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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 for the quarterly period ended March 31, 2007.
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the transition period from  to
.
 Commission File Number: 0-24699
 BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
  DELAWARE
    
    62-1742957(State or other jurisdiction of
    
    (IRS Employer Identification No.)incorporation or organization)
 200 Talcott Avenue South
Watertown, Massachusetts 02472
 (617) 673-8000
 
 þ o
  þ o o
 o þ
  Class
    
    Shares outstanding as of May 3, 2007Common Stock, $0.01 par value
    
    26,158,645




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FORM 10-Q
INDEX
 PageNumberPART I. FINANCIAL INFORMATIONITEM 1. Financial StatementsA. Condensed Consolidated Balance Sheets at March 31, 2007 (Unaudited) and December 31, 2006
    
    
    3B. Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2007 and 2006 (Unaudited)
    
    
    4C. Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006 (Unaudited)
    
    
    5D. Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    18ITEM 4. Controls and Procedures
    
    
    18PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    19ITEM 1A. Risk Factors
    
    
    19ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19ITEM 3. Defaults Upon Senior Securities
    
    
    19ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    19ITEM 5. Other Information
    
    
    20ITEM 6. Exhibits
    
    
    20SIGNATURE
    
    
    21Ex-31.1 Section 302 CertificationEx-31.2 Section 302 CertificationEx-32.1 Section 906 CertificationEx-32.2 Section 906 Certification
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
  
   March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,302
    
    
    $
    7,115Accounts receivable, net
    
    
    42,905
    
    
    
    38,644Prepaid expenses and other current assets
    
    
    20,598
    
    
    
    19,915Current deferred income taxes
    
    
    13,267
    
    
    
    13,832Total current assets
    
    
    86,072
    
    
    
    79,506Fixed assets, net
    
    
    139,209
    
    
    
    137,312Goodwill
    
    
    145,168
    
    
    
    145,070Other intangibles, net
    
    
    36,969
    
    
    
    38,150Noncurrent deferred income taxes
    
    
    6,938
    
    
    
    5,858Other assets
    
    
    3,560
    
    
    
    3,474Total assets
    
    $
    417,916
    
    
    $
    409,370LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    4,277
    
    
    $
    4,376Line of credit payable
    
    
    13,400
    
    
    
    35,000Accounts payable and accrued expenses
    
    
    61,580
    
    
    
    54,242Deferred revenue
    
    
    53,477
    
    
    
    40,884Income taxes payable
    
    
    3,059
    
    
    
    5,507Other current liabilities
    
    
    10,866
    
    
    
    11,350Total current liabilities
    
    
    146,659
    
    
    
    151,359Long-term debt, net of current portion
    
    
    22
    
    
    
    77Accrued rent and related obligations
    
    
    11,433
    
    
    
    10,651Other long-term liabilities
    
    
    9,763
    
    
    
    7,296Deferred revenue, net of current portion
    
    
    12,819
    
    
    
    13,467Deferred income taxes
    
    
    2,542
    
    
    
    2,682Total liabilities
    
    
    183,238
    
    
    
    185,532Stockholders equity:Preferred stock, $0.01 par value: 5,000 shares authorized, none
issued or outstandingCommon stock, $0.01 par value:Authorized: 50,000 shares at both March 31, 2007 and December
31, 2006Issued: 28,140 and 27,942 shares at March 31, 2007 and
December 31, 2006, respectivelyOutstanding: 26,151 and 26,095 shares at March 31, 2007 and
December 31, 2006, respectively
    
    
    281
    
    
    
    279Additional paid-in capital
    
    
    128,656
    
    
    
    123,869Treasury stock, at cost: 1,989 and 1,847 shares at March 31, 2007 and
December 31, 2006, respectively
    
    
    (70,479
    )
    
    
    (65,283
    )Cumulative translation adjustment
    
    
    9,577
    
    
    
    9,546Retained earnings
    
    
    166,643
    
    
    
    155,427Total stockholders equity
    
    
    234,678
    
    
    
    223,838Total liabilities and stockholders equity
    
    $
    417,916
    
    
    $
    409,370
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Three months endedMarch 31,2007
    
    
    2006Revenue
    
    $
    190,077
    
    
    $
    169,139Cost of services
    
    
    151,651
    
    
    
    136,234Gross profit
    
    
    38,426
    
    
    
    32,905Selling, general and administrative expenses
    
    
    17,703
    
    
    
    15,185Amortization
    
    
    1,180
    
    
    
    610Income from operations
    
    
    19,543
    
    
    
    17,110Interest income
    
    
    125
    
    
    
    175Interest expense
    
    
    (396
    )
    
    
    (57
    )Income before income taxes
    
    
    19,272
    
    
    
    17,228Income tax expense
    
    
    8,056
    
    
    
    7,238Net income
    
    $
    11,216
    
    
    $
    9,990Earnings per share:Basic
    
    $
    0.43
    
    
    $
    0.37Diluted
    
    $
    0.42
    
    
    $
    0.36Weighted average number of common shares outstanding:Basic
    
    
    26,018
    
    
    
    26,897Diluted
    
    
    26,961
    
    
    
    28,023
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Three months endedMarch 31,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    11,216
    
    
    $
    9,990Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    5,562
    
    
    
    4,165Non-cash revenue and other
    
    
    (273
    )
    
    
    (231
    )(Gain)/loss on disposal of fixed assets
    
    
    (9
    )
    
    
    41Stock-based compensation
    
    
    1,020
    
    
    
    762Deferred income taxes
    
    
    (653
    )
    
    
    1,095Changes in assets and liabilities:Accounts receivable
    
    
    (4,253
    )
    
    
    (4,525
    )Prepaid expenses and other current assets
    
    
    (782
    )
    
    
    (157
    )Accounts payable and accrued expenses
    
    
    7,385
    
    
    
    3,690Income taxes
    
    
    (14
    )
    
    
    1,323Deferred revenue
    
    
    12,238
    
    
    
    13,767Accrued rent and related obligations
    
    
    782
    
    
    
    (128
    )Other assets
    
    
    (87
    )
    
    
    10Other current and long-term liabilities
    
    
    (262
    )
    
    
    136Net cash provided by operating activities
    
    
    31,870
    
    
    
    29,938Cash flows from investing activities:Additions to fixed assets, net of acquired amounts
    
    
    (6,304
    )
    
    
    (7,177
    )Proceeds from the disposal of fixed assets
    
    
    15
    
    
    
    39Other assets
    
    
    (29
    )
    
    
    Payments for acquisitions, net of cash acquired
    
    
    
    
    
    
    (580
    )Net cash used in investing activities
    
    
    (6,318
    )
    
    
    (7,718
    )Cash flows from financing activities:Purchase of treasury stock
    
    
    (5,196
    )
    
    
    (23,023
    )Proceeds from the issuance of common stock
    
    
    2,771
    
    
    
    1,865Excess tax benefit from stock-based compensation
    
    
    786
    
    
    
    628Repayments on line of credit, net
    
    
    (21,600
    )
    
    
    Principal payments of long term debt
    
    
    (153
    )
    
    
    (171
    )Net cash used in financing activities
    
    
    (23,392
    )
    
    
    (20,701
    )Effect of exchange rates on cash and cash equivalents
    
    
    27
    
    
    
    59Net increase in cash and cash equivalents
    
    
    2,187
    
    
    
    1,578Cash and cash equivalents, beginning of period
    
    
    7,115
    
    
    
    21,650Cash and cash equivalents, end of period
    
    $
    9,302
    
    
    $
    23,228Supplemental cash flow information:Cash payments of interest
    
    $
    374
    
    
    $
    60Cash payments of income taxes
    
    $
    7,946
    
    
    $
    4,064
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Notes to Condensed Consolidated Financial Statements (Unaudited)
 1. The Company and Basis of Presentation
 Organization
  Basis of Presentation
   Comprehensive Income
 Three months ended March 31,2007
    
    
    2006(In thousands)Net income
    
    $
    11,216
    
    
    $
    9,990Foreign currency translation adjustments
    
    
    31
    
    
    
    377Comprehensive income
    
    $
    11,247
    
    
    $
    10,367
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Uncertain Tax Positions Accounting for Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109, Accounting for Income Taxes
 Recent Accounting Pronouncements The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an amendment of FASB Statement No. 115
  2. Earnings Per Share
 Earnings per Share
  Three months ended March 31, 2007Earnings
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount(In thousands, except per share amounts)Basic earnings per share:Income available to common
stockholders
    
    $
    11,216
    
    
    
    26,018
    
    
    $
    0.43Effect of dilutive securities:Stock options and
restricted stock
    
    
    
    
    
    
    943
    
    
    
    Diluted earnings per share
    
    $
    11,216
    
    
    
    26,961
    
    
    $
    0.42
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Three months ended March 31, 2006Earnings
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount(In thousands, except per share amounts)Basic earnings per share:Income available to common
stockholders
    
    $
    9,990
    
    
    
    26,897
    
    
    $
    0.37Effect of dilutive securities:Stock options and
restricted stock
    
    
    
    
    
    
    1,126
    
    
    
    Diluted earnings per share
    
    $
    9,990
    
    
    
    28,023
    
    
    $
    0.36
  3. Uncertain Tax Positions
        4. Treasury Stock
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5. Commitments and Contingencies
     6. Segment Information
 Disclosures About Segments of an Enterprise and Related Information
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Center-based
    
    AncillaryCare
    
    Services
    
    Total(In thousands)Three Months ended March 31, 2007:Revenue
    
    $
    188,507
    
    
    $
    1,570
    
    
    $
    190,077Amortization
    
    
    1,044
    
    
    
    136
    
    
    
    1,180Income (loss) from operations
    
    
    19,733
    
    
    
    (190
    )
    
    
    19,543Three Months ended March 31, 2006:Revenue
    
    $
    168,576
    
    
    $
    563
    
    
    $
    169,139Amortization
    
    
    610
    
    
    
    
    
    
    
    610Income (loss) from operations
    
    
    16,919
    
    
    
    191
    
    
    
    17,110
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ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Statement About Forward-Looking Information
   
    
    the effects of general economic conditions and world events;
    
    our inability to successfully execute our growth strategy;
    
    delays in identifying, executing or integrating key acquisitions;
    
    loss of key client relationships or delays in new center openings;
    
    subsidy reductions by key existing clients;
    
    competitive conditions in the early care and education industry;
    
    tuition price sensitivity;
    
    the availability of a qualified labor pool, the impact of labor organization
efforts and the impact of government regulations concerning labor and employment issues;
    
    our inability to maintain effective internal controls over financial reporting;
    
    our inability to obtain insurance at the same levels or at costs comparable to
those incurred historically;
    
    our inability to successfully defend against or counter negative publicity
associated with claims involving alleged incidents at our centers;
    
    various factors affecting occupancy levels, including, but not limited to, the
reduction in or changes to the general labor force that would reduce the need for child
care services; and
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
    
    federal and state regulations regarding changes in child care assistance
programs, welfare reform, minimum wages and licensing standards.
  Executive Summary and Discussion
  Fortune 500 Working Mother Magazines
  Industry Classification
    
    Percentage of CentersConsumer
    
    
    5
    %Financial Services
    
    
    15
    %Government and Education
    
    
    15
    %Healthcare
    
    
    10
    %Industrial/Manufacturing
    
    
    10
    %Office Park Consortiums
    
    
    30
    %Pharmaceutical
    
    
    5
    %Professional Services and Other
    
    
    5
    %Technology
    
    
    5
    %
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Seasonality
 Results of Operations
  Three months endedMarch 31,2007
    
    2006Revenue
    
    
    100.0
    %
    
    
    100.0
    %Cost of services
    
    
    79.8
    
    
    
    80.5Gross profit
    
    
    20.2
    
    
    
    19.5Selling, general & administrative expenses
    
    
    9.3
    
    
    
    9.0Amortization
    
    
    0.6
    
    
    
    0.4Income from operations
    
    
    10.3
    
    
    
    10.1Interest income
    
    
    0.1
    
    
    
    0.1Interest expense
    
    
    (0.3
    )
    
    
    0.0Income before income taxes
    
    
    10.1
    
    
    
    10.2Income tax expense
    
    
    4.2
    
    
    
    4.3Net income
    
    
    5.9
    %
    
    
    5.9
    %
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Three Months Ended March 31, 2007 Compared to the Three Months Ended March 31, 2006
 Revenue
   Gross Profit
  Selling, General and Administrative Expenses (SGA)
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Amortization.
 Income from Operations
  Interest Income.
 Interest Expense.
 Income Tax Expense
 Liquidity and Capital Resources
   16




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Critical Accounting Policies and Estimates
  17




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Recent Accounting Pronouncements
 The Fair
Value Option for Financial Assets and Financial Liabilities  Including an amendment of FASB
Statement No. 115
 
 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk
  Foreign Currency Exchange Rate Risk
  
 ITEM 4. Controls and Procedures
 (a) Disclosure controls and procedures
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(b) Changes in internal control over financial reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Issuer Purchases of Equity SecuritiesMaximumNumber ofAverage
    
    Total Number of Shares
    
    Shares that MayPrice
    
    Purchased as Part of
    
    Yet Be PurchasedTotal Number of
    
    Paid per
    
    Publicly Announced
    
    Under the PlansPeriod
    
    Shares Purchased
    
    Share
    
    Plans or Programs
    
    or ProgramsJanuary 1-31, 2007
    
    
    
    
    
    
    
    
    
    
    380,991
    
    
    
    2,619,009February 1- 28, 2007
    
    
    
    
    
    
    
    
    
    
    380,991
    
    
    
    2,619,009March 1-31, 2007
    
    
    141,850
    
    
    $
    36.60
    
    
    
    522,841
    
    
    
    2,477,159Total
    
    
    141,850
  
 ITEM 3. Defaults Upon Senior Securities
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
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ITEM 5. Other Information
  
 ITEM 6. Exhibits
  31.1
    
    Certification of the Companys Chief Executive Officer pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of the Companys Chief Financial Officer pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Companys Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    Certification of the Companys Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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SIGNATURE
    By:
    
    /s/ Elizabeth J. BolandElizabeth J. BolandChief Financial Officer(Duly Authorized Officer and Principal Financial Officer)
 21