Bright Horizons Family Solutions
Annual Report 2012

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the fiscal year ended December 31, 2012.OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the transition period from to .Commission File Number: 001-35780 BRIGHT HORIZONS FAMILY SOLUTIONS INC.(Exact name of registrant as specified in its charter) DELAWARE 80-0188269(State or other jurisdiction ofincorporation or organization) (IRS EmployerIdentification No.)200 Talcott Avenue SouthWatertown, MA 02472(Address of principal executive offices and zip code)(617) 673-8000(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registeredCommon Stock, $0.001 par value per share New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate 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 duringthe 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 requirementsfor the past 90 days. Yes ¨ No xIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files). Yes ¨ No xIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and willnot be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. : Large accelerated Filer ¨ Accelerated filer ¨Non-accelerated filer x (Do not check if a smaller reporting company) Smaller reporting company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No xThe aggregate market value of the shares of common stock of the registrant held by non-affiliates of Bright Horizons Family Solutions Inc. computed byreference to the closing price of the registrant’s common stock on the New York Stock Exchange as of March 15, 2013 was approximately $386.1 million.As of March 15, 2013, there were 64,533,873 outstanding shares of the registrant’s common stock, $0.001 par value per share, which is the onlyoutstanding capital stock of the registrant. Table of ContentsBRIGHT HORIZONS FAMILY SOLUTIONS INC.TABLE OF CONTENTS Page Part I. Item 1. Business 4 Item 1A. Risk Factors 20 Item 1B. Unresolved Staff Comments 29 Item 2. Properties 29 Item 3. Legal Proceedings 31 Item 4. Mine Safety Disclosures 31 Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 32 Item 6. Selected Financial Data 34 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 55 Item 8. Financial Statements and Supplementary Data 56 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 89 Item 9A. Controls and Procedures 90 Item 9B. Other Information 90 Part III. Item 10. Directors, Executive Officers and Corporate Governance 91 Item 11. Executive Compensation 95 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 109 Item 13. Certain Relationships and Related Transactions and Director Independence 111 Item 14. Principal Accounting Fees and Services 113 Part IV. Item 15. Exhibits and Financial Statement Schedules 113 2Table of ContentsCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSThis annual report on Form 10-K includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projectionsregarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of the Private SecuritiesLitigation Reform Act of 1995 (the “Act”). The following cautionary statements are being made pursuant to the provisions of the Act and with the intention ofobtaining the benefits of the “safe harbor” provisions of the Act. These forward-looking statements can generally be identified by the use of forward-lookingterminology, including the terms “believes,” “expects,” “may,” “will,” “should,” “seeks,” “projects,” “approximately,” “intends,” “plans,” “estimates” or“anticipates,” or, in each case, their negatives or other variations or comparable terminology. These forward-looking statements include all matters that are nothistorical facts. They appear in a number of places throughout this annual report and include statements regarding our intentions, beliefs or currentexpectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industries in whichwe and our partners operate.By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or maynot occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described under “Risk Factors” and elsewhere in thisannual report and in our other public filings with the Securities and Exchange Commission.Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-lookingstatements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of theindustry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this annual report. Inaddition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate, are consistent with theforward-looking statements contained in this annual report, those results or developments may not be indicative of results or developments in subsequentperiods.Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statementthat we make in this annual report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statements orto publicly announce the results of any revisions to any of those statements to reflect future events or developments. 3Table of ContentsPART I Item 1.BusinessOur CompanyWe are a leading provider of high-quality child care and early education services as well as other services designed to help employers and families betteraddress the challenges of work and life. We provide services primarily under multi-year contracts with employers who offer child care and other dependentcare solutions as part of their employee benefits packages to improve employee engagement, productivity, recruitment and retention. As of December 31, 2012,we had more than 850 client relationships with employers across a diverse array of industries, including more than 130 Fortune 500 companies and more than75 of Working Mother magazine’s 2012 “100 Best Companies for Working Mothers.”The provision of center-based full service child care and early education represented approximately 86% of our revenue in the year ended December 31,2012. The balance of our revenue was from a broader suite of employer-sponsored service offerings, including back-up dependent care and educationaladvisory services, which we developed more recently to enhance our work/life service offerings, broaden our market opportunities and expand the scope of ourclient relationships. In certain locations, our child care centers are marketed directly to families in surrounding communities and serve employees of nearbyclients.We believe we are a provider of choice for both employers and working families for each of the solutions we offer. As of December 31, 2012, we operateda total of 765 child care and early education centers across a wide range of customer industries with the capacity to serve approximately 87,100 children in theUnited States, as well as in the United Kingdom, the Netherlands, Ireland, Canada and India. We have achieved satisfaction ratings of greater than 95%among respondents in our employer and parent satisfaction surveys over each of the past five years and an annual client retention rate of 97% for employer-sponsored centers over each of the past ten years. We believe that the close integration between our offerings and our customer interests, our geographic reach,our innovative and customizable approach, our strong customer focus and our high-quality curriculum have all contributed to this success.The strength of our reputation is reflected in our 25-year track record of providing high-quality services and our history of strong financial performance.From 2001 through 2012, we have achieved year-over-year revenue and adjusted EBITDA growth at a compound annual growth rate of 11% for revenue and18% for adjusted EBITDA. We also achieved year-over-year net income growth at a compound annual growth rate of 23% from 2001 to 2007. In 2008 through2010, we incurred net losses due primarily to the additional debt service obligations and amortization expense incurred in connection with our going privatetransaction. In 2011 and 2012, net income grew $14.8 million and $3.7 million, respectively, over the prior year to $4.8 million and $8.5 million,respectively. Our strong revenue growth has been driven by additions to our center base through organic center growth and acquisitions, expansions of ourservice offerings to back-up dependent care and educational advisory services, and consistent annual tuition increases. For the years ended December 31, 2011and 2012, we generated revenue of $973.7 million and $1.07 billion, net income of $4.8 million and $8.5 million, adjusted EBITDA of $148.5 million and$180.9 million, and adjusted net income of $23.4 million and $37.8 million, respectively. Additional information regarding adjusted EBITDA and adjustednet income, including a reconciliation of adjusted EBITDA and adjusted net income to net income, is included in “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.”For the year ended December 31, 2012, no single client represented more than 3% of our revenue. Our clients include: Alston & Bird in the professionalservices and other sectors; British Petroleum and Chevron in the energy sector; JFK Medical Center, Memorial Sloan-Kettering Cancer Center, Amgen,Bristol-Myers Squibb, Johnson & Johnson and Pfizer in the healthcare and pharmaceuticals sectors; The Home Depot, Staples, Starbucks, NewellRubbermaid and Timberland in the consumer sector; Cisco Systems and EMC in the 4Table of Contentstechnology sector; Bank of America, Barclays, Citigroup, JPMorgan Chase and Royal Bank of Scotland in the financial services sector; and Boeing andToyota Motor Manufacturing in the industrials and manufacturing sectors. We also provide our services to government and education sector institutions suchas Duke University, the Federal Deposit Insurance Corporation, The Environmental Protection Agency, The Johns Hopkins University and The GeorgeWashington University.We provide our center-based child care services under two general business models: a profit and loss (“P&L”) model, where we assume the financialrisk of operating a child care center; and a cost-plus model, where we are paid a fee by an employer client for managing a child care center on a cost-plusbasis. Our P&L model is further classified into two subcategories: (i) a sponsor model, where we provide child care and early education services on either anexclusive or priority enrollment basis for the employees of a specific employer sponsor; and (ii) a lease/consortium model, where we provide child care andearly education services to the employees of multiple employers located within a specific real estate development (for example, an office building or officepark), as well as to families in the surrounding community. In both our cost-plus and sponsor P&L models, the development of a new child care center, aswell as ongoing maintenance and repair, is typically funded by an employer sponsor with whom we enter into a multi-year contractual relationship. Inaddition, employer sponsors typically provide subsidies for the ongoing provision of child care services for their employees. Our child care centers are largelylocated in targeted clusters where we believe demand is generally higher and where income demographics are attractive. We also provide back-up dependent careservices through our own centers and through our Back-Up Care Advantage (“BUCA”) program, which offers access to a contracted network of in-home careagencies and approximately 2,500 center-based providers in locations where we do not otherwise have centers with available capacity.Industry OverviewWe compete in the global market for child care and early education services as well as the market for work/life services offered by employers as benefitsto employees. Families in the United States spent approximately $43 billion on licensed group child care in 2007 according to a report published by the PewCenter on the States. The child care industry can generally be subdivided into center-based and home-based child care. We operate in the center-based market,which is highly fragmented, with over 90% of providers operating fewer than 10 centers, and the top 10 providers comprising less than 10% of the market,according to the Child Care Information Exchange’s 2012 Employee Child Care Trend Report.Center-Based Child Care ServicesThe center-based child care market includes both retail and employer-sponsored centers and can be further divided into full-service centers and back-upcenters. We have been a pioneer in the field of employer-sponsored child care, where we were one of the first providers to market a shared economic modeldirectly to employers who offer child care as an employee benefit. While home-based businesses remain the majority of the overall child care market in theUnited States, the share of center-based child care providers has increased over time, reflecting what we believe is an increasing demand for high-quality,structured and professional child care and early education solutions. According to state licensing statistics, there are approximately 100,000 licensed child carecenters in the United States, including retail and employer-sponsored centers.The significant majority of our competitors market exclusively to families who are retail users of their centers. This employer-sponsored model, whichhas been central to our business since we were founded in 1986, is characterized by a single employer or consortium of employers entering into a long-termcontract for the provision of child care at a center located at or near the employer sponsor’s worksite. The employer sponsor generally funds the development aswell as ongoing maintenance and repair of a child care center at or near its worksite and subsidizes the provision of child care services to make them moreaffordable for its employees. 5Table of ContentsBack-Up Dependent Care and Educational Advisory ServicesWe also compete in the growing markets for back-up dependent care and educational advisory services. The market for additional services that aredesigned to help employers and families better integrate the challenges of work and life, including back-up dependent care and educational advisory services,is newer and continues to evolve. We believe we are the largest and one of the only multi-national providers of back-up dependent care services and that thereare significant growth opportunities available to providers of these services, particularly when a provider can leverage existing client relationships and deliverservices to a larger portion of a workforce across multiple locations.The field of back-up dependent care is less well-developed than that of full-service care. According to the Families and Work Institute’s 2012 NationalStudy of Employers, only 7% of companies with over 1,000 employees surveyed offer back-up or emergency child care, versus 18% of companies with over1,000 employees which offer full service child care at or near the worksite. A national survey of working adults commissioned by Workplace Options in 2007found 56% of employees or their spouses missed three to ten days of work in the preceding 12 months due to the lack of adequate back-up child or elder careoptions. A survey conducted by Public Policy Polling asked respondents how valuable back-up child care would be, and 93% of respondents said “clearlyvaluable” or “extremely valuable.”We also offer educational advisory services for employers and their employees, including educational and college counseling through College Coach andthe management of employer tuition reimbursement programs through EdAssist. We believe that we are the first provider to have developed these servicemodels within the employer market and are the only participant in the market with this combination of employer-sponsored service offerings.Industry TrendsWe believe that the following key factors contribute to growth in the markets for employer-sponsored child care and for back-up dependent care andeducational advisory services:Increasing Participation by Women and Two Working Parent Families in the Workforce. A significant percentage of mothers currently participate inthe workforce. In 2007, for example, 64% of mothers with children under the age of six participated in the workforce in the United States, according to theBureau of Labor Statistics. We expect that the number of working mothers and two working parent families will increase over time, resulting in an increase inthe need for child care and other work/life services. By 2016, for example, women are expected to earn 60% of all bachelor degrees and 54% of all doctorateand professional degrees in the United States, according to a 2011 report by the Families and Work Institute.Greater Demand for High-Quality Center-Based Child Care and Early Education. We believe that recognition of the importance of early educationand consistent quality child care has led to increased demand for higher-quality center-based care. In 1965, 8% of children under the age of five with workingmothers were enrolled in center-based child care, compared to approximately 24% of such children by 2005, according to data gathered by the U.S. CensusBureau. With the shift towards center-based care, there is an increased focus on the establishment of objective, standards-based methods of defining andmeasuring the quality of child care, such as accreditation. In a highly fragmented market comprised largely of center operators lacking scale, we believe thistrend will favor larger industry participants with the size and capital resources to achieve quality standards on a consistent basis.Recognized Return on Investment to Employers. Based on studies we have conducted through our Horizons Workforce Consulting practice, we believethat employer sponsors of center-based child care and back-up dependent care services realize strong returns on their investments from reduced turnover andincreased productivity. For example, we estimate that users of our back-up dependent care services have been able to work, 6Table of Contentson average, 12 days annually that they otherwise would have missed due to breakdowns in child care arrangements. Additionally, according to a 2012 surveyof our clients, 94% of respondents reported that access to dependable back-up dependent care helps them to focus on work and be more productive. We believethat this return on investment for employers will result in additional growth in employer-sponsored back-up dependent care services.Growing Global Demand for Child Care and Early Education Services. We expect that a long-term shift to service-based economies and anincreasing emphasis on education by government and families will contribute to further growth in the global child care and early education market as well asthe developing markets for back-up dependent care and educational advisory services. In addition, in certain countries in which we operate, public policydecisions have facilitated increased demand for child care and early education services. In 2006, the United Kingdom instituted a ten-year plan to make childcare more accessible and more affordable for all parents. In the Netherlands, a 2005 child care law increased the demand for child care and early educationservices by making child care more affordable for working families and thereby encouraging women to return to the workforce.Our HistoryFor over 25 years, we have operated child care and early education centers for employers and working families. In 1998, we transformed our businessthrough the merger of Bright Horizons, Inc. and CorporateFamily Solutions, Inc., both then Nasdaq-listed companies that were founded in 1986 and 1987,respectively. We were listed on Nasdaq from 1998 to May 2008, when we were acquired by investment funds affiliated with Bain Capital Partners, LLC(collectively, the “Sponsor”), which we refer to as our going private transaction. Since then, we have continued to grow through challenging economic timeswhile investing in our future. We have grown our international footprint to become a leader in the center-based child care market in the United Kingdom andhave expanded into the Netherlands and India as a platform for further international expansion. In the United States, we have enhanced and grown our back-up dependent care services while adding EdAssist as a new educational advisory service for existing employer clients. We have also expanded our sales forcewith a specific focus on cross-selling opportunities to our employer clients. We have invested in new technologies to better support our full suite of services andexpanded our marketing efforts with additional focus on maximizing occupancy levels in centers where we can improve our economics with increasedenrollment.On January 30, 2013, we completed an initial public offering (“the Offering”) and, after the exercise of the underwriters’ option to purchase additionalshares on February 21, 2013, issued a total of 11.6 million shares of common stock in exchange for $233.3 million, net of offering costs. Our common stockis listed on the New York Stock Exchange (“NYSE”) under the symbol “BFAM.”Our Competitive StrengthsWe believe we have the following competitive strengths:Market Leading Service ProviderWe believe we are the leader in the markets for employer-sponsored center-based child care and back-up dependent care, and that the breadth, depth andquality of our service offerings—developed over a successful 25-year history—represent significant competitive advantages.We have approximately five times more employer-sponsored centers in the United States than our closest competitor, according to Child CareInformation Exchange’s 2010 Employer Child Care Trend Report. We believe the broad geographic reach of our child care centers, with targeted clusters inareas where we believe demand is generally higher and where income demographics are attractive, provides us with an effective platform 7Table of Contentsto market our services to current and new clients. We also believe our pioneering efforts to develop back-up dependent care solutions and educational advisoryservices for employers to offer as employee benefits have helped to strengthen our position as the provider of choice for employers and working families. Webelieve we are the only provider who is currently able to offer this broad spectrum of diversified service offerings to employer clients.Collaborative, Long-term Relationships with Diverse Customer BaseWe have more than 850 client relationships with employers across a diverse array of industries, including more than 130 of the Fortune 500 companies,with our largest client contributing less than 3% of our revenue in fiscal 2012 and our largest 10 clients representing less than 13% of our revenue in that year.Our business model places an emphasis on multi-year employer sponsorship contracts where our clients typically fund the development of new child carecenters at or near to their worksites and frequently support the ongoing operations of these centers.Our multiple touch points with both employers and employees give us unique insight into the corporate culture of our clients. This enables us to identifyand provide innovative and tailored solutions to address our clients’ specific work/life needs. In addition to full service center-based care, we provide access toa multi-national back-up dependent care network and educational advisory support, allowing us to offer various combinations of services to best meet theneeds of specific clients or specific locations for a single client. Our tailored, collaborative approach to employer-sponsored child care has resulted in an annualclient retention rate for employer-sponsored centers of approximately 97% over each of the past ten years.Commitment to QualityOur business is anchored in the consistent provision of high-quality service offerings to employers and families. We have therefore designed our childcare centers to meet or exceed applicable accreditation and rating standards in all of our key markets, including in the United States through the NationalAcademy of Early Childhood Programs, a division of the National Association for the Education of Young Children (“NAEYC”), and in the United Kingdomthrough the ratings of the Office of Standards in Education. We believe that our voluntary commitment to achieving accreditation standards offers acompetitive advantage in securing employer sponsorship opportunities and in attracting and retaining families, because an increasing number of potential andexisting employer clients require adherence to accreditation criteria. All of our centers are operated at the quality standard to achieve NAEYC accreditation,which can take two to three years to complete, and we have achieved NAEYC accreditation for more than 70% of our eligible centers. In the United States,NAEYC accreditation is optional and has been achieved by fewer than 10% of child care centers.“The World at Their Fingertips” is our developmentally appropriate, proprietary curriculum that is based on well-established international earlychildhood development research and theory including the work of Jean Piaget, Erik Erikson, Maria Montessori, Howard Gardner and Jim Greenman. Ourteachers document learning and assess each child’s progress through our online documentation and assessment system. This forms the basis for ongoingparent and teacher collaboration and communication. We maintain our curriculum at the forefront of early education practices by introducing elements thatrespond to the changing expectations and views of society and new information and theories about the ways in which children learn and grow.We also believe that strong adult-to-child ratios are a critical factor in delivering our curriculum effectively as well as helping to facilitate more focusedcare. Our programs, which are designed to meet NAEYC standards for accreditation, will often provide adult-to-child ratios that are more stringent than manystate licensing standards.Market Leading People PracticesOur ability to deliver consistently high-quality care, education and other services is directly related to our ability to attract, retain and motivate ourhighly skilled workforce. We believe that we have earned a reputation 8Table of Contentsas an employer of choice, and we have consistently been named as a top employer by third-party sources in the United States, the United Kingdom and theNetherlands, including being named as one of the “100 Best Places to Work in America” by Fortune Magazine 14 times.We believe the education and experience of our center leaders and teachers exceed the industry average. In addition to recurring in-center training andpartial tuition reimbursement for continuing education, we have developed a training program that establishes standards for our teachers as well as an in-houseonline training academy (Bright Horizons University), which allows our employees to earn nationally-recognized child development credentials. Because weconsider ongoing training essential to maintaining high-quality service, our facilities have specific budgets that provide for in-center training, attendance atselected outside conferences and seminars and partial tuition reimbursement for continuing education, in addition to the extensive training that our teachersreceive in their first year with Bright Horizons.Capital Efficient Operating Model Provides Platform for Growth, with Attractive EconomicsWe have achieved uninterrupted year-over-year revenue and adjusted EBITDA growth for each of the last eleven years despite broader macro-economicfluctuations. We have accomplished this growth through a combination of key factors, including: annual tuition increases and escalators in management feeswhich are designed to keep pace with annual cost increases, the addition of both organic and acquired new centers and modest gains in enrollment withinexisting centers, the addition and growth of new services such as back-up dependent care and educational advisory services, managing our cost structure inline with enrollment within centers and modest leveraging of our overhead structure as we expand on our revenue base.With employer sponsors funding the majority of the capital required for new centers developed on their behalf, we have been able to grow our businesswith limited capital investment, which has contributed to strong cash flows from operations.We also proactively manage our portfolio of centers to identify and close P&L model centers that we view as underperforming, which enables us tosustain our operating margins and effectively reinvest our capital.Proven Acquisition Track RecordWe have an established acquisition team to pursue potential targets using a proven framework to effectively evaluate potential transactions with the goalof maximizing our return on investment while minimizing risk. Since 2006, we have completed acquisitions of 123 child care centers in the United States, theUnited Kingdom and the Netherlands, as well as a provider of back-up dependent care services in the United States, representing in aggregate approximately$160 million in annualized revenue. These acquisitions have enabled us to efficiently expand into targeted new markets and increase our presence withinexisting geographic clusters. Our experience has indicated that many of the smaller regional chains and individual operators seek liquidity and/or lack theprofessional management and financial resources that are often necessary for continued growth. Our acquisition strategy is also focused on enhancing anddiversifying our platform of service offerings, as demonstrated through our 2006 acquisition of College Coach, through which we provide college preparationand admissions counseling.Experienced Management TeamOur management team has an established track record of operational excellence and has an average tenure of 16 years at Bright Horizons. We havesuccessfully operated Bright Horizons both as a publicly traded company and, since 2008, as a private company. Since then, our management team hasnavigated challenging macroeconomic conditions and continued to innovate, including rolling out a new technology platform across all of our centers,developing and launching new services including EdAssist, expanding our international presence and actively growing our business both organically andthrough acquisitions. This team has a proven track record 9Table of Contentsof performance, having increased revenue from $345.9 million in 2001 to $1.07 billion in 2012, and increased adjusted EBITDA from $29.8 million in 2001to $180.9 million in 2012, representing 830 basis points of adjusted EBITDA margin expansion. During this same period, our net income grew from $11.5million in 2001 to $39.1 million in 2007 and then declined to $(6.6 million) in 2008 and to $(10.0 million) in 2010. In 2011 and 2012, net income increased$14.8 million and $ 3.7 million, respectively, over the prior year. Net income since 2008 reflects the incremental contributions from growth in the business,offset by the additional debt service obligations and amortization expense incurred in connection with our May 2008 going private transaction.Our Growth StrategyWe believe that there are significant opportunities to continue to grow our business globally and expand our leadership position by continuing to executeon the following strategies:Grow Our Client RelationshipsSecure Relationships with New Employer Clients. Our addressable market includes approximately 15,000 employers, each with at least 1,000employees, within the industries that we currently service in the United States and the United Kingdom. This presents us with a significant opportunity toengage new employer sponsors for the development of new centers, back-up dependent care services, College Coach and EdAssist. Our dedicated sales forcefocuses on establishing new client relationships and is supported by our Horizons Workforce Consulting practice, which helps potential clients to identify theprecise work/life offerings that will best meet their strategic goals. We believe that our extensive service offerings, the breadth of our existing presence across theUnited States and our expanding European platform, as well as our track record of serving major employer sponsors for over 25 years, position us to takeadvantage of new client opportunities.Expand Relationships with Existing Employer Clients Through Additional Centers and Cross-Selling. As of December 31, 2012, we operatedapproximately 200 centers for more than 50 clients with multiple facilities, and we believe there is a significant opportunity to add additional employer-sponsored centers for both these and other existing clients. In addition, only approximately 15% of our clients currently utilize more than one of our fourprincipal service offerings. We believe that employers who have already placed trust in us through sponsorship of one of our services are more likely to addothers, which should allow us to increase the number of our employer clients that contract with us to provide multiple services to their employees. In the nearterm, we expect that this cross-sales growth opportunity will be led by the continued expansion of our BUCA program. Revenues from this highly scalableprogram have grown at a compound annual growth rate of 20% since 2007 and BUCA users have reported a 99% satisfaction rate, resulting in improvedbusiness continuity, enhanced productivity and reduced absenteeism for our employer clients.Continue to Expand Through the Assumption of Management of Existing Employer-Sponsored Child Care Centers. We occasionally assume themanagement of existing centers from the incumbent management team, which enables us to develop new client relationships, typically with no capitalinvestment and no purchase price payment. We also evaluate existing centers for expansion or relocation in markets in which our operations have beensuccessful, in order to accommodate demand and enhance our market presence.Sustain Annual Price Increases to Enable Continued Investments in QualityWe look for opportunities to invest in quality as a way to enhance our reputation with our clients and their employees. By developing a strong reputationfor high-quality services and facilities, we are able to support consistent price increases that keep pace with our cost increases. Over our history, these priceincreases have contributed to our revenue growth and have enabled us to drive margin expansion.Increase Utilization at Existing CentersWe believe that our mature P&L centers (which we define as centers that have been open for more than three years) are currently operating at utilizationlevels below our target run rate, in part due to a general 10Table of Contentsdeterioration in economic condition from 2008 to 2010. Utilization rates at our mature P&L centers stabilized in 2010 and have grown in 2011 and 2012. Weexpect to further close the gap between current utilization rates and our target run rate over the next few years.Selectively Add New Lease/Consortium CentersWe have typically added between six and twelve new lease/consortium centers annually for the past five years, focusing on urban or city surroundingmarkets where demand is generally higher and where income demographics are generally more supportive of a new center. We also seek to identify locationsthat we believe have the potential to attract employer sponsorship in the future. We believe there are at least 100 locations across the United States, the UnitedKingdom and the Netherlands that would be suitable for a new lease/consortium center within the next five years. We expect to open new lease/consortiumcenters at an annual rate consistent with our current lease/consortium growth rate over at least the next five years.Continue to Expand Through Selective AcquisitionsWe have a long track record of successfully completing and integrating selective acquisitions, as we have sought to expand quickly within targetedgeographies in our existing markets and efficiently enter into new markets. Since 2001, we have on average added between 40 and 60 centers per year, of whichapproximately 45% have been through acquisitions. Our acquisition strategy is focused on enhancing and diversifying our platform of service offerings, asdemonstrated through our 2006 acquisition of College Coach. The domestic and international markets for child care and other family support services remainhighly fragmented and, we believe, primed for consolidation. We will therefore continue to seek attractive opportunities both for center acquisitions and theacquisition of complementary service offerings.Our Business ModelsOur business is based primarily on multi-year contractual arrangements with employer clients for the provision of full-service center-based child careand early education, back-up dependent care and educational advisory services. These contractual arrangements provide us with significant visibility into ouranticipated revenue stream. Employer sponsorship for new centers through capital and ongoing program investment has allowed us to develop a businessmodel that produces customized, high-quality programs in a capital efficient manner. We believe that this, in turn, helps to enhance long-term relationshipswith our clients and supports our strong employer client retention rate. These key elements are present in each of the business models that we use to provideour suite of services, described below.Full-Service Center-Based CareWe provide our full-service center-based child care and early education services under two general business models: (i) a P&L model, where we assumethe financial risk of operating an employer-sponsored or lease/consortium facility; and (ii) a cost-plus model, where we are paid a fee for managing anemployer-sponsored facility on a cost-plus basis. Under both models, we typically retain responsibility for all aspects of center operation, including the hiringand remuneration of employees, contracting with vendors, purchasing supplies and billing and collecting tuition. We work with clients to select the appropriatemodel and contractual arrangement for each center on a case-by-case basis based on the needs of the particular client and our own expectations regarding size,anticipated term and specific service offering, among other factors. However, we expect that the mix of business models for our centers will remain broadlyconsistent over time. • Profit and Loss Model. Child care and early education centers operating under the P&L model represented approximately 70% of our total centersas of December 31, 2012. We retain financial risk with respect to the profitability of these centers and are therefore subject to variability infinancial performance if enrollment levels fluctuate. Typically, however, we expect to achieve a higher margin 11Table of Contents on our P&L model centers as compared to our cost-plus model centers to reflect the additional financial risk. Our P&L model is further classifiedinto two subcategories: (i) a sponsor model, where we provide child care and early education services on either an exclusive or priority enrollmentbasis for employees of a specific employer sponsor; and (ii) a lease/consortium model, where we provide child care and early education services tothe employees of multiple employers located within a specific real estate development (e.g., an office building or office park), as well as to familiesin surrounding communities. • Sponsor Model. Sponsor model centers typically are characterized by a relationship with a single employer that contracts with us toprovide child care and early education for the children of employees at a facility located at or near the employer sponsor’s offices. Theemployer sponsor generally provides facilities or construction funding, funds the center’s pre-opening expenses and other start-up costs(such as capital equipment and supplies) and often provides funding for ongoing operating costs, including maintenance and repairs. Insome cases, the employer sponsor may also provide tuition-related subsidies, which can take the form of a fixed financial subsidy paiddirectly to us, tuition assistance for its employees or minimum enrollment guarantees to us. Our operating contracts for sponsor modelcenters have initial terms that typically range from three to ten years. • Lease/Consortium Model. Lease/consortium model centers are typically located in areas where both our own experience and regionaldemographics indicate that demand for our services exists, but where we have not yet identified specific employer sponsorshipopportunities, such as office buildings, office parks and heavily trafficked commuter routes. While lease/consortium model centers aretypically open to general enrollment, we may also receive a more limited form of sponsorship from local employers who purchase full-service child care or back-up dependent care benefits for their employees. We typically negotiate initial lease terms of 10 to 15 years, oftenwith renewal options, for lease/consortium model centers. • Cost-Plus Model. Cost-plus model centers represented approximately 30% of our total center count as of December 31, 2012. As with sponsormodel centers, an employer sponsor typically provides the facility (or funds construction costs), funds the pre-opening and start-up costs, andprovides funding for ongoing facility maintenance and repair. Once the center has been established, we receive a management fee from theemployer sponsor and an operating subsidy based upon an agreed budget to supplement tuition fees that we receive from parents. The cost-plusmodel also provides the employer sponsor with a greater degree of control over operations, with enrollment typically restricted to children of itsemployees. Our cost-plus model center contracts have initial terms that generally range from three to five years.Back-Up Dependent CareEarly in our history, we were a pioneer in center-based back-up dependent care in major urban markets. While we remain the leading provider ofdedicated back-up dependent care centers, we created our BUCA program in 2006 to provide families with access to a national network of child care andadult/elder care options when their normal care arrangements are unavailable. BUCA is accessible only to families whose employers offer the back-updependent care service as an employment benefit. The scope of care available includes back-up dependent care in our child care centers and a contractednetwork of over 2,500 high-quality child care centers (with whom we often have exclusive back-up dependent care arrangements) in locations where we do nototherwise have centers with available capacity. We also provide back-up dependent care for children and elders/adults in employees’ homes or other locations,which is provided by a contracted network of independent care providers who meet our contractual standards. Care can be arranged by employees 24 hours aday through our contact center or online, allowing employees to reserve care in advance or at the last minute. Our employer clients typically purchase back-updependent care services for their employees through either: (i) sponsorship of an on-site dedicated back-up center (generally based on the cost-plus model);(ii) the purchase of specific center 12Table of Contents“memberships” or levels of uses in one or more of our lease/consortium centers located near the employer’s worksite; or (iii) the purchase of uses across theentire network of BUCA service options, allowing their employees to access care wherever they may live or work.Educational Advisory ServicesThrough our educational advisory services, we provide employees of our employer clients with support at every stage of the educational spectrum, bothfor their children and for themselves as adult learners. Our services help consumers of educational benefits to better manage the complexities of using theseservices and also enable our employer clients to manage their tuition reimbursement budgets more efficiently. We deliver these services under two brands:College Coach. Since our acquisition of College Coach in 2006, we have offered services both to employees of our employer clients and directly tofamilies on a retail basis. Our College Coach services include educational advice for middle school, high school and special needs students, college planning,college financial aid counseling, as well as college selection and college admissions counseling. We offer these services in a one-on-one format, as well asthrough worksite or online workshops. According to a survey we conducted in 2011, among employees with access to College Coach services, 70% reportedsignificant work time savings, 88% reported reduced stress and 72% reported increased job satisfaction. Our contracts with employer clients for CollegeCoach services typically have initial terms of one to three years. We also provide college preparation and admissions counseling on a retail basis at a dozenlocations nationwide and online.EdAssist. In 2007, employers spent an estimated $17 billion on educational assistance benefits designed to help their employees achieve their educationalgoals or complete continuing education requirements mandated by professional associations or licenses. Developed in 2010, our EdAssist services allow ouremployer clients to more efficiently manage their tuition reimbursement programs through services such as tuition assistance administration, robust dataanalytics and individualized counseling to employees. We also provide employers and employees with access to a national network of higher educationinstitutions with whom we have procured preferred relationship status, enabling us to offer financial and other benefits to them. Through EdAssist, ouremployer clients realized average savings of approximately 22.7% on their tuition assistance spending in 2012. Typically, our clients contract for our EdAssistservices on a fee and incentive basis, with initial terms generally ranging from one to three years. 13Table of ContentsOur OperationsOur primary reporting and operating segments are full-service center-based child care services and back-up dependent care services. Full-service center-based child care includes traditional center-based child care, pre-school and elementary education. Back-up dependent care includes center-based back-upchild care, in-home care, mildly ill child care and adult/elder care. Our remaining operations, including our educational advisory services, are included inother educational advisory services.The following table sets forth our segment information as of the dates and for the periods indicated. Full ServiceCenter-BasedCareServices Back-upDependentCareServices OtherEducationalAdvisoryServices Total (In thousands, except percentages) Year ended December 31, 2012 Revenue $922,214 $130,082 $18,642 $1,070,938 As a percentage of total revenue 86% 12% 2% 100% Income from operations $60,154 $33,863 $1,447 $95,464 As a percentage of total income from operations 63% 35% 2% 100% Year ended December 31, 2011 Revenue $844,595 $114,502 $14,604 $973,701 As a percentage of total revenue 87% 12% 1% 100% Income from operations $58,950 $28,669 $(783) $86,836 As a percentage of total income from operations 68% 33% (1)% 100% Year ended December 31, 2010 Revenue $769,235 $99,086 $9,838 $878,159 As a percentage of total revenue 88% 11% 1% 100% Income from operations $46,770 $21,141 $752 $68,663 As a percentage of total income from operations 68% 31% 1% 100% Full-Service Child CareOur full-service center operations are organized into geographic divisions led by a Division Vice President of Center Operations who, in turn, reports to aSenior Vice President of Center Operations. Each division is further divided into regions, each supervised by a Regional Manager who oversees the operationalperformance of approximately six to eight centers and is responsible for supervising the program quality, financial performance and client relationships. Atypical center is managed by a small administrative team under the leadership of a Center Director. A Center Director has day-to-day operating responsibilityfor the center, including training, management of staff, licensing compliance, implementation of curricula, conducting child assessments and enrollment. Ourcorporate offices provide centralized administrative support for accounting, finance, information systems, legal, payroll, risk management, marketing andhuman resources functions. We follow this underlying operational structure for center operations in each country in which we operate.Center hours of operation are designed to match the schedules of employer sponsors and working families. Most of our centers are open 10 to 12 hours aday with typical hours of operation from 7:00 a.m. to 6:00 p.m., Monday through Friday. We offer a variety of enrollment options, ranging from full-time topart-time scheduling.Tuition paid by families varies depending on the age of the child, the available adult-to-child ratio, the geographic location and the extent to which anemployer sponsor subsidizes tuition. Based on a sample of 250 of 14Table of Contentsour child care and early education centers, the average tuition rate at our centers in the United States is $1,670 per month for infants (typically ages three tosixteen months), $1,470 per month for toddlers (typically ages sixteen months to three years) and $1,165 per month for preschoolers (typically ages three tofive years). Tuition at most of our child care and early education centers is payable in advance and is due either monthly or weekly. In many cases, familiescan pay tuition through payroll deductions or through Automated Clearing House withdrawals.Revenue per center typically averages between $1.3 million and $1.6 million at our centers in North America, and averages between $0.7 million and$1.0 million at our centers in Europe, primarily due to the larger average size of our centers in North America. Gross margin at our centers typically averagesbetween 15% and 25%, with our cost-plus model centers typically at the lower end of that range and our lease/consortium centers at the higher end.Cost of services consists of direct expenses associated with the operation of child care and early education centers and direct expenses to provide back-updependent care services and educational advisory services. Direct expenses consist primarily of payroll and benefits for personnel, food costs, programsupplies and materials, parent marketing and facilities costs, which include depreciation. Personnel costs are the largest component of a center’s operatingcosts and comprise approximately 75% of a center’s operating expenses. In a P&L model center, we are often responsible for additional costs that are typicallypaid or provided directly by a client in centers operating under the cost-plus model, such as facilities costs. As a result, personnel costs in centers operatingunder P&L models will often represent a smaller percentage of overall costs when compared to centers operating under cost-plus models.Selling, general and administrative expenses (“SGA”) consist primarily of salaries, payroll taxes and benefits (including stock-based compensationcosts) for non-center personnel, which includes corporate, regional and business development personnel, accounting and legal, information technology,occupancy costs for corporate and regional personnel, management/advisory fees and other general corporate expenses.Back-Up Dependent CareOur back-up dependent care division is led by a Senior Vice President of Operations with Divisional Vice Presidents leading back-up center operationsand the BUCA program. The dedicated back-up centers that we operate are organized in a similar structure to full-service centers, with regional managersoverseeing approximately six to eight centers each and with center-based administrative teams that mirror the administrative teams in full-service centers. Thededicated back-up centers are either exclusive to a single employer or are consortium centers that have multiple employer sponsors, as well as uses from theBUCA program. Care is arranged through a 24 hours-a-day contact center or online, allowing employees to reserve care in advance or at the last minute. Weoperate our own contact center in Broomfield, Colorado, which is overseen by the Division Vice President responsible for BUCA, and contract with anadditional contact center located in Durham, North Carolina to complement our ability to handle demand fluctuations and to provide seamless service 24hours a day.Back-up dependent care revenue is comprised of fees or subsidies paid by employer sponsors, as well as co-payments collected from users at the pointof service. Cost of services consist of fees paid to providers for care delivered as part of their contractual relationships with us, personnel and related directservice costs of the contact centers and any other expenses related to the coordination or delivery of care and service. For Bright Horizons back-up centers, costof service also includes all direct expenses associated with the operation of the centers. SGA related to back-up dependent care is similar to SGA for full-servicecare, with additional expenses related to the information technology necessary to operate this service, the ongoing development and maintenance of the providernetwork and additional personnel needed as a result of more significant client management and reporting requirements. 15Table of ContentsEducational Advisory ServicesOur educational advisory services consist of our College Coach services and our EdAssist services.College Coach. Our College Coach services are provided by College Coach’s educators, all of whom have experience working at senior levels inadmissions or financial aid at colleges and universities. We work with employer clients who offer these services as a benefit to their employees, and we alsoprovide these services directly to families on a retail basis. We have 12 College Coach offices in the United States, located primarily in metropolitan areas,where we believe the demand for these services is greatest. College Coach derives revenue mainly from employer clients who contract with us for an agreedupon number of workshops, access to our proprietary virtual learning center and individual counseling. The College Coach division is managed by a vicepresident and general manager who has responsibility for the growth and profitability of this division.EdAssist. Our EdAssist services are provided through a proprietary software system for processing and data analytics, as well as a team of complianceprofessionals who audit employee reimbursements. We also provide customer service through contact centers in Broomfield, Colorado and Durham, NorthCarolina. The EdAssist services derive revenue directly from fees paid by employer sponsors under contracts that are typically three years in length. TheEdAssist division is managed by a vice president and general manager who has responsibility for the growth and profitability of this division.Educational advisory services revenue is comprised of fees or subsidies paid by employer clients, as well as copayments or retail fees collected fromusers at the point of service. Cost of services consist of personnel and direct service costs of the contact centers, and other expenses related to the coordinationand delivery of advisory and counseling services.GeographyWe operate in two primary regions: North America, which includes the United States, Canada and Puerto Rico, and Europe, which we define to includethe United Kingdom, the Netherlands, Ireland and India. The following table sets forth certain financial data for these geographic regions for the periodsindicated. North America Europe Total (In thousands, except percentages) Year ended December 31, 2012 Revenue $901,210 $169,728 $1,070,938 As a percentage of total revenue 84% 16% 100% Long-lived assets, net $230,807 $109,569 $340,376 As a percentage of total fixed assets, net 68% 32% 100% Year ended December 31, 2011 Revenue $843,645 $130,056 $973,701 As a percentage of total revenue 87% 13% 100% Long-lived assets, net $198,468 $38,689 $237,157 As a percentage of total fixed assets, net 84% 16% 100% Year ended December 31, 2010 Revenue $770,848 $107,311 $878,159 As a percentage of total revenue 88% 12% 100% Long-lived assets, net $188,727 $31,110 $219,837 As a percentage of total fixed assets, net 86% 14% 100% Our international business primarily consists of child care centers throughout the United Kingdom and the Netherlands and is overseen by a senior vicepresident. In 2012, we added 50 centers worldwide, including 27 in the United Kingdom as a result of the completion of the acquisition of Huntyard Limited(“Huntyard”), the parent company of Casterbridge Care and Education Group Ltd (“Casterbridge”), on May 23, 2012. As of December 31, 2012, we had atotal of 169 centers in Europe. 16Table of ContentsMarketingWe market our services to prospective employer sponsors, current clients and their employees, and to parents. Our sales force is organized on both acentralized and regional basis and is responsible for identifying potential employer sponsors, targeting real estate development opportunities, identifyingpotential acquisitions and managing the overall sales process. We reach out to employers via word of mouth, direct mail campaigns, digital outreach andadvertising, conference networking, webinars and social media. In addition, as a result of our visibility among human resources professionals as a high-quality dependent care service provider, potential employer sponsors regularly contact us requesting proposals, and we often compete for employer-sponsorship opportunities through request for proposal processes. Our management team is involved at the national level with education, work/life andchildren’s advocacy, and we believe that their prominence and involvement in such issues also helps us attract new business. We communicate regularly withexisting clients to increase awareness of the full suite of services that we provide for key life stages and to explore opportunities to enhance current partnerships.We also have a direct-to-consumer, or parent, marketing department that supports parent enrollment efforts through the development of marketingprograms, including the preparation of promotional materials. The parent marketing team is organized on both a centralized and regional basis and works withcenter directors and our contract centers to build enrollment. New enrollment is generated by word of mouth, print advertising, direct mail campaigns, digitalmarketing, parent referral programs and business outreach. Individual centers may receive assistance from employer sponsors, who often provide access tochannels of internal communication, such as e-mail, websites, intranets, mailing lists and internal publications. In addition, many employer sponsorspromote the child care and early education center as an important employee benefit.CompetitionWe believe that we are a leader in the markets for employer-sponsored center-based child care and back-up dependent care and maintain approximatelyfive times more market share in the United States than our closest competitors who provide employer-sponsored centers. The market for child care and earlyeducation services is highly fragmented, and we compete for enrollment and for sponsorship of child care and early education centers with a variety of otherbusinesses including large residential child care companies, regional child care providers, family day care (operated out of the caregiver’s home), nannies, for-profit and not-for-profit full- and part-time nursery schools, private schools and public elementary schools, and not-for-profit and government-fundedproviders of center-based child care. Our principal competitors for employer-sponsored centers include Knowledge Learning Corporation, Children’s Choice,New Horizons, Kids Unlimited, Childbase and Busy Bees in the United States and the United Kingdom. Competition for back-up dependent care andeducational advising comes from some of these same competitors in addition to employee assistance programs, payment processors and smaller work/lifecompanies. In addition, we compete for enrollment on a center-by-center basis with some of the providers named above, along with many local and nationalproviders, such as Goddard Schools, Primrose Preschools, Asquith Court, Catalpa, SKON and Learning Care Group in the United States, the UnitedKingdom and the Netherlands.We believe that the key factors in the competition for enrollment are quality of care, site convenience and cost. We believe that many center-based childcare providers are able to offer care at lower prices than we do by utilizing less intensive adult-to-child ratios and offering their staff lower compensation andlimited or less affordable benefits. While our tuition levels are generally higher than our competitors, we compete primarily based on the convenience of a work-site location and a higher level of program quality. In addition, many of our competitors may have access to greater financial resources (such as access togovernment funding or other subsidies), or may benefit from broader name recognition (such as established regional providers) or comply or are required tocomply with fewer or less costly health, safety, and operational regulations than those with which we comply (such as the more limited health, safety andoperational regulatory requirements typically applicable to family day care operations in caregivers’ homes). 17Table of ContentsWe believe that our primary focus on employer clients and track record for achieving and maintaining high-quality standards distinguishes us from ourcompetitors. We believe we are well-positioned to continue attracting new employer sponsors due to our extensive service offerings, established reputation,position as a quality leader and track record of serving major employer sponsors for over 25 years.Intellectual PropertyWe believe that our name and logo have significant value and are important to our operations. We own and use various registered and unregisteredtrademarks covering the names Bright Horizons and Bright Horizons Family Solutions, our logo and a number of other names, slogans and designs. Wefrequently license the use of our registered trademarks to our clients in connection with the use of our services, subject to customary restrictions. We activelyprotect our trademarks by registering the marks in a variety of countries and geographic areas, including North America, Asia and Southeast Asia, the PacificRim, Europe and Australia. These registrations are subject to varying terms and renewal options. However, not all of the trademarks or service marks havebeen registered in all of the countries in which we do business, and we are aware of persons using similar marks in certain countries in which we currently donot do business. Meanwhile, we monitor our trademarks and vigorously oppose the infringement of any of our marks. We do not hold any patents, and wehold copyright registrations for certain materials that are material to the operation of our business. We generally rely on common law protection for thosecopyrighted works which are not material to the operation of our business. We also license some intellectual property from third parties for use in our business.Such licenses are not individually or in the aggregate material to our business.Regulatory MattersWe are subject to various federal, state and local laws affecting the operation of our business, including various licensing, health, fire and safetyrequirements and standards. In most jurisdictions in which we operate, our child care centers are required by law to meet a variety of operational requirements,including minimum qualifications and background checks for our teachers and other center personnel. State and local regulations may also impact the designand furnishing of our centers.Internationally, we are subject to national and local laws and regulations that often are similar to those affecting us in the United States, including lawsand regulations concerning various licensing, health, fire and safety requirements and standards. We believe that our centers comply in all material respectswith all applicable laws and regulations in these countries.Health and SafetyThe safety and well-being of children and our employees is paramount for us. We employ a variety of security measures at our child care and earlyeducation centers, which typically include secure electronic access systems as well as sign-in and sign-out procedures for children, among other site-specificsecurity measures. In addition, our trained teachers and open center designs help ensure the health and safety of children. Our child care and early educationcenters are designed to minimize the risk of injury to children by incorporating such features as child-sized amenities, rounded corners on furniture andfixtures, age-appropriate toys and equipment and cushioned fall zones surrounding play structures.Each center is further guided by a policies and procedures manual and a center management guide that address protocols for safe and appropriate care ofchildren and center administration. These guidelines establish center protocols in areas including the safe handling of medications, managing child illness orhealth emergencies and a variety of other critical aspects of care to ensure that centers meet or exceed all mandated licensing standards. The center managementguide is reviewed and updated continuously by a team of internal experts, and center personnel are trained on center practices using this tool. Our proprietaryWe Care system supports proper supervision of children and documents the transitions of children to and from the care of teachers and parents or from oneclassroom to another during the day. 18Table of ContentsEnvironmentalOur operations, including the selection and development of the properties that we lease and any construction or improvements that we make at thoselocations, are subject to a variety of federal, state and local laws and regulations, including environmental, zoning and land use requirements. In addition, wehave a practice of conducting site evaluations on each freestanding or newly constructed or renovated property that we own or lease. Although we have noknown material environmental liabilities, environmental laws may require owners or operators of contaminated property to remediate that property, regardlessof fault.EmployeesAs of December 31, 2012, we had approximately 22,000 employees (including part-time and substitute teachers), of whom approximately 1,000 wereemployed at our corporate, divisional and regional offices, and the remainder of whom were employed at our child care and early education centers. Child careand early education center employees include teachers and support personnel. The total number of employees includes approximately 4,000 employees workingoutside of the United States. We conduct annual surveys to assess employee satisfaction and can adjust programs, benefits offerings, trainings,communications and other support to meet employee needs and enhance retention. We have a long track record of being named a “Best Place to Work” in theUnited States and more recently in the United Kingdom, Ireland and the Netherlands based largely upon employee responses to surveys. We believe ourrelationships with our employees are good.FacilitiesOur child care and early education centers are primarily operated at work-site locations and vary in design and capacity in accordance with employersponsor needs and state and local regulatory requirements. Our North American child care and early education centers typically have an average capacity of126 children. Our locations in Europe and India have an average capacity of 70 children. As of December 31, 2012, our child care and early education centershad a total licensed capacity of approximately 87,100 children, with the smallest center having a capacity of 10 children and the largest having a capacity ofapproximately 500 children.We believe that attractive, spacious and child-friendly facilities with warm, nurturing and welcoming atmospheres are an important element in fosteringa high-quality learning environment for children. Our centers are designed to be open and bright and to maximize supervision visibility. We devote considerableresources to equipping our centers with child-sized amenities, indoor and outdoor play areas comprised of age-appropriate materials and design, familyhospitality areas and computer centers. Commercial kitchens are typically only present in those centers where regulations require that hot meals be prepared onsite.Available InformationWe make available, free of charge, on our corporate website www.brighthorizons.com, the annual report on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of1934, as amended, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission(“SEC”). The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C.20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Information filed wit theSEC is also available at www.sec.gov. References to these websites do not constitute incorporation by reference of the information contained therein and shouldnot be considered part of this document. 19Table of ContentsItem 1A. Risk FactorsRisks Related to Our Business and IndustryChanges in the demand for child care and other dependent care services, which may be negatively affected by economic conditions, may affect ouroperating results.Our business strategy depends on employers recognizing the value in providing employees with child care and other dependent care services as anemployee benefit. The number of employers that view such services as cost-effective or beneficial to their work forces may not continue to grow or maydiminish. In addition, demographic trends, including the number of dual-income families in the work force, may not continue to lead to increased demand forour services. Such changes could materially and adversely affect our business and operating results.Even among employers that recognize the value of our services, demand may be adversely affected by general economic conditions. For example, duringthe recent recession, we believe sustained uncertainty in U.S. and global economic conditions and persistently high unemployment domestically resulted inreduced enrollment levels at our mature P&L centers, and enrollment remains below pre-recession levels, and in certain locations has not begun to recover.Should the economy experience additional or prolonged weakness, employer clients may reduce or eliminate their sponsorship of work and family services,and prospective clients may not commit resources to such services. In addition, a reduction in the size of an employer’s workforce could negatively impact thedemand for our services and result in reduced enrollment or failure of our employer clients to renew their contracts. A deterioration of general economicconditions may adversely impact the need for our services because out-of-work parents may diminish or discontinue the use of child care services, or beunwilling to pay tuition for high-quality services. Additionally, we may not be able to increase tuition at a rate consistent with increases in our operating costs.If demand for our services were to decrease, it could disrupt our operations and have a material adverse effect on our business and operating results.Our business depends largely on our ability to hire and retain qualified teachers.State laws require our teachers and other staff members to meet certain educational and other minimum requirements, and we often require that teachersand staff at our centers have additional qualifications. We are also required by state laws to maintain certain prescribed minimum adult-to-child ratios. If weare unable to hire and retain qualified teachers at a center, we could be required to reduce enrollment or be prevented from accepting additional enrollment inorder to comply with such mandated ratios. In certain markets, we may experience difficulty in attracting, hiring and retaining qualified teachers, which mayrequire us to offer increased salaries and enhanced benefits in these more competitive markets. This could result in increased costs at centers located in thesemarkets. Difficulties in hiring and retaining qualified personnel may also affect our ability to meet growth objectives in certain geographies and to takeadvantage of additional enrollment opportunities at our child care and early education centers in these markets.Our substantial indebtedness could adversely affect our financial condition.We have a significant amount of indebtedness. As of December 31, 2012, we had total indebtedness of $928.3 million, excluding approximately $0.8million of undrawn letters of credit and $74.9 million of unused commitments under our revolving credit facility.On January 30, 2013, we entered into new $890.0 million senior secured credit facilities to refinance all of the existing indebtedness under the seniorcredit facilities and the senior subordinated notes.We currently have total indebtedness of $790.0 million, excluding approximately $0.8 million of undrawn letters of credit and $99.9 million of unusedcommitments under our revolving credit facility. Our high level of debt could have important consequences, including: • limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporaterequirements and increasing our cost of borrowing; 20Table of Contents • requiring a substantial portion of our cash flow to be dedicated to debt service payments instead of other purposes, thereby reducing the amount ofcash flow available for working capital, capital expenditures, acquisitions and other general corporate purposes; • exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under our senior credit facilities, are atvariable rates of interest; • limiting our flexibility in planning for and reacting to changes in the industry in which we compete; and • placing us at a disadvantage compared to other, less leveraged competitors or competitors with comparable debt at more favorable interest rates.We and our subsidiaries may be able to incur significant additional indebtedness in the future. Although the agreement governing our new senior securedcredit facilities contains restrictions on the incurrence of additional indebtedness, those restrictions are subject to a number of qualifications and exceptions,and the additional indebtedness incurred in compliance with those restrictions could be substantial. We may also seek to amend or refinance one or more of ourdebt instruments to permit us to finance our growth strategy or improve the terms of our indebtedness, just as we amended our prior senior secured creditfacilities in 2012 to finance the acquisition of Casterbridge in the United Kingdom in May 2012, and, in January 2013, refinanced the senior secured creditfacilities and senior subordinated notes, described elsewhere in this annual report on Form 10-K.In addition, the borrowings under our new senior secured credit facilities bear interest at variable rates. If market interest rates increase, variable rate debtwill create higher debt service requirements, which could adversely affect our cash flow. Assuming all amounts under our new senior secured credit facilitiesare fully drawn, a 100 basis point change in interest rates would result in a $8.9 million change in annual interest expense on our indebtedness under our newsenior secured credit facilities (subject to our base rate and LIBOR floors, as applicable). While we may in the future enter into agreements limiting ourexposure to higher interest rates, any such agreements may not offer complete protection from this risk.The terms of our indebtedness restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.The new credit agreement governing our $890.0 million senior secured credit facilities contains a number of restrictive covenants that impose significantoperating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on ourability to incur certain liens, make investments and acquisitions, incur or guarantee additional indebtedness, pay dividends or make other distributions inrespect of, or repurchase or redeem, capital stock, or enter into certain other types of contractual arrangements affecting our subsidiaries or indebtedness. Inaddition, the restrictive covenants in the new $890.0 million credit agreement governing our senior secured credit facilities require us to maintain specifiedfinancial ratios and satisfy other financial condition tests, and we expect that the agreements governing any new senior secured credit facilities will containsimilar requirements to satisfy financial condition tests and, with respect to any new revolving credit facility, maintain specified financial ratios, subject tocertain conditions. Our ability to meet those financial ratios and tests can be affected by events beyond our control.A breach of the covenants under the credit agreement governing our new $890.0 million senior secured credit facilities could result in an event of defaultunless we obtain a waiver to avoid such default. If we are unable to obtain a waiver, such a default may allow the creditors to accelerate the related debt andmay result in the acceleration of or default under any other debt to which a cross-acceleration or cross-default provision applies. In the event our lendersaccelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. 21Table of ContentsAcquisitions may disrupt our operations or expose us to additional risk.Acquisitions are an integral part of our growth strategy. Acquisitions involve numerous risks, including potential difficulties in the integration ofacquired operations, such as bringing new centers through the re-licensing or accreditation processes, successfully implementing our curriculum programs,not meeting financial objectives, increased costs, undisclosed liabilities not covered by insurance or by the terms of the acquisition, diversion of management’sattention and resources in connection with an acquisition, loss of key employees of the acquired operation, failure of acquired operations to effectively andtimely adopt our internal control processes and other policies, and write-offs or impairment charges relating to goodwill and other intangible assets. We may nothave success in identifying, executing and integrating acquisitions in the future.The success of our operations in international markets is highly dependent on the expertise of local management and operating staff, as well asthe political, social, legal and economic operating conditions of each country in which we operate.The success of our business depends on the actions of our employees. In international markets that are newer to our business, we are highly dependenton our current local management and operating staff to operate our centers in these markets in accordance with local law and best practices. If the localmanagement or operating staff were to leave our employment, we would have to expend significant time and resources building up our management oroperational expertise in these markets. Such a transition could adversely affect our reputation in these markets and could materially and adversely affect ourbusiness and operating results.If the international markets in which we compete are affected by changes in political, social, legal, economic or other factors, our business and operatingresults may be materially and adversely affected. As of December 31, 2012, we had 171 centers located in five foreign countries; therefore, we are subject toinherent risks attributed to operating in a global economy. Our international operations may subject us to additional risks that differ in each country in whichwe operate, and such risks may negatively affect our results. The factors impacting the international markets in which we operate may include changes inlaws and regulations affecting the operation of child care centers, the imposition of restrictions on currency conversion or the transfer of funds or increases inthe taxes paid and other changes in applicable tax laws.In addition, instability in European financial markets or other events could cause fluctuations in exchange rates that may affect our revenues. Most ofour revenues, costs and debts are denominated in U.S. dollars. However, revenues and costs from our operations outside of the United States are denominatedin the currency of the country in which the center is located, and these currencies could become less valuable as a result of exchange rate fluctuations. Thecurrent European debt crisis and related European financial restructuring efforts may cause the value of the European currencies, including the British poundand the Euro, to deteriorate. The potential dissolution of the Euro, or market perceptions concerning this and related issues, could adversely affect the value ofour Euro- and British pound-denominated assets. Unfavorable currency fluctuations as a result of this and other market forces could result in a reduction inour revenues and net earnings, which in turn could materially and adversely affect our business and operating results.Because our success depends substantially on the value of our brands and reputation as a provider of choice, adverse publicity could impact thedemand for our services.Adverse publicity concerning reported incidents or allegations of physical or sexual abuse or other harm to a child at any child care center, whether ornot directly relating to or involving Bright Horizons, could result in decreased enrollment at our child care centers, termination of existing corporaterelationships or inability to attract new corporate relationships, or increased insurance costs, all of which could adversely affect our operations. Brand valueand our reputation can be severely damaged even by isolated incidents, particularly if the incidents receive considerable negative publicity or result insubstantial litigation. These incidents may arise from events that are beyond our ability to control and may damage our brands and reputation, such asinstances of physical or sexual abuse or actions taken (or not taken) by one or more center managers or teachers relating to the health, safety or welfare ofchildren in our care. In addition, from time to time, customers and others make 22Table of Contentsclaims and take legal action against us. Whether or not customer claims or legal action related to our performance have merit, they may adversely affect ourreputation and the demand for our services. Demand for our services could diminish significantly if any such incidents or other matters erode consumerconfidence in us or our services, which would likely result in lower sales, and could materially and adversely affect our business and operating results. Anyreputational damage could have a material adverse effect on our brand value and our business, which, in turn, could have a material adverse effect on ourfinancial condition and results of operations.Our business activities subject us to litigation risks that may lead to significant reputational damage, money damages and other remedies andincrease our litigation expense.Because of the nature of our business, we may be subject to claims and litigation alleging negligence, inadequate supervision or other grounds forliability arising from injuries or other harm to the people we serve, primarily children. We may also be subject to employee claims based on, among otherthings, discrimination, harassment or wrongful termination. In addition, claimants may seek damages from us for physical or sexual abuse, and other actsallegedly committed by our employees or agents. We face the risk that additional lawsuits may be filed which could result in damages and other costs that ourinsurance may be inadequate to cover. In addition to diverting our management resources, such allegations may result in publicity that may materially andadversely affect us and our brands, regardless of whether such allegations are valid. Any such claim or the publicity resulting from it may have a materialadverse effect on our business, reputation, results of operations and financial condition including, without limitation, adverse effects caused by increased costor decreased availability of insurance and decreased demand for our services from employer sponsors and families.Our international operations may be subject to additional risks related to litigation, including difficulties enforcing contractual obligations governed byforeign law due to differing interpretations of rights and obligations, limitations on the availability of insurance coverage and limits, compliance with multipleand potentially conflicting laws, new and potentially untested laws and judicial systems and reduced or diminished protection of intellectual property. Asubstantial judgment against us or one of our subsidiaries could materially and adversely affect our business and operating results.Our continued profitability depends on our ability to pass on our increased costs to our customers.Hiring and retaining key employees and qualified personnel, including teachers, is critical to our business. Because we are primarily a servicesbusiness, inflationary factors such as wage and benefits cost increases result in significant increases in the costs of running our business. In addition,increased competition for teachers in certain markets could result in significant increases in the costs of running our business. Any employee organizing effortscould also increase our payroll and benefits expenses. Our success depends on our ability to continue to pass along these costs to our customers. In the eventthat we cannot increase the cost of our services to cover these higher wage and benefit costs without reducing customer demand for our services, our revenuescould be adversely affected, which could have a material adverse effect on our financial condition and results of operations, as well as our growth.Changes in our relationships with employer sponsors may affect our operating results.We derive a significant portion of our business from child care and early education centers associated with employer sponsors for whom we providethese services at single or multiple sites pursuant to contractual arrangements. Our contracts with employers for full service center-based care typically haveterms of three to ten years, and our contracts related to back-up dependent care typically have terms of one to three years. While we have a history of consistentcontract renewals, we may not experience a similar renewal rate in the future. The termination or non-renewal of a significant number of contracts or thetermination of a multiple-site client relationship could have a material adverse effect on our business, results of operations, financial condition or cash flows. 23Table of ContentsSignificant increases in the costs of insurance or of insurance claims or our deductibles may negatively affect our profitability.We currently maintain the following major types of commercial insurance policies: workers’ compensation, commercial general liability (includingcoverage for sexual and physical abuse), professional liability, automobile liability, excess and “umbrella” liability, commercial property coverage, studentaccident coverage, employment practices liability, commercial crime coverage, fiduciary liability, privacy breach/Internet liability and directors’ and officers’liability. These policies are subject to various limitations, exclusions and deductibles. To date, we have been able to obtain insurance in amounts we believe tobe appropriate. Such insurance, particularly coverage for sexual and physical abuse, may not continue to be readily available to us in the form or amounts wehave been able to obtain in the past, or our insurance premiums could materially increase in the future as a consequence of conditions in the insurancebusiness or in the child care industry.Changes in laws and regulations could impact the way we conduct business.Our child care and early education centers are subject to numerous national, state and local regulations and licensing requirements. Although theseregulations vary greatly from jurisdiction to jurisdiction, government agencies generally review, among other issues, the adequacy of buildings and equipment,licensed capacity, the ratio of adults to children, educational qualifications and training of staff, record keeping, dietary program, daily curriculum, hiringpractices and compliance with health and safety standards. Failure of a child care or early education center to comply with applicable regulations andrequirements could subject it to governmental sanctions, which can include fines, corrective orders, placement on probation or, in more serious cases,suspension or revocation of one or more of our child care centers’ licenses to operate, and require significant expenditures to bring our centers into compliance.Although we expect to pay employees at rates above the minimum wage, increases in the statutory minimum wage rates could result in a correspondingincrease in the wages we pay to our employees.Our operating results are subject to seasonal fluctuations.Our revenue and results of operations fluctuate with the seasonal demands for child care and the other services we provide. Revenue in our child carecenters that have mature operating levels typically declines during the third quarter due to decreased enrollments over the summer months as families withdrawchildren for vacations and older children transition into elementary schools. In addition, use of our back-up services tends to be higher when school is not insession and during holiday periods, which can increase the operating costs of the program and impact results of operations. We may be unable to adjust ourexpenses on a short-term basis to minimize the effect of these fluctuations in revenue. Our quarterly results of operations may also fluctuate based upon thenumber and timing of child care center openings and/or closings, acquisitions, the performance of new and existing child care and early education centers, thecontractual arrangements under which child care centers are operated, the change in the mix of such contractual arrangements, competitive factors and generaleconomic conditions. The inability of existing child care centers to maintain their current enrollment levels and profitability, the failure of newly opened childcare centers to contribute to profitability and the failure to maintain and grow our other services could result in additional fluctuations in our future operatingresults on a quarterly or annual basis.We depend on key management and key employees to manage our business.Our success depends on the efforts, abilities and continued services of our executive officers and other key employees. We believe future success willdepend upon our ability to continue to attract, motivate and retain highly-skilled managerial, sales and marketing, divisional, regional and child care and earlyeducation center director personnel.Significant competition in our industry could adversely affect our results of operations.We compete for enrollment and sponsorship of our child care and early education centers in a highly-fragmented market. For enrollment, we competewith family child care (operated out of the caregiver’s home) 24Table of Contentsand center-based child care (such as residential and work-site child care centers, full- and part-time nursery schools, private and public elementary schoolsand church-affiliated and other not-for-profit providers). In addition, substitutes for organized child care, such as relatives and nannies caring for children,can represent lower cost alternatives to our services. For sponsorship, we compete primarily with large residential child care companies with divisions focusedon employer sponsorship and with regional child care providers who target employer sponsorship. We believe that our ability to compete successfully dependson a number of factors, including quality of care, site convenience and cost. We often face a price disadvantage to our competition, which may have access togreater financial resources, greater name recognition or lower operating or compliance costs. In addition, certain competitors may be able to operate with little orno rental expense and sometimes do not comply or are not required to comply with the same health, safety and operational regulations with which we comply.Therefore, we may be unable to continue to compete successfully against current and future competitors.The growth of our business may be adversely affected if we do not execute our growth strategies successfully.Our ability to grow in the future will depend upon a number of factors, including the ability to develop and expand new and existing client relationships,to continue to provide and expand the high-quality services we offer and to hire and train qualified personnel. Achieving and sustaining growth increasesrequires the successful execution of our growth strategies, which may require the implementation of enhancements to operational and financial systems,expanded sales and marketing capacity and additional or new organizational resources. We may be unable to manage our expanding operations effectively, orwe may be unable to maintain or accelerate our growth.Governmental universal child care benefit programs could reduce the demand for our services.National, state or local child care benefit programs comprised primarily of subsidies in the form of tax credits or other direct government financial aidprovide us opportunities for expansion in additional markets. However, a universal benefit with governmentally mandated or provided child care could reducethe demand for early care services at our existing child care and early education centers due to the availability of lower cost care alternatives or could placedownward pressure on the tuition and fees we charge, which could adversely affect our revenues and results of operations.Breaches in data security could adversely affect our financial condition and operating results.For various operational needs, we receive certain personal information including credit card information and personal information for the children andfamilies that we serve. While we have policies and practices that protect our data, a compromise of our systems that results in unauthorized persons obtainingpersonal information could adversely affect our reputation and our operations, results of operations, financial condition or cash flows, and could result inlitigation against us or in the imposition of penalties. In addition, a security breach could require us to expend significant additional resources related to thesecurity of our information systems and could result in a disruption to our operations.A regional or global health pandemic or other catastrophic event could severely disrupt our business.A health pandemic is a disease that spreads rapidly and widely by infection and affects many individuals in an area or population at the same time. Aregional or global health pandemic, depending upon its duration and severity, could severely affect our business. Enrollment in our child care centers couldexperience sharp declines as families might avoid taking their children out in public in the event of a health pandemic, and local, regional or nationalgovernments might limit or ban public interactions to halt or delay the spread of diseases causing business disruptions and the temporary closure of ourcenters. Additionally, a health pandemic could also impair our ability to hire and retain an adequate level of staff. A health pandemic may have adisproportionate impact on our business compared to other companies that depend less on the performance of services by employees. 25Table of ContentsOther unforeseen events, including war, terrorism and other international, regional or local instability or conflicts (including labor issues), embargos,natural disasters such as earthquakes, tsunamis, hurricanes, or other adverse weather and climate conditions, whether occurring in the United States orabroad, could disrupt our operations or result in political or economic instability. Enrollment in our child care centers could experience sharp declines asfamilies might avoid taking their children out in public as a result of one or more of these events.Risks Related to Our Common StockWe are a “controlled company” within the meaning of the New York Stock Exchange listing rules and, as a result, we qualify for, and intend torely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders ofcompanies that are subject to such requirements.Our Sponsor continues to control a majority of the voting power of our outstanding common stock. As a result, we are a “controlled company” withinthe meaning of the corporate governance standards of the New York Stock Exchange. Under these rules, a company of which more than 50% of the votingpower is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governancerequirements including: • the requirement that a majority of the board of directors consist of independent directors; • the requirement that we have a nominating/corporate governance committee that is composed entirely of independent directors with a written charteraddressing the committee’s purpose and responsibilities; • the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing thecommittee’s purpose and responsibilities; and • the requirement for an annual performance evaluation of the nominating/corporate governance and compensation committees.We intend to continue to utilize these exemptions for so long as the Sponsor continues to control a majority of the voting power of our outstandingcommon stock. As a result, we do not have a majority of independent directors, our compensation committee does not consist entirely of independent directorsand the board committees are not subject to annual performance evaluations. In addition, we do not have a nominating and corporate governance committee.Accordingly, investors do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirementsof the New York Stock Exchange (“NYSE”).The Sponsor has agreed, subject to certain exceptions, not to sell or otherwise dispose of any shares of our common stock or other capital stock or othersecurities exercisable or convertible therefor for a period of at least 180 days after January 24, 2013, the date our initial public offering became effective,without the prior written consent of Goldman, Sachs & Co., J.P. Morgan Securities LLC and Barclays Capital Inc. Except for this brief period, there can beno assurance as to the period of time during which the Sponsor will maintain its ownership of our common stock.Our stock price could be extremely volatile, and, as a result, you may not be able to resell your shares at or above the price you paid for them.Since our initial public offering in January 2013, the price of our common stock, as reported by NYSE, has ranged from a low of $22.00 onJanuary 25, 2013 to a high of $35.13 on March 20, 2013.The stock market in general has been highly volatile. As a result, the market price of our common stock is likely to be similarly volatile, and investorsin our common stock may experience a decrease, which could be 26Table of Contentssubstantial, in the value of their stock, including decreases unrelated to our operating performance or prospects, and could lose part or all of their investment.The price of our common stock could be subject to wide fluctuations in response to a number of factors, including those described elsewhere herein and otherssuch as: • variations in our operating performance and the performance of our competitors; • actual or anticipated fluctuations in our quarterly or annual operating results; • publication of research reports by securities analysts about us or our competitors or our industry; • our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market; • additions and departures of key personnel; • strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes inbusiness strategy; • the passage of legislation or other regulatory developments affecting us or our industry; • speculation in the press or investment community; • changes in accounting principles; • terrorist acts, acts of war or periods of widespread civil unrest; • natural disasters and other calamities; and • changes in general market and economic conditions.In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type oflitigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments tosatisfy judgments or to settle litigation.There may be sales of a substantial amount of our common stock by our current stockholders, and these sales could cause the price of ourcommon stock to fall.As of March 15, 2013, there were 64,533,873 shares of common stock outstanding. Approximately 79.9% of our outstanding common stock isbeneficially owned by investment funds affiliated with the Sponsor and members of our management and employees.Sales of substantial amounts of our common stock in the public market, or the perception that such sales will occur, could adversely affect the marketprice of our common stock and make it difficult for us to raise funds through securities offerings in the future.In addition, certain holders of shares of our common stock may require us to register their shares for resale under the federal securities laws, and holdersof additional shares of our common stock would be entitled to have their shares included in any such registration statement, all subject to reduction upon therequest of the underwriter of the Offering, if any. Registration of those shares would allow the holders to immediately resell their shares in the public market.Any such sales or anticipation thereof could cause the market price of our common stock to decline.In addition, we have registered 5 million shares of common stock that are reserved for issuance under our 2012 Omnibus Long-Term Incentive Plan.Provisions in our charter documents and Delaware law may deter takeover efforts that could be beneficial to stockholder value.In addition to the Sponsor’s beneficial ownership of a controlling percentage of our common stock, our certificate of incorporation and by-laws andDelaware law contain provisions that could make it harder for a third 27Table of Contentsparty to acquire us, even if doing so might be beneficial to our stockholders. These provisions include a classified board of directors and limitations onactions by our stockholders. In addition, our board of directors has the right to issue preferred stock without stockholder approval that could be used to dilutea potential hostile acquiror. Our certificate of incorporation also imposes some restrictions on mergers and other business combinations between us and anyholder of 15% or more of our outstanding common stock other than the Sponsor. As a result, you may lose your ability to sell your stock for a price in excessof the prevailing market price due to these protective measures, and efforts by stockholders to change the direction or management of the company may beunsuccessful.Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types ofactions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forumfor disputes with us or our directors, officers or employees.Our certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware will be the sole and exclusiveforum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of ourdirectors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the DelawareGeneral Corporation Law, our certificate of incorporation or our by-laws, or (iv) any other action asserting a claim against us that is governed by the internalaffairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and tohave consented to the provisions of our certificate of incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring aclaim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits againstus and our directors, officers and employees. Alternatively, if a court were to find these provisions of our certificate of incorporation inapplicable to, orunenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such mattersin other jurisdictions, which could adversely affect our business and financial condition.The Sponsor continues to have significant influence over us in the future, including control over decisions that require the approval ofstockholders, which could limit your ability to influence the outcome of key transactions, including a change of control.We are currently controlled by the Sponsor. As of March 15, 2013, investment funds affiliated with the Sponsor beneficially owned 79.9% of ouroutstanding common stock. For as long as the Sponsor continues to beneficially own shares of common stock representing more than 50% of the voting powerof our common stock, it will be able to direct the election of all of the members of our board of directors and could exercise a controlling influence over ourbusiness and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, theincurrence of indebtedness, the issuance of any additional common stock or other equity securities, the repurchase or redemption of common stock and thepayment of dividends. Similarly, the Sponsor will have the power to determine matters submitted to a vote of our stockholders without the consent of our otherstockholders, will have the power to prevent a change in our control and could take other actions that might be favorable to it. Even if its ownership falls below50%, the Sponsor will continue to be able to strongly influence or effectively control our decisions.Additionally, the Sponsor is in the business of making investments in companies and may acquire and hold interests in businesses that competedirectly or indirectly with us. The Sponsor may also pursue acquisition opportunities that may be complementary to our business, and, as a result, thoseacquisition opportunities may not be available to us. 28Table of ContentsBecause we have no current plans to pay cash dividends on our common stock for the foreseeable future, you may not receive any return oninvestment unless you sell your common stock for a price greater than that which you paid for it.We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for theforeseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, amongother things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deemrelevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiariesincur, including our senior credit facilities. As a result, you may not receive any return on an investment in our common stock unless you sell our commonstock for a price greater than that which you paid for it. Item 1B.Unresolved Staff CommentsNone. Item 2.PropertiesWe lease approximately 86,000 square feet of office space for our corporate headquarters in Watertown, Massachusetts under an operating lease thatexpires in 2020, with two ten-year renewal options. We also lease approximately 24,000 square feet for our contact center in Broomfield, Colorado, as well asspace for regional administrative offices located in New York City; Brentwood, Tennessee; Corte Madera, California; Lisle, Illinois; Irving, Texas; DeerfieldBeach, Florida; Rushden, London and Edinburgh in the United Kingdom; and Amsterdam, in the Netherlands. In addition, we also maintain small, regionaloffices for our College Coach division.As of December 31, 2012, we operated 765 child care and early education centers in 42 U.S. states and the District of Columbia, Puerto Rico, theUnited Kingdom, Canada, Ireland, the Netherlands and India, of which 72 were owned, with the remaining centers being operated under leases or operatingagreements. The leases typically have initial terms ranging from 10 to 15 years with various expiration dates, often with renewal options. Certain ownedproperties are subject to mortgages under the terms of our senior credit agreement governing our senior credit facilities. 29Table of ContentsThe following table summarizes the locations of our child care and early education centers as of December 31, 2012: Location Number ofCenters Alabama 3 Alaska 1 Arizona 6 California 68 Colorado 18 Connecticut 20 Delaware 8 District of Columbia 19 Florida 29 Georgia 20 Illinois 40 Indiana 7 Iowa 7 Kentucky 5 Louisiana 2 Maine 2 Maryland 13 Massachusetts 55 Michigan 9 Minnesota 9 Missouri 7 Montana 1 Nebraska 4 Nevada 4 New Hampshire 3 New Jersey 55 New Mexico 1 New York 45 North Carolina 21 Ohio 9 Oklahoma 1 Oregon 1 Pennsylvania 18 Puerto Rico 1 Rhode Island 1 South Carolina 1 South Dakota 1 Tennessee 5 Texas 25 Utah 1 Virginia 14 Washington 23 Wisconsin 10 Wyoming 1 Canada 2 Ireland 7 United Kingdom 139 Netherlands 22 India 1 30Table of ContentsWe believe that our properties are generally in good condition, are adequate for our operations, and meet or exceed the regulatory requirements for health,safety and child care licensing established by the governments where they are located. Item 3.Legal ProceedingsWe are, from time to time, subject to claims and suits arising in the ordinary course of business. Such claims have in the past generally been covered byinsurance. We believe the resolution of such legal matters will not have a material adverse effect on our financial condition, results of operations or cash flows,although we cannot predict the ultimate outcome of any such actions. Furthermore, there can be no assurance that our insurance will be adequate to cover allliabilities that may arise out of claims brought against us. Item 4.Mine Safety DisclosuresNone. 31Table of ContentsPART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesPrincipal MarketOur common stock began trading on the New York Stock Exchange under the symbol “BFAM” on January 25, 2013. Prior to that time, there was nopublic market for our common stock. There were approximately 25 shareholders as of March 15, 2013 based upon the number of record holders.Dividend PolicyThere were no cash dividends paid on any of our classes of equity during the past two fiscal years. Our board of directors does not currently intend topay regular dividends on our common stock. However, we expect to reevaluate our dividend policy on a regular basis and may, subject to compliance with thecovenants contained in our senior secured credit facilities and other considerations, determine to pay dividends in the future.Use of Proceeds from our Initial Public OfferingIn January 2013, we completed the initial public offering of our common stock pursuant to a registration statement on Form S-1, as amended (FileNo. 333-184579), that was declared effective on January 24, 2013. Under the registration statement, we registered the offering and sale of an aggregate of10.1 million shares of our common stock at a price of $22.00 per share for net proceeds of $202.2 million. We also received additional proceeds of $31.1million in connection with the exercise of the underwriter’s overallotment of 1.5 million shares of common stock.Goldman, Sachs & Co., J.P. Morgan Securities LLC and Barclays Capital Inc. served as joint book running managers of the Offering. The Offeringcommenced on January 24, 2013 and closed on January 30, 2013. The sale of shares pursuant to the underwriters’ option to purchase additional shares closedon February 21, 2013.We raised a total of $222.2 million in gross proceeds in the initial public offering or approximately $202.2 million in net proceeds after deductingunderwriting discounts and commissions of $15.0 million and $5.0 million of offering related expenses.On January 30, 2013, we deposited with the trustee under the indenture covering the Bright Horizons Capital Corp. 13.0% senior notes due 2018 theentire amount of the net proceeds from the initial public offering, plus available cash from our refinancing also completed on January 30, 2013, to repay in fullamounts outstanding in respect of the $110.0 million aggregate principal amount of the senior notes along with the related accrued interest.Recent Sales of Unregistered SecuritiesIn 2011, we issued 4,752 shares of our Class A common stock and 528 shares of our Class L common stock upon exercise of vested options foraggregate consideration of $59,400.In 2012, we issued 169,590 shares of our Class A common stock and 18,610 shares of our Class L common stock upon exercise of vested options foraggregate consideration of $2.1 million.In 2011, we issued options to purchase an aggregate of 131,000 shares of our Class A common stock under our 2008 Equity Plan. Upon vesting inaccordance with the terms of the awards made under the 2008 Equity Plan, the options are exercisable at a price equal to the fair market value of our Class Acommon stock as of the date of grant. 32Table of ContentsIn 2012, we issued options to purchase an aggregate of 1,108,674 shares of our Class A common stock and 123,186 shares of our Class L commonstock under our 2008 Equity Plan. Upon vesting in accordance with the terms of the awards made under the 2008 Equity Plan, the options are exercisable at aprice equal to the fair market value of our Class A common stock and Class L common stock as of the date of grant.The foregoing share numbers do not reflect the 1-for-1.9704 reverse split and reclassification of our Class A common stock or the conversion of ourClass L common stock.The issuances of the securities in the transactions described above were issued without registration in reliance on the exemptions afforded by Section 4(2)of the Securities Act of 1933, as amended, and Rules 506 and 701 promulgated thereunder. 33Table of ContentsItem 6.Selected Financial Data Predecessor (2) May 29 –December 31,2008 (2) Years Ended December 31, January 1 –May 28, 2008 2009 2010 2011 2012 (In thousands, except share and operating data) Consolidated Statement of Operations Data: Revenue $331,349 $482,783 $852,323 $878,159 $973,701 $1,070,938 Cost of services 261,073 389,854 672,793 698,264 766,500 825,168 Gross profit 70,276 92,929 179,530 179,895 207,201 245,770 Selling, general and administrative expenses 58,109 46,933 82,798 83,601 92,938 123,373 Amortization 1,878 16,957 29,960 27,631 27,427 26,933 Income from operations 10,289 29,039 66,772 68,663 86,836 95,464 Gains from foreign currency transactions — — — — 835 — Interest income 153 539 132 28 824 152 Interest expense (164) (49,233) (83,228) (88,999) (82,908) (83,864) Net interest expense and other (11) (48,694) (83,096) (88,971) (81,249) (83,712) Income (loss) before income taxes 10,278 (19,655) (16,324) (20,308) 5,587 11,752 Income tax (expense) benefit (4,770) 7,577 6,789 10,314 (825) (3,243) Net income (loss) 5,508 (12,078) (9,535) (9,994) 4,762 8,509 Net income attributable to noncontrollinginterest — — — — 3 347 Net income (loss) attributable to Bright HorizonsFamily Solutions Inc. $5,508 $(12,078) $(9,535) $(9,994) $4,759 $8,162 Accretion of Class L preference N/A 91,443 58,559 64,712 71,568 79,211 Accretion of Class L preference for vested options N/A 1,853 1,171 1,251 1,274 5,436 Net income (loss) available to common shareholders $5,508 $(105,374) $(69,265) $(75,957) $(68,083) $(76,485) Allocation of net income (loss) to commonstockholders—basic and diluted: Class L N/A $91,443 $58,559 $64,712 $71,568 $79,211 Class A $5,508 $(105,374) $(69,265) $(75,957) $(68,083) $(76,485) Earnings (loss) per share: Class L—basic and diluted N/A $69.51 $44.52 $49.21 $54.33 $59.73 Common—basic $0.21 $(17.54) $(11.53) $(12.64) $(11.32) $(12.62) Common—diluted $0.20 $(17.54) $(11.53) $(12.64) $(11.32) $(12.62) Weighted average shares outstanding: (1) Class L—basic and diluted N/A 1,315,545 1,315,267 1,315,153 1,317,273 1,326,206 Common—basic 26,197,127 6,008,843 6,007,482 6,006,960 6,016,733 6,058,512 Common—diluted 27,085,336 6,008,843 6,007,482 6,006,960 6,016,733 6,058,512 Consolidated Balance Sheet Data (at periodend): Total cash and cash equivalents $19,851 $9,878 $14,360 $15,438 $30,448 $34,109 Total assets 483,032 1,701,352 1,732,724 1,721,692 1,771,164 1,913,632 Total liabilities, excluding debt 198,038 354,444 364,352 362,034 389,986 398,649 Total debt, including current maturities 821 770,007 794,881 795,458 799,257 906,643 Total redeemable noncontrolling interest — — — — 15,527 8,126 Class L common stock — 574,028 633,452 699,533 772,422 854,101 Total stockholders’ deficit 284,173 2,873 (59,961) (135,333) (206,028) (253,887) 34Table of Contents(1)On January 11, 2013, we effected a 1–for–1.9704 reverse split of our Class A common stock. All previously reported Class A per share and Class Ashare amounts in the table above and in the consolidated financial statements included elsewhere herein have been retroactively adjusted to reflect thereverse stock split. In addition, we converted each share of our Class L common stock into 35.1955 shares of Class A common stock, and,immediately following the conversion of our Class L common stock, reclassified the Class A common stock into common stock, which was recorded inthe first quarter of 2013. These two events are collectively referred to herein as the “Reclassification”.(2)The selected historical financial data prior to our going private transaction (the “Predecessor”) as of May 28, 2008 and for the period from January 1,2008 to May 28, 2008, and as of December 31, 2008 and for the period from May 29, 2008 to December 31, 2008, have been derived from ourunaudited consolidated financial statements. Item 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion of our financial condition and results of operations should be read in conjunction with the “Selected Financial Data”and the audited consolidated financial statements and related notes appearing elsewhere in this annual report on Form 10-K. This discussion containsforward-looking statements and involves numerous risks and uncertainties. Forward-looking statements can be identified by the fact that they do notrelate strictly to historical or current facts and generally contain words such as “believes,” expects,” “may,” “will,” “should,” “seeks,”“approximately,” “intends,” “plans,” “estimates,” “anticipates” or similar expressions. Our forward-looking statements are subject to risks anduncertainties, which may cause actual results to differ materially from those projected or implied by the forward-looking statement. Forward-lookingstatements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of futureevents or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. See “RiskFactors” and “Cautionary Note Regarding Forward-Looking Statements” for a discussion of factors that could cause our actual results to differ fromthose expressed or implied by forward-looking statements.OverviewWe are a leading provider of high-quality child care and early education as well as other services that are designed to help employers and families betteraddress the challenges of work and life. We provide services primarily under multi-year contracts with employers who offer child care and other dependentcare solutions as part of their employee benefits packages to improve their employee engagement, productivity, recruitment and retention. As of December 31,2012, we had more than 850 client relationships with employers across a diverse array of industries, including more than 130 Fortune 500 companies andmore than 75 of Working Mother magazine’s 2012 “100 Best Companies for Working Mothers.”At December 31, 2012, we operated 765 child care and early education centers, consisting of 596 centers in North America and 169 centers in Europeand India. We have the capacity to serve approximately 87,100 children in 42 states, the District of Columbia, the United Kingdom, Puerto Rico, Canada,Ireland, the Netherlands and India. We seek to cluster centers in geographic areas to enhance operating efficiencies and to create a leading market presence. OurNorth American child care and early education centers have an average capacity of 126 children per location, while the centers in Europe and India have anaverage capacity of 70 children per location. 35Table of ContentsWe operate centers for a diverse group of clients. At December 31, 2012, we managed child care centers on behalf of single employers in the followingindustries and also manage lease/consortium locations in approximately the following proportions: Percentage of Centers Classification North America Europe Single employer locations: Consumer 7.5% 2.5% Financial Services 15.0 2.5 Government 7.5 10.0 Higher Education 5.0 2.5 Healthcare and Pharmaceuticals 17.5 5.0 Industrial/Manufacturing 5.0 2.5 Professional Services and Other 7.5 — Technology 5.0 — 70.0 25.0 Lease/consortium locations 30.0 75.0 100.0% 100.0% SegmentsOur primary reporting segments are full service center-based care services and back-up dependent care services. Full service center-based care includeschild care and early education, preschool and elementary education. Back-up dependent care includes center-based back-up child care, in-home well childcare, in home mildly ill child care and in home adult/elder care. Our remaining business services are included in the other educational advisory servicessegment, which includes our college preparation and admissions counseling services as well as tuition reimbursement management and educational counselingservices.Center ModelsWe operate our centers under two principal business models, which we refer to as profit & loss (“P&L”) and cost-plus. Approximately 70% of ourcenters operate under the P&L model. Under this model, we retain financial risk for child care and early education centers and are therefore subject tovariability in financial performance due to fluctuation in enrollment levels. The P&L model is further classified into two subcategories: (i) the sponsor modeland (ii) the lease/consortium model. Under the sponsor model, we provide child care and early education services on a priority enrollment basis for employeesof an employer sponsor, and the employer sponsor generally pays facility, pre-opening and start-up capital equipment and maintenance costs. Our operatingcontracts typically have initial terms ranging from three to ten years. Under the lease/consortium model, the child care center is typically located in an officebuilding or office park in a property that we lease, and we provide these services to the employees of multiple employers. We typically negotiate initial leaseterms of 10 to 15 years for these centers, often with renewal options.When we open a new P&L center, it generally takes two to three years for the center to ramp up to a steady state level of enrollment, as a center willtypically enroll younger children at the outset and children age into the older (preschool) classrooms over time. We refer to centers that have been open for threeyears or less as “ramping centers.” A center will typically achieve breakeven operating performance between 12 to 24 months and will typically achieve asteady state level of enrollment that supports our average center operating profit by the end of three years, although the period needed to reach a steady statelevel of enrollment may be longer or shorter. Centers that have been open more than three years are referred to as “mature centers.”Approximately 30% of our centers operate under the cost-plus business model. Under this model, we receive a management fee from the employersponsor and an additional operating subsidy from the employer to 36Table of Contentssupplement tuition paid by parents of children in the center. Under this model, the employer sponsor typically pays facility, pre-opening and start-up capitalequipment and maintenance costs, and the center is profitable from the outset. Our cost-plus contracts typically have initial terms ranging from three to fiveyears. For additional information about the way we operate our centers, see “Business—Our Business Models.”Performance and Growth FactorsWe believe that 2012 was a successful year for the Company. We grew our income from operations by 9.9%, from $86.8 million to $95.5 million. Inaddition, we added 50 child care and early education centers with a total capacity of approximately 5,900 children, including 27 centers through theacquisition of Casterbridge. In 2012, we closed 28 centers, resulting in a net increase of 22 centers for the year. We expect to add approximately 35-40 net newcenters in 2013.Our year-over-year improvement in operating income can be attributed to enrollment gains in ramping and mature centers, disciplined pricing strategiesaimed at covering anticipated cost increases with tuition increases, contributions from back-up dependent care services and contributions from mature centersobtained through acquisitions and added through transitions of management.General economic conditions and the business climate in which individual clients operate remain some of the largest variables in terms of our futureperformance. These variables impact client capital and operating spending budgets, industry specific sales leads and the overall sales cycle, enrollment levels,as well as labor markets and wage rates as competition for human capital fluctuates.Our ability to increase operating income will depend upon our ability to sustain the following characteristics of our business: • maintenance and incremental growth of enrollment in our mature and ramping centers, and cost management in response to changes in enrollmentin our centers, • effective pricing strategies, including typical annual tuition increases of 3% to 4%, consistent with typical annual increases in personnel costs,including wages and benefits, • additional growth in expanded service offerings to clients, • successful integration of acquisitions and transitions of management of centers, and • successful management and improvement of underperforming centers.Cost FactorsOur most significant expense is cost of services. Cost of services consists of direct expenses associated with the operation of our centers, direct expensesto provide back-up dependent care services (including fees to back-up dependent care providers) and direct expenses to provide educational advisory services.Direct expenses consist primarily of staff salaries, taxes and benefits, food costs, program supplies and materials, parent marketing and facilities costs,including occupancy costs and depreciation. Personnel costs are the largest component of a center’s operating costs, and, on a weighted average basis,comprise approximately 75% of a center’s operating expenses. We are typically responsible for additional costs in a P&L model center as compared to a cost-plus model center. As a result, personnel costs in centers operating under the P&L model will typically represent a smaller proportion of overall costs whencompared to the centers operating under the cost-plus model.We are highly leveraged. As of December 31, 2012, consolidated total debt was $928.3 million, which we refinanced into a $790.0 million seniorsecured term loan on January 30, 2013. Historically, a large portion of our cash flows from operations has been used to make interest payments on ourindebtedness. 37Table of ContentsSeasonalityOur business is subject to seasonal and quarterly fluctuations. Demand for child care and early education and elementary school services hashistorically decreased during the summer months when school is not in session, at which time families are often on vacation or have alternative child carearrangements. In addition, our enrollment declines as older children transition to elementary schools. Demand for our services generally increases in Septemberand October coinciding with the beginning of the new school year and remains relatively stable throughout the rest of the school year. In addition, use of ourback-up dependent care services tends to be higher when schools are not in session and during holiday periods, which can increase the operating costs of theprogram and impact the results of operations. Results of operations may also fluctuate from quarter to quarter as a result of, among other things, theperformance of existing centers, including enrollment and staffing fluctuations, the number and timing of new center openings, acquisitions and managementtransitions, the length of time required for new centers to achieve profitability, center closings, refurbishment or relocation, the contract model mix (P&Lversus cost-plus) of new and existing centers, the timing and level of sponsorship payments, competitive factors and general economic conditions. 38Table of ContentsResults of OperationsThe following table sets forth statement of operations data as a percentage of revenue for the three years ended December 31, 2012, (in thousands, exceptpercentages). Years Ended December 31, 2010 2011 2012 Revenue $878,159 100.0% $973,701 100.0% $1,070,938 100.0% Cost of services (1) 698,264 79.5% 766,500 78.7% 825,168 77.1% Gross profit 179,895 20.5% 207,201 21.3% 245,770 22.9% Selling, general and administrative expenses (2) 83,601 9.5% 92,938 9.5% 123,373 11.5% Amortization 27,631 3.2% 27,427 2.9% 26,933 2.5% Income from operations 68,663 7.8% 86,836 8.9% 95,464 8.9% Net interest expense and other 88,971 10.1% 81,249 8.3% 83,712 7.8% Income (loss) before tax (20,308) (2.3)% 5,587 0.6% 11,752 1.1% Income tax (expense) benefit 10,314 1.2% (825) (0.1)% (3,243) (0.3)% Net income (loss) $(9,994) (1.1)% $4,762 0.5% $8,509 0.8% (1)Cost of services consists of direct expenses associated with the operation of child care centers, and direct expenses to provide back-up dependent careservices, including fees to back-up care providers, and educational advisory services. Direct expenses consist primarily of salaries, taxes and benefitsfor personnel, food costs, program supplies and materials, parent marketing and facilities costs, which include occupancy costs and depreciation.(2)Selling, general and administrative (“SGA”) expenses consist primarily of salaries, payroll taxes and benefits (including stock compensation costs) forcorporate, regional and business development personnel. Other overhead costs include information technology, occupancy costs for corporate andregional personnel, professional services fees, including accounting and legal services, and other general corporate expenses.Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011Revenue. Revenue increased $97.2 million, or 9.9%, to $1.07 billion for the year ended December 31, 2012 from $973.7 million for the prior year.Revenue growth is primarily attributable to contributions from new and ramping child care and early education centers, expanded sales of our back-updependent care services and typical annual tuition increases of 3% to 4%. Revenue generated by full service center-based care services in the year endedDecember 31, 2012 increased by $77.6 million, or 9.2%, when compared to 2011. Revenue generated by back-up dependent care services in the year endedDecember 31, 2012 increased by $15.6 million, or 13.6%, when compared to the same period in 2011. Additionally, revenue generated by other educationaladvisory services in the year ended December 31, 2012 increased by $4.0 million, or 27.7%, when compared to 2011.Our acquisition of the 27 Casterbridge centers in the United Kingdom on May 23, 2012 contributed approximately $26.3 million of revenue in the yearended December 31, 2012 from the date of the acquisition. The acquisition of a majority interest in 20 centers in the Netherlands on July 20, 2011, contributedapproximately $25.4 million of revenue in the year ended December 31, 2012 compared to $10.9 million in the year ended December 31, 2011 from the date ofacquisition. At December 31, 2012, we operated 765 child care and early education centers compared to 743 centers at December 31, 2011.Cost of Services. Cost of services increased $58.7 million, or 7.7%, to $825.2 million for the year ended December 31, 2012 when compared to theprior year. Cost of services in the full service centers segment increased $52.1 million, or 7.6%, to $740.1 million in 2012. Personnel costs typically representapproximately 75% of total cost of services for this segment, and personnel costs increased 7.1% as a result of a 6.2% increase in overall enrollment androutine wage increases. In addition, program supplies, materials, food and facilities costs increased 6.9% in connection with the enrollment growth and theincremental occupancy costs associated 39Table of Contentswith centers that have been added in 2011 and 2012. Cost of services in the back-up dependent care segment increased $5.6 million, or 8.0%, to $75.4million in 2012, primarily for personnel costs and for increased care provider fees associated with the higher levels of back-up services provided. Cost ofservices in the other educational advisory services segment increased by $1.0 million, or 11.8%, to $9.7 million in 2012, as we realized economies of scalewith existing personnel on the incremental sales of these services.Gross Profit. Gross profit increased $38.6 million, or 18.6%, to $245.8 million for the year ended December 31, 2012 when compared to the prioryear, and as a percentage of revenue, increased to 22.9% in the year ended December 31, 2012 from 21.3% in the year ended December 31, 2011. The increaseis primarily due to the new and ramping P&L centers, which achieve proportionately lower levels of operating costs in relation to revenue as they ramp upenrollment to steady state levels, increased enrollment in our mature P&L centers and expanded back-up services revenue with proportionately lower direct costof services.Selling, General and Administrative Expenses. SGA increased $30.4 million, or 32.7%, to $123.4 million for the year ended December 31, 2012compared to $92.9 million for the same period in the prior year, and as a percentage of revenue increased to 11.5% from 9.5% in the same period in the prioryear. The increase in SGA was primarily due to an increase in stock compensation expense. Stock compensation expense increased $16.4 million, from $1.2million in the year ended December 31, 2011 to $17.6 million in the year ended December 31, 2012. The increase primarily relates to our option exchangetransaction that was completed on May 2, 2012. The increase was also due to the award of additional options to purchase a combination of shares of ourClass A common stock and Class L common stock in the second quarter of 2012. The modification of the previously existing awards resulted in incrementalstock compensation expense of $12.7 million, and the new option awards resulted in total incremental stock compensation expense of $2.5 million, for acombined incremental charge of $15.2 million in the quarter ended June 30, 2012 related to the requisite service period already fulfilled.Excluding the incremental stock compensation expense totaling $15.2 million in 2012, SGA increased by $15.2 million, or 16.4%, for the year endedDecember 31, 2012 compared to the same period in 2011. The additional increase in SGA is related to investments in technology and marketing, incrementaloverhead associated with acquisitions, including $3.3 million for our Netherlands operations acquired in July 2011 and $2.3 million for the 27 Casterbridgecenters acquired on May 23, 2012, and routine increases in costs compared to the prior year, including annual wage increases. In addition, we incurredapproximately $1.8 million in accounting and legal fees associated with preparing for the Offering and refinancing of our debt that were completed in January2013.Upon the completion of the Offering on January 30, 2013, we recognized approximately $5.0 million in stock compensation expense, related to certainperformance-based stock options which vested upon completion of the Offering.Amortization. Amortization expense on intangible assets totaled $26.9 million for the year ended December 31, 2012, compared to $27.4 million for theyear ended December 31, 2011. The decrease relates to certain intangible assets becoming fully amortized, partially offset by additional amortization foracquisitions completed in 2012. We do not expect any significant change in amortization expense in 2013.Income from Operations. Income from operations increased by $8.6 million, or 9.9%, to $95.5 million for the year ended December 31, 2012 whencompared to the same period in 2011. Income from operations was 8.9% of revenue for the year ended December 31, 2012, consistent with the prior year.Excluding the impact of the incremental stock compensation charge of $15.2 million in the second quarter of 2012 described above, income from operationswould have been $110.7 million, or 10.3% of revenue, an increase of $23.8 million, or 27.4%, from $86.8 million in the year ended December 31, 2011.In the full service center-based care segment, income from operations increased $1.2 million for the year ended December 31, 2012, including aproportionate share of the incremental stock compensation expense of approximately $11.2 million that was included in SGA in the year ended December 31,2012. Excluding this charge, the $12.7 million increase in 2012 reflects price increases and enrollment gains over the prior year as well as contributions fromnew centers that have been added in 2012. The back-up dependent care segment added $5.2 million in the year ended December 31, 2012. Excluding theproportionate share of the incremental stock 40Table of Contentscompensation for this segment of $2.8 million, the back-up dependent care segment added $7.7 million in income from operations in the year endedDecember 31, 2012 due to the expanding revenue base and efficiencies of service delivery across a wider revenue base. Income from operations in the othereducational advisory services segment increased $2.2 million for the year ended December 31, 2012 compared to the same period in 2011, and increased $3.4million excluding this segment’s proportionate share of the incremental stock compensation. This increase reflects the higher sales volume in the 2012 period.Interest Expense. At December 31, 2012, we had total borrowings outstanding of $928.3 million of term loans, senior subordinated notes and seniornotes, including $85.0 million term loan used in May 2012 in connection with the Casterbridge acquisition, and we had access to an additional $75.0 millionrevolving line of credit. Interest expense for the year ended December 31, 2012 totaled $83.9 million compared to $82.9 million for the same period in 2011.The increase in interest expense is primarily related to the additional borrowings in May 2012, offset by a reduction in the interest rate attributable to the termloans as a result of the expiration of the interest rate floors on our Base and Euro rates on May 28, 2011.On January 30, 2013, we completed a refinancing of our existing debt with $890.0 million senior secured credit facilities which included a $790.0million senior secured term loan facility and a $100.0 million revolving credit facility. We used the net proceeds of our initial public offering and certainproceeds from the issuance of the $790.0 million secured term loan to redeem our senior notes in full for $213.3 million. We used the remainder of the $790.0million secured term loan to repay all of the existing indebtedness under the senior subordinated notes as well as existing indebtedness outstanding under theTranche B term loans and Series C new term loans. Accordingly, we will recognize a loss on extinguishment of debt of approximately $63.0 million, includingredemption premiums on the senior notes, the senior subordinated notes and the Series C new term loans, and the write-off of deferred financing costsassociated with this indebtedness, in the first quarter of 2013. Based upon borrowings outstanding of $790.0 million after the refinancing and borrowingsavailable to us under the $100.0 million revolving line of credit, we expect interest expense to decrease significantly in 2013 compared to 2012.Income Tax Expense. We had income tax expense of $3.2 million for the year ended December 31, 2012 on pre-tax income of $11.8 million, or a 27.6%effective rate, which includes the benefit of permanent items, a reduction to the statutory tax rate in the United Kingdom and a decrease to the reserves foruncertain tax positions. Income tax expense of $0.8 million in 2011, or an effective tax rate of 14.8% was lower due primarily to the reversal of a valuationallowance in the United Kingdom.Net Income Attributable to Non-controlling Interest. Net income attributable to the non-controlling interest in our Netherlands subsidiary, whichreduces net income attributable to Bright Horizons Family Solutions Inc., increased to $0.3 million for the year ended December 31, 2012 from less than $0.1million in the prior year due to improved center performance in the Netherlands.Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010Revenue. Revenue increased $95.5 million, or 10.9%, to $973.7 million for the year ended December 31, 2011 from $878.2 million in the prior year.Revenue growth is primarily attributable to contributions from new and ramping full service child care centers, expanded sales of our back-up dependent careservices and typical annual tuition increases of 3% to 4%. Revenue generated by full service center-based care services in the year ended December 31, 2011increased by approximately $75.2 million, or 9.8%, when compared to 2010. Revenue generated by back-up dependent care services in the year endedDecember 31, 2011 increased by approximately $15.5 million, or 15.7%, when compared to 2010. Additionally, revenue generated by other educationaladvisory services increased by $4.8 million, or 48.4%, when compared to 2010.Our acquisition of 20 centers in the United States on March 14, 2011 contributed approximately $17.1 million of revenue in 2011 from the date of theacquisition. The acquisition of a majority interest in 20 centers in the Netherlands on July 20, 2011 contributed approximately $10.9 million of revenue fromthe date of the acquisition. At December 31, 2011, we operated 743 child care and early education centers compared to 705 centers at December 31, 2010. 41Table of ContentsCost of Services. Cost of services increased $68.2 million, or 9.8%, to $766.5 million for the year ended 2011 from $698.3 million in the prior year.Cost of services in the full service centers segment increased $58.3 million, or 9.3%, to $688.1 million in 2011. Personnel costs increased 7.9% as a result ofa 7.5% increase in overall enrollment and routine wage increases. In addition, program supplies, materials, food and facilities costs increased 14.1% inconnection with the enrollment growth and the incremental occupancy costs associated with centers that have been added in 2010 and 2011, including the 40centers acquired in 2011. Cost of services in the back-up dependent care segment increased $6.1 million, or 9.6%, to $69.8 million in 2011, primarily forpersonnel costs and for increased care provider fees associated with the higher levels of back-up services provided. Cost of services in the other educationaladvisory services segment increased by $3.8 million, or 79.1%, to $8.6 million in 2011, primarily in personnel costs as we established operating capacity tosupport the incremental sales of these services.Gross Profit. Gross profit increased $27.3 million, or 15.2%, to $207.2 million for the year ended December 31, 2011 when compared to the prioryear, and as a percentage of revenue increased to 21.3% in 2011 from 20.5% in 2010. The increase is primarily attributable to contributions from new andramping P&L centers, which achieve proportionately lower levels of operating costs in relation to revenue as they increase enrollment to steady state levels, andto cost management in our mature P&L centers, where enrollment has stabilized in relation to the decreases in 2009 and 2010, but remains lower thanhistorical levels. In addition to expanded sales of back-up dependent care services, we realized greater cost efficiency in managing our direct cost of servicesrelating to back-up dependent care in 2011.Selling, General and Administrative Expenses. SGA increased $9.3 million, or 11.2%, to $92.9 million for the year ended December 31, 2011 whencompared to the prior year, and as a percentage of revenue remained consistent at 9.5%. The increase in SGA during the year is related to routine increases incosts compared to the prior year, including annual wage increases, to investments in technology and marketing, and $1.6 million of overhead associated withour Netherlands operations from July 20, 2011. We also incurred $1.0 million in 2011 in connection with the completion of our acquisition in theNetherlands, including the costs incurred to amend certain terms of our debt agreements in order to provide greater flexibility for foreign investments and allowfor the acquisition. Partially offsetting the increase in SGA was a decrease in stock compensation expense in 2011 compared to 2010 related to employee stockoption grants, the majority of which were initially awarded in 2008. We recorded stock compensation expense of $1.2 million and $2.4 million, respectively,in each of 2011 and 2010.Amortization. Amortization expense on intangible assets totaled $27.4 million for the year ended December 31, 2011, compared to $27.6 million for theyear ended December 31, 2010. The slight decrease relates to certain intangible assets becoming fully amortized during the year, offset by increases related tothe amortization of new intangible assets from acquisitions completed in 2011.Income from Operations. Income from operations increased $18.2 million, or 26.5%, to $86.8 million for the year ended December 31, 2011 whencompared to 2010. Income from operations was 8.9% of revenue for the year ended December 31, 2011 compared to 7.8% in 2010. In the full service center-based care segment, income from operations increased $12.2 million in 2011, or 26.0%. This increase reflects price increases and enrollment gains in ourramping centers as well as contributions from new centers that were added in 2011. The back-up dependent care segment added $7.5 million in 2011, or35.6%, due to the expanding sales levels and efficiencies of service delivery across a wider revenue base. The other educational advisory services segmentdeclined by $1.5 million in 2011 compared to 2010 due to investments made in operating, sales and administrative personnel to support strategic growthinitiatives that have not yet been fully realized.Interest Expense. Interest expense for the year ended December 31, 2011 totaled $82.9 million, compared to $89.0 million in 2010. The decrease ininterest expense is primarily related to a reduction, effective May 29, 2011, in the interest rate attributable to the term loans as a result of the expiration of theinterest rate floors on our Base and Euro rates on May 28, 2011. The interest rate on our term loans of 4.3% at December 31, 2011 decreased from the rate of7.5% at December 31, 2010. Additionally, adjustments made to reflect the fair value 42Table of Contentsof our interest rate cap also contributed to the decrease in interest expense. The fair value adjustments were an increase to interest expense of $0.6 million in theyear ended December 31, 2011, compared to an increase to interest expense of $2.3 million in the year ended December 31, 2010.Income Tax Expense. We had income tax expense of $0.8 million for the year ended December 31, 2011 on pre-tax income of $5.6 million, or a 14.8%effective rate, which includes the benefit of permanent items, the net change to the reserves for uncertain tax positions, a decrease in the state tax rate applied tothe net deferred tax liability and a decrease to a valuation allowance at a foreign subsidiary.Non-GAAP MeasuresAdjusted EBITDA and adjusted net income are metrics used by management to measure operating performance. Adjusted EBITDA represents ourearnings before interest, taxes, depreciation, amortization, straight line rent expense, stock compensation expense, expenses related to the initial public offeringand refinancing that were completed in January 2013 and the Sponsor management fee. Adjusted net income represents net income determined in accordancewith generally accepted accounting principles in the United States, or GAAP, adjusted for stock compensation expense, amortization expense, the Sponsormanagement fee, expenses associated with our initial public offering and debt refinancing that were completed in January 2013, and the income tax benefitthereon. These non-GAAP measures are more fully described and are reconciled from the respective measures determined under GAAP as follows (inthousands): Years Ended December 31, 2010 2011 2012 Net (loss) income $(9,994) $4,762 $8,509 Interest expense, net 88,971 82,084 83,712 Income tax (benefit) expense (10,314) 825 3,243 Depreciation 25,689 28,024 34,415 Amortization (e) 27,631 27,427 26,933 EBITDA 121,983 143,122 156,812 Additional Adjustments: Straight line rent expense (a) 5,401 1,739 2,142 Stock compensation expense (b) 2,354 1,158 17,596 Sponsor management fee (c) 2,500 2,500 2,500 Expenses related to initial public offering and refinancing (d) — — 1,801 Total adjustments 10,255 5,397 24,039 Adjusted EBITDA $132,238 $148,519 $180,851 Net (loss) income $(9,994) $4,762 $8,509 Income tax (benefit) expense (10,314) 825 3,243 Income before tax (20,308) 5,587 11,752 Stock compensation expense (b) 2,354 1,158 17,596 Sponsor management fee (c) 2,500 2,500 2,500 Amortization (e) 27,631 27,427 26,933 Expenses related to initial public offering and refinancing (d) — — 1,801 Adjusted income before tax 12,177 36,672 60,582 Adjusted income tax expense (f) (2,681) (13,259) (22,775) Adjusted net income $9,496 $23,413 $37,807 (a)Represents rent in excess of cash paid for rent, recognized on a straight line basis over the lease life in accordance with Accounting StandardsCodification (“ASC”) Topic 840, Leases.(b)Represents non-cash stock-based compensation expense. 43Table of Contents(c)Represents annual fees paid to our Sponsor under a management agreement, which was terminated upon the completion of our Offering.(d)Represents the portion of costs associated with the preparation for the Company’s initial public offering and refinancing of indebtedness, completed inJanuary 2013, that are required to be expensed in accordance with generally accepted accounting principles.(e)Represents amortization of intangible assets, including $21.7 million, $20.6 million and $20.1 million for the years ended December 31, 2010, 2011and 2012, respectively, associated with intangible assets recorded in connection with our going private transaction in May 2008.(f)Includes the income tax (benefit) expense as reported plus the tax impact associated with the expenses described in notes (b), (c), (d) and (e), using aneffective tax rate of 40%.Adjusted EBITDA increased $32.3 million, or 21.8%, in 2012 and adjusted net income increased $14.4 million, or 61.5%, to $37.8 million whencompared to 2011 primarily as a result of the increase in gross profit offset by increases in SGA spending.Adjusted EBITDA increased $16.3 million, or 12.3%, in 2011 when compared to 2010 primarily as a result of the $27.3 million increase in grossprofit. Adjusted net income increased $13.9 million, or 146.6%, in 2011 to $23.4 million when compared to 2010 as a result of the $18.2 million increase inoperating income.Adjusted EBITDA and adjusted net income are not presentations made in accordance with GAAP, and the use of the terms adjusted EBITDA andadjusted net income may differ from similar measures reported by other companies. We believe that adjusted EBITDA and adjusted net income provideinvestors with useful information with respect to our historical operations. We present adjusted EBITDA and adjusted net income as supplementalperformance measures because we believe they facilitate a comparative assessment of our operating performance relative to our performance based on ourresults under GAAP, while isolating the effects of some items that vary from period to period. Specifically, adjusted EBITDA allows for an assessment of ouroperating performance and of our ability to service or incur indebtedness without the effect of non-cash charges, such as depreciation, amortization, the excessof rent expense over cash rent expense and stock compensation expense, and the effect of our Sponsor management fee, which we will not owe for periods afterthe consummation of the initial public offering which was completed on January 30, 2013, as well as the expenses related to preparing for the initial publicoffering and refinancing which have been included in the statement of operations in 2012. In addition, adjusted net income allows us to assess ourperformance without the impact of the specifically identified items that we believe do not directly reflect our core operations. These measures also function asbenchmarks to evaluate our operating performance.Adjusted EBITDA, adjusted net income and adjusted EBITDA margin are not measurements of our financial performance under GAAP and should notbe considered in isolation or as an alternative to net income, net cash provided by operating, investing or financing activities or any other financial statementdata presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. We understand that although adjustedEBITDA and adjusted net income are frequently used by securities analysts, lenders and others in their evaluation of companies, they have limitations asanalytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of theselimitations are: • adjusted EBITDA, adjusted net income and adjusted EBITDA margin do not fully reflect the Company’s cash expenditures, future requirementsfor capital expenditures or contractual commitments; • adjusted EBITDA and adjusted net income do not reflect changes in, or cash requirements for, the Company’s working capital needs; • adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, ondebt; and • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in thefuture, and adjusted EBITDA and adjusted net income do not reflect any cash requirements for such replacements. 44Table of ContentsBecause of these limitations, adjusted EBITDA and adjusted net income should not be considered as discretionary cash available to us to reinvest in thegrowth of our business or as measures of cash that will be available to us to meet our obligations.Liquidity and Capital ResourcesOur primary cash requirements are for the ongoing operations of our existing child care centers, back-up dependent care and other educational advisoryservices, the addition of new centers through development or acquisition and debt financing obligations. Our primary sources of liquidity have been cash flowfrom operations and borrowings available under our $75.0 million revolving credit facility, which was replaced with a $100.0 million revolving credit facilityon January 30, 2013. No amounts were outstanding at December 31, 2012 or 2011 under the revolving credit facility.We had a working capital deficit of $65.9 million and $69.5 million at December 31, 2012 and 2011, respectively. Our working capital deficit hasarisen from cash generated from operations being used to make long-term investments in fixed assets and acquisitions. We anticipate that we will continue togenerate positive cash flows from operating activities and that the cash generated will be used principally to fund ongoing operations of our new and existingfull service child care centers and expanded operations in the back-up dependent care and educational advisory segments, as well as to make scheduledprincipal and interest payments.On January 30, 2013, we completed our initial public offering, raising $202.2 million, net of expenses, underwriting discounts and commissions($233.3 million including the exercise of the overallotment option which was completed on February 21, 2013). We used the net proceeds of our Offering andcertain proceeds from the issuance of a $790.0 million senior secured term loan to redeem our senior notes in full for $213.3 million. We used the remainder ofthe $790.0 million senior secured term loan to refinance all of the remaining existing indebtedness under the senior credit facilities and the senior subordinatednotes. The $790.0 million senior secured term loan has a maturity date in 2020 and is part of an $890.0 million senior credit facility, which includes a $100.0million revolving credit facility due 2018.In anticipation of the Offering, on January 11, 2013, holders of shares of Class L common stock, who were entitled to a liquidation preference upon themandatory conversion in connection with the Offering, agreed to convert their Class L common stock into shares of Class A common stock at a rate of35.1955 shares of Class A common stock for each share of Class L common stock. Shares of Class A common stock were then reclassified into commonstock. Therefore, there was no liquidation preference available to those shareholders subsequent to January 11, 2013, and no shares of Class L common stockauthorized or outstanding as of such date.We believe that funds provided by operations, our existing cash and cash equivalent balances and borrowings available under our revolving line ofcredit will be adequate to meet planned operating and capital expenditures for at least the next 12 months under current operating conditions. However, if wewere to undertake any significant acquisitions or investments in the purchase of facilities for new or existing child care and early education centers, whichrequires financing beyond our existing borrowing capacity, it may be necessary for us to obtain additional debt or equity financing. We may not be able toobtain such financing on reasonable terms, or at all.Cash Flows Years Ended December 31, 2010 2011 2012 (In thousands) Net cash provided by operating activities $70,119 $133,570 $106,982 Net cash used in investing activities $(45,904) $(94,992) $(180,890) Net cash provided by (used in) financing activities $(23,497) $(23,281) $77,205 Cash and cash equivalents (end of period) $15,438 $30,448 $34,109 45Table of ContentsCash Provided by Operating ActivitiesCash provided by operating activities was $107.0 million for the year ended December 31, 2012, compared to $133.6 million in 2011. Net income,adjusted for non-cash expenses, increased by $24.0 million from 2011 to 2012, due to continued increases in gross margins and the impact of new andacquired centers. Working capital was relatively unchanged in 2012, but contributed $50.6 million to 2011 operating cash flows due to the income taxrefunds totaling $25.0 million in 2011 compared to $2.1 million in 2012, and the timing of payments of accounts payable.Cash provided by operating activities was $133.6 million for the year ended December 31, 2011 compared to $70.1 million in 2010. The increase incash from operating activities is primarily related to increases in net income and deferred tax assets, plus changes in working capital, the most significant ofwhich were decreases in income taxes receivable and prepaid income taxes attributable to $25.0 million of tax refunds collected in 2011 and an increase inaccounts payable due to the timing of payments.We expect to generate a similar level of cash from operations in 2013 as we generated in 2012, exclusive of the impact on cash and operating results fromthe Offering and refinancing of our existing indebtedness completed in January 2013.Cash Used in Investing ActivitiesCash used in investing activities was $180.9 million for the year ended December 31, 2012 compared to $95.0 million for the same period in 2011.Fixed asset additions totaled $69.1 million for the year ended December 31, 2012, with $28.4 million related to new child care and early education centers andthe remainder related primarily to investments in existing child care and early education centers and in our information technology infrastructure. Cash paidfor acquisitions in the year ended December 31, 2012 totaled $111.8 million, related to the acquisition of 27 Casterbridge centers on May 23, 2012 for $107.9million, net of cash acquired.Cash used in investing activities was $95.0 million for the year ended December 31, 2011 compared to $45.9 million in 2010. Fixed asset additionstotaled $42.5 million for the year ended December 31, 2011, with $17.6 million related to new child care and early education centers and the remainder relatedto investments in existing child care and early education centers and overhead expenses. Fixed asset additions totaled $39.5 million for the year endedDecember 31, 2010, with $20.5 million related to new child care and early education centers. Cash paid for acquisitions in the year ended December 31, 2011totaled $57.3 million for the acquisition of 21 child care and early education centers in the United States, the acquisition of 63% of a child care company inthe Netherlands and the acquisition of one child care and early education center in the United Kingdom. Cash paid for acquisitions in the year endedDecember 31, 2010 totaled $6.4 million for two child care and early education centers, one in the United States and one in the United Kingdom, and a tuitionreimbursement program management company in the United States.We estimate that we will spend approximately $60 to $65 million in 2013 on fixed asset additions related to new child care centers, maintenance andrefurbishments in our existing centers and continued investments in technology, equipment and furnishings. As part of our growth strategy, we expect tocontinue to make selective acquisitions, which may vary in size and which are less predictable in terms of the timing of the capital requirements.Cash Provided by (Used in) Financing ActivitiesCash provided by financing activities amounted to $77.2 million for the year ended December 31, 2012 compared to cash used in financing activities of$23.3 million in 2011 and $23.5 million in 2010. The increase in 2012 was due primarily to borrowings of $82.3 million, net of financing fees anddiscounts, for our Series C new term loans, which was included as an amendment to our senior debt in May 2012 for the Casterbridge 46Table of Contentsacquisition. We also received proceeds of $2.1 million from the exercise of stock options and recorded a related tax benefit of $3.4 million for the year endedDecember 31, 2012. These increases were partially offset by the repurchase of $5.1 million worth of our common stock. We also made debt repayments of$5.5 million in 2012, $23.4 million in 2011 and $24.0 million in 2010, including net repayments on our revolving credit facility of $18.5 million in 2011and $20.3 million in 2010.DebtOutstanding borrowings were as follows at December 31, 2011 and 2012 (in thousands): Balance at December 31, 2011 2012 Term loans $350,946 $430,474 Senior subordinated notes 300,000 300,000 Senior notes 174,055 197,810 Total 825,001 928,284 Deferred financing costs (15,088) (13,629) Original issue discount (10,656) (8,012) Total $799,257 $906,643 Senior Notes and Senior Subordinated NotesOn May 28, 2008, Bright Horizons Capital Corp., our wholly-owned direct subsidiary, issued $110.0 million in unsecured senior notes, which werefer to as our senior notes, and Bright Horizons Family Solutions LLC, a wholly-owned direct subsidiary of Bright Horizons Capital Corp., issued $300.0million in unsecured senior subordinated notes, which we refer to as our senior subordinated notes. Our senior notes and senior subordinated notes requiredinterest payments at the annual rate of 13.0% and 11.5%, respectively, due quarterly in arrears. The senior notes contained a PIK feature whereby we elected,subject to certain restrictions in the indenture and in our then-existing senior credit agreement, on each interest payment date on or before May 28, 2013, forinterest to be added to the principal. As of December 31, 2012, there was $87.8 million in accrued interest that had been added to the principal under oursenior notes.Senior Credit FacilitiesAs of December 31, 2012, our senior credit facilities consisted of a $365.0 million Tranche B term loan facility, an $85.0 million Series C term loanfacility and a $75.0 million revolving credit facility due 2014. As of December 31, 2012, we had the ability to borrow $74.9 million under our revolvingcredit facility, after giving effect to $0.1 million of undrawn letters of credit under this facility. The senior credit facilities were guaranteed by certain of oursubsidiaries and collateralized by substantially all of our assets. Borrowings under the senior credit facilities bore interest payable at least quarterly. Principalamortization repayments were required to be made at 1% per annum in equal quarterly installments with final payments for the Tranche B term loans andSeries C new term loans on May 28, 2015 and May 23, 2017, respectively. The interest rate on borrowings under our Tranche B term loan was 7.5%, 4.3%and 4.2% at December 31, 2010, 2011 and 2012, respectively, and the interest rate on borrowings under our Series C new term loan was 5.3% atDecember 31, 2012.The senior credit facilities also required us to comply with certain financial covenants; we were in compliance with these covenants at December 31,2012.$890 Million New Senior Secured Credit Facilities obtained on January 30, 2013On January 30, 2013, we used the net proceeds of our Offering and certain proceeds from the issuance of a $790.0 million senior secured term loan toredeem our senior notes in full for $213.3 million. We also used the 47Table of Contentsremainder of the proceeds from the new senior secured term loan to repay all of the remaining existing indebtedness under the senior subordinated notes, theTranche B term loans and the Series C new term loans as of January 30, 2013, including any redemption premiums. The $890.0 million senior secured creditfacilities include the following terms: • $790.0 million secured term loan facility with a maturity date in 2020; • $100.0 million revolving credit facility with a maturity date in 2018; • applicable margin percentages for the loan facilities of 2.00% per annum for base rate loans and 3.00% per annum for LIBOR rate loans providedthat the base rate for the term loan may not be lower than 2.00% and LIBOR may not be lower than 1.00%.Principal payments of $2.0 million are due quarterly and commence March 30, 2013, with the final payment due on January 30, 2020.The agreement governing our new senior secured credit facilities contains a number of covenants that, among other things and subject to certainexceptions, may restrict the ability of Bright Horizons Family Solutions LLC, our indirect subsidiary, and its restricted subsidiaries to: • incur certain liens; • make investments, loans, advances and acquisitions; • incur additional indebtedness or guarantees; • pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; • engage in transactions with affiliates; • sell assets, including capital stock of our subsidiaries; • alter the business we conduct; • enter into agreements restricting our subsidiaries’ ability to pay dividends; and • consolidate or merge.In addition, the credit agreement governing the $890.0 million senior secured credit facilities requires Bright Horizons Capital Corp., our directsubsidiary, to be a passive holding company, subject to certain exceptions. The revolving credit facility requires Bright Horizons Family Solutions LLC andits restricted subsidiaries to comply with a maximum senior secured first lien net leverage ratio financial maintenance covenant, to be tested only if, on the lastday of each fiscal quarter, revolving loans and/or swingline loans in excess of a specified percentage of the revolving commitments on such date areoutstanding under the revolving credit facility. The breach of this covenant is subject to certain equity cure rights.The credit agreement governing the new senior secured credit facilities contains certain customary affirmative covenants and events of default.International Credit FacilityOur majority-owned subsidiary in the Netherlands, which we acquired in 2011, maintains a revolving credit facility with a Dutch bank consisting of a€1.0 million (approximately $1.3 million at December 31, 2012) general facility to support working capital and letter of credit requirements and a€1.75 million (approximately $2.3 million at December 31, 2012) current account facility to support the construction and fitting out of new child care centers.The current account facility is secured by a right of offset against all accounts we maintain at the lending bank and by an additional pledge of certainequipment. The current account facility is reduced by €0.25 million quarterly through January 1, 2014, its termination date. At December 31, 2012, therewere no amounts outstanding under the facility. 48Table of ContentsContractual ObligationsThe following table sets forth our contractual obligations as of December 31, 2012 (in thousands): 2013 2014 2015 2016 2017 Thereafter Total Long-term debt (1) (2) $2,036 $4,500 $342,125 $850 $80,963 $410,000 $840,474 Interest on long-term debt (2) 72,496 67,740 59,021 53,095 50,465 27,116 329,933 Operating leases 61,335 58,750 55,204 50,014 43,533 191,060 459,896 Total (2) $135,867 $130,990 $456,350 $103,959 $174,961 $628,176 $1,630,303 (1)Amount due in 2013 excludes the PIK interest added to principal on our senior notes of $87.8 million as of December 31, 2012, which was repaid withthe proceeds of the Offering.(2)Excludes the impact of the refinancing of all existing debt on January 30, 2013 and assumes that the rate of interest in effect as of December 31, 2012 onborrowings under our Tranche B term loans and Series C new term loans of, 4.2% and 5.3%, respectively, remains in effect through the remaining termof the credit facility and that there are no borrowings under the revolving credit facility.Totals for 2013 through 2016 do not include obligations under the remaining call and put option agreement between Bright Horizons B.V., our wholly-owned Dutch subsidiary, and the minority shareholder of Odemon B.V. (“Odemon”), our majority-owned indirect subsidiary, that allows for the acquisitionof the final 18.5% ownership which put amount can range from €3.0 million to €6.0 million, based on the formula for determining such amount.Letters of CreditThere were 18 letters of credit outstanding as of December 31, 2012 that were used to guarantee certain rent payments for up to $0.8 million. Noamounts have been drawn against these letters of credit.InflationHistorically, inflation has not had a material effect on our results of operations. Severe increases in inflation, however, could affect the global and U.S.economies and could have an adverse impact on our business, financial condition and results of operations.Off-Balance Sheet ArrangementsWe have no off-balance sheet arrangements.Critical Accounting PoliciesWe prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. Preparation of theconsolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during thereporting period. Actual results could differ from these estimates. The accounting policies we believe are critical in the preparation of our consolidated financialstatements relate to revenue recognition, goodwill and other intangibles and common stock valuation and stock-based compensation. Our significantaccounting policies are more fully described under the heading “Organization and Significant Accounting Policies” in note 1 to our consolidated financialstatements contained elsewhere herein. 49Table of ContentsRevenue Recognition—We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered,the fee is fixed and determinable and collectability is reasonably assured. We recognize revenue as services are performed.Center-based care revenues consist primarily of tuition, which is comprised of amounts paid by parents, supplemented in some cases by paymentsfrom employer sponsors and, to a lesser extent, by payments from government agencies. Revenue may also include management fees, operating subsidies paideither in lieu of or to supplement parent tuition and fees for other services.We enter into contracts under various terms with employer sponsors to manage and operate their child care centers and to provide back-up dependentcare services and educational advisory services. Our contracts to operate child care and early education centers are generally three to ten years in length withvarying renewal options. Our contracts for back-up dependent care arrangements and for educational advisory services are generally one to three years inlength with varying renewal options.We record deferred revenue for prepaid tuition and management fees and amounts received from consulting projects in advance of services beingperformed. We are also a party to certain agreements where the performance of services extends beyond an annual operating cycle. In these circumstances, werecord a long-term obligation and recognize revenue over the period of the agreement as the services are rendered.Goodwill and Intangible Assets—Goodwill represents the excess of cost over the fair value of the net tangible and identifiable intangible assetsacquired in a business combination. Our intangible assets principally consist of various contractual rights and customer relationships and trade names.Identified intangible assets that have determinable useful lives are valued separately from goodwill and are amortized over the estimated period during which wederive a benefit. Intangible assets related to customer relationships include relationships with employer clients and relationships with parents. Customerrelationships with parents are amortized using an accelerated method over their useful lives. All other intangible assets are amortized on a straight line basisover their useful lives.In valuing the customer relationships, contractual rights and trade names, we utilize variations of the income approach, which relies on historicalfinancial and qualitative information, as well as assumptions and estimates for projected financial information. We consider the income approach the mostappropriate valuation technique because the inherent value of these assets is their ability to generate current and future income. Projected financial informationis subject to risk if our estimates are incorrect. The most significant estimate relates to our projected revenues and profitability. If we do not meet the projectedrevenues and profitability used in the valuation calculations, then the intangible assets could be impaired. In determining the value of contractual rights andcustomer relationships, we reviewed historical customer attrition rates and determined a rate of approximately 30% per year for relationships with parents, andapproximately 3.5% to 4.0% for employer client relationships. Our multi-year contracts with client customers typically result in low annual turnover, and ourlong-term relationships with clients make it difficult for competitors to displace us. The value of our contractual rights and customer relationships intangibleassets could become impaired if future results differ significantly from any of the underlying assumptions, including a higher customer attrition rate.Contractual rights and customer relationships are considered to be finite-lived assets, with estimated lives ranging from four to 17 years. Certain trade namesacquired as part of our strategy to expand by completing strategic acquisitions are considered to be finite-lived assets, with estimated lives ranging from five toten years. The estimated lives were determined by calculating the number of years necessary to obtain 95% of the value of the discounted cash flows of therespective intangible asset.Goodwill and certain trade names are considered indefinite-lived assets. Our trade names identify us and differentiate us from competitors, and,therefore, competition does not limit the useful life of these assets. Additionally, we believe that our primary trade names will continue to generate sales for anindefinite period. Goodwill and intangible assets with indefinite lives are not subject to amortization but are tested annually for 50Table of Contentsimpairment or more frequently if there are indicators of impairment. We test goodwill for impairment by comparing the fair value of each reporting unit,determined by estimating the present value of expected future cash flows, to its carrying value. We have identified three reporting segments: full service center-based care, back-up dependent care and other educational advisory services. As part of the annual goodwill impairment assessment, we estimated the fairvalue of each of our operating segments using the income approach. We forecasted future cash flows by operating segment for each of the next ten years andapplied a long-term growth rate to the final year of forecasted cash flows. The cash flows were then discounted using our estimated discount rate. We comparethe estimated fair value to the net book value of the operating segment to determine whether we need to perform step 2 of the analysis. The estimated fair valueof the operating segment has exceeded the net book value and therefore, there has been no indication of goodwill impairment.For certain trademarks that are included in our indefinite-lived intangible assets, we estimate the fair value first by estimating the total revenueattributable to each trademark and then by applying the royalty rate determined by an analysis of empirical, market-derived royalty rates for guidelineintangible assets, consistent with the initial valuation, or 1% to 2% and then comparing the estimated fair value of the trademarks with the carrying value ofthe trademarks. The forecasts of revenue and profitability growth for use in our long-range plan and the discount rate were the key assumptions in ourintangible fair value analysis. Impairment losses of $0.4 million were recorded in the year ended December 31, 2011 and in 2012 in relation to the carryingvalue of one indefinite-lived trademark. We identified no impairments in 2010.Long-lived assets, including definite-lived intangible assets, are reviewed for impairment when events or circumstances indicate that the carrying amountof a long-lived asset may not be recovered. Long-lived assets are considered to be impaired if the carrying amount of the asset exceeds the undiscounted futurecash flows expected to be generated by the asset over its remaining useful life. If an asset is considered to be impaired, the impairment is measured by theamount by which the carrying amount of the asset exceeds its fair value and is charged to results of operations at that time. We identified impairments of long-lived assets of $0.1 million in 2010, $0.8 million in 2011 and $0.3 million in 2012.Common Stock Valuation and Stock-Based Compensation—We account for stock-based compensation using a fair value method. Stock-basedcompensation expense is recognized in our consolidated financial statements based on the grant-date fair value of the awards for the awards that are expected tovest. For stock options granted with a service condition only, stock-compensation expense is recognized on a straight-line basis over the requisite service periodof each separately vesting tranche. For stock options granted with a service and performance condition, stock-compensation expense will be recognized upon achange in control, as defined in our 2008 Equity Incentive Plan, or the closing of an initial public offering, to the extent that the requisite service period isalready fulfilled. We calculate the fair value of options using the Black-Scholes option-pricing model.Valuations and MethodologyThe fair value of our common stock and Class L common stock underlying our options was initially determined by the board of directors in May 2008in connection with our going private transaction. The key assumption in determining the fair value of stock-based awards on the date of grant is the fair valueof the underlying common stock. This fair value determination was made by the board and was based on consideration of management’s estimates ofprojected financial performance, which included consideration of a contemporaneous valuation performed by an independent third-party valuation specialist inaccordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company EquitySecurities Issued as Compensation, which we refer to as the AICPA Practice Aid. This valuation relied on a determination of enterprise value based onmarket multiples demonstrated explicitly by the going private transaction and on the probability weighted expected return method (“PWERM”) for theallocation of the value of the invested capital to the two classes of stock. We updated this valuation internally at the end of each of 2009 and 2010 and in thethird quarter of 2011, and these internal valuations were used by our compensation committee of the board of directors in connection with a limited number ofadditional option grants to our employees in the subsequent year or period. 51Table of ContentsThe fair value of our common stock as of December 31, 2011 was determined by the board of directors after consideration of management’s estimates ofprojected financial performance, which included consideration of a contemporaneous valuation performed by an independent third-party valuation specialist inaccordance with the guidelines outlined in the AICPA Practice Aid, which valuation was performed on a basis consistent with the third-party valuationperformed in 2008. This valuation relied on a determination of enterprise value based on a discounted present value of our projected cash flows in futureperiods. This fair value determination was considered by our board of directors in connection with the offer to exchange outstanding employee options topurchase common stock for options to purchase a combination of shares of common stock and Class L common stock as well as for certain additional grantsof options in the second quarter of 2012.In anticipation of our Offering, we undertook to confirm that the stock compensation expense taken by the Company in connection with stock optiongrants during the second quarter of 2012 was reasonable. In doing so, we considered a retrospective valuation as of March 31, 2012 performed by anindependent third-party valuation specialist in accordance with the guidelines outlined in the AICPA Practice Aid, which valuation was performed on a basisconsistent with the third-party valuation performed in 2008. This valuation relied on a determination of enterprise value based on a discounted present value ofour projected cash flows in future periods. After considering the valuation report, we determined that the valuations as of March 31, 2012 and December 31,2011 were substantially similar and concluded that the board’s determinations of fair value as of April 4, 2012 and May 2, 2012 were reasonable andappropriate as of such dates.The total equity value at each valuation date was allocated to common stock and Class L common stock based on the PWERM methodology, whichinvolved a forward-looking analysis of possible future exit valuations based on a range of multiples of earnings before interest, taxes, depreciation,amortization, straight line rent expense, stock compensation expense, transaction costs expensed in connection with acquisitions completed in the respectiveperiods (including costs associated with our going private transaction), Sponsor management fee and the annual expense associated with certain long-termincentive plans other than stock options (which we refer to for these purposes as “EBITDA”) at various future exit dates, the estimation of future and presentvalues under each outcome and the application of a probability factor to each outcome. Returns to each class of stock as of each possible future exit date andunder each EBITDA multiple scenario were calculated by (i) first allocating equity value to the Class L common stock up to the amount of its preferentialdistribution amount at the assumed exit date and (ii) allocating any residual equity value to the common stock and Class L common stock on a participatingbasis. No marketability discount was imposed at each valuation date.The significant assumptions underlying the common stock valuations at each grant date were as follows: Valuation Date Fair Valueper Class ACommonShare MarketApproachEBITDAMultiples(1) Discounted Cash Flow PWERM PerpetuityGrowthRate DiscountRate(2) EBITDAMultiple(3) WeightedAverageYears toExit CommonStockDiscountRate Class LCommonStockDiscountRate May 28, 2008 $10.00(4) 10.5x not used not used 6.5x-14.5x 3.7 44.00% 16.00% October 1 and October 11, 2011 $10.89(4) 9.5x not used not used 9.5x 2.9 54.60% 15.20% April 4, 2012 $6.09(4) 9.5x 3.00% 12.80% 8.6x-9.5x 3.0 56.70% 16.30% May 2, 2012 $6.09(4) 9.5x 3.00% 12.80% 8.6x-9.5x 3.0 56.70% 16.30% (1)For the valuation at May 28, 2008, the market approach multiple represents the implied value of our company as of May 28, 2008, as the determinationof the going private transaction price was based upon an arm’s-length bidding process for a publicly-traded entity. For the valuation supporting theOctober 2011 awards, the market multiple represents the implied value based on consideration of market data for a consistent group of guidelinecompanies in the education sector. For the valuation supporting the April 4, 2012 and May 2, 2012 grants, the market approach was considered butultimately not relied upon for a conclusion of fair value given the lack of publicly-traded competitors in the child care industry and the resulting limitedcomparability of other education companies to us. 52Table of Contents(2)Represents the weighted average cost of capital.(3)For the valuation at May 28, 2008, core EBITDA multiples of 9.5x to 11.5x were utilized and given the greatest weighting in the analysis (70%).Extreme case multiples of 6.5x, 7.5x, 8.5x, 12.5x, 13.5x and 14.5x were also employed but were given less weight than the core multiples, with acombined weighting of 15% below 9.5x and 15% above 11.5x.(4)Does not give effect to the 1-for-1.9704 reverse split of our Class A common stock, the conversion of our Class L common stock into Class A commonstock at a ratio of 35.1955 shares of Class A common stock for each share of Class L common stock and subsequent reclassification of the Class Acommon stock into common stock. We refer to this as the “Reclassification.”Equity AwardsAggregate option grants between May 28, 2008, the date of our going private transaction, and December 31, 2011 were as follows (without giving effectto the Reclassification): 1,257,750 options on Class A common shares in 2008 (fair value of $10.00 per share and exercise price of $10.00 per share), 28,300options on Class A common shares in 2009 (fair value of $10.00 per share and exercise price of $10.00 per share), 71,600 options on Class A common sharesin 2010 (fair value of $5.09 per share and exercise price of $10.00 per share), 89,350 options on Class A common shares in April 2011 (fair value of $9.02per share and exercise price of $10.00 per share) and 41,650 Class A common shares in October 2011 (fair value of $10.89 per share and exercise price of$11.00 per share). On May 2, 2012, 1,401,750 options to acquire Class A common shares were exchanged for options to acquire 815,670 Class A commonshares, and options to acquire 90,630 Class L common shares. In addition, on April 4, 2012 and May 2, 2012, a total of 293,004 options to acquire ourClass A common shares, and 32,556 options to acquire Class L common shares were also awarded. The fair values and exercise prices for these awards were$6.09 per Class A common share and $511.51 per Class L common share. Prior to the option exchange, our employee stock options (other than continuationoptions relating to our going private transaction and related awards) were options to purchase only shares of our Class A common stock. In contrast, ourinvestor stockholders held shares of both our Class A common stock and our Class L common stock in a ratio of nine shares of our Class A common stockfor every one share of our Class L common stock (or 4.9 shares of our Class A common stock for every one share of our Class L common stock afterretroactively giving effect to the 1-for-1.9704 reverse split of our Class A common stock). Our Class L common stock had a preferential payment right uponany liquidating distribution by us to holders of our capital stock. As a result, until the entire preference amount was paid out in respect of all outstandingshares of Class L common stock, holders of only shares of Class A common stock (or options to purchase only shares of Class A common stock) were notentitled to receive any portion of such liquidating distribution and, as a result, changes in the value of our equity would not be experienced in the same mannerby our investors and our employee optionholders.We determined in late January 2012 to pursue an option exchange in an attempt to better align the interests of our investor shareholders and our employeeoptionholders. Specifically, the option exchange was intended to provide an opportunity for existing optionholders to participate on the same basis as ourinvestor shareholders in any equity value that was created through the growth and performance of our business, rather than having optionholders participate inliquidating distributions only after payment of the Class L preferred return. The exchange ratio was selected to provide an approximately equivalent net equityvalue opportunity to optionholders as the existing option awards, with the new option grants made “at the money” for options to acquire both shares of Class Acommon stock and shares of Class L common stock.In connection with the option exchange, as described above, we obtained a contemporaneous valuation of our equity as of December 31, 2011 from anindependent third-party valuation specialist, which was conducted in accordance with the guidelines outlined in the AIPCA Practice Aid, and which valuationwas performed on a basis consistent with the third-party valuation performed in 2008. The valuation relied on a determination of enterprise value based on adiscounted present value of our projected cash flows in future periods. After receiving such contemporaneous valuation, our board of directors approved theoption exchange offer on March 9, 2012, including the exchange ratio and the exercise price for new awards (subject to such exercise price 53Table of Contentsbeing determined by the board to be at least equal to the fair value of the underlying shares on the date of grant). We commenced the option exchange offer onMarch 26, 2012 and we completed the option exchange (and issued the new option awards) on May 2, 2012. All eligible optionholders participated in theoption exchange, which resulted in our equity holders holding equity in the same ratio of nine shares of Class A common stock (or options to purchase suchshares) for every one share of Class L common stock (or options to purchase such shares). After giving effect to the Reclassification, options to purchase anaggregate of 1,108,674 shares of our Class A common stock at an exercise price of $6.09 per share that were awarded in 2012 in connection with the optionexchange or other grants, became exercisable for an aggregate of 562,652 shares of our common stock at an exercise price of $12.00 per common share. Inaddition, options to purchase an aggregate of 123,186 shares of our Class L common stock at an exercise price of $511.51 per share that were awarded in2012 in connection with the option exchange or other grants became exercisable for an aggregate of 4,335,592 shares of our common stock at an exercise priceof $14.54 per common share. In the aggregate, as of December 31, 2012 after giving effect to the Reclassification, we had outstanding options to purchase5,036,179 shares of our common stock at a weighted average exercise price of $13.84 per common share.From October 1, 2011 through December 31, 2012, we granted stock options to our employees as follows: Grant Date Options to purchase shares of Class A common stock As Granted After Giving Effect to the Reclassification Number ofUnderlyingShares ExercisePrice FairValue ofClass ACommonStock FairValue ofStockOption(6) Number ofUnderlyingShares ExercisePrice(7) FairValue ofCommonStock FairValue ofStockOption(6) October 1, 2011 21,000(1) $11.00(2) $10.89 $6.15 10,657 $21.67 $21.45 $12.11 October 11, 2011 20,650(1) $11.00(2) $10.89 $6.16 10,479 $21.67 $21.45 $12.13 April 4, 2012 81,684 $6.09(3) $6.09 $2.90 41,454 $12.00 $12.00 $5.71 May 2, 2012 (5) 815,670 $6.09(4) $6.09 $2.90 413,952 $12.00 $12.00 $5.71 May 2, 2012 211,320 $6.09(4) $6.09 $3.70 107,244 $12.00 $12.00 $7.29 April 4, 2012 9,076 $511.51(3) $511.51 $243.96 319,434 $14.54 $14.53 $6.93 May 2, 2012 (5) 90,630 $511.51(4) $511.51 $243.96 3,189,768 $14.54 $14.53 $6.93 May 2, 2012 23,480 $511.51(4) $511.51 $310.31 826,390 $14.54 $14.53 $8.82 (1)Options to purchase shares of our Class A common stock granted in October 2011 were exchanged on May 2, 2012 as part of the option exchangetransaction in the ratio and on the terms discussed above and elsewhere herein.(2)Determined based on the fair value of our equity, as determined by our board of directors based on an updated internal valuation as of September 30,2011.(3)Determined based on the fair value of our equity, as determined by the compensation committee of our board of directors, on April 4, 2012. The mostrecent contemporaneous valuation was as of December 31, 2011 and reflected our consideration of a third-party valuation as of December 31, 2011 thatwas delivered to us on March 6, 2012.(4)Determined based on the fair value of our equity, as determined by the compensation committee of our board of directors, on May 2, 2012. The mostrecent contemporaneous valuation was as of December 31, 2011 and reflected our consideration of a third-party valuation as of December 31, 2011 thatwas delivered to us on March 6, 2012.(5)Represents stock options granted pursuant to the option exchange transaction described above and under “Management—Equity Plan.”(6)Calculated using the Black-Scholes option pricing model using the following weighted average assumptions: for the October 2011 Class A optionawards, the expected stock price volatility was 82%, the risk free interest rate was 0.63% and the expected life of the stock options was 3.6 years. Forthe stock option awards in 2012, which were awarded in the ratio of options to purchase nine shares of Class A common stock for each option topurchase one share of Class L common stock, the expected stock price volatility was 87%, the risk free interest rate was 0.37% and the expected life ofthe stock options was 2.6 years. For all stock option awards in all periods, our expected dividend yield was 0.0%. 54Table of Contents(7)Reflects the fair value of the common stock rounded up to the nearest whole cent.In accordance with applicable accounting guidance for the modification of existing stock option awards, we used the Black-Scholes option pricing modelto compute the fair value of the stock options immediately before and immediately after the modification. Based on this methodology, we determined that thefair value of stock options to purchase shares of Class A common stock was $3.21 per share before the modification and $2.90 per share after themodification, and the fair value of stock options to purchase shares of Class L common stock was $243.96 per share after the modification. On the basis ofthe foregoing, we determined an estimated total stock compensation charge, net of estimated forfeitures, of $19.0 million associated with the option exchange.We expensed $13.4 million in the year ended December 31, 2012 of this total compensation charge for the requisite service period already fulfilled. We willexpense the remainder of this stock compensation charge as the service period and performance conditions are met. Approximately $5.0 million of the portionof the unrecognized compensation expense at December 31, 2012 relates to the stock options that have a performance condition that was achieved upon thecompletion of our Offering in January 2013 and was expensed in the first quarter of 2013. Item 7A.Quantitative and Qualitative Disclosures About Market RiskOur primary market risk exposures relate to foreign currency exchange rate risk and interest rate risk.Foreign Currency RiskOur exposure to fluctuations in foreign currency exchange rates is primarily the result of foreign subsidiaries domiciled in the United Kingdom, Ireland,the Netherlands, India and Canada. We have not used financial derivative instruments to hedge foreign currency exchange rate risks associated with ourforeign subsidiaries.The assets and liabilities of our British, Irish, Dutch, Indian and Canadian subsidiaries, whose functional currencies are the British pound, Euro,Indian rupee and Canadian dollar, are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translatedat the average exchange rates prevailing during the period. The cumulative translation effects for subsidiaries using a functional currency other than the U.S.dollar are included in accumulated other comprehensive loss as a separate component of stockholders’ equity. We estimate that had the exchange rate in eachcountry unfavorably changed by 10% relative to the U.S. dollar, our consolidated earnings before taxes would have decreased by approximately $0.7 millionfor 2012.Interest Rate RiskInterest rate exposure relates primarily to the effect of interest rate changes on borrowings outstanding under our revolving line of credit and term loans.No amounts were outstanding at December 31, 2012 under our revolving credit facility, and no borrowings were made in 2012. We had borrowings of $346.1million and $84.4 million outstanding at December 31, 2012 under our Tranche B term loan and Series C new term loan facilities. Borrowings under theTranche B term loan and the Series C new term loan facilities in 2012 were subject to a weighted average interest rate of 4.3% and 5.4%, respectively. Based onthe outstanding borrowings under the senior credit facilities during 2012, we estimate that had the average interest rate on our borrowings increased by 100basis points in 2012, our interest expense for the year would have increased by approximately $4.1 million in 2012. This estimate assumes the interest rate ofeach borrowing is raised by 100 basis points. The impact on future interest expense as a result of future changes in interest rates will depend largely on thegross amount of our borrowings at that time. 55Table of ContentsItem 8.Financial Statements and Supplementary DataREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofBright Horizons Family Solutions Inc.Watertown, MassachusettsWe have audited the accompanying consolidated balance sheets of Bright Horizons Family Solutions Inc. and subsidiaries (the “Company”) as ofDecember 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive (loss) income, changes in stockholders’ deficit, and cashflows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. TheCompany is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration ofinternal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit alsoincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Bright Horizons Family SolutionsInc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period endedDecember 31, 2012, in conformity with accounting principles generally accepted in the United States of America./s/ Deloitte & Touche LLPBoston, MassachusettsMarch 26, 2013 56Table of ContentsBRIGHT HORIZONS FAMILY SOLUTIONS INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share data) December 31, 2011 2012 ASSETS Current assets: Cash and cash equivalents $30,448 $34,109 Accounts receivable—net 60,656 62,714 Prepaid expenses and other current assets 22,572 27,827 Current deferred income taxes 10,529 11,367 Total current assets 124,205 136,017 Fixed assets—net 237,157 340,376 Goodwill 947,371 993,397 Other intangibles—net 453,117 432,580 Deferred income taxes 1,814 1,603 Other assets 7,500 9,659 Total assets $1,771,164 $1,913,632 LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ DEFICIT Current liabilities: Current portion of long-term debt $4,814 $2,036 Accounts payable and accrued expenses 89,033 97,207 Deferred revenue 90,845 90,563 Other current liabilities 8,980 12,087 Total current liabilities 193,672 201,893 Long-term debt 794,443 904,607 Accrued rent and related obligations 18,580 24,944 Other long-term liabilities 22,526 23,717 Deferred revenue 3,878 3,727 Deferred income taxes 156,144 146,404 Total liabilities 1,189,243 1,305,292 Commitments and contingencies (Note 14) Redeemable noncontrolling interest 15,527 8,126 Common stock, Class L, $0.001 par value, at accreted distribution value: Authorized: 1,500,000 shares Issued: 1,318,970, and 1,327,115 shares at December 31, 2011 and 2012, respectively Outstanding: 1,317,581, and 1,327,115 shares at December 31, 2011 and 2012, respectively 772,422 854,101 Stockholders’ deficit: Common stock, Class A, $0.001 par value: Authorized: 14,500,000 shares Issued: 6,024,395 and 6,062,653 shares at December 31, 2011 and 2012, respectively Outstanding: 6,018,051 and 6,062,653 shares at December 31, 2011 and 2012, respectively 6 6 Additional paid-in capital 126,932 150,088 Treasury stock, at cost: 6,344 Class A shares at December 31, 2011 (125) — Accumulated other comprehensive loss (14,161) (8,816) Accumulated deficit (318,680) (395,165) Total stockholders’ deficit (206,028) (253,887) Total liabilities, noncontrolling interest, common stock and stockholders’ deficit $1,771,164 $1,913,632 See notes to consolidated financial statements. 57Table of ContentsBRIGHT HORIZONS FAMILY SOLUTIONS INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except share data) Years ended December 31, 2010 2011 2012 Revenue $878,159 $973,701 $1,070,938 Cost of services 698,264 766,500 825,168 Gross profit 179,895 207,201 245,770 Selling, general and administrative expenses 83,601 92,938 123,373 Amortization 27,631 27,427 26,933 Income from operations 68,663 86,836 95,464 Gains from foreign currency transactions — 835 — Interest income 28 824 152 Interest expense (88,999) (82,908) (83,864) (Loss) income before income taxes (20,308) 5,587 11,752 Income tax benefit (expense) 10,314 (825) (3,243) Net (loss) income (9,994) 4,762 8,509 Net income attributable to noncontrolling interest — 3 347 Net (loss) income attributable to Bright Horizons Family Solutions Inc. $(9,994) $4,759 $8,162 Accretion of Class L preference 64,712 71,568 79,211 Accretion of Class L preference for vested options 1,251 1,274 5,436 Net loss available to common shareholders $(75,957) $(68,083) $(76,485) Allocation of net (loss) income to common stockholders—basic and diluted: Class L $64,712 $71,568 $79,211 Class A $(75,957) $(68,083) $(76,485) Earnings (loss) per share: Class L—basic and diluted $49.21 $54.33 $59.73 Class A—basic and diluted $(12.64) $(11.32) $(12.62) Weighted average number of common shares outstanding: Class L—basic and diluted 1,315,153 1,317,273 1,326,206 Class A—basic and diluted 6,006,960 6,016,733 6,058,512 See notes to consolidated financial statements. 58Table of ContentsBRIGHT HORIZONS FAMILY SOLUTIONS INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME(In thousands) Years ended December 31, 2010 2011 2012 Net (loss) income $(9,994) $4,762 $8,509 Foreign currency translation adjustments (1,799) (5,343) 5,591 Comprehensive (loss) income (11,793) (581) 14,100 Comprehensive income (loss) attributable to non-controlling interest — 1,536 (593) Comprehensive (loss) income attributable to Bright Horizons Family Solutions Inc. $(11,793) $955 $13,507 Accretion of Class L preference 64,712 71,568 79,211 Accretion of Class L preference for vested options 1,251 1,274 5,436 Comprehensive loss attributable to common shareholders $(77,756) $(71,887) $(71,140) See notes to consolidated financial statements. 59Table of ContentsBRIGHT HORIZONS FAMILY SOLUTIONS INC.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT(In thousands, except share data) Common StockClass A AdditionalPaid InCapital TreasuryStock,at Cost AccumulatedOtherComprehensiveLoss AccumulatedDeficit TotalStockholders’Deficit Shares Amount Balance at December 31, 2009 6,011,496 $6 $123,335 $(103) $(8,558) $(174,641) $(59,961) Stock-based compensation 2,354 2,354 Exercise of stock options 10,488 — 51 51 Purchase of treasury stock (22) (22) Translation adjustments (1,799) (1,799) Accretion of Class L preference (65,962) (65,962) Net loss (9,994) (9,994) Balance at December 31, 2010 6,021,984 6 125,740 (125) (10,357) (250,597) (135,333) Stock-based compensation 1,158 1,158 Exercise of stock options 2,411 — 12 12 Tax benefit from stock option exercises 22 22 Translation adjustments, net of $1,539 attributable tonon-controlling interest (3,804) (3,804) Accretion of Class L preference (72,842) (72,842) Net income attributable to Bright Horizons FamilySolutions Inc. 4,759 4,759 Balance at December 31, 2011 6,024,395 6 126,932 (125) (14,161) (318,680) (206,028) Stock-based compensation 17,596 17,596 Exercise of stock options 86,066 — 440 440 Tax benefit from stock option exercises 874 874 Purchase of treasury stock (497) (497) Acquisition of additional non-controlling interest 4,868 (706) 4,162 Retirement of treasury stock (47,808) (622) 622 — Translation adjustments, net of $246 attributable tonon-controlling interest 6,051 6,051 Accretion of Class L preference (84,647) (84,647) Net income attributable to Bright Horizons FamilySolutions Inc. 8,162 8,162 Balance at December 31, 2012 6,062,653 $6 $150,088 $— $(8,816) $(395,165) $(253,887) See notes to consolidated financial statements. 60Table of ContentsBRIGHT HORIZONS FAMILY SOLUTIONS INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Years ended December 31, 2010 2011 2012 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $(9,994) $4,762 $8,509 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 53,320 55,451 61,348 Amortization of original issue discount and deferred financing costs 6,143 6,330 6,783 Interest paid in kind 18,392 20,902 23,754 Change in the fair value of the interest rate cap 2,258 641 67 Gain on foreign currency transactions — (835) — Non-cash revenue and other (983) (342) (319) Impairment losses on long-lived assets — 1,262 694 Loss (gain) on disposal of fixed assets 497 (636) 437 Stock-based compensation 2,354 1,158 17,596 Deferred income taxes (13,570) (5,872) (12,045) Changes in assets and liabilities: Accounts receivable (6,968) (1,487) (1,580) Prepaid expenses and other current assets 2,241 259 (4,110) Income taxes 447 27,321 (218) Accounts payable and accrued expenses (1,723) 13,303 1,155 Deferred revenue 8,592 7,937 (1,694) Accrued rent and related obligations 5,791 2,968 6,273 Other assets 2,244 614 (2,180) Other current and long-term liabilities 1,078 (166) 2,512 Net cash provided by operating activities 70,119 133,570 106,982 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets (39,522) (42,517) (69,086) Proceeds from the disposal of fixed assets 5 4,851 21 Payments for acquisitions—net of cash acquired (6,387) (57,326) (111,825) Net cash used in investing activities (45,904) (94,992) (180,890) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of long-term debt (3,656) (4,933) (5,472) Repayments on line of credit—net (20,300) (18,500) — Borrowings of long-term debt, net of issuance costs of $2.7 million — — 82,321 Purchase of treasury stock (111) — (5,140) Proceeds from issuance of Class A and Class L common stock 258 59 2,115 Tax benefit from stock-based compensation 312 93 3,381 Net cash (used in) provided by financing activities (23,497) (23,281) 77,205 Effect of exchange rates on cash and cash equivalents 360 (287) 364 Net increase in cash and cash equivalents 1,078 15,010 3,661 Cash and cash equivalents—beginning of period 14,360 15,438 30,448 Cash and cash equivalents—end of period $15,438 $30,448 $34,109 SUPPLEMENTAL CASH FLOW INFORMATION: Cash payments of interest $62,111 $54,706 $51,974 Cash payments of taxes $2,738 $3,062 $12,823 Non-cash accretion of Class L common stock preferred return $65,962 $72,842 $84,647 See notes to consolidated financial statements. 61Table of ContentsBRIGHT HORIZONS FAMILY SOLUTIONS INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2011 AND 2012 AND FOR THE YEARS ENDED DECEMBER 31, 2010, 2011, AND 2012 1.ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIESOrganization—Bright Horizons Family Solutions Inc. (“Bright Horizons” or the “Company”) provides workplace services for employers and familiesthroughout the United States, Puerto Rico, Canada, the United Kingdom, Ireland, the Netherlands, and India. Workplace services include center-based childcare, education and enrichment programs, elementary school education, back-up dependent care (for children and elders), before and after school care, collegepreparation and admissions counseling, tuition reimbursement program management, and other family support services.The Company operates its child care and early education centers under various types of arrangements, which generally can be classified into twocategories: (i) the management or cost plus (“Cost Plus”) model, where Bright Horizons manages a work-site child care and early education center under a cost-plus arrangement with an employer sponsor, and (ii) the profit and loss (P&L) model, where the Company assumes the financial risk of the child care andearly education center’s operations. The P&L model may be operated under either (a) the sponsor model, where Bright Horizons provides child care and earlyeducational services on a priority enrollment basis for employees of an employer sponsor, or (b) the lease/consortium model, where the Company providespriority child care and early education to the employees of multiple employers located within a real estate developer’s property or the community at large. Undereach model type the Company retains responsibility for all aspects of operating the child care and early education center, including the hiring and paying ofemployees, contracting with vendors, purchasing supplies, and collecting tuition and related accounts receivable.2013 Initial Public Offering—On January 30, 2013, the Company completed an initial public offering (“the Offering”) and, after the exercise of theoverallotment option on February 21, 2013, issued a total of 11.6 million shares of common stock in exchange for $233.3 million, net of offering costs. TheCompany used the proceeds of the Offering, as well as certain amounts from the 2013 refinancing discussed below, to repay the principal and accumulatedinterest under its senior notes outstanding on January 30, 2013.On January 11, 2013, the Company effected a 1–for–1.9704 reverse split of its Class A common stock. All previously reported Class A per share andClass A share amounts in the accompanying financial statements and related notes have been retroactively adjusted to reflect the reverse stock split.In addition, the Company converted each share of its Class L common stock into 35.1955 shares of Class A common stock, and, immediatelyfollowing the conversion of its Class L common stock, reclassified the Class A common stock into common stock, for which 475 million shares wereauthorized. The Company also authorized 25 million shares of undesignated preferred stock for issuance.2013 Refinancing—On January 30, 2013, the Company entered into new $890.0 million senior secured credit facilities to refinance all of the existingindebtedness under the senior credit facilities and the senior subordinated notes and to modify certain provisions of the senior credit facilities. Significantterms of the refinancing are as follows: • $790.0 million term loan facility with a maturity date in 2020; • $100.0 million revolving credit facility with a maturity date in 2018; • The applicable margin percentages for the loan facilities are 2.0% per annum for base rate loans and 3.0% per annum for LIBOR rate loansprovided that the base rate for the term loan may not be lower than 2.0% and LIBOR may not be lower than 1.0%.The refinancing, which reduced the Company’s overall weighted average interest rate, resulted in a loss on extinguishment of debt of approximately$63.0 million, including redemption premiums on the senior notes, the 62Table of Contentssenior subordinated notes and the Series C new term loans, and the write-off of deferred financing costs associated with this indebtedness, which we recordedin the first quarter of 2013. See Note 9, “Credit Arrangements and Debt Obligations”, for additional information regarding long-term debt.Basis of Presentation—On May 28, 2008, Bright Horizons Family Solutions, Inc. (the “Predecessor”) completed a transaction (the “Merger”) withinvestment funds affiliated with Bain Capital Partners, LLC (the “Sponsor”), pursuant to which a wholly-owned merger subsidiary was merged with and intothe Predecessor, which converted to a single member limited liability corporation (LLC), Bright Horizons Family Solutions LLC, and continued as thesurviving corporation. Bright Horizons Family Solutions LLC is a wholly-owned subsidiary of Bright Horizons Capital Corp., which is in turn a wholly-owned subsidiary of Bright Horizons Family Solutions Inc., which is controlled by investment funds affiliated with the Sponsor. In July 2012, BrightHorizons Family Solutions Inc. changed its name from Bright Horizons Solutions Corp.As part of the Merger, a new basis of accounting was established and the purchase price was allocated to the assets acquired and liabilities assumedbased on their fair values.Principles of Consolidation—The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balancesand transactions have been eliminated in consolidation.Reclassifications—Certain reclassifications have been made to the prior year balances to conform to the current year’s presentation, with no impact onprior year earnings or shareholders’ equity.Use of Estimates—The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the UnitedStates of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during thereporting period. The Company’s significant accounting policies in the preparation of the consolidated financial statements relate to revenue recognition,goodwill and other intangibles, income taxes and common stock valuation and stock-based compensation. Actual results may differ from management’sestimates.Foreign Operations—The functional currency of the Company’s foreign subsidiaries is their local currency. The assets and liabilities of theCompany’s foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated atthe average exchange rates prevailing during the period. The cumulative translation effect for subsidiaries using a functional currency other than the U.S.dollar is included in accumulated other comprehensive income or loss as a separate component of stockholders’ equity.The Company’s intercompany accounts are denominated in the functional currency of the foreign subsidiary. Gains and losses resulting from theremeasurement of intercompany receivables that the Company considers to be of a long-term investment nature are recorded as a cumulative translationadjustment in accumulated other comprehensive income or loss as a separate component of stockholders’ equity, while gains and losses resulting from theremeasurement of intercompany receivables from those foreign subsidiaries for which the Company anticipates settlement in the foreseeable future are recordedin the consolidated statement of operations. The net gains and losses recorded in the consolidated statements of operations for the years ended December 31,2010 and 2012 were not significant. The Company recorded a net foreign currency gain of $0.8 million in the consolidated statement of operations for the yearended December 31, 2011 as a result of the settlement of an intercompany note during the year. There were no settlements of intercompany notes during theyear ended December 31, 2012.Fair Value of Financial Instruments—The Company estimates fair value for certain assets and liabilities and categorizes them based upon the levelof judgment associated with the inputs used to measure their fair value and the level of market price observability. 63Table of ContentsThe Company also develops internal estimates of fair value when the volume and level of activity for the asset or liability has significantly decreased orin those circumstances that indicate when a transaction is not orderly.Financial instruments measured and reported at fair value are classified in one of the following categories:Level 1—Quoted prices are available in active markets for identical investments as of the reporting date.Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; andmodel-derived valuations in which all significant inputs and significant value drivers are observable in active markets.Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.The hierarchy requires the use of observable market data when available. The Company considers relevant and observable market prices in itsvaluations where possible.Fair value measurements, including those categorized as Level 3, are prepared and reviewed at each reporting period.The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, and short and long-termdebt. The fair value of the Company’s financial instruments approximates their carrying value. The following table shows the carrying value and the fairvalue of the Company’s long-term debt at December 31, 2011 and 2012 (in millions): December 31, 2011 December 31, 2012 CarryingValue FairValue CarryingValue FairValue Long-term debt $825 $898 $927 $973 The fair value of the Company’s long-term debt was based on quoted market prices when available. When quoted market prices were not available, thefair value of long-term debt was based on quoted market prices of comparable instruments adjusted for differences between the quoted instruments and theinstruments being valued, or was estimated using discounted cash flow analyses, based on current incremental borrowing rates for similar types of borrowingarrangements. The Company based its determination of fair value on quoted market prices for the Company’s Tranche B and Series C term loans, which areclassified within Level 1 of the fair value hierarchy. The Company based its determination of fair value on current incremental borrowing rates for similar debtfor the senior notes and senior subordinated notes, which are classified within Level 2 of the fair value hierarchy. Significant increases/decreases in yields andborrowing rates could result in significantly higher (lower) fair value measurements. The Company’s interest rate cap for its Tranche B term loans is carried atfair value and is included in other assets on the consolidated balance sheets. The interest rate cap was valued at less than $0.1 million at December 31, 2011and 2012. The fair value of the Company’s interest rate cap is based on model-derived valuations that use observable inputs and market data, which areclassified as Level 2 of the fair value hierarchy. Gains and losses associated with changes in the fair value of the interest rate cap are included in interestexpense on the consolidated statements of operations.See Note 9, “Credit Arrangements and Debt Obligations”, for additional information regarding long-term debt and the interest rate cap.The Company’s policy with respect to transfers between levels of the fair value hierarchy is to recognize transfers into and out of each level as of the endof the reporting period. There have been no transfers between levels during the years ending December 31, 2010, 2011 and 2012. 64Table of ContentsConcentrations of Credit Risk—Financial instruments that potentially expose the Company to concentrations of credit risk consist mainly of cashand cash equivalents and accounts receivable. The Company mitigates its exposure by maintaining its cash and cash equivalents in financial institutions ofhigh credit standing. The Company’s accounts receivable, which are derived primarily from the services it provides, are dispersed across many clients invarious industries with no single client accounting for more than 10% of the Company’s net revenue or accounts receivable. The Company believes that nosignificant credit risk exists at December 31, 2011 and 2012.Cash and Cash Equivalents—The Company considers all highly liquid investments with maturities when purchased of three months or less to becash equivalents. Cash equivalents consist primarily of institutional money market accounts.The Company’s cash management system provides for the funding of the main bank disbursement accounts on a daily basis as checks are presentedfor payment. Under this system, outstanding checks may be in excess of the cash balances at certain banks, creating book overdrafts. There were no bookoverdrafts at December 31, 2011 and 2012.Accounts Receivable—The Company generates accounts receivable from fees charged to parents and employer sponsors and, to a lesser degree,government agencies. The Company monitors collections and payments and maintains a provision for estimated losses based on historical trends, in additionto provisions established for specific collection issues that have been identified. Accounts receivable are stated net of this allowance for doubtful accounts.Activity in the allowance for doubtful accounts is as follows (in thousands): Years ended December 31, 2010 2011 2012 Beginning balance $1,675 $1,691 $1,514 Provision 1,516 1,043 734 Write offs and adjustments (1,500) (1,220) (621) Ending balance $1,691 $1,514 $1,627 Fixed Assets—Property and equipment, including leasehold improvements, are carried at cost less accumulated depreciation or amortization.Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basisover the shorter of the lease term or their estimated useful lives. The cost and accumulated depreciation of assets sold or otherwise disposed of are removedfrom the consolidated balance sheet and the resulting gain or loss is reflected in the consolidated statements of operations.Expenditures for maintenance and repairs are expensed as incurred, whereas expenditures for improvements and replacements are capitalized.Depreciation is included in cost of services and selling, general and administrative expenses depending on the nature of the expenditure.Goodwill and Intangible Assets—Goodwill represents the excess of cost over the fair value of the net tangible and identifiable intangible assetsacquired in a business combination. The Company’s intangible assets principally consist of various customer relationships and contractual rights, and tradenames.Goodwill and intangible assets with indefinite lives are not subject to amortization, but are tested annually for impairment or more frequently if there areindicators of impairment. The Company tests goodwill for impairment by comparing the fair value of each reporting unit to its carrying value. The Companyperforms its annual impairment test as of December 31. The first step of the goodwill impairment test compares the fair value 65Table of Contentsof the reporting unit with its carrying amount, including goodwill. Fair value for each reporting unit is determined by estimating the present value of expectedfuture cash flows, which are forecasted for each of the next ten years, applying a long-term growth rate to the final year, discounted using the Company’sestimated discount rate. If the fair value of the Company’s reporting unit exceeds its carrying amount, the goodwill of the reporting unit is considered notimpaired. If the carrying amount of the Company’s reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed tomeasure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, comparesthe implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill. No goodwill impairment losses were recorded in theyears ended December 31, 2010, 2011, or 2012.We test certain trademarks that are included in our indefinite-lived intangible assets, by comparing the fair value of the trademarks with their carryingvalue. We estimate the fair value first by estimating the total revenue attributable to the trademarks and then by applying a royalty rate determined by ananalysis of empirical, market-derived royalty rates for guideline intangible assets, consistent with the initial valuation and then comparing the estimated fairvalue of our trademarks with the carrying value. This approach takes into effect level 3 and unobservable inputs. Impairment losses of $0.4 million wererecorded in the years ended December 31, 2011 and 2012 in relation to certain trade names with indefinite lives, which have been included in selling, generaland administrative expenses. No impairment losses were recorded in the year ended December 31, 2010 in relation to intangible assets.Intangible assets that are separable from goodwill and have determinable useful lives are valued separately and are amortized over the estimated periodbenefited, ranging from four to seventeen years. Intangible assets related to parent relationships are amortized using the double declining balance method overtheir useful lives. All other intangible assets are amortized on a straight line basis over their useful lives.Impairment of Long-Lived Assets—The Company reviews long-lived assets for possible impairment whenever events or changes in circumstancesindicate that the carrying amount of such assets may not be recoverable. Impairment is assessed by comparing the carrying amount of the asset to theestimated undiscounted future cash flows over the asset’s remaining life. If the estimated cash flows are less than the carrying amount of the asset, animpairment loss is recognized to reduce the carrying amount of the asset to its estimated fair value less any disposal costs. Fair value can be determined usingdiscounted cash flows and quoted market prices based on level 3 inputs. The Company recorded fixed asset impairment losses of $0.1 million, $0.8 millionand $0.3 million in the years ended December 31, 2010, 2011 and 2012, respectively, which have been included in cost of sales.Deferred Revenue—The Company records deferred revenue for prepaid tuition and management fees and amounts received from consulting projects inadvance of services being performed. The Company is also a party to agreements where the performance of services extends beyond the current operating cycle.In these circumstances, the Company records a long-term obligation and recognizes revenue over the period of the agreement as the services are rendered.Leases and Accrued Rent—The Company leases space for certain of its centers and corporate offices. Leases are evaluated and classified as operatingor capital for financial reporting purposes. The Company recognizes rent expense from operating leases with periods of free rent, tenant allowances andscheduled rent increases on a straight-line basis over the applicable lease term. The difference between rents paid and straight-line rent expense is recorded asaccrued rent.Discount on Long-Term Debt—Original issue discounts on the Company’s debt are recorded as a reduction of long-term debt and are amortized overthe life of the related debt instrument in accordance with the effective interest method. Amortization expense is included in interest expense in the consolidatedstatements of operations. 66Table of ContentsDeferred Financing Costs—Deferred financing costs are recorded as a reduction of long-term debt and are amortized over the life of the related debtinstrument in accordance with the effective interest method. Amortization of this expense is included in interest expense in the consolidated statements ofoperations.Other Long-Term Liabilities—Other long-term liabilities consist primarily of amounts payable to clients, pursuant to terms of operating agreements orfor deposits held by the Company, and obligations for uncertain tax positions.Income Taxes—The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assetsand liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existingassets and liabilities and their respective tax bases and for tax carryforwards, such as net operating losses. Deferred tax assets and liabilities are measuredusing enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effecton deferred tax assets and liabilities of a change in tax rates is recognized in the provision for income taxes in the period that includes the enactment date. TheCompany records a valuation allowance to reduce the carrying amount of deferred tax assets if it is more likely than not that such asset will not be realized.Additional income tax expense is recognized as a result of recording valuation allowances. The Company does not recognize a tax benefit on losses in foreignoperations where it does not have a history of profitability. The Company records penalties and interest on income tax related items as a component of taxexpense.Obligations for uncertain tax positions are recorded based on an assessment of whether the position is more likely than not to be sustained by the taxingauthorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense.Noncontrolling Interest—The Company recorded the redeemable noncontrolling interest from its initial acquisition of a 63% ownership interest of acompany in the Netherlands at fair value at the date of acquisition. The difference between the acquisition price and carrying value of the redeemable non-controlling interest of any additional interest acquired is recorded as an adjustment to additional paid in capital. Any accumulated other comprehensive income(loss) associated with the additional acquired interest is recorded as other comprehensive income (loss) of the Company.In connection with the initial acquisition, the Company entered into put and call option agreements with the minority shareholders for the purchase of thenoncontrolling interest at a future date at a value based on a contractually determined formula. As a result of the option agreements, the noncontrolling interestis considered redeemable and is classified as temporary equity on the Company’s consolidated balance sheet.The noncontrolling interest is reviewed at each subsequent reporting period and adjusted, as needed, to reflect its then redemption value.Revenue Recognition—The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services havebeen rendered, the fee is fixed and determinable, and collectability is reasonably assured.Center-based care revenues consist primarily of tuition, which consists of amounts paid by parents, supplemented in some cases by payments fromemployer sponsors and, to a lesser extent, by payments from government agencies. Revenue may also include management fees, operating subsidies paid eitherin lieu of or to supplement parent tuition, and fees for other services. Revenue for center-based care is recognized as the services are performed.The Company enters into contracts with its employer sponsors to manage and operate their child care and early education centers and/or for theprovision of back-up dependent care and other educational advisory 67Table of Contentsservices under various terms. The Company’s contracts to operate child care and early education centers are generally three to ten years in length with varyingrenewal options. The Company’s contracts for back-up dependent care and other educational advisory services are generally one to three years in length withvarying renewal options. Revenue for these services is recognized as they are performed.Common Stock Valuation and Stock-Based Compensation—The Company accounts for stock-based compensation using a fair value method.Stock-based compensation expense is recognized in the consolidated financial statements based on the grant-date fair value of the awards that are expected tovest. This expense is recognized on a straight-line basis over the requisite service period, which generally represents the vesting period, of each separatelyvesting tranche. The Company calculates the fair value of stock options using the Black-Scholes option-pricing model.The key assumption in determining the fair value of stock-based awards on the date of grant is the fair value of the underlying Class L and Class Ashares of common stock (collectively referred to herein as “common stock”). The fair value of the underlying common stock is determined using valuationmodels that rely primarily on a discounted cash flow approach to determine the enterprise value and the probability weighted expected return method to allocatethe value of the invested capital to the two classes of stock.Comprehensive (Loss) Income—Comprehensive (loss) income is comprised of net (loss) income and foreign currency translation adjustments, and isreported in the consolidated statements of comprehensive (loss) income net of taxes for all periods presented. The Company does not provide for U.S. incometaxes on the portion of undistributed earnings of foreign subsidiaries that is intended to be permanently reinvested. Therefore, taxes are not provided for therelated currency translation adjustments.Earnings (Loss) Per Share—Net earnings (loss) per share is calculated using the two-class method, which is an earnings allocation formula thatdetermines net income (loss) per share for the holders of the Company’s Class L and Class A shares. The Class L shares contain participation rights in anydividend paid by the Company or upon liquidation of the Company. Net income available to Class A common shareholders includes the effects of any ClassL preference amounts. Net income available to shareholders is allocated on a pro rata basis to each share as if all of the earnings for the period had beendistributed. Diluted net income (loss) per share is calculated using the treasury stock method for all outstanding stock options and the as-converted method forthe Class L shares.Subsequent Events— Subsequent events have been evaluated up through the date that these consolidated financial statements were filed. 2.ACQUISITIONSAs part of the Company’s growth strategy to expand through strategic acquisitions, the Company has made the following acquisitions in the years endedDecember 31, 2010, 2011, and 2012.2010 AcquisitionsIn November 2010, the Company acquired all of the outstanding stock of a child care and early education center in the United States. In December2010, the Company acquired the assets of a child care and early education center in the United Kingdom and of a provider of tuition management solutions inthe United States, which complements the Company’s educational advisory services. The aggregate cash consideration for the acquisitions was $7.1 million.The purchase price for these acquisitions has been allocated based on the estimated fair value of the acquired assets and assumed liabilities at the date ofacquisition.The Company acquired total tangible assets of $1.3 million and assumed liabilities of $0.5 million. In conjunction with these acquisitions, theCompany recorded goodwill of $5.4 million and other intangible assets 68Table of Contentsof $0.9 million, consisting of customer relationships and trade names. The identified intangible assets will be amortized over periods of four to nine years.The acquired intangible assets include trade names of $0.2 million that were determined to have indefinite lives.The fair value of the assets acquired in business combinations in the year ended December 31, 2010 is as follows (in thousands): Cash paid, net of cash acquired $6,387 Liabilities assumed 463 Goodwill recognized (5,407) Fair value of assets acquired $1,443 The operating results of the acquired businesses have been included in the Company’s consolidated results of operations from the respective dates ofacquisition. The goodwill associated with the asset acquisitions in the United States and the United Kingdom is deductible for tax purposes. The Companyincurred deal costs of $0.1 million related to these acquisitions, which have been expensed and are included in selling, general and administrative expenses inthe consolidated statements of operations.2011 AcquisitionsIn March 2011, the Company acquired the assets of 20 child care and early education centers in the United States. Additionally, the Company acquiredthe assets of a child care and early education center in the United States in November 2011 and of a child care and early education center in the UnitedKingdom in December 2011. The aggregate cash consideration for the acquisitions was $27.6 million, which related primarily to the March 2011 acquisition.The purchase price for these acquisitions has been allocated based on the estimated fair value of the acquired assets and assumed liabilities at the date ofacquisition.The Company acquired total tangible assets of $2.2 million and assumed liabilities of $0.8 million. In conjunction with these acquisitions, theCompany recorded goodwill of $23.4 million and other intangible assets of $2.8 million, consisting primarily of customer relationships. The identifiedintangible assets will be amortized over periods of five to nine years.In July 2011, the Company acquired 63% of a company in the Netherlands that operates 20 child care and early education centers for cashconsideration of $29.9 million. As a result, this company became a majority-owned subsidiary of the Company, with its operating results included in theCompany’s consolidated results of operations and the 37% of ownership interest retained by the previous owners presented as noncontrolling interest on theCompany’s consolidated balance sheet. In connection with this transaction, the Company entered into put and call option agreements with the minorityshareholders for the purchase of the noncontrolling interest at a future date at a value based on a contractually determined formula. As a result of the optionagreements, the noncontrolling interest is considered redeemable and is classified as temporary equity on the Company’s consolidated balance sheet.The purchase price for this transaction has been allocated based on the estimated fair value of the acquired assets and assumed liabilities at the date ofacquisition. The Company acquired total tangible assets of $9.4 million and assumed liabilities of $4.6 million, and recorded noncontrolling interest of $17.1million. Additionally, the Company recorded goodwill of $39.5 million; other intangible assets of $3.4 million, consisting of customer relationships and tradename; and deferred tax liabilities of $0.7 million related to intangible assets subject to amortization that are not deductible for tax purposes. The identifiedintangible assets will be amortized over periods of four to ten years. 69Table of ContentsThe fair value of the assets acquired in business combinations in the year ended December 31, 2011 is as follows (in thousands): Cash paid, net of cash acquired $57,228 Liabilities assumed 6,159 Noncontrolling interest 17,063 Goodwill recognized (62,917) Fair value of assets acquired $17,533 The goodwill associated with the acquisitions in the United States and the United Kingdom is deductible for tax purposes. The goodwill for theacquisition in the Netherlands is not deductible for tax purposes. The Company incurred deal costs of $1.1 million related to these acquisitions, which havebeen expensed and are included in selling, general and administrative expenses in the consolidated statements of operations.In the year ended December 31, 2011, the Company also paid approximately $0.1 million related to prior year acquisitions.The operating results of the acquired businesses have been included in the Company’s consolidated results of operations from the respective dates ofacquisition. The operating results for the acquired businesses are included in the Company’s consolidated results of operations beginning March 14, 2011 forthe acquisition of 20 centers in the United States and beginning July 20, 2011 for the acquisition in the Netherlands. The acquired businesses contributedrevenues of $28.0 million and net loss of $0.5 million for the year ended December 31, 2011. The following pro forma summary presents consolidatedinformation as if the business combinations had occurred on January 1, 2010 (in thousands): Pro forma (Unaudited) Years ended December 31, 2010 2011 Revenue $919,581 $992,247 Net (loss) income attributable to Bright Horizons Family Solutions Inc. $(9,136) $7,115 2012 AcquisitionsIn May 2012, the Company acquired the outstanding shares of Huntyard Limited, a company that operates 27 child care and early education centers inthe United Kingdom, for cash consideration of $110.8 million. The preliminary purchase price for this acquisition has been allocated based on the estimatedfair values of the acquired assets and assumed liabilities at the date of acquisition as follows (in thousands): Cash $2,872 Accounts receivable 341 Prepaids and other current assets 2,880 Fixed assets 65,843 Intangible assets 6,004 Goodwill 45,723 Total assets acquired 123,663 Accounts payable and accrued expenses (7,520) Taxes payable (656) Deferred revenue and parent deposits (3,006) Deferred taxes (1,720) Total liabilities assumed (12,902) Purchase price $110,761 70Table of ContentsThe Company recorded goodwill of $45.7 million, which will not be deductible for tax purposes. Goodwill related to this acquisition is reported withinthe full service center-based care segment.Intangible assets of $6.0 million consist of customer relationships and trade names that will be amortized over five and seven years, respectively. Adeferred tax liability of $1.5 million was recorded related to the intangible assets for which the amortization is not deductible for tax purposes.The Company incurred deal costs of $0.5 million related to this acquisition, which have been expensed and are included in selling, general andadministrative expenses in the consolidated statements of operations. The allocation of the purchase price consideration was based on preliminary valuationand the estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The primary areas of thepreliminary purchase price allocation that are not yet finalized are amounts related to the fair value of fixed assets and for income tax assets and liabilities,pending the finalization of estimates and assumptions in respect of certain tax aspects of the transaction and residual goodwill.The operating results for this acquisition are included in the consolidated results of operations from the date of acquisition. The acquired businesscontributed revenues of $26.3 million and net income of $1.1 million in the year ended December 31, 2012. The following pro forma summary presentsconsolidated information as if the business combination had occurred on January 1, 2011 (in thousands): Pro forma (Unaudited) Years ended December 31, 2011 2012 Revenue $1,016,125 $1,088,378 Net income attributable to Bright Horizons Family Solutions Inc. $4,804 $10,329 3.PREPAID EXPENSES AND OTHER CURRENT ASSETSPrepaid expenses and other current assets consist of the following (in thousands): December 31, 2011 2012 Prepaid workers compensation insurance $9,048 $9,160 Prepaid rent and other occupancy costs 5,947 6,354 Prepaid income taxes 2,087 213 Reimbursable costs 714 4,060 Favorable leases 462 386 Prepaid insurance 1,111 1,341 Deferred initial public offering costs — 2,189 Other prepaid expenses and current assets 3,203 4,124 $22,572 $27,827 Under the terms of the Company’s workers compensation policy, the Company is required to make advances to its insurance carrier pertaining toanticipated claims for all open plan years. 71Table of Contents4.FIXED ASSETSFixed assets consist of the following (dollars in thousands): Estimated useful lives December 31, 2011 2012 (Years) Buildings 20 – 40 $71,009 $116,157 Furniture and equipment 3 – 10 63,985 92,919 Leasehold improvements Shorter of the lease termor the estimated useful life 165,397 206,328 Land — 29,678 50,882 Total fixed assets 330,069 466,286 Accumulated depreciation and amortization (92,912) (125,910) Fixed assets, net $237,157 $340,376 The Company recorded depreciation expense of $25.7 million, $28.0 million and $34.4 million for the years ended December 31, 2010, 2011, and2012, respectively. 5.GOODWILL AND INTANGIBLE ASSETSThe changes in the carrying amount of goodwill are as follows (in thousands): Years ended December 31, 2011 2012 Beginning balance $887,895 $947,371 Goodwill additions during the period 62,917 45,723 Adjustments to prior year acquisitions 250 (22) Tax benefit from the exercise of continuation options (71) (2,506) Effect of foreign currency translation (3,620) 2,831 Ending balance $947,371 $993,397 Goodwill associated with full service center-based care, back-up dependent care and other educational advisory services amounted to $813.4 million,$159.2 million, and $20.8 million, respectively, at December 31, 2012. Substantially all activity associated with goodwill in 2011 and 2012 related to fullservice center-based care.The following tables reflect intangible assets that are subject to amortization (in thousands): Weighted averageamortization period Cost Accumulatedamortization Net carryingamount December 31, 2011: Contractual rights and customer relationships 15.0 years $365,194 $(97,232) $267,962 Trade names 8.9 years 1,798 (516) 1,282 Non-compete agreements 5 years 54 (29) 25 Other 2.9 years 4,200 (4,200) — $371,246 $(101,977) $269,269 72Table of Contents Weighted averageamortization period Cost Accumulatedamortization Net carryingamount December 31, 2012: Contractual rights and customer relationships 14.9 years $370,527 $(124,048) $246,479 Trade names 9.1 years 3,147 (883) 2,264 Non-compete agreements 5 years 54 (33) 21 $373,728 $(124,964) $248,764 The Company also has trade names with net carrying values of $183.8 million at December 31, 2011 and 2012, which were determined to haveindefinite useful lives and are not subject to amortization. On an annual basis, these trade names are subject to an evaluation of the remaining useful life todetermine whether events and circumstances continue to support an indefinite useful life, as well as testing for impairment.The Company recorded amortization expense of $27.6 million, $27.4 million and $26.9 million in the years ended December 31, 2010, 2011, and2012, respectively.The Company estimates that it will record amortization expense related to intangible assets existing as of December 31, 2012 as follows over the next fiveyears (in millions): Estimatedamortizationexpense 2013 $26.5 2014 $24.0 2015 $22.5 2016 $22.1 2017 $21.6 6.ACCOUNTS PAYABLE AND ACCRUED EXPENSESAccounts payable and accrued expenses consist of the following (in thousands): December 31, 2011 2012 Accounts payable $7,850 $6,319 Accrued payroll and employee benefits 47,950 52,344 Accrued insurance 12,916 13,674 Accrued interest 241 1,430 Accrued occupancy costs 2,272 2,336 Accrued professional fees 1,777 2,135 Other accrued expenses 16,027 18,969 $89,033 $97,207 7.OTHER CURRENT LIABILITIESOther current liabilities consist of the following (in thousands): December 31, 2011 2012 Customer amounts on deposit $4,932 $6,579 Accrued rent and other occupancy costs 1,116 2,085 Unfavorable leases 500 475 Income taxes payable 994 933 Other miscellaneous liabilities 1,438 2,015 $8,980 $12,087 73Table of Contents8.OTHER LONG-TERM LIABILITIESOther long-term liabilities consist of the following (in thousands): December 31, 2011 2012 Customer amounts on deposit $7,492 $8,481 Liability for uncertain tax positions 11,050 9,966 Other miscellaneous liabilities 3,984 5,270 $22,526 $23,717 9.CREDIT ARRANGEMENTS AND DEBT OBLIGATIONSLong-term debt consists of the following (in thousands): December 31, 2011 2012 Tranche B term loans $350,946 $346,111 Series C new term loans — 84,363 Senior subordinated notes 300,000 300,000 Senior notes 174,055 197,810 Original issue discount (10,656) (8,012) Deferred financing costs (15,088) (13,629) Total debt 799,257 906,643 Less current maturities 4,814 2,036 Long-term debt $794,443 $904,607 Long-Term Debt in Place at December 31, 2012In 2008, in conjunction with the Merger, Bright Horizons Family Solutions LLC (“BHFS LLC”) entered into agreements with lenders consisting of aCredit and Guaranty Agreement (the “Credit Agreement”) in an aggregate principal amount not to exceed $440.0 million and a Note Purchase Agreement andIndenture for the issuance of $300.0 million of senior subordinated notes. In addition, Bright Horizons Capital Corp. (“Capital Corp.”) entered into a NotePurchase Agreement and Indenture for the issuance of $110.0 million of senior notes. In July of 2011, certain terms and provisions of the Credit Agreementand the Indentures were amended in order to permit the acquisition of a 63% ownership interest in a company in the Netherlands and a subsequent follow-onacquisition of the remaining minority equity interests, and to make certain other investment-related changes.In May of 2012, certain terms and provisions of the Credit Agreement were further amended to permit the acquisition of the outstanding shares ofHuntyard Limited, to increase the size of the incremental facility provided under the Credit Agreement by an additional $35.0 million, to $85.0 million, toeliminate the mandatory prepayment provision relating to the issuance of equity interests, and to make other changes to certain other covenants. The fullamount of the amended incremental facility under the Credit Agreement was subsequently borrowed by BHFS LLC as Series C new term loans.Credit and Guaranty AgreementThe Credit and Guaranty Agreement consists of three facilities: • $75 million Revolver—BHFS LLC may borrow and repay under the revolving credit facility for a term of six years, terminating on May 28,2014, with any amounts outstanding at that date payable in 74Table of Contents full. The net proceeds of the borrowings under the revolving credit facility may be used for general corporate purposes, including, subject tocertain sub-limits and covenant requirements, to fund acquisitions and invest in foreign subsidiaries. At BHFS LLC’s option, advances underthe revolving credit facility will bear interest at either i) the greater of the Federal Funds Rate plus 0.5% or Prime (the Base Rate) plus a spreadbased on BHFS LLC’s leverage ratio, or ii) LIBOR (the Eurodollar Rate) plus a spread based on BHFS LLC’s leverage ratio. Commitment fees onthe unused portion of the line are payable at a rate ranging from 0.375% to 0.500% per annum based on BHFS LLC’s leverage ratio. No amountswere outstanding at December 31, 2011 and 2012 under the revolving credit facility. The weighted average interest rate for the years endedDecember 31, 2010 and 2011 was 4.8% and 5.5%, respectively. There were no borrowings during the year ended December 31, 2012. • $365 million Tranche B Term Loans—The total available amount of $365.0 million in aggregate principal was borrowed in 2008 as of the dateof the Merger. Principal repayments of $912,500 are due quarterly and commenced September 30, 2008, with the final payment due on May 28,2015. As a result of the calculation of Consolidated Excess Cash Flow for 2010, the Company prepaid $4.9 million of principal in March 2011,satisfying all four quarterly principal payments required in 2011 and a portion of the payments required in 2012. As a result of the calculation ofConsolidated Excess Cash Flow for 2011, the Company prepaid $4.8 million of principal in March 2012, satisfying the remaining quarterlyprincipal payments required in 2012 and a portion of the payments required in 2013. At BHFS LLC’s option, the term loans bear interest at eitheri) the greater of the Federal Funds Rate plus 0.5% or Prime (the Base Rate) plus 3.0%, or ii) LIBOR (the Eurodollar Rate) plus 4.0%. Prior toMay 28, 2011, the third anniversary of the agreement, both the Base Rate and Eurodollar Rate were subject to floors of 4.5% and 3.5%,respectively. At December 31, 2011 and 2012, $350.9 million and $346.1 million were outstanding in term loans, respectively. The interest rateon the outstanding term loans was 4.3% at December 31, 2011 and 4.2% at December 31, 2012. The weighted average interest rate for the yearsended December 31, 2010, 2011 and 2012 was 7.5%, 5.6% and 4.3%, respectively. In 2009, BHFS LLC entered into an interest rate capagreement with a bank to hedge changes in LIBOR over the term of the agreement such that the maximum interest BHFS LLC would be subject towould be 7.0% plus the spread of 4.0%. The agreement expires June 30, 2014. The interest rate cap is carried at fair value and is included in otherassets on the consolidated balance sheets. The interest rate cap, which had an original cost of $1.0 million, had a fair value of less than $0.1million at December 31, 2011 and 2012. Changes in the fair value of the interest rate cap are recorded in interest expense, which were an increaseto interest expense of $2.3 million, $0.6 million, and $0.1 million in the years ended December 31, 2010, 2011 and 2012, respectively. • $85 million Series C New Term Loans—The entire $85.0 million available under the incremental facility was borrowed in May 2012.Principal repayments of $212,500 are due quarterly and commenced June 30, 2012, with the final payment due on May 23, 2017. At BHFSLLC’s option, the new term loans bear interest at either i) the greater of the Federal Funds Rate plus 0.5% or Prime (the Base Rate) plus 3.25%, orii) LIBOR (the Eurodollar Rate) plus 4.25%. Both the Base Rate and Eurodollar Rate are subject to floors of 2.0% and 1.0%, respectively. AtDecember 31, 2012, $84.4 million of Series C new term loans were outstanding and the interest rate on the outstanding loans was 5.3%.Debt outstanding under the Credit and Guaranty Agreement is secured by substantially all of the assets of the Company’s subsidiaries located in theUnited States, and is guaranteed by all of the Company’s wholly-owned U.S.-based subsidiaries. The Credit and Guaranty Agreement requires that theCompany maintain compliance with specified financial ratios and other covenants, including a minimum interest coverage ratio, a maximum total leverageratio, a maximum capital expenditures requirement, and certain limitations on additional indebtedness, and the acquisitions and dispositions of assets.Amounts outstanding under the Credit and Guaranty Agreement are also subject to mandatory prepayment provisions based on cash flow generation, certainasset sales, or additional debt. 75Table of ContentsOriginal Issue DiscountThe revolving credit facility and the Tranche B term loans were issued with original issue discount (OID) of $20.5 million; the Series C new term loansissued in May 2012 were issued with OID of $425,000. The OID is amortized over the stated term of each facility with amounts amortized in each periodincluded in interest expense. For the years ended December 31, 2010, 2011, and 2012, the total amount of amortized OID included in interest expense was$2.8 million, $2.9 million and $3.1 million, respectively.Note Purchase Agreements and IndenturesThe Note Purchase Agreements and respective Indentures consist of: • $300 million of Senior Subordinated Notes: The senior subordinated notes were issued by BHFS LLC on May 28, 2008, bearing a fixedannual interest rate of 11.5% computed on the basis of a 360-day year and twelve 30-day months. Interest is payable quarterly and the seniorsubordinated notes mature and are payable in full on May 28, 2018. The senior subordinated notes are guaranteed by all of the Company’swholly-owned US-based subsidiaries. • $110 million of Senior Notes: The senior notes were issued by Capital Corp. on May 28, 2008, bearing a fixed annual interest rate of 13.0%computed on the basis of a 360-day year and twelve 30-day months. Interest is payable quarterly in arrears and the senior notes mature and arepayable in full on November 28, 2018. At Capital Corp.’s option, interest due on or before May 28, 2013, is payable in cash or by such interestbeing added to the principal. At December 31, 2012, the Company had $197.8 million of aggregate principal amount of the senior notesoutstanding, which includes the interest that has been added to the principal. The senior notes are not guaranteed by any of the Company’ssubsidiaries. Accumulated interest in the amount of $87.8 million added to the principal was due in 2013; however, since the Company used aportion of the proceeds from its initial public offering in 2013 to repay that liability, the amount is presented as a long-term liability atDecember 31, 2012.The Indentures and the Note Purchase Agreements do not contain any financial maintenance covenants.Deferred Financing FeesBHFS LLC and Capital Corp. incurred financing fees of $27.1 million in connection with the 2008 debt agreements and BHFS LLC incurred anadditional $2.3 million related to the 2012 Series C new term loans. These fees are being amortized over the terms of the related debt instruments and suchamortization is included in interest expense in the consolidated statements of operations. Amortization expense relating to these deferred financing costs for theyears ended December 31, 2010, 2011, and 2012, was $3.3 million, $3.4 million and $3.7 million, respectively.Overdraft FacilitiesThe Company’s subsidiaries in the United Kingdom maintain an overdraft facility with a U.K. bank to support local short-term working capitalrequirements. The overdraft facility is repayable upon demand from the U.K. bank. The facility provides maximum borrowings of £0.3 million(approximately $0.5 million at December 31, 2012) and is secured by a cross guarantee by and among the Company’s subsidiaries in the United Kingdomand a right of offset against all accounts maintained by the subsidiaries at the lending bank. The overdraft facility bears interest at the U.K. bank’s base rateplus 2.15%. At December 31, 2011 and 2012, there were no amounts outstanding under the overdraft facility.The Company’s majority-owned subsidiary in the Netherlands, acquired in 2011, maintains a revolving credit facility with a Dutch bank consisting ofa €1.0 million (approximately $1.3 million at December 31, 2012) general facility to support working capital and letter of credit requirements, and a €1.75 million (approximately 76Table of Contents$2.3 million at December 31, 2012) current account facility to support the construction and fit out of new child care centers. The current account facility isreduced by € 0.25 million quarterly through January 1, 2014, its termination date. Both facilities are repayable upon demand from the Dutch bank and aresecured by a right of offset against all accounts maintained by the Company at the lending bank. The current account facility is secured by an additionalpledge of equipment. Both facilities bear interest at the bank’s Euro base rate plus 1.5%. At December 31, 2011 and 2012, there were no amounts outstandingunder the facility. The weighted average interest rate for the year ended December 31, 2011 was 5.95%. There were no borrowings during the year endedDecember 31, 2012.2013 Debt Refinancing Transactions$110 million of Senior Notes—On January 30, 2013, the Company used the net proceeds of its initial public offering and certain proceeds from theissuance of a $790.0 million senior secured term loan to redeem the senior notes in full for $213.3 million, including the redemption premium.New Credit Facility—On January 30, 2013, the Company also entered into new $890.0 million senior secured credit facilities to refinance all of theexisting indebtedness under the senior credit facilities and the senior subordinated notes and to reflect modifications to certain provisions of the senior creditfacilities. Significant terms of the refinancing are as follows: • $790.0 million term loan facility with a maturity date in 2020; • $100.0 million revolving credit facility with a maturity date in 2018; • The applicable margin percentages for the loan facilities are 2.0% per annum for base rate loans and 3.0% per annum for LIBOR rate loansprovided that the base rate for the term loan may not be lower than 2.0% and LIBOR may not be lower than 1.0%.Principal payments of $2.0 million are due quarterly and commence March 30, 2013, with the final payment due on January 30, 2020.The Tranche B term loans and the Series C new term loans were redeemed for an aggregate $433.0 million, including the redemption premium on theSeries C new term loans, and the $300.0 million senior subordinated notes were redeemed in full for an aggregate $330.8 million, including the redemptionpremium. 10.REDEEMABLE NONCONTROLLING INTERESTIn July 2011 the Company acquired a 63% ownership interest of a company in the Netherlands, and in November 2012, acquired a further 18.5%ownership interest, for an aggregate ownership of 81.5% as of December 31, 2012. See Note 2, “Acquisitions”, for additional information regarding the 2011acquisition.The company’s operating results are included in the Company’s consolidated results of operations from the date of acquisition and the minorityownership interest retained by the previous owners is presented as redeemable noncontrolling interest on the Company’s consolidated balance sheets.The redeemable noncontrolling interest was measured at fair value at the date of acquisition and is reviewed at each subsequent reporting period andadjusted, as needed, to reflect its then redemption value. No adjustments have been recorded to date. The redeemable noncontrolling interest of 63% wasrecorded at a fair value of $17.1 million at the date of acquisition, which was determined based upon standard valuation techniques using unobservableinputs of discounted cash flow analysis and an industry peer comparable analysis.The acquisition of the additional 18.5% by the Company in exchange for $3.9 million on November 23, 2012 was treated as an equity transaction andthe difference between the acquisition price and carrying value of the redeemable non-controlling interest was recorded as an adjustment to additional paid incapital. The accumulated other comprehensive income associated with the additional acquired interest was also recorded as equity of the Company. 77Table of ContentsThe following is a reconciliation of the changes in the redeemable noncontrolling interest for the years ended December 31, 2011 and 2012 (inthousands): Years ended December 31, 2011 2012 Balance at beginning of the period $— $15,527 Fair value at acquisition 17,063 — Sale of 18.5% of interest to BHFS — (7,994) Net income attributable to noncontrolling interest 3 347 Effect of foreign currency translation (1,539) 246 Balance at end of period $15,527 $8,126 11.INCOME TAXES(Loss) income before income taxes consists of the following (in thousands): Years ended December 31, 2010 2011 2012 United States $(19,321) $3,973 $6,882 Foreign (987) 1,614 4,870 Total $(20,308) $5,587 $11,752 Income tax (benefit) expense consists of the following (in thousands): Years ended December 31, 2010 2011 2012 Current tax (benefit) expense Federal $2,068 $(2,063) $8,102 State 1,277 1,517 2,361 Foreign 231 7,120 4,434 3,576 6,574 14,897 Deferred tax (benefit) expense Federal (11,213) (1,292) (9,048) State (2,419) 523 (1,453) Foreign (258) (4,980) (1,153) (13,890) (5,749) (11,654) Income tax (benefit) expense $(10,314) $825 $3,243 The following is a reconciliation of the U.S. Federal statutory rate to the effective rate on pretax (loss) income (in thousands): Years ended December 31, 2010 2011 2012 Federal tax (benefit) expense computed at statutory rate $(7,108) $1,956 $4,113 State tax (benefit) expense, net of federal tax (1,391) 1,502 416 Valuation allowance, net 89 (5,018) 23 Permanent differences and other, net (1,927) 236 551 Change in tax rate — (1,599) 12 Change to uncertain tax positions, net (151) 4,166 (869) Foreign rate differential 174 (418) (1,003) Income tax (benefit) expense $(10,314) $825 $3,243 78Table of ContentsSignificant components of the Company’s net deferred tax liability are as follows (in thousands): December 31, 2011 2012 Deferred tax assets: Current deferred tax assets: Reserve on assets $525 $679 Liabilities not yet deductible 9,502 10,095 Deferred revenue 326 430 Depreciation 84 207 Other 146 — 10,583 11,411 Valuation allowance (3) (45) Net current deferred tax assets 10,580 11,366 Non-current deferred tax assets: Net operating loss and credit carryforwards 6,257 1,918 Liabilities not yet deductible 9,991 12,806 Deferred revenue 471 737 Stock-based compensation 2,606 9,641 Deferred financing costs 1,273 1,018 Other 3,657 2,410 24,255 28,530 Valuation allowance (1,007) (1,037) Net non-current deferred tax assets 23,248 27,493 Total net deferred tax assets 33,828 38,859 Deferred tax liabilities: Intangible assets (163,316) (158,426) Depreciation (14,313) (13,867) Total deferred tax liabilities (177,629) (172,293) Net deferred tax liability $(143,801) $(133,434) During 2012, the overall deferred tax liability has decreased, mostly due to the book to tax difference in the treatment of amortization of intangible assets,stock-based compensation and use of net operating losses and credits.At December 31, 2012, the Company had a deferred tax asset of $1.9 million, representing the tax effect of net operating losses and tax credit carry-forwards. The components of this deferred tax asset are $0.5 million related to net operating losses in a number of states which have expiration dates through2031 and $1.4 million of foreign net operating losses that will begin to expire in 2031 or can be carried forward indefinitely.The Company has recorded valuation allowances on certain foreign net operating losses where it has not had a history of profitability.The Company does not provide for U.S. income taxes on the portion of undistributed earnings of foreign subsidiaries that is intended to be permanentlyreinvested. These earnings may become taxable in the United States upon the sale or liquidation of these foreign subsidiaries or upon the remittance ofdividends. At this time, it is not practicable to estimate the amount of deferred tax liability on such earnings. 79Table of ContentsUncertain Tax PositionsThe Company follows the authoritative guidance relating to the accounting for uncertainty in income taxes. The Company may recognize the tax benefitfrom an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on thetechnical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on thelargest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands): Years ended December 31, 2011 2012 Beginning balance $4,420 $7,933 Additions for tax positions of prior years 4,392 474 Additions for tax positions of current year 557 879 Settlements (1,436) (474) Reductions for tax positions of prior years — (845) Lapses of statutes of limitations — (778) Effect of foreign currency adjustments — 223 Ending balance $7,933 $7,412 The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company’s current provision forincome tax expense for the years ended December 31, 2010, 2011, and 2012 included $0.4 million, $0.8 million and $0.3 million, respectively, of interest andpenalties related to tax positions of the Company. The liability for total interest and penalties at December 31, 2011 and 2012 was $3.1 million and $2.6million, respectively, and is included in other long-term liabilities. During the fourth quarter of 2012, the Company partially reduced its reserve for uncertaintax positions due to the lapse in the statute of limitations for prior tax filings. Additionally, the Company received correspondence from a governmentrepresentative of a foreign jurisdiction which accepted certain tax positions which had been taken in previous filings, thereby indicating that no change to thetax filings would be required; as a result, the uncertain tax benefit related to this matter was reduced in the fourth quarter.The total amount of unrecognized tax benefits that if recognized would affect the Company’s effective tax rate is $6.6 million. The Company expects theunrecognized tax benefits to change over the next 12 months if certain tax matters ultimately settle with the applicable taxing jurisdiction during this timeframe, or if applicable statutes of limitations lapse. The impact of the amount of such changes to previously recorded uncertain tax positions could range from$0.5 million to $5.6 million.The Company and its domestic subsidiaries are subject to U.S. Federal income tax as well as multiple state jurisdictions. U.S. Federal income taxreturns are typically subject to examination by the Internal Revenue Service (IRS) and the statute of limitations for Federal income tax returns is three years.The Company’s filings for 2009 through 2012 are subject to audit based upon the Federal statute of limitations.State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of anyFederal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. There were no significantsettlements of state audits during 2012. As of December 31, 2012, there were not any state income tax audits in process.The Company is also subject to corporate income tax at its subsidiaries located in the United Kingdom, the Netherlands, India, Canada, Ireland, andPuerto Rico. The tax returns for the Company’s subsidiaries located in foreign jurisdictions are subject to examination for periods ranging from one to sevenyears. 80Table of Contents12.STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATIONEquity Incentive PlanThe Company has an incentive compensation plan (the “Plan”) under which it was authorized to grant options to acquire 0.8 million shares of Class Acommon stock to employees and directors, as well as to consultants and advisors to the Company. On March 9, 2012 the stockholders of the Company votedto increase the number of shares available to be issued in respect of awards granted under the Plan to 150,000 shares of Class L common stock and1.5 million shares of Class A common stock.Stock options granted under the Plan are subject to either a service condition or a service condition and a performance condition, and expire at the earlierof ten years from date of grant or termination of the holder’s employment with the Company, unless such termination was due to death, disability orretirement, unless otherwise determined by the Administrator of the Plan. The majority of the options have a requisite service period of five years, with 40% ofthe options vesting on the second anniversary of the date of grant and 20% vesting on each of the third, fourth and fifth anniversaries. Certain options have arequisite service period of three to four years, with 33% of the options vesting on the first or second anniversary of the date of grant and 33% vesting on each ofthe following anniversaries until fully vested. The performance based options additionally require the occurrence of a Change in Control, as defined in thePlan, or the closing of an initial public offering. For stock options granted with a service condition only, stock-compensation expense is recognized on astraight-line basis over the requisite service period of each separately vesting tranche. For stock options granted with a service and performance condition,stock-compensation expense will be recognized upon the Change in Control, as defined in the Plan, or the closing of an initial public offering, to the extent thatthe requisite service period is already fulfilled.On March 9, 2012, the Board of Directors approved the exchange of existing stock options to acquire Class A common stock for options to acquire acombination of shares of Class A and Class L common stock (the “stock option exchange”). Options to purchase a total of 711,389 shares of Class Acommon stock were exchanged as of May 2, 2012 for options to acquire 90,630 shares of Class L common stock and 413,953 shares of Class A commonstock, based on an exchange ratio of options to purchase approximately 7.9 shares of Class A common stock for a new option to purchase one share of ClassL common stock and 4.6 shares of Class A common stock. The exercise price for each new award was $511.51 per share of Class L common stock and$12.00 per share of Class A common stock. All option holders were subject to the exchange. This transaction was accounted for as a modification. TheCompany expects to incur total incremental stock compensation expense of approximately $19.0 million related to the stock option exchange, of whichapproximately $13.4 million was recognized in the year ended December 31, 2012 related to the requisite service period already fulfilled. The remainingincremental expense for stock options granted with a service condition will be recognized on a straight-line basis over the remaining requisite service period ofeach separately vesting tranche of approximately 2 years. The incremental expense for stock options granted with a service condition and a performancecondition of approximately $5.0 million will be recognized upon the closing of the initial public offering in January 2013, related to the requisite service periodalready fulfilled.As of December 31, 2012, there were approximately 27,923 shares of Class L common stock and 896,523 shares of Class A common stock availablefor grant.Treasury StockDuring the years ended December 31, 2010 and 2012, the Company repurchased a total of 1,123 shares and 41,454 shares of Class A common stock,respectively. There were no stock repurchases during the year ended December 31, 2011. The Company accounts for treasury stock under the cost method.On September 21, 2012, the Company retired all of its treasury stock, resulting in a $0.6 million reduction in common treasury stock and additional paid-incapital. 81Table of ContentsCommon StockThe Company’s charter authorizes the issuance of two classes of common stock, Class L and Class A. The rights of the holders of Class L andClass A shares are identical, except with respect to priority in the event of a liquidation distribution, as defined in the Company’s charter. The Class Lcommon stock is entitled to a preference with respect to all liquidation distributions by the Company until the holders of Class L common stock have receivedan amount equal to the Class L base amount of $405 per share. Thereafter, the Class L shares and the Class A shares will receive any liquidationdistributions made by the Company pro rata based on the number of outstanding Class A shares (treating each Class L share as one outstanding Class Ashare, subject to appropriate adjustment in the event of any stock split, stock dividend or similar event affecting the Class A shares). In the event of a changeof control or an initial public offering of the Company, each outstanding share of Class L common stock is convertible into a number of shares of Class Acommon stock equal to one (subject to appropriate adjustment in the event of any stock split, stock dividend or similar event affecting the Class A shares)plus a number of additional shares of Class A common stock determined by dividing the accreted preference (which is equal to the Class L base amount of$405 per share plus an amount sufficient to generate an internal rate of return of 10% per annum on the Class L base amount) by the applicable per shareprice (as defined in the Company’s charter). Class L common stock is classified outside of permanent equity in the consolidated balance sheets at itspreferential distribution amount, as the timing of the distribution event is outside of the control of the Company. The Class L preferred return of 10% perannum, compounded quarterly, is added to the Class L preferential distribution amount each period and recorded as an increase to accumulated deficit.Repurchases of Class L common stock are recorded under the cost method as reductions to Class L common stock. During the years endedDecember 31, 2010 and 2012, respectively, the Company repurchased a total of 246 shares and 9,076 shares, respectively, of Class L common stock. Therewere no stock repurchases during the year ended December 31, 2011. All shares of Class L common stock repurchased were retired in 2012.The following table reflects the changes in Class L common stock for the years ended December 31, 2010, 2011, and 2012 (in thousands, except sharedata): SharesIssued SharesOutstanding Amount Class L common stock, balance at December 31, 2009 1,316,146 1,315,003 $633,452 Issuance of Class L common stock 2,296 2,296 208 Repurchase of Class L common stock — (246) (89) Accretion of Class L preferred return — — 65,962 Class L common stock, balance at December 31, 2010 1,318,442 1,317,053 699,533 Issuance of Class L common stock 528 528 47 Accretion of Class L preferred return — — 72,842 Class L common stock, balance at December 31, 2011 1,318,970 1,317,581 772,422 Issuance of Class L common stock 18,610 18,610 1,675 Repurchase of Class L common stock — (9,076) (4,643) Retirement of treasury stock (10,465) — — Accretion of Class L preferred return — — 84,647 Class L common stock, balance at December 31, 2012 1,327,115 1,327,115 $854,101 Stock-Based CompensationThe Company recognized the impact of stock-based compensation in its consolidated statements of operations for the years ended December 31, 2010,2011, and 2012 and did not capitalize any amounts on the consolidated balance sheets. In the years ended December 31, 2010, 2011, and 2012, the Companyrecorded 82Table of Contentsstock compensation expense of $2.4 million, $1.2 million, and $17.6 million, respectively, in selling, general and administrative expenses in the consolidatedstatements of operations, which generated an income tax benefit of $0.9 million, $0.5 million and $7.1 million, respectively. The stock compensation expensefor the year ended December 31, 2012 includes $13.4 million related to the stock option exchange, $3.5 million related primarily to the vested portion of optionawards granted during the period, with the remaining $0.7 million related to option awards granted in prior years.There were no share-based liabilities paid during the period.Stock OptionsIn conjunction with the Merger, various members of management rolled over certain vested and unexercised options in the Predecessor as investments inthe Company; these rolled over options were substituted for continuation options to acquire a combination of shares in the Company in a ratio of 4.6 shares ofClass A common stock for every one share of Class L common stock. A total of 472,709 pre-Merger options were rolled over, and substituted for 26,777options to acquire an aggregate of 26,777 shares of Class L common stock and 122,303 shares of Class A common stock.These continuation options had been fully expensed by the Predecessor as of the date of the Merger, and, therefore, there is no expense for these optionsin the accompanying consolidated statements of operations.On January 11, 2013, the options to purchase shares of Class L common stock were converted into options to purchase common stock based on aconversion factor of 35.1955 and a corresponding adjustment to the exercise price.The following table reflects stock option activity for the continuation options for the year ended December 31, 2012: WeightedAverageRemainingContractualLife in Years Number ofOptions onClass LShares Class LWeightedAverageExercisePrice Number ofOptions onClass AShares Class AWeightedAverageExercisePrice Outstanding at January 1, 2012 0.9 23,191 $90.00 105,925 $4.93 Exercised (18,610) 90.00 (85,001) 4.93 Outstanding and Exercisable at December 31, 2012 0.5 4,581 $90.00 20,924 $4.93 The aggregate intrinsic value (pre-tax) was $3.1 million for the Company’s outstanding and exercisable continuation options on Class L shares atDecember 31, 2012 based on the fair value of the continuation options Class L shares of $774.30. The aggregate intrinsic value (pre-tax) was $0.4 million forthe Company’s outstanding and exercisable continuation options on Class A shares at December 31, 2012 based on the fair value of the continuation optionsClass A shares of $22.00 at December 31, 2012. The aggregate intrinsic value represents the net amount that would have been received by the option holdershad they exercised all of their outstanding options and those which were fully vested on that date.The total aggregate intrinsic value of exercised continuation options was $0.8 million, $0.2 million and $8.4 million for the years ended December 31,2010, 2011 and 2012, respectively, based on the fair value of Class L common shares of $404.37, $472.70 and $511.51, respectively, and based on the fairvalue of Class A common shares of $9.99, $17.77, and $12.00, respectively. 83Table of ContentsThe fair value of each stock option of Class A and Class L shares granted was estimated on the date of grant using the Black-Scholes option pricingmodel using the following weighted average assumptions: Years ended December 31, 2010 2011 2012 Class AShares Class AShares Class LShares Class AShares Expected dividend yield 0.0% 0.0% 0.0% 0.0% Expected stock price volatility 82.0% 82.0% 79.2% 79.2% Risk free interest rate 1.4% 1.2% 0.68% 0.68% Expected life of options (years) 3.69 3.47 4.16 4.16 Weighted average fair value per share of options granted during the period $4.34 $10.40 $291.83 $6.84 The expected stock price volatility is based upon the historical volatility of the Predecessor’s stock price over the expected life of the options, as well asthe historical volatility of the stock price over the expected life of the options of similar companies that are publicly traded.The table below reflects stock option activity under the Company’s equity plan for the year ended December 31, 2012. WeightedAverageRemainingContractualLife inYears Class L Shares Class A Shares NumberofOptions WeightedAverageExercisePrice NumberofOptions WeightedAverageExercisePrice Outstanding at January 1, 2012 7.0 — $— 715,321 $19.76 Exercised — — (1,065) 19.70 Forfeited — — (2,867) 19.70 Cancellations (1) — — (711,389) 19.76 Option exchange (1) 90,630 511.51 413,953 12.00 Granted 32,556 511.51 148,699 12.00 Forfeited or expired (1,109) 511.51 (5,188) 12.00 Outstanding at December 31, 2012 6.8 122,077 $511.51 557,464 $12.00 Exercisable at December 31, 2012 6.0 40,704 $511.51 185,915 $12.00 Vested and expected to vest at December 31, 2012 6.8 116,834 $511.51 533,641 $12.00 (1)Represents option exchange consummated on May 2, 2012.At December 31, 2012, the Company’s outstanding, exercisable, vested and expected to vest options to purchase Class L shares had an aggregateintrinsic value of $32.1 million, $10.7 million and $30.7 million, respectively.At December 31, 2012, the Company’s outstanding, exercisable, vested and expected to vest options to purchase Class A shares had an aggregateintrinsic value of $5.6 million, $1.9 million and $5.3 million, respectively.Options to purchase Class A shares exercised in 2012 did not have an intrinsic value as the exercise price exceeded their fair value at the date of exercise.The fair value of pre-tax options that vested during 2012 was $4.2 million for options on Class L common stock and $0.7 million for options onClass A common stock. The fair value (pre-tax) of options that vested during the years ended December 31, 2010 and 2011 were $1.4 million and $0.8million, respectively.As of December 31, 2012, there was $12.2 million of total unrecognized compensation expense related to unvested share-based compensationarrangements granted under the Plan. That expense is expected to be 84Table of Contentsrecognized over the remaining requisite service period for options with a service condition, and upon a change in control, as defined in the Plan, or the closingof an initial public offering, to the extent that the requisite service period is already fulfilled for options with a service and performance condition. The weightedaverage remaining requisite service period was approximately two years at December 31, 2012.Cash received by the Company from the exercise of stock options for the years ended December 31, 2010, 2011 and 2012 was $0.3 million, $0.1million and $2.1 million, respectively. The actual tax benefits realized for the tax deductions from option exercises were $0.3 million, $0.1 million and $3.4million in the years ended December 31, 2010, 2011, and 2012, respectively. The Company realizes a tax deduction upon the exercise of non-qualified stockoptions due to the recognition of compensation expense in the calculation of its taxable income. The amount of the compensation recognized for tax purposes isbased on the difference between the market value of the common stock and the option price at the date the options are exercised. Tax benefits related to theexercise of the continuation options were credited to goodwill as they had been previously expensed by the Predecessor.Options to purchase 31,628 shares Class L common stock and 144,461 shares of Class A common stock vested upon the effectiveness of the Offeringon January 24, 2013, which resulted in a compensation charge in the amount of $5.0 million. 13.EARNINGS PER SHAREAs the Company has both Class L and Class A common stock outstanding and the Class L common stock has a preference with respect to allliquidation distributions, net (loss) earnings per share is calculated using the two-class method, which requires the allocation of earnings to each class ofcommon stock.The numerator in calculating Class L basic and diluted earnings per share is the Class L preference amount accrued during the year presented plus, ifpositive, a pro rata share of an amount equal to consolidated net income less the Class L preference amount.The numerator in calculating Class A basic and diluted earnings per share is an amount equal to consolidated net income less the Class L preferenceamount and Class L pro rata share amount, if any. 85Table of ContentsThe weighted average number of common shares in the common diluted earnings per share calculation excludes all Class L shares and stock optionsoutstanding during the respective periods, as they would not be dilutive. The weighted average number of Class L shares in the earnings per share calculationexcludes all Class L stock options outstanding during the respective periods as they would not be dilutive. The computation of basic and diluted earnings percommon share is as follows (in thousands, except share and per share amounts): Years ended December 31, 2010 2011 2012 Net (loss) income—basic and diluted $(9,994) $4,759 $8,162 Accretion of Class L preference 64,712 71,568 79,211 Accretion of Class L preference for vested options 1,251 1,274 5,436 Net (loss) available to common shareholders $(75,957) $(68,083) $(76,485) Allocation of net (loss) income to common stockholders—basic and diluted: Class L $64,712 $71,568 $79,211 Class A $(75,957) $(68,083) $(76,485) Weighted average number of common shares—basic anddiluted: Class L 1,315,153 1,317,273 1,326,206 Class A 6,006,960 6,016,733 6,058,512 Earnings (loss) per common share—basic and diluted: Class L $49.21 $54.33 $59.73 Class A $(12.64) $(11.32) $(12.62) As of December 31, 2010, 2011, and 2012, there were options outstanding to purchase Class A common stock of 0.7 million shares, 0.8 million sharesand 0.6 million shares that may be dilutive in the future. As of December 31, 2010, 2011 and 2012, there were options outstanding to purchase 23,719shares, 23,191 shares and 126,658 shares of Class L common stock that may be dilutive in the future. 14.COMMITMENTS AND CONTINGENCIESLeasesThe Company leases various office equipment, child care and early education center facilities and office space under non-cancelable operating leases.Most of the leases expire within ten years and many contain renewal options for various periods. Rent expense for the years ended December 31, 2010, 2011,and 2012 totaled $52.1 million, $57.6 million and $62.8 million, respectively.Future minimum payments as of December 31, 2012 under non-cancelable operating leases are as follows for the years ending December 31 (inthousands): 2013 $61,335 2014 58,750 2015 55,204 2016 50,014 2017 43,533 Thereafter 191,060 Total future minimum lease payments $459,896 86Table of ContentsLong-Term DebtFuture minimum payments as of December 31, 2012 of long-term debt, prior to our debt refinancing in January 2013, are as follows for the yearsending December 31 (in thousands): 2013 $2,036 2014 4,500 2015 342,125 2016 850 2017 80,963 Thereafter 410,000 Total future principal payments $840,474 In addition to these obligations, amounts due in 2013 exclude $87.8 million of accumulated interest on the senior notes as of December 31, 2012, whichhas been added to the principal balance, and that was repaid in 2013 from the proceeds of the Offering as discussed in Note 9, “Credit Arrangements andDebt Obligations”.The future minimum payments under the new $790.0 million term loans obtained on January 30, 2013 are as follows for each of the following years:$7.9 million in 2013, $7.9 million in 2014, $7.9 million in 2015, $7.9 million in 2016, $7.9 million in 2017, with $750.5 million due thereafter.Letters of CreditThe Company has eighteen letters of credit outstanding used to guarantee certain rent payments for up to $0.8 million. No amounts have been drawnagainst these letters of credit.LitigationThe Company is a defendant in certain legal matters in the ordinary course of business. Management believes the resolution of such legal matters willnot have a material effect on the Company’s financial condition, results of operations or cash flows.Insurance and RegulatoryThe Company self-insures a portion of its medical insurance plans and has a high deductible workers’ compensation plan. While management believesthat the amounts accrued for these obligations are sufficient, any significant increase in the number of claims or costs associated with claims made under theseplans could have a material adverse effect on the Company’s financial position, results of operations or cash flows.The Company’s child care and early education centers are subject to numerous federal, state and local regulations and licensing requirements. Failure ofa center to comply with applicable regulations can subject it to governmental sanctions, which could require expenditures by the Company to bring its childcare and early education centers into compliance. 15.EMPLOYEE BENEFIT PLANSThe Company maintains a 401(k) Retirement Savings Plan (the “401(k) Plan”) for all eligible employees. To be eligible for the 401(k) Plan, an employeemust be at least 20.5 years of age and have completed their eligibility period of 60 days and 160 hours of service from date of hire. If they do not meet the160 hours of service requirement, they may be eligible at 12 months provided they have reached 1,000 hours of service from date of hire. The 401(k) Plan isfunded by elective employee contributions of up to 50% of their compensation, subject to certain limitations. Under the 401(k) Plan, the Company matches25% of employee contributions for each participant up to 8% of the employee’s compensation after one year of service. Expense under the plan, consisting ofCompany contributions and plan administrative expenses paid by the Company, totaled approximately $1.8 million for each of the years ended December 31,2010 and 2011, and totaled $2.0 million for the year ended December 31, 2012. 87Table of Contents16.SEGMENT AND GEOGRAPHIC INFORMATIONBright Horizons work/life services are primarily comprised of full service center-based child care, back-up dependent care, elementary education, collegepreparation and admissions counseling, and tuition assistance, counseling and management services. The Company has identified three reporting segmentsconsisting of full service center-based care, back-up dependent care, and other educational advisory services. Full service center-based care includes thetraditional center-based child care, preschool, and elementary education, which have similar operating characteristics and meet the criteria for aggregationunder ASC 280, Segment Reporting. Full service center-based care derives its revenues primarily from contractual arrangements with corporate clients andfrom tuition. The Company’s back-up dependent care services consist of center-based back-up child care, in-home care, mildly ill care, and adult/elder care.The Company’s other education advisory services consists of the remaining services, including college preparation and admissions counseling and tuitionassistance, counseling and management services, which do not meet the quantitative thresholds for separate disclosure and are not material for segmentreporting individually or in the aggregate. The Company and its chief operating decision makers evaluate performance based on revenues and income fromoperations.The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements;thus, no additional information is produced or included herein. Full servicecenter-basedcare Back-updependentcare Othereducationaladvisoryservices Total (In thousands) Year ended December 31, 2010 Revenue $769,235 $99,086 $9,838 $878,159 Amortization of intangibles 25,324 2,057 250 27,631 Income from operations 46,770 21,141 752 68,663 Year ended December 31, 2011 Revenue $844,595 $114,502 $14,604 $973,701 Amortization of intangibles 25,178 1,947 302 27,427 Income from operations 58,950 28,669 (783) 86,836 Year ended December 31, 2012 Revenue $922,214 $130,082 $18,642 $1,070,938 Amortization of intangibles 25,906 725 302 26,933 Income from operations 60,154 33,863 1,447 95,464 Revenue and long-lived assets by geographic region are as follows (in thousands): Years ended December 31, 2010 2011 2012 Revenue North America $770,848 $843,645 $901,210 Europe and other 107,311 130,056 169,728 Total Revenue $878,159 $973,701 $1,070,938 December 31, 2011 2012 Long-lived assets North America $198,468 $230,807 Europe and other 38,689 109,569 Total long-lived assets $237,157 $340,376 The classification “North America” is comprised of the Company’s United States, Canada and Puerto Rico operations and the classification “Europeand other” includes the Company’s United Kingdom, Netherlands, Ireland, and India operations. 88Table of Contents17.TRANSACTIONS WITH RELATED PARTIESThe Company has a management agreement with a significant stockholder. The management agreement has a ten year term which commenced May 28,2008. Fees of $2.5 million per year have been paid to the significant stockholder in each of the years ended December 31, 2010, 2011 and 2012. These fees areincluded in selling, general and administrative expenses in the consolidated statements of operations.In connection with the Offering, the Company and its significant stockholder agreed to terminate the management agreement, which resulted in apayment of $7.5 million by the Company to the Sponsor in 2013. 18.QUARTERLY RESULTS (UNAUDITED)In the opinion of the Company’s management, the accompanying unaudited interim consolidated financial statements contain all adjustments which arenecessary for a fair presentation of the quarters presented. The operating results for any quarter are not necessarily indicative of the results of any futurequarter. March 31, 2011 June 30, 2011 September 30,2011 December 31,2011 (In thousands) Revenue $232,922 $248,017 $243,877 $248,885 Gross profit 49,296 55,322 49,183 53,400 Income from operations 20,226 25,535 18,293 22,782 Net income (loss) (1,263) 2,519 (364) 3,870 Net income (loss) attributable to Bright Horizons Family Solutions Inc (1,263) 2,519 (456) 3,959 Allocation of net (loss) income to common stockholders – basic anddiluted: Class L 16,995 17,608 18,253 18,712 Class A (18,564) (15,406) (19,030) (15,083) Earnings (loss) per share: Class L – basic and diluted $12.90 $13.37 $13.86 $14.20 Class A – basic and diluted $(3.09) $(2.56) $(3.16) $(2.51) March 31, 2012 June 30, 2012 September 30,2012 December 31,2012 (In thousands) Revenue $258,122 $271,463 $267,927 $273,426 Gross profit 58,020 64,553 60,092 63,105 Income from operations 26,104 16,061 25,355 27,944 Net income (loss) 3,590 (1,914) 2,606 4,227 Net income (loss) attributable to Bright Horizons Family Solutions Inc 3,509 (1,967) 2,446 4,174 Allocation of net (loss) income to common stockholders – basic anddiluted: Class L 18,513 19,590 20,298 20,810 Class A (15,070) (25,482) (18,521) (17,412) Earnings (loss) per share: Class L – basic and diluted $13.99 $14.76 $15.30 $15.68 Class A – basic and diluted $(2.49) $(4.20) $(3.06) $(2.87) Item 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone. 89Table of ContentsItem 9A.Controls and ProceduresManagement’s Annual Report on Internal Control over Financial ReportingThis annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of theCompany’s registered public accounting firm due to the existence of a transition period, established by rules of the Securities and Exchange Commission, fornewly public companies.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter endedDecember 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Evaluation of Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosurecontrols and procedures as of December 31, 2012. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in thereports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rulesand forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to bedisclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management,including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Managementrecognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectivesand management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of ourdisclosure controls and procedures as of December 31, 2012, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, ourdisclosure controls and procedures were effective. Item 9B.Other InformationNone. 90Table of ContentsPART III Item 10.Directors, Executive Officers and Corporate GovernanceExecutive Officers of the RegistrantSet forth below is certain information about our executive officers. Ages are as of December 31, 2012.David H. Lissy, age 47, has served as a director of the Company since 2001 and as Chief Executive Officer of the Company since January 2002.Mr. Lissy served as Chief Development Officer of the Company from 1998 until January 2002. He also served as Executive Vice President from June 2000 toJanuary 2002. He joined Bright Horizons in August 1997 and served as Vice President of Development until the merger with CorporateFamily Solutions, Inc.in July 1998. Prior to joining Bright Horizons, Mr. Lissy served as Senior Vice President/General Manager at Aetna U.S. Healthcare, the employee benefitsdivision of Aetna, Inc., in the New England region. His experience prior to joining the Company, his leadership at the Company and at many charitable,business services, and educational organizations, including his current service on the boards of the March of Dimes, Altegra Health, Jumpstart and IthacaCollege, provides him with the experience and management skills necessary to serve as a director of the Company.Mary Ann Tocio, age 64, has served as a director of the Company since November 2001 and as Chief Operating Officer of the Company since itsinception in 1998. She was appointed President in June 2000. Ms. Tocio joined Bright Horizons in 1992 as Vice President and General Manager of ChildCare Operations, and served as Chief Operating Officer from November 1993 until the merger with CorporateFamily Solutions, Inc. in July 1998. Ms. Tociohas more than thirty years of experience managing multi-site service organizations, twenty years of which were with the Company. She was previously theSenior Vice President of Operations for Health Stop Medical Management, Inc., a national provider of ambulatory care and occupational health services.Ms. Tocio also currently serves as a member of the board of directors of Harvard Pilgrim Health Care, a health benefits and insurance organization, and Mac-Gray Corporation, a provider of laundry facilities management services, and Horizons for Homeless Children, a non-profit organization that provides supportfor homeless children and their families. Her public company board experience and expertise with managing growing organizations render her an invaluableresource as a director.Elizabeth J. Boland, age 53, has served as Chief Financial Officer of the Company since June 1999. Ms. Boland joined Bright Horizons in September1997 and served as Chief Financial Officer and, subsequent to the merger between Bright Horizons and CorporateFamily Solutions, Inc. in July 1998,served as Senior Vice President of Finance for the Company until June 1999. From 1994 to 1997, Ms. Boland was Chief Financial Officer of TheVisionaries, Inc., an independent television production company. From 1990 to 1994, Ms. Boland served as Vice President-Finance for Olsten Corporation, apublicly traded provider of home-health care and temporary staffing services. From 1981 to 1990, she worked on the audit staff at Price Waterhouse, LLP inBoston, completing her tenure as a senior audit manager.Stephen I. Dreier, age 70, has served as Chief Administrative Officer and Secretary of the Company since 1997. He joined Bright Horizons as VicePresident and Chief Financial Officer in August 1988 and became its Secretary in November 1988 and Treasurer in September 1994. Mr. Dreier served asBright Horizons’ Chief Financial Officer and Treasurer until September 1997, at which time he was appointed to the position of Chief Administrative Officer.From 1976 to 1988, Mr. Dreier was Senior Vice President of Finance and Administration for the John S. Cheever/Paperama Company.Danroy T. Henry, Sr., age 46, has served as the Chief Human Resource Officer since December 2007. Mr. Henry joined Bright Horizons in May 2004as the Senior Vice President of Global Human Resources. From 2001 to 2004, Mr. Henry was the Executive Vice President for FleetBoston Financial where hehad responsibility for the metropolitan Boston consumer banking market. Prior to 2001 Mr. Henry served roles in human resources management at Blinds ToGo Superstores, Staples, Inc. and Pepsi Cola Company. Mr. Henry is the past board chair of the North East Human Resources Association and has served onthe board of the Society of Human Resource management foundation. He is also currently the chair and co-founder of the DJ Dream Fund. 91Table of ContentsDirectors of the RegistrantOur certificate of incorporation provides that our board of directors will be divided into three classes of directors, with the classes as nearly equal innumbers as possible. The Board believes that each director has valuable individual skills and experiences that, taken together, provide the Company with thevariety and depth of knowledge, judgment and vision necessary to provide effective oversight of the Company. Information for David Lissy, who is a Class Idirector, and Mary Ann Tocio, who is a Class II director, appears under “Executive Officers of the Registrant” above.Class I Directors, Term Expires in 2014David Humphrey, age 35, has been a managing director at Bain Capital Partners, LLC since December 2012 having joined the firm in 2001. FromDecember 2008 to December 2012 Mr. Humphrey served as a Principal, and from 2006 to December 2008 Mr. Humphrey served as Vice President, at BainCapital Partners, LLC. Mr. Humphrey serves on the board of directors of Burlington Coat Factory and Skillsoft plc. Prior to joining Bain Capital,Mr. Humphrey was an investment banker in the mergers and acquisitions group at Lehman Brothers from 1999 to 2001. Mr. Humphrey received an M.B.A.from Harvard Business School and a B.A. from Harvard University. Mr. Humphrey, who has served as a director since 2008, has substantial knowledge ofthe capital markets from his experience as an investment banker and is valuable to the board of directors’ discussions of capital and liquidity needs.Dr. Sara Lawrence-Lightfoot, age 68, has served as a director of the Company since 1998. She is the Emily Hargrowes Fisher Professor of Educationat Harvard University and has been on the faculty since 1972. Dr. Lawrence-Lightfoot served as a director of the John D. and Catherine T. MacArthurFoundation from 1991 to 2007 and as Chairman from 2001 to 2007. She served as Chair of the Academic Affairs Committee of the Board of Trustees ofBerklee College of Music from September 2007 until March 2012 and has been a trustee since 2004. Dr. Lawrence-Lightfoot’s expertise in child development,teacher training, classroom structures and processes, curriculum development, parent/teacher relationships, educational policies and organizational matterswill continue to provide an invaluable resource to the board.Class II Directors, Term Expires in 2015Jordan Hitch, age 46, has been a managing director at Bain Capital Partners, LLC since 1997. Prior to joining Bain Capital in 1997, Mr. Hitch was aconsultant at Bain & Company where he worked in the financial services, healthcare and utility industries. Mr. Hitch serves on the board of directors ofBombardier Recreational Products, Guitar Center Holdings, Inc., The Gymboree Corporation and Burlington Coat Factory Warehouse Corporation. As a resultof these and other professional experiences, Mr. Hitch has served as a director since 2008 and brings to our board significant experience in and knowledge ofcorporate finance and strategy development, which strengthen the collective qualifications, skills and experience of our board of directors.Linda A. Mason, age 58, co-founded Bright Horizons in 1986, and served as director and its president from 1986 to 1998. She has served as adirector and Chairman of the board of the Company since 1998. Prior to founding Bright Horizons, Ms. Mason was a co-director of the Save the Childrenrelief and development effort in the Sudan and worked as a program officer with CARE in Thailand. In addition to her duties as executive chairman of ourboard of directors, since 1998 Ms. Mason has served as a part-time employee of the Company, with responsibilities that include participation in Companytrainings, conferences and culture-building and representing the Company from time to time on industry matters and in public policy discussions. Ms. Masonis the wife of Roger H. Brown, who is also a director of the Company. From 1983 to 2007, Ms. Mason served as director of Whole Foods Market. Ms. Masoncurrently serves on the boards of Horizons for Homeless Children, the Advisory Board of the Yale University School of Management, Carnegie Endowmentfor International Peace, Mercy Corps and the Packard Foundation. Ms. Mason has extensive experience with the Company and her sense of mission and childadvocacy work bring valuable perspective to the board. 92Table of ContentsClass III Directors, Term Expires in 2016Lawrence M. Alleva, age 63, was appointed as a director of the Company in September 2012. The board of directors has determined that he is anindependent director. Mr. Alleva is a Certified Public Accountant (inactive) and spent his professional career with PricewaterhouseCoopers LLP (PwC),including 28 years as a partner, from 1971 until his retirement in 2010. At PwC he served clients ranging from Fortune 500 and multi-national companies torapid-growth companies pursuing initial public offerings. Mr. Alleva also served in a senior national leadership role for PwC’s Ethics and Compliance Groupto manage the design and implementation of best practice procedures, internal controls and monitoring activities, including in connection with PwC’s responseto inspection reports issued by the Public Company Accounting Oversight Board (PCAOB). Mr. Alleva currently serves as a director and chair of the auditcommittees of GlobalLogic, Inc. and of Tesaro, Inc. He has served as a trustee of Ithaca College for over 20 years, including in the vice chair role for ten years.Mr. Alleva brings valuable experience to our board through his financial and Sarbanes-Oxley Act expertise, and his professional focus on areas such ascorporate governance, control and financial reporting best practices.Josh Bekenstein, age 54, has been a managing director at Bain Capital Partners, LLC since 1986. Prior to joining Bain Capital in 1984,Mr. Bekenstein spent several years at Bain & Company, where he was involved with companies in a variety of industries. Mr. Bekenstein serves as a directorof Michaels Stores, Inc., Bombardier Recreational Products Inc., Dollarama Capital Corporation, Toys “R” Us, Inc., Burlington Coat Factory WarehouseCorporation, The Gymboree Corporation and Waters Corporation. Mr. Bekenstein has been on the Board of the Company since its inception in 1986 and hismany years of experience both as a senior executive of a large investment firm and as a director of companies in various business sectors, including ours,make him highly qualified to serve on our board.Roger H. Brown, age 56, has served as a director of the Company since 1998. He has served as President of Berklee College of Music since June2004. Mr. Brown was Chief Executive Officer of the Company from June 1999 until December 2001, President of the Company from July 1998 until May2000 and Executive Chairman of the Company from June 2000 until June 2004. Mr. Brown co-founded Bright Horizons and served as Chairman and ChiefExecutive Officer of Bright Horizons from its inception in 1986 until the merger with CorporateFamily Solutions in July 1998. Mr. Brown is the husband ofLinda A. Mason, who is Chairman of the board of directors. Prior to 1986, he worked as a management consultant for Bain & Company, Inc. Mr. Brown isa co-founder of Horizons for Homeless Children, a non-profit that provides support for children and their families. He is chairman of the board for BostonAfter School and Beyond and serves on the board for Sonicbids, the leading website for connecting emerging bands and music promoters, and the board ofWheaton College in Norton, Massachusetts. Mr. Brown’s management expertise, combined with his longstanding ties to and intimate knowledge of theCompany will continue to serve the Company well throughout his tenure as director.Marguerite Kondracke, age 66, served as founder and CEO of CorporateFamily Solutions, Inc. from 1987 to 1998. The board of directors hasdetermined that she is an independent director. She served as CEO of the Company for one year and then as Co-Chair of the board of directors of theCompany from 1999 until 2001 and served as a director until 2003. She began serving as a director of the Company in 1998, and from 2003 to 2004 sheserved as Staff Director for the U.S. Senate Subcommittee on Children and Families. Ms. Kondracke returned to the Company’s board in 2004, and from2004 until May 2012, also served as President and CEO of America’s Promise Alliance, a nonprofit organization founded by Colin Powell that advocates forthe strength and well-being of America’s children and youth. Ms. Kondracke serves on the boards of Saks, Inc., LifePoint Hospitals, Rosetta Stone,Teachscape, and The American Academy. Ms. Kondracke brings knowledge of developmental child care and education as well as extensive leadershipexperience to the board.Corporate GovernanceCode of Business Conduct and EthicsWe have adopted a Code of Conduct and Business Ethics applicable to our employees, officers (including our chief executive officer, chief financialofficer and chief accounting officer) and members of our board of directors. The Code of Conduct and Business Ethics is accessible on our website atwww.brighthorizons.com. If 93Table of Contentswe make any substantive amendments to the Code of Conduct and Business Ethics or grant any waiver, including any implicit waiver, from a provision ofthe Code of Conduct and Business Ethics to our officers, including the chief executive officer, chief financial officer or chief accounting officer, we willdisclose the nature of such amendment or waiver on that website or in a report on Form 8-K.Board Structure and Committee CompositionThe members of each committee are appointed by the board of directors and serve until their successors are elected and qualified, unless they are earlierremoved or resign. In addition, from time to time, special committees may be established under the direction of the board of directors when necessary toaddress specific issues.Because we are taking advantage of exceptions applicable to “controlled companies” under the New York Stock Exchange listing rules, we do not have amajority of independent directors, we do not have a nominating committee, and our compensation committee is not composed entirely of independent directorsas defined under such rules. The responsibilities that would otherwise be undertaken by a nominating committee will be undertaken by our board of directors,or at its discretion, by a special committee established under the direction of our board of directors. The controlled company exception does not modify theindependence requirements for our audit committee. The rules applicable to our audit committee require that our audit committee be composed of at least threemembers, a majority of whom must be independent within 90 days of the date of the Offering, and all of whom will be independent within one year of theOffering. On March 8, 2013, we appointed Marguerite Kondracke to serve on our audit committee and determined that she qualifies as an independent directorunder applicable SEC and New York Stock Exchange rules, resulting in a majority of the members of our audit committee qualifying as independent.Audit CommitteeThe purpose of the audit committee is set forth in the audit committee charter, which can be obtained on our website at www.brighthorizons.com. Theaudit committee’s primary duties and responsibilities are to: • Appoint or replace, compensate and oversee the outside auditors for the purpose of preparing or issuing an audit report or related work orperforming other audit, review or attest services for us. The outside auditors will report directly to the audit committee. • Pre-approve all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our outsideauditors, subject to de minimis exceptions which are approved by the audit committee prior to the completion of the audit. • Review and discuss with management and the outside auditors the annual audited and quarterly unaudited financial statements, our disclosuresunder “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and the selection, application and disclosureof critical accounting policies and practices used in such financial statements. • Review and approve all related party transactions. • Discuss with management and the outside auditors significant financial reporting issues and judgments made in connection with the preparationof our financial statements, including any significant changes in our selection or application of accounting principles, any major issues as to theadequacy of our internal controls and any special steps adopted in light of material control deficiencies.Our audit committee consists of Lawrence Alleva, David Humphrey and Marguerite Kondracke. Our board of directors has determined that Mr. Allevaand Ms. Kondracke are independent directors pursuant Rule 10A-3(b)(1) under Exchange Act and Section 303A.02 of the NYSE Listed Company Manual.Mr. Alleva is also an “audit committee financial expert” within the meaning of Item 407 of Regulation S-K, and serves as chair of the audit committee. 94Table of ContentsSection 16(a) Beneficial Ownership Reporting ComplianceSection 16(a) of the Exchange Act requires our directors, executive officers and greater than ten percent beneficial owners of our common stock to filereports of ownership and changes in ownership with the Securities and Exchange Commission. Directors, executive officers and greater than ten percentstockholders are required by the rules and regulations of the Securities and Exchange Commission to furnish us with copies of all Section 16(a) reports theyfile.Our common stock was not registered under the Securities Exchange Act of 1934, as amended, until January 24, 2013 and, consequently, there were noSection 16 filing requirements to be satisfied during fiscal 2012. Item 11.Executive CompensationCOMPENSATION DISCUSSION AND ANALYSISThis discussion describes our compensation philosophy, principles and practices with respect to the compensation of the below listed executive officers(referred to as our named executive officers): David H. Lissy Chief Executive OfficerMary Ann Tocio President and Chief Operating OfficerElizabeth J. Boland Chief Financial OfficerDanroy T. Henry Chief Human Resources OfficerStephen I. Dreier Chief Administrative Officer and SecretaryOverview of CompensationOur named executive officers’ compensation is determined by our compensation committee and is reviewed annually. Our executive compensationprogram is designed to attract and retain high-quality leadership and incentivize our executive officers and other key employees to achieve companyperformance goals and strong individual performance over the short- and long-term. Our pay-for-performance approach to executive compensation places agreater emphasis on long-term equity incentive grants than on other forms of compensation, reflecting our focus on long-term value creation and serving toalign the interests of our executive officers with those of our shareholders.Fiscal 2012 Performance and Company HighlightsThe Company achieved strong financial and operating results in fiscal 2012, and we believe that our named executive officers were instrumental inhelping us achieve these results. Some highlights of the Company’s fiscal 2012 performance include: • Exceeded planned financial results: The Company exceeded its planned revenue growth of $1.067 billion and its EBITDA growth target of$28 million for 2012. • Prepared for successful initial public offering: Following the close of fiscal 2012, in January 2013, we successfully completed an initialpublic offering, and our common stock became listed on the New York Stock Exchange under the symbol “BFAM.” • Prepared for a successful refinancing of indebtedness: Following the close of fiscal 2012, in January 2013, we successfully refinanced all ofour outstanding debt in conjunction with the Offering on terms deemed favorable by our board, including a lower interest rate. 95Table of ContentsEffect of Fiscal 2012 Performance on 2012 CompensationThe primary performance consideration in evaluating the annual cash bonuses of our named executive officers was the achievement of planned revenuegrowth and targeted growth in earnings before interest, taxes, depreciation, amortization, straight line rent expense, equity expense, transaction costs and theSponsor management fee, which we refer to for these purposes as EBITDA, for 2012. As a result, we awarded our named executive officers the full targetamount of the corporate performance portion of their annual cash bonus. In addition, the strategic and tactical decisions employed by our named executiveofficers to achieve the revenue goals and EBITDA target were consideration in deciding the individual portion of each executive’s bonus.Compensation Philosophy, Objectives, and ProcessOur compensation philosophy centers on: • Pay for Performance: Compensation should be tied to the achievement of financial, operating, and strategic goals. • Equity Ownership: A significant part of our compensation program is in the form of equity-based awards. These awards serve to align theinterests of our executive officers with those of our shareholders, encourage long-term retention and incentivize long-term value creation. • Individual Performance: Compensation should take into account and reward individual performance and contribution to our success.Role of the Compensation Committee, Chief Executive Officer, and President. Our compensation committee oversees our executive compensationprogram and is responsible for approving the compensation paid to, and the agreements entered into with, our executive officers, including our namedexecutive officers. This committee’s roles and responsibilities are set forth in a written charter adopted by our board, which can be found online atwww.investors.brighthorizons.com under “Corporate Governance”. Our compensation committee determines the base salary, cash incentive compensation, andequity compensation of our executive officers, including our named executive officers.Following our initial public offering, our Board has assumed responsibility for approving, after receiving the recommendation or approval of ourcompensation committee, equity awards granted to our executive officers in order to qualify these awards as exempt awards under Section 16 of the SecuritiesExchange Act of 1934, as amended. Our compensation committee applies the same general principles to the compensation related decisions regarding all of ournamed executive officers. In the case of Ms. Boland and Messrs. Henry and Dreier, our chief executive officer, Mr. Lissy, and our President, Ms. Tocio, alsoprovide recommendations to our compensation committee with respect to compensation-related decisions, including base salary adjustments, target annualcash bonus awards and equity-awards, as well as their assessment of each officer’s individual performance. Our compensation committee considers theirrecommendations as one factor when making decisions regarding the compensation of these named executive officers. Although we may decide to do so in thefuture, neither the Company nor our compensation committee currently uses a compensation consultant or benchmarking comparison data to assist in thedetermination of our named executive officers’ compensation.Elements of Executive CompensationThe compensation of our named executive officers consists of a base salary, an annual cash bonus, equity awards and employee benefits that aregenerally made available to all salaried employees. Our named executive officers are also entitled to certain compensation and benefits upon a qualifyingtermination of employment pursuant to a severance agreement.Base Salary. Base salaries for our named executive officers are determined based on the scope of each officer’s responsibilities along with his or herrespective experience and contributions to the Company. It is our philosophy to maintain a conservative level of base cash compensation, with greater emphasisover time placed 96Table of Contentson long-term incentive compensation. Base salaries for our named executive officers are reviewed annually by our compensation committee. When reviewingbase salaries for increase, our compensation committee takes factors into account such as each officer’s experience and individual performance, theCompany’s performance as a whole and general industry conditions, but does not assign any specific weighting to any factor. Consistent with the philosophyof maintaining a conservative level of base compensation, we have generally awarded limited base salary increases on an annual basis. For 2012, after weprepared the Company’s annual budget, our compensation committee decided to approve an increase of 2% in the base salaries of each of our named executiveofficers, in line with the company-wide targeted salary increase of 2% proposed by management in our operating budget.Annual Cash Bonus. Our annual cash bonus program was established to promote and reward the achievement of key strategic and business goals aswell as individual performance and is designed to motivate our executive officers to meet or exceed annual performance goals. Each named executive officerreceives a target award opportunity under this program that is expressed as a percentage of the executive’s base salary. Each executive’s target is established byour compensation committee based on the individual’s scope of responsibilities and his or her potential contributions to the achievement of the Company’sstrategic goals. For fiscal 2012, Mr. Lissy and Ms. Tocio each had a target cash incentive award of 120% of base salary, Ms. Boland had a target cashincentive award of 60% of base salary, Mr. Dreier had a target cash incentive award of 35% of base salary, and Mr. Henry had a target cash incentive awardof 40% of base salary. For fiscal 2012, fifty percent of the cash incentive awards granted to our named executive officers was based on the achievement of pre-established corporate goals and fifty percent was based on a qualitative assessment of each individual’s performance with primary emphasis on theachievement of individual goals communicated at the beginning of the fiscal year. These individual goals varied across our named executive officers butgenerally encompassed: • Leadership skills and strategic vision • Strategic planning and execution • Culture/brand building and integration of acquisitions • Employee, parent and client satisfaction • Innovation and change management • Succession planning and employee development • External relations, including awards and recognition, and civic involvement • Board and committee relations • Demonstrated ethics and values in line with our company’sThe portion of each named executive officer that was based on corporate performance was subject to an adjustment that could increase or decrease theamount earned proportionately based on whether or not the Company’s performance for the year was above or below the target and by how much. Themaximum amount of the increase or decrease resulting from the adjustment was not capped.Consistent with previous years, our compensation committee chose EBITDA as the corporate performance metric for fiscal 2012. Our compensationcommittee selected EBITDA because it believed that it reflected the Company’s cash flow generation on a consistent basis and as such was also the best overallindicator of the Company’s operational performance. At the beginning of our fiscal year, our compensation committee established a corporate performance goalof $28.1 million growth in EBITDA from 2011. Target performance was exceeded during fiscal 2012, with an actual growth in EBITDA for 2012 ascompared to 2011 of $30.1 million. This level of achievement of the targeted growth level resulted in the named executive officers each earning 100% of theportion of his or her target incentive award that was based on corporate performance. 97Table of ContentsAt the end of fiscal 2012, our compensation committee met and evaluated the performance of each of our named executive officers during the fiscal year.In this evaluation, they considered the various leadership and business factors outlined above, including leadership, strategic planning and execution, strategicvision and leadership skills, customer satisfaction, diversity and stability of growth, culture and employee satisfaction, innovation, communication skills,board relations and presentations, ethics and values and succession planning. They also considered the Company’s strong financial performance in 2012 asmeasured by revenue growth and growth in EBITDA as well as the contributions of our named executive officers towards a successful IPO, together withfeedback from internal employee and external client surveys. After considering these factors, our compensation committee determined that each of the namedexecutive officers earned 100% of the portion of his or her annual incentive award that was based on individual performance.Equity Awards. The largest single component of our executive compensation program is the periodic granting of equity-based awards, primarily in theform of stock options with multi-year vesting conditions. These equity-based awards have generally served both to align the interests of our named executiveofficers with those of our shareholders through the use of performance-based awards and to encourage retention and promote a longer-term, strategic viewthrough the use of time-based awards.In September 2008, in connection with our going private transaction, each of our named executive officers received a grant of stock options that had asignificant grant date value. At the time they were awarded, these option grants were intended to provide the sole source of private-company, equity-basedcompensation for our executives and no additional equity awards were contemplated in the near- or mid-term. One-half of the total stock options granted to ournamed executive officers in 2008 are subject to time-based vesting only and the other half are subject to time- and performance-based vesting. The awards thatare subject to time and performance-based vesting fully vest and become exercisable upon a liquidity-event (including a change in control of the Company oran initial public offering) or the termination of the executive’s employment (other than in connection with a breach by the executive of any restrictivecovenants). The performance condition for these options was fully satisfied in connection with our initial public offering in January 2013.Prior to 2012, consistent with our philosophy at the time of granting the option awards in 2008, our executive officers generally did not receive anyadditional equity-based awards. The only named executive officer who received an additional option grant prior to 2012 was Ms. Boland, who received a grantin 2011, which was subject to time and performance based vesting, for special recognition of work performed.On May 2, 2012, we completed an option exchange program in which all option holders, including our named executive officers, agreed to exchangetheir then-outstanding options to purchase shares of our Class A common stock for options to purchase a combination of shares of our Class A common stockand Class L common stock based on an exchange ratio of options to purchase approximately 15.5 shares of our Class A common stock for a new option topurchase nine shares of Class A common stock and one share of Class L common stock. Each of Messrs. Lissy and Dreier and Mses. Tocio and Boland alsoreceived a fully vested option award in April 2012 in connection with the expiration and exercise of fully vested continuation option awards granted to them atthe time of our going private transaction. These options were granted to maintain each named executive officer’s relative level of equity award holdings, aftergiving effect to the “net” exercise of their continuation options (that is, the use of shares that would otherwise have been delivered upon exercise of options topay the exercise price of the options and to satisfy applicable tax withholding obligations) and were fully vested upon grant. In addition, all of our namedexecutive officers received an option award in May 2012 based upon their respective responsibilities and contributions as executive officers and considering thetotal value of the option award granted to them in September 2008 and the company’s relatively strong performance during the ensuing economic downturn. Toencourage retention, the awards granted in May were subject to time-based vesting and performance-vesting, which performance-vesting was satisfied uponconsummation of our initial public offering.Upon the consummation of our initial public offering in January 2013, our compensation committee granted each of Messrs. Lissy and Henry andMses. Tocio and Boland an additional option award, with time-based vesting 98Table of Contentsto encourage retention following our initial public offering. The compensation committee determined the amount of each new award granted to our namedexecutive officers in January 2013 based upon each officer’s respective contribution to the strategic and tactical planning and preparations related to theOffering.Benefits and Perquisites. We provide modest benefits and perquisites for our named executive officers. Most of these benefits and perquisites, such asour 401(k) matching contribution and basic health and welfare benefit coverage, are available to all eligible employees. In addition to these, we provide thefollowing supplemental programs to certain named executive officers: • An annual car allowance – provided to Mr. Lissy and Ms. Tocio • Company-paid supplemental medical insurance premiums – provided to Mr. Dreier • Company-paid supplemental disability insurance – provided to all named executive officers other than Mr. Dreier, who has declined coverageSeverance Agreements. All our named executive officers have severance agreements with the Company, which include severance, change of control,and restrictive covenant provisions. We believe that change of control arrangements provide our executives with security that will likely reduce any reluctancethey may have to pursue a change of control transaction that could be in the best interests of our stockholders. We also believe that reasonable severance andchange of control benefits are necessary in order to attract and retain high-quality executive officers.Risk Assessment. The Company does not believe that the risks arising from our compensation practices are reasonably likely to have a material adverseeffect on the Company.Tax and Accounting ConsiderationsSection 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”) disallows a tax deduction for any publicly held corporation forindividual compensation exceeding $1 million in any taxable year for a company’s chief executive officer and the three other most highly compensatedexecutive officers, other than its chief financial officer, unless compensation qualifies as performance-based under such section. As we were not publiclytraded prior to our initial public offering in January 2013, our compensation committee did not previously take the deductibility limit imposed bySection 162(m) into consideration in setting compensation. At such time as we are subject to the deduction limitations of Section 162(m), we expect that ourcompensation committee will take into consideration the potential deductibility of the compensation payable under our programs as one of the factors to beconsidered when establishing these programs. Our compensation committee may, in its judgment, authorize compensation payments that do not comply withthe exemptions, in whole or in part, under Section 162(m) or that may otherwise be limited as to tax deductibility.Our compensation committee regularly considers the accounting implications of significant compensation decisions, especially in connection withdecisions that relate to our equity incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately alignaccounting expenses of our equity awards with our overall executive compensation philosophy and objectives.Report of the Compensation CommitteeThe compensation committee has reviewed and discussed with management the foregoing Compensation Discussion and Analysis. Based on suchreview and discussions, the compensation committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included inthe Company’s annual report on Form 10-K for the fiscal year ended December 31, 2012.Joshua Bekenstein, ChairJordan HitchDavid Humphrey 99Table of ContentsSummary Compensation TableThe following table sets forth information about certain compensation awarded or paid to our named executive officers for the fiscal years specifiedbelow. Name and Principal Position Year Salary$ (1) Bonus$ (2) OptionAwards$ (3) Non-EquityIncentivePlanCompensation($)(4) All Other$ (5) Total($) David H. Lissy 2012 342,118 205,271 4,529,409 205,271 13,763 5,295,831 Chief Executive Officer 2011 335,420 761,886 — 221,377 11,213 1,329,896 Mary Ann Tocio 2012 342,118 205,271 4,861,590 205,271 16,979 5,631,229 President and Chief Operating Officer 2011 335,420 761,886 — 221,377 14,429 1,333,112 Elizabeth J. Boland 2012 253,864 76,159 2,125,790 76,159 4,536 2,536,508 Chief Financial Officer 2011 248,890 327,667 64,004 82,134 4,535 727,230 Danroy T. Henry, Sr. 2012 239,700 47,940 1,470,479 47,940 3,008 1,809,067 Chief Human Resources Officer Stephen I. Dreier 2012 227,755 39,857 983,003 39,857 13,590 1,304,062 Chief Administrative Officer and Secretary (1)Salaries amounts are not reduced to reflect amounts contributed by the named executive officer to the 401(k) Plan (as defined below).(2)For fiscal 2012, amounts shown reflect the amount earned by the named executive officer that was earned based on individual performance as describedin “—Elements of Executive Compensation—Annual Cash Bonuses” above. For fiscal 2011, amounts shown reflect (a) cash payments in respect ofone-time deferred compensation awards granted in May 2008 (Mr. Lissy, $560,634, Ms. Tocio, $560,634, and Ms. Boland, $253,000) and (b) theamount paid to the named executive officer in respect of the portion of his or her annual bonus for fiscal year 2011 that was earned based on individualperformance (Mr. Lissy, $201,252, Ms. Tocio, $201,252, and Ms. Boland, $74,667). Ms. Boland voluntarily forfeited her right to $30,000 of thisdeferred compensation award in order to make this amount available for bonus payments to certain members of the Company’s accounting team, whichresulted in an actual amount of $223,000 paid to Ms. Boland. Deferred compensation awards were one-time awards made by the Company inconnection with our going-private transaction that vested, based on continued service by the named executive officer, on May 29, 2011, and weresubsequently paid in 2011.(3)For fiscal 2012, amounts shown reflect (a) the incremental fair value of options awarded in connection with the option exchange program, determined asof the modification date of such options in accordance with ASC Topic 718 (Mr. Lissy, $3,346,280, Ms. Tocio, $3,143,742, Ms. Boland,$1,397,953, Mr. Henry, $851,981, and Mr. Dreier, $779,331) and (b) the fair value of other options awarded in 2012 determined in accordance withASC Topic 718 consisting of fully vested option awards granted on April 4, 2012 (Mr. Lissy $1,183,129, Ms. Tocio $1,717,848, Ms. Boland,$727,837, Mr. Henry, $618,498, and Mr. Dreier, $203,672). For fiscal 2011, amounts shown reflect the grant date fair value of options awarded in2011 determined in accordance with ASC Topic 718. Assumptions used in the calculation of these amounts are included in note 12 to our consolidatedfinancial statements included elsewhere in this Annual Report on Form 10-K.(4)Amounts shown reflect the cash amount paid to the named executive officer in respect of the portion of his or her annual bonus for each fiscal year thatwas earned based on Company performance as described in “—Elements of Executive Compensation—Annual Cash Bonuses” above. 100Table of Contents(5)Amounts shown include the following: matching contributions made to the 401(k) Plan on behalf of each named executive officer; a car allowancepayment made to Mr. Lissy and Ms. Tocio; supplemental medical insurance premiums paid by the Company on behalf of Mr. Dreier; andsupplemental disability insurance premiums paid by the Company on behalf of all named executive officers other than Mr. Dreier. Name Year 401(k) Match($) CarAllowance($) SupplementalMedical orDisabilityInsurance ($) Total ($) David H. Lissy 2012 4,250 7,200 2,313 13,763 2011 1,700 7,200 2,313 11,213 Mary Ann Tocio 2012 5,625 7,200 4,154 16,979 2011 3,075 7,200 4,154 14,429 Elizabeth J. Boland 2012 3,076 — 1,460 4,536 2011 3,075 — 1,460 4,535 Danroy T. Henry, Sr. 2012 1,548 — 1,460 3,008 Stephen I. Dreier 2012 2486 — 11,104 13,590 Grant of Plan-Based AwardsThe following table sets forth information regarding grants of plan-based awards in 2012. Name Grant date Estimated future payoutsunder non-equity incentiveplan awards All otheroptionawards:Numberofsecuritiesunderlyingoptions(#)(1) Exerciseor baseprice ofoptionawards($/Sh)(2) Grant datefair value ofstock andoptionawards($)(3) Threshold($) Target ($) Maximum($) David H. Lissy 1/27/12 — 410,555 — 4/4/2012 2,816 $566.32 $760,489 5/2/2012 16,430 $566.32 $3,768,920 Mary Ann Tocio 1/27/12 — 410,555 — 4/4/2012 4,796 $566.32 $1,295,208 5/2/2012 15,510 $566.32 $3,566,382 Elizabeth J. Boland 1/27/12 — 152,322 — 4/4/2012 648 $566.32 $174,999 5/2/2012 8,306 $566.32 $1,950,791 Danroy T. Henry 1/27/12 — 95,880 — 5/2/2012 5,670 $566.32 $1,470,479 Stephen I. Dreier 1/27/12 — 78,714 — 4/4/2012 118 $566.32 $31,867 5/2/2012 4,040 $566.32 $951,136 (1)The amounts in the table reflect options to purchase a combination of shares of our Class A common stock and Class L common stock in a ratio of nineshares of our Class A stock to one share of our Class L common stock outstanding as of December 31, 2012, but do not give effect to the January 11,2013 reclassification transactions (collectively referred to as the “Reclassification” ): a.the 1–for–1.9704 reverse split of our Class A common stock, and b.the conversion of each share of our Class L common stock into 35.1955 shares of Class A common stock, followed by c.the immediate reclassification of all Class A common stock into common stock. 101Table of Contents(2)The exercise price for each combination of shares is equal to the fair value of the underlying shares at grant date determined by the board in accordancewith the common stock valuation policy described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Common Stock Valuation and Stock-Based Compensation.”(3)Amounts shown reflect the total dollar value of the equity grant as valued under ASC Topic 718. Assumptions used in the calculation of these amountsare included in Note 11, “Stockholders’ Equity and Stock-Based Compensation”, to the Consolidated Financial Statements included in this AnnualReport on Form 10-K.In January 2012 our compensation committee, as part of its annual review of our named executive officers performance, established a targeted level ofgrowth in EBITDA as the 2012 corporate performance metric based on its belief that this metric is the best overall indicator of the Company’s operationalperformance as measured by cash flow generation on a consistent year-to-year basis. At the same time our compensation committee also set the non-equityincentive payment targets for 2012 for each named executive officer, expressed as a percentage amount of each named executive officers’ 2012 salary asfollows: 120% of salary for each of our Chief Executive officer and our President/COO; 60% of salary for our Chief Financial Officer; 40% of salary for ourChief Human Resources Officer; and 35% of salary for our Chief Administrative Officer. Consistent with prior years, 50% of each named executive officer’snon-equity incentive payment is based on the obtainment of the EBITDA corporate performance metric and 50% is based on individual performance factors,including: • Leadership skills and strategic vision; • Strategic planning and execution; • Culture/brand building and integration of acquisitions; • Employee, parent and client satisfaction; • Innovation and change management; • Succession planning and employee development; • External relations, including awards and recognition, and civic involvement; • Board and committee relations; • Demonstrated ethics and values in line with those of the company.The above chart also reflects the following option awards made during 2012 and discussed in full under “Elements of Executive Compensation –Equity Awards”: • A grant of options awarded on April 4, 2012 to each of Messrs. Lissy and Dreier and Mses. Tocio and Boland in connection with the expirationand exercise of certain fully vested continuation option awards granted to them at the time of our going private transaction. • A grant of options awarded on May 2, 2012, to each named executive officer consisting of options granted in conjunction with their participationin our option exchange program and an additional grant based upon their respective responsibilities as executive officers, the fact that the lastsignificant long term incentive grant had been awarded in 2008, and the performance of the Company and of our named executive offers duringthe time between 2008 and 2012. 102Table of ContentsOutstanding Equity Awards at Fiscal Year-EndThe following table sets forth information regarding equity awards held by our named executive officers as of December 31, 2012 without adjusting forthe 1-for-1.9704 reverse split of our Class A common stock, the conversion of our Class L common stock into Class A common stock and the reclassificationof Class A common stock into common stock that occurred immediately prior to our initial public offering in January 2013. Option Awards (1) Name Number ofSecuritiesUnderlyingUnexercisedOptions #Exercisable Number ofSecuritiesUnderlyingUnexercisedOptions #Unexercisable Equity IncentivePlan Awards:Number ofSecuritiesUnderlyingUnexercisedUnearned Options(#) OptionExercise Price(7) OptionExercise Date(8) David H. Lissy 543(2) — — $112.50 2/19/2014 6,080 (3)(6) 1,520 (3)(6) — $566.32 9/2/2018 — — 7,600 (5)(6) $566.32 9/2/2018 2,816(4) — — $566.32 4/4/2024 — 615 (3) — $566.32 5/2/2022 — — 615 (5) $566.32 5/2/2022 Mary Ann Tocio 226(2) — — $112.50 2/19/2014 5,712(3)(6) 1,428 (3)(6) — $566.32 9/2/2018 — — 7,140 (5)(6) $566.32 9/2/2018 4,796(4) — — $566.32 4/4/2024 — 615 (3) — $566.32 5/2/2022 — — 615 (5) $566.32 5/2/2022 Elizabeth J. Boland 2,540(3)(6) 635 (3)(6) — $566.32 9/2/2018 — — 3,175 (5)(6) $566.32 9/2/2018 322(3)(6) 161 (3)(6) — $566.32 4/1/2021 — — 483 (5)(6) $566.32 4/1/2021 648(4) — — $566.32 4/4/2024 — 495 (3) — $566.32 4/1/2021 — — 495 (5) $566.32 5/2/2022 Danroy T. Henry 64(2) — — $112.50 2/19/2014 1,548(3)(6) 387 (3)(6) — $566.32 9/2/2018 1,935 (5)(6) $566.32 9/2/2018 900 (3) — $566.32 5/2/2022 900 (5) $566.32 5/2/2022 Stephen I. Dreier 99(2) — — $112.50 2/19/2014 1,416(3)(6) 354 (3)(6) — $566.32 9/2/2018 1,770 (5)(6) $566.32 9/2/2018 118(4) $566.32 4/4/2022 250 (3) — $566.32 5/2/2022 250 (5) $566.32 5/2/2022 (1)The amounts included in the table reflect our option exchange described below that was completed on May 2, 2012 but do not give effect to theReclassification. For a more detailed discussion of our option exchange, see Note 12 to our consolidated financial statements included in this annualreport on Form 10-K for the fiscal year ended December 31, 2012. 103Table of Contents(2)Reflects options to purchase a combination of shares consisting of nine shares of our Class A common stock at $2.50 per share and one share of ClassL common stock at $90.00 per share, resulting in an aggregate exercise price of $112.50 for such combination of shares. These continuation optionswere granted in connection with our going private transaction in substitution for then-outstanding options granted under the Bright Horizons FamilySolutions LLC 2006 Equity Incentive Plan and the Amended and Restated 1998 Stock Incentive Plan and were fully vested at the time of grant. Aftergiving effect to the Reclassification, each outstanding option to purchase one share of Class A common stock at an exercise price of $2.50 per sharebecame exercisable for 0.5075 shares of our common stock at an exercise price of $4.93 per share, and each outstanding option to purchase one share ofClass L common stock at an exercise price of $90.00 per share became exercisable for 35.1955 shares of our common stock at an exercise price of$2.56 per share.(3)Reflects options to purchase a combination of shares consisting of nine shares of our Class A common stock at $6.09 per share and one share of ourClass L common stock at $511.51 per share, resulting in an aggregate exercise price of $566.32 for such combination of shares. These options aresubject to service-based vesting requirements. 40% of the shares underlying the options granted to the named executive officers vest on the secondanniversary of the date of grant and 20% of the shares vest on each of the third, fourth and fifth anniversaries of the date of grant, subject to continuedemployment. The award granted to Ms. Boland on April 1, 2011 vests in equal installments on each of January 1, 2012, 2013 and 2014, subject to hercontinued employment. After giving effect to the Reclassification, each outstanding option to purchase one share of Class A common stock at an exerciseprice of $6.09 per share became exercisable for 0.5075 shares of our common stock at an exercise price of $12.00 per share, and each outstandingoption to purchase one share of Class L common stock at an exercise price of $511.51 per share became exercisable for 35.1955 shares of our commonstock at an exercise price of $14.54 per share.(4)Reflects options to purchase a combination of shares consisting of nine shares of our Class A common stock at $6.09 per share and one share of ourClass L common stock at $511.51 per share, resulting in an aggregate exercise price of $566.32 for such combination of shares. These options werefully vested upon grant. After giving effect to the Reclassification, each outstanding option to purchase one share of Class A common stock at an exerciseprice of $6.09 per share became exercisable for 0.5075 shares of our common stock at an exercise price of $12.00 per share, and each outstandingoption to purchase one share of Class L common stock at an exercise price of $511.51 per share became exercisable for 35.1955 shares of our commonstock at an exercise price of $14.54 per share.(5)Reflects options to purchase a combination of shares consisting of nine shares of our Class A common stock at $6.09 per share and one share of ourClass L common stock at $511.51 per share, resulting in an aggregate exercise price of $566.32 for such combination of shares. These options aresubject to service-based and performance-based vesting conditions for which the performance condition had not been satisfied as of the end of fiscal2012. The performance condition for all of these awards was satisfied upon completion of our initial public offering. After giving effect to theReclassification, each outstanding option to purchase one share of Class A common stock at an exercise price of $6.09 per share became exercisable for0.5075 shares of our common stock at an exercise price of $12.00 per share, and each outstanding option to purchase one share of Class L commonstock at an exercise price of $511.51 per share became exercisable for 35.1955 shares of our common stock at an exercise price of $14.54 per share.(6)Reflects option awards issued in exchange for previously outstanding options to purchase shares of our Class A common stock pursuant to an optionexchange program that was completed on May 2, 2012.(7)The exercise price of the options is at or above the fair market value of a share of our common stock on the grant date, as determined by the board inaccordance with the common stock valuation policy described in “Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Critical Accounting Policies—Common Stock Valuation and Stock-Based Compensation.” The exercise price of each continuation optionexpiring in 2012, 2013 and 2014 was adjusted at the time of our going private transaction based on the value of our equity on May 28, 2008, the closingdate of our going private transaction.(8)All options have a ten-year term (except the continuation options described in note (2), which retained their original term and expire in 2014). 104Table of ContentsOption Exercises and Stock VestedThe following table sets forth information regarding options exercised and stock that vested during 2012. There were no amounts to be reported by anyof our named executive officers related to stock awards vesting in 2012. Option awards Name Numberofsecuritiesacquiredonexercise (#)(1) Valuerealizedon exercise($) (2) David H. Lissy 5,616 2,548,653 Mary Ann Tocio 9,332 4,235,048 Elizabeth J. Boland 1,430 648,963 Danroy T. Henry, Sr — — Stephen I. Dreier 259 117,539 (1)Each security represents a combination of shares consisting of nine shares of our Class A common stock exercisable at $2.50 per share and one share ofClass L common stock exercisable at $90.00 per share, resulting in an aggregate exercise price of $112.50 for such combination of shares. The amountsincluded in the table do not give effect to the Reclassification.(2)Represents the difference between the aggregate exercise price of the underlying Class A and Class L common shares ($112.50 per security) and the fairmarket value of these shares ($566.32 per combination) at the time of exercise as determined by the board in accordance with the common stockvaluation policy described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Common Stock Valuation and Stock-Based Compensation”.Retirement BenefitsWe do not have any qualified or non-qualified defined benefit plans or supplemental executive retirement plans that apply to our named executiveofficers. We offer a tax-qualified retirement plan (the “401(k) Plan”) to eligible employees, including our named executive officers. The 401(k) Plan permitseligible employees to defer up to 50% of their annual eligible compensation, subject to certain limitations imposed by the Internal Revenue Service. Employees’elective deferrals are immediately vested and non-forfeitable in the 401(k) Plan. Each plan year, we may, but are not required to, make discretionary matchingcontributions and other employer contributions on behalf of eligible employees. Employer matching contributions and other employer contributions begin tovest 20% per year after two years of vesting service with us and fully vest after six years of vesting service with us.Potential Payments Upon Termination or Change-in-ControlThe following summaries and tables describe and quantify the potential payments and benefits that would be provided to each of our named executiveofficers if a termination of employment or a change in control of the Company had occurred at the end of fiscal 2012 under the Company’s compensationplans and agreements.Severance AgreementsThe Company has entered into a severance agreement with each of Mr. Lissy, Ms. Tocio, Ms. Boland, Mr. Henry, and Mr. Dreier, which agreementsprovide for certain payments and benefits upon a qualifying termination of the executive’s employment and/or a change of control.Termination of Employment Without Cause or for Good Reason Within 24 Months Following a Change of Control (the “Protection Period”). Ifwithin 24 months after a change of control the executive’s employment is 105Table of Contentsterminated by the Company for any reason other than for cause or death or disability or the executive terminates his or her employment for good reason (assuch terms are defined in the respective agreements), the executive will be entitled to receive, in each case, (a) any accrued but unpaid base salary as oftermination and a prorated portion of any bonus payable for the fiscal year in which the termination occurs, and (b) subject to the executive not breaching thenon-competition, non-solicitation and non-hire provisions contained in the executive’s agreement, monthly severance pay for 24 months (or until such earlierdate as the executive secures other employment) equal to 1/24 of the executive’s total base salary and cash bonus compensation for the prior two years of theexecutive’s employment. If the executive elects, in accordance with applicable federal law, to continue his or her participation in the Company’s health plansfollowing termination of employment, the Company will pay the premiums for such participation for 24 months (or until such earlier date as the executivesecures other employment). If the executive’s continued participation in the Company’s group health plans is not possible under the terms of those plans, theCompany will instead arrange to provide the executive and his or her dependents substantially similar benefits upon comparable terms or pay the executive anamount in cash equal to the full cash value of such continued benefits. The executive’s right to receive severance pay and benefits is subject to his or herexecution of an effective release of claims in favor of the Company.Termination of Employment Without Cause or for Good Reason Outside of the Protection Period. If the Company terminates the executive’semployment without cause or the executive resigns for good reason, in either case outside of the 24-month period following a change of control, in addition toany accrued but unpaid base salary and other accrued benefits then due to the executive as of termination, the executive will be entitled to receive bi-weeklyseverance payments for 18 months in the case of Mr. Lissy and Ms. Tocio and for one year in the case of Ms. Boland, Mr. Henry, and Mr. Dreier at his or herthen-base salary rate and a prorated portion of any bonus payable for the fiscal year in which the termination occurs. The executive’s right to receive severancepay and benefits is subject to his or her execution of an effective release of claims in favor of the Company.Termination of Employment Due to Death or Disability. If the executive’s employment terminates due to death or due to the executive becomingdisabled, the executive will be entitled to receive accrued but unpaid base salary and other accrued benefits then due to the executive as of termination and aprorated portion of any bonus payable for the fiscal year in which the termination occurs. The executive’s right to receive severance pay and benefits is subjectto his or her execution of an effective release of claims in favor of the Company.Other Termination of Employment. If the executive’s employment is terminated by the Company for cause or the executive voluntarily resigns withoutgood reason, the executive will only be entitled to receive accrued but unpaid base salary and any other accrued benefits then due to the executive as oftermination.Change of Control. Pursuant to the severance agreements, immediately prior to a change of control, all unvested options then held by the executive willvest in full.Restrictive Covenants. Under the terms of their respective severance agreements, each of our named executive officers has agreed to confidentialityobligations during and after employment and to non-competition, non-solicitation, and non-hire obligations for up to twenty-four (24) months following atermination of his or her employment by the Company without cause or a good reason resignation by the executive.The following tables summarize the payments that would have been made to our named executive officers upon the occurrence of a qualifyingtermination of employment or change in control, assuming that each named executive officer’s termination of employment with our Company or a change incontrol of the Company occurred on December 31, 2012 (the last business day of our fiscal year). In the case of a termination of employment by the Companywithout cause or by the executive for good reason, severance amounts and benefits have been calculated assuming that the termination occurred within andoutside the 24-month Protection Period described above. If a termination of employment had occurred on this date, severance payments and benefits wouldhave been determined under the executive officer’s severance agreement, as in effect on such date and as described above. Amounts shown do not include(i) accrued but unpaid salary or bonus and vested benefits and 106thTable of Contents(ii) other benefits earned or accrued by the named executive officer during his or her employment that are available to all salaried employees and that do notdiscriminate in scope, terms or operations in favor of executive officers. Termination of Employment Without Cause/for Good Reason and Change of Control Termination ofEmployment WithoutCause/for GoodReason and NoChange of Control TerminationofEmploymentDue to Deathor Disability Change ofControl Pro-RataBonus Salary andBonusContinuation($) MedicalBenefitsContinuation($) AcceleratedVesting ofEquityAwards($)(1) Pro-RataBonus SalaryContinuation($) Pro-RataBonus AcceleratedVesting ofEquityAwards($)(1) David H. Lissy 410,542 1,510,709 49,049 1,316,159 410,542 513,177 410,542 1,316,159 Mary Ann Tocio 410,542 1,510,709 49,049 1,259,448 410,542 513,177 410,542 1,259,448 Elizabeth J. Boland 152,318 811,873 27,504 895,062 152,318 253,864 152,318 895,062 Danroy T. Henry 95,880 660,929 39,375 793,376 95,880 227,755 95,880 793,376 Stephen I. Dreier 79,714 641,169 27,029 372,329 79,714 239,700 79,714 372,329 (1)Calculated by multiplying the number of unvested stock option awards subject to acceleration upon termination without cause or resignation for goodreason or upon a change of control, after giving effect to the Reclassification which we describe in “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Critical Accounting Policies—Common Stock Valuation and Stock-Based Compensation” by the differencebetween the exercise price and $22.00 (the price to the public in the Offering). On December 31, 2012, we were a privately-held company and did notprepare a valuation of our common stock as of such date. Based upon the public offering price of our common stock determined on January 24, 2013 inconnection with our initial public offering, we believe that $22.00 per share is a reasonable estimate for the fair value of our common stock (after givingeffect to the Reclassification) as of December 31, 2012.2012 Director CompensationThe following table sets forth information concerning the compensation earned by our directors during fiscal 2012. Compensation for Mr. Lissy andMs. Tocio is included with that of our other named executive officers. Ms. Mason, Chairman of our board, is also the founder and an employee of theCompany. Name Fees paid incash ($) Option awards($)(1)(2) Non-equityincentive plancompensation ($) All othercompensation Total ($) Lawrence Alleva 25,000 — — — 25,000 Roger Brown 16,000 107,874 — — 123,874 Marguerite Kondracke 13,000 57,239 — — 70,239 Sara Lawrence-Lightfoot 16,000 57,239 — — 73,239 Linda Mason 79,460(3) 393,682 39,730(4) 2,105(5) 514,977 (1)For fiscal 2012, amounts shown reflect (i) the incremental fair value of options awarded in connection with the option exchange program, determined asof the modification date of such options in accordance with ASC Topic 718 (Mr. Brown $107,874; Ms. Kondracke $57,239; Ms. Lawrence-Lightfoot$57,239; and Ms. Mason $358,844) and (ii) the fair value of options awarded in 2012 determined in accordance with ASC Topic 718 (Ms. Mason$34,838).(2)As of December 31, 2012, before giving effect to the Reclassification, Mr. Brown held options to purchase 19,962 shares of our Class A commonstock and options to purchase 2,218 shares of our Class L common stock, Ms. Kondracke held options to purchase 936 shares of our Class Acommon stock and options to purchase 104 shares of our Class L common stock, Dr. Lawrence-Lightfoot held options to purchase 936 shares of ourClass A common stock and options to purchase 104 shares of our Class L common stock and Ms. Mason held options to purchase 8,901 shares of ourClass A common stock and options to purchase 989 shares of our Class L common stock. 107Table of Contents(3)Amount shown reflects compensation earned by Ms. Mason in her capacity as an employee of the Company. Ms. Mason did not receive anycompensation separately in respect of her service as Chairman.(4)Represents a cash bonus paid to Ms. Mason in her capacity as an employee of the Company.(5)Amount shown includes matching contributions made to Ms. Mason under the 401(k) Plan, in her capacity as an employee.In connection with our initial public offering, our board of directors adopted a revised director compensation program. Prior to our initial public offering,each member of our board of directors who was not an employee of the company was eligible to receive an annual retainer of $5,000 for board services, ameeting fee of $2,500 per in person meeting, and a meeting fee of $1,000 per telephonic meeting. Pursuant to the revised compensation program adopted inconnection with our initial public offering, the following policy for the compensation for all independent directors became effective: • Annual Retainer. Each independent director receives an Annual Board Retainer of $10,000 in cash, payable at the quarterly rate of $2,500. • Meeting Fees. Each independent director receives $4,000 for each Board meeting attended in person or $1,000 for each Board meeting attended byconference call.Each independent member of the Compensation Committee also receives $1,500 for each committee meeting attended in person or $500 for eachcommittee meeting attended by conference call. Additionally, the independent chair of the Compensation Committee receives an annual retainer of$20,000.Each independent member of the Audit Committee also receives $1,500 for each committee meeting attended in person or $500 for each committeemeeting attended by conference call. Additionally, the independent chair of the Audit Committee receives an annual retainer of $20,000.Each independent member of the Nominating and Governance Committee, when such Committee is activated, also receives $1,000 for eachcommittee meeting attended in person or $500 for each committee meeting attended by conference call. Additionally, the independent chair of theNominating and Governance Committee receives an annual retainer of $5,000.We have not, since our going private transaction, compensated directors affiliated with the Sponsor for their board service and, while the Sponsorcontrols a majority of our outstanding common stock, none of the directors affiliated with the Sponsor will be compensated for their board service. 108Table of ContentsItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersEQUITY BENEFIT PLANSThe following table provides information as of December 31, 2012 with respect to shares of our common stock that may be issued under existing equitycompensation plans. As of this date, we only maintained one equity plan, our 2008 Equity Incentive Plan. In 2013, we adopted our 2012 Omnibus Long-TermIncentive Plan, which became effective upon consummation of our initial public offering. Plan Category Number ofSecurities to beIssued UponExercise ofOutstandingOptions(a) WeightedAverageExercisePriceof OutstandingOptions(b) Number of SecuritiesRemaining AvailableFor Future Issuanceunder EquityCompensation Plans(excludingsecurities reflectedin column (a))(c) Equity compensation plans approved by security holders (3) 5,036,179 $13.84 none (1)Our common stock was not publicly traded during 2012, and the exercise price of the options was determined by our board of directors based on itsdetermination of the fair market value of our common stock on the grant date.(2)No additional options will be granted under our 2008 Equity Incentive Plan. However, all outstanding options continue to be governed by their existingterms.(3)Our 2012 Omnibus Long-Term Incentive Plan became effective upon the consummation of our initial public offering in January 2013, and allows forthe issuance for equity awards with respect to up to 5 million shares of our common stock, which are fully reserved for. The shares issuable under the2012 Omnibus Long-Term Incentive Plan have been registered with the SEC under Form S-8 following the consummation our initial public offering.The information in the table gives effect to the Reclassification that occurred on January 11, 2013.SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENTThe following table sets forth information regarding beneficial ownership of our common stock as of March 15, 2013 by: • each person or group of affiliated persons known by us to be the beneficial owner of more than 5% of our common stock; • each of our named executive officers and directors as set forth in “Item 10. Directors, Executive Officers and Corporate Governance”, respectively,herein; • all of our directors and named executive officers as a group.The percentage ownership information shown in the table below is based upon 64,533,873 shares of common stock outstanding as of March 15, 2013.Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common stock.We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. These rules generally attribute beneficialownership of shares to persons who possess sole or shared voting or investment power with respect to such shares. The information does not necessarilyindicate beneficial ownership for any other purpose. Under these rules, the number of shares of common stock deemed outstanding includes shares issuableupon exercise of options and held by the 109 (1)(2)Table of Contentsrespective person or group which may be exercised or converted within 60 days after March 15, 2013. These shares are deemed to be outstanding andbeneficially owned by the person holding those options for the purpose of computing the percentage ownership of that person or entity, but they are not treatedas outstanding for the purpose of computing the percentage ownership of any other person or entity.Unless otherwise indicated below, the address for each listed director, officer and stockholder is c/o Bright Horizons Family Solutions Inc., 200 TalcottAvenue South, Watertown, Massachusetts 02472. The inclusion in the following table of those shares, however, does not constitute an admission that thenamed stockholder is a direct or indirect beneficial owner. Unless otherwise indicated and subject to applicable community property laws, to our knowledge,each stockholder named in the following table possesses sole voting and investment power over the shares listed, except for those jointly owned with thatperson’s spouse. For more information regarding our relationship with certain of the persons named below, see Item 13, Certain Relationships and RelatedTransactions, and Director Independence. Name and Address of Beneficial Owner SharesOwned Percentageof SharesOutstanding Beneficial owners of 5% or more of our common stock: Bain Capital Fund X, L.P. and related funds (1)(2) 51,559,364 79.9% Directors and Named Executive Officers: Lawrence Alleva 1,000 * Joshua Bekenstein (3) — * Elizabeth J. Boland (4) 372,216 * Roger H Brown (5) 373,045 * Stephen I Dreier (6) 162,262 * Danroy T. Henry, Sr. (7) 132,606 * Jordan Hitch (3) — * David Humphrey (3) — * Marguerite W. Kondracke (8) 18,268 * Sara Lawrence-Lightfoot (8) 8,268 * David H Lissy (9) 954,746 1.5% Linda A Mason (10) 373,045 * Mary Ann Tocio (11) 908,402 1.4% All executive officers and directors as a group (13 persons) (12) 2,930,813 4.4% *Indicates less than one percent (1)The shares included in the table consist of: (i) 50,963,799 shares of common stock owned by Bain Capital Fund X, L.P., whose managing partner isBain Capital Partners X, L.P., whose managing partner is Bain Capital Investors, LLC (“BCI”), (ii) 6,759 shares of common stock owned by BCIPAssociates-G, whose managing partner is BCI, (iii) 357,758 shares of common stock owned by BCIP Associates III, LLC, whose manager is BCIPAssociates III, (iv) 64,948 shares of common stock owned by BCIP Associates III-B LLC, whose manager is BCIP Associates III-B, (v) 155,342shares of common stock owned by BCIP T Associates III, LLC, whose manager is BCIP Trust Associates III and (vi) 10,758 shares of common stockowned by BCIP T Associates III-B, LLC whose managing partner is BCIP Trust Associates III-B. BCI is the managing partner of BCIP Associates III,BCIP Associates, III-B, BCIP Trust Associates III and BCIP Trust Associates III-B. As a result of the relationships described above, BCI may bedeemed to share beneficial ownership of the shares held by each of Bain Capital Fund X, L.P., BCIP Associates-G, BCIP Associates III, LLC, BCIPAssociates III-B, LLC, BCIP T Associates III, LLC and BCIP T Associates III-B, LLC (collectively, the “Bain Capital Entities”).(2)Voting and investment determinations with respect to the shares held by the Bain Capital Entities are made by an investment committee comprised of thefollowing managing directors of BCI: Andrew Balson, Steven 110Table of Contents Barnes, Joshua Bekenstein, Lois Bremer, John Connaughton, Todd Cook, Paul Edgerley, Christopher Gordon, Blair Hendrix, Jordan Hitch, DavidHumphrey, John Kilgallon, Lewis Klessel, Matthew Levin, Ian Loring, Phillip Loughlin, Seth Meisel, Mark Nunnelly, Stephen Pagliuca, IanReynolds, Mark Verdi and Stephen Zide. As a result, and by virtue of the relationships described in this footnote, the investment committee of BCI maybe deemed to exercise voting and dispositive power with respect to the shares held by the Bain Capital Entities. Each of the members of the investmentcommittee of BCI disclaims beneficial ownership of such shares. Each of the Bain Capital Entities has an address c/o Bain Capital Partners, LLC, 200Clarendon Street, Boston, MA 02116.(3)Does not include shares of common stock held by the Bain Capital Entities. Each of Messrs. Bekenstein, Hitch and Humphrey is a Managing Directorand serves on the investment committee of BCI and as a result, and by virtue of the relationships described in footnote (1) above, may be deemed toshare beneficial ownership of the shares held by the Bain Capital Entities. Each of Messrs. Bekenstein, Hitch and Humphrey disclaims beneficialownership of the shares held by the Bain Capital Entities. The address for Messrs. Bekenstein, Hitch and Humphrey is c/o Bain Capital Partners,LLC, 200 Clarendon Street, Boston, MA 02116.(4)Includes 253,365 shares of common stock that can be acquired upon the exercise of outstanding options.(5)Includes (i) 34,712 shares held by the Roger H. Brown, Jr. Trust dated August 7, 1996, (ii) 78,014 shares held by Mr. Brown, (iii) 177,103 sharesheld by the Linda A. Mason Trust dated August 7, 1996, (iv) 17,969 shares that may be acquired by Mr. Brown upon the exercise of outstandingoptions, and (v) 65,247 shares that may be acquired by Ms. Mason, Mr. Brown’s spouse, upon the exercise of outstanding options.(6)Includes 121,233 shares of common stock that can be acquired upon the exercise of outstanding options.(7)Includes 125,648 shares of common stock that can be acquired upon the exercise of outstanding options.(8)Includes 8,268 shares of common stock that can be acquired upon the exercise of outstanding options.(9)Includes 617,079 shares of common stock that can be acquired upon the exercise of outstanding options.(10)Includes (i) 177,103 shares held by the Linda A. Mason, Jr. Trust dated August 7, 1996, (ii) 34,712 shares held by the Roger H. Brown Trust datedAugust 7, 1996, (iii) 78,014 shares held by Mr. Brown, Ms. Mason’s spouse, (iv) 65,247 shares that may be acquired by Ms. Mason upon theexercise of outstanding options, and (v) 17,969 shares that may be acquired by Mr. Brown, upon the exercise of outstanding options.(11)Includes 653,936 shares of common stock that can be acquired upon the exercise of outstanding options. (12)Includes 1,871,013 shares of common stock that can be acquired upon the exercise of outstanding options. Item 13.Certain Relationships, Related Transactions and Director IndependenceRegistration Rights AgreementWe entered into a registration rights agreement with the Sponsor and certain other stockholders in 2008, which was amended in connection with thecompletion of the initial public offering. The registration rights agreement, as amended, provides the Sponsor with certain demand registration rights followingthe expiration of the 180-day lockup period in respect of the shares of our common stock held by them. In addition, in the event that we register additionalshares of common stock for sale to the public, we will be required to give notice of such registration to the Sponsor and the other stockholders party to theagreement of our intention to effect such a registration, and, subject to certain limitations, the Sponsor and such holders will have piggyback registration rightsproviding them with the right to require us to include shares of common stock held by them in such registration. We will be required to bear the registrationexpenses, other than underwriting discounts and commissions and transfer taxes, associated with any registration of shares by the Sponsor or other holdersdescribed above.The registration rights agreement includes customary indemnification provisions in favor of any person who is or might be deemed a controlling personwithin the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and related parties against liabilities under the Securities Act incurredin connection with the registration of any of our debt or equity securities. These provisions provide indemnification against certain 111Table of Contentsliabilities arising under the Securities Act and certain liabilities resulting from violations of other applicable laws in connection with any filing or otherdisclosure made by us under the securities laws relating to any such registrations. We have agreed to reimburse such persons for any legal or other expensesincurred in connection with investigating or defending any such liability, action or proceeding, except that we will not be required to indemnify any suchperson or reimburse related legal or other expenses if such loss or expense arises out of or is based on any untrue statement or omission made in reliance uponand in conformity with written information provided by such person.Stockholders AgreementWe entered into a stockholders agreement with the Sponsor and certain other investors, stockholders and executive officers in 2008. Upon the completionof the initial public offering in January 2013, the provisions of the stockholders agreement, other than those relating to lock-up obligations in connection withregistered offerings of our securities, terminated in accordance with the terms of the stockholders agreement, and the agreement has been amended and restatedto eliminate the terminated provisions. Our amended and restated stockholders agreement obligates the stockholders parties thereto, subject to the limitedexceptions described in the amended and restated stockholders agreement, to enter into customary lock-up agreements with the underwriters in the event ofunderwritten public offerings of our shares of common stock.Management AgreementIn 2008, we entered into a management agreement with Bain Capital Partners, LLC pursuant to which Bain Capital Partners, LLC provides us withcertain consulting and management advisory services. In exchange for these services, we pay an aggregate annual management fee equal to $2.5 millionincluding years 2010, 2011 and 2012, and we reimburse Bain Capital Partners, LLC for out-of-pocket expenses incurred by it, its members, or its affiliatesin connection with the provision of services pursuant to the management agreement. In 2010, 2011 and 2012, such reimbursements totaled approximately$22,000, $14,000 and $2,000, respectively. In addition, Bain Capital Partners, LLC is entitled to a transaction fee in connection with any financing,acquisition, disposition or change of control transaction equal to 1% of the gross transaction value, including assumed liabilities, for such transaction. BainCapital Partners, LLC has not received any transaction fees under the management agreement in 2009, 2010, 2011 and 2012, and in connection with thetermination of the management agreement, Bain Capital Partners, LLC has agreed to waive any right to receive a transaction fee under the managementagreement in connection with the Offering completed but has received the termination payment described below.The management agreement includes customary exculpation and indemnification provisions in favor of Bain Capital Partners and its affiliates. Themanagement agreement was terminated in exchange for a payment to Bain Capital Partners, LLC of approximately $7.5 million upon the completion of ourinitial public offering. The indemnification and exculpation provisions in favor of Bain Capital Partners, LLC and its affiliates survived the termination ofthis agreement.Policies and procedures for related party transactionsWe believe that we executed all of the transactions set forth above on terms no less favorable to us than we could have obtained from unaffiliated thirdparties. It is our intention to ensure that all future transactions between us and our officers, directors and principal stockholders and their affiliates, areapproved by the Audit Committee of our board of directors, and are on terms no less favorable to us than those that we could obtain from unaffiliated thirdparties. 112Table of ContentsItem 14.Principal Accounting Fees and ServicesAudit and Non-Audit FeesThe following table presents fees for audit, audit-related, tax and other services rendered by Deloitte & Touche, the Company’s independent registeredpublic accounting firm for the years ended December 31, 2011 and 2012. 2011 2012 Audit Fees (1) $743,600 $2,380,210 Audit Related Fees (2) — 212,670 Tax Fees (3) 95,650 204,060 All Other Fees (4) — — Total Fees $839,250 $2,796,940 (1)Audit Fees for the years ended December 31, 2011 and 2012 include fees associated with the audit of the consolidated financial statements, reviews ofall associated quarterly financial statements for 2012, and fees associated with the Company’s Offering completed in January 2013.(2)Audit Related Fees for the year ended December 31, 2012 represent due diligence fees associated with the Company’s acquisition in 2012.(3)Tax Fees for the years ended December 31, 2011 and 2012 represent fees associated with tax planning for both years, including value added tax.Pre-Approval of Audit and Non-Audit FeesSEC rules under Section 202 of the Sarbanes-Oxley Act of 2002 require the Audit Committee to pre-approve audit and non-audit services provided byour independent auditor. The Audit Committee has an Audit Committee Pre-Approval Policy which prohibits our independent auditor from performing certainnon-audit services and any services that have not been approved by the Audit Committee consistent with the Section 202 rules. The policy establishesprocedures to ensure that proposed services are brought before the Audit Committee for consideration and, if determined by the Audit Committee to beconsistent with the auditor’s independence, approved prior to initiation, and to ensure that the Audit Committee has adequate information to assess the types ofservices being performed and fee amounts on an ongoing basis. The policy allows delegation of pre-approval responsibility to one or more members of theCommittee, within certain financial guidelines, along with a requirement that amounts approved by the members must be presented to the full Committee at thenext regularly scheduled Audit Committee meeting.For the year ended December 31, 2012, all services provided by our independent auditors have been subject to pre-approval by the Audit Committee.PART IV Item 15.Exhibits and Financial Statement Schedules(a) The following documents are filed as part of this report: 1.Financial statements: All financial statements are included in Part II, Item 8 of this report. 2.Financial statement schedules: All other financial statement schedules are omitted because they are not required or are not applicable, or therequired information is provided in the consolidated financial statements or notes described in Item 15(a)(1) above. 113Table of ContentsExhibits ExhibitNumber Exhibit Title 2.1* Share Sale and Purchase Agreement among Lydian Capital Partners LP and Others and BHFS Two Limited, dated May 10, 2012(incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-1, File No. 333-184579, as amended onNovember 9, 2012) 3.1* Form of Second Restated Certificate of Incorporation of Bright Horizons Family Solutions Inc. (incorporated by reference to Exhibit 3.1 tothe Company’s Registration Statement on Form S-1, File No. 333-184579, filed October 24, 2012) 3.2* Form of Restated By-laws of Bright Horizons Family Solutions Inc. (incorporated by reference to Exhibit 3.1 to the Company’s RegistrationStatement on Form S-1, File No. 333-184579, filed October 24, 2012) 4.1* Form of Amended and Restated Registration Rights Agreement among Bright Horizons Family Solutions Inc., Bright Horizons CapitalCorp., Bright Horizons Family Solutions LLC, and certain stockholders of Bright Horizons Family Solutions Inc. (incorporated byreference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1, File No. 333-184579, as amended on January 14, 2013) 4.2* Indenture for the 13.0% Senior Notes due 2018 between Bright Horizons Capital Corp. and Wilmington Trust Company as Trustee, datedMay 28, 2008 (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, File No. 333-184579, filedOctober 24, 2012) 4.3* Indenture for the 11.5% Senior Subordinated Notes due 2018 between Bright Horizons Family Solutions LLC (f/k/a Bright HorizonsFamily Solutions, Inc.) and Wilmington Trust Company as Trustee, dated May 28, 2008 (incorporated by reference to Exhibit 3.1 to theCompany’s Registration Statement on Form S-1, File No. 333-184579, filed October 24, 2012) 4.4* Initial Supplemental Indenture among Bright Horizons Family Solutions LLC (f/k/a Bright Horizons Family Solutions, Inc.), BrightHorizons Capital Corp., the Guarantors named therein, and Wilmington Trust Company as Trustee, dated May 28, 2008 (incorporatedby reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, File No. 333-184579, filed October 24, 2012)10.1* Bright Horizons Family Solutions Inc. (f/k/a Bright Horizons Solutions Corp.) 2008 Equity Incentive Plan, as amended (incorporated byreference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1, File No. 333-184579, filed October 24, 2012)10.2* Amendment to Bright Horizons Family Solutions Inc. 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.1(1) to theCompany’s Registration Statement on Form S-1, File No. 333-184579, as amended on January 14, 2013)10.3* Credit Agreement, dated as of January 30, 2013, among Borrower, Holdings, Goldman Sachs Bank USA, J.P. Morgan Securities LLC,Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC, and certain otherlenders (incorporated by reference to Exhibit 10.1 on the Company’s filing on Form 8-K dated February 4, 2013)10.4* Form of Non-Statutory Time-Based Option Award under the 2008 Equity Incentive Plan(incorporated by reference to Exhibit 10.2 to theCompany’s Registration Statement on Form S-1, filed October 24, 2012)10.5* Form of Non-Statutory Performance-Based Option Award under the 2008 Equity Incentive Plan(incorporated by reference to Exhibit 10.3 tothe Company’s Registration Statement on Form S-1, File No. 333-184579, filed October 24, 2012) 114Table of ContentsExhibitNumber Exhibit Title 10.6* Form of Non-Statutory Continuation Option Award under the 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to theCompany’s Registration Statement on Form S-1, File No. 333-184579, filed October 24, 2012) 10.7* Management Agreement among Bright Horizons Solutions Corp., Bright Horizons Capital Corp., Bright Horizons Family Solutions LLC andBain Capital Partners, LLC dated May 28, 2008 (incorporated by reference to Exhibit 10.26 to the Company’s Registration Statement onForm S-1, File No. 333-184579, filed October 24, 2012) 10.8* Form of Director Stock Option Award under 2012 Omnibus Long-Term Incentive Plan (incorporated by reference to Exhibit 10.6(1) to theCompany’s Registration Statement on Form S-1, File No. 333-184579, as amended on November 9, 2012) 10.9* Form of Employee Stock Option Award under 2012 Omnibus Long-Term Incentive Plan (incorporated by reference to Exhibit 10.6(2) to theCompany’s Registration Statement on Form S-1, File No. 333-184579, as amended on November 9, 2012) 10.10 Bright Horizons Family Solutions Inc. 2012 Omnibus Long-Term Incentive Plan 10.11* Bright Horizons Family Solutions Inc. Annual Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s RegistrationStatement on Form S-1, File No. 333-184579, as amended on November 9, 2012) 10.12* Form of Amended and Restated Severance Agreement between Bright Horizons Family Solutions LLC and David Lissy, Chief ExecutiveOfficer (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-1, File No. 333-184579, filedOctober 24, 2012) 10.13* Form of Amended and Restated Severance Agreement between Bright Horizons Family Solutions LLC and Mary Ann Tocio, President andChief Operating Officer (incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-1, File No. 333-184579, filed October 24, 2012) 10.14* Form of Amended and Restated Severance Agreement between Bright Horizons Family Solutions LLC and Elizabeth Boland, Chief FinancialOfficer (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1, File No. 333-184579, filed October24, 2012) 10.15* Form of Amended and Restated Severance Agreement between Bright Horizons Family Solutions LLC and Linda Mason, Chairman of theBoard of Directors (incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1, File No. 333-184579,filed October 24, 2012) 10.16* Deferred Grant Agreement between Bright Horizons Family Solutions LLC (f/k/a Bright Horizons Family Solutions, Inc.) and David Lissy,dated May 29, 2008 (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1, File No. 333-184579,filed October 24, 2012) 10.17* Deferred Grant Agreement between Bright Horizons Family Solutions LLC (f/k/a Bright Horizons Family Solutions, Inc.) and Mary AnnTocio, dated May 29, 2008 (incorporated by reference to Exhibit 10.13 to the Company’s Registration Statement on Form S-1, File No. 333-184579, filed October 24, 2012) 10.18* Deferred Grant Agreement between Bright Horizons Family Solutions LLC (f/k/a Bright Horizons Family Solutions, Inc.) and ElizabethBoland, dated May 29, 2008 (incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-1, File No. 333-184579, filed October 24, 2012) 115Table of ContentsExhibitNumber Exhibit Title10.19* Deferred Grant Agreement between Bright Horizons Family Solutions LLC (f/k/a Bright Horizons Family Solutions, Inc.) and LindaMason, dated May 29, 2008 (incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form S-1, File No.333-184579, filed October 24, 2012)10.20* Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.16 to the Company’s Registration Statementon Form S-1, File No. 333-184579, filed October 24, 2012)10.21* Form of Amended and Restated Stockholders Agreement among Bright Horizons Family Solutions Inc., Bright Horizons Capital Corp.,Bright Horizons Family Solutions LLC, and the investors named therein (incorporated by reference to Exhibit 10.17 to the Company’sRegistration Statement on Form S-1, File No. 333-184579, filed October 24, 2012)10.22* Credit and Guaranty Agreement among Bright Horizons Family Solutions LLC, as successor in interest to Bright Horizons FamilySolutions, Inc., and certain of its subsidiaries, Bright Horizons Capital Corp., Goldman Sachs Credit Partners, L.P., as SyndicationAgent, General Electric Capital Corporation, as Administrative Agent and Collateral Agent, and the Lenders from time to time party thereto,dated May 28, 2008 (incorporated by reference to Exhibit 10.18 to the Company’s Registration Statement on Form S-1, File No. 333-184579, filed October 24, 2012)10.23* Amendment No. 1 to Credit and Guaranty Agreement among Bright Horizons Family Solutions LLC, Bright Horizons Capital Corp., andthe Lenders party thereto, dated July 14, 2011 (incorporated by reference to Exhibit 10.19 to the Company’s Registration Statement on FormS-1, File No. 333-184579, filed October 24, 2012)10.24* Amendment No. 2 to Credit and Guaranty Agreement among Bright Horizons Family Solutions LLC, Bright Horizons Capital Corp., andthe Lenders party thereto, dated May 23, 2012 (incorporated by reference to Exhibit 10.20 to the Company’s Registration Statement on FormS-1, File No. 333-184579, filed October 24, 2012)10.25* Joinder Agreement by and among Goldman Sachs Credit Partners L.P., Bright Horizons Family Solutions LLC, Bright Horizons CapitalCorp., the Guarantors defined therein, and General Electric Capital Corporation, dated May 23, 2012 (incorporated by reference to Exhibit10.21 to the Company’s Registration Statement on Form S-1, File No. 333-184579, filed October 24, 2012)10.26* Amended and Restated Lease between the President and Fellows of Harvard College and Bright Horizons Children’s Centers, LLC, datedDecember 1, 2009 (incorporated by reference to Exhibit 10.22 to the Company’s Registration Statement on Form S-1, File No. 333-184579,filed October 24, 2012)10.27* Assignment and Assumption of Lease and Novation Agreement among the President and Fellows of Harvard College, Enterprise Mobile, Inc.and Bright Horizons Children’s Centers LLC, dated June 15, 2011 (incorporated by reference to Exhibit 10.23 to the Company’sRegistration Statement on Form S-1, File No. 333-184579, filed October 24, 2012)10.28* First Amendment to Amended and Restated Lease between the President and Fellows of Harvard College and Bright Horizons Children’sCenters LLC, dated July 25, 2011 (incorporated by reference to Exhibit 10.24 to the Company’s Registration Statement on Form S-1, FileNo. 333-184579, filed October 24, 2012)10.29* Second Amendment to Amended and Restated lease between the President and Fellows of Harvard College and Bright Horizons Children’sCenters LLC, dated September 30, 2012 (incorporated by reference to Exhibit 10.25 to the Company’s Registration Statement on Form S-1,File No. 333-184579, filed October 24, 2012) 116Table of ContentsExhibitNumber Exhibit Title21.1 Subsidiaries of Bright Horizons Family Solutions Inc.23.1 Consent of Deloitte & Touche31.1 Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002 by Chief Executive Officer31.2 Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002 by Chief Financial Officer32.1 Certification of periodic financial report pursuant to Section 906 of Sarbanes Oxley Act of 200232.2 Certification of periodic financial report pursuant to Section 906 of Sarbanes Oxley Act of 2002 *previouslyfiled 117Table of ContentsSignaturesPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.Date: March 26, 2013 Bright Horizons Family Solutions Inc.By: /s/ David LissyName: David LissyTitle: Chief Executive OfficerPursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated. Signature Title Date/s/ Linda MasonLinda Mason Chair of the Board March 26, 2013/s/ David LissyDavid Lissy Director, Chief Executive Officer (PrincipalExecutive Officer) March 26, 2013/s/ Elizabeth BolandElizabeth Boland Chief Financial Officer (Principal Financial andAccounting Officer) March 26, 2013/s/ Mary Ann TocioMary Ann Tocio Director, President and Chief Operating Officer March 26, 2013/s/ Lawrence AllevaLawrence Alleva Director March 26, 2013/s/ Josh BekensteinJosh Bekenstein Director March 26, 2013/s/ Roger BrownRoger Brown Director March 26, 2013/s/ Jordan HitchJordan Hitch Director March 26, 2013/s/ David HumphreyDavid Humphrey Director March 26, 2013/s/ Marguerite KondrackeMarguerite Kondracke Director March 26, 2013/s/ Sara Lawrence-LightfootSara Lawrence-Lightfoot Director March 26, 2013 118Exhibit 10.10BRIGHT HORIZONS FAMILY SOLUTIONS INC.2012 OMNIBUS LONG-TERM INCENTIVE PLAN 1.DEFINED TERMSExhibit A, which is incorporated by reference, defines the terms used in the Plan and sets forth certain operational rules related to those terms. 2.PURPOSEThe Plan has been established to advance the interests of the Company by providing for the grant to Participants of Stock-based and other incentiveAwards. 3.ADMINISTRATIONThe Administrator has discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan; determine eligibility for and grantAwards; determine, modify or waive the terms and conditions of any Award; prescribe forms, rules and procedures relating to the Plan; and otherwise do allthings necessary or appropriate to carry out the purposes of the Plan. Determinations of the Administrator made under the Plan will be conclusive and willbind all parties. 4.LIMITS ON AWARDS UNDER THE PLAN(a) Number of Shares. The maximum number of shares of Stock that may be delivered in satisfaction of Awards under the Plan is five million(5,000,000) shares. Up to the total number of shares available for awards to employee Participants may be issued in satisfaction of ISOs, but nothing in thisSection 4(a) will be construed as requiring that any, or any fixed number of, ISOs be awarded under the Plan. For purposes of this Section 4(a), the number ofshares of Stock delivered in satisfaction of Awards will be determined, for the avoidance of doubt, without including any shares of Stock underlying theportion of any Award that is settled in cash or that otherwise expires, terminates or is forfeited prior to the issuance of Stock thereunder. Any shares of Stockwithheld by the Company in satisfaction of the payment of the exercise price of an Award or in satisfaction of tax withholding requirements with respect to theAward shall be treated as having been delivered under the Plan. To the extent consistent with the requirements of Section 422 and other applicable requirements(including applicable stock exchange requirements), Stock issued under Substitute Awards shall not reduce the number of shares available for Awards underthe Plan. The shares which may be delivered under Substitute Awards shall be in addition to the limitations set forth in this Section 4(a) on the number ofshares available for issuance under the Plan, and such Substitute Awards shall not be subject to the per-Participant Award limits described in Section 4(c)below.(b) Type of Shares. Stock delivered by the Company under the Plan may be authorized but unissued Stock or previously issued Stock acquired bythe Company.(c) Section 162(m) Limits. The following additional limits will apply to Awards of the specified type granted or, in the case of Cash Awards, payable toany person in any calendar year: (1)Stock Options: five-hundred thousand (500,000) shares of Stock. (2)SARs: five-hundred thousand (500,000) shares of Stock. (3)Awards other than Stock Options, SARs or Cash Awards: two-hundred and fifty thousand (250,000) shares of Stock. (4)Cash Awards: two-hundred and fifty thousand dollars ($250,000).In applying the foregoing limits, (i) all Awards of the specified type granted to the same person in the same calendar year will be aggregated and madesubject to one limit; (ii) the limits applicable to Stock Options and SARs refer to the number of shares of Stock subject to those Awards; and (iii) the sharelimit under clause (3) refers to the maximum number of shares of Stock that may be delivered, under an Award or Awards of the type specified in clause(3) assuming a maximum payout. The foregoing provisions will be construed in a manner consistent with Section 162(m), including, without limitation,where applicable, the rules under Section 162(m) pertaining to permissible deferrals of exempt awards. 5.ELIGIBILITY AND PARTICIPATIONThe Administrator will select Participants from among key Employees and directors of, and consultants and advisors to, the Company and itsAffiliates. Eligibility for ISOs is limited to individuals described in the first sentence of this Section 5 who are employees of the Company or of a “parentcorporation” or “subsidiary corporation” of the Company as those terms are defined in Section 424 of the Code. Eligibility for Stock Options other than ISOsis limited to individuals described in the first sentence of this Section 5 who are providing direct services on the date of grant of the Stock Option to theCompany or to a subsidiary of the Company that would be described in the first sentence of Treas. Regs. §1.409A-1(b)(5)(iii)(E). 6.RULES APPLICABLE TO AWARDS(a) All Awards.(1) Award Provisions. The Administrator will determine the terms of all Awards, subject to the limitations provided herein. By accepting (or,under such rules as the Administrator may prescribe, being deemed to have accepted) an Award, the Participant will be deemed to have agreed to the terms ofthe Award and the Plan. Notwithstanding any provision of this Plan to the contrary, Substitute Awards may contain terms and conditions that are inconsistentwith the terms and conditions specified herein, as determined by the Administrator.(2) Term of Plan. No Awards may be made after ten years from the Date of Adoption, but previously granted Awards may continue beyond thatdate in accordance with their terms. 2(3) Transferability. Neither ISOs nor, except as the Administrator otherwise expressly provides in accordance with the second sentence of thisSection 6(a)(3), other Awards may be transferred other than by will or by the laws of descent and distribution. During a Participant’s lifetime, ISOs (and,except as the Administrator otherwise expressly provides in accordance with the second sentence of this Section 6(a)(3), SARs and NSOs) may be exercisedonly by the Participant. The Administrator may permit the gratuitous transfer (i.e., transfer not for value) of Awards other than ISOs to any transferee eligibleto be covered by the provisions of Form S-8 (under the Securities Act of 1933, as amended), subject to such limitations as the Administrator may impose.(4) Vesting, etc. The Administrator will determine the time or times at which an Award will vest or become exercisable and the terms on which aStock Option or SAR will remain exercisable. Without limiting the foregoing, the Administrator may at any time accelerate the vesting or exercisability of anAward, regardless of any adverse or potentially adverse tax or other consequences resulting from such acceleration. Unless the Administrator expresslyprovides otherwise, however, the following rules will apply if a Participant’s Employment ceases:(A) Immediately upon the cessation of the Participant’s Employment and except as provided in (B), (C), (D) or (E) below, each StockOption and SAR that is then held by the Participant or by the Participant’s permitted transferees, if any, will cease to be exercisable and willterminate and all other Awards that are then held by the Participant or by the Participant’s permitted transferees, if any, to the extent not alreadyvested will be forfeited.(B) Subject to (C), (D) and (E) below, all Stock Options and SARs held by the Participant or the Participant’s permitted transferees, if any,immediately prior to the cessation of the Participant’s Employment, to the extent then exercisable, will remain exercisable for the lesser of (i) aperiod of sixty (60) days or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regardto this Section 6(a)(4), and will thereupon immediately terminate.(C) All Stock Options and SARs held by a Participant or the Participant’s permitted transferees, if any, immediately prior to theParticipant’s cessation of Employment by reason of death, to the extent then exercisable, will remain exercisable for the lesser of (i) the one yearperiod ending with the first anniversary of the Participant’s death or (ii) the period ending on the latest date on which such Stock Option or SARcould have been exercised without regard to this Section 6(a)(4), and will thereupon immediately terminate.(D) All Stock Options and SARs held by a Participant or the Participant’s permitted transferees, if any, immediately prior to theParticipant’s cessation of Employment by reason of Disability, to the extent then exercisable, will remain exercisable for the lesser of (i) a period ofone hundred and eighty (180) days, or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercisedwithout regard to this Section 6(a)(4), and will thereupon immediately terminate. 3(E) All Stock Options and SARs held by a Participant or the Participant’s permitted transferees, if any, immediately prior to theParticipant’s cessation of Employment by reason of Retirement, to the extent then exercisable, will remain exercisable for the lesser of (i) a period ofninety (90) days, or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to thisSection 6(a)(4), and will thereupon immediately terminate.(F) All Stock Options and SARs (whether or not exercisable) held by a Participant or the Participant’s permitted transferees, if any,immediately prior to the cessation of the Participant’s Employment will immediately terminate upon such cessation of Employment if thetermination is for Cause or occurs in circumstances that in the sole determination of the Administrator would have constituted grounds for theParticipant’s Employment to be terminated for Cause.(5) Additional Restrictions. The Administrator may cancel, rescind, withhold or otherwise limit or restrict any Award at any time if theParticipant is not in compliance with all applicable provisions of the Award agreement and the Plan, or if the Participant breaches any agreement with theCompany or its Affiliates with respect to non-competition, non-solicitation or confidentiality. Without limiting the generality of the foregoing, the Administratormay recover Awards made under the Plan and payments under or gain in respect of any Award to the extent required to comply with (i) Section 10D of theSecurities Exchange Act of 1934, as amended, or any stock exchange or similar rule adopted under said Section or (ii) any applicable Company clawback orrecoupment policy as in effect from time to time.(6) Taxes. The delivery, vesting and retention of Stock, cash or other property under an Award are conditioned upon full satisfaction by theParticipant of all tax withholding requirements with respect to the Award. The Administrator will prescribe such rules for the withholding of taxes as it deemsnecessary. The Administrator may, but need not, hold back shares of Stock from an Award or permit a Participant to tender previously owned shares of Stockin satisfaction of tax withholding requirements (but not in excess of the minimum withholding required by law).(7) Dividend Equivalents, Etc. The Administrator may provide for the payment of amounts (on terms and subject to conditions established bythe Administrator) in lieu of cash dividends or other cash distributions with respect to Stock subject to an Award whether or not the holder of such Award isotherwise entitled to share in the actual dividend or distribution in respect of such Award. Any entitlement to dividend equivalents or similar entitlements willbe established and administered either consistent with an exemption from, or in compliance with, the requirements of Section 409A. Dividends or dividendequivalent amounts payable in respect of Awards that are subject to restrictions may be subject to such limits or restrictions as the Administrator may impose.(8) Rights Limited. Nothing in the Plan will be construed as giving any person the right to continued employment or service with the Companyor its Affiliates, or any rights as a stockholder except as to shares of Stock actually issued under the Plan. The loss of existing or potential profit in Awardswill not constitute an element of damages in the event of termination of Employment for any reason, even if the termination is in violation of an obligation ofthe Company or any Affiliate to the Participant. 4(9) Section 162(m). In the case of any Performance Award (other than a Stock Option or SAR) intended to qualify for the performance-basedcompensation exception under Section 162(m), the Administrator will establish the applicable Performance Criterion or Criteria in writing no later than ninety(90) days after the commencement of the period of service to which the performance relates (or at such earlier time as is required to qualify the Award asperformance-based under Section 162(m)) and, prior to the event or occurrence (grant, vesting or payment, as the case may be) that is conditioned on theattainment of such Performance Criterion or Criteria, will certify whether it or they have been attained. The preceding sentence will not apply to an Awardeligible (as determined by the Administrator) for exemption from the limitations of Section 162(m) by reason of the post-initial public offering transition reliefin Section 1.162-27(f) of the Treasury Regulations.(10) Coordination with Other Plans. Awards under the Plan may be granted in tandem with, or in satisfaction of or substitution for, otherAwards under the Plan or awards made under other compensatory plans or programs of the Company or its Affiliates. For example, but without limiting thegenerality of the foregoing, awards under other compensatory plans or programs of the Company or its Affiliates may be settled in Stock (including, withoutlimitation, Unrestricted Stock) if the Administrator so determines, in which case the shares delivered will be treated as awarded under the Plan (and willreduce the number of shares thereafter available under the Plan in accordance with the rules set forth in Section 4). In any case where an award is made underanother plan or program of the Company or its Affiliates and such award is intended to qualify for the performance-based compensation exception underSection 162(m), and such award is settled by the delivery of Stock or another Award under the Plan, the applicable Section 162(m) limitations under both theother plan or program and under the Plan will be applied to the Plan as necessary (as determined by the Administrator) to preserve the availability of theSection 162(m) performance-based compensation exception with respect thereto.(11) Section 409A. Each Award will contain such terms as the Administrator determines, and will be construed and administered, such that theAward either qualifies for an exemption from the requirements of Section 409A or satisfies such requirements.(12) Fair Market Value. In determining the fair market value of any share of Stock under the Plan, the Administrator will make thedetermination in good faith consistent with the rules of Section 422 and Section 409A to the extent applicable.(b) Stock Options and SARs.(1) Time And Manner Of Exercise. Unless the Administrator expressly provides otherwise, no Stock Option or SAR will be deemed to havebeen exercised until the Administrator receives a notice of exercise (in form acceptable to the Administrator), which may be an electronic notice, signed(including electronic signature in form acceptable to the Administrator) by the appropriate person and accompanied by any payment required under the Award.A Stock Option or SAR exercised by any person other than the Participant will not be deemed to have been exercised until the Administrator has received suchevidence as it may require that the person exercising the Award has the right to do so. 5(2) Exercise Price. The exercise price (or the base value from which appreciation is to be measured) of each Award requiring exercise will be noless than 100% (or in the case of an ISO granted to a ten-percent shareholder within the meaning of subsection (b)(6) of Section 422, 110%) of the fair marketvalue of the Stock subject to the Award, determined as of the date of grant, or such higher amount as the Administrator may determine in connection with thegrant. Except in connection with a corporate transaction involving the Company (which term shall include, without limitation, any stock dividend, stocksplit, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the termsof outstanding Awards may not be amended to reduce the exercise prices of outstanding Stock Options or the base values from which appreciation underoutstanding SARs are to be measured, or cancel, exchange, substitute, buyout or surrender outstanding Stock Options or SARs in exchange for cash, otherawards or Stock Options or SARs with an exercise price that is less than the exercise prices of the original Stock Options or base values of the original SARsother than in accordance with the stockholder approval requirements of the New York Stock Exchange.(3) Payment Of Exercise Price. Where the exercise of an Award is to be accompanied by payment, payment of the exercise price will be by cashor check acceptable to the Administrator or by such other legally permissible means, if any, as may be acceptable to the Administrator.(4) Maximum Term. Stock Options and SARs will have a maximum term not to exceed ten (10) years from the date of grant (or five (5) yearsfrom the date of grant in the case of an ISO granted to a ten-percent shareholder described in Section 6(b)(2) above); provided, however, that, if a Participantstill holding an outstanding but unexercised NSO or SAR ten (10) years from the date of grant (or, in the case of an NSO or SAR with a maximum term ofless than ten (10) years, such maximum term) is prohibited by applicable law or a written policy of the Company applicable to similarly situated employeesfrom engaging in any open-market sales of Stock, and if at such time the Stock is publicly traded (as determined by the Administrator), the maximum term ofsuch Award will instead be deemed to expire on the thirtieth (30) day following the date the Participant is no longer prohibited from engaging in such openmarket sales. 7.EFFECT OF CERTAIN TRANSACTIONS(a) Mergers, etc. Except as otherwise provided in an Award agreement, the following provisions will apply in the event of a Covered Transaction:(1) Assumption or Substitution. If the Covered Transaction is one in which there is an acquiring or surviving entity, the Administrator may(but, for the avoidance of doubt, need not) provide (i) for the assumption or continuation of some or all outstanding Awards or any portion thereof or (ii) for thegrant of new awards in substitution therefor by the acquirer or survivor or an affiliate of the acquirer or survivor. 6th(2) Cash-Out of Awards. Subject to Section 7(a)(5) below the Administrator may (but, for the avoidance of doubt, need not) provide forpayment (a “cash-out”), with respect to some or all Awards or any portion thereof, equal in the case of each affected Award or portion thereof to the excess, ifany, of (A) the fair market value of one share of Stock (as determined by the Administrator in its reasonable discretion) times the number of shares of Stocksubject to the Award or such portion, over (B) the aggregate exercise or purchase price, if any, under the Award or such portion (in the case of an SAR, theaggregate base value above which appreciation is measured), in each case on such payment terms (which need not be the same as the terms of payment toholders of Stock) and other terms, and subject to such conditions, as the Administrator determines.(3) Acceleration of Certain Awards. Subject to Section 7(a)(5) below, the Administrator may (but, for the avoidance of doubt, need not)provide that any Award requiring exercise will become exercisable, in full or in part, and/or that the delivery of any shares of Stock remaining deliverableunder any outstanding Award of Stock Units (including Restricted Stock Units and Performance Awards to the extent consisting of Stock Units) will beaccelerated in full or in part, in each case on a basis that gives the holder of the Award a reasonable opportunity, as determined by the Administrator, followingexercise of the Award or the delivery of the shares, as the case may be, to participate as a stockholder in the Covered Transaction.(4) Termination of Awards Upon Consummation of Covered Transaction. Except as the Administrator may otherwise determine in anycase, each Award will automatically terminate (and in the case of outstanding shares of Restricted Stock, will automatically be forfeited) upon consummationof the Covered Transaction, other than Awards assumed pursuant to Section 7(a)(1) above.(5) Additional Limitations. Any share of Stock and any cash or other property delivered pursuant to Section 7(a)(2) or Section 7(a)(3) abovewith respect to an Award may, in the discretion of the Administrator, contain such restrictions, if any, as the Administrator deems appropriate to reflect anyperformance or other vesting conditions to which the Award was subject and that did not lapse (and were not satisfied) in connection with the CoveredTransaction. For purposes of the immediately preceding sentence, a cash-out under Section 7(a)(2) above or acceleration under Section 7(a)(3) above will not,in and of itself, be treated as the lapsing (or satisfaction) of a performance or other vesting condition. In the case of Restricted Stock that does not vest and isnot forfeited in connection with the Covered Transaction, the Administrator may require that any amounts delivered, exchanged or otherwise paid in respect ofsuch Stock in connection with the Covered Transaction be placed in escrow or otherwise made subject to such restrictions as the Administrator deemsappropriate to carry out the intent of the Plan.(b) Changes in and Distributions With Respect to Stock.(1) Basic Adjustment Provisions. In the event of a stock dividend, stock split or combination of shares (including a reverse stock split),recapitalization or other change in the Company’s capital structure that constitutes an equity restructuring within the meaning of FASB ASC 718, theAdministrator will make appropriate adjustments to the maximum number of shares specified in Section 4(a) that may be delivered under the Plan and to themaximum 7share limits described in Section 4(c), and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to Awardsthen outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change.(2) Certain Other Adjustments. The Administrator may also make adjustments of the type described in Section 7(b)(1) above to take intoaccount distributions to stockholders other than those provided for in Section 7(a) and 7(b)(1), or any other event, if the Administrator determines thatadjustments are appropriate to avoid distortion in the operation of the Plan.(3) Continuing Application of Plan Terms. References in the Plan to shares of Stock will be construed to include any stock or securitiesresulting from an adjustment pursuant to this Section 7. 8.LEGAL CONDITIONS ON DELIVERY OF STOCKThe Company will not be obligated to deliver any shares of Stock pursuant to the Plan or to remove any restriction from shares of Stock previouslydelivered under the Plan until: (i) the Company is satisfied that all legal matters in connection with the issuance and delivery of such shares have beenaddressed and resolved; (ii) if the outstanding Stock is at the time of delivery listed on any stock exchange or national market system, the shares to bedelivered have been listed or authorized to be listed on such exchange or system upon official notice of issuance; and (iii) all conditions of the Award have beensatisfied or waived. The Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company mayconsider appropriate to avoid violation of the Securities Act of 1933, as amended, or any applicable state or non-U.S. securities law. Any Stock required to beissued to Participants under the Plan will be evidenced in such manner as the Administrator may deem appropriate, including book-entry registration ordelivery of stock certificates. In the event that the Administrator determines that Stock certificates will be issued to Participants under the Plan, theAdministrator may require that certificates evidencing Stock issued under the Plan bear an appropriate legend reflecting any restriction on transfer applicableto such Stock, and the Company may hold the certificates pending lapse of the applicable restrictions. 9.AMENDMENT AND TERMINATIONThe Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, andmay at any time terminate the Plan as to any future grants of Awards; provided, that except as otherwise expressly provided in the Plan the Administrator maynot, without the Participant’s consent, alter the terms of an Award so as to affect materially and adversely the Participant’s rights under the Award, unless theAdministrator expressly reserved the right to do so at the time the Award was granted. Any amendments to the Plan will be conditioned upon stockholderapproval only to the extent, if any, such approval is required by law (including the Code and applicable stock exchange requirements), as determined by theAdministrator. 810.OTHER COMPENSATION ARRANGEMENTSThe existence of the Plan or the grant of any Award will not in any way affect the Company’s right to Award a person bonuses or other compensation inaddition to Awards under the Plan. 11.MISCELLANEOUS(a) Waiver of Jury Trial. By accepting an Award under the Plan, each Participant waives any right to a trial by jury in any action, proceeding orcounterclaim concerning any rights under the Plan and any Award, or under any amendment, waiver, consent, instrument, document or other agreementdelivered or which in the future may be delivered in connection therewith, and agrees that any such action, proceedings or counterclaim will be tried before acourt and not before a jury. By accepting an Award under the Plan, each Participant certifies that no officer, representative, or attorney of the Company hasrepresented, expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the foregoing waivers.Notwithstanding anything to the contrary in the Plan, nothing herein is to be construed as limiting the ability of the Company and a Participant to agree tosubmit disputes arising under the terms of the Plan or any Award made hereunder to binding arbitration or as limiting the ability of the Company to requireany eligible individual to agree to submit such disputes to binding arbitration as a condition of receiving an Award hereunder.(b) Limitation of Liability. Notwithstanding anything to the contrary in the Plan, neither the Company, nor any Affiliate, nor the Administrator, norany person acting on behalf of the Company, any Affiliate, or the Administrator, will be liable to any Participant or to the estate or beneficiary of anyParticipant or to any other holder of an Award by reason of any acceleration of income, or any additional tax (including any interest and penalties), asserted byreason of the failure of an Award to satisfy the requirements of Section 422 or Section 409A or by reason of Section 4999 of the Code, or otherwise assertedwith respect to the Award; provided, that nothing in this Section 11(b) will limit the ability of the Administrator or the Company, in its discretion, to provideby separate express written agreement with a Participant for any payment in connection with any such acceleration of income or additional tax. 12.ESTABLISHMENT OF SUB-PLANSThe Administrator may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable blue sky, securities or taxlaws of various jurisdictions. The Administrator will establish such sub-plans by adopting supplements to the Plan setting forth (i) such limitations on theAdministrator’s discretion under the Plan as it deems necessary or desirable and (ii) such additional terms and conditions not otherwise inconsistent with thePlan as it deems necessary or desirable. All supplements so established will be deemed to be part of the Plan, but each supplement will apply only toParticipants within the affected jurisdiction (as determined by the Administrator). 913.GOVERNING LAW(a) Certain Requirements of Corporate Law. Awards will be granted and administered consistent with the requirements of applicable Delaware lawrelating to the issuance of stock and the consideration to be received therefor, and with the applicable requirements of the stock exchanges or other tradingsystems on which the Stock is listed or entered for trading, in each case as determined by the Administrator.(b) Other Matters. Except as otherwise provided by the express terms of an Award agreement, under a sub-plan described in Section 12 or as providedin Section 13(a) above, the provisions of the Plan and of Awards under the Plan and all claims or disputes arising out of our based upon the Plan or anyAward under the Plan or relating to the subject matter hereof or thereof will be governed by and construed in accordance with the domestic substantive laws ofthe Commonwealth of Massachusetts without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domesticsubstantive laws of any other jurisdiction.(c) Jurisdiction. By accepting an Award, each Participant will be deemed to (a) have submitted irrevocably and unconditionally to the jurisdiction of thefederal and state courts located within the geographic boundaries of the United States District Court for the District of Massachusetts for the purpose of anysuit, action or other proceeding arising out of or based upon the Plan or any Award; (b) agree not to commence any suit, action or other proceeding arising outof or based upon the Plan or an Award, except in the federal and state courts located within the geographic boundaries of the United States District Court forthe District of Massachusetts; and (c) waive, and agree not to assert, by way of motion as a defense or otherwise, in any such suit, action or proceeding, anyclaim that it is not subject personally to the jurisdiction of the above-named courts that its property is exempt or immune from attachment or execution, that thesuit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that the Plan or an Award or thesubject matter thereof may not be enforced in or by such court. 10EXHIBIT ADefinition of TermsThe following terms, when used in the Plan, will have the meanings and be subject to the provisions set forth below:“Administrator”: The Compensation Committee, except that the Compensation Committee may delegate (i) to one or more of its members (or one ormore other members of the Board (including the full Board)) such of its duties, powers and responsibilities as it may determine; (ii) to one or more officers ofthe Company the power to grant Awards to the extent permitted by Section 157(c) of the Delaware General Corporation Law; and (iii) to such Employees orother persons as it determines such ministerial tasks as it deems appropriate. In the event of any delegation described in the preceding sentence, the term“Administrator” will include the person or persons so delegated to the extent of such delegation.“Affiliate”: Any corporation or other entity that stands in a relationship to the Company that would result in the Company and such corporation orother entity being treated as one employer under Section 414(b) and Section 414(c) of the Code.“Award”: Any or a combination of the following:(i) Stock Options.(ii) SARs.(iii) Restricted Stock.(iv) Unrestricted Stock.(v) Stock Units, including Restricted Stock Units.(vi) Performance Awards.(vii) Cash Awards.(viii) Awards (other than Awards described in (i) through (vii) above) that are convertible into or otherwise based on Stock.“Board”: The Board of Directors of the Company.“Cash Award”: An Award denominated in cash that has a performance period of greater than (12) months.“Cause”: In the case of any Participant who is party to an employment or severance-benefit agreement that contains a definition of “Cause,” thedefinition set forth in such agreement will apply with respect to such Participant under the Plan for so long as such agreement is in effect. In the case of anyother Participant, “Cause” will mean, as determined by the Administrator in its reasonable judgment, (i) a substantial failure of the Participant to perform 11the Participant’s duties and responsibilities to the Company or subsidiaries or substantial negligence in the performance of such duties and responsibilities;(ii) the commission by the Participant of a felony or a crime involving moral turpitude; (iii) the commission by the Participant of theft, fraud, embezzlement,material breach of trust or any material act of dishonesty involving the Company or any of its subsidiaries; (iv) a significant violation by the Participant of thecode of conduct of the Company or its subsidiaries of any material policy of the Company or its subsidiaries, or of any statutory or common law duty ofloyalty to the Company or its subsidiaries; (v) material breach of any of the terms of the Plan or any Award made under the Plan, or of the terms of any otheragreement between the Company or subsidiaries and the Participant; or (vi) other conduct by the Participant that could be expected to be harmful to thebusiness, interests or reputation of the Company.“Code”: The U.S. Internal Revenue Code of 1986, as from time to time amended and in effect, or any successor statute as from time to time in effect.“Compensation Committee”: The Compensation Committee of the Board.“Company”: Bright Horizons Family Solutions Inc.“Covered Transaction”: Any of (i) a consolidation, merger, or similar transaction or series of related transactions, including a sale or other dispositionof stock, in which the Company is not the surviving corporation or which results in the acquisition of all or substantially all of the Company’s thenoutstanding common stock by a single person or entity or by a group of persons and/or entities acting in concert, (ii) a sale or transfer of all or substantially allthe Company’s assets, or (iii) a dissolution or liquidation of the Company. Where a Covered Transaction involves a tender offer that is reasonably expected tobe followed by a merger described in clause (i) (as determined by the Administrator), the Covered Transaction will be deemed to have occurred uponconsummation of the tender offer.“Date of Adoption”: The earlier of the date the Plan was approved by the Company’s stockholders or adopted by the Board, as determined by theCommittee.“Disability”: In the case of any Participant who is a party to an employment or severance-benefit agreement that contains a definition of “Disability,”the definition set forth in such agreement shall apply with respect to such Participant under the Plan for so long as such agreement is in effect. In the case ofany other Participant, “Disability” shall mean a disability that would entitle a Participant to long-term disability benefits under the Company’s long-termdisability plan to which the Participant participates.“Employee”: Any person who is employed by the Company or an Affiliate.“Employment”: A Participant’s employment or other service relationship with the Company and its Affiliates. Employment will be deemed tocontinue, unless the Administrator expressly provides otherwise, so long as the Participant is employed by, or otherwise is providing services in a capacitydescribed in Section 5 to the Company or an Affiliate. If a Participant’s employment or other service relationship is with an Affiliate and that entity ceases to bean Affiliate, the Participant’s Employment will be deemed to have terminated when the entity ceases to be an Affiliate unless the Participant transfersEmployment to the Company or its 12remaining Affiliates. Notwithstanding the foregoing and the definition of “Affiliate” above, in construing the provisions of any Award relating to the paymentof “nonqualified deferred compensation” (subject to Section 409A) upon a termination or cessation of Employment, references to termination or cessation ofemployment, separation from service, retirement or similar or correlative terms will be construed to require a “separation from service” (as that term is definedin Section 1.409A-1(h) of the Treasury Regulations) from the Company and from all other corporations and trades or businesses, if any, that would be treatedas a single “service recipient” with the Company under Section 1.409A-1(h)(3) of the Treasury Regulations. The Company may, but need not, elect in writing,subject to the applicable limitations under Section 409A, any of the special elective rules prescribed in Section 1.409A-1(h) of the Treasury Regulations forpurposes of determining whether a “separation from service” has occurred. Any such written election will be deemed a part of the Plan.“ISO”: A Stock Option intended to be an “incentive stock option” within the meaning of Section 422. Each Stock Option granted pursuant to the Planwill be treated as providing by its terms that it is to be an NSO unless, as of the date of grant, it is expressly designated as an ISO.“NSO”: A Stock Option that is not intended to be an “incentive stock option” within the meaning of Section 422.“Participant”: A person who is granted an Award under the Plan.“Performance Award”: An Award subject to Performance Criteria. The Administrator in its discretion may grant Performance Awards that areintended to qualify for the performance-based compensation exception under Section 162(m) and Performance Awards that are not intended so to qualify.“Performance Criteria”: Specified criteria, other than the mere continuation of Employment or the mere passage of time, the satisfaction of which is acondition for the grant, exercisability, vesting or full enjoyment of an Award. For purposes of Awards that are intended to qualify for the performance-basedcompensation exception under Section 162(m), a Performance Criterion will mean an objectively determinable measure or objectively determinable measures ofperformance relating to any or any combination of the following (measured either absolutely or by reference to an index or indices and determined either on aconsolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales;revenues; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, amortization or equity expense whether ornot on a continuing operations or an aggregate or per share basis; return on equity, investment, capital, capital employed or assets; one or more operatingratios; operating income or profit, including on an after-tax basis; net income; borrowing levels, leverage ratios or credit rating; market share; capitalexpenditures; cash flow; stock price; stockholder return; sales of particular services; customer acquisition or retention; acquisitions and divestitures (in wholeor in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; or recapitalizations, restructurings, financings (issuance ofdebt or equity) or refinancing. A Performance Criterion and any targets with respect thereto determined by the Administrator need not be based upon anincrease, a positive or improved result or avoidance of loss. To the extent consistent with the requirements for satisfying the performance- 13based compensation exception under Section 162(m), the Administrator may provide in the case of any Award intended to qualify for such exception that oneor more of the Performance Criteria applicable to such Award will be adjusted in an objectively determinable manner to reflect events (for example, but withoutlimitation, acquisitions or dispositions) occurring during the performance period that affect the applicable Performance Criterion or Criteria.“Plan”: The Bright Horizons Solutions Corp. 2012 Omnibus Long-Term Incentive Plan, as from time to time amended and in effect.“Restricted Stock”: Stock subject to restrictions requiring that it be redelivered or offered for sale to the Company if specified conditions are notsatisfied.“Restricted Stock Unit”: A Stock Unit that is, or as to which the delivery of Stock or cash in lieu of Stock is, subject to the satisfaction of specifiedperformance or other vesting conditions.“Retirement”: A Participant’s (i) retirement other than by reason of Disability from service with the Company upon or after attaining age sixty-five(65) or (ii) earlier retirement other than by reason of Disability from service with the Company with the express consent of the Company at or before the timeof such retirement, provided that the Participant has attained the age of fifty (50) and has been employed by the Company or its subsidiaries for at least fifteen(15) years at the time of such retirement.“SAR”: A right entitling the holder upon exercise to receive an amount (payable in cash or in shares of Stock of equivalent value) equal to the excess ofthe fair market value of the shares of Stock subject to the right over the base value from which appreciation under the SAR is to be measured.“Section 409A”: Section 409A of the Code.“Section 422”: Section 422 of the Code.“Section 162(m)”: Section 162(m) of the Code.“Substitute Awards”: Awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition.“Stock”: Common stock of the Company, par value $0.001 per share.“Stock Option”: An option entitling the holder to acquire shares of Stock upon payment of the exercise price.“Stock Unit”: An unfunded and unsecured promise, denominated in shares of Stock, to deliver Stock or cash measured by the value of Stock in thefuture.“Unrestricted Stock”: Stock not subject to any restrictions under the terms of the Award. 14Exhibit 21.1Bright Horizons Family Solutions Inc. and Subsidiaries Entity Jurisdiction ofOrganization Bright Horizons Family Solutions Inc. Delaware Bright Horizons Capital Corp. Delaware Bright Horizons Family Solutions LLC Delaware CorporateFamily Solutions LLC Tennessee Bright Horizons LLC Delaware Bright Horizons Children’s Centers LLC Delaware ChildrenFirst LLC Massachusetts Work Options Group, Inc. Colorado Resources in Active Learning California Lipton Corporate Child Care Centers, Inc. Delaware Lipton Corporate Child Care Centers (Park Ave.), Inc. New York Lipton Corporate Childcare, Inc. (New York) Delaware Lipton Corporate Child Care Centers (Morris County), Inc. Delaware Lipton Corporate Child Care Centers (Oakwood at the Windsor), Inc. Pennsylvania BHFS One Limited United Kingdom BHFS Two Limited United Kingdom Bright Horizons Family Solutions Limited United Kingdom Teddies Childcare Provision Limited United Kingdom Teddies Childcare Limited United Kingdom Teddies Nurseries Limited United Kingdom Teddies Sports Limited United Kingdom Bright Horizons Livingston Limited Scotland Child & Co (Oxford) Limited United Kingdom Daisies Day Nurseries Limited United Kingdom Beehive Day Nurseries Limited United Kingdom Huntyard Ltd. Jersey Casterbridge Real Estate 2 Ltd. United Kingdom Casterbridge Care and Education Group Ltd. United Kingdom Casterbridge Nurseries Ltd. United Kingdom Springfield Lodge Day Nursery (Swanscombe) Ltd. United Kingdom Springfield Lodge Day Nursery (Dartford) Ltd. United Kingdom Tassel Road Children’s Day Nursery Ltd. United Kingdom Sam Bell Enterprises Ltd. United Kingdom Casterbridge Real Estate Ltd. United Kingdom Surculus Properties Ltd. United Kingdom Inglewood Day Nursery and College Ltd. United Kingdom Casterbridge Nurseries (HH) Ltd. United Kingdom Casterbridge Care and Education Ltd. United Kingdom Casterbridge Nurseries (Eton Manor) Ltd. United Kingdom Casterbridge Nurseries (Gaynes Park) Ltd. United Kingdom Dolphin Nurseries (Tooting) Ltd. United Kingdom Dolphin Nurseries (Kingston) Ltd. United Kingdom Dolphin Nurseries (Bracknell) Ltd. United Kingdom Dolphin Nurseries (Caterham) Ltd. United Kingdom Dolphin Nurseries (Northwick Park) Ltd. United Kingdom Dolphin Nurseries (Banstead) Ltd. United Kingdom Bright Horizons B.V. Netherlands Odemon B.V. Netherlands Kindergarden Nederland B.V. Netherlands Bright Horizons Child Care Services Private Limited India Bright Horizons Family Solutions Ltd. Canada BHFS Three Limited Ireland Bright Horizons Family Solutions Ireland Limited Ireland Allmont Limited Ireland Bright Horizons Corp. Puerto Rico Registrant indirectly owns 81.5% of the voting equity. Bright Horizons B.V. owns 99.99% and BHFS Two Limited owns 0.01%. Bright Horizons Family Solutions LLC owns 15% and ChildrenFirst LLC owns 85%.123123Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement No. 333-186193 on Form S-8 of our report dated March 26, 2013, relating to thefinancial statements of Bright Horizons Family Solutions Inc. appearing in this Annual Report on Form 10-K of Bright Horizons Family Solutions Inc. for theyear ended December 31, 2012. /s/ Deloitte & Touche LLP Boston, Massachusetts March 26, 2013 Exhibit 31.1CERTIFICATION PURSUANT TOSECURITIES EXCHANGE ACT RULES 13a-14 and 15d-14AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, David Lissy, Chief Executive Officer, certify that: 1.I have reviewed this annual report on Form 10-K of Bright Horizons Family Solutions Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and the other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e)) for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. March 26, 2013 /s/ David LissyDate David Lissy Chief Executive OfficerExhibit 31.2CERTIFICATION PURSUANT TOSECURITIES EXCHANGE ACT RULES 13a-14 and 15d-14AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Elizabeth Boland, Chief Financial Officer, certify that: 1.I have reviewed this annual report on Form 10-K of Bright Horizons Family Solutions Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and the other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e)) for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. March 26, 2013 /s/ Elizabeth BolandDate Elizabeth Boland Chief Financial OfficerExhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Bright Horizons Family Solutions Inc. (the “Company”) on Form 10-K for the period ending December 31, 2012 asfiled with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Lissy, as the Chief Executive Officer of the Company, certify,pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: March 26, 2013 /s/ David LissyDavid Lissy*Chief Executive Officer *A signed original of this written statement required by Section 906 has been provided to Bright Horizons Family Solutions Inc. and will be retained byBright Horizons Family Solutions Inc. and furnished to the Securities and Exchange Commission or its staff upon request.The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350,Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-K or as a separate disclosure document.Exhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Bright Horizons Family Solutions, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2012 asfiled with the Securities and Exchange Commission on the date hereof (the “Report”), I, Elizabeth Boland, as the Chief Financial Officer of the Company,certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: March 26, 2013 /s/ Elizabeth BolandElizabeth Boland*Chief Financial Officer *A signed original of this written statement required by Section 906 has been provided to Bright Horizons Family Solutions Inc. and will be retained byBright Horizons Family Solutions Inc. and furnished to the Securities and Exchange Commission or its staff upon request.The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350,Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-K or as a separate disclosure document.

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