##### Table of Contents



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 June 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
(State or other jurisdiction of 
incorporation or organization)
    
    62-1742957
(IRS Employer Identification No.)
 200 Talcott Avenue South
Watertown, Massachusetts 02472
 (617) 673-8000
 
 þ o
  þ o o
 o þ
  Class
    
    Shares outstanding as of August 1, 2007Common Stock, $0.01 par value
    
    26,220,563




---



##### 



FORM 10-Q
INDEX
 PageNumberPART I.
    
    FINANCIAL INFORMATIONITEM 1.
    
    Financial StatementsA.
    
    Condensed
Consolidated Balance Sheets at June 30, 2007 and December 31, 2006 (Unaudited)
    
    
    3B.
    
    Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2007 and 2006 (Unaudited)
    
    
    4C.
    
    Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 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
    
    
    22SIGNATURE
    
    
    
    
    
    
    23Ex-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




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
  
    June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,866
    
    
    $
    7,115Accounts receivable, net
    
    
    42,829
    
    
    
    38,644Prepaid expenses and other current assets
    
    
    22,038
    
    
    
    19,915Current deferred income taxes
    
    
    14,069
    
    
    
    13,832Total current assets
    
    
    84,802
    
    
    
    79,506Fixed assets, net
    
    
    152,450
    
    
    
    137,312Goodwill
    
    
    148,446
    
    
    
    145,070Other intangibles, net
    
    
    36,688
    
    
    
    38,150Noncurrent deferred income taxes
    
    
    8,432
    
    
    
    5,858Other assets
    
    
    3,659
    
    
    
    3,474Total assets
    
    $
    434,477
    
    
    $
    409,370LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    500
    
    
    $
    4,376Line of credit payable
    
    
    14,600
    
    
    
    35,000Accounts payable and accrued expenses
    
    
    62,340
    
    
    
    54,242Deferred revenue
    
    
    49,536
    
    
    
    40,884Income taxes payable
    
    
    5,768
    
    
    
    5,507Other current liabilities
    
    
    12,818
    
    
    
    11,350Total current liabilities
    
    
    145,562
    
    
    
    151,359Long-term debt, net of current portion
    
    
    58
    
    
    
    77Accrued rent and related obligations
    
    
    13,002
    
    
    
    10,651Other long-term liabilities
    
    
    10,265
    
    
    
    7,296Deferred revenue, net of current portion
    
    
    12,126
    
    
    
    13,467Deferred income taxes
    
    
    2,600
    
    
    
    2,682Total liabilities
    
    
    183,613
    
    
    
    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 June 30, 2007 and December
31, 2006Issued: 28,193 and 27,942 shares at June 30, 2007 and
December 31, 2006, respectivelyOutstanding: 26,204 and 26,095 shares at June 30, 2007 and
December 31, 2006, respectively
    
    
    282
    
    
    
    279Additional paid-in capital
    
    
    130,980
    
    
    
    123,869Treasury stock, at cost: 1,989 and 1,847 shares at June 30, 2007 and
December 31, 2006, respectively
    
    
    (70,479
    )
    
    
    (65,283
    )Cumulative translation adjustment
    
    
    10,895
    
    
    
    9,546Retained earnings
    
    
    179,186
    
    
    
    155,427Total stockholders equity
    
    
    250,864
    
    
    
    223,838Total liabilities and stockholders equity
    
    $
    434,477
    
    
    $
    409,370
  3




---



##### Table of Contents



Three months ended June 30,
    
    
    Six months ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue
    
    $
    201,394
    
    
    $
    175,232
    
    
    $
    391,471
    
    
    $
    344,371Cost of services
    
    
    160,253
    
    
    
    139,940
    
    
    
    311,904
    
    
    
    276,174Gross profit
    
    
    41,141
    
    
    
    35,292
    
    
    
    79,567
    
    
    
    68,197Selling, general and administrative expenses
    
    
    18,182
    
    
    
    15,835
    
    
    
    35,885
    
    
    
    31,020Amortization
    
    
    1,136
    
    
    
    751
    
    
    
    2,316
    
    
    
    1,361Income from operations
    
    
    21,823
    
    
    
    18,706
    
    
    
    41,366
    
    
    
    35,816Interest income
    
    
    90
    
    
    
    115
    
    
    
    215
    
    
    
    290Interest expense
    
    
    (287
    )
    
    
    (36
    )
    
    
    (683
    )
    
    
    (93
    )Income before taxes
    
    
    21,626
    
    
    
    18,785
    
    
    
    40,898
    
    
    
    36,013Income tax expense
    
    
    9,083
    
    
    
    7,910
    
    
    
    17,139
    
    
    
    15,148Net income
    
    $
    12,543
    
    
    $
    10,875
    
    
    $
    23,759
    
    
    $
    20,865Earnings per share:Basic
    
    $
    0.48
    
    
    $
    0.41
    
    
    $
    0.91
    
    
    $
    0.78Diluted
    
    $
    0.47
    
    
    $
    0.40
    
    
    $
    0.88
    
    
    $
    0.75Weighted average number of common shares
outstanding:Basic
    
    
    25,996
    
    
    
    26,425
    
    
    
    26,007
    
    
    
    26,660Diluted
    
    
    26,868
    
    
    
    27,484
    
    
    
    26,914
    
    
    
    27,752
  4




---



##### Table of Contents



Six months ended June 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    23,759
    
    
    $
    20,865Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    11,444
    
    
    
    8,660Non-cash revenue and other
    
    
    (555
    )
    
    
    (476
    )(Gain)/loss on disposal of fixed assets
    
    
    (4
    )
    
    
    44Stock-based compensation
    
    
    2,270
    
    
    
    1,702Deferred income taxes
    
    
    (3,065
    )
    
    
    (1,464
    )Changes in assets and liabilities:Accounts receivable
    
    
    (4,050
    )
    
    
    (4,016
    )Prepaid expenses and other current assets
    
    
    (2,549
    )
    
    
    (168
    )Accounts payable and accrued expenses
    
    
    7,877
    
    
    
    (2,109
    )Income taxes
    
    
    2,885
    
    
    
    6,876Deferred revenue
    
    
    7,592
    
    
    
    7,909Accrued rent and related obligations
    
    
    2,344
    
    
    
    1,970Other assets
    
    
    (212
    )
    
    
    (776
    )Other current and long-term liabilities
    
    
    1,569
    
    
    
    4,670Net cash provided by operating activities
    
    
    49,305
    
    
    
    43,687Cash flows from investing activities:Additions to fixed assets, net of acquired amounts
    
    
    (19,865
    )
    
    
    (14,301
    )Proceeds from the disposal of fixed assets
    
    
    15
    
    
    
    134Other assets
    
    
    (163
    )
    
    
    Payments for acquisitions, net of cash acquired
    
    
    (5,616
    )
    
    
    (584
    )Net cash used in investing activities
    
    
    (25,629
    )
    
    
    (14,751
    )Cash flows from financing activities:Purchase of treasury stock
    
    
    (5,196
    )
    
    
    (39,981
    )Proceeds from the issuance of common stock
    
    
    3,393
    
    
    
    3,057Excess tax benefit from stock-based compensation
    
    
    1,145
    
    
    
    1,142Repayments on line of credit, net
    
    
    (20,400
    )
    
    
    Principal payments of long term debt
    
    
    (3,962
    )
    
    
    (290
    )Net cash used in financing activities
    
    
    (25,020
    )
    
    
    (36,072
    )Effect of exchange rates on cash and cash equivalents
    
    
    95
    
    
    
    360Net decrease in cash and cash equivalents
    
    
    (1,249
    )
    
    
    (6,776
    )Cash and cash equivalents, beginning of period
    
    
    7,115
    
    
    
    21,650Cash and cash equivalents, end of period
    
    $
    5,866
    
    
    $
    14,874Supplemental cash flow information:Cash payments of interest
    
    $
    700
    
    
    $
    73Cash payments of income taxes
    
    $
    16,239
    
    
    $
    8,491Non-cash financing activities:Financing of fixed assets
    
    $
    67
    
    
    $
    
  5




---



##### Table of Contents



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




---



##### Table of Contents



Comprehensive Income
 Three months ended June 30,
    
    
    Six months ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Net income
    
    $
    12,543
    
    
    $
    10,875
    
    
    $
    23,759
    
    
    $
    20,865Foreign currency
translation
adjustments
    
    
    1,318
    
    
    
    1,786
    
    
    
    1,349
    
    
    
    2,163Comprehensive income

    
    $
    13,861
    
    
    $
    12,661
    
    
    $
    25,108
    
    
    $
    23,028
 Uncertain Tax Positions Accounting for Uncertainty in Income TaxesAn interpretation of FASB
Statement No. 109, Accounting for Income Taxes
 Recent Accounting Pronouncements The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an amendment of FASB Statement No. 115
 Fair Value Measurements
 7




---



##### Table of Contents



2. Acquisitions
    3. Uncertain Tax Positions
     8




---



##### Table of Contents



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




---



##### Table of Contents



Three months ended June 30, 2007Earnings
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount(In thousands, except per share amounts)Basic earnings per share:Income available to common
stockholders
    
    $
    12,543
    
    
    
    25,996
    
    
    $
    0.48Effect of dilutive securities:Stock options and
restricted stock
    
    
    
    
    
    
    872
    
    
    
    Diluted earnings per share
    
    $
    12,543
    
    
    
    26,868
    
    
    $
    0.47
 Three months ended June 30, 2006Earnings
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount(In thousands, except per share amounts)Basic earnings per share:Income available to common
stockholders
    
    $
    10,875
    
    
    
    26,425
    
    
    $
    0.41Effect of dilutive securities:Stock options and
restricted stock
    
    
    
    
    
    
    1,059
    
    
    
    Diluted earnings per share
    
    $
    10,875
    
    
    
    27,484
    
    
    $
    0.40
 Six months ended June 30, 2007Earnings
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount(In thousands, except per share amounts)Basic earnings per share:Income available to common
stockholders
    
    $
    23,759
    
    
    
    26,007
    
    
    $
    0.91Effect of dilutive securities:Stock options and
restricted stock
    
    
    
    
    
    
    907
    
    
    
    Diluted earnings per share
    
    $
    23,759
    
    
    
    26,914
    
    
    $
    0.88
 Six months ended June 30, 2006Earnings
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount(In thousands, except per share amounts)Basic earnings per share:Income available to common
stockholders
    
    $
    20,865
    
    
    
    26,660
    
    
    $
    0.78Effect of dilutive securities:Stock options and
restricted stock
    
    
    
    
    
    
    1,092
    
    
    
    Diluted earnings per share
    
    $
    20,865
    
    
    
    27,752
    
    
    $
    0.75
 10




---



##### Table of Contents



6. Segment Information
 Disclosures About Segments of an Enterprise and Related Information
  Center-based
    
    AncillaryCare
    
    Services
    
    Total(In thousands)Three Months ended June 30, 2007:Revenue
    
    $
    199,687
    
    
    $
    1,707
    
    
    $
    201,394Amortization
    
    
    1,000
    
    
    
    136
    
    
    
    1,136Income (loss) from operations
    
    
    21,888
    
    
    
    (65
    )
    
    
    21,823Three Months ended June 30, 2006:Revenue
    
    $
    174,949
    
    
    $
    283
    
    
    $
    175,232Amortization
    
    
    751
    
    
    
    
    
    
    
    751Income (loss) from operations
    
    
    18,882
    
    
    
    (176
    )
    
    
    18,706
 Center-based
    
    AncillaryCare
    
    Services
    
    Total(In thousands)Six Months ended June 30, 2007:Revenue
    
    $
    388,194
    
    
    $
    3,277
    
    
    $
    391,471Amortization
    
    
    2,043
    
    
    
    273
    
    
    
    2,316Income (loss) from operations
    
    
    41,621
    
    
    
    (255
    )
    
    
    41,366Six Months ended June 30, 2006:Revenue
    
    $
    343,525
    
    
    $
    846
    
    
    $
    344,371Amortization
    
    
    1,361
    
    
    
    
    
    
    
    1,361Income from operations
    
    
    35,801
    
    
    
    15
    
    
    
    35,816
 11




---



##### Table of Contents



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




---



##### Table of Contents




    
    federal and state regulations regarding changes in child care assistance
programs, welfare reform, minimum wages and licensing standards.
  Executive Summary and Discussion
  Fortune 500 Working Mother Magazine
  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




---



##### Table of Contents



14




---



##### Table of Contents



Seasonality
 Results of Operations
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of services
    
    
    79.6
    
    
    
    79.9
    
    
    
    79.7
    
    
    
    80.2Gross profit
    
    
    20.4
    
    
    
    20.1
    
    
    
    20.3
    
    
    
    19.8Selling, general & administrative expenses
    
    
    9.0
    
    
    
    9.0
    
    
    
    9.1
    
    
    
    9.0Amortization
    
    
    0.6
    
    
    
    0.4
    
    
    
    0.6
    
    
    
    0.4Income from operations
    
    
    10.8
    
    
    
    10.7
    
    
    
    10.6
    
    
    
    10.4Interest income
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.1Interest expense
    
    
    (0.1
    )
    
    
    0.0
    
    
    
    (0.2
    )
    
    
    0.0Income before income taxes
    
    
    10.7
    
    
    
    10.7
    
    
    
    10.5
    
    
    
    10.5Income tax provisions
    
    
    4.5
    
    
    
    4.5
    
    
    
    4.4
    
    
    
    4.4Net income
    
    
    6.2
    %
    
    
    6.2
    %
    
    
    6.1
    %
    
    
    6.1
    %
 Three and Six Months Ended June 30, 2007 Compared to the Three and Six Months Ended June
30, 2006
 Revenue
 15




---



##### Table of Contents



Gross Profit
 Selling, General and Administrative Expenses (SGA)
 16




---



##### Table of Contents



Amortization.
 Income from Operations
  Interest Income.
 Interest Expense.
 Income Tax Expense
 Liquidity and Capital Resources
  17




---



##### Table of Contents



18




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



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
  Nominee
    
    
    
    
    
    For
    
    Against/WithheldFred K. Foulkes
    
    (Class III)
    
    
    24,232,756
    
    
    
    390,599Linda A. Mason
    
    (Class III)
    
    
    23,447,866
    
    
    
    1,175,489Ian M. Rolland
    
    (Class III)
    
    
    23,949,233
    
    
    
    674,122Mary Ann Tocio
    
    (Class III)
    
    
    23,446,692
    
    
    
    1,176,663
  Against/
    
    Abstain/BrokerFor
    
    Withheld
    
    Non Vote24,568,482
    
    43,405
    
    11,468
 
 ITEM 5. Other Information
  21




---



##### Table of Contents



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
 
 22




---



##### Table of Contents



SIGNATURE
   BRIGHT HORIZONS FAMILY SOLUTIONS, INC.By:
    
    /s/ Elizabeth J. Boland

Elizabeth J. Boland
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
 23