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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended March 31, 2008.
 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
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Class
    
    Shares outstanding at April 25, 2008Common Stock, $0.01 par value
    
    26,304,192




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##### 



FORM 10-Q
INDEX
 PageNumberPART I.
    
    FINANCIAL INFORMATIONITEM 1.
    
    Financial StatementsA.
    
    Condensed Consolidated Balance Sheets at March 31, 2008 and December 31, 2007 (Unaudited)
    
    
    3B.
    
    Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2008 and 2007 (Unaudited)
    
    
    4C.
    
    Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007 (Unaudited)
    
    
    5D.
    
    Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    6ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11ITEM 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    18ITEM 4.
    
    Controls and Procedures
    
    
    18PART II.
    
    OTHER INFORMATIONITEM 1.
    
    Legal Proceedings
    
    
    19ITEM 1A.
    
    Risk Factors
    
    
    19ITEM 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19ITEM 3.
    
    Defaults Upon Senior Securities
    
    
    19ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    20ITEM 5.
    
    Other Information
    
    
    20ITEM 6.
    
    Exhibits
    
    
    20SIGNATURE
    
    
    
    
    
    
    21Ex-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
 
 
 March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,319
    
    
    $
    8,954Accounts receivable, net
    
    
    47,869
    
    
    
    47,022Prepaid expenses and other current assets
    
    
    19,323
    
    
    
    18,906Current deferred income taxes
    
    
    15,152
    
    
    
    16,264Total current assets
    
    
    93,663
    
    
    
    91,146Fixed assets, net
    
    
    167,416
    
    
    
    164,892Goodwill
    
    
    160,453
    
    
    
    152,397Other intangibles, net
    
    
    35,849
    
    
    
    34,299Noncurrent deferred income taxes
    
    
    7,741
    
    
    
    7,369Other assets
    
    
    5,734
    
    
    
    4,410Total assets
    
    $
    470,856
    
    
    $
    454,513LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    41
    
    
    $
    98Line of credit payable
    
    
    4,113
    
    
    
    13,317Accounts payable and accrued expenses
    
    
    70,882
    
    
    
    63,691Deferred revenue
    
    
    66,257
    
    
    
    58,115Income taxes payable
    
    
    833
    
    
    
    1,563Other current liabilities
    
    
    11,491
    
    
    
    9,158Total current liabilities
    
    
    153,617
    
    
    
    145,942Long-term debt, net of current portion
    
    
    42
    
    
    
    47Accrued rent and related obligations
    
    
    13,533
    
    
    
    13,113Other long-term liabilities
    
    
    12,390
    
    
    
    12,587Deferred revenue, net of current portion
    
    
    9,500
    
    
    
    10,016Deferred income taxes
    
    
    2,064
    
    
    
    2,167Total liabilities
    
    
    191,146
    
    
    
    183,872Stockholders 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 March 31, 2008 and December 31, 2007Issued: 28,293 and 28,270 shares at March 31, 2008 and December 31, 2007,
respectivelyOutstanding: 26,304 and 26,281 shares at March 31, 2008 and
December 31, 2007, respectively
    
    
    283
    
    
    
    283Additional paid-in capital
    
    
    136,907
    
    
    
    135,036Treasury stock, at cost: 1,989 shares at March 31, 2008 and December 31, 2007
    
    
    (70,479
    )
    
    
    (70,479
    )Cumulative translation adjustment
    
    
    11,871
    
    
    
    11,240Retained earnings
    
    
    201,128
    
    
    
    194,561Total stockholders equity
    
    
    279,710
    
    
    
    270,641Total liabilities and stockholders equity
    
    $
    470,856
    
    
    $
    454,513
  3




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Three months ended March 31,2008
    
    
    2007Revenue
    
    $
    199,827
    
    
    $
    190,077Cost of services
    
    
    158,118
    
    
    
    151,651Gross profit
    
    
    41,709
    
    
    
    38,426Selling, general and administrative expenses
    
    
    19,683
    
    
    
    17,703Transaction costs
    
    
    5,567
    
    
    
    Amortization
    
    
    1,145
    
    
    
    1,180Income from operations
    
    
    15,314
    
    
    
    19,543Interest income
    
    
    89
    
    
    
    125Interest expense
    
    
    (121
    )
    
    
    (396
    )Income before taxes
    
    
    15,282
    
    
    
    19,272Income tax expense
    
    
    8,715
    
    
    
    8,056Net income
    
    $
    6,567
    
    
    $
    11,216Earnings per share:Basic
    
    $
    0.25
    
    
    $
    0.43Diluted
    
    $
    0.24
    
    
    $
    0.42Weighted average number of common shares outstanding:Basic
    
    
    26,142
    
    
    
    26,018Diluted
    
    
    27,008
    
    
    
    26,961
  4




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Three months ended March 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    6,567
    
    
    $
    11,216Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    6,231
    
    
    
    5,562Non-cash revenue and other
    
    
    (313
    )
    
    
    (273
    )Gain on disposal of fixed assets
    
    
    (4
    )
    
    
    (9
    )Stock-based compensation
    
    
    1,107
    
    
    
    1,020Deferred income taxes
    
    
    635
    
    
    
    (653
    )Changes in assets and liabilities, net of acquired amounts:Accounts receivable
    
    
    534
    
    
    
    (4,253
    )Prepaid expenses and other current assets
    
    
    (243
    )
    
    
    (782
    )Accounts payable and accrued expenses
    
    
    6,351
    
    
    
    7,385Income taxes
    
    
    (534
    )
    
    
    (14
    )Deferred revenue
    
    
    5,898
    
    
    
    12,238Accrued rent and related obligations
    
    
    466
    
    
    
    782Other assets
    
    
    (387
    )
    
    
    (87
    )Other current and long-term liabilities
    
    
    526
    
    
    
    (262
    )Net cash provided by operating activities
    
    
    26,834
    
    
    
    31,870Cash flows from investing activities:Purchases of fixed assets
    
    
    (5,360
    )
    
    
    (6,304
    )Proceeds from the disposal of fixed assets
    
    
    5
    
    
    
    15Other assets
    
    
    
    
    
    
    (29
    )Payments for acquisitions, net of cash acquired
    
    
    (10,536
    )
    
    
    Net cash used in investing activities
    
    
    (15,891
    )
    
    
    (6,318
    )Cash flows from financing activities:Purchase of treasury stock
    
    
    
    
    
    
    (5,196
    )Proceeds from the issuance of common stock
    
    
    324
    
    
    
    2,771Excess tax benefit from stock-based compensation
    
    
    429
    
    
    
    786Repayments on line of credit, net
    
    
    (9,200
    )
    
    
    (21,600
    )Principal payments of long term debt
    
    
    (73
    )
    
    
    (153
    )Net cash used in financing activities
    
    
    (8,520
    )
    
    
    (23,392
    )Effect of exchange rates on cash and cash equivalents
    
    
    (58
    )
    
    
    27Net increase in cash and cash equivalents
    
    
    2,365
    
    
    
    2,187Cash and cash equivalents, beginning of period
    
    
    8,954
    
    
    
    7,115Cash and cash equivalents, end of period
    
    $
    11,319
    
    
    $
    9,302Supplemental cash flow information:Cash payments of interest
    
    $
    129
    
    
    $
    374Cash payments of income taxes
    
    $
    8,347
    
    
    $
    7,946
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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 March 31,2008
    
    
    2007(In thousands)Net income
    
    $
    6,567
    
    
    $
    11,216Foreign currency translation adjustments
    
    
    631
    
    
    
    31Comprehensive income
    
    $
    7,198
    
    
    $
    11,247
 Recent Accounting Pronouncements Fair Value Measurements
 Business Combinations (
 2. Acquisitions
  7




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3. Proposed Merger
     4. Commitments and Contingencies
 Litigation
  Aaron Solomon, on behalf of himself and all others similarly situated, v. Bright Horizons
Family Solutions, Inc., et al. William Smith, individually and on behalf of all other similarly situated shareholders,
v. Bright Horizons Family Solutions, Inc., et al.
 8




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Other
   5. Earnings Per Share
   Three months ended March 31, 2008Income
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount(In thousands, except per share amounts)Basic earnings per shareIncome available to common stockholders
    
    $
    6,567
    
    
    
    26,142
    
    
    $
    0.25Effect of dilutive stock options and restricted stock
    
    
    
    
    
    
    866Diluted earnings per share
    
    $
    6,567
    
    
    
    27,008
    
    
    $
    0.24
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Three months ended March 31, 2007Income
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount(In thousands, except per share amounts)Basic earnings per shareIncome available to common stockholders
    
    $
    11,216
    
    
    
    26,018
    
    
    $
    0.43Effect of dilutive stock options and restricted stock
    
    
    
    
    
    
    943Diluted earnings per share
    
    $
    11,216
    
    
    
    26,961
    
    
    $
    0.42
  6. Segment Information
 Disclosures About Segments of an Enterprise and Related Information
  Center-Based
    
    AncillaryCare
    
    Services
    
    Total(In thousands)Three Months ended March 31, 2008:Revenue
    
    $
    197,991
    
    
    $
    1,836
    
    
    $
    199,827Amortization
    
    
    1,009
    
    
    
    136
    
    
    
    1,145Income (loss) from operations
    
    
    15,468
    
    
    
    (154
    )
    
    
    15,314Three Months ended March 31, 2007:Revenue
    
    $
    188,507
    
    
    $
    1,570
    
    
    $
    190,077Amortization
    
    
    1,044
    
    
    
    136
    
    
    
    1,180Income (loss) from operations
    
    
    19,733
    
    
    
    (190
    )
    
    
    19,543
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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Statement About Forward-Looking Information
   
    
    risks associated with the proposed Merger with Bain, including:
 
    
    delays or failure to complete the Merger and the potential adverse
impact on the price of the Companys common stock;
    
    litigation associated with the Merger; and
    
    costs associated with the proposed Merger;
 
    
    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 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
 11




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
    
    federal and state regulations regarding changes in child care assistance programs,
welfare reform, minimum wages and licensing standards.
   Executive Summary and Discussion
  Fortune 500 Working Mother Magazine
  12




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Industry Classification
    
    Percentage of CentersConsumer
    
    
    5
    %Financial Services
    
    
    15
    %Government and Education
    
    
    15
    %Healthcare and Pharmaceuticals
    
    
    20
    %Industrial/Manufacturing
    
    
    5
    %Office Park Consortiums
    
    
    30
    %Professional Services and Other
    
    
    5
    %Technology
    
    
    5
    %
     13




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Seasonality
 Proposed Transaction with Affiliates of Bain Capital Partners, LLC
 http://www.brighthorizons.com/proxy http://www.sec.gov
   14




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Results of Operations
  Three months ended March 31,2008
    
    2007Revenue
    
    
    100.0
    %
    
    
    100.0
    %Cost of services
    
    
    79.1
    
    
    
    79.8Gross profit
    
    
    20.9
    
    
    
    20.2Selling, general and administrative expenses
    
    
    9.9
    
    
    
    9.3Transaction costs
    
    
    2.8
    
    
    
    Amortization
    
    
    0.6
    
    
    
    0.6Income from operations
    
    
    7.6
    
    
    
    10.3Interest income
    
    
    0.1
    
    
    
    0.1Interest expense
    
    
    (0.1
    )
    
    
    (0.3
    )Income before taxes
    
    
    7.6
    
    
    
    10.1Income tax expense
    
    
    4.3
    
    
    
    4.2Net income
    
    
    3.3
    %
    
    
    5.9
    %
 Three Months Ended March 31, 2008 Compared to the Three Months Ended March 31, 2007
 Revenue
   Gross Profit
 15




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Selling, General and Administrative Expenses (SGA)
 Transaction Costs.
 Amortization.
 Income from Operations
 Interest Income.
 Interest Expense.
 Income Tax Expense
 Liquidity and Capital Resources
  16




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Critical Accounting Policies and Estimates
  17




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Recent Accounting Pronouncements
 Fair Value
Measurements
 Business Combinations (
 
 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
   18




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(b) Changes in internal control over financial reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
 Aaron Solomon, on behalf of himself and all others similarly situated, v. Bright Horizons
Family Solutions, Inc., et al. William Smith, individually and on behalf of all other similarly situated shareholders,
v. Bright Horizons Family Solutions, Inc., et al.
 
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 3. Defaults Upon Senior Securities
  19




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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 2002
 31.2
    
    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 2002
 32.1
    
    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
2002
 32.2
    
    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
 20




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SIGNATURE
   BRIGHT HORIZONS FAMILY SOLUTIONS, INC.By:
    /s/ Elizabeth J. BolandElizabeth J. BolandChief Financial Officer
(Duly Authorized Officer and Principal Financial Officer) 21