets, stock-based compensation, impairment of content database
costs and amortization of deferred financing costs, totaled
$47.8 million. Additionally, an increase in deferred
revenue of $4.4 million for cash received from subscribers,
but not yet recognized in revenue, contributed to the cash
provided by operating activities. The increase in cash provided
by operating activities in 2008 of $17.7 million was due
primarily to an increase in non-cash amortization of
$21.0 million which had the effect of reducing net income,
without reducing cash.
Net Cash
Used in Investing Activities
For the nine months ended September 30, 2010, net cash used
in investing activities totaled $24.2 million, an increase
of $10.7 million as compared to the nine months ended
September 30, 2009. Net cash used in investing activities
consisted of business acquisitions and investments in capital
equipment and content databases. The increase in net cash used
in investing activities was due to $8.1 million in cash
used to acquire Genline and ProGenealogists and increased
purchases of capital equipment and content databases.
For the year ended December 31, 2009, net cash used in
investing activities totaled $22.8 million and consisted of
investments in capital equipment and content database costs. Net
cash used in investing activities increased $2.2 million in
the year ended December 31, 2009 as compared to the year
ended December 31, 2008. The increase in net cash used in
investing activities is primarily due to increased purchases of
capital equipment during the year ended December 31, 2009.
For the year ended December 31, 2008, net cash used in
investing activities totaled $20.6 million and consisted of
investments in capital equipment and content database costs.
Acquisition of capital equipment remained relatively constant
and the investment in content database costs modestly declined
between 2008 and 2007. The successor period from
December 6, 2007 through December 31, 2007 included
$279.5 million of cash outflows related to the Spectrum
investment.
Net Cash
Provided by or Used in Financing Activities
For the nine months ended September 30, 2010, net cash used
in financing activities totaled $83.6 million, an increase
of $65.8 million as compared to the nine months ended
September 30, 2009. Net cash used in financing activities
consisted primarily of principal payments on long-term debt of
$100.0 million partially offset by proceeds from stock
option exercises of $9.5 million and excess tax benefits
from stock-based compensation of $7.6 million.
63
For the year ended December 31, 2009, net cash provided by
financing activities totaled $15.3 million and consisted
primarily of net proceeds from our initial public offering in
November 2009 and to a lesser extent proceeds from stock option
exercises partially offset by net cash uses of principal
payments on long-term debt and, to a lesser extent, payments to
repurchase common stock. Net cash provided by financing
activities increased $22.1 million in the year ended
December 31, 2009 as compared to the year ended
December 31, 2008. The increase was due to net proceeds
from the companys initial public offering of
$47.8 million partially offset by increased debt principal
payments of $26.0 million, which included a
$10.9 million excess cash flow payment that was made in May
2009 and an additional principal payment of $12.5 million
in November 2009 as a result of the initial public offering, in
addition to the regularly scheduled principal payments.
For the year ended December 31, 2008, net cash used in
financing activities totaled $6.8 million and consisted
primarily of principal payments on long-term debt and to a
lesser extent repurchases of common stock, partially offset by
stock option exercises. The successor period from
December 5, 2007 through December 31, 2007 includes
cash inflows of $136.1 million of proceeds from the
issuance of long-term debt and $109.8 million of proceeds
from the issuance of common stock in connection with the
Spectrum investment. Between 2008 and 2007, principal payments
on long-term debt decreased $8.0 million.
Contractual
Obligations
The following table summarizes our principal contractual
obligations as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
4-5
|
|
|
After
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Long-term
debt
(1)
|
|
$
|
100,025
|
|
|
$
|
28,416
|
|
|
$
|
71,609
|
|
|
$
|
|
|
|
$
|
|
|
Interest on long-term
debt
(1)(2)
|
|
|
8,133
|
|
|
|
3,412
|
|
|
|
4,721
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
12,129
|
|
|
|
2,420
|
|
|
|
4,285
|
|
|
|
3,213
|
|
|
|
2,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash
obligations
(3)
|
|
$
|
120,287
|
|
|
$
|
34,248
|
|
|
$
|
80,615
|
|
|
$
|
3,213
|
|
|
$
|
2,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
On September 9, 2010, our
long-term debt was paid in full. See Note 6 to our
consolidated financial statements for further details.
|
(2)
|
|
Interest on Long-Term Debt
represented estimated quarterly interest payments that assumed
that interest rates in effect at December 31, 2009 would
remain constant and all debt would be outstanding until its due
dates. As our long-term debt had variable interest rates, actual
payments varied due to changes in LIBOR and prime.
|
(3)
|
|
Amounts exclude uncertain tax
position liability of $0.6 million, for which timing of
payments are not determinable.
|
Outstanding purchase orders, which represent authorizations to
purchase goods and services that are not legally binding, are
not included in contractual obligations. We believe current cash
balances, cash generated by future operating activities, and
cash available under our current credit facility will be
sufficient to meet our contractual cash obligations and other
operating cash requirements in 2010.
Long-Term
Debt
On September 9, 2010, we terminated and paid in full the
$76.2 million outstanding under our previous credit
facility from cash on hand, including the proceeds from our
initial public offering. Also, on September 9, 2010, in
connection with the payoff of the previous credit facility, we
entered into a new three-year $100.0 million principal
amount senior secured revolving credit facility with Bank of
America, N.A., as administrative agent and certain other
financial institutions. The new credit facility includes a
$5.0 million sublimit for the issuance of letters of credit
and a $7.0 million sublimit for swingline loans. As of
November 8, 2010, we have not drawn any funds under the new
credit facility.
Interest under the new credit facility is variable generally
based on LIBOR or the base rate (defined as the highest of
(a) the Federal Funds Rate plus 0.50%, (b) the Bank of
America prime rate and (c) the Eurodollar rate plus 1.00%),
plus a margin based on our consolidated leverage ratio. Each
swingline loan will bear interest at the base rate plus a margin.
64
The new credit facility matures September 9, 2013 and is
secured by a first-priority security interest in all of the
capital stock of our wholly-owned domestic subsidiaries and 65%
of the capital stock in our material foreign subsidiaries as
well as our currently owned and hereafter acquired real and
personal property assets, as well as those of our wholly-owned
domestic subsidiaries. Borrowings under the new credit facility
may be used to finance the on-going working capital needs of the
company and its subsidiaries and for general corporate purposes,
including permitted business acquisitions and capital
expenditures.
The new credit facility contains financial and other covenants,
including but not limited to, limitations on indebtedness,
liens, mergers, asset sales, dividends and other payments in
respect of equity interests, capital expenditures, investments
and affiliate transactions (subject to qualifications and
baskets) as well as a minimum fixed charge coverage ratio and a
maximum senior secured leverage ratio. A violation of these
covenants or the occurrence of certain other events could result
in a default permitting the termination of the lenders
commitments under the credit facility
and/or
the
acceleration of any loan amounts then outstanding. We were in
compliance with all financial and other covenants at
September 30, 2010. Note 6 to our consolidated
financial statements describes further the terms of the new
credit facility.
Operating
Leases
We have entered into various non-cancelable operating lease
agreements for our offices and distribution centers globally
with original lease periods expiring through 2016. We recognize
rent expense on our operating leases on a straight-line basis
beginning at the commencement of the lease.
Off-Balance
Sheet Arrangements
As part of our ongoing business, we do not engage in
transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities.
Accordingly, we are not subject to financing, liquidity, market
risk, or credit risk arising due to off-balance sheet
arrangements.
Indemnifications
In the ordinary course of business, we enter into contractual
arrangements under which we agree to provide indemnification of
varying scope and terms to business partners and other parties
with respect to certain matters, including, but not limited to,
losses arising out of our breach of such agreements and out of
intellectual property infringement claims made by third parties.
In these circumstances, payment may be conditional on the other
party making a claim pursuant to the procedures specified in the
particular contract. Further, our obligations under these
agreements may be limited in terms of time
and/or
amount, and in some instances, we may have recourse against
third parties for certain payments. In addition, we have
indemnification agreements with our directors and certain of our
executive officers that require us, among other things, to
indemnify them against certain liabilities that may arise by
reason of their status or service as directors or officers. The
terms of such obligations may vary.
Quantitative
and Qualitative Disclosures about Market Risk
We are exposed to market risks in the ordinary course of our
business. These risks include primarily interest rate and
foreign currency exchange risks.
On September 9, 2010, we terminated and paid in full the
$76.2 million outstanding under our previous credit
facility from cash on hand, including the proceeds from our
initial public offering. Until such time as we draw down on our
new credit facility, our exposure to interest rate risk is
minimal. As of December 31, 2009, we had outstanding
floating-rate term loan debt under our previous credit facility
of $100.0 million, $28.4 million of which was then
current. Under our previous credit facility, we were required to
maintain one or more interest rate swap or cap agreements for
the aggregate amount of $90.0 million through December
2010. Accordingly, we became party to an interest rate cap
agreement that effectively fixed the LIBOR rate on
$90.0 million of principal value of our outstanding term
loans at 6%. As of December 31, 2009, the fair value of the
interest rate cap was nominal. This agreement expires on
December 31, 2010. For further information on the interest
rate cap, see Note 6 of the accompanying notes to our
consolidated financial statements.
65
A hypothetical interest rate change of 1% on our previous credit
facility would have changed interest incurred for the year ended
December 31, 2009 by $1.2 million. A hypothetical
interest rate change of 1% on our previous interest rate cap
agreement would not have materially changed the fair value of
the interest rate cap at December 31, 2009.
We have an investment policy with the objective to minimize the
market risk exposure of our cash equivalents and short-term
investments, which are affected by credit quality and movements
in interest rates. This policy focuses on managing liquidity and
preserving principal and earnings.
Our cash equivalents are primarily held for liquidity purposes
and are comprised of high quality investments including
qualified money market funds. Because our cash and cash
equivalents have a relatively short maturity, our
portfolios fair value is relatively insensitive to
interest rate changes. Our short-term investments are classified
as available for sale and are held in high quality investments
including U.S. government agencies with maturities of less
than a year. A change in interest rates of 1% would result in a
change in fair value of these securities of $0.3 million. A
change in interest rates for cash equivalents and short-term
investments of 1% would have a change in interest income of
$1.0 million.
The carrying amount of cash and cash equivalents, short-term
investments, trade receivables and other current assets
approximates fair value due to the short-term maturities of
these instruments. The fair values of all other financial
instruments, including debt, approximate their book values as
the instruments are short-term in nature or contain market rates
of interest.
We have foreign currency risks related to our revenues and
operating expenses denominated in currencies other than the
United States dollar. We pay the majority of our non United
States dollar expenses from revenues earned in the relevant
currency. Our profits earned in foreign currencies may therefore
be subject to foreign currency risk. The volatility of exchange
rates depends on many factors that we cannot forecast with
reliable accuracy. In the event our foreign sales and expenses
increase, our operating results may be more greatly affected by
fluctuations in the exchange rates of the currencies in which we
do business. At this time we do not, but we may in the future,
enter into derivatives or other financial instruments in an
attempt to hedge our foreign currency exchange risk. It is
difficult to predict the impact hedging activities would have on
our results of operations.
In connection with the acquisition of Genline, we entered into a
forward contract to purchase 53 million Swedish kronor. We
entered into the forward contract to lock in the amount of
U.S. dollars required to settle the transaction and acquire
Genline. We did not qualify the contract for hedge accounting
and therefore the fair value gains and losses on the contract
are recorded in net income. In July 2010, the forward contract
was settled resulting in a gain of approximately
$0.4 million.
Recent
Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board, or FASB,
issued amended standards for determining whether to consolidate
a variable interest entity. These new standards amend the
evaluation criteria to identify the primary beneficiary of a
variable interest entity and requires ongoing reassessment of
whether an enterprise is the primary beneficiary of the variable
interest entity. The provisions of the new standards were
effective for annual reporting periods beginning after
November 15, 2009 and interim periods within those fiscal
years. The adoption of the new standards did not have an impact
on our consolidated financial position, results of operations
and cash flows.
In October 2009, the FASB issued new revenue recognition
standards for arrangements with multiple deliverables. The new
standards permit entities to use managements best estimate
of selling price to value individual deliverables when those
deliverables do not have vendor specific objective evidence of
fair value or when third-party evidence of selling price is not
available. Additionally, these new standards modify the manner
in which the selling price is allocated across the separately
identified deliverables by no longer permitting the residual
method of allocating the selling price. The requirements of
these new standards are to be applied prospectively for revenue
arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, although early
adoption is permitted. We do not expect that the adoption of
these standards will have a material impact on our consolidated
financial position, results of operations or cash flows.
66
BUSINESS
Mission
Ancestry.coms mission is to help everyone discover,
preserve and share their family history.
Overview
Ancestry.com is the worlds largest online family history
resource, with nearly 1.4 million paying subscribers around
the world as of September 30, 2010. We have been a leader
in the family history market for over 20 years and have
helped pioneer the market for online family history research. We
believe that most people have a fundamental desire to understand
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interested in discovering, preserving and sharing their family
history is a potential user of Ancestry.com. We strive to make
our service valuable to individuals ranging from the most
committed family historians to those taking their first steps
towards satisfying their curiosity about their family stories.
The foundation of our service is an extensive and unique
collection of billions of historical records that we have
digitized, indexed and put online over the past 14 years.
We have developed efficient and proprietary systems for
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We have built the worlds largest online community of
people interested in their family histories, and we believe that
this network is highly valuable to our subscribers. Our
community is a large and growing source of user-generated
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20 million family trees containing two billion profiles.
They have uploaded and attached to their trees a combination of
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In addition, we continue to deploy tools and technologies to
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history collaboration network in which insights and discoveries
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We provide ongoing value to our subscribers by regularly adding
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through the growth of our global community. Our revenues have
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$224.9 million in 2009, a compound annual growth rate of
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Ancestry.com Web sites from 2005 to 2009 was approximately 17%.
Industry
Background
Societies around the world have historically documented the
names, dates and places associated with important events of
their citizenry. For example, parish records in the United
Kingdom date back to the early sixteenth century. Civil and
religious bodies have recorded census, birth, marriage and death
data. Our societies have documented immigration and
international travel, preserved the war records of our veterans
and recorded data regarding business and real property
transactions. Newspapers and private organizations have
documented the daily lives of our ancestors. Throughout the
world, in archives maintained by national, regional and local
governments, religious institutions and historical societies,
there are massive quantities of records and documents that tell
us about
67
the lives of our ancestors. Beyond these institutional sources
of content, there is a tremendous amount of rich family and
historical content stored in personal archives and collections.
While many document archives are open to the public, the vast,
dispersed and disorganized nature of these data collections has
made researching family history a time consuming, painstaking
and expensive endeavor. Therefore, it has been difficult for
individuals to fulfill their desire to learn about their family
history. Records relevant to researchers have been kept
primarily in paper and microfilm form and have been dispersed
among government bodies, private collections and individuals.
Furthermore, these records have often been poorly indexed,
requiring a researcher to sift through unknown quantities of
data to identify the few key pieces of information relevant to
his or her family tree. Only the most passionate of family
historians has had the time, resources and will to engage
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historians in nations with substantial growth resulting from
immigration, such as the United States, Canada and Australia,
gaining access to information about ancestors more than a few
generations back has often required searching for records in
other countries and in other languages. As a result, a
researcher can spend years piecing together information about a
single individual in a family tree.
Despite these challenges, many people have been interested in
pursuing family history research. Over the years, various
businesses were established to serve this community of family
history enthusiasts. These businesses were generally limited to
offering specialized family history products or services such as
research guides, reference works, vanity press publications or
professional genealogist research services. Until recently, the
industry was highly fragmented and not readily accessible to the
large universe of people interested in discovering their family
history.
The introduction of Web-based technologies greatly enhances
opportunities for engaging in family history research by
enabling new ways of searching and organizing family data, as
well as significantly easier communication and networking. The
aggregation of data online substantially reduces the need for
researchers to travel in search of discrete records, thereby
reducing the significant time and expense of family history
research. Moreover, the ability to search digitized content,
when properly categorized and indexed, allows researchers to
access data more efficiently than browsing paper documents and
microfilm offline. Collaboration through the Internet further
enriches family history research, as researchers can more easily
share their findings, consult with one another and engage in
debates as new evidence continuously unfolds. All of this makes
family history research more accessible to a broader group of
people.
Despite the opportunities offered by the Internet, there are
numerous obstacles that inhibit companies from successfully
leveraging Web-based technologies for family history research.
These obstacles include:
Consumer
Challenges
Consumers are Often not Aware of Family History Research Data
Availability.
Though most people have an interest
in their family history, many are not aware that relevant data
about their own ancestors may be available and easily
discoverable online.
Family History Research is Perceived to be a Daunting Task,
and Consumers Need Assistance.
Consumers
typically feel they do not know enough about their ancestors to
begin the research process or do not know what resources are
available to begin researching their family history. Consumers
need guidance with their family history research.
Consumers Want a Comprehensive Easy-To-Use
Solution.
We believe that simply providing
records online does not present a sufficiently compelling value
proposition for consumers. Consumers want an easy-to-use
interface to perform searches that provide quick and relevant
results. They also want to be able to preserve their family
histories and organize them into cohesive narratives, which can
include hundreds of individuals and thousands of records.
Moreover, consumers want to easily share their data with others.
Family History Collaboration has been
Difficult.
Consumers greatly benefit from
leveraging the ongoing searches and discoveries of other people.
However, most offline and online family history research tools
are tailored towards individual-based searches for specific
records. The very nature of a family tree means that everyone is
connected to dozens, hundreds or even thousands of relatives by
just a single ancestor, depending on how many
68
generations separate us from that ancestor. Connecting to and
communicating with these relatives can greatly aid family
history research.
Business
Challenges
Content Digitization and Indexing is Difficult, Requiring a
Significant Investment of Time, Money and Technology to
Scale.
Historical records typically exist in
physical formats such as paper and microfilm. Digitizing such
records requires identifying, securing rights to and then
acquiring the physical materials in order to scan them. Records
are often handwritten, making them difficult to scan and index
accurately using automated optical character recognition
scanning technologies. Because of these difficulties, it is
often necessary to use special scanning techniques to obtain a
clear image and to manually transcribe records to create a
searchable index.
Digital Search for Family Records is Challenging and
Complicated.
Most search engines are not designed
to deal with the specific challenges of searching digital
records for family history purposes. Delivering optimal search
results requires advanced search technology designed to deal
with incomplete information, record errors and cultural,
phonetic and other variances in names, dates and places. An
effective family history search engine must be able to search
both structured data, like census rolls and military records, as
well as unstructured data, such as newspapers and other free
form text.
Network Scale is Needed for Collaboration and
Community.
Web sites without a critical mass of
users generally lack the scale to create the network effect that
is beneficial to a rewarding user experience. Network and
community scale allows users to connect with one another,
collaborate and leverage the communitys collective
research efforts.
The
Ancestry.com Solution
Ancestry.com is the recognized leader in the family history
market and an innovator in the development of Web-based
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development of a unique consumer Internet application and
underlying proprietary technologies, substantial investment in
content and the aggregation of network scale, we are
revolutionizing how people discover, preserve and share their
family history. Our solution includes:
Consumer
Benefits
Easy-to-Use
Web Site.
Our technology platform makes family
history research and networking easier, more enjoyable and more
rewarding. We seek to make Ancestry.com relevant and easy to use
for both new and experienced subscribers, and we continue to
advance our online tools to help our subscribers efficiently
search our content, organize their research, collaborate with
others and share their stories.
Easy Access to Comprehensive Data Sources.
We
have aggregated and organized a comprehensive collection of
historical records, with particular emphasis on records from the
United States, the United Kingdom, Canada and Australia. Our
technologies allow subscribers to locate relevant family history
records quickly and easily, resulting in a rewarding experience
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relatives, however limited, and can immediately view the vast
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proprietary record hinting technology suggests content to our
subscribers, alerting them through hints delivered
online and by email of potential matches to further populate
their trees from our company-acquired and user-generated
content. We believe that these personalized hints can
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effectively, thereby making their experience more rewarding.
Valuable Community.
Our community of family
history enthusiasts is a significant component of our
subscription value proposition. Our subscribers can collaborate,
contribute content and assist each other with family history
research. The publicly available family trees created by our
registered users can provide new subscribers with a substantial
head start researching their families and the opportunity to
connect with relatives interested and engaged in the discovery
and preservation of a shared family lineage.
69
Competitive
Advantages
Proprietary Technology Platform Provides Robust Search
Capability and Ease of Use.
We have built a
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is designed to deal with the inherent difficulties of searching
historical content. Our record hinting technology uses a
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content to our registered users. Our digitization and indexing
processes streamline the complex and time-consuming task of
putting historical records online. Our Web site technology makes
it easy for registered users to upload their own records to
their family trees, thereby making those records searchable by
others.
Extensive and Accessible Content
Collection.
We have digitized and indexed the
largest online collection of family history records in the
world, with collections from the United States, the United
Kingdom, Canada and Australia, as well as Sweden, Germany,
France, Italy and China. We have invested approximately
$95 million to date in making this content available to our
subscribers and continue to invest a substantial amount of time
and money to acquire or license, digitize, index and publish
additional records for our subscribers. In total, our
collections represent over six billion records. We have amassed
a large collection of national, state, local and private
historical records, including census, birth, marriage, death,
immigration, naturalization, court, probate, land and military
records, as well as directories and member lists, historic maps,
slave narratives, family and local histories and newspapers and
periodicals.
Community of Dedicated and Highly Engaged Subscribers
Enhances Our Value Proposition.
We have an active
and dedicated community of subscribers. We believe our online
community is highly valuable to our subscribers, because the
ever expanding pool of user-generated content and collaboration
and sharing opportunities can significantly enhance the family
history research process. Our registered users have created over
20 million family trees containing two billion profiles.
They have uploaded and attached to their trees over
45 million photographs, scanned documents and written
stories. Users have made over 85% of the trees on our Web sites
public, along with associated user-generated content, making
these trees searchable and viewable by the full Ancestry.com
subscriber community. In addition, as of September 30,
2010, our subscribers have attached over 700 million
records to their family trees from our company-acquired content
collection, a process that is helping further organize this
collection by associating specific records with people in family
trees. In addition, we offer Ancestry.com Member Connect
service, a collaboration network that allows our subscribers to
more easily connect, communicate and collaborate with distant
relatives who are researching common ancestors. We believe that
as our network of registered users grows, and more registered
users submit content and connect with each other to share their
findings, our value proposition to our subscribers will increase.
Growth
Strategy
Our goal is to remain the leading online resource for family
history and to grow our subscriber base in the United States and
around the world by offering a superior value proposition to
anyone interested in learning more about their family history.
Our plan to achieve long-term and sustainable growth is to
increase our subscriber base in the United States and around the
world by serving our loyal base of existing subscribers, by
attracting new subscribers and by expanding the market to new
consumers. In pursuit of these goals, we will continue to focus
on the following objectives:
Continue to Build Our Premium Brand and Drive Category
Awareness.
We continue to expand and improve our
consumer marketing activities in the United States, which we
believe have substantially increased our brand awareness. As
part of our marketing efforts, we have again purchased product
integration in the television show Who Do You Think You
Are? in the United States, which originally premiered on
NBC primetime television in March 2010 and is scheduled to air
again in the
2010-2011
season. We believe that the program will continue to increase
awareness of the family history category and our brand. We
believe that continued investments in broadcast media and
consumer marketing will allow us to enhance our premium brand,
increase awareness of the family history category and enhance
our ability to acquire new subscribers.
Further Improve Our Product and User
Experience.
We believe that investments in our
product platform can make family history research easier, more
enjoyable and more accessible. We continuously seek to advance
and improve our core search and hinting technologies, our
document image viewer, our family tree building and viewing
70
experience and our sharing and publishing capabilities. We
believe that we can leverage the latest Web technologies to
further transform the way people discover family history online.
Regularly Add New Content.
A vast universe of
historical records around the world is yet to be digitized, and
we intend to continue to expand our collection of digital
historical records. We will seek to maintain and extend our
existing relationships with archives and other holders of
content throughout the world and to find new sources of unique
family history content. We also plan to continue to promote the
growth of user-generated content by making the Ancestry.com Web
sites even better places to upload and share personal family
history documents and memories.
Enhance Our Collaboration Technologies.
With
nearly 1.4 million subscribers around the world as of
September 30, 2010, we believe that we have the scale to
further expand our unique family history collaboration network
and to help relatives share insights and discoveries about
common ancestors. We believe that collaboration is a fundamental
part of family history research and that social networking
technologies applied to family history research can provide our
subscribers with even greater value. We intend to make family
history research more collaborative and appealing to a larger
market.
Grow Our Business Internationally.
We have
well-established and growing businesses in the
United States, the United Kingdom, Canada and Australia. We
believe that our business model of digitizing historical content
and making records available online has appeal in multiple
markets around the world, and we will seek to implement this
model in other international markets, as we have recently done
with our acquisition of Genline in Sweden. In the third quarter
of 2009, we launched Mundia.com, a product intended for markets
where we do not have a presence. Mundia.com will leverage our
existing technologies and user-generated content to power a
lower-priced family history networking Web experience.
We believe our previous investments in technology and content
have provided a foundation for a scalable business model that
will help us to increase our margins over the long term and
effectively manage our costs while growing our business.
However, we expect to continue to devote substantial resources
and funds to improving our technologies and service offerings
and acquiring new and relevant content, and also to expanding
awareness of our brand and category through marketing, which may
reduce our margins in the near term.
Ancestry.com
Web sites
Ancestry.com.
On Ancestry.com, subscribers can
efficiently search through birth, marriage and death records,
census records, immigration documents, photographs, maps,
military records, personal narratives and newspapers. Our
collection includes the digitized United States Federal Census
available from 1790 to 1930 and immigration records, including
passenger lists from ships arriving at United States ports from
1820 to 1960, including Ellis Island. Our subscribers can also
access records from specialized databases, such as military
records dating from the seventeenth century to the end of the
Vietnam War, our
African-American
records collection, including slave narratives, our Jewish
history collection, including Holocaust survivor lists, and our
Native American collection, including applications for
enrollment in the Five Civilized Tribes. In addition,
subscribers to Ancestry.com have access to a global collection
of records from the United Kingdom, Canada and Australia,
including United Kingdom and Canadian census collections and
baptism, marriage, death and burial records from the London
Metropolitan Archives, as well as records from Sweden, Germany,
France, Italy and China.
Registered users can create family trees and attach their own
records to those trees. Subscribers can search company-acquired
and user-generated content and attach relevant records from our
content collections to individuals in their family trees. Users
have made over 85% of the trees on Ancestry.com public, along
with associated user generated content, offering many
subscribers a substantial head start in their family history
research by allowing them to populate their own trees with
information collected by registered users with common ancestry.
Our users attached an average of nearly eight million records
per week to their trees and accepted an average of nearly nine
million hints per week for the quarter ended September 30,
2010, compared to an average of four million records per week
and an average of four million hints per week in the quarter
ended September 30, 2009.
Our Member Connect service is a family history collaboration
network that connects subscribers who share common ancestors.
This collaboration network facilitates the sharing of insights
and discoveries among distant and
71
close relatives and creates a social component to the
Ancestry.com subscriber experience. Subscribers and registered
users can also share their family trees and research with
friends and relatives. Users can invite others to help build
their trees and upload user-generated content of their own. In
addition, our users have access to an online learning center,
technical support, educational webinars and community message
boards.
We offer two subscription packages on Ancestry.com,
U.S. Deluxe and World Deluxe, and subscribers primarily
choose annual or monthly subscription periods. Registered users
who are not subscribers can create free family trees online, can
upload family photos, stories and documents to their tree, and
will receive hints to relevant records from our content
collections. Subscribers to our U.S. Deluxe package gain
unlimited access to the complete United States collection of
records, including the ability to view images of original
records. They also can communicate and collaborate with other
members of the subscriber network. Our World Deluxe plan
includes unlimited access to all of the content on our
Ancestry.com Web sites, including the content from our
U.S. Deluxe plan plus our global collection of records.
We offer new registered users a
14-day
free
trial. We charge a subscriber the full period subscription
amount at the beginning of each subscription period. All
subscriptions renew automatically unless cancelled, which can be
done easily online or by telephone. Our primary United States
pricing plans are:
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Product
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Monthly
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Annual
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U.S. Deluxe
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$
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19.95/month
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$
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155.40/year
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World Deluxe
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$
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29.95/month
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$
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299.40/year
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International Ancestry.com Web
sites.
Generally, our international Ancestry.com
Web sites are modeled on our United States Ancestry.com Web site
and offer similar services in the local market language,
including family tree creation, collections of digitized
historical records obtained from local market archival sources,
as well as user-generated content. We currently operate
country-specific Ancestry.com Web sites for eight countries, in
addition to the United States the United Kingdom,
Canada, Australia, Sweden, Germany, France, Italy and China. We
offer country-specific subscriptions, tailored to the local
market, and World Deluxe subscriptions on each of our
international Ancestry.com Web sites.
Other
Products and Web sites
Family Tree Maker.
Family Tree Maker is the
leading family history desktop software on the market, with over
1.6 million units distributed since 2004. Most Family Tree
Maker versions include a limited subscription to the
Ancestry.com Web site. Family Tree Maker is sold through retail
stores and on our Web sites.
Ancestry.com DNA.
We sell DNA testing kits
that help people learn more about their family history and
ancient ancestry. The Paternal Lineage Test (Y-chromosome)
matches a test-taker with genetic relatives who share a common
paternal ancestor. The Maternal Lineage Test (mitochondrial DNA)
provides information about maternal ancient origins.
Ancestry.com | Expert Connect.
Our Expert
Connect product is a genealogist marketplace that connects
people with professional genealogists around the world who can
provide custom family history research. Services available range
from the simple lookup of a specific record in a far-away
courthouse to fully customized family histories prepared by a
professional genealogist. Through a competitive bid and brokered
offer process, people can engage experts across the globe to
conduct personalized research. We earn a commission on each
engagement. Our recent acquisition of the professional genealogy
firm ProGenealogists reinforces our ability to serve our Expert
Connect customers seeking dedicated, personal support in their
family history research.
Footnote.com.
In October 2010, we acquired
iArchives, a leading digitization service provider that also
operates Footnote.com, a leading American history Web site. We
believe that the acquisition will provide Ancestry.com with a
complementary consumer brand, expanded content offerings and
enhanced digitization and image-viewing technologies.
Mundia.com.
Mundia.com is our global,
multi-language
family history networking service intended for markets in which
we do not have a local presence. Mundia.com is designed to
enable customers to efficiently
72
collaborate and share family history content with others having
common family histories and interests. While membership is
currently free, we may initiate a lower-priced fee-based
membership structure in the future.
Other Sites.
RootsWeb.com is a free genealogy
community on the Internet. Genealogy.com is a legacy service
that offers a collection of family and local histories, vital
records content and military records, most of which are also
available on Ancestry.com. Myfamily.com is a family networking
service that provides families with a safe and secure home
on the Web where they can share photos, videos, stories,
news, calendars and family history insights. Jiapu.com is our
China Web site focused on family networking and ancestral family
history. Finally, on July 15, 2010, we acquired Genline,
owner and operator of the Swedish family history Web site
Genline.se, which increased our presence in the Swedish market.
Subscribers
Our subscribers range from the most committed family historians
to those taking their first steps towards satisfying a simple
curiosity about their family story, and we seek to make our
service valuable to both groups. As of September 30, 2010,
we had nearly 1.4 million subscribers, approximately
two-thirds of whom reside in the United States.
Marketing
and Advertising
Our marketing efforts are focused on three primary goals:
retention of existing subscribers; conversion of registered
users to subscribers; and acquisition of new subscribers and
promoting our brand.
Retention Marketing.
Our retention marketing
is focused on establishing and maintaining long-term and
personalized relationships with our subscribers through
on-site
messaging and email, and through our subscriber support center.
We seek to maximize retention and encourage subscribers to
upgrade to premium packages by delivering a superior customer
experience and value. We monitor subscription package mix and
durations, payment processing, cancellation reasons, and overall
subscriber satisfaction.
Conversion Marketing.
Our conversion marketing
efforts are focused on converting registered users to paying
subscribers through
on-site
messaging, email, targeted offers and compelling product
features like record hinting.
Subscriber Acquisition and Brand Marketing.
We
pursue a multi-channel subscriber acquisition and brand
marketing program that includes television advertising, online
display advertising, paid search, search-engine optimization, a
broad affiliate network and public relations. Through our
advertising, we seek to increase brand and category awareness
and to attract new subscribers. We actively manage our media mix
in order to maximize the efficiency of our marketing investment.
As part of our marketing efforts, we have again purchased
product integration in a United States version of the successful
BBC series Who Do You Think You Are? that features
American celebrities. This program premiered on NBC primetime
television in the United States in March 2010, and NBC has
announced a second season of Who Do You Think You
Are? for the 2010 2011 television season. Part
of our product integration includes a co-branded Ancestry.com
Web site developed in cooperation with NBC. We believe that the
program will help increase awareness of the family history
category and our brand. We can provide no assurance that the
show will not be cancelled. If the show were cancelled, it could
delay, reduce or eliminate various expenses that we currently
anticipate incurring in connection with the show.
Search,
Family Tree and Collaboration Technologies
We have applied substantial resources to develop and maintain
proprietary technologies designed to provide a rewarding
experience and compelling value proposition to our subscribers.
Our technology platform allows our subscribers to access our
content collections, build family trees, collaborate with other
members of our community and share their discoveries with
friends and relatives. We believe our technologies provide us
with a significant competitive advantage and we intend to
continue developing and enhancing these proprietary technologies.
Vertical Search Engine.
Historical documents
can be difficult to search effectively using traditional search
engines because of variations in names, changes in geopolitical
boundaries and other factors. Our proprietary vertical search
engine provides an innovative, technology-driven solution to the
challenges created by the inherent
73
difficulty of searching historical content. For example, with
our search engine, a subscribers search for
Catherine Lawson, born in 1880 and residing in
Boston would not only return exact matches of the search
terms, but would also return near-matches that exhibit name and
spelling variances (
e.g.
, Katie Lawson), date variances
(
e.g.
, born in 1877 or 1883) and geographical
variances (
e.g.
, living in Lowell, Mass., 30 miles
away), with search results ranked in order of probability of
match. The technology of our vertical search engine allows our
subscribers to successfully search our many collections for
content that they otherwise might not have located.
Record Hinting.
Our proprietary record hinting
technology performs a real-time algorithmic analysis of a
users family tree and then suggests new records and other
family trees that might match the users. We believe that
these personalized hints can accelerate our
subscribers research, thereby making their experience more
rewarding. This technology uses not only the information
available to us about a particular individual in a tree, but
also information available about the persons close
relatives, to perform a more detailed and advanced search of our
content than would be practical to create manually. These
dynamic search results are pushed to registered users as hints
using a shaky leaf icon that subscribers can review
to add relevant content to their family trees. We also notify
registered users of new hints by email.
Subscriber Collaboration.
As our subscriber
base grows, we believe our subscribers will benefit from
enhanced collaboration opportunities driven by a growing network
effect and new product features. A major focus of our current
technology investment is the further advancement of these
collaboration features, including our Member Connect service. We
view collaboration and family history networking as a key
addition to the value proposition that we deliver to our
subscribers.
Content
Process and Technologies
Company Content Acquisition.
We have spent
approximately $95.0 million to acquire, digitize and index
hundreds of millions of documents. We own most of the images in
our databases, in some cases on a non-exclusive basis, though we
generally do not own the underlying original historical
documents. We also obtain a portion of our content pursuant to
ongoing licensing agreements, primarily in the United Kingdom,
some of which have finite terms. We license a significant amount
of our United Kingdom content from the United Kingdom National
Archives under several license agreements that generally have
ten year terms, with varying automatic extension periods. These
agreements with the United Kingdom National Archives generally
have initial expiration dates from 2012 to 2026. The agreements
are generally terminable by either party for breach by the other
party and by the United Kingdom National Archives upon our
insolvency or bankruptcy. Some of these agreements permit the
United Kingdom National Archives to terminate these licenses if
we undergo a change of control.
We plan to continue to acquire new content on an ongoing basis
to offer our subscribers additional historical records for their
research. We analyze the most frequently used databases to help
us determine what types of records are most valuable to our
subscribers. On our Ancestry.com Web sites in the United States,
the United Kingdom, Canada and Australia, where we already have
a critical mass of historical records in our databases, we seek
to add sufficient content each year to keep our subscribers
engaged.
We believe that we offer governments and other record keepers a
significant service when we acquire or license their content.
Because we digitize and index the records, we often preserve
information contained in fragile records from damage or
destruction. In addition, the process of digitizing billions of
records and indexing billions of names is expensive. While some
governmental or non-profit entities have an interest in
digitizing and indexing such records, funding such projects is
often a challenge. Our service allows the owners of historical
records to preserve such records and make them available to
people around the world in an efficient and cost effective
manner. We have built long-term relationships with archival
partners, such as United States National Archives and Records
Administration, The National Archives of the United Kingdom and
the Library and Archives Canada. We also have relationships with
historical societies, religious institutions, such as The Church
of Jesus Christ of
Latter-day
Saints, and private collectors of historical content.
Digitization.
Working with historical
documents is challenging because many source documents are
handwritten or damaged, and many microfilm images are of poor
quality. We have developed proprietary technologies and
processes that have allowed us to efficiently handle and
digitize hundreds of millions of
74
documents that vary materially in format and quality. We
digitize content in our headquarters in Provo, Utah, in the
Washington, D.C. area, in London, England and in
approximately 20 distributed locations around the world.
Indexing.
We have invested significant
resources in the indexing of records to make our content
collection much more accessible and searchable for our
subscribers. We outsource a significant portion of our indexing
projects to vendors that use our proprietary tools to transcribe
handwritten documents to create indexes. We own the indexes that
our vendors create. In addition, we have launched the
Ancestry.com World Archives Project, an effort which lets our
registered users contribute their time to index images of
historical records online through our proprietary transcription
tool and user interface. In return for the efforts of our
contributors, we make indexes created through the World Archives
Project available for free to all registered users.
User-Generated Content.
Our registered users
are a meaningful source of content on our Web sites. Individuals
often have significant family records, information, photographs
and stories that are of interest to others with common family
history. Even close family members might not be aware that other
family members hold such records. With the introduction of
inexpensive consumer scanners and readily available scanning
technology, registered users can upload their information to
their family trees. Uploading these records not only preserves
them from damage or destruction, but also makes them sharable
and accessible globally to other Ancestry.com subscribers. We
encourage our registered users to make their family trees
visible and searchable by other subscribers. The publicly-shared
family trees on our Web site offer many subscribers a
substantial head start in their family history research.
Operations
Web Sites and Technology Operations.
Our Web
sites are hosted on hardware and software co-located at a
third-party facility in Salt Lake City, Utah. We have
established a disaster recovery facility located at a
third-party facility in Denver, Colorado. We have designed our
Web sites to be highly available, secure and cost-effective
using a variety of proprietary software, freely available and
commercially supported tools. We can scale to accommodate
increasing numbers of subscribers by adding relatively
inexpensive industry-standard hardware. We use encryption
technologies and certificates for secure transmission of
personal information between subscribers and our Web sites.
Maintaining the integrity and security of our Web sites is
critical and we have a dedicated security team that promotes
industry best practices and drives compliance with data security
standards.
We devote a substantial portion of our resources to developing
new technologies and features and improving core technologies.
As of September 30, 2010, approximately 35% of our
full-time employees were devoted to our technologies, including
product development, Web and development operations and
information systems.
Subscriber Services.
Our subscriber services
team seeks to ensure that our existing subscribers enjoy a high
degree of satisfaction from our Ancestry.com Web sites and that
registered users find the support they need to become
subscribers. Subscriber services representatives make
welcome calls to Ancestry.com trial subscribers,
provide telephone and email support, answer questions about the
Web sites, and help subscribers with their research. We operate
subscriber services from our Provo, Utah headquarters to ensure
that our representatives are integrated with the business and
our programs.
Competition
We face competition in our business from a variety of online and
offline organizations, some of which provide genealogical
records free of charge. We expect competition to increase in the
future. We generally compete on the basis of content,
technology, ease of use, brand recognition, quality and breadth
of products, service and support, price and the number of
network users with whom other users can collaborate. We believe
that we compete favorably with respect to these factors, and
that none of our competitors offers as broad an array of
products and services or as compelling a value proposition to
consumers interested in online family history research.
Ancestry.com and our similar international Web sites face
competition from:
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FamilySearch, and its Web site FamilySearch.org, a genealogy
organization that is part of The Church of Jesus Christ of
Latter-day
Saints. FamilySearch has an extensive collection of paper and
microfilm records. FamilySearch has digitized a large quantity
of these records and has published them online at
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FamilySearch.org, where it makes them available to the public
for free and through thousands of family history centers located
throughout the world. FamilySearch is a well funded organization
and is undertaking a massive digitization project to bring most
of its collection online.
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Commercial entities, including online genealogical research
services, library content distributors, search engines and
portals, retailers of books and software related to genealogical
research and family tree creation and family history oriented
social networking Web sites.
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Non-profit entities and organizations, genealogical societies,
governments and agencies that may make vital statistics or other
records available to the public for free.
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We expect our competition to grow, and our competitors may
include other Internet-based and offline businesses, governments
and other entities. Our current and future competitors may have
greater resources, more well-established brand recognition or
more sophisticated technologies, such as search algorithms, than
we do, or may more easily obtain relevant records in
international markets. Additionally, our current and future
competitors may make historical records available online at no
cost or on an advertising-supported basis rather than a
subscription basis. Our future competitors and their products
and services may be superior to any of our current competition.
There has recently been some consolidation in our industry, and
such consolidation could also increase competition in the
future, including competition with respect to acquisition of
content, exclusivity of content or pricing. To compete
effectively, we may need to expend significant resources on
content acquisition, technology or marketing and advertising. We
currently plan to distinguish ourselves from our competitors on
the basis of access to content, technological leadership and the
depth of our subscriber community.
Intellectual
Property
To protect our proprietary content and intellectual property, we
rely on trademark, copyright, patent and trade secret protection
laws and on contractual agreements with third parties. In the
United States, we have filed various trademark applications and
patent applications for certain aspects of our technologies, and
we have also filed trademark applications in certain foreign
countries for the Ancestry.com and other Web site names. Many of
our trademarks contain words or terms having a common usage and,
as a result, may not be protectable under applicable law.
Because of this concern, we have elected not to file
applications with respect to certain of our trademarks, and some
of our trademarks for which we have filed applications may not
be protectable. In the United States, we currently have a number
of patents and patents pending relating to various aspects of
our business. We intend to pursue patent coverage in additional
countries to the extent we believe such coverage is appropriate
and cost-efficient. We cannot be certain that any of our pending
or future applications will be granted. We rely primarily on
trade secret and similar intellectual property laws to protect
our search technology, software products and digitization and
indexing processes. Protection of trade secret and other
intellectual property rights can be uncertain, particularly
outside the United States.
We also possess intellectual property rights in aspects of our
digital content databases. However, our digital content
databases are not protected by any registered copyrights or
other registered intellectual property or statutory rights. Our
digital content databases are protected by user agreements that
limit access to and use of our data, and by our proprietary
indexing and search technology that we apply to make our content
searchable. Compliance with use restrictions is difficult to
monitor, and our proprietary rights in our digital content
databases may be more difficult to enforce than other forms of
intellectual property rights.
Our employees, contractors and other third parties with which we
work and who have access to our proprietary content and
confidential information sign agreements that prohibit the
unauthorized disclosure of our proprietary rights, information
and technologies.
Employees
As of September 30, 2010, we had approximately
675 full-time employees and approximately
110 part-time and contingent employees, which include
approximately 160 subscriber services and 160 digital processing
employees. None of our employees is covered by a collective
bargaining agreement, except with respect to a
76
minimal number of employees to the extent required by the laws
of certain foreign jurisdictions. We have not experienced
employment-related work stoppages and we consider our employee
relations to be good.
Facilities
Our corporate headquarters are located in Provo, Utah, where we
lease approximately 120,000 square feet of space. The term
of this lease runs through April 2016, and we have the right to
extend the lease for an additional five years. We also lease
office space in San Francisco, California, under a lease
that expires in September 2012, in Silver Spring, Maryland under
a lease that expires in November 2015 and in the United Kingdom
under a lease that expires in April 2012. We maintain small
offices in Canada, Australia, Sweden, France, Germany and China,
primarily for marketing and product development purposes, under
leases that expire at varying times from 2010 to 2014. We
believe that our current facilities are sufficient to meet our
needs for the foreseeable future.
Legal
Proceedings
In August 2009, we received a letter from counsel to Shutterfly,
Inc., alleging infringement of certain of its patents by our
operation of our MyCanvas.com Web site. If litigation were to
commence, we believe that we have substantive and meritorious
defenses to these claims and would contest any claim vigorously.
In addition, from time to time, we are a party to or otherwise
involved in legal proceedings or other legal matters that arise
in the ordinary course of business or otherwise. While
management does not believe that any pending legal claim or
proceeding will be resolved in a manner that would have a
material adverse effect on our business, we cannot assure you of
the ultimate outcome of any legal proceeding or contingency in
which we are or may become involved.
The
Spectrum Investment
We operated as The Generations Network, Inc., which we refer to
as the predecessor, until December 5, 2007. On
December 5, 2007, Generations Holding, Inc., which we refer
to as the successor, acquired The Generations Network, Inc. in
connection with an investment by Spectrum Equity
Investors V, L.P. and certain of its affiliates, which we
refer to collectively as Spectrum. The successor was created for
the sole purpose of acquiring the predecessor and had no prior
operations. The total purchase price for this transaction, which
we refer to as the Spectrum investment, was $354.8 million,
at an effective per share price of $5.40. As a result of the
accounting for the Spectrum investment, our fiscal year 2007 is
divided into a predecessor period from January 1, 2007
through December 5, 2007 and a successor period from
December 6, 2007 through December 31, 2007.
Financial
Information about Segments and Geographic Areas
We report our financial results as a single segment. For
financial information about our segment and our geographic
areas, please refer to Note 14 of the accompanying notes to
our consolidated financial statements.
77
MANAGEMENT
Directors
and Executive Officers
Set forth below is certain information regarding our directors
and executive officers, including their ages as of November 8,
2010.
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Name
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Age
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Position
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Timothy Sullivan
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President, Chief Executive Officer and Director
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Howard Hochhauser
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Chief Financial Officer
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Joshua Hanna
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Executive Vice President and Head of Global Marketing
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David Rinn
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Senior Vice President of Strategy and Corporate Development
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Eric Shoup
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Senior Vice President of Product
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William Stern
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General Counsel and Corporate Secretary
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Christopher Tracy
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Senior Vice President of Global Content
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Michael Wolfgramm
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Chief Technology Officer
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Charles M. Boesenberg
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Director
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David Goldberg
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Director
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Thomas Layton
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Director
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Elizabeth Nelson
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Director
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Victor Parker
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Director
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Benjamin Spero
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35
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Director
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Timothy Sullivan
has served as our President and
Chief Executive Officer and as a director since September 2005.
Prior to joining us, Mr. Sullivan was Chief Operating
Officer and then President and CEO of Match.com from January
2001 to September 2004. From May 1999 to January 2001,
Mr. Sullivan served as Vice President of
E-commerce
for Ticketmaster Online-Citysearch, Inc. From June 1991 to May
1999, Mr. Sullivan held multiple positions at The Walt
Disney Company, including Vice President and Managing Director
of Buena Vista Home Entertainment Asia Pacific from July 1997 to
May 1999. Mr. Sullivan holds an M.B.A. from Harvard
Business School and was a Morehead Scholar at the University of
North Carolina at Chapel Hill. We believe
Mr. Sullivans qualifications to serve on our Board
include extensive executive management experience, including
experience as our own Chief Executive Officer, as well as former
chief executive officer of a subscription-based Internet company.
Howard Hochhauser
has served as our Chief Financial
Officer since January 2009. From May 2000 to December 2008,
Mr. Hochhauser held multiple positions at Martha Stewart
Living Omnimedia, Inc., most recently serving as Chief Financial
Officer from March 2006 to December 2008. He held multiple
positions at Bear Stearns & Co. Inc. from September
1996 to May 2000, serving most recently as Vice President Equity
Research Analyst. Prior to joining Bear Stearns & Co.
Inc., he worked at First Boston and he was a Staff Accountant at
KPMG Peat Marwick. Mr. Hochhauser is a Certified Public
Accountant and holds an M.B.A. from Columbia University and a
B.S. from Boston University.
Joshua Hanna
has served as our Executive Vice
President and Head of Global Marketing since June 2010. Prior to
serving in this role, he served as our General Manager and
Senior Vice President, International from July 2006 to June
2010. Mr. Hanna held multiple positions with us from
November 2001 until July 2006, including Vice President of
International Business, Director of International Business,
Director of Product Management, Senior Product Manager, and
Business Manager. Prior to joining us, he held several marketing
and business development roles with Netcentives, Inc. and Cyrk,
Inc. Mr. Hanna holds an M.B.A. from Harvard Business School
and a B.A. from Dartmouth College.
David Rinn
has served as our Senior Vice President
of Strategy and Corporate Development since January 2009. Prior
to serving in this role, he served as our Chief Financial
Officer from June 2004 to January 2009. Prior to
78
joining us in June 2004, Mr. Rinn spent 12 years at
Microsoft Corporation, most recently as Chief Financial Officer
of the Mobile and Embedded Devices Division. At Microsoft
Corporation, he also served as General Manager of Finance and
Administration, General Manager, Chief Financial Officer and as
a member of the board of directors of HomeAdvisor Technologies
(a majority-owned subsidiary of Microsoft Corporation). Other
roles at Microsoft Corporation included Senior Director of
Product Group Finance and senior director of Corporate
Development. Prior to joining Microsoft, he held various
positions at Morgan Stanley. Mr. Rinn holds an M.B.A. from
the Anderson Graduate School of Management at the University of
California, Los Angeles and a B.A. from Vassar College.
Eric Shoup
has served as our Senior Vice President of
Product since March 2010. He joined us in August 2008 as Vice
President of Product. Prior to working with us, Mr. Shoup
was at eBay for over five years, where he served as Director of
ProStores from January 2007 to August 2008, Group Product
Manager from March 2005 to January 2007, Senior Product Manager
from August 2004 to March 2005 and Product Manager from April
2003 to August 2004. Mr. Shoup holds a B.A. from the
University of California, Los Angeles.
William Stern
has served as our General Counsel and
Corporate Secretary since July 2009. From October 2005 to July
2009, Mr. Stern held multiple positions at Martha Stewart
Living Omnimedia, Inc., most recently serving as the General
Counsel and Secretary from September 2008 to July 2009. From
October 2002 to September 2005, Mr. Stern was a Principal
at Fish & Richardson, PC. Prior to joining
Fish & Richardson, PC, he was a Partner at
Morrison & Foerster, LLP. Mr. Stern holds an
M.B.A. and a J.D. from the University of Chicago and an A.B.
from Brown University.
Christopher Tracy
has served as our Senior Vice President
of Global Content since January 2010. Prior to serving in this
role, Mr. Tracy served as our Senior Vice President of
Operations from January 2008 to January 2010 and Vice President
of Member Services from November 2004 to December 2007. From
June 2002 to October 2004, Mr. Tracy was a Vice President
and General Manager at Time Warner Inc. From April 1999 to
January 2002, Mr. Tracy held various leadership positions
at Nextcard, Inc. Mr. Tracy holds an M.B.A. from Harvard
Business School and a B.S. from California Polytechnic State
University.
Michael Wolfgramm
has served as our Chief Technology
Officer since February 2009. Mr. Wolfgramm held multiple
positions with us from June 1999 until February 2009, including
Senior Vice President of Technology, Vice President of
Development and Senior Director of Development. Prior to joining
us, from March 1997 to June 1999, Mr. Wolfgramm served as
Senior Director of Development and Senior Architect at Open
Market Inc. Mr. Wolfgramm holds a B.S. in Computer Science
from Brigham Young University.
Charles M. Boesenberg
has served as one of our directors
since July 2006. From January 2002 to June 2006,
Mr. Boesenberg served as the President and Chief Executive
Officer at NetIQ Corporation and he also served as the Chairman
of the board of directors at NetIQ Corporation from August 2002
to June 2006. Mr. Boesenberg served as a director of
Interwoven, Inc. from July 2006 to March 2009, as lead
independent director of Maxtor Corporation from January 2002
until May 2006, and as a director of Onyx Software Corporation
from December 2004 to December 2005. From March 2000 to December
2001, Mr. Boesenberg served as the President of Post PC
Ventures, a management and investment group. Mr. Boesenberg
serves on the board of directors of Silicon Graphics
International Corp., Keynote Systems, Inc. and Callidus Software
Inc. Mr. Boesenberg holds an M.S. in Business
Administration from Boston University and a B.S. from Rose
Hulman Institute of Technology. We believe
Mr. Boesenbergs qualifications to serve on our Board
include extensive experience serving on the boards of directors
of other public companies, including experience dealing with
corporate governance matters, and his executive management
experience in other technology companies.
David Goldberg
has served as one of our directors since
February 2008. Since April 2009, Mr. Goldberg has served as
the Chief Executive Officer of SurveyMonkey.com LLC. From May
2007 to April 2009, Mr. Goldberg was an Entrepreneur in
Residence with Benchmark Capital. From August 2001 to May 2007,
Mr. Goldberg was the head of global music operations at
Yahoo! Inc. From February 1994 to August 2001, Mr. Goldberg
was Chairman and Chief Executive Officer of Launch Media Inc.
Mr. Goldberg holds an A.B. from Harvard University. We
believe Mr. Goldbergs qualifications to serve on our
Board include his extensive executive management experience in
other companies focused on consumer-facing Internet services.
79
Thomas Layton
has served as one of our directors since
October 2009. Since June 2007, Mr. Layton has served as the
Chief Executive Officer of Metaweb Technologies, Inc., an
Internet technology company, where he also served as a director.
Mr. Layton served as the Chief Executive Officer of
OpenTable, Inc. from September 2001 to June 2007, and has served
on its board of directors since May 1999. From November 1995 to
June 1999, Mr. Layton served as President and Chief
Operating Officer and was co-founder of CitySearch, Inc., which
later merged with Ticketmaster, Inc. Prior to his experience at
CitySearch, Mr. Layton served as Chief Financial Officer of
Score Learning Corporation, an educational services company,
from April 1994 to October 1995, and also as President and Chief
Operating Officer during part of the same period from March 1995
to October 1995. Mr. Layton is also a member of the board
of directors of oDesk Corporation and a co-founder and member of
the board of directors of MAPLight.org, a non-profit
organization. Mr. Layton holds an M.B.A. from Stanford
Graduate School of Business and a B.S. from the University of
North Carolina at Chapel Hill. We believe Mr. Laytons
qualifications to serve on our Board include his extensive
executive management and board experience in other companies
focused on consumer-facing Internet services.
Elizabeth Nelson
has served as one of our directors since
July 2009. From July 1996 to December 2005, Ms. Nelson
served as the Executive Vice President and Chief Financial
Officer at Macromedia Inc, where she also served as a director
from January 2005 to December 2005. Currently, Ms. Nelson
serves on the board of directors of SuccessFactors, Inc. and
Brightcove Inc. From December 2003 to July 2008, Ms. Nelson
served as a director of CNET Networks, Inc. Ms. Nelson
holds an M.B.A. in Finance with distinction from the Wharton
School at the University of Pennsylvania and a B.S. from
Georgetown University. We believe Ms. Nelsons
qualifications to serve on our Board include her financial
expertise, including experience serving as the chief financial
officer of a public technology company and her experience
serving on the boards of directors of other companies.
Victor Parker
has served as one of our directors since
2006. Mr. Parker is a Managing Director of Spectrum Equity
Investors and joined the firm in September 1998. He was
previously at ONYX Software and was an associate at Summit
Partners from October 1992 to June 1996. Mr. Parker serves
on the board of directors of Demand Media, Inc. and
SurveyMonkey, LLC. He holds an M.B.A. from Stanford Graduate
School of Business and a B.A. from Dartmouth College. We believe
Mr. Parkers qualifications to serve on our Board
include his financial expertise, his experience advising
technology companies and a long history and familiarity with
Ancestry.com
Benjamin Spero
has served as one of our directors since
December 2007. Mr. Spero joined Spectrum Equity Investors
in January 2001 and currently is a Managing Director. Prior to
joining Spectrum Equity Investors, Mr. Spero was the
co-founder of TouchPak, Inc. Before joining TouchPak, Inc.,
Mr. Spero was a strategy consultant at Bain &
Company. Mr. Spero serves on the board of directors of
SurveyMonkey, LLC and Mortgagebot, LLC. Mr. Spero holds a
B.A. from Duke University. We believe Mr. Speros
qualifications to serve on our Board include his financial
expertise, his experience advising technology companies and a
long history and familiarity with Ancestry.com.
Number of
Directors; Board Structure
Our bylaws provide that our Board may be comprised of between
five and nine directors. Our Board currently consists of seven
members, although this may be changed by resolution of the
Board. As provided in our certificate of incorporation, our
Board is divided into three staggered classes of directors as
nearly equal in number as possible. Mr. Boesenberg and
Mr. Spero are the Class I directors and their terms
will expire in 2013. Mr. Goldberg and Mr. Parker are
the Class II directors and their terms will expire in 2011.
Mr. Layton, Ms. Nelson and Mr. Sullivan are the
Class III directors and their terms will expire in 2012.
After the initial terms expire, directors are expected to be
elected to hold office for a three-year term or until the
election and qualification of their successors in office. The
division of our board of directors into three classes with
staggered three-year terms may delay or prevent a change of our
management or a change of control.
Vacancies on the board of directors can be filled by resolution
of the board of directors. Charles M. Boesenberg serves as the
chairperson of our board of directors. We believe that four of
our directors are independent as required by the rules of The
Nasdaq Stock Market: Charles M. Boesenberg, David Goldberg,
Thomas Layton and Elizabeth Nelson.
80
The members of our nominating and corporate governance committee
are Charles M. Boesenberg and David Goldberg, with
Mr. Boesenberg serving as chairperson of the committee. The
members of our audit committee and our compensation committee
are Charles M. Boesenberg, Thomas Layton and Elizabeth Nelson,
with Mr. Boesenberg serving as the chairperson of the
compensation committee and Ms. Nelson serving as the
chairperson of the audit committee. In addition to meeting the
Nasdaq director independence requirements, we believe that
Mr. Boesenberg, Mr. Layton and Ms. Nelson meet
the additional independence requirements for audit committee
members under
Rule 10A-3
of the Securities Exchange Act of 1934, as amended (the
Exchange Act).
81
RELATED
PARTY TRANSACTIONS
Certain
Relationships and Transactions
The following is a description of transactions in which we have
been a participant or are proposed to be a participant, in which
the amount involved in the transaction exceeded or will exceed
$120,000, and in which any of our directors, executive officers
or beneficial holders of more than 5% of our capital stock or an
immediate family member had or will have a direct or indirect
material interest since January 1, 2009. As part of the
Spectrum investment, Spectrum, affiliates of Crosslink Capital,
Inc., W Capital Partners II, L.P. and the JLS Revocable Trust
became our related persons and each of them, in some cases
together with its respective affiliates, owned more than 5% of
our outstanding shares during 2009 as a result. Our directors
Victor Parker and Benjamin Spero are associated with Spectrum
and may therefore be deemed to have an interest in the
agreements described below that we have entered into with
Spectrum. Mr. Sullivan is a related person because he is a
director and executive officer of the company.
Direct Purchases.
On September 23, 2010,
we announced a share repurchase program, under which we may
spend up to $25 million to repurchase shares of our common
stock, depending on market conditions, the stock price and other
factors. Under this program, we expect to enter into an
agreement with the selling stockholders, including affiliates of
Spectrum Equity Investors V, L.P., to repurchase approximately
$25.0 million worth of common stock,
or shares, directly from the
selling stockholders, in a private, non-underwritten transaction
at a price per share equal to the net proceeds per share the
selling stockholders receive in this offering. The repurchase
from the selling stockholders is conditioned on completion of
this offering and the satisfaction of certain other closing
conditions. The share repurchase program is intended in part to
offset the issuance of shares of our common stock as a result of
the iArchives acquisition. The direct purchases from Spectrum
have been approved by the audit committee under the related
person transaction policy.
Stockholders Agreement.
As part of the
Spectrum investment, we entered into a Stockholders Agreement
with Spectrum Equity Investors V, L.P. and certain of its
affiliates, affiliates of Crosslink Capital, Inc., Timothy
Sullivan, W Capital Partners II, L.P. and the JLS Revocable
Trust, among other individuals and entities. The agreement
established the composition of the Board and contains certain
rights and restrictions with respect to the transfer of shares
of our capital stock. Prior to the completion of our initial
public offering, Spectrum Equity Investors V, L.P. and
certain of its affiliates had the right to appoint or nominate
three of our directors. This right terminated upon completion of
our initial public offering. All three of these appointees have
remained on our Board following our initial public offering, but
we are under no contractual obligation to retain them.
Registration Rights.
As part of the Spectrum
investment, Spectrum Equity Investors V, L.P. and certain
of its affiliates, affiliates of Crosslink Capital, Inc., the
JLS Revocable Trust, W Capital Partners II, L.P., Timothy
Sullivan and certain other holders of our stock have
registration rights with respect to shares of capital stock that
they hold.
Demand Registration Rights.
At any time, the
holders of a majority of the Spectrum registrable securities may
request registration under the Securities Act of all or part of
their registrable securities on a Registration Statement on
Form S-l
or any similar long-form registration statement or, if
available, on a Registration Statement on
Form S-3
or any similar short-form registration statement. The holders of
a majority of the Spectrum registrable securities are entitled
to request a total of three long-form registrations in which the
company will pay all registration expenses. This offering is
being made pursuant to such a request for registration by a
majority of the Spectrum registrable securities. In addition,
the holders of a majority of the Spectrum registrable securities
are entitled to request an unlimited number of short-form
registrations in which the company will pay all registration
expenses. However, the aggregate offering value of the
registrable securities requested to be registered by Spectrum
Equity Investors V, L.P. and certain of its affiliates in
any short-form registration must equal at least $1,500,000 in
the aggregate.
We are not obligated to effect any demand registration within
three months after the effective date of a previous demand
registration. Moreover, we may postpone for up to three months
the filing of a registration statement for a demand registration
if our board of directors determines in its reasonable good
faith judgment and the holders of at least a majority of the
Spectrum registrable securities agree that such demand
registration would reasonably be
82
expected to have a material adverse effect on any proposal by us
to engage in a merger, consolidation or similar transaction. We
may delay a demand registration in this manner only once in
every
12-month
period.
Piggyback Registration Rights.
If we register
any securities for public sale, our stockholders with piggyback
registration rights under our Registration Rights Agreement have
the right to include their shares in the registration, subject
to certain exceptions. For example, if the piggyback
registration is an underwritten primary offering and the
managing underwriters advise the company that, in their opinion,
the number of securities requested to be included in the
offering exceeds the number which can be sold in such offering
without adversely affecting the marketability of such offering,
we are required to include in the offering (i) first, the
securities we propose to sell, (ii) second, the registrable
securities requested to be included in such registration, pro
rata among the holders of such registrable securities on the
basis of the number of registrable securities owned by each such
holder and (iii) third, any other securities requested to
be included in such registration pro rata among those holders on
the basis of the number of such securities owned by each such
holder. The registration expenses of the holders of registrable
securities will be paid by us in all piggyback registrations,
regardless of whether such registration is consummated.
Exclusive Service Agreement.
We entered into
an Exclusive Service Agreement dated May 22, 2007 with
Sorenson Genomics, LLC, an affiliate of the JLS Revocable Trust,
which, together with its affiliates, owned, in the aggregate,
more than 5% of our common stock earlier in 2009. Pursuant to
the agreement, Sorenson Genomics, LLC agreed to provide certain
DNA-testing and specimen storage services to us at negotiated
prices. We paid approximately $1.8 million to Sorenson
Genomics LLC under this agreement from January 1, 2009
through December 31, 2009. This agreement is not material
to us because our DNA services do not represent a material
amount of our revenues.
Procedures
for Approval of Related Person Transactions
Our Board adopted a written related person transaction policy in
2009, which sets forth the policies and procedures for the
review and approval or ratification of related person
transactions. Under SEC rules, a related person is a director,
officer, nominee for director since the beginning of the
previous fiscal year, a 5% stockholder at the time a transaction
occurs and, in each case, any such persons immediate
family members. The related person transaction policy is
administrated by our audit committee. This policy provides that,
in determining whether or not to recommend the initial approval
or ratification of a related person transaction, the relevant
facts and circumstances available be considered by the audit
committee, including, among other factors it deems appropriate,
whether the interested transaction is on terms no less favorable
than terms generally available to an unaffiliated third-party
under the same or similar circumstances and the extent of the
related persons interest in the transaction. The
transactions listed above, other than the direct purchases, were
entered into prior to the adoption of this policy and therefore
were not approved under the related person transaction policy.
83
PRINCIPAL
AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of
September 30, 2010 with respect to:
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each person known by us to beneficially own 5% or more of the
outstanding shares of our common stock;
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each member of our board of directors and each named executive
officer;
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the members of our board of directors and our named executive
officers as a group; and
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the selling stockholders.
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Unless otherwise noted below, the address of each beneficial
owner listed in the table below is
c/o Ancestry.com
Inc., 360 West 4800 North, Provo, UT 84604.
We have determined beneficial ownership in accordance with the
rules of the SEC. Except as indicated by the footnotes below, we
believe, based on the information furnished to us, that the
persons and entities named in the table below have sole voting
and investment power with respect to all shares of common stock
that he or she beneficially owns, subject to applicable
community property laws.
Applicable percentage ownership is based on
44,401,916 shares of common stock outstanding on
September 30, 2010. For purposes of the table below, we
have assumed that 44,602,673 shares of common stock will be
outstanding upon completion of the offering as described in
The Offering above, assuming no exercise of the
underwriters overallotment option. The number and
percentage of shares beneficially owned after the offering also
reflect, where indicated,
the shares the company will
repurchase from the selling stockholders as described in
The Offering above. In computing the number of
shares of common stock beneficially owned by a person and the
percentage ownership of that person, we deemed outstanding
shares of common stock subject to options held by that person
that are currently exercisable or exercisable within
60 days of September 30, 2010. We did not deem these
shares outstanding, however, for the purpose of computing the
percentage ownership of any other person.
84
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Beneficial
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Beneficial
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Beneficial
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Ownership
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Beneficial
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Ownership
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Ownership
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After
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Ownership
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After
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After
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Offering
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After
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Offering
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Offering
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Assuming
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Offering
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Assuming
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Assuming
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Full
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Shares
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Assuming
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Full
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No Exercise
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Exercise
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Being
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No Exercise
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Exercise
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of Over-
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of Over-
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Before
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Offered in
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of Over-
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of Over-
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Allotment Option
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Allotment Option
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Offering and
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Shares
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Over-
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Allotment
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Allotment
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and the
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and the
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Repurchase
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Being
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Allotment
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Option
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Option
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Shares to be
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Repurchase
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Repurchase
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Name
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Shares
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Percent
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Offered
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Option
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Shares
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Percent
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Shares
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Percent
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Repurchased
(19)
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Shares
(19)
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Percent
(20)
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Shares
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Percent
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5% Stockholders:
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Affiliates of Spectrum Equity Investors V,
L.P.
(1)
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23,241,953
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52.3
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%
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3,061,949
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459,292
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20,180,004
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45.3
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%
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19,720,711
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44.1
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%
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Entities affiliated with Crosslink Capital,
Inc.
(2)
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2,262,331
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5.1
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%
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2,262,331
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5.1
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%
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2,262,331
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5.1
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%
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Directors and Named Executive Officers:
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|
|
|
|
|
|
Timothy
Sullivan
(3)
|
|
|
2,589,704
|
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
2,589,704
|
|
|
|
5.5
|
%
|
|
|
2,589,704
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Howard
Hochhauser
(4)
|
|
|
229,169
|
|
|
|
|
*
|
|
|
20,768
|
|
|
|
3,115
|
|
|
|
208,401
|
|
|
|
|
*
|
|
|
205,286
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joshua
Hanna
(5)
|
|
|
221,460
|
|
|
|
|
*
|
|
|
51,920
|
|
|
|
7,788
|
|
|
|
169,540
|
|
|
|
|
*
|
|
|
161,752
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Rinn
(6)
|
|
|
827,602
|
|
|
|
1.8
|
%
|
|
|
69,226
|
|
|
|
10,384
|
|
|
|
758,376
|
|
|
|
1.7
|
%
|
|
|
747,992
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William
Stern
(7)
|
|
|
66,666
|
|
|
|
|
*
|
|
|
17,307
|
|
|
|
2,596
|
|
|
|
49,359
|
|
|
|
|
*
|
|
|
46,763
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher
Tracy
(8)
|
|
|
108,958
|
|
|
|
|
*
|
|
|
20,768
|
|
|
|
3,115
|
|
|
|
88,190
|
|
|
|
|
*
|
|
|
85,075
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles M.
Boesenberg
(9)
|
|
|
153,160
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
153,160
|
|
|
|
|
*
|
|
|
153,160
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Goldberg
(10)
|
|
|
61,980
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
61,980
|
|
|
|
|
*
|
|
|
61,980
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Layton
(11)
|
|
|
23,697
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
23,697
|
|
|
|
|
*
|
|
|
23,697
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elizabeth
Nelson
(12)
|
|
|
29,166
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
29,166
|
|
|
|
|
*
|
|
|
29,166
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Victor
Parker
(13)
|
|
|
22,805,668
|
|
|
|
51.4
|
%
|
|
|
|
|
|
|
|
|
|
|
19,801,177
|
|
|
|
44.4
|
%
|
|
|
19,350,503
|
|
|
|
43.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benjamin
Spero
(14)
|
|
|
16,754,952
|
|
|
|
37.7
|
%
|
|
|
|
|
|
|
|
|
|
|
14,547,602
|
|
|
|
32.7
|
%
|
|
|
14,216,499
|
|
|
|
31.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group
(14 individuals)
(15)
|
|
|
4,631,465
|
|
|
|
9.5
|
%
|
|
|
200,756
|
|
|
|
30,113
|
|
|
|
4,430,709
|
|
|
|
9.1
|
%
|
|
|
4,400,595
|
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Selling Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliates of Adams Street 2007 Direct Fund,
L.P.
(16)
|
|
|
762,468
|
|
|
|
1.7
|
%
|
|
|
69,226
|
|
|
|
10,384
|
|
|
|
693,242
|
|
|
|
1.6
|
%
|
|
|
682,858
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliates of Sorenson Legacy
Foundation
(17)
|
|
|
1,616,047
|
|
|
|
3.6
|
%
|
|
|
228,064
|
|
|
|
34,210
|
|
|
|
1,387,983
|
|
|
|
3.1
|
%
|
|
|
1,353,773
|
|
|
|
3.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Nerrow
|
|
|
17,116
|
|
|
|
|
*
|
|
|
4,846
|
|
|
|
727
|
|
|
|
12,270
|
|
|
|
|
*
|
|
|
11,543
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Wolfgramm
(18)
|
|
|
270,527
|
|
|
|
|
*
|
|
|
20,768
|
|
|
|
3,115
|
|
|
|
249,759
|
|
|
|
|
*
|
|
|
246,644
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Indicates ownership of less than
one percent.
|
|
|
|
(1)
|
|
Consists of 16,676,204 shares
of our common stock held by Spectrum Equity Investors V,
L.P. (SEI V), the general partner of which is
Spectrum Equity Associates V, L.P., the general partner of
which is SEA V Management, LLC, over which Brion B. Applegate,
William P. Collatos, Kevin J. Maroni, Randy J. Henderson,
Michael J. Kennealy, Victor E. Parker, Benjamin M. Coughlin and
Christopher T. Mitchell exercise voting and dispositive power;
78,748 shares of our common stock held by Spectrum V
Investment Managers Fund, L.P. (IMF V), the
general partner of which is SEA V Management, LLC, over which
Brion B. Applegate, William P. Collatos, Kevin J. Maroni, Randy
J. Henderson, Michael J. Kennealy, Victor E. Parker, Benjamin M.
Coughlin and Christopher T. Mitchell exercise voting and
dispositive power; 5,950,719 shares of our common stock
held by Spectrum Equity Investors III, L.P. (SEI
III), the general partner of which is Spectrum Equity
Associates III, L.P., over which Brion B. Applegate, William P.
Collatos, Kevin J. Maroni and Randy J. Henderson exercise voting
and dispositive power; 417,483 shares of our common stock
held by SEI III Entrepreneurs Fund, L.P.
(Entrepreneurs III), the general partner of
which is SEI III Entrepreneurs LLC, over which Brion B.
Applegate, William P. Collatos, Kevin J. Maroni and Randy J.
Henderson exercise voting and dispositive power;
99,997 shares held by Spectrum III Investment
Managers Fund, L.P. (IMF III, and together
with SEI V, IMF V, SEI III and Entrepreneurs
III, the Spectrum Funds), over which Brion B.
Applegate, William P. Collatos, Kevin J. Maroni and Randy J.
Henderson exercise voting and dispositive power and are the
general partners, 11,575 shares of our common stock held by
Brion B. Applegate, 5,781 shares of our common stock held
by William P. Collatos and 1,446 shares of our common stock
held by Randy J. Henderson. Each of the controlling entities,
individual general partners and managing directors of the
Spectrum Funds, as the case may be, including Mr. Parker
who is a managing director of the general partner of the general
partner of SEI V and a managing director of the general partner
of IMF V, and serves on our board of directors, Brion B.
Applegate, William P. Collatos, Kevin J. Maroni, Randy J.
Henderson, Michael J. Kennealy, Victor E. Parker, Benjamin M.
Coughlin and Christopher T. Mitchell disclaims beneficial
ownership of these shares except to the extent of any pecuniary
interest therein. The principal business address of each of the
Spectrum Funds is 333 Middlefield Road, Suite 200, Menlo
Park, CA 94025.
|
|
|
|
(2)
|
|
Consists of 752,731 shares of
our common stock held by Crosslink Ventures IV, L.P., 31,491
shares of our common stock held by Crosslink Ventures IV
GmbH & Co. KG, 242,329 shares of our common stock
held by Offshore Crosslink Ventures IV, 59,679 shares of
our common stock held by Crosslink Bayview IV, L.L.C.
707,451 shares of our common stock held by Crosslink
Crossover Fund IV, LP. , 349,150 shares of our common
stock held by Crosslink Crossover Fund V, LP.,
35,500 shares of our common stock held by Delta Growth
Fund, LP and 84,000 shares of our common stock held by
Crosslink Emerging Growth Fund, LP. All of the foregoing
entities are investment advisory clients of Crosslink Capital,
Inc., a Delaware corporation and investment adviser registered
with the Securities and Exchange Commission. Michael J. Stark is
the President of Crosslink Capital, Inc. and in that capacity
has voting and investment control over such securities.
|
85
|
|
|
|
|
Mr. Stark disclaims beneficial
ownership of such securities except to the extent of his
pecuniary interest therein. The principal business address of
Crosslink Capital, Inc. is Two Embarcadero Center,
Suite 2200, San Francisco, CA 94111.
|
|
|
|
(3)
|
|
Includes options to purchase
2,265,630 shares of our common stock exercisable within
60 days as of September 30, 2010.
|
|
|
|
(4)
|
|
Consists of options to purchase
229,169 shares of our common stock exercisable within
60 days as of September 30, 2010.
|
|
|
|
(5)
|
|
Consists of options to purchase
221,460 shares of our common stock exercisable within
60 days as of September 30, 2010.
|
|
|
|
(6)
|
|
Consists of options to purchase
827,602 shares of our common stock exercisable within
60 days as of September 30, 2010.
|
|
|
|
(7)
|
|
Consists of options to purchase
66,666 shares of our common stock exercisable within
60 days as of September 30, 2010.
|
|
|
|
(8)
|
|
Consists of options to purchase
108,958 shares of our common stock exercisable within
60 days as of September 30, 2010.
|
|
|
|
(9)
|
|
Consists of options to purchase
153,160 shares of our common stock exercisable within
60 days as of September 30, 2010.
|
|
|
|
(10)
|
|
Includes options to purchase
61,980 shares of our common stock exercisable within
60 days as of September 30, 2010.
|
|
|
|
(11)
|
|
Consists of options to purchase
23,697 shares of our common stock exercisable within
60 days as of September 30, 2010.
|
|
|
|
(12)
|
|
Consists of options to purchase
29,166 shares of our common stock exercisable within
60 days as of September 30, 2010.
|
|
|
|
(13)
|
|
Consists of an aggregate of
22,805,668 shares held by SEI V, IMF V, SEI III
and IMF III. Mr. Parker is a managing director of the
general partner of the general partner of SEI V and a managing
director of the general partner of IMF V. Mr. Parker is
also a limited partner of the general partner of SEI V, a
limited partner of IMF V, a limited partner of the general
partner of SEI III and a limited partner of IMF III.
Mr. Parker disclaims beneficial ownership of these shares.
|
(14)
|
|
Consists of an aggregate of
16,754,952 shares held by SEI V and IMF V. Mr. Spero
is a limited partner of the general partner of SEI V and a
limited partner of IMF V. Mr. Spero disclaims beneficial
ownership of these shares.
|
|
|
|
(15)
|
|
Includes shares described in
footnotes 3 through 12 above, footnote 18 below and
options to purchase 49,376 shares of our common stock
exercisable within 60 days as of September 30, 2010
held by Eric Shoup, and excludes the shares held by Spectrum
Equity Investors V, L.P. and its affiliates, of which
Mr. Parker and Mr. Spero disclaim beneficial ownership.
|
|
|
|
(16)
|
|
Consists of 404,375 shares of
our common stock held by Adams Street 2007 Direct Fund, L.P.,
over which Adams Street Partners, LLC, as its general partner,
exercises voting and investment power and 358,093 shares of
our common stock held by Adams Street 2006 Direct Fund, L.P.,
over which Adams Street Partners, LLC, as its general partner,
exercises voting and investment power. The principal business
address of these entities is One North Wacker Drive,
Suite 2200, Chicago, IL 60606.
|
|
|
|
(17)
|
|
Consists of 900,723 shares of
our common stock held by Sorenson Legacy Foundation and
715,324 shares of our common stock held by James Lee
Sorenson. The principal business address of the Sorenson
entities is 4179 Riverboat Road, Suite 208, Salt Lake City,
UT 84123.
|
|
|
|
(18)
|
|
Consists of options to purchase
270,527 shares of our common stock exercisable within
60 days.
|
|
|
|
(19)
|
|
We expect to enter into an
agreement with the selling stockholders, including affiliates of
Spectrum Equity Investors, V, L.P., to repurchase approximately
$25.0 million worth of common stock,
or shares,
directly from the selling stockholders in a private,
non-underwritten transaction at a price per share equal to the
net proceeds per share the selling stockholders receive in this
offering.
|
|
|
|
(20)
|
|
Percentage is calculated based
on shares
of our common stock outstanding, which gives effect to the
purchase
of shares
from the selling stockholders.
|
86
DESCRIPTION
OF CAPITAL STOCK
General
The following is a summary of our capital stock and provisions
of our certificate of incorporation and bylaws, as each is
currently in effect and will be in effect upon the closing of
this offering, and certain provisions of Delaware law. This
summary does not purport to be complete and is qualified in its
entirety by the provisions of our certificate of incorporation
and bylaws, copies of which are incorporated by reference as
exhibits to this registration statement. References in this
section to the company, we,
us and our refer to Ancestry.com Inc.
and not to any of its subsidiaries.
Our authorized capital consists of 175,000,000 shares of
common stock, $0.001 par value per share, and
5,000,000 shares of undesignated preferred stock,
$0.001 par value per share.
Common
Stock
As of September 30, 2010, there were 44,401,916 shares
of common stock outstanding.
Pursuant to our certificate of incorporation, holders of our
common stock are entitled to one vote on all matters submitted
to a vote of stockholders; provided, however, that, except as
otherwise required by law, holders of common stock, as such,
shall not be entitled to vote on any amendment to our
certificate of incorporation that relates solely to the terms of
one or more outstanding series of preferred stock if the holders
of such affected series are entitled, either separately or
together with the holders of one or more other such series, to
vote thereon pursuant to our certificate of incorporation.
Pursuant to our certificate of incorporation, common
stockholders are not entitled to cumulative voting in the
election of directors. This means that the holders of a majority
of the voting shares are able to elect all of the directors then
standing for election. Subject to the rights, if any, of the
holders of any outstanding series of preferred stock, holders of
our common stock shall be entitled to receive dividends out of
any of our funds legally available when, as and if declared by
the board of directors. Upon the dissolution, liquidation or
winding up of the company, subject to the rights, if any, of the
holders of our preferred stock, the holders of shares of our
common stock shall be entitled to receive the assets of the
company available for distribution to its stockholders ratably
in proportion to the number of shares held by them. Holders of
common stock do not have preemptive or conversion rights or
other subscription rights. There are no redemption or sinking
fund provisions applicable to our common stock. All outstanding
shares of common stock, including those sold by the selling
stockholders, are fully paid and nonassessable.
Preferred
Stock
As of September 30, 2010, there were no shares of preferred
stock outstanding.
Our board of directors is authorized to issue not more than an
aggregate of 5,000,000 shares of preferred stock in one or
more series, without stockholder approval. Our board of
directors is authorized to establish, from time to time, the
number of shares to be included in each series of preferred
stock, and to fix the designation, powers, privileges,
preferences, and relative participating, optional or other
rights, if any, of the shares of each series of preferred stock,
and any of its qualifications, limitations or restrictions. Our
board of directors also is able to increase or decrease the
number of shares of any series of preferred stock, but not below
the number of shares of that series of preferred stock then
outstanding, without any further vote or action by the
stockholders, without any vote or action by stockholders.
In the future, our board of directors may authorize the issuance
of preferred stock with voting or conversion rights that could
harm the voting power or other rights of the holders of our
common stock, or that could decrease the amount of earnings and
assets available for distribution to the holders of our common
stock. The issuance of our preferred stock, while providing
flexibility in connection with possible acquisitions and other
corporate purposes, could, among other consequences, have the
effect of delaying, deferring or preventing a change in our
control and might harm the market price of our common stock and
the voting and other rights of the holders of common stock. We
have no current plans to issue any shares of preferred stock.
87
Registration
Rights
Pursuant to the terms of a Registration Rights Agreement between
us and certain holders of our stock, including Spectrum Equity
Investors V, L.P. and certain of its affiliates, certain
holders of our stock are entitled to demand and piggyback rights.
Demand Registration Rights.
At any time, the
holders of a majority of the registrable securities held by
Spectrum Equity Investors V, L.P. and certain of its
affiliates, collectively (the Spectrum registrable
securities), may request registration under the Securities
Act of all or part of their registrable securities on a
Registration Statement on
Form S-1
or any similar long-form registration statement or, if
available, on a Registration Statement on
Form S-3
or any similar short-form registration statement. The holders of
a majority of the Spectrum registrable securities were entitled
to request a total of three long-form registrations in which the
company will pay all registration expenses. This offering is
being made pursuant to such a request for registration by a
majority of the Spectrum registrable securities. In addition,
the holders of a majority of the Spectrum registrable securities
are entitled to request an unlimited number of short-form
registrations in which the company will pay all registration
expenses. However, the aggregate offering value of the
registrable securities requested to be registered by Spectrum
Equity Investors V, L.P. and certain of its affiliates in
any short-form registration must equal at least $1,500,000 in
the aggregate.
The company will not be obligated to effect any demand
registration within three months after the effective date of a
previous demand registration. Moreover, the company may postpone
for up to three months the filing of a registration statement
for a demand registration if the companys board of
directors determines in its reasonable good faith judgment and
the holders of at least a majority of the Spectrum registrable
securities agree that such demand registration would reasonably
be expected to have a material adverse effect on any proposal by
the company to engage in a merger, consolidation or similar
transaction. The company may delay a demand registration in this
manner only once in every
12-month
period.
Piggyback Registration Rights.
If we register
any securities for public sale after this offering, our
stockholders with piggyback registration rights under our
Registration Rights Agreement have the right to include their
shares in the registration, subject to certain exceptions. For
example, if the piggyback registration is an underwritten
primary offering and the managing underwriters advise the
company that, in their opinion, the number of securities
requested to be included in the offering exceeds the number
which can be sold in such offering without adversely affecting
the marketability of such offering, the company is required to
include in the offering (i) first, the securities the
company proposes to sell, (ii) second, the registrable
securities requested to be included in such registration, pro
rata among the holders of such registrable securities on the
basis of the number of registrable securities owned by each such
holder and (iii) third, any other securities requested to
be included in such registration pro rata among those holders on
the basis of the number of such securities owned by each such
holder. The registration expenses of the holders of registrable
securities will be paid by us in all piggyback registrations,
regardless of whether such registration is consummated.
Anti-Takeover
Effects of Delaware Law, Our Certificate of Incorporation and
Our Bylaws
Certain provisions of Delaware law and our certificate of
incorporation and bylaws could make the acquisition of the
company more difficult. These provisions of the Delaware General
Corporation Law could prohibit or delay mergers or other
takeover or change of control attempts and, accordingly, may
discourage attempts to acquire us.
These provisions, summarized below, are expected to discourage
certain types of coercive takeover practices and inadequate
takeover bids, and are designed to encourage persons seeking to
acquire control of us to negotiate with our board of directors.
Delaware Anti-Takeover Law.
We are subject to
Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a
business combination with an interested
stockholder for a period of three years following the date
the person became an interested stockholder, unless the
business combination or the transaction in which the
person became an interested stockholder is approved by our board
of directors in a prescribed manner. Generally, a business
combination includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the
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interested stockholder. Generally, an interested
stockholder is a person who, together with affiliates and
associates, owns or, within three years prior to the
determination of interested stockholder status, did own, 15% or
more of a corporations voting stock. The applicability of
this provision may have an anti-takeover effect with respect to
transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium
over the market price for the shares of common stock held by
stockholders.
Stockholder Meetings.
Under our certificate of
incorporation, only the board of directors, or the chairperson
of the board of directors or the Chief Executive Officer with
the concurrence of a majority of the board of directors may call
special meetings of stockholders.
Requirements for Advance Notification of Stockholder
Nominations and Proposals.
Our bylaws establish
advance notice procedures with respect to stockholder proposals
and the nomination of candidates for election as directors.
Elimination of Stockholder Action by Written
Consent.
Our certificate of incorporation
eliminates the right of stockholders to act by written consent
without a meeting. This provision makes it more difficult for
stockholders to take action opposed by the board of directors.
Election and Removal of Directors.
Our board
of directors is divided into three classes, each serving
staggered three-year terms. As a result, only a portion of our
board of directors is elected each year. The board of directors
has the exclusive right to increase or decrease the size of the
board and to fill vacancies on the board. This system of
electing directors may tend to discourage a third party from
making a tender offer or otherwise attempting to obtain control
of us, because it generally makes it more difficult for
stockholders to replace a majority of the directors.
Additionally, directors may be removed for cause only with the
approval of the holders of a majority of our outstanding common
stock. Directors may be removed without cause only with the
approval of two-thirds of our outstanding voting stock.
Undesignated Preferred Stock.
The
authorization of undesignated preferred stock makes it possible
for the board of directors, without stockholder approval, to
issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to obtain control
of us. These and other provisions may have the effect of
deferring hostile takeovers or delaying changes in control or
management of the company.
Amendment of Provisions in the Certificate of
Incorporation.
Our certificate of incorporation
requires the affirmative vote of the holders of at least
two-thirds of our outstanding voting stock in order to amend any
provision of our certificate of incorporation concerning:
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the required vote to amend or repeal the section of the
certificate of incorporation providing for the right to amend or
repeal provisions of the certificate of incorporation;
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absence of the authority of stockholders to act by written
consent;
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authority to call a special meeting of stockholders;
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number of directors and structure of the board of directors;
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absence of the necessity of directors to be elected by written
ballot; and
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personal liability of directors to us and our stockholders.
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Amendment of Provisions in the Bylaws.
Our
bylaws require the affirmative vote of the holders of at least
two-thirds of our outstanding voting stock in order to amend any
provision of our bylaws concerning:
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meetings of or actions taken by stockholders;
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number of directors and their term of office;
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election of directors;
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removal of directors and the filling of vacancies on the board
of directors;
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indemnification of our directors, officers, employees and
agents; and
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amendment to our bylaws.
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Transfer
Agent and Registrar
Mellon Investor Services LLC is the transfer agent and registrar
for our common stock.
Listing
Our common stock is listed on The Nasdaq Global Select Market
under the symbol ACOM.
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MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal
income tax consequences relating to the ownership and
disposition of shares of our common stock, as of the date
hereof. This summary deals only with shares of our common stock
that are held as capital assets within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as
amended, or the Code (generally, property held for investment).
This summary does not discuss any state, local or non-U.S. tax
consequences and does not discuss all aspects of
U.S. federal income taxation that may be relevant to the
ownership or disposition of our common stock by prospective
investors in light of their particular circumstances. In
particular, except to the extent discussed below, this summary
does not address all of the tax consequences that may be
relevant to certain types of investors subject to special
treatment under U.S. federal income tax laws, such as:
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dealers in securities or currencies, brokers, financial
institutions, controlled foreign corporations, passive foreign
investment companies, regulated investment companies, real
estate investment trusts, retirement plans, certain former
citizens or long-term residents of the United States, tax-exempt
entities, traders in securities that elect to use a
mark-to-market
method of accounting for their securities holdings or insurance
companies;
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U.S. Holders (as defined below) of shares of our common
stock whose functional currency is not the
U.S. dollar;
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persons holding shares of our common stock as part of a hedging,
integrated, constructive sale, or conversion transaction or a
straddle;
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entities that are treated as partnerships for U.S. federal
income tax purposes; or
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persons liable for alternative minimum tax.
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The discussion below is based upon the provisions of the Code,
applicable U.S. Treasury regulations promulgated
thereunder, and administrative rulings and judicial decisions as
of the date hereof. Those authorities are subject to different
interpretations and may be changed, perhaps retroactively, so as
to result in U.S. federal income tax consequences different
from those discussed below.
If a partnership (or other entity treated as a partnership for
U.S. federal income tax purposes) holds shares of our common
stock, the tax treatment of a partner in the partnership will
generally depend upon the status of the partner and the
activities of the partnership. If you are a partner of a
partnership holding shares of our common stock, you should
consult your tax advisor as to the particular U.S. federal
income tax consequences applicable to you.
If you are considering the purchase of shares of our common
stock, you should consult your own tax advisors concerning the
U.S. federal tax consequences to you and any consequences
arising under the laws of any state, local, non-U.S. or other
taxing jurisdiction. Each prospective investor should seek
advice based on its particular circumstances from an independent
tax advisor.
For purposes of this summary, a U.S. Holder
means a beneficial owner of a share of our common stock that is:
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an individual who is a citizen or resident of the United States;
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a corporation (or any other entity treated as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States or any state thereof or
the District of Columbia;
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust if (i) it is subject to the primary supervision of
a court within the United States and one or more
U.S. persons have the authority to control all substantial
decisions of the trust or (ii) it has a valid election in
effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
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Consequences
to U.S. Holders
The following is a summary of the material U.S. federal
income tax consequences that will apply to a U.S. Holder of
shares of our common stock.
Dividend
Distributions
If we make a distribution in respect of our common stock, the
distribution will be treated as a dividend to the extent it is
paid from our current or accumulated earnings and profits, as
determined under U.S. federal income tax principles. If the
distribution exceeds current and accumulated earnings and
profits, the excess will be treated as a nontaxable return of
capital reducing the holders adjusted tax basis in the
common stock to the extent of the holders adjusted tax
basis in that stock. Any remaining excess will be treated as
capital gain.
If a U.S. Holder is an individual, dividends received by
such holder on or prior to December 31, 2010 generally will
be subject to a reduced maximum tax rate of 15% provided certain
holding period and other requirements are met. Beginning
January 1, 2011, the rate applicable to dividends is
scheduled to return to the tax rate generally applicable to
ordinary income. If a U.S. Holder is a
U.S. corporation, it may be able to claim the deduction
allowed to U.S. corporations in respect of dividends
received from other U.S. corporations equal to a portion of
any dividends received, subject to generally applicable
limitations on that deduction. In general, a dividend
distribution to a corporate U.S. Holder may qualify for the
70% dividends-received deduction if the U.S. Holder owns
less than 20% of the voting power and value of our stock.
U.S. Holders should consult their tax advisors regarding
the holding period requirements that must be satisfied in order
to qualify for the dividends-received deduction and the reduced
maximum tax rate on dividends.
Sale,
Exchange or Other Disposition of Stock
A U.S. Holder will generally recognize capital gain or loss
on a sale, exchange or other disposition of our common stock.
The U.S. Holders gain or loss will equal the
difference between the amount realized by the U.S. Holder
and the U.S. Holders adjusted tax basis in the stock.
The amount realized by the U.S. Holder will include the
amount of any cash and the fair market value of any other
property received for the stock. Gain or loss recognized by a
U.S. Holder on a sale or exchange of stock will be
long-term capital gain or loss if the holder held the stock for
more than one year. Long-term capital gains of non-corporate
taxpayers currently are eligible for reduced rates of taxation.
The deductibility of capital losses is subject to certain
limitations.
New
Healthcare Legislation
Under the Health Care and Reconciliation Act of 2010, certain
U.S. Holders who are individuals, estates or trusts will be
required to pay an additional 3.8% tax on, among other things,
dividends on and capital gains from the sale or other
disposition of stock for taxable years beginning after
December 31, 2012. U.S. Holders should consult their
tax advisors regarding the effect, if any, of this legislation
on their ownership and disposition of our common stock.
Information
Reporting and Backup Withholding
We or our paying agent must report annually to U.S. Holders
(other than exempt holders) and the Internal Revenue Service, or
the IRS, amounts paid to such holders on or with respect to our
common stock during each calendar year and the amount of tax, if
any, withheld from such payments. A U.S. Holder will be
subject to backup withholding on dividends paid on our common
stock and proceeds from the sale of our common stock at the
applicable rate if the U.S. Holder is not otherwise exempt
and (i) the holder fails to provide us or our paying agent
with a correct taxpayer identification number, (ii) the
holder provides an incorrect taxpayer identification number,
(iii) we or our paying agent are notified by the IRS that
the holder is subject to backup withholding as a result of its
failure to properly report payments of interest or dividends or
(iv) the holder fails to certify under penalty of perjury
that it has provided a correct taxpayer identification number
and has not been notified by the IRS that it is subject to
backup withholding. A U.S. Holder generally may establish
that it is exempt from or otherwise not subject to backup
withholding by providing a properly completed IRS
Form W-9
to us or our paying agent. Any amounts withheld under the backup
withholding rules will generally be allowed as a refund or a
credit against a U.S. Holders
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U.S. federal income tax liability, provided the required
information is properly furnished to the IRS on a timely basis.
Consequences
to
Non-U.S.
Holders
The following is a summary of the material U.S. federal
income tax consequences that will apply to a
Non-U.S. Holder
of shares of our common stock. The term
Non-U.S. Holder
means a beneficial owner of shares of our common stock that is
an individual, corporation, estate or trust for
U.S. federal income tax purposes and is not a
U.S. Holder.
Dividend
Distributions
Distributions on our common stock will constitute dividends to
the extent described above in Consequences to
U.S. Holders Dividend distributions. Any
dividends paid to
Non-U.S. Holders
with respect to the shares of our common stock will generally be
subject to U.S. withholding tax at a 30% rate or such lower
rate as specified by an applicable income tax treaty. To receive
the benefit of a reduced treaty rate, a
Non-U.S. Holder
must furnish to us or our paying agent a valid IRS
Form W-8BEN
(or applicable successor form) certifying such holders
qualification for the reduced rate. This certification must be
provided to us or our paying agent prior to the payment of
dividends and must be updated periodically. If a
Non-U.S. Holder
is eligible for a reduced rate of U.S. withholding tax
pursuant to an income tax treaty but fails to timely provide the
required certification, the holder may obtain a refund or credit
of any excess amounts withheld by timely filing an appropriate
claim for such refund or credit with the IRS.
Non-U.S. Holders
should consult their tax advisors regarding their eligibility
for treaty benefits.
Dividends that are effectively connected with a
Non-U.S. Holders
conduct of a trade or business within the United States are
generally not subject to U.S. withholding tax, provided the
Non-U.S. Holder
furnishes to us or our paying agent a properly executed IRS
Form W-8ECI
(or applicable successor form) prior to the payment of
dividends. Instead, dividends that are effectively connected
with a
Non-U.S. Holders
conduct of a U.S. trade or business and, where an
applicable tax treaty so requires are attributable to such
Non-U.S. Holders
permanent establishment in the United States, are subject to
U.S. federal income tax on a net income basis at applicable
graduated individual or corporate rates. Any such effectively
connected dividends received by a foreign corporation may, under
certain circumstances, be subject to an additional branch
profits tax at a 30% rate or such lower rate as specified by an
applicable income tax treaty.
Non-U.S. Holders
should consult applicable tax treaties, which may provide for
different rules.
Sale,
Exchange or Other Disposition of Stock
Any gain realized by a
Non-U.S. Holder
upon the sale, exchange or other taxable disposition of shares
of our common stock generally will not be subject to
U.S. federal income tax unless:
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that gain is effectively connected with such
Non-U.S. Holders
conduct of a trade or business in the United States (and, if
required by an applicable income tax treaty, is attributable to
a U.S. permanent establishment);
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the
Non-U.S. Holder
is an individual who is present in the United States for
183 days or more in the taxable year of that disposition,
and certain other conditions are met; or
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we are or have been a United States real property holding
corporation for U.S. federal income tax purposes at
any time within the shorter of the five-year period preceding
the date of disposition or the period that such
Non-U.S. Holder
held shares of our common stock and either our common stock was
not regularly traded on an established securities market at any
time during the calendar year in which the disposition occurs,
or the
Non-U.S. Holder
owns or owned (actually or constructively) more than five
percent of the total fair market value of shares of our common
stock at any time during the five-year period preceding the date
of disposition. We are not, and do not anticipate that we will
become, a U.S. real property holding
corporation for U.S. federal income tax purposes.
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An
Non-U.S. Holder
described in the first bullet point above will generally be
subject to U.S. federal income tax on the net gain derived
from the sale under regular graduated U.S. federal income
tax rates or such lower rate as specified by an applicable
income tax treaty. A Non-U.S. Holder that is a foreign
corporation may, in addition, be
93
subject to a branch profits tax at a 30% rate or a lower rate
specified by an applicable income tax treaty. An individual
Non-U.S. Holder
described in the second bullet point above will generally be
subject to a flat 30% U.S. federal income tax on the gain
derived from the sale, which may be offset by U.S. source
capital losses. If a
Non-U.S. Holder
is eligible for the benefits of a tax treaty between the United
States and its country of residence, any gain described in the
second bullet point will be subject to U.S. federal income
tax in the manner specified by the treaty and generally will
only be subject to such tax if such gain is attributable to a
permanent establishment maintained by the
Non-U.S. Holder
in the United States. To claim the benefit of any applicable tax
treaty, the
Non-U.S. Holder
must properly submit an IRS
Form W-8BEN
(or suitable successor or substitute form).
Information
Reporting and Backup Withholding
We must report annually to the IRS the amount of dividends or
other distributions we pay to you on shares of our common stock
and the amount of tax we withhold on these distributions. These
information reporting requirements apply even if no withholding
was required. Copies of the information returns reporting such
distributions and any withholding may also be made available to
the tax authorities in the country in which the holder resides
under the provisions of an applicable income tax treaty. The
United States imposes a backup withholding tax on dividends and
certain other types of payments to U.S. persons. A
Non-U.S. Holder
will not be subject to backup withholding tax (but may be
subject to other withholding as described above) on dividends
the holder receives on shares of our common stock if the holder
provides proper certification (usually on an IRS
Form W-8BEN)
of the holders status as a
non-U.S. person
or other exempt status.
Information reporting and backup withholding generally are not
required with respect to the amount of any proceeds from the
sale of shares of our common stock outside the United States
through a foreign office of a foreign broker that does not have
certain specified connections to the United States. However, if
a
Non-U.S. Holder
sells shares of our common stock through a U.S. broker or
the U.S. office of a foreign broker, the broker will be
required to report the amount of proceeds paid to the
Non-U.S. Holder
to the IRS and also backup withhold on that amount unless the
Non-U.S. Holder
provides appropriate certification (usually on an IRS
Form W-8BEN)
to the broker of the holders status as a
non-U.S. person
or other exempt status.
Any amounts withheld under the backup withholding rules will
generally be allowed as a refund or a credit against a
Non-U.S. Holders
U.S. federal income tax liability provided the required
information is properly furnished to the IRS on a timely basis.
New
Legislation Relating to Foreign Accounts
Newly enacted legislation may impose withholding taxes on
certain types of payments made to foreign financial
institutions, as defined under those rules, and certain
other
non-U.S. entities
after December 31, 2012. The legislation imposes a 30%
withholding tax on dividends on, or gross proceeds from the sale
or other disposition of, our common stock paid to a foreign
financial institution unless the foreign financial institution
enters into an agreement with the U.S. Treasury to, among
other things, undertake to identify accounts held by certain
U.S. persons or
U.S.-owned
foreign entities, annually report certain information about such
accounts, and withhold 30% on payments to account holders whose
actions prevent it from complying with these reporting and other
requirements. In addition, the legislation imposes a 30%
withholding tax on the same types of payments to a foreign
non-financial entity unless the entity certifies that it does
not have any substantial U.S. owners or furnishes
identifying information regarding each substantial
U.S. owner. Under certain circumstances, Non-U.S. Holders
may be eligible for refunds or credits of such taxes.
Prospective investors should consult their tax advisors
regarding this legislation.
The foregoing discussion of material U.S. federal income
tax considerations is for general information purposes only and
is not tax or legal advice. You should consult your own tax
advisor as to the particular tax consequences to you of owning
and disposing of our common stock, including the applicability
and effect of any U.S. federal, state or local or
non-U.S. tax
laws, and of any changes or proposed changes in applicable
law.
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SHARES ELIGIBLE
FOR FUTURE SALE
Future sales of our common stock in the public market, or the
availability of such shares for sale in the public market, could
adversely affect market prices prevailing from time to time. As
described below, the sale of certain of our shares will be
restricted for a limited period after this offering due to
contractual and legal restrictions on resale. Sales of such
shares in the public market after such restrictions lapse, or
the perception that those sales may occur, could adversely
affect the prevailing market price at such time and our ability
to raise equity capital in the future.
Upon completion of this offering, we will have outstanding
45,780,523 shares of our common stock, assuming that there
are no exercises of outstanding options after November 4,
2010. This amount does not reflect shares we expect to
repurchase from the selling stockholders upon completion of this
offering. Of these shares, all of the 3,564,842 shares sold
in this offering (assuming no exercise of the underwriters
over-allotment option) will be freely tradable in the public
market without restriction or further registration under the
Securities Act, unless these shares are held by our affiliates,
as that term is defined in Rule 144 under the Securities
Act. Shares purchased by our affiliates may not be resold except
pursuant to an effective registration statement or an exemption
from registration, including the exemption under Rule 144
of the Securities Act described below.
After this offering, and assuming no exercise of the
underwriters over-allotment option, approximately
22.8 million shares of our common stock held by existing
stockholders who are our affiliates will be restricted
securities, as that term is defined in Rule 144 under the
Securities Act. These restricted securities may be sold in the
public market only if they are registered or if they qualify for
an exemption from registration under Rule 144 or 701 under
the Securities Act, which exemptions are summarized below. These
restricted securities are subject to the
lock-up
agreements described below.
Lock-Up
Agreements
In connection with this offering, officers, directors and
stockholders, who together hold an aggregate of approximately
29,107,748 of the outstanding shares of our common stock, have
agreed with the underwriters, subject to limited exceptions, not
to directly or indirectly sell or dispose of any shares of
common stock or any securities convertible into or exchangeable
or exercisable for shares of common stock for a period of
90 days after the date of this prospectus, and in specific
circumstances, up to an additional 34 days, without the
prior written consent of Morgan Stanley & Co. Incorporated
and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
representatives of the underwriters. For additional information,
see Underwriters.
Rule 144
In general, under Rule 144, a person who is not our
affiliate and has not been our affiliate at any time during the
preceding three months is entitled to sell any shares of our
common stock that such person has beneficially owned for at
least six months, including the holding period of any prior
owner other than one of our affiliates, without regard to volume
limitations. Sales of our common stock by any such person would
be subject to the availability of current public information
about us if the shares to be sold were beneficially owned by
such person for less than one year.
Our affiliates who have beneficially owned shares of our common
stock for at least six months, including the holding period of
any prior owner other than one of our affiliates, would be
entitled to sell within any three-month period a number of
shares that does not exceed the greater of:
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1% of the number of shares of our common stock then-outstanding,
which will equal approximately 457,805 shares immediately
after this offering; and
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the average weekly trading volume in our common stock on The
Nasdaq Global Select Market during the four calendar weeks
preceding the date of filing of a Notice of Proposed Sale of
Securities Pursuant to Rule 144 with respect to the sale.
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Sales under Rule 144 by our affiliates are also subject to
manner of sale provisions and notice requirements and to the
availability of current public information about us.
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Stock
Plans
On November 19, 2009, we filed a registration statement on
Form S-8
under the Securities Act to register the shares of our common
stock issuable upon exercise of outstanding options under our
1998 Stock Plan, 2004 Stock Plan, Executive Stock Plan, 2008
Stock Plan and 2009 Stock Plan, and shares of our common stock
reserved for future issuance under our 2009 Stock Plan. The
shares covered by this registration statement are eligible for
sale in the public markets, subject to vesting restrictions, the
lock-up
agreements described above and Rule 144 limitations
applicable to affiliates.
Registration
Rights
At any time after 90 days following this offering, holders
of the Spectrum registrable securities may demand that we
register all or part of their registrable securities under the
Securities Act on a Registration Statement on
Form S-1
or any similar long-form registration statement or, if
available, on a Registration Statement on
Form S-3
or any similar short-form registration statement. Following a
demand for registration by the holders of Spectrum registrable
securities or if we file another registration statement under
the Securities Act (other than a
Form S-4
or
Form S-8),
subject to certain restrictions, holders of registrable
securities (including the Spectrum holders) may elect to include
their shares in the registration. If these shares are
registered, they will be freely tradable without restriction
under the Securities Act. For additional information, see
Description of Capital Stock Registration
Rights.
Except with respect to the approximately 1.022 million
shares of our common stock issued in connection with our
acquisition of iArchives, we have agreed not to file any
registration statements during the
90-day
period after the date of this prospectus with respect to the
registration of any shares of common stock or any securities
convertible into or exercisable or exchangeable into common
stock except as part of an underwritten registration or pursuant
to registrations on
Form S-8
or any successor form. The registration statement we expect to
file with respect to the approximately 1.022 million shares
described above will not be filed until after January 1,
2011.
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UNDERWRITERS
Under the terms and subject to the conditions in an underwriting
agreement dated the date of this prospectus, the underwriters
named below, for whom Morgan Stanley & Co.
Incorporated and Merrill Lynch, Pierce, Fenner & Smith
Incorporated are acting as representatives, have severally
agreed to purchase, and the selling stockholders have agreed to
sell to them, severally, the number of shares indicated below:
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Name
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Number of Shares
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Morgan Stanley & Co. Incorporated
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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Citigroup Global Markets, Inc.
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Jefferies & Company, Inc.
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Piper Jaffray & Co.
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Total
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3,564,842
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The underwriters and the representatives are collectively
referred to as the underwriters and the
representatives, respectively. The underwriters are
offering the shares of common stock subject to their acceptance
of the shares and subject to prior sale. The underwriting
agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of
common stock offered by this prospectus are subject to the
approval of certain legal matters by their counsel and to
certain other conditions. The underwriters are obligated to take
and pay for all of the shares of common stock offered by this
prospectus if any such shares are taken. However, the
underwriters are not required to take or pay for the shares
covered by the underwriters over-allotment option,
described below.
The underwriters initially propose to offer part of the shares
of common stock directly to the public at the offering price
listed on the cover page of this prospectus and part to certain
dealers at a price that represents a concession not in excess of
$ a share under the public
offering price. After the initial offering of the shares of
common stock, the offering price and other selling terms may
from time to time be varied by the representatives.
The selling stockholders have granted to the underwriters an
option, exercisable for 30 days from the date of this
prospectus, to purchase up to 534,726 additional shares of
common stock at the public offering price listed on the cover
page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely
for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares of common stock
offered by this prospectus. To the extent the option is
exercised, each underwriter will become obligated, subject to
certain conditions, to purchase the same percentage of the
additional shares of common stock as the number listed next to
the underwriters name in the preceding table bears to the
total number of shares of common stock listed next to the names
of all underwriters in the preceding table.
The following table shows the per share and total public
offering price, underwriting discounts and commissions, and
proceeds before expenses to the selling stockholders. These
amounts are shown assuming both no exercise and full exercise of
the underwriters option to purchase up to an additional
534,726 shares of common stock from the selling
stockholders.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Total
|
|
|
Per Share
|
|
No Exercise
|
|
Full Exercise
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Underwriting discounts and commissions to be paid by the selling
stockholders
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to selling stockholders
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
The estimated offering expenses payable by us, exclusive of the
underwriting discounts and commissions, are approximately
$1.0 million.
97
The underwriters have informed us that they do not intend sales
to discretionary accounts to exceed 5% of the total number of
shares of common stock offered by them.
Our common stock is listed on The Nasdaq Global Select Market
under the symbol ACOM. On November 5, 2010, the last sale
price of the shares on The Nasdaq Global Select Market was
$26.56 per share.
We expect to enter into an agreement with the selling
stockholders, including affiliates of Spectrum Equity Investors
V, L.P., to repurchase $25.0 million worth of common stock, or
approximately shares,
directly from the selling stockholders at a price per share
equal to the net proceeds per share the selling stockholders
receive in this offering. This direct purchase is a private,
non-underwritten transaction.
We and all directors and officers and the holders of
approximately 66% of our outstanding stock and stock options
have agreed with the underwriters that, without the prior
written consent of Morgan Stanley & Co. Incorporated and
Merrill Lynch, Pierce, Fenner & Smith Incorporated on
behalf of the underwriters, we and they will not, during the
period ending 90 days after the date of this prospectus:
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|
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offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of directly or indirectly, any
shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock;
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enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences
of ownership of the common stock; or
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|
|
make any demand for, or exercise any right with respect to, the
registration of any shares of common stock or any security
convertible into or exercisable or exchangeable for common stock.
|
In addition, we and the selling stockholders agree that, without
the prior written consent of Morgan Stanley & Co.
Incorporated and Merrill Lynch, Pierce, Fenner & Smith
Incorporated on behalf of the underwriters, we and they will
not, during the period ending 90 days after the date of
this prospectus, file any registration statement with the SEC
relating to the offering of any shares of common stock or any
securities convertible into or exercisable or exchangeable for
common stock.
The restrictions described in the immediately preceding
paragraphs do not apply to, among other things:
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|
|
|
|
the sale of shares to the underwriters;
|
|
|
|
|
|
the filing of a registration statement with respect to
approximately 1.022 million shares of our common stock
issued in connection with our acquisition of iArchives after
January 1, 2011;
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|
|
|
|
|
the issuance by us of shares of common stock upon the exercise
of an option or a warrant or the conversion of a security
outstanding on the date of this prospectus of which the
underwriters have been advised in writing;
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|
|
|
transactions by any person other than us relating to shares of
common stock or other securities acquired in open market
transactions after the completion of the offering of the shares,
provided that no filing under the Exchange Act (other than a
filing on a Form 5, Schedule 13D or Schedule 13G
(or 13D/A or 13G/A) made after the expiration of the
restricted period) shall be required or shall be voluntarily
made in connection with subsequent sales of common stock or
other securities acquired in such open market transactions;
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transfers of shares of common stock or any security convertible
into common stock as a bona fide gift, to a trust, or to
affiliates of a stockholder, including limited partners,
members, or stockholders of the stockholder, provided that in
the case of any such transfer or distribution, the transferee
agrees to be bound in writing by the terms of the
lock-up
agreement prior to such transfer and no filing under the
Exchange Act, reporting a reduction in beneficial ownership of
shares of common stock shall be required or shall be voluntarily
made in respect of the transfer or distribution during the
180 day restricted period;
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|
|
|
|
|
the sale of shares under a trading plan pursuant to
Rule 10b5-1
under the Exchange Act in effect prior to November 1,
2010; or
|
|
|
|
|
|
the establishment of a trading plan pursuant to
Rule 10b5-1
under the Exchange Act, for the transfer of shares of common
stock, provided that such plan does not provide for the transfer
of common stock during the restricted period.
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98
The 90-day restricted period described in the preceding
paragraphs will be extended if:
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|
|
during the last 17 days of the 90-day restricted period we
issue an earnings release or material news event relating to us
occurs, or
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|
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|
prior to the expiration of the 90-day restricted period, we
announce that we will release earnings results during the 16-day
period beginning on the last day of the 90-day period,
|
in which case the restrictions described in the preceding
paragraph will continue to apply until the expiration of the
18-day period beginning on the issuance of the earnings release
or the occurrence of the material news or material event.
In order to facilitate the offering of the common stock, the
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of the common stock. Specifically,
the underwriters may sell more shares than they are obligated to
purchase under the underwriting agreement, creating a short
position. A short sale is covered if the short position is no
greater than the number of shares available for purchase by the
underwriters under the over-allotment option. The underwriters
can close out a covered short sale by exercising the
over-allotment option or purchasing shares in the open market.
In determining the source of shares to close out a covered short
sale, the underwriters will consider, among other things, the
open market price of shares compared to the price available
under the over-allotment option. The underwriters may also sell
shares in excess of the over-allotment option, creating a naked
short position. The underwriters must close out any naked short
position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of
the common stock in the open market after pricing that could
adversely affect investors who purchase in this offering. As an
additional means of facilitating this offering, the underwriters
may bid for, and purchase, shares of common stock in the open
market to stabilize the price of the common stock. The
underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of such underwriter in stabilizing or short covering
transactions. These activities may raise or maintain the market
price of the common stock above independent market levels or
prevent or retard a decline in the market price of the common
stock. The underwriters are not required to engage in these
activities and may end any of these activities at any time.
The underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory, investment management, principal
investment, hedging, financing and brokerage activities. Certain
of the underwriters and their respective affiliates have in the
past and may in the future perform various financial advisory,
investment banking, commercial banking and lending services for
the issuer, for which they would receive customary fees and
expenses. In particular, certain of the underwriters served as
underwriters in connection with our initial public offering in
November 2009, for which they received customary fees and
expenses. Certain affiliates of certain underwriters have also
acted as agents and lenders in connection with our new credit
facility, for which they received, and will receive, customary
fees and expenses.
We, the selling stockholders and the underwriters have agreed to
indemnify each other against certain liabilities, including
liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make because of any
of these liabilities.
A prospectus in electronic format may be made available on Web
sites maintained by one or more underwriters, or selling group
members, if any, participating in this offering. The
representatives may agree to allocate a number of shares of
common stock to underwriters for sale to their online brokerage
account holders. Internet distributions will be allocated by the
representatives to underwriters that may make Internet
distributions on the same basis as other allocations.
European
Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive, each underwriter
has represented and agreed that with effect from and including
the date on which the Prospectus Directive is implemented in
that Member State it has not made and will not make an offer of
shares of
99
our common stock to the public in that Member State, except that
it may, with effect from and including such date, make an offer
of shares of our common stock to the public in that Member State:
(a) at any time to legal entities which are authorized or
regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to
invest in securities;
(b) at any time to any legal entity which has two or more
of (i) an average of at least 250 employees during the
last financial year; (ii) a total balance sheet of more
than 43,000,000 and (iii) an annual net turnover of
more than 50,000,000, as shown in its last annual or
consolidated accounts; or
(c) at any time in any other circumstances which do not
require the publication by us of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of the above, the expression an offer of
shares of our common stock to the public in relation to
any shares of our common stock in any Member State means the
communication in any form and by any means of sufficient
information on the terms of the offer and the shares of our
common stock to be offered so as to enable an investor to decide
to purchase or subscribe the shares of our common stock, as the
same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and
the expression Prospectus Directive means Directive 2003/71/EC
and includes any relevant implementing measure in that Member
State.
Dubai
International Financial Centre
This document relates to an Exempt Offer in accordance with the
Offered Securities Rules of the Dubai Financial Services
Authority (DFSA). This document is intended for
distribution only to persons of a type specified in the Offered
Securities Rules of the DFSA. It must not be delivered to, or
relied on by, any other person. The DFSA has no responsibility
for reviewing or verifying any documents in connection with
Exempt Offers. The DFSA has not approved this document nor taken
steps to verify the information set forth herein and has no
responsibility for the document. The shares of our common stock
to which this document relates may be illiquid
and/or
subject to restrictions on their resale. Prospective purchasers
of the shares of our common stock should conduct their own due
diligence on the securities. If you do not understand the
contents of this document you should consult an authorized
financial advisor.
Switzerland
The shares of our common stock may not be publicly offered in
Switzerland and will not be listed on the SIX Swiss Exchange
(SIX) or on any other stock exchange or regulated
trading facility in Switzerland. This document has been prepared
without regard to the disclosure standards for issuance
prospectuses under art. 652a or art. 1156 of the Swiss Code of
Obligations or the disclosure standards for listing prospectuses
under art. 27 ff. of the SIX Listing Rules or the listing rules
of any other stock exchange or regulated trading facility in
Switzerland. Neither this document nor any other offering or
marketing material relating to the shares of our common stock or
the offering may be publicly distributed or otherwise made
publicly available in Switzerland.
Neither this document nor any other offering or marketing
material relating to the offering, the Company, the shares of
our common stock have been or will be filed with or approved by
any Swiss regulatory authority. In particular, this document
will not be filed with, and the offer of the shares of our
common stock will not be supervised by, the Swiss Financial
Market Supervisory Authority FINMA (FINMA), and the offer of
shares of our common stock has not been and will not be
authorized under the Swiss Federal Act on Collective Investment
Schemes (CISA). The investor protection afforded to
acquirers of interests in collective investment schemes under
the CISA does not extend to acquirers of the shares of our
common stock.
United
Kingdom
This document and any other material in relation to the shares
of our common stock described herein is only being distributed
to, and is only directed at, persons in the United Kingdom that
are qualified investors within the meaning of
Article 2(1)(e) of the Prospective Directive
(qualified investors) that also (i) have
professional experience in matters relating to investments
falling within Article 19(5) of the Financial Services and
Markets Act
100
2000 (Financial Promotion) Order 2005, as amended, or the Order,
(ii) who fall within Article 49(2)(a) to (d) of
the Order or (iii) to whom it may otherwise lawfully be
communicated (all such persons together being referred to as
relevant persons). The shares of our common stock
are only available to, and any invitation, offer or agreement to
purchase or otherwise acquire such shares of our common stock
will be engaged in only with, relevant persons. This document
and its contents are confidential and should not be distributed,
published or reproduced (in whole or in part) or disclosed by
recipients to any other person in the United Kingdom. Any person
in the United Kingdom that is not a relevant person should not
act or rely on this document or any of its contents.
101
LEGAL
MATTERS
The validity of the shares of our common stock offered in the
offering will be passed upon for us by Gibson, Dunn &
Crutcher LLP, New York, New York. Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo
Alto, California is representing the underwriters in this
offering.
EXPERTS
The consolidated financial statements of Ancestry.com Inc. and
subsidiaries as of December 31, 2008 and 2009, and for the
period from January 1, 2007 through December 5, 2007
(predecessor), the period from December 6, 2007 through
December 31, 2007 (successor) and the years ended
December 31, 2008 and 2009, appearing in this prospectus
have been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their report
thereon appearing elsewhere herein, and are included and
incorporated by reference in reliance upon such report given on
the authority of such firm as experts in accounting and auditing.
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on
Form S-1,
including exhibits and schedules, under the Securities Act with
respect to the common stock to be sold in the offering. This
prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in
the registration statement or the exhibits and schedules that
are part of the registration statement. Any statements made in
this prospectus as to the contents of any contract, agreement or
other document are not necessarily complete. With respect to
each such contract, agreement or other document filed as an
exhibit to the registration statement, we refer you to the
exhibit for a more complete description of the matter involved,
and each statement in this prospectus shall be deemed qualified
in its entirety by this reference. You may read and copy all or
any portion of the registration statement or any reports,
statements or other information in the files at the following
public reference facilities of the SEC:
Public
Reference Room
100 F Street, NE
Washington, DC, 20549
You can request copies of these documents upon payment of a
duplicating fee by writing to the SEC. You may call the SEC at
1-800-SEC-0330
for further information on the operation of its public reference
rooms. Our filings, including the registration statement, will
also be available to you on the Internet Web site maintained by
the SEC at
www.sec.gov
.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to incorporate by reference into
this prospectus the information that we file with the SEC. This
means that we can disclose important information to you by
referring you to those documents. The information incorporated
by reference is deemed to be part of this prospectus. We
incorporate by reference the documents set forth below, which we
already have filed with the SEC:
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Our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009, filed on
February 26, 2010;
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|
Our Quarterly Reports on
Form 10-Q
for the quarterly periods ended March 31, 2010,
June 30, 2010 and September 30, 2010, filed on
May 7, 2010, August 11, 2010 and November 2,
2010, respectively;
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Our Current Reports on
Form 8-K
filed on March 23, 2010, May 27, 2010, June 17,
2010, July 27, 2010, September 13, 2010,
September 23, 2010 (Items 3.02 and 8.01 information
only) and October 21, 2010 (Item 3.02 information
only); and
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Our Proxy Statement on Schedule 14A filed on April 12,
2010.
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102
We will provide, upon written or oral request, to each person,
including any beneficial owner, to whom a prospectus is
delivered, a copy of any or all of the reports or documents that
have been incorporated by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by
reference in any such documents) at no cost. We can be contacted
at the address, phone number and
e-mail
address indicated below:
Investor
Relations
Ancestry.com Inc.
360 West 4800 North
Provo, UT 84604
Tel:
(212) 986-6667
investorrelations@ancestry.com
103
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors of
Ancestry.com Inc.
We have audited the accompanying consolidated balance sheets of
Ancestry.com Inc. and subsidiaries as of December 31, 2008
and 2009, and the related consolidated statements of operations,
stockholders equity, and cash flows for the period from
January 1, 2007 through December 5, 2007
(predecessor), the period from December 6, 2007 through
December 31, 2007 (successor) and the years ended
December 31, 2008 and 2009. These financial statements are
the responsibility of the companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Ancestry.com Inc. and subsidiaries as of
December 31, 2008 and 2009, and the consolidated results of
their operations and their cash flows for the period from
January 1, 2007 through December 5, 2007
(predecessor), the period from December 6, 2007 through
December 31, 2007 (successor) and the years ended
December 31, 2008 and 2009, in conformity with
U.S. generally accepted accounting principles.
Salt Lake City, Utah
February 26, 2010
F-2
ANCESTRY.COM
INC.
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
40,121
|
|
|
$
|
66,941
|
|
|
$
|
64,085
|
|
Restricted cash
|
|
|
6,572
|
|
|
|
2,181
|
|
|
|
2,441
|
|
Short-term investments
|
|
|
|
|
|
|
33,331
|
|
|
|
16,004
|
|
Accounts receivable, net of allowances of $394, $472 and $355 at
December 31, 2008 and 2009 and September 30, 2010
(unaudited), respectively.
|
|
|
5,155
|
|
|
|
5,860
|
|
|
|
4,398
|
|
Income tax receivable
|
|
|
3,089
|
|
|
|
2,017
|
|
|
|
2,912
|
|
Deferred income taxes
|
|
|
7,582
|
|
|
|
8,797
|
|
|
|
1,572
|
|
Prepaid expenses and other current assets
|
|
|
3,674
|
|
|
|
5,380
|
|
|
|
4,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
66,193
|
|
|
|
124,507
|
|
|
|
96,384
|
|
Property and equipment, net
|
|
|
17,004
|
|
|
|
19,430
|
|
|
|
19,378
|
|
Content database costs, net
|
|
|
47,244
|
|
|
|
49,650
|
|
|
|
55,301
|
|
Intangible assets, net
|
|
|
57,701
|
|
|
|
41,484
|
|
|
|
33,107
|
|
Goodwill
|
|
|
285,466
|
|
|
|
285,466
|
|
|
|
290,356
|
|
Other assets
|
|
|
4,367
|
|
|
|
2,811
|
|
|
|
1,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
477,975
|
|
|
$
|
523,348
|
|
|
$
|
495,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,827
|
|
|
$
|
6,877
|
|
|
$
|
8,857
|
|
Accrued expenses
|
|
|
19,536
|
|
|
|
18,850
|
|
|
|
27,401
|
|
Escrow liability
|
|
|
5,682
|
|
|
|
1,763
|
|
|
|
2,029
|
|
Deferred revenues
|
|
|
61,178
|
|
|
|
69,711
|
|
|
|
90,583
|
|
Current portion of long-term debt
|
|
|
21,457
|
|
|
|
28,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
112,680
|
|
|
|
125,617
|
|
|
|
128,870
|
|
Long-term debt, less current portion
|
|
|
111,543
|
|
|
|
71,609
|
|
|
|
|
|
Deferred income taxes
|
|
|
33,710
|
|
|
|
30,117
|
|
|
|
24,728
|
|
Other long-term liabilities
|
|
|
254
|
|
|
|
1,115
|
|
|
|
1,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
258,187
|
|
|
|
228,458
|
|
|
|
155,432
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 175,000 shares
authorized; 38,217, 42,416 and 44,402 shares issued and
outstanding at December 31, 2008 and 2009 and
September 30, 2010 (unaudited), respectively.
|
|
|
38
|
|
|
|
42
|
|
|
|
44
|
|
Additional paid-in capital
|
|
|
218,669
|
|
|
|
272,513
|
|
|
|
293,263
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
(41
|
)
|
|
|
519
|
|
Retained earnings
|
|
|
1,081
|
|
|
|
22,376
|
|
|
|
46,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
219,788
|
|
|
|
294,890
|
|
|
|
340,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
477,975
|
|
|
$
|
523,348
|
|
|
$
|
495,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements
F-3
ANCESTRY.COM
INC.
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
2007 through
|
|
|
|
2007 through
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
September 30,
|
|
|
|
December 5, 2007
|
|
|
|
December 31, 2007
|
|
|
December 31, 2008
|
|
|
December 31, 2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription revenues
|
|
$
|
141,141
|
|
|
|
$
|
11,692
|
|
|
$
|
181,391
|
|
|
$
|
207,707
|
|
|
$
|
152,506
|
|
|
$
|
204,343
|
|
Product and other revenues
|
|
|
12,269
|
|
|
|
|
1,278
|
|
|
|
16,200
|
|
|
|
17,195
|
|
|
|
12,287
|
|
|
|
13,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
153,410
|
|
|
|
|
12,970
|
|
|
|
197,591
|
|
|
|
224,902
|
|
|
|
164,793
|
|
|
|
218,196
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription revenues
|
|
|
33,590
|
|
|
|
|
2,462
|
|
|
|
38,187
|
|
|
|
40,183
|
|
|
|
29,755
|
|
|
|
33,996
|
|
Cost of product and other revenues
|
|
|
2,552
|
|
|
|
|
500
|
|
|
|
5,427
|
|
|
|
6,140
|
|
|
|
4,213
|
|
|
|
3,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
36,142
|
|
|
|
|
2,962
|
|
|
|
43,614
|
|
|
|
46,323
|
|
|
|
33,968
|
|
|
|
37,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
117,268
|
|
|
|
|
10,008
|
|
|
|
153,977
|
|
|
|
178,597
|
|
|
|
130,825
|
|
|
|
180,271
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and development
|
|
|
31,255
|
|
|
|
|
3,517
|
|
|
|
33,206
|
|
|
|
36,236
|
|
|
|
26,690
|
|
|
|
30,447
|
|
Marketing and advertising
|
|
|
42,400
|
|
|
|
|
3,157
|
|
|
|
52,341
|
|
|
|
61,625
|
|
|
|
44,226
|
|
|
|
71,061
|
|
General and administrative
|
|
|
20,723
|
|
|
|
|
2,142
|
|
|
|
28,931
|
|
|
|
32,540
|
|
|
|
24,569
|
|
|
|
24,915
|
|
Amortization of acquired intangible assets
|
|
|
2,132
|
|
|
|
|
1,542
|
|
|
|
23,779
|
|
|
|
16,217
|
|
|
|
12,165
|
|
|
|
11,149
|
|
Transaction related expenses
|
|
|
9,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
106,040
|
|
|
|
|
10,358
|
|
|
|
138,257
|
|
|
|
146,618
|
|
|
|
107,650
|
|
|
|
137,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
11,228
|
|
|
|
|
(350
|
)
|
|
|
15,720
|
|
|
|
31,961
|
|
|
|
23,175
|
|
|
|
42,699
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(756
|
)
|
|
|
|
(1,146
|
)
|
|
|
(12,355
|
)
|
|
|
(6,139
|
)
|
|
|
(4,784
|
)
|
|
|
(4,896
|
)
|
Interest income
|
|
|
2,051
|
|
|
|
|
289
|
|
|
|
872
|
|
|
|
792
|
|
|
|
746
|
|
|
|
340
|
|
Other income (expense), net
|
|
|
266
|
|
|
|
|
7
|
|
|
|
(8
|
)
|
|
|
21
|
|
|
|
14
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
12,789
|
|
|
|
|
(1,200
|
)
|
|
|
4,229
|
|
|
|
26,635
|
|
|
|
19,151
|
|
|
|
38,541
|
|
Income tax expense
|
|
|
(5,018
|
)
|
|
|
|
(103
|
)
|
|
|
(1,845
|
)
|
|
|
(5,340
|
)
|
|
|
(6,927
|
)
|
|
|
(14,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,771
|
|
|
|
$
|
(1,303
|
)
|
|
$
|
2,384
|
|
|
$
|
21,295
|
|
|
$
|
12,224
|
|
|
$
|
24,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
$
|
0.06
|
|
|
$
|
0.55
|
|
|
$
|
0.32
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
$
|
0.06
|
|
|
$
|
0.51
|
|
|
$
|
0.30
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
38,113
|
|
|
|
38,930
|
|
|
|
38,283
|
|
|
|
43,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
38,529
|
|
|
|
41,533
|
|
|
|
40,096
|
|
|
|
48,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements
F-4
ANCESTRY.COM
INC.
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Retained
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
Earnings
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
(Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Deficit)
|
|
|
Equity
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
|
62,406
|
|
|
$
|
62
|
|
|
|
32,708
|
|
|
$
|
33
|
|
|
$
|
130,818
|
|
|
$
|
(7
|
)
|
|
$
|
(85,395
|
)
|
|
$
|
45,511
|
|
Exercise of stock options, net
|
|
|
|
|
|
|
|
|
|
|
1,496
|
|
|
|
1
|
|
|
|
1,680
|
|
|
|
|
|
|
|
|
|
|
|
1,681
|
|
Exercise of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit from stock option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,704
|
|
|
|
|
|
|
|
|
|
|
|
1,704
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
901
|
|
|
|
|
|
|
|
|
|
|
|
901
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on short-term investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
(23
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,771
|
|
|
|
7,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 5, 2007
|
|
|
62,406
|
|
|
$
|
62
|
|
|
|
34,340
|
|
|
$
|
34
|
|
|
$
|
135,103
|
|
|
$
|
(30
|
)
|
|
$
|
(77,624
|
)
|
|
$
|
57,545
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of the predecessor equity structure
|
|
|
(62,406
|
)
|
|
|
(62
|
)
|
|
|
(34,340
|
)
|
|
|
(34
|
)
|
|
|
(135,103
|
)
|
|
|
30
|
|
|
|
77,624
|
|
|
|
(57,545
|
)
|
Investment in the predecessor
|
|
|
|
|
|
|
|
|
|
|
38,045
|
|
|
|
38
|
|
|
|
213,569
|
|
|
|
|
|
|
|
|
|
|
|
213,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 6, 2007
|
|
|
|
|
|
$
|
|
|
|
|
38,045
|
|
|
$
|
38
|
|
|
$
|
213,569
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
213,607
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on short-term investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,303
|
)
|
|
|
(1,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
38,045
|
|
|
$
|
38
|
|
|
$
|
213,646
|
|
|
$
|
1
|
|
|
$
|
(1,303
|
)
|
|
$
|
212,382
|
|
Exercise of stock options, net
|
|
|
|
|
|
|
|
|
|
|
195
|
|
|
|
|
|
|
|
654
|
|
|
|
|
|
|
|
|
|
|
|
654
|
|
Write-off of deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,634
|
|
|
|
|
|
|
|
|
|
|
|
4,634
|
|
Stock option adjustments affecting goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
239
|
|
Repurchase of common stock and stock awards
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
(468
|
)
|
|
|
|
|
|
|
|
|
|
|
(468
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on short-term investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,384
|
|
|
|
2,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
|
|
|
$
|
|
|
|
|
38,217
|
|
|
$
|
38
|
|
|
$
|
218,669
|
|
|
$
|
|
|
|
$
|
1,081
|
|
|
$
|
219,788
|
|
Exercise of stock options, net
|
|
|
|
|
|
|
|
|
|
|
143
|
|
|
|
|
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
620
|
|
Issuance of common stock, net of costs
|
|
|
|
|
|
|
|
|
|
|
4,074
|
|
|
|
4
|
|
|
|
47,754
|
|
|
|
|
|
|
|
|
|
|
|
47,758
|
|
Income tax benefit from stock option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,525
|
|
|
|
|
|
|
|
|
|
|
|
5,525
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on short-term investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
(41
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,295
|
|
|
|
21,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
|
|
|
$
|
|
|
|
|
42,416
|
|
|
$
|
42
|
|
|
$
|
272,513
|
|
|
$
|
(41
|
)
|
|
$
|
22,376
|
|
|
$
|
294,890
|
|
Exercise of stock options, net (unaudited)
|
|
|
|
|
|
|
|
|
|
|
1,986
|
|
|
|
2
|
|
|
|
9,564
|
|
|
|
|
|
|
|
|
|
|
|
9,566
|
|
Income tax benefit from stock option exercises (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,639
|
|
|
|
|
|
|
|
|
|
|
|
7,639
|
|
Stock-based compensation (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,547
|
|
|
|
|
|
|
|
|
|
|
|
3,547
|
|
Repurchase of common stock (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on short-term investments, net of tax (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
44
|
|
Foreign currency translation adjustment (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
516
|
|
|
|
|
|
|
|
516
|
|
Net income (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,294
|
|
|
|
24,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2010 (unaudited)
|
|
|
|
|
|
$
|
|
|
|
|
44,402
|
|
|
$
|
44
|
|
|
$
|
293,263
|
|
|
$
|
519
|
|
|
$
|
46,670
|
|
|
$
|
340,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements
F-5
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
2007 through
|
|
|
|
2007 through
|
|
|
Year
|
|
|
Year
|
|
|
Ended
|
|
|
|
December 5,
|
|
|
|
December 31,
|
|
|
Ended
|
|
|
Ended
|
|
|
September 30,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
December 31, 2008
|
|
|
December 31, 2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,771
|
|
|
|
$
|
(1,303
|
)
|
|
$
|
2,384
|
|
|
$
|
21,295
|
|
|
$
|
12,224
|
|
|
$
|
24,294
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
10,594
|
|
|
|
|
754
|
|
|
|
10,732
|
|
|
|
10,936
|
|
|
|
8,092
|
|
|
|
8,355
|
|
Amortization of content
|
|
|
4,973
|
|
|
|
|
432
|
|
|
|
6,267
|
|
|
|
6,997
|
|
|
|
5,182
|
|
|
|
5,564
|
|
Amortization of intangible assets
|
|
|
2,121
|
|
|
|
|
1,542
|
|
|
|
23,779
|
|
|
|
16,217
|
|
|
|
12,164
|
|
|
|
11,149
|
|
Amortization of deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
|
871
|
|
|
|
862
|
|
|
|
613
|
|
|
|
2,368
|
|
Impairment of content databases
|
|
|
|
|
|
|
|
|
|
|
|
1,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred gain on sale-leaseback
|
|
|
(591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
449
|
|
|
|
|
336
|
|
|
|
1,653
|
|
|
|
(4,763
|
)
|
|
|
(1,271
|
)
|
|
|
990
|
|
Stock-based compensation expense
|
|
|
898
|
|
|
|
|
77
|
|
|
|
4,672
|
|
|
|
5,474
|
|
|
|
4,265
|
|
|
|
3,541
|
|
In-process research and development acquired
|
|
|
|
|
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(325
|
)
|
|
|
|
(1,116
|
)
|
|
|
(389
|
)
|
|
|
(705
|
)
|
|
|
974
|
|
|
|
1,496
|
|
Restricted cash
|
|
|
(208
|
)
|
|
|
|
16
|
|
|
|
2,643
|
|
|
|
472
|
|
|
|
888
|
|
|
|
(144
|
)
|
Prepaid expenses and other assets
|
|
|
(310
|
)
|
|
|
|
(279
|
)
|
|
|
(1,732
|
)
|
|
|
(1,012
|
)
|
|
|
(2,288
|
)
|
|
|
627
|
|
Income tax receivable
|
|
|
(176
|
)
|
|
|
|
77
|
|
|
|
93
|
|
|
|
1,072
|
|
|
|
2,683
|
|
|
|
(895
|
)
|
Accounts payable and accrued expenses
|
|
|
148
|
|
|
|
|
5,040
|
|
|
|
(1,004
|
)
|
|
|
1,410
|
|
|
|
(459
|
)
|
|
|
17,569
|
|
Excess tax benefits from stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
(29
|
)
|
|
|
(7,641
|
)
|
Deferred revenues
|
|
|
5,849
|
|
|
|
|
(1,426
|
)
|
|
|
4,448
|
|
|
|
8,533
|
|
|
|
8,672
|
|
|
|
19,563
|
|
Other long-term liabilities
|
|
|
118
|
|
|
|
|
772
|
|
|
|
(647
|
)
|
|
|
861
|
|
|
|
26
|
|
|
|
719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
31,311
|
|
|
|
|
6,222
|
|
|
|
55,245
|
|
|
|
67,604
|
|
|
|
51,736
|
|
|
|
87,555
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization of content database costs
|
|
|
(10,591
|
)
|
|
|
|
(1,129
|
)
|
|
|
(8,965
|
)
|
|
|
(9,398
|
)
|
|
|
(5,855
|
)
|
|
|
(8,534
|
)
|
Purchases of property and equipment
|
|
|
(10,572
|
)
|
|
|
|
(852
|
)
|
|
|
(11,621
|
)
|
|
|
(13,362
|
)
|
|
|
(7,566
|
)
|
|
|
(7,897
|
)
|
Acquisitions of businesses, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,147
|
)
|
Purchases of short-term investments
|
|
|
(44,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(33,372
|
)
|
|
|
|
|
|
|
(7,193
|
)
|
Proceeds from sale and maturity of short-term investments
|
|
|
75,980
|
|
|
|
|
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
24,564
|
|
Net cash used in acquisition of the predecessor, including
transaction costs
|
|
|
|
|
|
|
|
(279,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from settlement of forward contract
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
9,822
|
|
|
|
|
(281,505
|
)
|
|
|
(20,224
|
)
|
|
|
(56,132
|
)
|
|
|
(13,421
|
)
|
|
|
(6,841
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
1,681
|
|
|
|
|
|
|
|
|
654
|
|
|
|
620
|
|
|
|
559
|
|
|
|
9,514
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,758
|
|
|
|
|
|
|
|
|
|
Principal payments on debt
|
|
|
(15,000
|
)
|
|
|
|
|
|
|
|
(7,000
|
)
|
|
|
(32,975
|
)
|
|
|
(18,331
|
)
|
|
|
(100,025
|
)
|
Proceeds from issuance of debt, net
|
|
|
|
|
|
|
|
136,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs from issuance of credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(733
|
)
|
Excess tax benefits from stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
29
|
|
|
|
7,641
|
|
Proceeds from issuance of common stock in connection with
acquisition of the predecessor
|
|
|
|
|
|
|
|
109,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
(468
|
)
|
|
|
(100
|
)
|
|
|
(100
|
)
|
|
|
|
|
Reduction in income taxes payable as a result of stock option
exercises
|
|
|
1,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(11,615
|
)
|
|
|
|
245,831
|
|
|
|
(6,814
|
)
|
|
|
15,348
|
|
|
|
(17,843
|
)
|
|
|
(83,603
|
)
|
Effect of changes in foreign currency exchange rates on cash and
cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
29,518
|
|
|
|
|
(29,452
|
)
|
|
|
28,207
|
|
|
|
26,820
|
|
|
|
20,472
|
|
|
|
(2,856
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
11,848
|
|
|
|
|
41,366
|
|
|
|
11,914
|
|
|
|
40,121
|
|
|
|
40,121
|
|
|
|
66,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
41,366
|
|
|
|
$
|
11,914
|
|
|
$
|
40,121
|
|
|
$
|
66,941
|
|
|
$
|
60,593
|
|
|
$
|
64,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
756
|
|
|
|
$
|
|
|
|
$
|
10,068
|
|
|
$
|
7,740
|
|
|
$
|
6,624
|
|
|
$
|
2,528
|
|
Cash paid for income taxes
|
|
|
3,400
|
|
|
|
|
|
|
|
|
279
|
|
|
|
11,472
|
|
|
|
8,985
|
|
|
|
6,345
|
|
Supplemental disclosures of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash exchange of equity instruments in acquisition of the
predecessor
|
|
|
|
|
|
|
|
103,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
44
|
|
Capitalization of stock-based compensation
|
|
|
3
|
|
|
|
|
|
|
|
|
9
|
|
|
|
5
|
|
|
|
3
|
|
|
|
6
|
|
See accompanying notes to consolidated financial
statements
F-6
ANCESTRY.COM
INC.
Ancestry.com Inc. is an online family history resource that
derives revenue from providing access to digitized historical
records on a subscription basis. Ancestry, Inc. (the
predecessor) was originally incorporated in Utah in
1983. The predecessor changed its name to Ancestry.com, Inc. in
July 1998 and was reincorporated in Delaware in November 1998.
The predecessors name was changed to MyFamily.com, Inc. in
November 1999 and again in November 2006 to The Generations
Network, Inc. On December 5, 2007, the predecessor was
acquired by Generations Holding, Inc. (Generations
Holding). The company refers to operations of
both the predecessor and the successor periods. Generations
Holding was created for the sole purpose of acquiring The
Generations Network, Inc. and had no prior operations. In July
2009, to better align our corporate identity with the premiere
branding of Ancestry.com, Generations Holding changed its name
to Ancestry.com Inc. (Ancestry, our, or
the successor). Ancestry is a holding company, and
substantially all its operations are conducted by its
wholly-owned subsidiary, Ancestry.com Operations Inc. and its
subsidiaries.
Basis
of Presentation
As a result of the acquisition of the predecessor, the recorded
assets, liabilities and stockholders equity reflected in
the financial statements prior to and subsequent to the
transaction date are not necessarily comparable. Periods through
December 5, 2007 reflect the accounts and activity of the
predecessor. Periods from December 6, 2007 reflect the
accounts of the successor. The consolidated statements of
changes in stockholders equity reflect the initial
capitalization of Generations Holding, on the date of the
acquisition of the predecessor. The consolidated financial
statements include the accounts of the company and its
wholly-owned subsidiaries and a variable interest entity
(VIE). All significant intercompany accounts and
transactions have been eliminated in consolidation. VIEs are
generally entities that lack sufficient equity to finance their
activities without additional financial support from other
parties or whose equity holders lack adequate decision making
ability. VIEs with which the company is involved are evaluated
to determine the primary beneficiary of the risks and rewards of
the VIE. The primary beneficiary is required to consolidate the
VIEs for financial reporting purposes.
As part of the companys strategic efforts in China and in
order to comply with certain Peoples Republic of China
(PRC) laws relating to foreign entities
ownership of Internet content providers in the PRC, a Hong Kong
wholly-owned subsidiary of the company provided PRC nationals
funding to initially capitalize Beijing Generations Internet
Information Services Co., Ltd. (BGIIS) and continues
to provide PRC nationals additional funding to operate that
entity. BGIIS operates to provide content into the PRC. Without
continued financial support from Ancestry, BGIIS has no means to
generate cash flows sufficient to remain a going concern. The
company has concluded that it is the primary beneficiary of
BGIIS and therefore the company has consolidated the financial
statements of BGIIS as a VIE of the company. BGIIS is not
significant to the financial position, results of operations, or
cash flows of the consolidated company.
Certain prior period amounts have been reclassified to conform
to current year presentation. These reclassifications did not
have significant impact on the condensed consolidated financial
statements.
Unaudited
Interim Financial Information
The accompanying unaudited interim consolidated balance sheet as
of September 30, 2010, the consolidated statements of
operations and consolidated statements of cash flows for nine
months ended September 30, 2010 and 2009, and the
consolidated statement of stockholders equity for the nine
months ended September 30, 2010 are unaudited. These
unaudited interim consolidated financial statements have been
prepared in accordance with U.S. generally accepted
accounting principles (GAAP) on the same basis as
the audited consolidated financial statements and in the opinion
of management, reflect all adjustments (all of which are
considered of normal recurring nature) considered necessary to
present fairly the companys financial position, results of
its operations and cash flows for the nine months ended
September 30, 2010 and 2009. The results of operations for
the nine months ended September 30, 2010 are not
necessarily indicative of the results that may be expected for
the year
F-7
ending December 31, 2010. These unaudited interim
consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes for
the period from January 1, 2007 through December 5,
2007, the period from December 6, 2007 through
December 31, 2007, the years ended December 31, 2008
and 2009 included in the companys 2009 Annual Report on
Form 10-K
(the 2009 Annual Report) filed with the Securities
and Exchange Commission on February 26, 2010.
Use of
Estimates
The preparation of consolidated financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported and disclosed in
the financial statements and accompanying notes. Actual results
could differ materially from these estimates.
The company evaluates its estimates continually to determine
their appropriateness, including determination of the fair value
of acquired intangible assets and goodwill, the estimated useful
lives of the companys intangible assets, determination of
fair value of stock options, income taxes, and allowances for
sales returns and uncollectible accounts receivable. The company
bases its estimates on historical experience and on various
assumptions that are believed to be reasonable, the results of
which form the basis for the amounts recorded within the
consolidated financial statements.
Revenue
Recognition and Cost of Revenues
In general, the company recognizes revenue related to sales of
subscriptions, products, services and advertising when
(i) persuasive evidence of an arrangement exists,
(ii) delivery has occurred or services have been rendered
to the customer, (iii) the fee is fixed or determinable,
and (iv) collectability is reasonably assured. Where
arrangements have multiple elements, revenue is allocated to the
elements based on a relative fair value method and revenue is
recognized based on the companys policy for each
respective element.
The company derives subscription revenues by providing access to
its various Web sites. Subscription revenues are recognized
ratably over the subscription period, ranging from one month to
one year, net of estimated cancellations. Subscription fees are
collected primarily from credit cards through the companys
Web sites at the beginning of the subscription period. Deferred
revenues represent the amounts received in advance of the
subscription period.
Revenues are also generated from sales of desktop software,
physical delivery of vital records products (birth, marriage and
death certificates), DNA testing, advertising and other products
and services. Sales of desktop software sold directly from the
companys Web site are recognized upon shipment, net of
estimated returns, provided that collectability is reasonably
assured and there are no significant performance obligations.
Sales of desktop software sold in the retail channel contains
multiple elements including a subscription to access our online
content. Revenue is allocated to the elements based on their
relative fair value. The elements fair value is determined by
vendor specific objective evidence (VSOE) for the
sale of each element on a standalone basis. The subscription
element is recognized over its estimated subscription period and
other product elements are recognized upon sale of the product.
Product and other revenues are recognized upon shipment of the
product. Service revenues are recognized upon completion of the
services. Advertising revenues are recognized based on the
number of online impressions delivered. Shipping fees billed to
customers are included in product and other revenues, and
related shipping costs are included in cost of product and other
revenues.
Cost of subscription revenues consists of amortization of
capitalized content database costs, depreciation of Web servers
and equipment, credit card processing fees, Web site hosting
costs, royalty costs on certain content licensed from others,
personnel-related costs, including salaries, bonuses,
stock-based compensation, employer payroll taxes and employee
benefits, costs of Web operations support and subscriber
services employees.
Cost of product and other revenues consist of direct costs of
product goods sold, shipping costs, credit card processing fees,
personnel-related costs of product warehouse personnel,
warehouse storage costs and royalties on products licensed from
others.
The company has established an allowance for sales returns based
on historical subscription cancellations and product returns.
Actual customer subscription cancellations and product returns
are charged against the allowance or deferred revenue to the
extent that revenue has not yet been recognized. This reserve
has been reflected as a
F-8
reduction of accounts receivable and revenue. In certain sales
transactions, the company is required to collect and remit sales
taxes. The company accounts for sales tax on a net basis and
such sales taxes are not included in revenues on the
consolidated statements of operations.
The following table summarizes the combined activity for the
allowance for sales returns and the allowance for bad debt (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Period from Jan. 1,
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
2007 through
|
|
|
Dec. 6,
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
Dec. 5,
|
|
|
2007 through
|
|
|
Dec. 31,
|
|
|
Dec. 31,
|
|
|
|
2007
|
|
|
Dec 31, 2007
|
|
|
2008
|
|
|
2009
|
|
|
Balance at beginning of period
|
|
$
|
371
|
|
|
$
|
401
|
|
|
$
|
270
|
|
|
$
|
394
|
|
Provision
|
|
|
1,132
|
|
|
|
5
|
|
|
|
1,531
|
|
|
|
1,472
|
|
Write-offs
|
|
|
(1,102
|
)
|
|
|
(136
|
)
|
|
|
(1,407
|
)
|
|
|
(1,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
401
|
|
|
$
|
270
|
|
|
$
|
394
|
|
|
$
|
472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain
Risks and Concentrations
Financial instruments that potentially subject the company to
credit risk consist principally of cash equivalents, short-term
investments and accounts receivable. Cash equivalents are
comprised of money market accounts. Short-term investments at
December 31, 2009 and September 30, 2010 (unaudited)
consisted of investments in U.S. government agency
securities. Accounts receivable are unsecured and include
receivables from businesses and individual customers. No one
customer accounted for more than 10% of the companys
revenues during the period from January 1, 2007 through
December 5, 2007, the period from December 6, 2007
through December 31, 2007 and the years ended
December 31, 2008 and 2009, and the nine months ended
September 30, 2010 (unaudited). One customer accounted for
19% of accounts receivable at December 31, 2008 and two
customers accounted for 19% and 13% of accounts receivable at
December 31, 2009. One customer accounted for 27% of
accounts receivable at September 30, 2010 (unaudited). The
customers that account for more than 10% of the companys
accounts receivable balances, which are not material as a
percentage of revenues, are businesses with extended payment
terms that are responsible for the sale of various company
services and products.
Cash
and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments
with original maturities of three months or less.
Restricted
Cash
Restricted cash consists principally of cash held in escrow from
acquisitions and cash held in an escrow account as collateral
for the companys credit card processor.
Short-Term
Investments
The company determines the appropriate classification of its
investments at the time of purchase and re-evaluates such
designations as of each balance sheet date. All investments and
cash equivalents in the portfolio are classified as
available-for-sale
and are stated at fair market value, with all the associated
unrealized gains and losses reported as a component of
accumulated other comprehensive income (loss). The amortized
cost of debt securities is adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization and
accretion are included in interest income. Realized gains and
losses are included in interest income. The cost of securities
sold is based on the specific identification method. The company
may or may not at a point in time hold securities with stated
maturities greater than one year until maturity. The company
considers these investments as liquid resources available for
current operations when and if needed and therefore would
classify them as current assets unless specifically identified
as an investment to be held to maturity.
F-9
Accounts
Receivable
Accounts receivable are recorded at the invoiced amount and are
non-interest-bearing. Accounts receivable consists of credit
card charges authorized but not fully processed by the
companys credit card processors and receivables from
businesses resulting from the sale of product, advertising and
earned royalties or revenue share arrangements. The company
maintains an allowance for doubtful accounts to reserve for
potential uncollectible receivables. Allowances are made based
upon a specific review of all significant outstanding invoices.
For those invoices not specifically reserved allowances are
provided based upon a percentage of aged outstanding invoices.
In determining these percentages, the company analyzes its
historical collection experience and current economic trends.
Property
and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
calculated using the straight-line method over the estimated
useful lives of the assets. The estimated useful lives are three
years for computer equipment, purchased software, and furniture
and fixtures. Leasehold improvements are amortized over the
shorter of the lease term or the estimated useful lives of the
assets, generally five years. Repairs and maintenance costs are
expensed as incurred. Major renewals and improvements that
extend the useful lives of existing assets are capitalized and
depreciated over their estimated useful lives.
Inventory
Net inventory was $0.3 million, $0.1 million and de
minimis at December 31, 2008 and 2009 and
September 30, 2010 (unaudited), respectively. Inventory is
included in prepaid expenses and other current assets on the
consolidated balance sheets. Inventory consists primarily of
packaged software, books, DNA testing kits and other printed
materials. Inventory is classified as finished goods and is
stated at the lower of cost or market. Cost is determined using
the
first-in,
first-out method. The company maintains an allowance for excess
and obsolete inventory based on historical product sales and
current inventory levels.
Content
Database Costs
Content database costs consist of historical information that
has been digitized and indexed to allow subscribers to search
and view the content online. Content database costs include the
costs to acquire or license the historical data, costs incurred
by our employees or by third parties to scan the content, costs
to have the content keyed and indexed in order to be searchable
and the fair value allocated to content databases in business
acquisitions. Among the most utilized content in the
companys databases are the United States and United
Kingdom census records which are ordinarily released by
government entities every ten years. The company amortizes
content database costs on a straight-line basis over ten years
after the content is released for viewing on the companys
Web sites. Costs to renew or extend the term of licensed content
databases are expensed as incurred.
Software
Development Costs
Software development costs associated with software to be sold,
leased, or otherwise marketed are expensed as incurred until
technological feasibility, defined as a working model or
prototype, has been established, at which time such costs are
capitalized until the product is available for general release
to customers. To date, costs incurred between the completion of
a working model and the point at which the product is ready for
general release have been insignificant. Accordingly, the
company has charged all such costs to technology and development
in the period incurred.
Internal and external software development costs associated with
the development of software for internal use are expensed during
the preliminary project stage and capitalized during the
application development stage. The company has capitalized a
minor amount of costs associated with software developed for
internal use. The costs associated with minor enhancements to
internal use software are expensed to technology and development
in the period incurred.
F-10
Impairment
of Long-Lived Assets
The company reviews property and equipment and intangible assets
with finite lives for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amounts of an asset
or asset group to future undiscounted cash flows the asset or
asset group is expected to generate. If assets are determined to
be impaired, the impairment to be recognized equals the amount
by which the carrying value of the asset or group of assets
exceeds its fair market value. During the year ended
December 31, 2008, as a result of a change in the
companys content strategy in China, the company recorded
an impairment charge of $1.5 million on its capitalized
Chinese content. The impairment is recorded in cost of
subscription revenues on the statement of operations. There was
no impairment loss recognized in the year ended
December 31, 2009 or the nine months ended
September 30, 2010 (unaudited).
Goodwill
and Other Intangible Assets
Goodwill represents the excess of the purchase price in a
business combination over the fair value of the net tangible and
intangible assets acquired. Goodwill and intangible assets with
indefinite lives are not amortized but rather tested for
impairment at least annually or sooner whenever events or
changes in circumstances indicate that they may be impaired.
Goodwill is the only indefinite lived asset of the company. The
company evaluates its goodwill for impairment annually in the
fourth quarter or when indicators of impairment exist.
Impairment is recognized when the carrying value of goodwill
exceeds the fair value of the reporting unit. As the
consolidated company represents a single reporting unit, the
goodwill carrying value is compared to the enterprise value as a
whole. The annual evaluation of the companys goodwill
resulted in no impairment loss for the years ended
December 31, 2008 and 2009. There have been no indicators
of impairment in the nine months ended September 30, 2010
(unaudited).
Intangible assets with definite lives are amortized over their
estimated useful lives and reviewed for impairment whenever
events or changes in circumstances indicate an assets
carrying value may not be recoverable. The company is currently
amortizing its acquired intangible assets with definite lives on
a straight-line basis over periods ranging from 1 to
10 years except subscriber relationships and contracts
which are amortized on an accelerated basis from 4 to
8 years. Subscriber relationships and contracts are
amortized based on an annual turnover rate, or rate of
attrition, of the subscribers resulting in an accelerated basis
of amortization.
Income
Taxes
The company uses the asset and liability method of accounting
for income taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. A valuation allowance is provided when it is
more likely than not that some or all of the deferred tax assets
may not be realized.
The company adopted changes issued by the Financial Accounting
Standards Board (FASB) which prescribed a
recognition threshold and measurement attribute for financial
statement recognition and measurement of an uncertain tax
position taken or expected to be taken in a tax return. Under
the guidance, an uncertain income tax position must be
recognized at the largest amount that is more-likely-than-not to
be sustained upon audit by the relevant taxing authority. The
guidance also provides guidance for de-recognition,
classification, interest and penalties, and accounting in
interim periods.
Comprehensive
Income (Loss)
For the period from January 1, 2007 through
December 5, 2007, the period from December 6, 2007
through December 31, 2007, and the years ended
December 31, 2008 and 2009, and the nine months ended
September 30, 2010 (unaudited) accumulated other
comprehensive income (loss) includes unrealized gains and losses
on short-
F-11
term
available-for-sale
investments and translation gains and losses related to foreign
subsidiaries whose functional currency is other than the
U.S. dollar. The financial statements of these subsidiaries
are translated into U.S. dollars using period-end rates of
exchange for assets and liabilities and average rates of
exchange for the period for revenues and expenses.
The companys results of operations and cash flows are
subject to fluctuations due to changes in foreign currency
exchange rates. The financial statements of foreign subsidiaries
whose functional currency is the U.S. dollar are translated
into U.S. dollars using period-end or historical rates of
exchange for assets and liabilities and average rates of
exchange for the period for revenues and expenses.
Net foreign currency transaction and translation gains and
(losses) are included in general and administrative expense in
the accompanying consolidated statements of operations and were
approximately $(0.5) million, $0.1 million,
$(0.4) million, $0.4 million, $0.4 million and
$(0.1) million for the period from January 1, 2007
through December 5, 2007, the period from December 6,
2007 through December 31, 2007, the years ended
December 31, 2008 and 2009 and the nine months ended
September 30, 2009 and 2010 (unaudited), respectively.
Stock-Based
Compensation
The company has stock-based compensation plans which allow for
the issuance of stock options and restricted stock units to
employees, officers, directors, and consultants. Stock-based
compensation is accounted for by amortizing the fair value of
each stock award expected to vest over the requisite service
period. The fair value of each restricted stock unit is based on
the closing price of the companys common stock on the date
of grant. The fair value of each stock option award is
calculated on the date of grant using the Black-Scholes
option-pricing model. The Black-Scholes model requires various
highly judgmental assumptions including fair value of the
underlying stock, volatility, expected option life, risk-free
interest rate, and expected dividends. To the extent the actual
forfeiture rate is different from the estimate, stock-based
compensation expense is adjusted accordingly. If any of the
assumptions used in the Black-Scholes model change significantly
or the actual forfeiture rate is different than the estimate,
stock-based compensation expense may differ materially in the
future from that recorded in the current period.
Options issued to non-employees are expensed during the period
that services are provided by the non-employees. Fair value of
the stock-based compensation is measured using the stock price
and other assumptions as of the earlier of the date at which a
commitment for performance by the non-employee to earn the
equity instrument is reached or the non-employees
performance is complete.
Advertising
Advertising costs are expensed as incurred. Total advertising
expenses for the period from January 1, 2007 through
December 5, 2007, the period from December 6, 2007
through December 31, 2007, the years ended
December 31, 2008 and 2009 and the nine months ended
September 30, 2009 and 2010 (unaudited) were approximately
$25.2 million, $1.4 million, $34.0 million,
$43.6 million, $30.8 million and $52.7 million,
respectively.
Research
and Development
All expenditures for research and development are charged to
technology and development expense as incurred.
Net
Income Per Common Share
Basic net income per share is computed using the
weighted-average number of outstanding shares of common stock
during the period. Diluted net income per share is computed
using the weighted-average number of outstanding shares of
common stock and, when dilutive, potential common shares
outstanding during the period. Potential common shares consist
primarily of incremental shares issuable upon the assumed
exercise of stock options and warrants to purchase common stock
using the treasury stock method. A reconciliation of the
numerator
F-12
and the denominator used in the calculation of basic and diluted
earnings per share is as follows (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,384
|
|
|
$
|
21,295
|
|
|
$
|
12,224
|
|
|
$
|
24,294
|
|
Shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
38,113
|
|
|
|
38,930
|
|
|
|
38,283
|
|
|
|
43,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.06
|
|
|
$
|
0.55
|
|
|
$
|
0.32
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,384
|
|
|
$
|
21,295
|
|
|
$
|
12,224
|
|
|
$
|
24,294
|
|
Shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
38,113
|
|
|
|
38,930
|
|
|
|
38,283
|
|
|
|
43,075
|
|
Dilutive stock options
|
|
|
416
|
|
|
|
2,603
|
|
|
|
1,813
|
|
|
|
5,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of diluted common shares
|
|
|
38,529
|
|
|
|
41,533
|
|
|
|
40,096
|
|
|
|
48,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
0.06
|
|
|
$
|
0.51
|
|
|
$
|
0.30
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2008 and 2009 and the nine
months ended September 30, 2009 and 2010 (unaudited),
5.1 million, 1.3 million, 2.2 million and
0.6 million shares subject to stock options were excluded
from the diluted calculation as their inclusion would have been
anti-dilutive.
As a result of the acquisition of the predecessor, the capital
structure of the predecessor is not comparable to that of the
successor. Accordingly net income per common share for the 2007
predecessor and successor periods is not comparable or
meaningful and therefore is not presented.
Recent
Accounting Pronouncements
In June 2009, the FASB issued amended standards for determining
whether to consolidate a variable interest entity. These new
standards amend the evaluation criteria to identify the primary
beneficiary of a VIE and requires ongoing reassessment of
whether an enterprise is the primary beneficiary of the VIE. The
provisions of the new standards were effective for annual
reporting periods beginning after November 15, 2009 and
interim periods within those fiscal years. The adoption of the
new standards did not have an impact on the companys
consolidated financial position, results of operations and cash
flows.
In October 2009, the FASB issued new revenue recognition
standards for arrangements with multiple deliverables. The new
standards permit entities to use managements best estimate
of selling price to value individual deliverables when those
deliverables do not have vendor specific objective evidence of
fair value or when third-party evidence of selling price is not
available. Additionally, these new standards modify the manner
in which the selling price is allocated across the separately
identified deliverables by no longer permitting the residual
method of allocating the selling price. The requirements of
these new standards are to be applied prospectively for revenue
arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, although early
adoption is permitted. The company does not expect adoption of
these standards will have a material impact on the consolidated
financial position, results of operations or cash flows.
F-13
|
|
2.
|
Cash,
Cash Equivalents and Short-Term Investments
|
Cash, cash equivalents and short-term investments consist of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Cash
|
|
$
|
26,616
|
|
|
$
|
5,159
|
|
|
$
|
9,928
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
13,505
|
|
|
|
61,782
|
|
|
|
54,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
40,121
|
|
|
$
|
66,941
|
|
|
$
|
64,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
|
|
|
$
|
33,331
|
|
|
$
|
16,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized gains and losses on short-term investments were
not significant at December 31, 2008 and 2009 and
September 30, 2010 (unaudited). Gross realized gains and
losses were not significant for the period from January 1,
2007 through December 5, 2007, the period from
December 6, 2007 through December 31, 2007, the years
ended December 31, 2008 and 2009 and the nine months ended
September 30, 2010 (unaudited). As of December 31,
2009, all U.S. agency securities were in an unrealized loss
position and had been in a loss position for less than one year
from the date of purchase. As of September 30, 2010
(unaudited), the company had U.S. agency securities totaling
$13.0 million in an unrealized gain position. The company
also had U.S. agency securities totaling $3.0 million in an
unrealized loss position, which had been in a loss position for
less than one year, and were not considered to be other than
temporary losses.
The company designates all short-term investments as
available-for-sale.
At December 31, 2009 and September 30, 2010
(unaudited) the company did not hold any investments with
maturities greater than one year.
|
|
3.
|
Acquisitions
and Dispositions
|
On July 15, 2010, the company acquired Genline AB, the
owner and operator of the Swedish family history Web site
Genline.se, based in Stockholm, Sweden for approximately
$7.2 million in cash consideration. The Genline acquisition
increased the companys presence in the Swedish market and
provides existing customers access to millions of Swedish
records. The acquisition of Genline was not material to the
companys financial position or results of operations.
On August 6, 2010, the company acquired ProGenealogists,
Inc., a leading professional genealogy research firm that
specializes in genealogical, forensic and family history
research for approximately $1.1 million in cash
consideration. The acquisition of ProGenealogists provides us
with a genealogy research team for internal projects and allows
customers access to expert genealogists to assist them in their
research. The ProGenealogists acquisition was not material to
the companys financial position or results of operations.
As discussed in Note 1, Generations Holding acquired all
the outstanding stock of the predecessor in December 2007 for a
total purchase price of approximately $354.8 million. The
acquisition has been accounted for as a purchase of the
predecessors business in accordance with GAAP. The
purchase price consisted of the following (in thousands):
|
|
|
|
|
Cash paid (net of predecessor cash used of $28,712)
|
|
$
|
249,132
|
|
Fair value of successor common stock issued to predecessor
stockholders
|
|
|
95,695
|
|
Transaction costs
|
|
|
1,764
|
|
Fair value of stock options exchanged
|
|
|
8,163
|
|
|
|
|
|
|
Total
|
|
$
|
354,754
|
|
|
|
|
|
|
F-14
Cash of $15.3 million was placed in escrow for a period of
twelve months from the acquisition date to partially satisfy any
potential loss contingencies that existed at the acquisition
date, including a breach of any representations or warranties by
the predecessor. The escrow amount has been included in the
purchase price. The fair value of the stock options
(5,740,207 shares underlying the stock options) issued in
exchange for stock options in the predecessor was estimated
using the Black-Scholes option-pricing model utilizing the
following assumptions:
|
|
|
|
|
Risk-free interest rate
|
|
|
2.90
|
%
|
Expected term (in years)
|
|
|
2.0
|
|
Expected stock price volatility
|
|
|
65
|
%
|
Expected dividend yield
|
|
|
|
|
The total purchase price of $354.8 million was allocated to
the acquired tangible and identifiable intangible assets and
assumed liabilities based on their estimated fair values at the
acquisition date. The excess of the purchase price over the
allocated fair value for tangible and identifiable intangible
assets was recorded as goodwill. As a result of this
transaction, Spectrum Equity Investors V., L.P. and certain of
its affiliates acquired approximately 67% of the companys
outstanding shares. Spectrum and its affiliates objective
is to invest in and build leading companies in the information
services, media and related growth sectors. Generations Holding
acquired the predecessor at a premium (i.e., goodwill) over the
fair value of the net tangible and identified intangible assets
acquired because Spectrum and its affiliates, together with the
other investors in the transaction, believed in the future
growth and prospects of the company and Spectrum believed that
obtaining control of the company would contribute toward the
achievement of its objective of investing in and building
leading companies in the information services, media and related
growth sectors. The allocation of the purchase price was as
follows (in thousands):
|
|
|
|
|
Assets acquired:
|
|
|
|
|
Cash and cash equivalents, restricted cash and investments
|
|
$
|
19,338
|
|
Other current assets
|
|
|
10,483
|
|
Property and equipment
|
|
|
16,017
|
|
Other assets
|
|
|
213
|
|
Acquired intangible assets:
|
|
|
|
|
Capitalized content
|
|
|
45,337
|
|
Subscriber relationships and contracts
|
|
|
35,600
|
|
Core technology
|
|
|
21,700
|
|
Trade name and trademarks
|
|
|
25,700
|
|
In-process technology
|
|
|
1,300
|
|
Goodwill
|
|
|
285,019
|
|
|
|
|
|
|
Total assets
|
|
|
460,707
|
|
Liabilities assumed:
|
|
|
|
|
Deferred revenues
|
|
|
(58,156
|
)
|
Current liabilities
|
|
|
(22,816
|
)
|
Long-term liabilities
|
|
|
(24,981
|
)
|
|
|
|
|
|
Total net assets acquired
|
|
$
|
354,754
|
|
|
|
|
|
|
For tax purposes, the transaction was treated as a stock
acquisition. As a result, assets and liabilities were not
adjusted to fair value for tax purposes. Deductible goodwill of
$18.4 million consists of tax basis goodwill that existed
prior to the transaction, and has been carried over to the
successor.
The company allocated $1.3 million of the purchase price in
the transaction to an in-process research and development
(IPR&D) project that had not yet reached
technological feasibility and has no future alternative use. The
amount allocated to IPR&D has been recorded within
technology and development costs in the companys statement
of operations for the successor period from December 6,
2007 through December 31, 2007. The
F-15
companys IPR&D project focuses on search
technologies. The valuation of the project was based on an
income approach which discounts the future net cash flows
attributable to the project to determine the current value.
In June 2007 the company approved a management incentive plan to
provide bonus payments totaling $5.0 million to certain
company executives in the event of a change of control
transaction. Pursuant to the transaction in December 2007,
executives were paid all but approximately $0.3 million,
which was held in escrow and paid out after the one year escrow
period. The company also incurred an additional
$4.5 million of seller costs associated with the
acquisition. The total costs of $9.5 million were expensed
as incurred. In 2008, the company adjusted goodwill by
$0.4 million due to actual expenses incurred being
different than estimates.
At December 31, 2008 and 2009, the company had a liability
of $5.7 million and $1.6 million to be paid to former
stockholders as remaining escrow payments and to former
stockholders who have not submitted the documentation required
for disbursement of funds from the acquisition.
F-16
|
|
4.
|
Property
and Equipment
|
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
December 31,
|
|
|
|
Lives
|
|
|
2008
|
|
|
2009
|
|
|
Computer equipment
|
|
|
3 years
|
|
|
$
|
21,234
|
|
|
$
|
29,657
|
|
Purchased and internal use software
|
|
|
3 years
|
|
|
|
5,623
|
|
|
|
9,993
|
|
Furniture and fixtures
|
|
|
3 years
|
|
|
|
1,023
|
|
|
|
1,092
|
|
Leasehold improvements
|
|
|
5 years
|
|
|
|
610
|
|
|
|
771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,490
|
|
|
|
41,513
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
(11,486
|
)
|
|
|
(22,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,004
|
|
|
$
|
19,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Intangible
Assets and Content Database Costs
|
The changes in the carrying amounts of goodwill were as follows
(in thousands):
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
285,019
|
|
Adjustments related to 2007 acquisition
|
|
|
447
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
285,466
|
|
|
|
|
|
|
Intangible assets and content database costs consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
December 31,
|
|
|
|
Lives
|
|
|
2008
|
|
|
2009
|
|
|
Subscriber relationships and contracts
|
|
|
6-8 years
|
|
|
$
|
35,600
|
|
|
$
|
35,600
|
|
Core technology
|
|
|
4-5 years
|
|
|
|
21,700
|
|
|
|
21,700
|
|
Trademarks and trade names
|
|
|
6 years
|
|
|
|
25,700
|
|
|
|
25,700
|
|
Other intangible assets
|
|
|
1 year
|
|
|
|
22
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,022
|
|
|
|
83,022
|
|
Accumulated amortization
|
|
|
|
|
|
|
(25,321
|
)
|
|
|
(41,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net intangible assets
|
|
|
|
|
|
$
|
57,701
|
|
|
$
|
41,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized content database costs
|
|
|
10 years
|
|
|
$
|
46,122
|
|
|
$
|
54,863
|
|
Capitalized content database costs not yet placed in service
|
|
|
|
|
|
|
7,793
|
|
|
|
8,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,915
|
|
|
|
63,318
|
|
Accumulated amortization
|
|
|
|
|
|
|
(6,671
|
)
|
|
|
(13,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net content database costs
|
|
|
|
|
|
$
|
47,244
|
|
|
$
|
49,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core technology, trademarks and trade names, other intangible
assets and content database costs are amortized using the
straight-line method over their estimated periods of benefit.
Subscriber relationships and contracts are amortized based on an
annual turnover rate, or rate of attrition, of the subscribers
resulting in an accelerated basis of amortization. The weighted
average amortization period for the definite-lived intangible
assets acquired was 7.1 and 7.3 years for the years ended
December 31, 2008 and 2009, respectively.
F-17
As of December 31, 2009, amortization of content database
costs is expected to be $7.0 million, $6.6 million,
$6.3 million, $5.5 million, and $4.6 million for
the years ending December 31, 2010, 2011, 2012, 2013, and
2014 respectively. As of December 31, 2009, amortization of
acquired intangible assets is expected to be $14.7 million,
$13.1 million, $7.3 million $6.2 million and
$0.1 million for the years ending December 31, 2010,
2011, 2012, 2013 and 2014, respectively. The amortization
expense associated with acquired intangible assets is classified
as amortization of acquired intangible assets in the
consolidated statements of operations.
On September 9, 2010, the company terminated and paid in
full the $76.2 million outstanding under our previous
credit facility. Also on September 9, 2010, in connection
with the payoff of the previous credit facility the company
entered into a new three-year $100.0 million principal
amount senior secured revolving credit facility with Bank of
America, N.A., as administrative agent, and certain other
financial institutions (the Credit Facility). The
Credit Facility includes a $5.0 million sublimit for the
issuance of letters of credit and a $7.0 million sublimit
for swingline loans. As of September 30, 2010, the company
has not borrowed against the Credit Facility.
The Credit Facility has a maturity date of September 9,
2013 and is secured by a first-priority security interest in all
of the capital stock of the companys wholly-owned domestic
subsidiaries and 65% of the capital stock in the companys
material foreign subsidiaries, as well as the currently owned
and hereafter acquired real and personal property assets of the
company and its wholly-owned domestic subsidiaries. Borrowings
under the Credit Facility may be used to finance the on-going
working capital needs of the company and its subsidiaries and
for general corporate purposes, including permitted business
acquisitions and capital expenditures.
The Credit Facility contains financial and other covenants,
including but not limited to, limitations on indebtedness,
liens, mergers, asset sales, dividends and other payments in
respect of equity interests, capital expenditures, investments
and affiliate transactions (subject to qualifications and
baskets), as well as the maintenance of a minimum fixed charge
coverage ratio and a maximum senior secured leverage ratio. A
violation of these covenants or the occurrence of certain other
events could result in a default permitting the termination of
the lenders commitments under the Credit Facility
and/or
the
acceleration of any loan amounts then outstanding. The company
was in compliance with all financial and other covenants at
September 30, 2010.
Under the terms of the Credit Facility, the company may elect
that the loans comprising each borrowing bear interest generally
at a rate equal to (i) LIBOR plus a margin that fluctuates
between 1.50% and 2.00%, as determined by the companys
Consolidated Leverage Ratio (as defined in the Credit Facility)
as set forth in the companys most recently delivered
compliance certificate or (ii) the Base Rate (defined as a
rate equal to the highest of (a) the Federal Funds Rate
plus 0.50%, (b) the Bank of America prime rate and
(c) the Eurodollar rate plus 1.00%), plus a margin that
fluctuates between 0.50% and 1.00%, as determined by the
companys Consolidated Leverage Ratio as set forth in its
most recently delivered compliance certificate (the Base
Rate Applicable Margin). Each swingline loan will bear
interest at the Base Rate plus the Base Rate Applicable Margin.
In addition, the company will pay a commitment fee of 0.40% on
any unused portions of the facility and a letter of credit fee
that fluctuates between 1.50% and 2.00%, as determined by the
companys Consolidated Leverage Ratio as set forth in its
most recently delivered compliance certificate.
Debt financing costs of $0.7 million were incurred in
connection with the Credit Facility. These costs are deferred in
other long-term assets on the balance sheet and are being
amortized to interest expense over the period of the Credit
Facility. At September 30, 2010, the unamortized debt
financing costs were $0.7 million.
On November 1, 2006, the company renegotiated the terms of
its revolving line of credit with a financial institution for up
to $25.0 million, due upon maturity at September 1,
2009. Interest accrued monthly at percentages above or below
prime or LIBOR based on quarterly debt ratios, and was payable
monthly for the prime portion and quarterly for the LIBOR
portion. The line was secured by all the assets of the company
and approximately 65% of the companys stock in certain of
its wholly-owned foreign subsidiaries. On December 5, 2007,
in connection with the acquisition of predecessor the revolving
line of credit of $15.0 million plus accrued interest of
approximately $0.1 million was paid in full and the
revolving line of credit was terminated.
F-18
On December 5, 2007, in connection with the acquisition of
predecessor, the company entered into a secured credit facility
with a number of financial institutions for borrowings up to
$150.0 million including a term loan commitment of
$140.0 million (the Term Loan) and revolving
commitment of up to $10.0 million which could be in the
form of a swingline loan, a revolving loan
and/or
a
letter of credit (the Revolving Loans and the Term
Loan collectively are the Previous Credit Facility).
The company borrowed $140.0 million of the Term Loan to
fund the acquisition. No amounts were outstanding under the
Revolving Loans as of December 31, 2008 and 2009. A loan
under the Previous Credit Facility could be in the form of a
(1) base rate loan that bears interest at the higher of
(a) the Federal Funds Rate plus
1
/
2
of 1%, or (b) the rate of interest in effect as publicly
announced by JPMorgan Chase Bank as its prime rate,
plus a margin of 2.75% or 3.50% based on the companys
consolidated total leverage ratio; or (2) Eurodollar rate
loan bearing interest based on LIBOR plus a margin of 3.75% to
4.50% based on the companys consolidated total leverage
ratio. The weighted average effective interest rate of the
Previous Credit Facility at December 31, 2008 and 2009 was
7.4% and 4.0%, respectively.
The company was obligated to make quarterly accrued interest and
principal payments on the Term Loan. The principal payments were
to escalate each fiscal year until the Term Loan matures on
December 5, 2012. The Revolving Loans, if any, were also
due on December 5, 2012. In addition to paying interest on
the Previous Credit Facility, the company paid a commitment fee
of 0.50% per annum to the lenders under the Revolving Loans for
the unutilized commitment. The fee was calculated based on the
daily unutilized commitment and was due quarterly. The company
was entitled to terminate or reduce the Revolving Loan
commitment at any time without a termination fee.
The Previous Credit Facility was subject to various mandatory
prepayment terms which included prepayments as a result of
certain equity issuances and prepayments of excess cash, if any,
based on a calculation performed on an annual basis. Included in
the current portion of long-term debt on the balance sheet at
December 31, 2008 is $10.9 million, which was paid in
May 2009 as an excess cash payment in accordance with the terms
of the Previous Credit Facility. In November 2009, the company
prepaid $12.5 million in principal as a mandatory
prepayment in connection with the companys initial public
offering. Included in the current portion of long-term debt on
the balance sheet at December 31, 2009 was
$18.6 million due in May 2010 as an excess cash payment.
Mandatory prepayments are applied to Revolving Loans, if any,
prior to the outstanding principal on the Term Loan. The
Previous Credit Facility was secured by all of the present and
future tangible and intangible assets of the company and
approximately 65% of the companys stock in certain of its
wholly-owned foreign subsidiaries. Foreign subsidiaries did not
guarantee the outstanding debt. In connection with the Previous
Credit Facility, the company was required to maintain certain
financial ratio covenants, minimum earnings before interest,
depreciation, amortization, taxes and other specifically
excluded costs and maintain capital and content expenditures
below set maximum levels. As of December 31, 2008 and 2009
the company was in compliance with all debt covenants.
Debt financing costs of $3.9 million were incurred in
connection with the Previous Credit Facility. These costs were
deferred in other long-term assets on the balance sheet and were
amortized to interest expense over the period of the Term Loan.
At December 31, 2009, the unamortized debt financing costs
were $2.3 million. The remaining unamortized debt financing
costs at termination of $1.3 million were charged to
interest expense upon termination.
The company uses an interest rate cap agreement to cap the
floating (base) rate of its Credit Facility. In December 2007,
the company entered into an interest rate cap agreement with a
financial institution that participates in the Credit Facility.
The interest rate cap has a notional amount of
$90.0 million of the companys outstanding floating
rate debt of $140.0 million and was purchased in order to
mitigate a portion of the companys exposure to variable
rate interest payments. The company paid $0.1 million for a
6% interest rate cap which expires on December 31, 2010.
The interest rate cap does not qualify for hedge accounting
under current accounting guidance as such, the fair value of the
interest rate cap is recorded as an asset in the financial
statements and changes in fair value are recorded in interest
expense. At December 31, 2008 and 2009 the fair value of
the interest rate cap was de minimis.
As of December 31, 2009, the companys Term Loan had
two tranches of $87.5 million and $12.5 million
outstanding in
3-month
LIBOR at 0.25% plus a margin. Under the Previous Credit
Facility, the
3-month
LIBOR tranches and related interest rates reset in March 2010.
F-19
Components of long-term debt were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Term loan
|
|
$
|
133,000
|
|
|
$
|
100,025
|
|
|
$
|
|
|
Current portion of long-term debt
|
|
|
(21,457
|
)
|
|
|
(28,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
111,543
|
|
|
$
|
71,609
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future contractual maturities of the long-term debt at
December 31, 2009 and September 30, 2010 (unaudited)
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
(unaudited)
|
|
|
2010
|
|
$
|
28,416
|
|
|
$
|
|
|
2011
|
|
|
11,550
|
|
|
|
|
|
2012
|
|
|
60,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
100,025
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
The companys Board of Directors and stockholders approved
a
1-for-2
reverse stock split of the companys common stock and an
increase in the authorized common stock from 100 million to
175 million in October, 2009. An amendment to the amended
and restated certificate of incorporation was filed on
October 30, 2009 affecting the
1-for-2
reverse stock split and the increase in authorized stock. All
common share and per share amounts retroactively reflect the
reverse stock split and change in authorized common stock.
On November 4, 2009, the SEC declared effective the
companys Registration Statement on
Form S-1
for an initial public offering. The offering commenced
immediately thereafter and was completed on November 10,
2009 at a price of $13.50 per share. The company registered and
sold 4,074,074 shares of common stock for an aggregate
purchase price of $55.0 million. The net offering proceeds
received by the company after deducting total estimated expenses
were $47.8 million. The companys estimated expenses
incurred of $7.2 million consisted of $3.8 million in
underwriting discounts, fees and commissions and
$3.4 million in other offering expenses.
Preferred
Stock
The company has authorized 5 million shares of preferred
stock that is issuable in series. At December 31, 2008 and
2009, the company has not issued or designated any series or
preferences associated with the preferred stock.
Warrants
In connection with entering into an interactive service
agreement with a vendor in May 2002, the company issued a
warrant to purchase shares of the companys common stock.
In March of 2004, the warrant was amended to provide for a
purchase of 121,176 shares of common stock at an exercise
price of $1.4412 per share. The warrant was exercised in May
2007 in a cashless conversion with 84,019 shares of common
stock issued.
In connection with obtaining a term loan with a financial
institution in May 2003, the company issued a warrant to
purchase 57,157 shares of common stock at approximately
$0.5248 per share. The warrant was exercised in a cashless
conversion on December 5, 2007 with 51,602 shares of
common stock issued.
F-20
In July 2009, the Board of Directors approved the 2009 Stock
Incentive Plan (the 2009 Plan). The 2009 Plan was
effective upon the consummation of the companys initial
public offering, on November 10, 2009. As of
September 30, 2010 (unaudited), 2,957,138 stock-based
awards were available to be granted under the 2009 Plan. The
2009 Stock Plan is subject to automatic annual increase on the
first day of each fiscal year beginning in 2010 and thereafter
by a number of shares of common stock equal to 4% of the number
of outstanding shares of common stock on the last day of the
immediately preceding fiscal year, or such lesser number of
shares of common stock prescribed by the Board of Directors with
respect to a particular calendar year. It is also subject to
increase by the number of shares that cease to be subject to
awards under the other option and incentive plans (other than by
reason of exercise or settlement of the awards to the extent
they are exercised for or settled in vested and non-forfeitable
shares of common stock). In March 2008, the Board of Directors
of the company approved and adopted the Generations Holding,
Inc. Stock Purchase and Option Plan (the 2008 Plan).
In conjunction with the acquisition of the predecessor, the
company issued replacement options to acquire common stock of
the successor in exchange for all issued and outstanding options
of the predecessor with the same option grant prices and terms
including all terms outlined in the 1998 Stock Option Plan as
amended in 2002 (the 1998 Plan), the Executive Stock
Plan (ESP) and the 2004 Stock Option Plan (the
2004 Plan). Holders of stock options pursuant to the
1998 and the ESP Plans along with various employees with change
of control provisions in their individual grants under the 2004
Plan received twelve months of vesting acceleration upon the
acquisition of predecessor. Under these plans the company has
reserved 8,197,001 shares of common stock for future
issuance as of September 30, 2010 (unaudited). The company
has no intentions to issue additional stock options under the
1998 Plan, ESP, 2004 Plan or 2008 Plan.
All awards granted pursuant to the 1998 Plan, ESP, the 2004
Plan, the 2008 Plan and the 2009 Plan have a term not greater
than ten years from the date of grant. Awards issued generally
vest over four years and commence vesting upon the date of hire
or date of grant. The plans allow for the exercise of options
using shares of the companys common stock that have been
held for more than six months. The shares used to satisfy option
exercise prices are netted against option exercises on the
statements of stockholders equity. Prior to the
companys initial public offering, the company retained a
right of first refusal to purchase shares obtained from the
exercise of stock options under stock option plans when
presented with a bona fide offer to acquire the stock from a
third party. The company has exercised its right of first
refusal depending on cash availability and the price obtained
from the bona fide third party offer.
Stock
Options
All the plans provide for stock options to be granted to
employees, officers, directors and consultants. A summary of all
the plans stock option activity for the years ended
December 31, 2007, 2008, and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
7,279,863
|
|
|
$
|
3.74
|
|
|
|
5,712,204
|
|
|
$
|
4.42
|
|
|
|
8,822,526
|
|
|
$
|
4.88
|
|
Granted
|
|
|
352,750
|
|
|
|
4.70
|
|
|
|
4,188,121
|
|
|
|
5.42
|
|
|
|
1,898,909
|
|
|
|
7.15
|
|
Exercised
|
|
|
(1,496,513
|
)
|
|
|
1.12
|
|
|
|
(194,948
|
)
|
|
|
3.34
|
|
|
|
(143,937
|
)
|
|
|
4.31
|
|
Canceled
|
|
|
(423,896
|
)
|
|
|
4.66
|
|
|
|
(882,851
|
)
|
|
|
4.78
|
|
|
|
(204,208
|
)
|
|
|
5.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
5,712,204
|
|
|
|
4.42
|
|
|
|
8,822,526
|
|
|
|
4.88
|
|
|
|
10,373,290
|
|
|
|
5.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
3,429,111
|
|
|
|
4.30
|
|
|
|
3,996,892
|
|
|
|
4.39
|
|
|
|
6,298,343
|
|
|
|
4.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
4,279,793
|
|
|
|
4.36
|
|
|
|
8,370,492
|
|
|
|
4.86
|
|
|
|
10,181,408
|
|
|
|
5.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
Summary of all the plans stock option activity for the
nine months ended September 30, 2010 (unaudited) is as
follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
|
(unaudited)
|
|
|
Outstanding at beginning of period
|
|
|
10,373,290
|
|
|
$
|
5.29
|
|
Granted
|
|
|
417,250
|
|
|
|
17.99
|
|
Exercised
|
|
|
(1,985,136
|
)
|
|
|
4.82
|
|
Canceled
|
|
|
(198,653
|
)
|
|
|
6.16
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
8,606,751
|
|
|
|
5.99
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
5,710,713
|
|
|
|
4.96
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
8,512,176
|
|
|
|
5.96
|
|
|
|
|
|
|
|
|
|
|
The company estimates the fair value of each option on the date
of grant using the Black-Scholes option-pricing model. The
Black-Scholes option-pricing model requires several estimates
including an estimate of the fair value of common stock. Prior
to November 5, 2009, the date the companys common
stock began trading on a national exchange, the fair value of
common stock had been determined by the Board of Directors at
each grant date based on a variety of factors, including
arms-length sales of the companys common stock,
periodic valuations of the companys common stock, the
companys financial position, historical financial
performance, projected financial performance, valuations of
publicly traded peer companies and the illiquid nature of the
common stock. Since the companys initial public offering,
the fair value of the companys common stock is determined
based on the closing price of the common stock on the stock
option grant date. The weighted average grant date fair value of
options granted during the years ended December 31, 2007,
2008 and 2009 and the nine months ended September 30, 2009
and 2010 (unaudited) was $2.50, $2.22, $3.14, $2.99 and $6.00,
respectively. The expected term of the options is based on
historical analysis of the companys option lives. The
company calculated its expected volatility based on the
volatilities of a peer group of publicly traded companies. The
risk-free interest rate of the option is based on the
U.S. Treasury rate for the expected term of the option at
the time of grant. The following weighted average assumptions
were used in the calculations for the years ended
December 31, 2007, 2008 and 2009 and the nine months ended
September 30, 2009 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Expected volatility
|
|
|
65
|
%
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
40
|
%
|
Expected term (in years)
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.2
|
|
|
|
4.2
|
|
|
|
4.0
|
|
Weighted average risk-free interest rate
|
|
|
4.7
|
%
|
|
|
2.3
|
%
|
|
|
1.9
|
%
|
|
|
1.9
|
%
|
|
|
1.7
|
%
|
Weighted average fair value of the underlying common stock
|
|
$
|
4.70
|
|
|
$
|
5.42
|
|
|
$
|
7.15
|
|
|
$
|
6.80
|
|
|
$
|
17.99
|
|
Expected dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and 2009 and the nine months ended
September 30, 2010 (unaudited), the company had
$8.6 million, $9.6 million and $8.1 million,
respectively, of total unrecognized compensation expense, net of
estimated forfeitures. The unrecognized compensation expense is
expected to be recognized over a weighted average period of
2.5 years. Under accounting guidance for recording
stock-based compensation expense, forfeitures are to be
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates. The company estimates forfeiture rates based on
historical forfeitures of its
F-22
stock options. The fair value of options vested during 2009 was
$5.7 million. The weighted average remaining contractual
life of options outstanding at December 31, 2009 and
September 30, 2010 (unaudited) was 7.1 and 6.6 years,
respectively. The total intrinsic value of options outstanding
as of December 31, 2008 and 2009 and September 30,
2010 (unaudited) was $5.5 million, $90.5 million, and
$144.3, respectively. The total intrinsic value of options
exercisable as of December 31, 2008 and 2009 and
September 30, 2010 (unaudited) was $4.4 million,
$58.6 million and $101.6, respectively. The total intrinsic
value of options exercised during the period from
January 1, 2007 through December 5, 2007, the period
from December 6, 2007 through December 31, 2007, the
years ended December 31, 2008 and 2009 and the nine months
ended September 30, 2009 and 2010 (unaudited) was,
$6.2 million, $0, $0.4 million, $0.4 million,
$0.3 million and $27.0 million, respectively.
Restricted
Stock Units
During the nine months ended September 30, 2010
(unaudited), the company also issued restricted stock units
representing the right to receive one share of the
companys common stock under the 2009 Plan. In 2009, no
restricted stock units were issued. Restricted stock unit awards
generally vest over four years. The following table summarizes
restricted stock unit activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Units
|
|
|
Fair Value
|
|
|
|
(unaudited)
|
|
|
Restricted stock units outstanding at December 31, 2009
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
456,198
|
|
|
|
17.87
|
|
Vested
|
|
|
(450
|
)
|
|
|
18.20
|
|
Forfeited
|
|
|
(6,167
|
)
|
|
|
16.40
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units outstanding at September 30, 2010
|
|
|
449,581
|
|
|
|
17.89
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010 the company had $6.2 million
of total unrecognized compensation expense, net of estimated
forfeitures related to restricted stock units. The unrecognized
compensation expense is expected to be recognized over a
weighted average period of 3.8 years.
Stock-Based
Compensation Expense
Stock-based compensation was included in the following income
statement captions (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
Dec. 6, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan. 1, 2007
|
|
|
through
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
|
through
|
|
|
Dec. 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
Dec. 5, 2007
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Cost of subscription revenues
|
|
$
|
73
|
|
|
$
|
3
|
|
|
$
|
80
|
|
|
$
|
96
|
|
|
$
|
78
|
|
|
$
|
134
|
|
Technology and development
|
|
|
260
|
|
|
|
23
|
|
|
|
1,132
|
|
|
|
1,631
|
|
|
|
1,223
|
|
|
|
1,437
|
|
Marketing and advertising
|
|
|
279
|
|
|
|
27
|
|
|
|
254
|
|
|
|
370
|
|
|
|
273
|
|
|
|
390
|
|
General and administrative
|
|
|
286
|
|
|
|
24
|
|
|
|
3,206
|
|
|
|
3,377
|
|
|
|
2,691
|
|
|
|
1,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
898
|
|
|
$
|
77
|
|
|
$
|
4,672
|
|
|
$
|
5,474
|
|
|
$
|
4,265
|
|
|
$
|
3,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
The company committed to issue fully vested stock options with
an exercise price equal to the fair value of the underlying
common stock at the date of grant for recruiting services
performed by a third party in 2008. The company recorded an
estimated $0.1 million of expense in 2008 based on the
Black-Scholes option-pricing model. The expense was classified
as technology and development expenses on the statement of
operations and as stock-based compensation on the statement of
cash flows. When the option was issued in 2009, the company
recorded the issuance in the statement of stockholders
equity.
|
|
9.
|
Employee
Benefit Plans
|
The company offers a savings plan (the 401(k) Plan)
that qualifies as a deferred compensation plan under
Section 401(k) of the Internal Revenue Code. Under the
401(k) Plan, employees can contribute a percentage of their
compensation not to exceed maximum annual federal limits. The
401(k) Plan also allows for discretionary employer
contributions. Effective January 1, 2008, the company
increased the employer matching contributions from 65% to 70% of
all employee contributions made, with a maximum annual
contribution of $2,100 per participant. The employees
contributions are fully vested, and the companys matching
contributions vest on an annual basis over a
48-month
period, beginning on the employees hire date. The
companys contributions were $0.6 million, de minimis,
$0.7 million, and $0.8 million for the period from
January 1, 2007 through December 5, 2007, the period
from December 6, 2007 through December 31, 2007, and
the years ended December 31, 2008 and 2009, respectively.
The company has a medical and vision benefit plan covering
full-time employees of the company and their dependents. The
plan is a partially self-funded plan under which participant
claims are obligations of the plan. The plan is funded through
employer and employee contributions at a level sufficient to pay
for the benefits provided by the plan. The companys
contributions to the plan were $3.0 million, de minimis,
$2.6 million, and $3.5 million for the period from
January 1, 2007 through December 5, 2007, the period
from December 6, 2007 through December 31, 2007, and
the years ended December 31, 2008 and 2009, respectively.
The plan maintains individual and aggregate stop loss insurance
policies on the medical portion of the plan of $0.2 million
and approximately $4.5 million, respectively, to mitigate
losses. Balances for the incurred but not yet reported claims,
including reported but unpaid claims at December 31, 2008
and 2009, were $0.6 million and $0.5 million,
respectively. The company estimates claims incurred but not yet
reported each month based on its historical experience, and the
company adjusts its accrual to meet the estimated liability.
|
|
10.
|
Related-Party
Transactions
|
The company has an exclusive license and service agreement
related to its DNA product with an affiliated company of one of
its investors. The investors ownership is not material to
the overall equity of the company.
Income (loss) before income taxes consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
Jan. 1, 2007
|
|
|
Dec. 6, 2007
|
|
|
Year Ended
|
|
|
|
through
|
|
|
through
|
|
|
December 31,
|
|
|
|
Dec. 5, 2007
|
|
|
Dec. 31, 2007
|
|
|
2008
|
|
|
2009
|
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
12,159
|
|
|
$
|
(1,266
|
)
|
|
$
|
4,336
|
|
|
$
|
26,374
|
|
Foreign
|
|
|
630
|
|
|
|
66
|
|
|
|
(107
|
)
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,789
|
|
|
$
|
(1,200
|
)
|
|
$
|
4,229
|
|
|
$
|
26,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
The income tax (benefit) provision consisted of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
Jan. 1, 2007
|
|
|
Dec. 6, 2007
|
|
|
Year Ended
|
|
|
|
through
|
|
|
through
|
|
|
December 31,
|
|
|
|
Dec. 5, 2007
|
|
|
Dec. 31, 2007
|
|
|
2008
|
|
|
2009
|
|
|
Current income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
4,210
|
|
|
$
|
441
|
|
|
$
|
|
|
|
$
|
8,577
|
|
State
|
|
|
(173
|
)
|
|
|
1
|
|
|
|
3
|
|
|
|
1,095
|
|
Foreign
|
|
|
180
|
|
|
|
16
|
|
|
|
414
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,217
|
|
|
|
458
|
|
|
|
417
|
|
|
|
10,148
|
|
Deferred income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
246
|
|
|
|
(355
|
)
|
|
|
1,238
|
|
|
|
(4,086
|
)
|
State
|
|
|
555
|
|
|
|
|
|
|
|
190
|
|
|
|
(722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
801
|
|
|
|
(355
|
)
|
|
|
1,428
|
|
|
|
(4,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
5,018
|
|
|
$
|
103
|
|
|
$
|
1,845
|
|
|
$
|
5,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the company recognized a tax
benefit for net operating loss carryforwards of
$4.9 million and $0.3 million for federal and state
purposes, respectively. The company also recognized a benefit of
$0.8 million to tax expense due to changes in state
apportionment factors resulting from enacted legislation
Total income tax expense differs from the amounts computed by
applying the U.S. federal income tax rate of 35% to income
before income tax expense as a result of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
Jan. 1, 2007
|
|
|
Dec. 6, 2007
|
|
|
Year Ended
|
|
|
|
through
|
|
|
through
|
|
|
December 31,
|
|
|
|
Dec. 5, 2007
|
|
|
Dec. 31, 2007
|
|
|
2008
|
|
|
2009
|
|
|
Computed expected tax expense
|
|
$
|
4,476
|
|
|
$
|
(420
|
)
|
|
$
|
1,480
|
|
|
$
|
9,322
|
|
State income taxes, net of federal tax effect
|
|
|
266
|
|
|
|
189
|
|
|
|
199
|
|
|
|
602
|
|
Foreign income taxes
|
|
|
(41
|
)
|
|
|
(7
|
)
|
|
|
452
|
|
|
|
385
|
|
Recognition of net operating loss carryforwards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,168
|
)
|
Tax exempt municipal interest
|
|
|
(410
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
Non-deductible acquisition costs
|
|
|
1,024
|
|
|
|
|
|
|
|
(725
|
)
|
|
|
|
|
Other
|
|
|
(297
|
)
|
|
|
372
|
|
|
|
439
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
5,018
|
|
|
$
|
103
|
|
|
$
|
1,845
|
|
|
$
|
5,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
$
|
925
|
|
|
$
|
2,124
|
|
Net operating loss carryforwards U.S.
|
|
|
4,943
|
|
|
|
5,911
|
|
Net operation loss carryforwards Foreign
|
|
|
201
|
|
|
|
488
|
|
Investment in subsidiary
|
|
|
498
|
|
|
|
|
|
Other accruals and reserves
|
|
|
1,378
|
|
|
|
1,472
|
|
Valuation allowance
|
|
|
(201
|
)
|
|
|
(488
|
)
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
7,744
|
|
|
|
9,507
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(31,394
|
)
|
|
|
(26,300
|
)
|
Content in process
|
|
|
(2,071
|
)
|
|
|
(2,161
|
)
|
Depreciation differences
|
|
|
(373
|
)
|
|
|
(2,098
|
)
|
Other accruals and reserves
|
|
|
(34
|
)
|
|
|
(268
|
)
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
(33,872
|
)
|
|
|
(30,827
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(26,128
|
)
|
|
$
|
(21,320
|
)
|
|
|
|
|
|
|
|
|
|
In assessing whether deferred tax assets will be realized,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning
strategies in making this assessment. Management believes that
it is more likely than not the company will realize the benefits
of these deductible differences, except for the foreign net
operating losses and has determined that a valuation allowance
is necessary for the foreign net operation losses only.
The company had net operating loss carryforwards of
approximately $27.0 million for state and $2.1 million
for foreign income tax purposes. The state and foreign net
operating carryforwards will expire at various dates beginning
in 2013.
The company provides U.S. income taxes on the earnings of
foreign subsidiaries unless the subsidiaries earnings are
considered permanently reinvested outside the U.S. To the
extent that the foreign earnings previously treated as
permanently reinvested are repatriated, the company would incur
income tax expense on such repatriation, net of any available
deductions and foreign tax credits. As of December 31,
2009, unremitted earnings that are considered to be permanently
invested outside the U.S., and on which no deferred taxes have
been provided, is approximately $0.9 million. The
unrecognized deferred tax liability for these earnings was
approximately $0.3 million.
Significant judgment is required in evaluating the
companys uncertain tax positions and determining its
provision for income taxes. The companys total gross
unrecognized tax benefits as of December 31, 2008 and 2009
and September 30, 2010 (unaudited) were $0.5 million,
$0.6 million and $0.9 million, respectively. The gross
uncertain tax positions, if recognized by the company, would
affect the companys effective income tax rate. The
companys policy is to recognize interest and penalties
related to unrecognized tax benefits as income tax expense.
Accrued interest and penalties related to unrecognized tax
benefits as of December 31, 2008 and 2009 and
September 30, 2010 (unaudited) were de minimis,
$0.1 million and $0.2 million, respectively. The
company believes it is reasonably possible that the total
unrecognized tax benefits will increase within 12 months of
the reporting date; however the company is not currently able to
quantify the amount of such change.
F-26
The company files income tax returns in the U.S. federal
jurisdiction and various state and foreign jurisdictions. With
few exceptions, the company is no longer subject to
U.S. federal, state and local, or
non-U.S. income
tax examinations by tax authorities for years prior to 1996.
|
|
12.
|
Fair
Value Measurements
|
Effective January 1, 2008, the company adopted changes made
to GAAP for fair value. Fair value is based on the price that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. In order to increase consistency and
comparability in fair value measurements, the new accounting
guidance establishes a fair value hierarchy that prioritizes
observable and unobservable inputs used to measure fair value
into three broad levels. These levels, in order of highest
priority to lowest priority, are described below:
Level 1:
Quoted prices (unadjusted) in
active markets that are accessible at the measurement date for
assets or liabilities.
Level 2:
Observable prices that are based
on inputs not quoted on active markets, but corroborated by
market data.
Level 3:
Unobservable inputs are used
when little or no market data is available.
Our cash equivalents and short-term investments are classified
within Level 1 and out interest rate cap is classified
Level 2 due to readily available market prices or
alternative pricing sources utilizing market observable inputs.
The following table summarizes the financial instruments of the
company at fair value based on the valuation approach applied to
each class of security as of December 31, 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting
|
|
|
|
|
|
|
Date Using
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Other
|
|
|
Significant
|
|
|
|
Balance at
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
13,505
|
|
|
$
|
13,505
|
|
|
$
|
|
|
|
$
|
|
|
Interest rate cap
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
13,507
|
|
|
$
|
13,505
|
|
|
$
|
2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
The following table summarizes the financial instruments of the
company at fair value based on the valuation approach applied to
each class of security as of December 31, 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting
|
|
|
|
|
|
|
Date Using
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Other
|
|
|
Significant
|
|
|
|
Balance at
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
61,782
|
|
|
$
|
61,782
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments
|
|
|
33,331
|
|
|
|
33,331
|
|
|
|
|
|
|
|
|
|
Interest rate cap
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
95,114
|
|
|
$
|
95,113
|
|
|
$
|
1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The companys cash equivalents and short-term investments
at September 30, 2010 (unaudited) were all classified
within Level 1. There were no movements between fair value
measurement levels of the companys cash equivalents and
short-term investments during the nine months ended
September 30, 2010 (unaudited).
The carrying amounts reported in the financial statements for
accounts receivable and accounts payable approximate their fair
values because of the immediate or short-term maturities of
these financial instruments. The carrying value of long-term
debt approximates fair value based on interest rates currently
available to the company for debt with similar terms, at
December 31, 2008 and 2009. As of September 30, 2010
(unaudited), the company had no long-term debt outstanding.
In connection with the Genline acquisition, the company entered
into a forward contract to purchase 53 million Swedish
kronor. The company did not qualify the contract for hedge
accounting and therefore the fair value gains and losses on the
contract were recorded in net income. In July 2010, the forward
contract was settled resulting in a gain of $0.4 million.
|
|
13.
|
Commitments
and Contingencies
|
The company has entered into noncancelable operating leases for
facilities and certain equipment. Rent expense for operating
leases with escalating lease payment terms is recognized on a
straight-line basis over the lives of the related leases.
The following is a schedule by year of future minimum lease
payments of noncancelable operating leases at December 31,
2009 (in thousands):
|
|
|
|
|
Years Ending December
31,
|
|
|
|
|
2010
|
|
$
|
2,420
|
|
2011
|
|
|
2,305
|
|
2012
|
|
|
1,980
|
|
2013
|
|
|
1,591
|
|
2014
|
|
|
1,622
|
|
Thereafter
|
|
|
2,211
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
12,129
|
|
|
|
|
|
|
Rental expense for operating leases was approximately
$2.4 million, $0.2 million, $2.2 million, and
$2.4 million for the period from January 1, 2007
through December 5, 2007, the period from December 6,
2007 through December 31, 2007, and the years ended
December 31, 2008 and 2009, respectively. The company
F-28
exited one of its leased facilities in May 2007 and was not able
to sublease the facility and did not believe it would have been
able to sublease the facility for the remaining lease term. As a
result, the company recorded $0.6 million in the period
from January 1, 2007 through December 5, 2007 as rent
expense for the remaining minimum payments required until the
first option to terminate the lease agreement plus an early
termination fee. In October 2008, the company was able to exit
the lease prior to the first option date to terminate the lease
as the lessor found a new lessee, $0.1 million of remaining
lease termination liability was released at that time. The
company leases a portion of its facilities to third parties
under noncancelable lease arrangements. Lease payments received
for the period from January 1, 2007 through
December 5, 2007, the period from December 6, 2007
through December 31, 2007, the years ended
December 31, 2008 and 2009 were de minimis.
The company has entered into agreements with certain vendors
requiring the company to make royalty payments based on
specified future product sales or relative online page views.
Products include certain books, proprietary genealogical
information, content databases, and a search engine placed on CD
ROMs. Royalty expenses were $2.0 million,
$0.2 million, $1.4 million, and $1.4 million for
the period from January 1, 2007 through December 5,
2007, the period from December 6, 2007 through
December 31, 2007, and the years ended December 31,
2008 and 2009, respectively. Royalty expenses are included as a
cost of subscription revenues and cost of product revenues in
the accompanying statements of operations.
On May 1, 2006 the company entered into a sale-leaseback
transaction with a third party in which the company sold its
corporate office building for $18.6 million. As a result of
the sale-leaseback the company was recognizing the gain on the
sale of the building of $5.9 million as a reduction of rent
expense over the term of the new lease agreement. The
unrecognized amount was recorded as a deferred gain on
sale-leaseback and was stated as a liability on the consolidated
balance sheet as of December 31, 2006. The company entered
into a
10-year
operating lease as part of the transaction with estimated annual
lease payments beginning at approximately $1.4 million and
increasing 2% per annum. As a result of the acquisition as
discussed in Note 1, the deferred gain was eliminated and
is no longer being offset against rent expense.
From time to time, the company is a party to or otherwise
involved in legal proceedings or other legal matters that arise
in the ordinary course of business or otherwise. While the
companys management does not believe that any pending
legal claim or proceeding will be resolved in a manner that
would have a material adverse effect on the companys
business, the company cannot assure the ultimate outcome of any
legal proceeding or contingency in which the company is or may
become involved.
|
|
14.
|
Geographic
Information
|
Operating segments are defined as components of an enterprise
for which separate financial information is available and
evaluated regularly by the chief operating decision-maker, or
decision making group, in deciding how to allocate resources and
in assessing performance. For the period from January 1,
2007 through December 5, 2007, the period from
December 6, 2007 through December 31, 2007, the years
ended December 31, 2008 and 2009 and the nine months ended
September 30, 2009 and 2010, the company was organized as,
and operated in, one reportable segment. The chief operating
decision maker, or decision making group, review financial
information on a consolidated basis, accompanied by
disaggregated information of subscription revenue by geographic
region for purposes of allocating resources and evaluating
performance. The companys foreign offices conduct
marketing and support activities. Subscription revenues were
attributed by geographic location based on the location of the
customer. The companys assets were primarily located in
the United States and not allocated to any specific region.
F-29
The following presents subscription revenue by geographic region
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan. 1, 2007
|
|
|
Dec. 6, 2007
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Through
|
|
|
through
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
Dec. 5, 2007
|
|
|
Dec. 31, 2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
United States
|
|
$
|
106,101
|
|
|
$
|
8,633
|
|
|
$
|
134,112
|
|
|
$
|
156,150
|
|
|
$
|
114,968
|
|
|
$
|
154,790
|
|
United Kingdom
|
|
|
27,181
|
|
|
|
2,321
|
|
|
|
33,223
|
|
|
|
34,402
|
|
|
|
25,147
|
|
|
|
30,001
|
|
All other countries
|
|
|
7,859
|
|
|
|
738
|
|
|
|
14,056
|
|
|
|
17,155
|
|
|
|
12,391
|
|
|
|
19,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscription revenues
|
|
$
|
141,141
|
|
|
$
|
11,692
|
|
|
$
|
181,391
|
|
|
$
|
207,707
|
|
|
$
|
152,506
|
|
|
$
|
204,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On September 22, 2010, the company entered into an agreement to
acquire iArchives, a leading digitization service provider that
also operates Footnote.com, a leading American history Web site,
and on October 20, 2010, the company completed the
acquisition. The purchase price was approximately
$31.6 million, consisting of the issuance of approximately
1.022 million shares of Ancestry.com common stock (valued
at approximately $24.6 million, based on the closing price
on October 20, 2010, and approximately $7.0 million of
cash consideration. The acquisition of iArchives is expected to
provide Ancestry.com with a complementary consumer brand,
expanded content offerings, and enhanced digitization and
image-viewing technologies.
The company announced a share repurchase program, under which
the company may spend up to $25.0 million to repurchase
shares of the companys common stock, depending on market
conditions, the price of the companys stock and other
factors. The share repurchase program is intended in part to
offset the issuance of common stock as a result of the iArchives
acquisition.
F-30
ITEM II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution.
|
The estimated expenses in connection with the offering are as
follows:
|
|
|
|
|
Name
|
|
Total
|
|
Securities and Exchange Commission registration fee
|
|
$
|
7,130
|
|
FINRA filing fee
|
|
|
10,500
|
|
Printing expenses
|
|
|
150,000
|
|
Accounting fees and expenses
|
|
|
175,000
|
|
Legal fees and expenses
|
|
|
300,000
|
|
Transfer agents fees and expenses
|
|
|
20,000
|
|
Miscellaneous
|
|
|
125,000
|
|
|
|
|
|
|
Total
|
|
$
|
787,630
|
|
|
|
|
|
|
|
|
Item 14.
|
Indemnification
of Directors and Officers.
|
Section 145 of the Delaware General Corporation Law
authorizes a court to award, or a corporations board of
directors to grant, indemnity to directors and officers in terms
sufficiently broad to permit such indemnification under certain
circumstances for liabilities, including reimbursement for
expenses incurred, arising under the Securities Act of 1933, as
amended. Our amended and restated certificate of incorporation
provides for indemnification of our directors, officers,
employees and other agents to the maximum extent permitted by
the Delaware General Corporation Law, and our amended and
restated bylaws provide for indemnification of our directors,
officers, employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. In addition,
we have entered into indemnification agreements with our
directors and certain of our executive officers containing
provisions which may be, in some respects, broader than the
specific indemnification provisions contained in the Delaware
General Corporation Law. The indemnification agreements may
require us, among other things, to indemnify our directors
against certain liabilities that may arise by reason of their
status or service as directors and to advance their expenses
incurred as a result of any proceeding against them as to which
they could be indemnified. Reference is also made to
Section 10 of the underwriting agreement to be filed as
Exhibit 1.1 hereto, which provides for indemnification by
the underwriter of our officers and directors against certain
liabilities.
|
|
Item 15.
|
Recent
Sales of Unregistered Securities.
|
In the preceding three years, we have made the following sales
of unregistered securities:
1. On December 5, 2007, in connection with the
purchase of The Generations Network, Inc., we issued an
aggregate of 38,045,312 shares of our common stock to new
and existing investors for aggregate consideration of
approximately $205 million.
2. Since December 5, 2007, holders of stock options
exercised options to purchase an aggregate of
327,881 shares of our common stock at exercise prices
ranging from $0.24 to $5.40 per share to employees, consultants
and directors under the 2008 Stock Plan, the 2004 Stock Plan,
the Executive Stock Plan and the 1998 Stock Plan.
3. On October 20, 2010, in connection with our
acquisition of iArchives, we issued approximately
1.022 million shares of our common stock in exchange for
shares of iArchives.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance upon
Section 4(2) of the Securities Act, Regulation D or
Regulation S promulgated thereunder, or Rule 701
II-1
promulgated under Section 3(b) of the Securities Act as
transactions by an issuer not involving any public offering or
pursuant to benefit plans and contracts relating to compensation
as provided under Rule 701.
|
|
Item 16.
|
Exhibits
and Financial Statement Schedules.
|
(a) Exhibits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Exhibit
|
Exhibit
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Number
|
|
Herewith
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement.
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation as amended and
as in effect as of the date hereof.
|
|
S-1/A
|
|
333-160986
|
|
Nov. 2, 2009
|
|
|
3
|
.2
|
|
|
|
3
|
.2
|
|
Amended and Restated Bylaws as in effect as of the date hereof.
|
|
S-1/A
|
|
333-160986
|
|
Oct. 20, 2009
|
|
|
3
|
.2
|
|
|
|
4
|
.1
|
|
Form of Common Stock Certificate.
|
|
S-1/A
|
|
333-160986
|
|
Oct. 6, 2009
|
|
|
4
|
.1
|
|
|
|
4
|
.2
|
|
Registration Rights Agreement, dated October 20, 2010,
among Ancestry.com Inc., Century Capital Partners II, L.P.,
Canopy Ventures I, L.P. and certain other stockholders of
iArchives, Inc.
|
|
10-Q
|
|
001-34518
|
|
Nov. 2, 2010
|
|
|
4
|
.1
|
|
|
|
4
|
.3
|
|
Amendment No. 1, dated October 28, 2010, among
Ancestry.com Inc., formerly known as Generations Holding, Inc.,
and certain Spectrum Group Stockholders to the Registration
Rights Agreement, by and among Generations Holding, Inc.,
certain Spectrum Group Stockholders and certain Other
Stockholders, dated December 5, 2007.
|
|
10-Q
|
|
001-34518
|
|
Nov. 2, 2010
|
|
|
4
|
.2
|
|
|
|
5
|
.1
|
|
Opinion of Gibson, Dunn & Crutcher LLP.
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.1
|
|
MyFamily.com, Inc. 1998 Stock Plan.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.1
|
|
|
|
10
|
.2
|
|
MyFamily.com, Inc. 2004 Stock Plan.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.2
|
|
|
|
10
|
.3
|
|
MyFamily.com, Inc. Executive Stock Plan.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.3
|
|
|
II-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Exhibit
|
Exhibit
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Number
|
|
Herewith
|
|
|
10
|
.4
|
|
Generations Holding, Inc. 2008 Stock Purchase and Option Plan.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.4
|
|
|
|
10
|
.5
|
|
Ancestry.com Inc. 2009 Stock Incentive Plan.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.5
|
|
|
|
10
|
.6
|
|
MyFamily.com, Inc. 1998 Stock Plan Stock Option Agreement.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.6
|
|
|
|
10
|
.7
|
|
MyFamily.com, Inc. 2004 Stock Plan Stock Option Agreement.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.7
|
|
|
|
10
|
.8
|
|
MyFamily.com, Inc. Executive Stock Plan Stock Option Agreement.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.8
|
|
|
|
10
|
.9
|
|
Generations Holding, Inc. 2008 Stock Purchase and Option Plan
Stock Option Agreement.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.9
|
|
|
|
10
|
.10
|
|
Generations Holding, Inc. 2008 Stock Purchase and Option Plan
Stock Option Agreement for
Non-U.S.
Employees.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.10
|
|
|
|
10
|
.11
|
|
Ancestry.com Inc. Form of Grant Notice for 2009 Stock Incentive
Plan Restricted Stock Units.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.11
|
|
|
|
10
|
.12
|
|
Ancestry.com Inc. Form of Grant Notice for 2009 Stock Incentive
Plan Nonqualified Stock Options.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.12
|
|
|
|
10
|
.13
|
|
Ancestry.com Inc. Form of Grant Notice for 2009 Stock Incentive
Plan Incentive Stock Options.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.13
|
|
|
|
10
|
.14
|
|
Stockholders Agreement, by and among Generations Holding, Inc.,
certain Spectrum Group Stockholders and certain Other
Stockholders, dated December 5, 2007.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.15
|
|
|
|
10
|
.15
|
|
Form of Indemnification Agreement entered into with each
director and executive officer.
|
|
S-1/A
|
|
333-160986
|
|
Oct. 20, 2009
|
|
|
10
|
.19
|
|
|
II-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Exhibit
|
Exhibit
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Number
|
|
Herewith
|
|
|
10
|
.16
|
|
Employment Letter by and between Timothy Sullivan and
Ancestry.com Inc., dated July 20, 2009.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.20
|
|
|
|
10
|
.17
|
|
Amendment No. 1, dated July 22, 2010, to Offer Letter
by and between Timothy Sullivan and Ancestry.com Inc., dated
July 20, 2009.
|
|
10-Q
|
|
001-34518
|
|
Nov. 2, 2010
|
|
|
10
|
.3
|
|
|
|
10
|
.18
|
|
Employment Letter by and between Howard Hochhauser and
Ancestry.com Inc., dated July 20, 2009.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.21
|
|
|
|
10
|
.19
|
|
Amendment No. 1, dated July 22, 2010, to Offer Letter
by and between Howard Hochhauser and Ancestry.com Inc., dated
July 20, 2009.
|
|
10-Q
|
|
001-34518
|
|
Nov. 2, 2010
|
|
|
10
|
.4
|
|
|
|
10
|
.20
|
|
Employment Offer Letter by and between Joshua Hanna and
Ancestry.com Inc., dated July 22, 2010.
|
|
10-Q
|
|
001-34518
|
|
Nov. 2, 2010
|
|
|
10
|
.2
|
|
|
|
10
|
.21
|
|
Employment Letter by and between David Rinn and Ancestry.com
Inc., dated July 20, 2009.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.23
|
|
|
|
10
|
.22
|
|
Amendment No. 1, dated July 22, 2010, to Offer Letter
by and between David H. Rinn and Ancestry.com Inc., dated
July 20, 2009.
|
|
10-Q
|
|
001-34518
|
|
Nov. 2, 2010
|
|
|
10
|
.5
|
|
|
|
10
|
.23
|
|
Employment Letter by and between William Stern and Ancestry.com
Inc., dated June 29, 2009.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.24
|
|
|
|
10
|
.24
|
|
Amendment No. 1, dated July 22, 2010, to Offer Letter
by and between William Stern and Ancestry.com Inc., dated
June 29, 2009.
|
|
10-Q
|
|
001-34518
|
|
Nov. 2, 2010
|
|
|
10
|
.6
|
|
|
|
10
|
.25
|
|
Employment Letter by and between Christopher Tracy and
Ancestry.com Inc., dated July 20, 2009.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.25
|
|
|
II-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Exhibit
|
Exhibit
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Number
|
|
Herewith
|
|
|
10
|
.26
|
|
Amendment No. 1, dated July 22, 2010, to Offer Letter
by and between Christopher Tracy and Ancestry.com Inc., dated
July 20, 2009.
|
|
10-Q
|
|
001-34518
|
|
Nov. 2, 2010
|
|
|
10
|
.7
|
|
|
|
10
|
.27
|
|
Ancestry.com Inc. Form of Grant Notice for 2009 Stock Incentive
Plan Nonqualified Stock Options for Non-Employee
Directors.
|
|
S-1/A
|
|
333-160986
|
|
Nov. 2, 2009
|
|
|
10
|
.28
|
|
|
|
10
|
.28
|
|
Generations Holdings, Inc. 2008 Stock Purchase and Option Plan
Stock Option Agreement for non-employee Directors.
|
|
S-1/A
|
|
333-160986
|
|
Nov. 2, 2009
|
|
|
10
|
.29
|
|
|
|
10
|
.29
|
|
Ancestry.com Inc. Form of Grant Notice for 2009 Stock Incentive
Plan Restricted Stock Units (as amended).
|
|
10-Q
|
|
001-34518
|
|
May 7, 2010
|
|
|
10
|
.1
|
|
|
|
10
|
.30
|
|
Ancestry.com Inc. Form of Grant Notice for 2009 Stock Incentive
Plan Restricted Stock.
|
|
10-Q
|
|
001-34518
|
|
May 7, 2010
|
|
|
10
|
.2
|
|
|
|
10
|
.31
|
|
Ancestry.com Inc. Description of 2010 Performance Incentive
Program.
|
|
10-Q
|
|
001-34518
|
|
May 7, 2010
|
|
|
10
|
.3
|
|
|
|
10
|
.32
|
|
Credit Agreement, dated as of September 9, 2010, among
Ancestry.com Operations Inc., certain domestic subsidiaries of
Ancestry.com Operations Inc., Bank of America, N.A. and other
lender parties thereto.
|
|
10-Q
|
|
001-34518
|
|
Nov. 2, 2010
|
|
|
10
|
.1
|
|
|
|
21
|
.1
|
|
Subsidiaries of the Registrant.
|
|
S-1
|
|
333-170259
|
|
Nov. 2, 2010
|
|
|
21
|
.2
|
|
|
|
23
|
.1
|
|
Consent of Gibson, Dunn & Crutcher LLP (included in
Exhibit 5.1).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
.2
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
24
|
.1
|
|
Power of attorney (included on pages II-6 and II-7 of the
original filing).
|
|
S-1
|
|
333-170259
|
|
Nov. 2, 2010
|
|
|
24
|
.1
|
|
|
|
|
|
(b)
|
|
No financial statement schedules are provided because the
information called for is not required or is shown either in the
financial statements or the notes thereto.
|
II-5
(a) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Provo, Utah on November 8, 2010.
ANCESTRY.COM INC.
William Stern
General Counsel and Corporate Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
*
Timothy
Sullivan
|
|
President and Chief Executive Officer and Director (Principal
Executive Officer)
|
|
November 8, 2010
|
|
|
|
|
|
*
Howard
Hochhauser
|
|
Chief Financial Officer (Principal Financial Officer and
Accounting Officer)
|
|
November 8, 2010
|
|
|
|
|
|
*
Charles
M. Boesenberg
|
|
Director
|
|
November 8, 2010
|
|
|
|
|
|
*
David
Goldberg
|
|
Director
|
|
November 8, 2010
|
|
|
|
|
|
*
Thomas
Layton
|
|
Director
|
|
November 8, 2010
|
|
|
|
|
|
*
Elizabeth
Nelson
|
|
Director
|
|
November 8, 2010
|
|
|
|
|
|
*
Victor
Parker
|
|
Director
|
|
November 8, 2010
|
|
|
|
|
|
*
Benjamin
Spero
|
|
Director
|
|
November 8, 2010
|
|
|
|
|
|
*By:
/s/ William
Stern
Attorney-in-Fact
|
|
|
|
|
II-7
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Exhibit
|
Exhibit
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Number
|
|
Herewith
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement.
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation as amended and
as in effect as of the date hereof.
|
|
S-1/A
|
|
333-160986
|
|
Nov. 2, 2009
|
|
|
3
|
.2
|
|
|
|
3
|
.2
|
|
Amended and Restated Bylaws as in effect as of the date hereof.
|
|
S-1/A
|
|
333-160986
|
|
Oct. 20, 2009
|
|
|
3
|
.2
|
|
|
|
4
|
.1
|
|
Form of Common Stock Certificate.
|
|
S-1/A
|
|
333-160986
|
|
Oct. 6, 2009
|
|
|
4
|
.1
|
|
|
|
4
|
.2
|
|
Registration Rights Agreement, dated October 20, 2010,
among Ancestry.com Inc., Century Capital Partners II, L.P.,
Canopy Ventures I, L.P. and certain other stockholders of
iArchives, Inc.
|
|
10-Q
|
|
001-34518
|
|
Nov. 2, 2010
|
|
|
4
|
.1
|
|
|
|
4
|
.3
|
|
Amendment No. 1, dated October 28, 2010, among Ancestry.com
Inc., formerly known as Generations Holding, Inc., and certain
Spectrum Group Stockholders to the Registration Rights
Agreement, by and among Generations Holding, Inc., certain
Spectrum Group Stockholders and certain Other Stockholders,
dated December 5, 2007.
|
|
10-Q
|
|
001-34518
|
|
Nov. 2, 2010
|
|
|
4
|
.2
|
|
|
|
5
|
.1
|
|
Opinion of Gibson, Dunn & Crutcher LLP.
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.1
|
|
MyFamily.com, Inc. 1998 Stock Plan.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.1
|
|
|
|
10
|
.2
|
|
MyFamily.com, Inc. 2004 Stock Plan.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.2
|
|
|
|
10
|
.3
|
|
MyFamily.com, Inc. Executive Stock Plan.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.3
|
|
|
|
10
|
.4
|
|
Generations Holding, Inc. 2008 Stock Purchase and Option Plan.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.4
|
|
|
|
10
|
.5
|
|
Ancestry.com Inc. 2009 Stock Incentive Plan.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.5
|
|
|
|
10
|
.6
|
|
MyFamily.com, Inc. 1998 Stock Plan Stock Option Agreement.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.6
|
|
|
|
10
|
.7
|
|
MyFamily.com, Inc. 2004 Stock Plan Stock Option Agreement.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.7
|
|
|
|
10
|
.8
|
|
MyFamily.com, Inc. Executive Stock Plan Stock Option Agreement.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.8
|
|
|
II-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Exhibit
|
Exhibit
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Number
|
|
Herewith
|
|
|
10
|
.9
|
|
Generations Holding, Inc. 2008 Stock Purchase and Option Plan
Stock Option Agreement.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.9
|
|
|
|
10
|
.10
|
|
Generations Holding, Inc. 2008 Stock Purchase and Option Plan
Stock Option Agreement for
Non-U.S.
Employees.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.10
|
|
|
|
10
|
.11
|
|
Ancestry.com Inc. Form of Grant Notice for 2009 Stock Incentive
Plan Restricted Stock Units.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.11
|
|
|
|
10
|
.12
|
|
Ancestry.com Inc. Form of Grant Notice for 2009 Stock Incentive
Plan Nonqualified Stock Options.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.12
|
|
|
|
10
|
.13
|
|
Ancestry.com Inc. Form of Grant Notice for 2009 Stock Incentive
Plan Incentive Stock Options.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.13
|
|
|
|
10
|
.14
|
|
Stockholders Agreement, by and among Generations Holding, Inc.,
certain Spectrum Group Stockholders and certain Other
Stockholders, dated December 5, 2007.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.15
|
|
|
|
10
|
.15
|
|
Form of Indemnification Agreement entered into with each
director and executive officer.
|
|
S-1/A
|
|
333-160986
|
|
Oct. 20, 2009
|
|
|
10
|
.19
|
|
|
|
10
|
.16
|
|
Employment Letter by and between Timothy Sullivan and
Ancestry.com Inc., dated July 20, 2009.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.20
|
|
|
|
10
|
.17
|
|
Amendment No. 1, dated July 22, 2010, to Offer Letter
by and between Timothy Sullivan and Ancestry.com Inc., dated
July 20, 2009.
|
|
10-Q
|
|
001-34518
|
|
Nov. 2, 2010
|
|
|
10
|
.3
|
|
|
|
10
|
.18
|
|
Employment Letter by and between Howard Hochhauser and
Ancestry.com Inc., dated July 20, 2009.
|
|
S-1/A
|
|
333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.21
|
|
|
|
10
|
.19
|
|
Amendment No. 1, dated July 22, 2010, to Offer Letter
by and between Howard Hochhauser and Ancestry.com Inc., dated
July 20, 2009.
|
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10-Q
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001-34518
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Nov. 2, 2010
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10
|
.4
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II-9
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Description of Exhibit
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Exhibit
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Exhibit
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Filed
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Number
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Exhibit Description
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Form
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File No.
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Filing Date
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Number
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Herewith
|
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10
|
.20
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Employment Offer Letter by and between Joshua Hanna and
Ancestry.com Inc., dated July 22, 2010.
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10-Q
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001-34518
|
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Nov. 2, 2010
|
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10
|
.2
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10
|
.21
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Employment Letter by and between David Rinn and Ancestry.com
Inc., dated July 20, 2009.
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S-1/A
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333-160986
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Sept. 15, 2009
|
|
|
10
|
.23
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10
|
.22
|
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Amendment No. 1, dated July 22, 2010, to Offer Letter
by and between David H. Rinn and Ancestry.com Inc., dated
July 20, 2009.
|
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10-Q
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001-34518
|
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Nov. 2, 2010
|
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10
|
.5
|
|
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10
|
.23
|
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Employment Letter by and between William Stern and Ancestry.com
Inc., dated June 29, 2009.
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S-1/A
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333-160986
|
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Sept. 15, 2009
|
|
|
10
|
.24
|
|
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10
|
.24
|
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Amendment No. 1, dated July 22, 2010, to Offer Letter
by and between William Stern and Ancestry.com Inc., dated
June 29, 2009.
|
|
10-Q
|
|
001-34518
|
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Nov. 2, 2010
|
|
|
10
|
.6
|
|
|
|
10
|
.25
|
|
Employment Letter by and between Christopher Tracy and
Ancestry.com Inc., dated July 20, 2009.
|
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S-1/A
|
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333-160986
|
|
Sept. 15, 2009
|
|
|
10
|
.25
|
|
|
|
10
|
.26
|
|
Amendment No. 1, dated July 22, 2010, to Offer Letter
by and between Christopher Tracy and Ancestry.com Inc., dated
July 20, 2009.
|
|
10-Q
|
|
001-34518
|
|
Nov. 2, 2010
|
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10
|
.7
|
|
|
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10
|
.27
|
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Ancestry.com Inc. Form of Grant Notice for 2009 Stock Incentive
Plan Nonqualified Stock Options for Non-Employee
Directors.
|
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S-1/A
|
|
333-160986
|
|
Nov. 2, 2009
|
|
|
10
|
.28
|
|
|
|
10
|
.28
|
|
Generations Holdings, Inc. 2008 Stock Purchase and Option Plan
Stock Option Agreement for non-employee Directors.
|
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S-1/A
|
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333-160986
|
|
Nov. 2, 2009
|
|
|
10
|
.29
|
|
|
|
10
|
.29
|
|
Ancestry.com Inc. Form of Grant Notice for 2009 Stock Incentive
Plan Restricted Stock Units (as amended).
|
|
10-Q
|
|
001-34518
|
|
May 7, 2010
|
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10
|
.1
|
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II-10
|
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Description of Exhibit
|
Exhibit
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|
Exhibit
|
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Filed
|
Number
|
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Exhibit Description
|
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Form
|
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File No.
|
|
Filing Date
|
|
Number
|
|
Herewith
|
|
|
10
|
.30
|
|
Ancestry.com Inc. Form of Grant Notice for 2009 Stock Incentive
Plan Restricted Stock.
|
|
10-Q
|
|
001-34518
|
|
May 7, 2010
|
|
|
10
|
.2
|
|
|
|
10
|
.31
|
|
Ancestry.com Inc. Description of 2010 Performance Incentive
Program.
|
|
10-Q
|
|
001-34518
|
|
May 7, 2010
|
|
|
10
|
.3
|
|
|
|
10
|
.32
|
|
Credit Agreement, dated as of September 9, 2010, among
Ancestry.com Operations Inc., certain domestic subsidiaries of
Ancestry.com Operations Inc., Bank of America, N.A. and other
lender parties thereto.
|
|
10-Q
|
|
001-34518
|
|
Nov. 2, 2010
|
|
|
10
|
.1
|
|
|
|
21
|
.1
|
|
Subsidiaries of the Registrant.
|
|
S-1
|
|
333-170259
|
|
Nov. 2, 2010
|
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|
21
|
.2
|
|
|
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23
|
.1
|
|
Consent of Gibson, Dunn & Crutcher LLP (included in
Exhibit 5.1).
|
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23
|
.2
|
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Consent of Independent Registered Public Accounting Firm.
|
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|
|
X
|
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24
|
.1
|
|
Power of attorney (included on pages II-6 and II-7 of the
original filing).
|
|
S-1
|
|
333-170259
|
|
Nov. 2, 2010
|
|
|
24
|
.1
|
|
|
II-11
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