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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007.
 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.
  DELAWARE
    
    62-1742957(State or other jurisdiction of
    
    (IRS Employer Identification No.)incorporation or organization)
 200 Talcott Avenue South
Watertown, Massachusetts 02472
 (617) 673-8000
 
 þ o
  þ o o
 o þ
  Class
    
    Shares outstanding at November 1, 2007Common Stock, $0.01 par value
    
    26,271,537




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##### 



FORM 10-Q
INDEX
 PageNumberPART I. FINANCIAL INFORMATIONITEM 1. Financial StatementsA. Condensed Consolidated
Balance Sheets at September
30, 2007 and December 31,
2006 (Unaudited)
    
    
    3B. Condensed Consolidated
Statements of Income for the
Three and Nine Months Ended
September 30, 2007 and 2006
(Unaudited)
    
    
    4C. Condensed Consolidated
Statements of Cash Flows for
the Nine Months Ended
September 30, 2007 and 2006
(Unaudited)
    
    
    5D. Notes to Condensed
Consolidated Financial
Statements (Unaudited)
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    12ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    20ITEM 4. Controls and Procedures
    
    
    20PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    21ITEM 1A. Risk Factors
    
    
    21ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21ITEM 3. Defaults Upon Senior Securities
    
    
    21ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    21ITEM 5. Other Information
    
    
    21ITEM 6. Exhibits
    
    
    21SIGNATURE
    
    
    22Ex-31.1 Section 302 Certification of the CEOEx-31.2 Section 302 Certification of the CFOEx-32.1 Section 906 Certification of the CEOEx-32.2 Section 906 Certification of the CFO
  2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
  
    September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,886
    
    
    $
    7,115Accounts receivable, net
    
    
    42,277
    
    
    
    38,644Prepaid expenses and other current assets
    
    
    20,515
    
    
    
    19,915Current deferred income taxes
    
    
    13,698
    
    
    
    13,832Total current assets
    
    
    82,376
    
    
    
    79,506Fixed assets, net
    
    
    159,126
    
    
    
    137,312Goodwill
    
    
    153,295
    
    
    
    145,070Other intangibles, net
    
    
    35,918
    
    
    
    38,150Noncurrent deferred income taxes
    
    
    9,676
    
    
    
    5,858Other assets
    
    
    3,700
    
    
    
    3,474Total assets
    
    $
    444,091
    
    
    $
    409,370LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    347
    
    
    $
    4,376Line of credit payable
    
    
    12,700
    
    
    
    35,000Accounts payable and accrued expenses
    
    
    65,716
    
    
    
    54,242Deferred revenue
    
    
    50,164
    
    
    
    40,884Income taxes payable
    
    
    660
    
    
    
    5,507Other current liabilities
    
    
    10,591
    
    
    
    11,350Total current liabilities
    
    
    140,178
    
    
    
    151,359Long-term debt, net of current portion
    
    
    54
    
    
    
    77Accrued rent and related obligations
    
    
    13,083
    
    
    
    10,651Other long-term liabilities
    
    
    11,990
    
    
    
    7,296Deferred revenue, net of current portion
    
    
    10,726
    
    
    
    13,467Deferred income taxes
    
    
    2,610
    
    
    
    2,682Total liabilities
    
    
    178,641
    
    
    
    185,532Stockholders equity:Preferred stock, $0.01 par value: 5,000 shares authorized, none issued
or outstandingCommon stock, $0.01 par value:Authorized: 50,000 shares at both September 30, 2007 and December
31, 2006Issued: 28,248 and 27,942 shares at September 30, 2007 and
December 31, 2006, respectivelyOutstanding: 26,259 and 26,095 shares at September 30, 2007 and
December 31, 2006, respectively
    
    
    282
    
    
    
    279Additional paid-in capital
    
    
    133,479
    
    
    
    123,869Treasury stock, at cost: 1,989 and 1,847 shares at September 30, 2007 and
December 31, 2006, respectively
    
    
    (70,479
    )
    
    
    (65,283
    )Cumulative translation adjustment
    
    
    12,797
    
    
    
    9,546Retained earnings
    
    
    189,371
    
    
    
    155,427Total stockholders equity
    
    
    265,450
    
    
    
    223,838Total liabilities and stockholders equity
    
    $
    444,091
    
    
    $
    409,370
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Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue
    
    $
    189,530
    
    
    $
    172,199
    
    
    $
    581,001
    
    
    $
    516,570Cost of services
    
    
    153,144
    
    
    
    138,888
    
    
    
    465,048
    
    
    
    415,062Gross profit
    
    
    36,386
    
    
    
    33,311
    
    
    
    115,953
    
    
    
    101,508Selling, general and administrative expenses
    
    
    17,368
    
    
    
    15,267
    
    
    
    53,253
    
    
    
    46,287Amortization
    
    
    1,189
    
    
    
    857
    
    
    
    3,505
    
    
    
    2,218Income from operations
    
    
    17,829
    
    
    
    17,187
    
    
    
    59,195
    
    
    
    53,003Interest income
    
    
    64
    
    
    
    82
    
    
    
    279
    
    
    
    372Interest expense
    
    
    (262
    )
    
    
    (239
    )
    
    
    (945
    )
    
    
    (332
    )Income before taxes
    
    
    17,631
    
    
    
    17,030
    
    
    
    58,529
    
    
    
    53,043Income tax expense
    
    
    7,446
    
    
    
    7,131
    
    
    
    24,585
    
    
    
    22,279Net income
    
    $
    10,185
    
    
    $
    9,899
    
    
    $
    33,944
    
    
    $
    30,764Earnings per share:Basic
    
    $
    0.39
    
    
    $
    0.38
    
    
    $
    1.30
    
    
    $
    1.16Diluted
    
    $
    0.38
    
    
    $
    0.37
    
    
    $
    1.26
    
    
    $
    1.12Weighted average number of common shares
outstanding:Basic
    
    
    26,061
    
    
    
    26,008
    
    
    
    26,025
    
    
    
    26,440Diluted
    
    
    26,938
    
    
    
    27,044
    
    
    
    26,922
    
    
    
    27,513
  4




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Nine months ended September 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    33,944
    
    
    $
    30,764Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    17,370
    
    
    
    13,495Non-cash revenue and other
    
    
    (844
    )
    
    
    (740
    )Loss on disposal of fixed assets
    
    
    43
    
    
    
    79Stock-based compensation
    
    
    3,489
    
    
    
    2,625Deferred income taxes
    
    
    (4,065
    )
    
    
    (723
    )Changes in assets and liabilities:Accounts receivable
    
    
    (3,224
    )
    
    
    (8,569
    )Prepaid expenses and other current assets
    
    
    (956
    )
    
    
    (1,871
    )Accounts payable and accrued expenses
    
    
    10,829
    
    
    
    4,213Income taxes
    
    
    (549
    )
    
    
    4,237Deferred revenue
    
    
    6,774
    
    
    
    5,248Accrued rent and related obligations
    
    
    2,408
    
    
    
    1,953Other assets
    
    
    (672
    )
    
    
    (692
    )Other current and long-term liabilities
    
    
    (224
    )
    
    
    310Net cash provided by operating activities
    
    
    64,323
    
    
    
    50,329Cash flows from investing activities:Additions to fixed assets, net of acquired amounts
    
    
    (30,778
    )
    
    
    (23,613
    )Proceeds from the disposal of fixed assets
    
    
    21
    
    
    
    196Other assets
    
    
    33
    
    
    
    Payments for acquisitions, net of cash acquired
    
    
    (9,078
    )
    
    
    (19,689
    )Net cash used in investing activities
    
    
    (39,802
    )
    
    
    (43,106
    )Cash flows from financing activities:Purchase of treasury stock
    
    
    (5,196
    )
    
    
    (47,331
    )Proceeds from the issuance of common stock
    
    
    4,093
    
    
    
    4,329Excess tax benefit from stock-based compensation
    
    
    1,607
    
    
    
    1,796(Repayments)/borrowings on line of credit, net
    
    
    (22,300
    )
    
    
    20,000Principal payments of long term debt
    
    
    (4,157
    )
    
    
    (488
    )Net cash used in financing activities
    
    
    (25,953
    )
    
    
    (21,694
    )Effect of exchange rates on cash and cash equivalents
    
    
    203
    
    
    
    450Net decrease in cash and cash equivalents
    
    
    (1,229
    )
    
    
    (14,021
    )Cash and cash equivalents, beginning of period
    
    
    7,115
    
    
    
    21,650Cash and cash equivalents, end of period
    
    $
    5,886
    
    
    $
    7,629Supplemental cash flow information:Cash payments of interest
    
    $
    958
    
    
    $
    212Cash payments of income taxes
    
    $
    27,672
    
    
    $
    16,879Non-cash financing activities:Financing of fixed assets
    
    $
    67
    
    
    $
    Issuance of notes payable for acquisition
    
    $
    
    
    
    $
    3,574
  5




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Notes to Condensed Consolidated Financial Statements (Unaudited)
 1. The
Company and Basis of Presentation
 Organization
  Basis of Presentation
   6




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Comprehensive Income
 Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Net income
    
    $
    10,185
    
    
    $
    9,899
    
    
    $
    33,944
    
    
    $
    30,764Foreign currency
translation
adjustments
    
    
    1,902
    
    
    
    1,448
    
    
    
    3,251
    
    
    
    3,611Comprehensive income
    
    $
    12,087
    
    
    $
    11,347
    
    
    $
    37,195
    
    
    $
    34,375
 Recent Accounting Pronouncements The Fair Value Option for
Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115
 Fair Value Measurements
 2. Acquisitions
   7




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3. Uncertain Tax Positions
 Accounting for Uncertainty in Income TaxesAn
interpretation of FASB Statement No. 109, Accounting for Income Taxes
     8




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4. Commitments and Contingencies
    Accounting for Derivative Instruments and
Hedging,
   5. Earnings Per Share
  9




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Three months ended September 30, 2007Earnings
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount(In thousands, except per share amounts)Basic earnings per share:Income available to common
stockholders
    
    $
    10,185
    
    
    
    26,061
    
    
    $
    0.39Effect of dilutive securities:Stock options and
restricted stock
    
    
    
    
    
    
    877
    
    
    
    Diluted earnings per share
    
    $
    10,185
    
    
    
    26,938
    
    
    $
    0.38
 Three months ended September 30, 2006Earnings
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount(In thousands, except per share amounts)Basic earnings per share:Income available to common
stockholders
    
    $
    9,899
    
    
    
    26,008
    
    
    $
    0.38Effect of dilutive securities:Stock options and
restricted stock
    
    
    
    
    
    
    1,036
    
    
    
    Diluted earnings per share
    
    $
    9,899
    
    
    
    27,044
    
    
    $
    0.37
 Nine months ended September 30, 2007Earnings
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount(In thousands, except per share amounts)Basic earnings per share:Income available to common
stockholders
    
    $
    33,944
    
    
    
    26,025
    
    
    $
    1.30Effect of dilutive securities:Stock options and
restricted stock
    
    
    
    
    
    
    897
    
    
    
    Diluted earnings per share
    
    $
    33,944
    
    
    
    26,922
    
    
    $
    1.26
 Nine months ended September 30, 2006Earnings
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount(In thousands, except per share amounts)Basic earnings per share:Income available to common
stockholders
    
    $
    30,764
    
    
    
    26,440
    
    
    $
    1.16Effect of dilutive securities:Stock options and
restricted stock
    
    
    
    
    
    
    1,073
    
    
    
    Diluted earnings per share
    
    $
    30,764
    
    
    
    27,513
    
    
    $
    1.12
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6. Segment Information
 Disclosures About Segments of an Enterprise and Related Information.
  Center-based
    
    AncillaryCare
    
    Services
    
    Total(In thousands)Three
Months ended September 30, 2007:Revenue
    
    $
    187,569
    
    
    $
    1,961
    
    
    $
    189,530Amortization
    
    
    1,053
    
    
    
    136
    
    
    
    1,189Income from operations
    
    
    17,674
    
    
    
    155
    
    
    
    17,829Three
Months ended September 30, 2006:Revenue
    
    $
    171,368
    
    
    $
    831
    
    
    $
    172,199Amortization
    
    
    812
    
    
    
    45
    
    
    
    857Income (loss) from operations
    
    
    17,261
    
    
    
    (74
    )
    
    
    17,187
 Center-based
    
    AncillaryCare
    
    Services
    
    Total(In thousands)Nine
Months ended September 30, 2007:Revenue
    
    $
    575,763
    
    
    $
    5,238
    
    
    $
    581,001Amortization
    
    
    3,096
    
    
    
    409
    
    
    
    3,505Income (loss) from operations
    
    
    59,295
    
    
    
    (100
    )
    
    
    59,195Nine
Months ended September 30, 2006:Revenue
    
    $
    514,893
    
    
    $
    1,677
    
    
    $
    516,570Amortization
    
    
    2,173
    
    
    
    45
    
    
    
    2,218Income (loss) from operations
    
    
    53,062
    
    
    
    (59
    )
    
    
    53,003
 11




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ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
 Cautionary Statement About Forward-Looking Information
   
    
    the effects of general economic conditions and world events;
    
    our inability to successfully execute our growth strategy;
    
    delays in identifying, executing or integrating key acquisitions;
    
    loss of key client relationships or delays in new center openings;
    
    subsidy reductions by key existing clients;
    
    competitive conditions in the early care and education industry;
    
    tuition price sensitivity;
    
    the availability of a qualified labor pool, the impact of labor organization efforts and
the impact of government regulations concerning labor and employment issues;
    
    our inability to maintain effective internal controls over financial reporting;
    
    our inability to obtain insurance at the same levels or at costs comparable to those
incurred historically;
    
    our inability to successfully defend against or counter negative publicity associated
with claims involving alleged incidents at our centers;
    
    various factors affecting occupancy levels, including, but not limited to, the reduction
in or changes to the general labor force that would reduce the need for child care
services; and
 12




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
    
    federal and state regulations regarding changes in child care assistance programs,
welfare reform, minimum wages and licensing standards.
  Executive Summary and Discussion
  Working Mother Magazines
  Industry Classification
    
    Percentage of CentersConsumer
    
    
    5
    %Financial Services
    
    
    15
    %Government and Education
    
    
    20
    %Healthcare
    
    
    10
    %Industrial/Manufacturing
    
    
    5
    %Office Park Consortiums
    
    
    30
    %Pharmaceutical
    
    
    5
    %Professional Services and Other
    
    
    5
    %Technology
    
    
    5
    %
 13




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14




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Seasonality.
 Results of Operations
  Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of services
    
    
    80.8
    
    
    
    80.7
    
    
    
    80.0
    
    
    
    80.3Gross profit
    
    
    19.2
    
    
    
    19.3
    
    
    
    20.0
    
    
    
    19.7Selling, general & administrative expenses
    
    
    9.2
    
    
    
    8.9
    
    
    
    9.2
    
    
    
    9.0Amortization
    
    
    0.6
    
    
    
    0.4
    
    
    
    0.6
    
    
    
    0.4Income from operations
    
    
    9.4
    
    
    
    10.0
    
    
    
    10.2
    
    
    
    10.3Interest income
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.1Interest expense
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )Income before taxes
    
    
    9.3
    
    
    
    9.9
    
    
    
    10.1
    
    
    
    10.3Income tax expense
    
    
    3.9
    
    
    
    4.2
    
    
    
    4.3
    
    
    
    4.3Net income
    
    
    5.4
    %
    
    
    5.7
    %
    
    
    5.8
    %
    
    
    6.0
    %
 15




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Three and Nine Months Ended September 30, 2007 Compared to the Three and Nine Months Ended
September 30, 2006
 Revenue.
   Gross Profit.
 16




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Selling, General and Administrative Expenses (SGA).
 Amortization.
 Income from Operations.
  Interest Income.
 Interest Expense.
 17




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Income Tax Expense.
 Liquidity and Capital Resources
     18




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Critical Accounting Policies and Estimates
  Recent Accounting Pronouncements
 The Fair Value Option for Financial Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115
 Fair Value Measurements
 19




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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk
  Foreign Currency Exchange Rate Risk
  
 ITEM 4. Controls and Procedures
 (a) Disclosure controls and procedures
   (b) Changes in internal control over financial reporting
  20




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PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity 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
  31.1
    
    Certification of the Companys Chief Executive Officer pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of the Companys Chief Financial Officer pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Companys Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    Certification of the Companys Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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SIGNATURE
    By:
    
    /s/ Elizabeth J. Boland

Elizabeth J. BolandChief Financial Officer(Duly Authorized Officer and Principal Financial Officer)
 22