##### Table of Contents



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


|   |  |                                                                                                                                                            
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|x  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2003.                 
|  
|OR
|  
|o  |  | TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the transition period from _______________ to _______________.

Commission File Number 0-24699

BRIGHT HORIZONS FAMILY SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)


|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|DELAWARE                                                       |  | 62-1742957                       
|                                                               |  |                                  
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer
Identification No.)

200 Talcott Avenue South
Watertown, Massachusetts 02472
(Address of principal executive offices)

(617) 673-8000
(Registrants telephone number, including area code)



---

(Former name, former address, and former fiscal year,
if changed since last report.)


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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).  Yes x  No o

Indicate the number of shares outstanding of each of the registrants classes
of common stock as of the latest practicable date: 13,034,621 shares of common
stock, $.01 par value, at November 10, 2003.





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TABLE OF CONTENTS



|                                                                                              |                                                                  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- |  |  |  |  |  |  | 
|                                                                                              | Consolidated Balance Sheets                                     
|                                                                                              | Consolidated Statements of Operations                           
|                                                                                              | Consolidated Statements of Cash Flows                           
|                                                                                              | ITEM 1.D. Notes to Consolidated Financial Statements (Unaudited)
|ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|ITEM 3. Quantitative and Qualitative Disclosures about Market Risk                           
|ITEM 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION                                                                  
|ITEM 1. Legal Proceedings                                                                    
|ITEM 2. Changes in Securities and Use of Proceeds:                                           
|ITEM 3. Defaults Upon Senior Securities:                                                     
|ITEM 4. Submission of Matters to a Vote of Security Holders:                                 
|ITEM 5. Other information:                                                                   
|ITEM 6. Exhibits and Reports on Form 8-K:                                                    
|SIGNATURE                                                                                    
|EXHIBIT INDEX                                                                                
|EX-31.1  SECTION 302 CERTIFICATION OF THE CEO                                                
|EX-31.2  SECTION 302 CERTIFICATION OF THE CFO                                                
|EX-32.1  SECTION 906 CERTIFICATION OF THE CEO/CFO                                            



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FORM 10-Q
INDEX

|                                                                                              |                                                                                                                      |  |        |   | 
|--------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- |  | ------ | - | 
|                                                                                              |                                                                                                                      |  | Page  
|                                                                                              |                                                                                                                      |  | Number
|                                                                                              |                                                                                                                      |  |       
|PART I. FINANCIAL INFORMATION                                                                 |                                                                                                                      |  |        |  
|ITEM 1. Consolidated Financial Statements                                                     |                                                                                                                      |  |        |  
|                                                                                              | A. Consolidated Balance Sheets at September 30, 2003
(unaudited) and December 31, 2002                               |  |        | 3 | 
|                                                                                              | B. Consolidated Statements of Operations for the Three and
Nine Months ended September 30, 2003 and 2002 (unaudited) |  |        | 4 | 
|                                                                                              | C. Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 2003 and 2002 (unaudited)           |  |        | 5 | 
|                                                                                              | D. Notes to Consolidated Financial Statements (unaudited)                                                            |  |        | 6 | 
|ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations |                                                                                                                      |  | 11     |  
|ITEM 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                                      |  | 15     |  
|ITEM 4. Controls and Procedures                                                               |                                                                                                                      |  | 16     |  
|PART II. OTHER INFORMATION                                                                    |                                                                                                                      |  |        |  
|ITEM 1. Legal Proceedings                                                                     |                                                                                                                      |  | 17     |  
|ITEM 2. Changes in Securities and Use of Proceeds                                             |                                                                                                                      |  | 17     |  
|ITEM 3. Defaults Upon Senior Securities                                                       |                                                                                                                      |  | 17     |  
|ITEM 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                      |  | 17     |  
|ITEM 5. Other Information                                                                     |                                                                                                                      |  | 17     |  
|ITEM 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                      |  | 17     |  
|SIGNATURE                                                                                     |                                                                                                                      |  | 19     |  
|EXHIBITS                                                                                      |                                                                                                                      |  | 20     |  

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Bright Horizons Family Solutions, Inc.




Consolidated Balance Sheets


(in thousands except share data)


|                                                                            |                                                                                                         |                            |         |               |         |              |         |        |         | 
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------------- | ------- | ------------ | ------- | ------ | ------- | 
|                                                                            |                                                                                                         |                            |         | September 30, |         | December 31,
|                                                                            |                                                                                                         |                            |         | 2003          |         | 2002        
|                                                                            |                                                                                                         |                            |         |               |         |             
|                                                                            |                                                                                                         |                            |         | (unaudited)   |         |              |         |       
|ASSETS                                                                      |                                                                                                         |                            |         |               |         |              |         |       
|Current Assets:                                                             |                                                                                                         |                            |         |               |         |              |         |       
|                                                                            | Cash and cash equivalents                                                                               |                            | $       | 32,279        |         |              | $       | 28,193 |        
|                                                                            | Accounts receivable, net                                                                                |                            |         | 24,767        |         |              |         | 22,564 |        
|                                                                            | Prepaid expenses and other current assets                                                               |                            |         | 7,407         |         |              |         | 4,603  |        
|                                                                            | Current deferred tax asset                                                                              |                            |         | 9,745         |         |              |         | 9,745  |        
|                                                                            |                                                                                                         |                            |         |               |         |              |         |       
|                                                                            |                                                                                                         | Total current assets       |         |               | 74,198  |              |         |        | 65,105  | 
|Fixed assets, net                                                           |                                                                                                         |                            | 97,122  |               |         |              | 88,472  |       
|Goodwill and other intangible assets, net                                   |                                                                                                         |                            | 54,029  |               |         |              | 39,946  |       
|Non-current deferred tax asset                                              |                                                                                                         |                            | 7,231   |               |         |              | 7,231   |       
|Other assets                                                                |                                                                                                         |                            | 709     |               |         |              | 536     |       
|                                                                            |                                                                                                         |                            |         |               |         |              |         |       
|                                                                            |                                                                                                         | Total assets               |         | $             | 233,289 |              |         | $      | 201,290 | 
|                                                                            |                                                                                                         |                            |         |               |         |              |         |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                        |                                                                                                         |                            |         |               |         |              |         |       
|Current liabilities:                                                        |                                                                                                         |                            |         |               |         |              |         |       
|                                                                            | Current portion of long-term debt and
obligations under capital leases                                  |                            |         | 800           |         |              |         | 162    |        
|                                                                            | Accounts payable and accrued expenses                                                                   |                            |         | 49,932        |         |              |         | 48,835 |        
|                                                                            | Deferred revenue, current portion                                                                       |                            |         | 26,112        |         |              |         | 21,531 |        
|                                                                            | Income tax payable                                                                                      |                            |         | 1,130         |         |              |         | 1,309  |        
|                                                                            | Other current liabilities                                                                               |                            |         | 4,551         |         |              |         | 1,993  |        
|                                                                            |                                                                                                         |                            |         |               |         |              |         |       
|                                                                            |                                                                                                         | Total current liabilities  |         |               | 82,525  |              |         |        | 73,830  | 
|Long-term debt and obligations under
capital leases, net of current portion |                                                                                                         |                            | 2,026   |               |         |              | 380     |       
|Accrued rent                                                                |                                                                                                         |                            | 2,974   |               |         |              | 1,955   |       
|Other long-term liabilities                                                 |                                                                                                         |                            | 4,051   |               |         |              | 4,503   |       
|Deferred revenue, net of current portion                                    |                                                                                                         |                            | 10,026  |               |         |              | 10,995  |       
|                                                                            |                                                                                                         |                            |         |               |         |              |         |       
|                                                                            |                                                                                                         | Total liabilities          |         |               | 101,602 |              |         |        | 91,663  | 
|                                                                            |                                                                                                         |                            |         |               |         |              |         |       
|Stockholders equity:                                                       |                                                                                                         |                            |         |               |         |              |         |       
|Preferred Stock: 5,000,000 authorized, none issued or outstanding           |                                                                                                         |                            |         |               |         |              |         |       
|Common Stock $.01 par value                                                 |                                                                                                         |                            |         |               |         |              |         |       
|                                                                            | Authorized: 30,000,000 shares                                                                           |                            |         |               |         |              |         |        |        
|                                                                            | Issued: 13,001,000 and 12,950,000 shares at September 30, 2003 and
December 31, 2002, respectively      |                            |         |               |         |              |         |        |        
|                                                                            | Outstanding: 13,001,000 and 12,433,000 shares at September 30,
2003 and December 31, 2002, respectively |                            |         | 130           |         |              |         | 129    |        
|Additional paid in capital                                                  |                                                                                                         |                            | 84,313  |               |         |              | 85,512  |       
|Treasury stock, 517,000 shares
at cost at December 31, 2002                 |                                                                                                         |                            |        |               |         |              | (7,560  | )     
|Cumulative translation adjustment                                           |                                                                                                         |                            | 2,883   |               |         |              | 1,885   |       
|Retained earnings                                                           |                                                                                                         |                            | 44,361  |               |         |              | 29,661  |       
|                                                                            |                                                                                                         |                            |         |               |         |              |         |       
|                                                                            |                                                                                                         | Total stockholders equity |         |               | 131,687 |              |         |        | 109,627 | 
|                                                                            |                                                                                                         |                            |         |               |         |              |         |       
|Total liabilities and stockholders equity                                  |                                                                                                         | $                          | 233,289 |               |         | $            | 201,290 |       
|                                                                            |                                                                                                         |                            |         |               |         |              |         |       

The accompanying notes are an integral part of the consolidated financial statements.

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Bright Horizons Family Solutions, Inc.




Consolidated Statements of Operations


(in thousands except per share data)
(Unaudited)


|                                    |                        |   |                    |        |                   |   |         |        |      |   |         |        |  |   |         |        | 
|----------------------------------- | ---------------------- | - | ------------------ | ------ | ----------------- | - | ------- | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ | 
|                                    |                        |   | Three months ended |        | Nine months ended
|                                    |                        |   | September 30,      |        | September 30,    
|                                    |                        |   |                    |        |                  
|                                    |                        |   | 2003               |        | 2002              |   | 2003    |        | 2002
|                                    |                        |   |                    |        |                   |   |         |        |     
|Revenues                            |                        | $ | 118,085            |        |                   | $ | 105,385 |        |      | $ | 347,539 |        |  | $ | 299,815 |       
|Cost of services                    |                        |   | 100,178            |        |                   |   | 90,459  |        |      |   | 294,508 |        |  |   | 255,763 |       
|                                    |                        |   |                    |        |                   |   |         |        |      |   |         |        |  |   |         |       
|                                    | Gross profit           |   |                    | 17,907 |                   |   |         | 14,926 |      |   |         | 53,031 |  |   |         | 44,052 | 
|Selling, general and administrative |                        |   | 9,122              |        |                   |   | 8,527   |        |      |   | 27,572  |        |  |   | 24,314  |       
|Amortization                        |                        |   | 67                 |        |                   |   | 102     |        |      |   | 282     |        |  |   | 285     |       
|                                    |                        |   |                    |        |                   |   |         |        |      |   |         |        |  |   |         |       
|                                    | Income from operations |   |                    | 8,718  |                   |   |         | 6,297  |      |   |         | 25,177 |  |   |         | 19,453 | 
|Net interest (expense) income       |                        |   | (33                | )      |                   |   | 1       |        |      |   | 82      |        |  |   | 36      |       
|                                    |                        |   |                    |        |                   |   |         |        |      |   |         |        |  |   |         |       
|Income before tax                   |                        |   | 8,685              |        |                   |   | 6,298   |        |      |   | 25,259  |        |  |   | 19,489  |       
|Income tax provision                |                        |   | 3,640              |        |                   |   | 2,549   |        |      |   | 10,559  |        |  |   | 8,063   |       
|                                    |                        |   |                    |        |                   |   |         |        |      |   |         |        |  |   |         |       
|Net income                          |                        | $ | 5,045              |        |                   | $ | 3,749   |        |      | $ | 14,700  |        |  | $ | 11,426  |       
|                                    |                        |   |                    |        |                   |   |         |        |      |   |         |        |  |   |         |       
|Earnings per share  basic          |                        | $ | 0.39               |        |                   | $ | 0.30    |        |      | $ | 1.16    |        |  | $ | 0.92    |       
|                                    |                        |   |                    |        |                   |   |         |        |      |   |         |        |  |   |         |       
|Weighted average shares  basic     |                        |   | 12,839             |        |                   |   | 12,421  |        |      |   | 12,631  |        |  |   | 12,368  |       
|                                    |                        |   |                    |        |                   |   |         |        |      |   |         |        |  |   |         |       
|Earnings per share  diluted        |                        | $ | 0.37               |        |                   | $ | 0.29    |        |      | $ | 1.11    |        |  | $ | 0.88    |       
|                                    |                        |   |                    |        |                   |   |         |        |      |   |         |        |  |   |         |       
|Weighted average shares  diluted   |                        |   | 13,524             |        |                   |   | 13,028  |        |      |   | 13,261  |        |  |   | 13,032  |       
|                                    |                        |   |                    |        |                   |   |         |        |      |   |         |        |  |   |         |       

The accompanying notes are an integral part of the consolidated financial statements.

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Bright Horizons Family Solutions, Inc.




Consolidated Statements of Cash Flows


(in thousands)
(Unaudited)


|                                                                                  |                                                                           |                                           |                                           |         |                   |         |               |         |        |         |  
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------- | ----------------- | ------- | ------------- | ------- | ------ | ------- | -
|                                                                                  |                                                                           |                                           |                                           |         | Nine months ended
|                                                                                  |                                                                           |                                           |                                           |         |                  
|                                                                                  |                                                                           |                                           |                                           |         | September 30,     |         | September 30,
|                                                                                  |                                                                           |                                           |                                           |         | 2003              |         | 2002         
|                                                                                  |                                                                           |                                           |                                           |         |                   |         |              
|Net income                                                                        |                                                                           | $                                         | 14,700                                    |         |                   | $       | 11,426        |        
|Adjustments to reconcile net income
to net cash provided by operating activities: |                                                                           |                                           |                                           |         |                   |         |               |        
|                                                                                  | Depreciation and amortization                                             |                                           |                                           | 8,004   |                   |         |               | 7,004   |       
|                                                                                  | Non cash expenses                                                         |                                           |                                           | 385     |                   |         |               | 18      |       
|                                                                                  | Loss on disposal of fixed assets                                          |                                           |                                           | 65      |                   |         |               | 15      |       
|                                                                                  | Changes in assets and liabilities:                                        |                                           |                                           |         |                   |         |               |         |       
|                                                                                  |                                                                           | Accounts receivable                       |                                           |         | (2,003            | )       |               |         | (4,294 | )      
|                                                                                  |                                                                           | Prepaid expenses and other current assets |                                           |         | (2,752            | )       |               |         | (761   | )      
|                                                                                  |                                                                           | Accounts payable and accrued expenses     |                                           |         | 1,180             |         |               |         | 2,710  |        
|                                                                                  |                                                                           | Income taxes payable                      |                                           |         | (150              | )       |               |         | (884   | )      
|                                                                                  |                                                                           | Deferred revenue                          |                                           |         | (347              | )       |               |         | 4,722  |        
|                                                                                  |                                                                           | Accrued rent                              |                                           |         | 810               |         |               |         | 175    |        
|                                                                                  |                                                                           | Other long-term assets                    |                                           |         | 65                |         |               |         | (45    | )      
|                                                                                  |                                                                           | Other current and long-term liabilities   |                                           |         | 2,255             |         |               |         | (709   | )      
|                                                                                  |                                                                           |                                           |                                           |         |                   |         |               |        
|                                                                                  |                                                                           |                                           | Net cash provided by operating activities |         |                   | 22,212  |               |         |        | 19,377  |  
|                                                                                  |                                                                           |                                           |                                           |         |                   |         |               |        
|Cash flows from investing activities:                                             |                                                                           |                                           |                                           |         |                   |         |               |        
|                                                                                  | Additions to fixed assets                                                 |                                           |                                           | (16,787 | )                 |         |               | (11,948 | )     
|                                                                                  | Proceeds from disposal of fixed assets                                    |                                           |                                           | 303     |                   |         |               |        |       
|                                                                                  | Cash payments for acquisitions, net of cash acquired                      |                                           |                                           | (10,351 | )                 |         |               | (16,050 | )     
|                                                                                  |                                                                           |                                           |                                           |         |                   |         |               |        
|                                                                                  |                                                                           |                                           | Net cash used in investing activities     |         |                   | (26,835 | )             |         |        | (27,998 | )
|                                                                                  |                                                                           |                                           |                                           |         |                   |         |               |        
|Cash flows from financing activities:                                             |                                                                           |                                           |                                           |         |                   |         |               |        
|                                                                                  | Proceeds from issuance of common stock from exercise
of options           |                                           |                                           | 6,326   |                   |         |               | 2,199   |       
|                                                                                  | Purchase of treasury stock                                                |                                           |                                           |        |                   |         |               | (479    | )     
|                                                                                  | Principal payments of long term debt and
obligations under capital leases |                                           |                                           | (210    | )                 |         |               | (307    | )     
|                                                                                  | Proceeds from note payable                                                |                                           |                                           | 2,493   |                   |         |               |        |       
|                                                                                  | Borrowing through line of credit                                          |                                           |                                           |        |                   |         |               | 2,550   |       
|                                                                                  | Repayments under line of credit                                           |                                           |                                           |        |                   |         |               | (2,150  | )     
|                                                                                  |                                                                           |                                           |                                           |         |                   |         |               |        
|                                                                                  |                                                                           |                                           | Net cash provided by financing activities |         |                   | 8,609   |               |         |        | 1,813   |  
|                                                                                  |                                                                           |                                           |                                           |         |                   |         |               |        
|Effect of exchange rate changes on cash and cash equivalents                      |                                                                           |                                           | 100                                       |         |                   |         | 26            |        
|                                                                                  |                                                                           |                                           |                                           |         |                   |         |               |        
|Net increase (decrease) in cash and cash equivalents                              |                                                                           |                                           | 4,086                                     |         |                   |         | (6,782        | )      
|Cash and cash equivalents, beginning of period                                    |                                                                           |                                           | 28,193                                    |         |                   |         | 12,770        |        
|                                                                                  |                                                                           |                                           |                                           |         |                   |         |               |        
|Cash and cash equivalents, end of period                                          |                                                                           | $                                         | 32,279                                    |         |                   | $       | 5,988         |        
|                                                                                  |                                                                           |                                           |                                           |         |                   |         |               |        

The accompanying notes are an integral part of the consolidated financial statements.

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ITEM 1.D. Notes to Consolidated Financial Statements (Unaudited)

1. The Company and Basis of Presentation

Organization Bright Horizons Family Solutions, Inc. (the Company) was
incorporated under the laws of the State of Delaware on April 27, 1998 and
commenced substantive operations upon the completion of the merger by and
between Bright Horizons, Inc. (BRHZ) and CorporateFamily Solutions, Inc.
(CFAM) on July 24, 1998 (the Merger.) The Company provides workplace
services for employers and families including child care, early education and
strategic work/life consulting throughout the United States, United Kingdom, Canada, Guam and Ireland.

The Company operates its child care and early education centers under
various types of arrangements, which generally can be classified in two
forms: (i) the sponsor model, where the Company operates a center on the
premises of a sponsor and gives priority enrollment to the sponsors
employees or affiliates, and (ii) the management model, where the Company
manages a work-site center under a cost-plus arrangement, typically for a
single employer.

Basis of Presentation The accompanying financial statements have been
prepared by the Company in accordance with the accounting policies described
in the Companys audited financial statements included in the Companys
Annual Report on Form 10-K for the year ended December 31, 2002, and should
be read in conjunction with the notes thereto.

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.

In the opinion of the Companys management, the accompanying unaudited
consolidated financial statements contain all adjustments which are
necessary to fairly present its financial position as of September 30, 2003,
and the results of its operations for the three and nine month periods ended
September 30, 2003 and 2002, and its cash flows for the nine month periods
ended September 30, 2003 and 2002, and are of a normal and recurring nature.
The results of operations for interim periods are not necessarily
indicative of the operating results to be expected for the full year.

Segment Information As of September 30, 2003, the Company operates in one segment, providing services to employers and families
including early care and education and work/life consulting and generates
in excess of 90% of revenue and operating profit in the United States.

Stock-Based Compensation SFAS No. 123, Accounting for Stock-Based
Compensation, encourages, but does not require, companies to record

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compensation cost for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for employee stock-based
compensation using the intrinsic value method as prescribed in Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Under APB Opinion No. 25, no
compensation cost related to employee stock options has been recognized as
options are granted with exercise prices equal to or greater than the fair
market value at the date of grant. The Company accounts for options granted
to non-employees and certain options issued in connection with acquisitions
using the fair value method, in accordance with the provisions of SFAS No.
123. Had compensation cost for the stock option plans been determined based
on the fair value at the grant date consistent with the provisions of SFAS
No. 123, the Companys net income and earnings per share would have been
reduced to the following pro forma amounts for the three and nine month periods ended
September 30, 2003 and 2002.

|                              |             |  |                                      |       |                   |  |      |       |      |  |   |        |  |  |   |        | 
|----------------------------- | ----------- |  | ------------------------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ------ |  |  | - | ------ | 
|                              |             |  | Three months ended                   |       | Nine months ended
|                              |             |  | September 30,                        |       | September 30,    
|                              |             |  |                                      |       |                  
|                              |             |  | 2003                                 |       | 2002              |  | 2003 |       | 2002
|                              |             |  |                                      |       |                   |  |      |       |     
|                              |             |  | (in thousands except per share data)
|Net income:                   |             |  |                                      |       |                   |  |      |       |      |  |   |        |  |  |   |       
|                              | As reported |  | $                                    | 5,045 |                   |  | $    | 3,749 |      |  | $ | 14,700 |  |  | $ | 11,426 | 
|                              | Pro forma   |  | $                                    | 4,221 |                   |  | $    | 2,596 |      |  | $ | 12,076 |  |  | $ | 7,940  | 
|Earnings per share  Basic:   |             |  |                                      |       |                   |  |      |       |      |  |   |        |  |  |   |       
|                              | As reported |  | $                                    | 0.39  |                   |  | $    | 0.30  |      |  | $ | 1.16   |  |  | $ | 0.92   | 
|                              | Pro forma   |  | $                                    | 0.33  |                   |  | $    | 0.21  |      |  | $ | 0.96   |  |  | $ | 0.64   | 
|Earnings per share  Diluted: |             |  |                                      |       |                   |  |      |       |      |  |   |        |  |  |   |       
|                              | As reported |  | $                                    | 0.37  |                   |  | $    | 0.29  |      |  | $ | 1.11   |  |  | $ | 0.88   | 
|                              | Pro forma   |  | $                                    | 0.32  |                   |  | $    | 0.20  |      |  | $ | 0.92   |  |  | $ | 0.62   | 

The fair value of each option on its date of grant has been estimated for
pro forma purposes using the Black-Scholes option-pricing model using the
following weighted average assumptions:

|                                                                           |  |                    |      |                   |  |           |       |           |  |   |       |   |  |   |       |  
|-------------------------------------------------------------------------- |  | ------------------ | ---- | ----------------- |  | --------- | ----- | --------- |  | - | ----- | - |  | - | ----- | -
|                                                                           |  | Three months ended |      | Nine months ended
|                                                                           |  | September 30,      |      | September 30,    
|                                                                           |  |                    |      |                  
|                                                                           |  | 2003               |      | 2002              |  | 2003      |       | 2002     
|                                                                           |  |                    |      |                   |  |           |       |          
|Expected dividend yield                                                    |  |                    | 0.0  | %                 |  |           | 0.0   | %         |  |   | 0.0   | % |  |   | 0.0   | %
|Expected stock price volatility                                            |  |                    | 46.6 | %                 |  |           | 51.6  | %         |  |   | 46.6  | % |  |   | 51.6  | %
|Risk free interest rate                                                    |  |                    | 1.99 | %                 |  |           | 3.20  | %         |  |   | 1.99  | % |  |   | 3.20  | %
|Expected life of options                                                   |  | 6.8 years          |      | 7.3 years         |  | 6.8 years |       | 7.3 years
|Weighted-average fair value per share of options granted
during the period |  | $                  |     |                   |  | $         | 17.16 |           |  | $ | 13.37 |   |  | $ | 16.36 |  

Comprehensive Income Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. The only components of
comprehensive income reported by the Company are net income and foreign
currency translation adjustments.

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|                                         |                      |   |                     |        |      |   |        |        | 
|---------------------------------------- | -------------------- | - | ------------------- | ------ | ---- | - | ------ | ------ | 
|                                         |                      |   | For the Nine Months
|                                         |                      |   | Ended September 30,
|                                         |                      |   |                    
|                                         |                      |   | 2003                |        | 2002
|                                         |                      |   |                     |        |     
|Net income                               |                      | $ | 14,700              |        |      | $ | 11,426 |       
|Foreign currency translation adjustments |                      |   | 998                 |        |      |   | 1,361  |       
|                                         |                      |   |                     |        |      |   |        |       
|                                         | Comprehensive income |   | $                   | 15,698 |      |   | $      | 12,787 | 
|                                         |                      |   |                     |        |      |   |        |       

Recently Issued Accounting Pronouncements

In November 2002, the Emerging Issues Task Force (EITF) issued EITF No.
00-21, Accounting for Revenue Arrangements with Multiple Deliverables. EITF
No. 00-21 addresses certain aspects of the accounting by a vendor for
arrangements under which it will perform multiple revenue-generating
activities. EITF No. 00-21 establishes three principles: revenue
arrangements with multiple deliverables should be divided into separate
units of accounting, arrangement consideration should be allocated among the
separate units of accounting based on their relative fair values, and
revenue recognition criteria should be considered separately for separate
units of accounting. EITF No. 00-21 is effective for all revenue
arrangements entered into in fiscal periods beginning after June 15, 2003.
The adoption of this standard as of July 1, 2003 did not have an impact on the Companys
revenue recognition policies or its financial position or results of
operations.

In January 2003, the FASB issued
FASB Interpretation No. 46, Consolidation of Variable Interest
Entities and Interpretation of ARB 51 (FIN 46), which
requires the consolidation of certain entities considered to be
variable interest entities (VIEs). An entity is
considered to be VIE when it has equity investors which lack the
characteristics of a controlling financial interest, or its capital
is insufficient to permit it to finance its activities without
additional subordinated financial support. Consolidation of VIE by an
investor is required when it is determined that the investor will
absorb a majority of the VIEs expected losses or residual
returns if they occur. The consolidation requirements of FIN 46
apply immediately to VIEs created after January 31, 2003. The
consolidation requirements apply to older entities in the first
fiscal year or interim period beginning after June 15, 2003. On
October 9, 2003, the FASB deferred the implementation of
FIN 46 until December 31, 2003. Certain disclosure
requirements apply to all financial statements issued after
January 31, 2003. The Company does not believe the adoption of
this pronouncement will have a material effect on the consolidated
financial statements.

In May 2003, the FASB issued SFAS 150, Accounting For Certain Financial
Instruments with Characteristics of Both Liabilities and Equity which
establishes standards for how an issuer of financial instruments classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) if, at inception, the monetary value of the obligation is
based solely or predominantly on a fixed monetary amount at inception,
variations in something other than the fair value of the issuers equity
shares or variations inversely related to changes in the fair value of the
issuers equity shares. Generally SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at
the beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS 150 did not have an impact on the Companys financial
position or results of operations.

2. Acquisitions

During the third quarter of 2003 the Company acquired the outstanding stock
of one single-site child care and early education company, and purchased the
assets of one multi-site and one single-site child care and early education
company. The Company paid aggregate consideration of approximately
$13.6 million, $10.4 million in the form of cash, and the assumption of net
liabilities of approximately $3.2 million. The above acquisitions and the
operating results of the acquired companies have been included in the
Companys consolidated results of operations from the respective dates of
acquisition. A preliminary allocation of purchase prices has been based on the estimated
fair value of the assets and liabilities acquired at the date of
acquisition.

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The acquisitions are not
material to the Companys consolidated financial position or results of
operation, and therefore no pro forma information has been presented.

3. Notes Payable

The Company entered into an agreement with a client to develop an early care
and education center, which was funded by proceeds from a note payable of
approximately $2.5 million. The note bears interest at 5.75% and is
repayable over a term of 54 months, commencing August 2003, and is secured
by the Companys leasehold interest in the center.

4. Treasury Stock

The Company retired the 517,000 shares of its Common Stock held in treasury
in September 2003.

5. Earnings Per Share

Earnings per share has been calculated in accordance with SFAS No. 128
Earnings per Share, which established standards for computing and
presenting earnings per share. The computation of net earnings per share is
based on the weighted average number of common shares and common
equivalent shares outstanding during the period.

The following tables present information necessary to calculate earnings
per share:

|                                        |               |   |                                       |   |               |  |           |     |  |   |      |  | 
|--------------------------------------- | ------------- | - | ------------------------------------- | - | ------------- |  | --------- | --- |  | - | ---- |  | 
|                                        |               |   | Three months Ended September 30, 2003
|                                        |               |   | (in thousands, except per share data)
|                                        |               |   |                                      
|                                        |               |   | Earnings                              |   | Shares        |  | Per Share
|                                        |               |   | (Numerator)                           |   | (Denominator) |  | Amount   
|                                        |               |   |                                       |   |               |  |          
|Basic earnings per share:               |               |   |                                       |   |               |  |           |     |  |   |      | 
|Income available to common
stockholders |               | $ | 5,045                                 |   |               |  | 12,839    |     |  | $ | 0.39 | 
|                                        |               |   |                                       |   |               |  |           |     |  |   |      |  | 
|Effect of dilutive securities:          |               |   |                                       |   |               |  |           |     |  |   |      | 
|                                        | Stock options |   |                                       |  |               |  |           | 685 |  |   |      |  | 
|                                        |               |   |                                       |   |               |  |           |     |  |   |      | 
|Diluted earnings per share              |               | $ | 5,045                                 |   |               |  | 13,524    |     |  | $ | 0.37 | 
|                                        |               |   |                                       |   |               |  |           |     |  |   |      | 

|                                        |               |   |                                       |   |               |  |           |     |  |   |      |  | 
|--------------------------------------- | ------------- | - | ------------------------------------- | - | ------------- |  | --------- | --- |  | - | ---- |  | 
|                                        |               |   | Three months Ended September 30, 2002
|                                        |               |   | (in thousands, except per share data)
|                                        |               |   |                                      
|                                        |               |   | Earnings                              |   | Shares        |  | Per Share
|                                        |               |   | (Numerator)                           |   | (Denominator) |  | Amount   
|                                        |               |   |                                       |   |               |  |          
|Basic earnings per share:               |               |   |                                       |   |               |  |           |     |  |   |      | 
|Income available to common
stockholders |               | $ | 3,749                                 |   |               |  | 12,421    |     |  | $ | 0.30 | 
|                                        |               |   |                                       |   |               |  |           |     |  |   |      |  | 
|Effect of dilutive securities:          |               |   |                                       |   |               |  |           |     |  |   |      | 
|                                        | Stock options |   |                                       |  |               |  |           | 607 |  |   |      |  | 
|                                        |               |   |                                       |   |               |  |           |     |  |   |      | 
|Diluted earnings per share              |               | $ | 3,749                                 |   |               |  | 13,028    |     |  | $ | 0.29 | 
|                                        |               |   |                                       |   |               |  |           |     |  |   |      | 

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|                                        |               |   |                                       |   |               |  |           |     |  |   |      |  | 
|--------------------------------------- | ------------- | - | ------------------------------------- | - | ------------- |  | --------- | --- |  | - | ---- |  | 
|                                        |               |   | Nine months Ended September 30, 2003 
|                                        |               |   | (in thousands, except per share data)
|                                        |               |   |                                      
|                                        |               |   | Earnings                              |   | Shares        |  | Per Share
|                                        |               |   | (Numerator)                           |   | (Denominator) |  | Amount   
|                                        |               |   |                                       |   |               |  |          
|Basic earnings per share:               |               |   |                                       |   |               |  |           |     |  |   |      | 
|Income available to common
stockholders |               | $ | 14,700                                |   |               |  | 12,631    |     |  | $ | 1.16 | 
|                                        |               |   |                                       |   |               |  |           |     |  |   |      |  | 
|Effect of dilutive securities:          |               |   |                                       |   |               |  |           |     |  |   |      | 
|                                        | Stock options |   |                                       |  |               |  |           | 630 |  |   |      |  | 
|                                        |               |   |                                       |   |               |  |           |     |  |   |      | 
|Diluted earnings per share              |               | $ | 14,700                                |   |               |  | 13,261    |     |  | $ | 1.11 | 
|                                        |               |   |                                       |   |               |  |           |     |  |   |      | 

|                                        |               |   |                                       |   |               |  |           |     |  |   |      |  | 
|--------------------------------------- | ------------- | - | ------------------------------------- | - | ------------- |  | --------- | --- |  | - | ---- |  | 
|                                        |               |   | Nine months Ended September 30, 2002 
|                                        |               |   | (in thousands, except per share data)
|                                        |               |   |                                      
|                                        |               |   | Earnings                              |   | Shares        |  | Per Share
|                                        |               |   | (Numerator)                           |   | (Denominator) |  | Amount   
|                                        |               |   |                                       |   |               |  |          
|Basic earnings per share:               |               |   |                                       |   |               |  |           |     |  |   |      | 
|Income available to common
stockholders |               | $ | 11,426                                |   |               |  | 12,368    |     |  | $ | 0.92 | 
|                                        |               |   |                                       |   |               |  |           |     |  |   |      | 
|Effect of dilutive securities:          |               |   |                                       |   |               |  |           |     |  |   |      | 
|                                        | Stock options |   |                                       |  |               |  |           | 664 |  |   |      |  | 
|                                        |               |   |                                       |   |               |  |           |     |  |   |      | 
|Diluted earnings per share              |               | $ | 11,426                                |   |               |  | 13,032    |     |  | $ | 0.88 | 
|                                        |               |   |                                       |   |               |  |           |     |  |   |      | 

The weighted average number of shares excluded from the above calculations
for the nine months ended September 30, 2003 were approximately 105,000 and
approximately 294,000 and 102,000 for the three and nine months ended
September 30, 2002, respectively, as their effect would be anti-dilutive.
There were no anti-dilutive shares excluded from the above
calculations for  the three months ended September 30,
2003. For the three and nine month periods ended September 30, 2003 and
2002, the Company had no warrants or preferred stock outstanding.

6. Commitments and Contingencies

The Company self-insures a portion of its workers compensation and medical
insurance plans. While management believes that the amounts accrued for
these obligations is sufficient, any significant increase in the number of
claims and costs associated with claims made under these plans could have a
material adverse effect on the Companys financial position or results of
operations.

The Company is a defendant in certain legal matters in the ordinary course
of business. Management believes the resolution of such legal matters will
not have a material effect on the Companys financial condition or results
of operations.

The Company is guarantor on a lease for a childcare center that was
transitioned to another provider. The lease guarantee expires in June 2006.
Management estimates that its current obligations associated with this
lease, including real estate taxes and related expenses, are approximately
$622,000.

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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

This Form 10-Q contains certain forward-looking statements regarding, among
other things, the anticipated financial and operating results of the
Company. Investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release any modifications or
revisions to these forward-looking statements to reflect events or
circumstances occurring after the date hereof or to reflect the occurrence
of unanticipated events. In connection with the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995, the Company cautions
investors that future financial and operating results may differ materially
from those projected in forward-looking statements made by, or on behalf of,
the Company. Such forward-looking statements involve known and unknown
risks, uncertainties, and other factors that may cause the actual results,
performance, or achievements of the Company to be materially different from
any future results, performance, or achievements expressed or implied by
such forward-looking statements. See Risk Factors included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2002
and incorporated herein by reference for a description of a number of risks
and uncertainties, which could affect actual results.

General

The Company provides workplace services for employers and families,
including child care, early education and strategic work/life consulting,
operating 487 child care and early education centers at September 30, 2003.
During the three-month period ending September 30, 2003, the Company added 9
new centers, and closed 3 centers adding capacity of approximately 1,600
spaces. The Company now has the capacity to serve approximately 57,500
children in 37 states, the District of Columbia, Canada, Guam, Ireland and
the United Kingdom and has partnerships with many of the nations leading
employers, including 84 Fortune 500companies. Working
Mothers2003 list
of the 100 Best Companies for Working Mothers includes 50 clients of the
Company. Historical revenue growth has primarily resulted from the addition
of child care and early education centers as well as increased enrollment at
existing centers. The Company reports its operating results on a calendar
year basis.

The Companys business is subject to seasonal and quarterly fluctuations.
Demand for child care and early education services has historically
decreased during the summer months. During this season, families are often
on vacation or have alternative child care arrangements. Demand for the
Companys services generally increases in September and October upon the
commencement of the new school year and remains relatively stable throughout
the remainder of the traditional school year. Results of operations may
also fluctuate from quarter to quarter as a result of, among other things,
the performance of existing centers including enrollment levels and staffing
fluctuations, the number and timing of new center openings and/or
acquisitions, the length of time required for new centers to achieve
profitability, center closings, refurbishment or relocation, the model mix
(sponsor vs. management) of new and existing centers, competitive factors
and general economic conditions.

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Results of Operations

The following table sets forth certain statement of operations data as a
percentage of revenue for the three and nine month periods ended September
30, 2003 and 2002:

|                                  |                        |  |                    |      |                   |  |       |      |      |  |       |      |  |  |       |      | 
|--------------------------------- | ---------------------- |  | ------------------ | ---- | ----------------- |  | ----- | ---- | ---- |  | ----- | ---- |  |  | ----- | ---- | 
|                                  |                        |  | Three Months Ended |      | Nine Months Ended
|                                  |                        |  | September 30,      |      | September 30,    
|                                  |                        |  |                    |      |                  
|                                  |                        |  | 2003               |      | 2002              |  | 2003  |      | 2002
|                                  |                        |  |                    |      |                   |  |       |      |     
|Net revenues                      |                        |  | 100.0              | %    |                   |  | 100.0 | %    |      |  | 100.0 | %    |  |  | 100.0 | %   
|Cost of services                  |                        |  | 84.8               |      |                   |  | 85.8  |      |      |  | 84.7  |      |  |  | 85.3  |     
|                                  |                        |  |                    |      |                   |  |       |      |      |  |       |      |  |  |       |     
|                                  | Gross profit           |  |                    | 15.2 |                   |  |       | 14.2 |      |  |       | 15.3 |  |  |       | 14.7 | 
|Selling, general & administrative |                        |  | 7.7                |      |                   |  | 8.1   |      |      |  | 7.9   |      |  |  | 8.1   |     
|Amortization                      |                        |  | 0.1                |      |                   |  | 0.1   |      |      |  | 0.1   |      |  |  | 0.1   |     
|                                  |                        |  |                    |      |                   |  |       |      |      |  |       |      |  |  |       |     
|                                  | Income from operations |  |                    | 7.4  |                   |  |       | 6.0  |      |  |       | 7.3  |  |  |       | 6.5  | 
|Net Interest (expense) income     |                        |  | 0.0                |      |                   |  | 0.0   |      |      |  | 0.0   |      |  |  | 0.0   |     
|                                  |                        |  |                    |      |                   |  |       |      |      |  |       |      |  |  |       |     
|Income before income taxes        |                        |  | 7.4                |      |                   |  | 6.0   |      |      |  | 7.3   |      |  |  | 6.5   |     
|Income tax provisions             |                        |  | 3.1                |      |                   |  | 2.4   |      |      |  | 3.1   |      |  |  | 2.7   |     
|                                  |                        |  |                    |      |                   |  |       |      |      |  |       |      |  |  |       |     
|Net income                        |                        |  | 4.3                | %    |                   |  | 3.6   | %    |      |  | 4.2   | %    |  |  | 3.8   | %   
|                                  |                        |  |                    |      |                   |  |       |      |      |  |       |      |  |  |       |     

Three and Nine Months Ended September 30, 2003 Compared to the Three and
Nine Months Ended September 30, 2002

Revenue. Revenue increased $12.7 million, or 12.1%, to $118.1 million for
the three months ended September 30, 2003 from $105.4 million for the three
months ended September 30, 2002. Revenue increased $47.7 million, or 15.9%,
to $347.5 million for the nine months ended September 30, 2003 from $299.8
million for the nine months ended September 30, 2002. The growth in revenues
is primarily attributable to the net addition of 25 centers since September
30, 2002, which correlates to a 7.5% increase in overall capacity, modest
growth in the existing base of centers and average tuition increases
of approximately 4%
at existing centers.

Gross Profit. Cost of services consists of center operating expenses,
including payroll and benefits for center personnel, facilities costs, which
include depreciation, supplies and other expenses incurred at the child care
and early education center level. Gross profit increased $3.0 million, or
20.0%, to $17.9 million for the three month period ended September 30, 2003
from $14.9 million for the three months ended September 30, 2002. As a
percentage of revenue, gross profit increased to 15.2% for the three months
ended September 30, 2003 compared to 14.2% for the three months ended
September 30, 2002. Gross profit increased $8.9 million, or 20.4%, to $53.0
million for the nine months ended September 30, 2003 from $44.1 million for
the nine months ended September 30, 2002. As a percentage of net revenues,
gross profit increased to 15.3% for the nine months ended September 30, 2003
compared to 14.7% for the same period in 2002.

The increase in gross profit margins for the three and nine month periods
ended September 30, 2003 compared to the same periods in 2002 resulted from
enrollment gains at the Companys centers that are ramping to mature
operating levels, the ability to maintain price increases and the controlled
management of personnel costs

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at the Companys domestic centers. The Company expects gross margins for the
full year in 2003 to approximate 15.1%, slightly higher than the results in
2002.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SGA) consist of regional and district management
personnel, corporate management and administrative functions, and business
development expenses. SGA increased $0.6 million, or 7.0%, to $9.1 million
for the three months ended September 30, 2003 from $8.5 million for the
three months ended September 30, 2002. As a percentage of revenue, SGA
decreased to 7.7% for the third quarter of 2003 compared to 8.1% for the
same period in 2002. SGA increased $3.3 million, or 13.4%, to $27.6 million
for the nine months ended September 30, 2003 from $24.3 million for the nine
months ended September 30, 2002. As a percentage of net revenues, SGA
decreased to 7.9% for the nine months ended September 30, 2003 from 8.1% for
the same 2002 period.

The dollar increases in SGA for both the three month and nine month periods
ended September 30, 2003 as compared to the same periods in 2002 are
primarily attributable to investments in regional and divisional management,
as well as general corporate and administrative personnel necessary to
support long-term growth, primarily related to expansion and integration of
the Companys European operations. SGA, as a percentage of revenue,
decreased during the three and nine month periods ended September 30, 2003,
as compared to the three and nine month periods ended September 30, 2002 as
a result of a larger revenue base and increased leveraging of overhead
costs. In total, the Company projects SGA expenses, as a percentage of
revenue, to approximate 8% for the full year in 2003.

Amortization.Amortization expense on intangible assets other than goodwill
totaled $67,000 for the three months ended September 30, 2003, as compared
to $102,000 in the same period for 2002. For the nine month period ended
September 30, 2003, amortization expense totaled $282,000 compared to
$285,000 in the period ended September 30, 2002. In connection with the
acquisitions made in the second half of 2003, the Company would expect full
year amortization in 2003 to approximate $450,000.

Income from Operations. Income from operations totaled $8.7 million for the
three months ended September 30, 2003, an increase of $2.4 million, or
38.4%, from $6.3 million in the same period for 2002. For the nine months
ended September 30, 2003, income from operations increased $5.7 million, or
29.4%, to $25.2 million from $19.5 million in the same period for 2002.
These increases are primarily the result of the indicated revenue and gross
margin improvements, as well as lower proportionate SGA expenses.

Net Interest (Expense) Income.Net interest expense was approximately $33,000 for
the three months ended September 30, 2003 as compared with $1,000 of net
interest income for the three months ended September 30, 2002. The Company
had net interest income of $82,000 and $36,000 for the nine months ended
September 30, 2003 and 2002, respectively. The decrease in interest income
for the three month period ended September 30, 2003 as compared to the same
period in 2002 was principally the result of interest expense incurred in
2003 on a note payable to a client partially offset by higher average levels
of invested cash. The increase in interest income for the nine

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months ended September 30, 2003 as compared to the same period in 2002 was
due to higher average levels of invested cash, partially offset by lower
average investment yields in 2003 as compared to 2002.

Income Tax Provision. The Companys effective income tax rate was
approximately 41.9% for the three month period ended September 30, 2003.
The Companys effective tax rate was approximately 41.8% and 41.4% for the
nine months ended September 30, 2003 and 2002, respectively. The Company
expects that the tax rate for 2003 will approximate 41.8%, consistent with
the overall rate in 2002.

Liquidity and Capital Resources

The Companys primary cash requirements are the ongoing operations of its
existing centers and the addition of new centers through development or
acquisition. The Companys primary sources of liquidity have been existing
cash balances and cash flow from operations, supplemented by borrowing
capacity under the Companys revolving line of credit. The Company had a
working capital deficit of $8.3 million as of September 30, 2003 and a
working capital deficit of $8.7 million at December 31, 2002.

Cash provided from operations increased to $22.2 million for the nine months
ended September 30, 2003, from $19.4 million for the nine months ended
September 30, 2002. The increase is primarily the result of increases in net
income, and the timing and collections of accounts receivable offset
by an
increase in prepaid expenses and other current assets for the nine months
ended September 30, 2003 as compared to the same period in 2002.

Cash used in investing activities totaled $26.8 million for the nine months
ended September 30, 2003 and $28.0 million for the nine months ended
September 30, 2002. Cash payments for acquisitions amounted to $10.4
million in 2003 and $16.1 in 2002. Fixed asset additions totaled $16.8
million and $11.9 million, respectively, in the nine months ended September
30, 2003 and September 30, 2002. Of the $16.8 million in additions during
2003, approximately $11.1 million relates to new early care and education
centers, with the remaining balance primarily utilized for the refurbishment
of existing centers. Management expects the current level of center related
fixed asset spending and cash used for acquisitions to remain the same or
increase slightly over the remainder of 2003.

Cash provided by financing activities totaled $8.6 million for the nine
months ended September 30, 2003 as compared to $1.8 million in cash provided
by financing activities for the nine months ended September 30, 2002. The
Company received $6.3 million for stock option exercises in the nine months
ended September 30, 2003, as compared to $2.2 million in the same period in
2002. The Company also received approximately $2.5 million in proceeds from
a note payable to fund the construction of a client-sponsored early care and
education center. In the nine months ended September 30, 2002, the Company
had net borrowings on its line of credit totaling $400,000 and payments of
long-term debt totaling $307,000. The Company has not borrowed from its line
of credit in 2003. The Company also purchased approximately 22,000 shares
of its common stock for $479,000 in 2002, pursuant to its share

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repurchase program. The Company has not purchased any of its common stock in
2003.

Management believes that funds provided by operations and the Companys
existing cash and cash equivalent balances and borrowings available under
its line of credit will be adequate to meet planned operating and capital
expenditure needs for at least the next 12 months. However, if the Company
were to make any significant acquisition(s) or investments in the purchase
of facilities for new or existing child care and early education centers, it
may be necessary for the Company to obtain additional debt or equity
financing. There can be no assurance that the Company would be able to
obtain such financing on reasonable terms, if at all.

Recently Issued Accounting Pronouncements

In November 2002, the EITF issued EITF No.
00-21, Accounting for Revenue Arrangements with Multiple Deliverables. EITF
No. 00-21 addresses certain aspects of the accounting by a vendor for
arrangements under which it will perform multiple revenue-generating
activities. EITF No. 00-21 establishes three principles: revenue
arrangements with multiple deliverables should be divided into separate
units of accounting, arrangement consideration should be allocated among the
separate units of accounting based on their relative fair values, and
revenue recognition criteria should be considered separately for separate
units of accounting. EITF No. 00-21 is effective for all revenue
arrangements entered into in fiscal periods beginning after June 15, 2003.
The adoption of this standard did not have an impact on the Companys
revenue recognition policies or its financial position or results of
operations.

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable Interest
Entities and Interpretation of ARB 51 (FIN 46), which requires
the consolidation of certain entities considered to be variable
interest entities (VIEs). An entity is considered to be a
VIE when it has equity investors which lack the characteristics of a
controlling financial interest, or its capital is insufficient to
permit it to finance its activities without additional subordinated
financial support. Consolidation of a VIE by an investor is required
when it is determined that the investor will absorb a majority of the
VIEs expected losses or residual returns if they occur. The
consolidation requirements of FIN 46 apply immediately to VIEs
created after January 31, 2003. The consolidation requirements
apply to older entities in the first fiscal year or interim period
beginning after June 15, 2003. On October 9, 2003, the FASB
deferred the implementation of FIN 46 until December 31,
2003. Certain disclosure requirements apply to all financial
statements issued after January 31, 2003. The Company does not
believe the adoption of this pronouncement will have a material
effect on the consolidated financial statements.

In May 2003, the FASB issued SFAS 150, Accounting For Certain Financial
Instruments with Characteristics of Both Liabilities and Equity which
establishes standards for how an issuer of financial instruments classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) if, at inception, the monetary value of the obligation is
based solely or predominantly on a fixed monetary amount at inception,
variations in something other than the fair value of the issuers equity
shares or variations inversely related to changes in the fair value of the
issuers equity shares. Generally SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at
the beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS 150 did not have an impact on the Companys financial
position or results of operations.




ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

There have been no material changes in the Companys investment strategies,
types of financial instruments held or the risks associated with such
instruments which would materially alter the market risk disclosures made in
the Companys Annual Report on Form 10-K for the year ended December 31,
2002.

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Foreign Currency Exchange Rate Risk

The Companys exposure to fluctuations in foreign currency exchange rates is
primarily the result of foreign subsidiaries domiciled in the United
Kingdom, Canada and Ireland. The Company does not currently use financial derivative
instruments to hedge foreign currency exchange rate risks associated with
its foreign subsidiaries.

The assets and liabilities of the Companys Canada, Ireland, and United
Kingdom subsidiaries are translated into U.S. dollars at exchange rates in
effect at the balance sheet date. Income and expense items are translated at
the average exchange rates prevailing during the period. The cumulative
translation effects for the subsidiaries are included in cumulative
translation adjustment in stockholders equity.

There have been no changes in the Companys foreign operations that would
materially alter the disclosures on foreign currency exchange risk made in
the Companys Annual Report on Form 10-K for the year ended December 31,
2002.




ITEM 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation
of our senior management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934 as of the end of the period covered
by this quarterly report. Based on that evaluation, our senior management,
including our Chief Executive Officer and Chief Financial Officer, concluded
that as of the end of the period covered by this quarterly report our
disclosure controls and procedures are effective in causing material
information relating to us (including our consolidated subsidiaries) to be
recorded, processed, summarized and reported by management on a timely basis
and to ensure that the quality and timeliness of our public disclosures
complies with Securities and Exchange Commission disclosure obligations. There have been no changes in our
internal control over financial reporting that occurred during the period
covered by this report that have been materially affected, or are likely to
materially affect, the Companys internal control over financial reporting.

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PART II  OTHER INFORMATION




ITEM 1. Legal Proceedings:

Not Applicable




ITEM 2. Changes in Securities and Use of Proceeds:

Not applicable




ITEM 3. Defaults Upon Senior Securities:

None




ITEM 4. Submission of Matters to a Vote of Security Holders:

Not applicable




ITEM 5. Other information:

Not applicable




ITEM 6. Exhibits and Reports on Form 8-K:



| | (a) |  | Exhibits:
| | --- |  | ---------

|     |  |                                                                                                                      
|---- |  | ---------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive
Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002                   
|31.2 |  | Certification of Chief Financial
Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002                   
|32.1 |  | Certification Pursuant to 18 U.S.C
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002



| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------



| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following report on Form 8-K was filed with the SEC during the
period July 1, 2003 through September 30, 2003:                                                          
|
| | On July 24, 2003, the Company furnished a Form 8-K under Item
9 (pursuant to Item 12) related to the Companys press release
announcing its second quarter earnings results.
|
| | The following report on Form 8-K was filed with the SEC subsequent
to September 30, 2003 and prior to the date of this report:                                              

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| |                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On October 29, 2003, the Company furnished a Form 8-K under
Item 12 related to the Companys press release
announcing its third quarter earnings results and the Companys
prepared remarks delivered in a conference call subsequent to the
release of the third quarter earnings results.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:

|                        |  |                                        |  |                                                                                                                     
|----------------------- |  | -------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------
|Date: November 14, 2003 |  |                                        |  |                                                                                                                     
|                        |  |                                        |  |                                                                                                                     
|                        |  | BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
|                        |  |                                        |  |                                                                                                                     
|                        |  | By:                                    |  | /s/ Elizabeth J. Boland                                                                                             
|                        |  |                                        |  |                                                                                                                     
|                        |  |                                        |  | Elizabeth J. Boland
Chief Financial Officer
(Duly Authorized Officer and Principal Financial and Accounting Officer)

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EXHIBIT INDEX

|     |  |                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                    
|31.2 |  | Certificate of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002                       
|32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

20