UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to .
Commission File Number: 001-35780
BRIGHT HORIZONS FAMILY SOLUTIONS INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
80-0188269
(IRS Employer
Identification No.)
200 Talcott Avenue South
Watertown, 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
Common Stock, $0.001 par value per share
Name of exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
No
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
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 the
registrant was required to submit and post such files). Yes
Indicate 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 will not 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-K or 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. See
definitions of “large accelerated filer,” “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
No
No
No
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the shares of common stock of the registrant held by non-affiliates of Bright Horizons Family Solutions Inc. computed by reference
to the closing price of the registrant’s common stock on the New York Stock Exchange as of June 30, 2015 was approximately $2.1 billion.
As of February 19, 2016, there were 59,759,611 outstanding shares of the registrant’s common stock, $0.001 par value per share, which is the only outstanding
capital stock of the registrant.
No
Portions of the registrant’s definitive Proxy Statement for the 2016 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, are incorporated by reference in
Part III, Items 10-14 of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
BRIGHT HORIZONS FAMILY SOLUTIONS INC.
TABLE OF CONTENTS
Part I.
Page
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Signatures
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Registrant
Part II.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Part III.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships, Related Transactions and Director Independence
Principal Accounting Fees and Services
Part IV.
Exhibits, Financial Statement Schedules
4
14
23
23
25
25
26
27
30
31
49
51
86
86
91
91
91
91
91
91
92
95
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes statements that express our opinions, expectations, beliefs,
plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may
be deemed to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995 (the “Act”). The following cautionary statements are being made pursuant to the provisions of the
Act and with the intention of obtaining the benefits of the “safe harbor” provisions of the Act. These forward-
looking statements can generally be identified by the use of forward-looking terminology, 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 not historical facts. They appear in a number of
places throughout this Annual Report and include statements regarding our intentions, beliefs or current
expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects,
the industries in which we and our partners operate, industry trends, market and leadership position,
performance and growth factors, competitive strengths and differentiators, growth strategy and opportunities for
expansion, acquisitions and integration, utilization rates, marketing strategies, intellectual property, regulatory
compliance, employee relationships, ability to attract new clients, debt and indebtedness, ability to attract key
employees, dividend policy, impact of the macroeconomic environment, properties, outcome of litigation and
legal proceedings, new center openings, future interest payments, amortization expense, cash flow and use of
cash, operating and capital expenditures, cash from operations, fixed asset expenditures, exchange rates, impact
of tax benefits, tax rates, tax audits and settlements, credit risk, impact of new accounting pronouncements,
repatriation of earnings, insurance and worker's compensation claims, impact of improvements to internal
controls, and the material weakness and timing for remediation.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events
and depend on circumstances that may or may not 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 this Annual
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-looking statements are not guarantees of future performance and that our
actual results of operations, financial condition and liquidity, and the development of the industry in which we
operate may differ materially from those made in or suggested by the forward-looking statements contained in
this Annual Report. In addition, even if our results of operations, financial condition and liquidity, and the
development of the industry in which we operate, are consistent with the forward-looking statements contained
in this Annual Report, those results or developments may not be indicative of results or developments in
subsequent periods.
Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-
looking statements. Any forward-looking statement that 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 or to publicly
announce the results of any revisions to any of those statements to reflect future events or developments, except
as required by law.
3
Item 1. Business
PART I
Our Company
We are a leading provider of high-quality child care, early education and other services designed to help
employers and families better address the challenges of work and family life. We provide services primarily
under multi-year contracts with employers who offer child care and other dependent care solutions as part of
their employee benefits packages to improve employee engagement, productivity, recruitment and retention. As
of December 31, 2015, we had more than 1,000 client relationships with employers across a diverse array of
industries, including more than 140 Fortune 500 companies and more than 80 of Working Mother magazine’s
2015 “100 Best Companies for Working Mothers.” Our service offerings include:
• Center-based full service child care and early education (representing approximately 85% of our
revenue in the year ended December 31, 2015);
• Back-up dependent care; and
• Educational advisory services.
We believe we are a provider of choice for each of the solutions we offer. As of December 31, 2015, we
operated a total of 932 child care and early education centers across a wide range of customer industries with
the capacity to serve approximately 107,000 children in the United States, as well as in the United Kingdom, the
Netherlands, Ireland, Canada and India. We have achieved satisfaction ratings of approximately 95% among
respondents in our employer and parent satisfaction surveys over each of the past six years and an annual client
retention rate of 97% for employer-sponsored centers over each of the past 10 years.
Our History
Since 1986, we have operated child care and early education centers for employers and working families.
In 1998, we transformed our business through the merger of Bright Horizons, Inc. and Corporate Family
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 times while 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 and have expanded into the Netherlands and India as a platform for further international expansion. In
the United States, we have grown our partnerships with employer clients by expanding and enhancing our back-
up dependent care services and by developing and growing our educational advisory services. We have invested
in new technologies to better support our full suite of services and expanded our marketing efforts with
additional focus on maximizing occupancy levels in centers where we can improve our economics with
increased enrollment. On January 30, 2013, we completed our initial public offering (the “Offering”) and our
common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “BFAM.”
Industry Overview
We 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 benefits to employees. 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.
The center-based child care market includes both retail and employer-sponsored centers and can be
further divided into full-service centers and back-up centers. The employer-sponsored model, which has 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-term contract 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 as well as ongoing
4
maintenance and repair of a child care center at or near its worksite and subsidizes the provision of child care
services to make them more affordable for its employees.
Additionally, we compete in the growing markets for back-up dependent care and educational advisory
services, and we believe we are the largest and one of the only multi-national providers of back-up dependent
care services.
Industry Trends
We believe that the following key factors contribute to growth in the markets for employer-sponsored
child care and for back-up dependent care and educational advisory services.
Increasing Participation by Women and Two Working Parent Families in the Workforce. A significant
percentage of mothers currently participate in the workforce. In 2014, 64% of mothers with children under the
age of 6 participated in the workforce in the United States, according to the Bureau of Labor Statistics. We
expect that the number of working mothers and two working parent families will continue to increase over time,
resulting in an increase in the need for child care and other work/life services. In 2016, women are expected to
earn 54% of all doctorate and 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 education and consistent quality child care has led to increased demand
for higher-quality center-based care. In 1965, 8% of children under the age of 5 with working mothers were
enrolled in center-based child care, compared to approximately 24% of such children by 2011, according to data
gathered by the U.S. Census Bureau. With the shift towards center-based care, there is an increased focus on the
establishment of objective, standards-based methods of defining and measuring the quality of child care, such as
accreditation. In a highly fragmented market comprised largely of center operators lacking scale, we believe this
trend 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 believe that employer sponsors of center-based child care and
back-up dependent care services realize strong returns on their investments from reduced turnover and increased
productivity. We estimate that users of our back-up dependent care services have been able to work, on
average, six days annually that they otherwise would have missed due to breakdowns in child care
arrangements. Additionally, according to a 2015 survey of our clients, 92% of respondents reported that access
to dependable back-up dependent care helps them to focus on work and be more productive. We believe that
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 an increasing emphasis on education by government and families will
contribute to further growth in the global child care and early education market as well as the developing
markets for back-up dependent care and educational advisory services. In addition, in certain countries in which
we operate, public policy decisions have facilitated increased demand for child care and early education
services. In 2006, the United Kingdom instituted a 10 year plan to make child care more accessible and more
affordable for all parents. In the Netherlands, a 2005 child care law increased the demand for child care and
early education services by making child care more affordable for working families and thereby encouraging
women to return to the workforce.
Market Leading Service Provider
Our Competitive Strengths
We 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 and quality of our service offerings—developed over a successful
30-year history—represent significant competitive advantages. We have approximately six times more
5
employer-sponsored centers in the United States than our closest competitor, according to Child Care
Information Exchange’s 2010 Employer Child Care Trend Report. We believe the broad geographic reach of
our child care centers, with targeted clusters in areas where we believe demand is generally higher and where
income demographics are attractive, provides us with an effective platform to market our services to current and
new clients.
Collaborative, Long-term Relationships with Diverse Customer Base
We have more than 1,000 client relationships with employers across a diverse array of industries,
including more than 140 of the Fortune 500 companies, with our largest client contributing less than 2% of our
revenue in fiscal 2015 and our largest 10 clients representing less than 10% of our revenue in the same year. Our
business model emphasizes multi-year employer sponsorship contracts where our clients typically fund the
development of new child care centers 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 identify and provide innovative and tailored solutions to address our
clients’ specific work/life needs. In addition to full service center-based care, we provide access to a multi-
national back-up dependent care network and educational advisory support, allowing us to offer various
combinations of services to best meet the needs of specific clients or specific locations for a single client. We
believe our tailored, collaborative approach to employer-sponsored child care has resulted in an annual client
retention rate for employer-sponsored centers of approximately 97% over each of the past ten years.
Commitment to Quality
Our business is anchored in our commitment to consistently provide high-quality service offerings to
employers and families. We have therefore designed our child care centers to meet or exceed applicable
accreditation and rating standards in all of our key markets, including in the United States through the National
Academy of Early Childhood Programs, a division of the National Association for the Education of Young
Children (“NAEYC”), and in the United Kingdom through the ratings of the Office of Standards in Education.
We believe that our voluntary commitment to achieving accreditation standards offers a competitive advantage
in securing employer sponsorship opportunities and in attracting and retaining families, because an increasing
number of potential and existing employer clients require adherence to accreditation criteria.
We maintain our proprietary curriculum at the forefront of early education practices by introducing
elements that respond 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 focused care. Our programs often
provide adult-to-child ratios that are more stringent than many state licensing standards.
Market Leading People Practices
Our ability to deliver consistently high-quality care, education and other services is directly related to our
ability to attract, retain and motivate our highly skilled workforce. We have consistently been named as a top
employer by third-party sources in the United States, the United Kingdom and the Netherlands, including being
named as one of the “100 Best Places to Work in America” by Fortune Magazine 16 times.
We believe the education and experience of our center leaders and teachers exceed the industry average.
In addition to recurring in-center training and partial tuition reimbursement for continuing education, we have
developed a training program that establishes standards for our teachers as well as an in-house online training
academy, which allows our employees to earn nationally-recognized child development credentials.
Capital Efficient Operating Model Provides Platform for Growth, with Attractive Economics
We have achieved uninterrupted year-over-year revenue and adjusted EBITDA growth for each of the last
14 years despite broader macro-economic fluctuations. With employer sponsors funding the majority of the
capital required for new centers developed on their behalf, we have been able to grow our business with limited
capital investment, which has contributed to strong cash flows from operations.
6
Proven Acquisition Track Record
We have an established acquisition team to pursue potential targets using a proven framework to
effectively evaluate potential transactions with the goal of maximizing our return on investment while
minimizing risk. Since 2006, and as of December 31, 2015, we have completed acquisitions of 299 child care
centers in the United States, the United Kingdom and the Netherlands, as well as providers of back-up
dependent care services and educational advisory services in the United States.
Our Growth Strategy
We believe that there are significant opportunities to continue to grow our business globally and expand
our leadership position by continuing to execute on the following strategies.
Grow Our Client Relationships
•
Secure Relationships with New Employer Clients. Our addressable market includes approximately
15,000 employers, each with at least 1,000 employees, within the industries that we currently service in
the United States and the United Kingdom. Our dedicated sales force focuses on establishing new
client relationships and is supported by our Horizons Workforce Consulting practice, which helps
potential clients to identify the precise work/life offerings that will best meet their strategic goals.
• Cross-Sell and Expand Services to Existing Employer Clients. We believe there is a significant
opportunity to increase the number of our clients that use more than one of our services, and to expand
the services we provide to existing clients.
• Continue to Expand Through the Assumption of Management of Existing Sponsored Child Care
Centers. We occasionally assume the management of existing centers from the incumbent management
team, which enables us to develop new client relationships, typically with no capital investment and no
purchase price payment.
Sustain Annual Price Increases to Enable Continued Investments in Quality
We look for opportunities to invest in quality as a way to enhance our reputation with our clients and their
employees. By developing a strong reputation for high-quality services and facilities, we are able to support
consistent price increases that keep pace with our cost increases. Over our history, these price increases have
contributed to our revenue growth and have enabled us to drive margin expansion.
Increase Utilization at Existing Centers
We believe that our mature profit and loss centers (centers that have been open for more than three years,
as more fully described below) are currently operating at utilization levels below our target run rate, in part due
to a general deterioration in economic condition from 2008 to 2010. Utilization rates at our mature profit and
loss centers stabilized in 2010 and have grown since. We expect to further close the gap between current
utilization rates and our target run rate over the next few years.
Selectively Add New Lease/Consortium Centers and Expand Through Selective Acquisitions
We have typically added approximately fifteen new lease/consortium centers (as more fully described
below) annually for the past three years, focusing on urban or city surrounding markets where demand is
generally higher and where income demographics are generally more supportive of a new center. In addition,
we have a long track record of successfully completing and integrating selective acquisitions. The domestic and
international markets for child care and other family support services remain highly fragmented. We will
therefore continue to seek attractive opportunities both for center acquisitions and the acquisition of
complementary service offerings.
Our 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,
preschool and elementary education. Back-up dependent care includes center-based back-up child care, in-home
Our Operations
7
care, mildly-ill child care and adult/elder care. Our remaining operations, including our educational advisory
services, are included in other educational advisory services.
The following table sets forth our segment information as of the dates and for the periods indicated.
Additional segment information is included in Note 16, "Segment and Geographic Information," included in the
notes to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Year ended December 31, 2015
Revenue
As a percentage of total revenue
Income from operations
As a percentage of total income from
operations
Year ended December 31, 2014
Revenue
As a percentage of total revenue
Income from operations
As a percentage of total income from
operations
Year ended December 31, 2013
Revenue
As a percentage of total revenue
Income from operations
As a percentage of total income from
operations
Full Service
Center-Based
Child Care
Services
Back-up
Dependent
Care
Services
Other
Educational
Advisory
Services
(In thousands, except percentages)
Total
$ 1,236,762
85%
$
115,149
64%
$ 1,156,661
86%
$
92,229
63%
$ 1,049,854
86%
$
67,287
$
$
$
$
$
$
181,574
12%
56,891
31%
162,886
12%
49,317
33%
144,432
12%
39,710
$
$
$
$
$
$
40,109
$ 1,458,445
3%
100%
9,562
$
181,602
5%
100%
33,452
$ 1,352,999
2%
100%
5,374
$
146,920
4%
100%
24,490
$ 1,218,776
2%
100%
2,037
$
109,034
62%
36%
2%
100%
Full-Service Center-Based Child Care Services
We provide our center-based child care services under two general business models: a profit and loss
(“P&L”) model, where we assume the financial risk 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-plus basis. The P&L
model is further classified into two subcategories:
•
•
a sponsor model, where we provide child care and early education services on either an exclusive or
priority enrollment basis for the employees of a specific employer sponsor; and
a lease/consortium model, where we provide child care and early education services to the employees
of multiple employers located within a specific real estate development (for example, an office
building or office park), 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, as well as
ongoing maintenance and repair, is typically funded by an employer sponsor with whom we enter into a multi-
year contractual relationship. In addition, employer sponsors typically provide subsidies for the ongoing
provision of child care services for their employees.
Our full-service center operations are organized into geographic divisions led by a Division Vice
President of Center Operations who, in turn, reports to a Senior Vice President of Center Operations. Each
division is further divided into regions, each supervised by a Regional Manager who oversees the operational
8
performance of approximately six to eight centers and is responsible for supervising the program quality,
financial performance and client relationships. A typical center is managed by a small administrative team under
the leadership of a Center Director. A Center Director has day-to-day operating responsibility for the center,
including training, management of staff, licensing compliance, implementation of curricula, conducting child
assessments and enrollment. Our corporate offices provide centralized administrative support for accounting,
finance, information systems, legal, payroll, risk management, marketing and human 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 a day 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 to part-time
scheduling.
Tuition paid by families varies depending on the age of the child, the child's attendance schedule, the
geographic location and the extent to which an employer sponsor subsidizes tuition. Based on a sample of 320
of our child care and early education centers, the average tuition rate at our centers in the United States is
$1,775 per month for infants (typically ages three to sixteen months), $1,625 per month for toddlers (typically
ages sixteen months to three years) and $1,300 per month for preschoolers (typically ages 3 to 5 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, families can pay tuition through payroll deductions or through Automated Clearing House
withdrawals.
Revenue per center typically averages between $1.5 million and $1.7 million at our centers in North
America, and averages between $0.9 million and $1.4 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 averages between
20% 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
primarily comprised of payroll and benefits for personnel, food costs, program supplies and materials, parent
marketing and facilities costs, which include depreciation. Personnel costs are the largest component of a
center’s operating costs and comprise approximately 70% of a center’s operating expenses. In a P&L model
center, we are often responsible for additional costs that are typically paid 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
operating under 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 compensation costs) 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 Care Services
We provide back-up dependent care services through our full-service centers or our dedicated back-up
centers, as well as through our Back-Up Care Advantage (“BUCA”) program. BUCA offers access to a
contracted network of in-home care agencies and approximately 3,000 center-based providers in locations
where we do not otherwise have centers with available capacity.
Our back-up dependent care division is led by an Executive Vice President of Operations, with a Senior
Vice President leading the BUCA program and a Divisional Vice President leading back-up center operations.
The dedicated back-up centers that we operate are organized in a similar structure to full-service centers, with
Regional Managers overseeing approximately six to eight centers each and with center-based administrative
teams that mirror the administrative teams in full-service centers. The dedicated back-up centers are either
exclusive to a single employer or are consortium centers that have multiple employer sponsors, as well as uses
from the BUCA program. Care is arranged through a 24 hours-a-day contact center, online or via our mobile
9
application, allowing employees to reserve care in advance or at the last minute. We operate our own contact
center in Broomfield, Colorado, which is overseen by the Senior Vice President responsible for BUCA, and
contract with additional contact centers located in Durham, North Carolina, and Chicago, Illinois, to
complement our ability to handle demand fluctuations and to provide seamless service 24 hours 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 point of service. Cost of services consist of fees paid to providers for
care delivered as part of their contractual relationships with us, personnel and related direct service 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, cost of services 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-service care, with additional expenses
related to the information technology necessary to operate this service, the ongoing development and
maintenance of the provider network and additional personnel needed as a result of more significant client
management and reporting requirements.
Educational Advisory Services
Our educational advisory services consist of our EdAssist and College Coach services. Educational
advisory services revenue is comprised of fees or subsidies paid by employer clients, as well as co-payments or
retail fees collected from users 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 coordination and delivery of advisory and
counseling services.
EdAssist. EdAssist provides tuition reimbursement administration for corporate clients. Administration
services are provided through a proprietary software system for processing and data analytics, as well as a team
of compliance professionals who audit employee reimbursements. We also provide educational advising to
client employees on a one-on-one basis through our team of advisors, who help employees make better
decisions regarding their education. Customer service is also provided through contact centers in Broomfield,
Colorado and Durham, North Carolina. The EdAssist services derive revenue directly from fees paid by
employer sponsors under contracts that are typically three years in length. The EdAssist division is managed by
a Vice President and a General Manager who have responsibility for the growth and profitability of this
division.
College Coach. College Coach provides college advisory services through our team of educators, all of
whom have experience working at senior levels in admissions or financial aid at colleges and universities. We
work with employer clients who offer these services as a benefit to their employees, and we also provide these
services directly to families on a retail basis. We have 10 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 agreed upon number of workshops,
access to our proprietary online learning center and individual counseling. The College Coach division is
managed by a Senior Vice President who has responsibility for the growth and profitability of this division.
Seasonality
Our business is subject to seasonal and quarterly fluctuations. Demand for child care and early education
and elementary school services has historically decreased during the summer months when school is not in
session, at which time families are often on vacation or have alternative child care arrangements. In addition,
our enrollment declines as older children transition to elementary schools. Demand for our services generally
increases in September and 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 our back-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 the program and impact the results of operations. Results of operations may also fluctuate from quarter
to quarter as a result of, among other things, the performance of existing centers, including enrollment and
staffing fluctuations, the number and timing of new center openings, acquisitions and management transitions,
the length of time required for new centers to achieve profitability, center closings, refurbishment or relocation,
10
the contract model mix (P&L versus cost-plus) of new and existing centers, the timing and level of sponsorship
payments, competitive factors and general economic conditions.
We operate in two primary regions: North America, which includes the United States, Canada and Puerto
Rico, and Europe, which we define to include the United Kingdom, the Netherlands, Ireland and India. The
following table sets forth certain financial data for these geographic regions for the periods indicated.
Geography
Year ended December 31, 2015
Revenue
As a percentage of total revenue
Long-lived assets, net
As a percentage of total fixed assets, net
Year ended December 31, 2014
Revenue
As a percentage of total revenue
Long-lived assets, net
As a percentage of total fixed assets, net
Year ended December 31, 2013
Revenue
As a percentage of total revenue
Long-lived assets, net
As a percentage of total fixed assets, net
North America
Europe
Total
(In thousands, except percentages)
$
$
$
$
$
$
1,182,629
81%
308,469
72%
1,074,951
79%
277,971
70%
980,537
80%
260,483
67%
$
$
$
$
$
$
275,816
19%
121,267
28%
278,048
21%
120,976
30%
238,239
20%
130,411
33%
$
$
$
$
$
$
1,458,445
100%
429,736
100%
1,352,999
100%
398,947
100%
1,218,776
100%
390,894
100%
Our international business primarily consists of child care centers throughout the United Kingdom and the
Netherlands and is overseen by a Senior Vice President. As of December 31, 2015, we had a total of 240
centers in Europe and 692 centers in North America.
Marketing
We market our services to prospective employer sponsors, current clients and their employees, and to
parents. Our sales force is organized on both a centralized and regional basis and is responsible for identifying
potential employer sponsors, targeting real estate development opportunities, identifying potential acquisitions
and managing the overall sales process. We reach out to employers via word of mouth, direct mail campaigns,
digital outreach and advertising, 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 and children’s advocacy, and we believe that their prominence and involvement in
such issues also helps us attract new business. We communicate regularly with existing 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 marketing programs, including the preparation of promotional materials. The
parent marketing team is organized on both a centralized and regional basis and works with center directors and
our contact centers to build enrollment. New enrollment is generated by word of mouth, print advertising, direct
mail campaigns, digital marketing, parent referral programs and business outreach. Individual centers may
receive assistance from employer sponsors, who often provide access to channels of internal communication,
11
such as e-mail, websites, intranets, mailing lists and internal publications. In addition, many employer sponsors
promote the child care and early education center as an important employee benefit.
Competition
We believe that we are a leader in the markets for employer-sponsored center-based child care and back-
up dependent care. We maintain approximately six times more market share in the United States than our closest
competitors who provide employer-sponsored center-based child care. The market for child care and early
education services is highly fragmented, and we compete for enrollment and for sponsorship of child care and
early education centers with a variety of other businesses including large community-based 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-funded providers of center-based child care. Our principal competitors for
employer-sponsored centers include KinderCare Education, New Horizons Academy, Childbase and Busy Bees
in the United States and the United Kingdom. Competition for back-up dependent care and educational advising
comes from some of these same competitors in addition to employee assistance programs, payment processors
and smaller work/life companies. In addition, we compete for enrollment on a center-by-center basis with some
of the providers named above, along with many local and national providers, such as Learning Care Group,
Goddard Schools, Primrose Preschools, Asquith Day Nurseries, The Co-operative Childcare, Smallsteps, and
Partou in the United States, the United Kingdom 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 child care 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 and limited 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 to government funding or other
subsidies), or may benefit from broader name recognition (such as established regional providers) or comply, or
are required to comply, with fewer or less costly health, safety, and operational regulations than those with
which we comply (such as the more limited health, safety and operational regulatory requirements typically
applicable to family day care operations in caregivers’ homes).We believe that our primary focus on employer
clients and track record for achieving and maintaining high-quality standards distinguishes us from our
competitors. 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 30 years.
Intellectual Property
We believe that our name and logo have significant value and are important to our operations. We own
and use various registered and unregistered trademarks covering the names Bright Horizons and Bright
Horizons Family Solutions, our logo and a number of other names, slogans and designs. We frequently license
the use of our registered trademarks to our clients in connection with the use of our services, subject to
customary restrictions. We actively protect our trademarks by registering the marks in a variety of countries and
geographic areas, including North America, Asia and Southeast Asia, the Pacific Rim, Europe and Australia.
These registrations are subject to varying terms and renewal options. However, not all of the trademarks or
service marks have been 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 do not do business. Meanwhile, we monitor our
trademarks and vigorously oppose the infringement of any of our marks. We do not hold any patents, and we
hold copyright registrations for certain materials that are important to the operation of our business. We
generally rely on common law protection for those copyrighted works which are not critical 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.
12
Regulatory Matters
We are subject to various federal, state and local laws affecting the operation of our business, including
various licensing, health, fire and safety requirements 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 design and 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 laws and regulations concerning various licensing, health, fire and
safety requirements and standards. We believe that our centers comply in all material respects with all
applicable laws and regulations in these countries.
Health and Safety
The 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 early education centers, which typically include secure electronic access
systems as well as sign-in and sign-out procedures for children, among other site-specific security measures. In
addition, our trained teachers and open center designs help ensure the health and safety of children. Our child
care and early education centers are designed to minimize the risk of injury to children by incorporating such
features as child-sized amenities, rounded corners on furniture and fixtures, 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 of children and center administration. These guidelines establish
center protocols in areas including the safe handling of medications, managing child illness or health
emergencies and a variety of other critical aspects of care to ensure that centers meet or exceed all mandated
licensing standards. The center management guide is reviewed and updated continuously by a team of internal
experts, and center personnel are trained on center practices using this tool. Our proprietary We Care system
supports proper supervision of children and documents the transitions of children to and from the care of
teachers and parents or from one classroom to another during the day.
Environmental
Our operations, including the selection and development of the properties that we lease and any
construction or improvements that we make at those locations, are subject to a variety of federal, state and local
laws and regulations, including environmental, zoning and land use requirements. In addition, we have a
practice of conducting site evaluations on each freestanding or newly constructed or renovated property that we
own or lease. Although we have no known material environmental liabilities, environmental laws may require
owners or operators of contaminated property to remediate that property, regardless of fault.
Employees
As of December 31, 2015, we had approximately 26,000 employees (including part-time and substitute
teachers), of whom approximately 1,500 were employed at our corporate, divisional and regional offices, and
the remainders of whom were employed at our child care and early education centers. Child care and early
education center employees include teachers and support personnel. The total number of employees includes
approximately 6,000 employees working outside 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” by Fortune Magazine in the United States and more recently in the United Kingdom, Ireland and the
Netherlands based largely upon employee responses to surveys. None of our employees are represented by a
labor union and we believe our relationships with our employees are good.
Facilities
Our child care and early education centers are primarily operated at work-site locations and vary in design
and capacity in accordance with employer sponsor needs and state and local regulatory requirements. Our
13
North American child care and early education centers typically have an average capacity of 127 children. Our
locations in Europe and India have an average capacity of 79 children. As of December 31, 2015, our child care
and early education centers had a total licensed capacity of approximately 107,000 children, with the smallest
center having a capacity of 12 children and the largest having a capacity of approximately 523 children.
We believe that attractive, spacious and child-friendly facilities with warm, nurturing and welcoming
atmospheres are an important element in fostering a high-quality learning environment for children. Our
centers are designed to be open and bright and to maximize supervision visibility. We devote considerable
resources to equipping our centers with child-sized amenities, indoor and outdoor play areas comprised of age-
appropriate materials and design, family hospitality areas and computer centers. Commercial kitchens are
typically only present in those centers where regulations require that hot meals be prepared on site.
Available Information
The Company files or furnishes all required reports with the Securities and Exchange Commission
(“SEC”). We make available, free of charge, on our corporate website www.brighthorizons.com, our annual
reports 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 of 1934, as
amended (the "Exchange Act”), as soon as reasonably practicable after such material is electronically filed with
or furnished to the 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 with the SEC
is also available at www.sec.gov. References to these websites do not constitute incorporation by reference of
the information contained therein and should not be considered part of this document.
Item 1A. Risk Factors
Risks Related to Our Business and Industry
Changes in the demand for child care and other dependent care services, which may be negatively affected
by economic conditions, may affect our operating results.
Our business strategy depends on employers recognizing the value in providing employees with child care
and other dependent care services as an employee benefit. The number of employers that view such services as
cost-effective or beneficial to their workforces may not continue to grow or may diminish. In addition,
demographic trends, including the number of two working parent or working single parent families in the
workforce, may not continue to lead to increased demand for our 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, during the 2008-2010 recession, we believe sustained uncertainty in
U.S. and global economic conditions and persistently high unemployment domestically resulted in reduced
enrollment levels at our mature P&L centers, and enrollment remains below pre-recession levels. 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 the demand for our
services and result in reduced enrollment or failure of our employer clients to renew their contracts. A
deterioration of general economic conditions may adversely impact the need for our services because out-of-
work parents may diminish or discontinue the use of child care services, or be unwilling 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 teachers and staff at our centers have additional qualifications. We are
14
also required by state laws to maintain certain prescribed minimum adult-to-child ratios. If we are unable to hire
and retain qualified teachers at a center, we could be required to reduce enrollment or be prevented from
accepting additional enrollment in order to comply with such mandated ratios. In certain markets, we may
experience difficulty in attracting, hiring and retaining qualified teachers, which may require us to offer
increased salaries and enhanced benefits in these more competitive markets. This could result in increased costs
at centers located in these markets. Difficulties in hiring and retaining qualified personnel may also affect our
ability to meet growth objectives in certain geographies and to take advantage 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 from the issuance of our term loans and borrowings on our
revolving credit facility. Information on our debt is included in "Management's Discussion and Analysis" in
Item 7 of Part II of this Annual Report and Note 9 in our consolidated financial statements in Item 8 of Part II of
this Annual Report. 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 corporate requirements and increasing our cost of borrowing;
requiring a substantial portion of our cash flow to be dedicated to debt service payments instead of
other purposes, thereby reducing the amount of cash 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 are at variable 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 senior secured credit 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 our debt instruments to permit us to finance our growth strategy or improve the terms
of our indebtedness.
In addition, the borrowings under our senior secured credit facilities bear interest at variable rates. If
market interest rates increase, variable rate debt will create higher debt service requirements, which could
adversely affect our cash flow. Assuming all amounts under our senior secured credit facilities are fully drawn, a
100 basis point change in interest rates would result in a $11.4 million change in annual interest expense on our
indebtedness under our senior secured credit facilities (subject to our base rate and LIBOR floors, as
applicable). While we may in the future enter into agreements limiting our exposure 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 credit agreement governing our senior secured credit facilities contains a number of restrictive
covenants that impose significant operating 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 our ability to incur certain liens,
make investments and acquisitions, incur or guarantee additional indebtedness, pay dividends or make other
distributions in respect of, or repurchase or redeem, capital stock, or enter into certain other types of contractual
arrangements affecting our subsidiaries or indebtedness. In addition, the restrictive covenants in the credit
agreement governing our senior secured credit facilities require us to maintain specified financial ratios and
satisfy other financial condition tests, and we expect that the agreements governing any new senior secured
15
credit facilities will contain similar requirements to satisfy financial condition tests and, with respect to any new
revolving credit facility, maintain specified financial ratios, subject to certain 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 senior secured credit facilities, or any
replacement facility, could result in an event of default unless we obtain a waiver to avoid such default. If we
are unable to obtain a waiver, we may suffer adverse effects on our operations, business and financial condition,
and such a default may allow the creditors to accelerate the related debt and may 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
lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to
repay that indebtedness.
Acquisitions 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 of acquired 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’s attention and resources in connection with an acquisition, loss of key employees of
the acquired operation, failure of acquired operations to effectively and timely adopt our internal control
processes and other policies, and write-offs or impairment charges relating to goodwill and other intangible
assets. We may not have success in identifying, executing and integrating acquisitions in the future.
The growth of our business may be adversely affected if we do not implement 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 increases requires 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, or we may be unable to maintain
or accelerate our growth.
The success of our operations in international markets is highly dependent on the expertise of local
management and operating staff, as well as the 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 dependent on our current local management and operating staff to operate
our centers in these markets in accordance with local law and best practices. If the local management or
operating staff were to leave our employment, we would have to expend significant time and resources building
up our management or operational expertise in these markets. Such a transition could adversely affect our
reputation in these markets and could materially and adversely affect our business 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 operating results may be materially and adversely affected. As of
December 31, 2015, we had 242 centers located in five foreign countries; therefore, we are subject to inherent
risks attributed to operating in a global economy. Our international operations may subject us to additional risks
that differ in each country in which we operate, and such risks may negatively affect our results. The factors
impacting the international markets in which we operate may include changes in laws and regulations affecting
the operation of child care centers, the imposition of restrictions on currency conversion or the transfer of funds
or increases in the 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 of our revenues, costs and debts are denominated in U.S. dollars.
However, revenues and costs from our operations outside of the United States are denominated in the currency
16
of the country in which the center is located, and these currencies could become less valuable as a result of
exchange rate fluctuations. The current economic challenges in Europe and related European financial
stabilization efforts may cause the value of the European currencies, including the British pound and the Euro,
to further deteriorate. Market perceptions concerning this and related issues could adversely affect the value of
our Euro- and British pound-denominated assets. Unfavorable currency fluctuations as a result of this and other
market forces could result in a reduction in our 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 the demand 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 or not directly relating to or involving Bright Horizons, could result
in decreased enrollment at our child care centers, termination of existing corporate relationships or inability to
attract new corporate relationships, or increased insurance costs, all of which could adversely affect our
operations. Brand value and our reputation can be severely damaged even by isolated incidents, particularly if
the incidents receive considerable negative publicity or result in substantial litigation. These incidents may arise
from events that are beyond our ability to control and may damage our brands and reputation, such as instances
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 of children in our care. In addition, from time to time, customers and others
make claims and take legal action against us. Whether or not customer claims or legal action have merit, they
may adversely affect our reputation and the demand for our services. Demand for our services could diminish
significantly if any such incidents or other matters erode consumer confidence in us or our services, which
would likely result in lower sales, and could materially and adversely affect our business and operating results.
Any reputational damage could have a material adverse effect on our brand value and our business, which, in
turn, could have a material adverse effect on our financial 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 and increase 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 for liability arising from injuries or other harm to the people we serve,
primarily children. We may also be subject to employee claims based on, among other things, discrimination,
harassment or wrongful termination. In addition, claimants may seek damages from us for physical or sexual
abuse, and other acts allegedly 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 our insurance may be inadequate to cover. In
addition to diverting our management resources, such allegations may result in publicity that may materially
and adversely affect us and our brands, regardless of whether such allegations are valid. Any such claim or the
publicity resulting from it may have a material adverse effect on our business, reputation, results of operations
and financial condition including, without limitation, adverse effects caused by increased cost or 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 by foreign law due to differing interpretations of rights and
obligations, limitations on the availability of insurance coverage and limits, compliance with multiple and
potentially conflicting laws, new and potentially untested laws and judicial systems and reduced or diminished
protection of intellectual property. A substantial 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 services business, inflationary factors such as wage and benefits cost increases
result in significant increases in the costs of running our business. Although we expect to pay employees at rates
above the minimum wage, increases in the statutory minimum wage rates could result in a corresponding
increase in the wages we pay to our employees. In addition, increased competition for teachers in certain
17
markets could result in significant increases in the costs of running our business. Any employee organizing
efforts could 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 event that we cannot increase the cost of our services to cover
these higher wage and benefit costs without reducing customer demand for our services, our revenues could 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 provide these services at single or multiple sites pursuant to contractual
arrangements. Our contracts with employers for full service center-based care typically have terms 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 consistent contract renewals, we may not experience a similar renewal rate in the future.
The termination or non-renewal of a significant number of contracts or the termination of a multiple-site client
relationship could have a material adverse effect on our business, results of operations, financial condition or
cash flows.
We are subject to additional risks in light of the material weakness that we have identified and if the
Company fails to maintain an effective system of internal control over financial reporting and effective
disclosure controls and procedures, we may not be able to accurately report financial results or prevent
fraud.
As further described in Item 9A of this Annual Report on Form 10-K, in the course of completing its
assessment of internal control over financial reporting as of December 31, 2014, management identified a
material weakness in its internal control over financial reporting related to information technology general
controls, which material weakness has not been remediated as of December 31, 2015. As a result, management
has concluded that, because of this material weakness in internal control over financial reporting, our internal
control over financial reporting and our disclosure controls and procedures were not effective as of December
31, 2015. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or
interim financial statements would not be prevented or detected on a timely basis.
While the Company has implemented a number of remediation efforts over the course of 2015 with
respect to the identified deficiencies, as of the date of filing of this Annual Report on Form 10-K, we have not
remediated the identified material weakness. If we fail to complete the remediation of this material weakness in
our internal control, or after having remediated such material weakness, thereafter fail to maintain the adequacy
of our internal control over financial reporting or our disclosure controls and procedures, we could be subjected
to regulatory scrutiny, civil or criminal penalties or stockholder litigation, the defense of any of which could
cause the diversion of management’s attention and resources, we could incur significant legal and other
expenses, and we could be required to pay damages to settle such actions if any such actions were not resolved
in our favor. Moreover, we may be the subject of negative publicity focusing on this material weakness and we
may be subject to negative reactions from stockholders and others with whom we do business. Further, we may
not be able to remediate the material weakness in a timely manner and our management may be required to
devote significant time and expense to remediate the material weakness. In addition, continued or future failure
to maintain adequate internal control over financial reporting could also result in financial statements that do not
accurately reflect our financial condition or results of operations. There can be no assurance that we will not
conclude in the future that this material weakness continues to exist or that we will not identify any significant
deficiencies or other material weaknesses that will impair our ability to report our financial condition and results
of operations accurately or on a timely basis.
18
Significant 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 (including coverage for sexual and physical abuse), professional
liability, automobile liability, excess and “umbrella” liability, commercial property coverage, student accident
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 to be appropriate. Such
insurance, particularly coverage for sexual and physical abuse, may not continue to be readily available to us in
the form or amounts we have been able to obtain in the past, or our insurance premiums could materially
increase in the future as a consequence of conditions in the insurance business 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 these regulations 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, hiring practices and compliance with health and safety standards. Failure of a child
care or early education center to comply with applicable regulations and requirements 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 those centers into compliance.
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 care centers that have mature operating levels typically declines
during the third quarter due to decreased enrollments over the summer months as families withdraw children 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 in session and during holiday periods, which can increase the operating costs of
the program and impact results of operations. We may be unable to adjust our expenses on a short-term basis to
minimize the effect of these fluctuations in revenue. Our quarterly results of operations may also fluctuate based
upon the number and timing of child care center openings and/or closings, acquisitions, the performance of new
and existing child care and early education centers, the contractual arrangements under which child care centers
are operated, the change in the mix of such contractual arrangements, competitive factors and general economic
conditions. The inability of existing child care centers to maintain their current enrollment levels and
profitability, the failure of newly opened child care centers to contribute to profitability and the failure to
maintain and grow our other services could result in additional fluctuations in our future operating results 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 will depend upon our ability to continue to attract, motivate and
retain highly-skilled managerial, sales and marketing, divisional, regional and child care and early education
center director personnel. Failure to retain our leadership team and attract and retain other important personnel
could lead to disruptions in management and operations, which could affect our business and operating results.
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 compete with family child care (operated out of the caregiver’s home)
and center-based child care (such as residential and work-site child care centers, full- and part-time nursery
schools, private and public elementary schools and 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
19
lower cost alternatives to our services. For sponsorship, we compete primarily with large community-based
child care companies with divisions focused on employer sponsorship and with regional child care providers
who target employer sponsorship. We believe that our ability to compete successfully depends on 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 to greater financial resources, greater name recognition or lower operating
or compliance costs. In addition, certain competitors may be able to operate with little or no 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.
Breaches in data security could adversely affect our financial condition and operating results.
For various operational needs, we collect and store certain personal information from our clients, the
families and children we serve, and our employees, including credit card information, which may expose us to
increased risk of privacy and/or security breaches. We utilize third-party vendors and electronic payment
methods to process and store some of this information. While we have policies and practices that protect our
data, failure of these systems to operate effectively or a compromise in the security of our systems that results in
unauthorized persons or entities obtaining personal information could materially and adversely affect our
reputation and our operations, operating results, and financial condition. In addition, breaches in our data
security, that of our affiliates or other third-parties, could expose us to risks of data loss or inappropriate
disclosure of confidential or proprietary information, litigation or the imposition of penalties against us,
liability, and could result in a disruption of our operations. Any relating negative publicity could significantly
harm our reputation and could materially and adversely affect our business and operating results.
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 aid provide us opportunities for expansion in additional markets.
However, a universal benefit with governmentally mandated or provided child care could reduce the 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 place downward pressure on the tuition and fees we charge, which could adversely
affect our revenues and results of operations.
Our tax rate is dependent on a number of factors, a change in any of which could impact our future tax rates
and net income.
As a global company, our future tax rates may be adversely affected by a number of factors, including
changes in tax laws or the interpretation of such tax laws in the various jurisdictions in which we operate;
changes in the estimated realization of our net deferred tax assets; the jurisdictions in which profits are
determined to be earned and taxed; the repatriation of non-U.S. earnings for which we have not previously
provided taxes; adjustments to estimated taxes upon finalization of various tax returns; increases in expenses
that are not deductible for tax purposes, including impairment of goodwill in connection with acquisitions;
changes in available tax credits; and the resolution of issues arising from tax audits with various tax authorities.
Losses for which no tax benefits can be recorded could materially impact our tax rate and its volatility from one
quarter to another. Any significant change in our jurisdictional earnings mix or in the tax laws in those
jurisdictions could impact our future tax rates and net income in those periods.
A regional or global health pandemic or other catastrophic event could severely disrupt our business.
A regional or global health pandemic, depending upon its duration and severity, could severely affect our
business. Enrollment in our child care centers could experience sharp declines as families might avoid taking
their children out in public in the event of a health pandemic, and local, regional or national governments might
limit or ban public interactions to halt or delay the spread of diseases causing business disruptions and the
temporary closure of our centers. Additionally, a health pandemic could also impair our ability to hire and retain
an adequate level of staff. A health pandemic may have a disproportionate impact on our business compared to
other companies that depend less on the performance of services by employees.
20
Other 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 or abroad, could disrupt our
operations or result in political or economic instability. Enrollment in our child care centers could experience
sharp declines as families might avoid taking their children out in public as a result of one or more of these
events.
Risks Related to 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 on the New
York Stock Exchange, has ranged from a low of $27.50 on January 25, 2013 to a high of $70.59 on February 1,
2016. In addition, 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 investors in our common stock may experience a decrease,
which could be substantial, 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 others such 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 in business 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 of litigation could result in substantial costs and divert our
management’s attention and resources, and could also require us to make substantial payments to satisfy
judgments or to settle litigation.
Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce
your influence over matters on which stockholders vote.
Pursuant to our restated bylaws, our board of directors has the authority, without action or vote of our
stockholders, to issue all or any part of our authorized but unissued shares of common stock, including shares
issuable upon the exercise of options, or shares of our authorized but unissued preferred stock. Issuances of
common stock or voting preferred stock would reduce your influence over matters on which our stockholders
vote and, in the case of issuances of preferred stock, would likely result in your interest in us being subject to
the prior rights of holders of that preferred stock.
21
There may be sales of a substantial amount of our common stock by our current stockholders, and these
sales could cause the price of our common stock to fall.
As of February 19, 2016, there were 59,759,611 shares of common stock outstanding. Approximately
28.2% of our outstanding common stock is beneficially owned by investment funds affiliated with the Sponsor
and our officers and directors.
Sales of substantial amounts of our common stock in the public market, or the perception that such sales
will occur, could adversely affect the market price 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 holders of additional shares of our common stock would be entitled
to have their shares included in any such registration statement, all subject to reduction upon the request 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 substantial percentage of our common stock, our
certificate of incorporation and restated by-laws and Delaware law contain provisions that could make it harder
for a third party to acquire us, even if doing so might be beneficial to our stockholders. These provisions include
a classified board of directors and limitations on actions by our stockholders. In addition, our board of directors
has the right to issue preferred stock without stockholder approval that could be used to dilute a potential hostile
acquirer. Our certificate of incorporation also imposes some restrictions on mergers and other business
combinations between us and any holder 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 excess of the prevailing market
price due to these protective measures, and efforts by stockholders to change the direction or management of the
company may be unsuccessful.
Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and
exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which
could limit our stockholders’ ability to obtain a favorable judicial forum for 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 exclusive forum 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 our directors, officers
or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any
provision of the Delaware General 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 internal affairs 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 to have consented to the provisions of our certificate of incorporation described above. This choice of
forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for
disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us
and our directors, officers and employees. Alternatively, if a court were to find these provisions of our
certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of
actions or proceedings, we may incur additional costs associated with resolving such matters in other
jurisdictions, which could adversely affect our business and financial condition.
22
The Sponsor continues to have significant influence over us, including control over decisions that require
the approval of stockholders, which could limit your ability to influence the outcome of key transactions,
including a change of control.
As of February 19, 2016, investment funds affiliated with the Sponsor beneficially owned approximately
27.6% of our outstanding common stock. For as long as the Sponsor continues to control a substantial
percentage of the voting power of our common stock, it will be able to direct the election of all of the members
of our board of directors and could also have some influence over our business and affairs, including any
determinations with respect to mergers or other business combinations, the acquisition or disposition of assets,
the incurrence of indebtedness, the issuance of any additional common stock or other equity securities, the
repurchase or redemption of common stock and the payment of dividends.
Additionally, the Sponsor is in the business of making investments in companies and may acquire and
hold interests in businesses that compete directly or indirectly with us. The Sponsor may also pursue
acquisition opportunities that may be complementary to our business, and, as a result, those acquisition
opportunities may not be available to us.
Because we have no current plans to pay cash dividends on our common stock for the foreseeable future, you
may not receive any return on investment 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 the foreseeable 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, among other things, our
results of operations, financial condition, cash requirements, contractual restrictions and other factors that our
board of directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants of
any existing and future outstanding indebtedness we or our subsidiaries incur, 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
common stock for a price greater than that which you paid for it.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease approximately 86,000 square feet of office space for our corporate headquarters in Watertown,
Massachusetts under an operating lease that expires in 2020, with two 10 year renewal options. We also lease
approximately 32,800 square feet for our contact center in Broomfield, Colorado, as well as spaces for regional
administrative offices including locations in Rushden and London in the United Kingdom, and Amsterdam, in
the Netherlands.
As of December 31, 2015, we operated 932 child care and early education centers in 41 U.S. states and
the District of Columbia, Puerto Rico, the United Kingdom, Canada, Ireland, the Netherlands and India, of
which 82 were owned, with the remaining centers being operated under leases or operating agreements. The
leases typically have initial terms ranging from 10 to 15 years with various expiration dates, often with renewal
options. The following table summarizes the locations of our child care and early education centers as of
December 31, 2015:
Location
United States:
Alabama
Alaska
Arizona
................................................................................................................................................
....................................................................................................................................................
..................................................................................................................................................
Number of
Centers
3
1
10
23
Location
Number of
Centers
California .........................................................................................................................................................
Colorado ...........................................................................................................................................................
Connecticut ......................................................................................................................................................
Delaware ..........................................................................................................................................................
District of Columbia ........................................................................................................................................
Florida ...............................................................................................................................................................
Georgia .............................................................................................................................................................
Illinois ..............................................................................................................................................................
Indiana ..............................................................................................................................................................
Iowa ..................................................................................................................................................................
Kentucky ..........................................................................................................................................................
Louisiana ..........................................................................................................................................................
Maine ...............................................................................................................................................................
Maryland ..........................................................................................................................................................
Massachusetts ..................................................................................................................................................
Michigan ..........................................................................................................................................................
Minnesota .........................................................................................................................................................
Mississippi .......................................................................................................................................................
Missouri ...........................................................................................................................................................
Montana ...........................................................................................................................................................
Nebraska ..........................................................................................................................................................
Nevada ..............................................................................................................................................................
New Hampshire ................................................................................................................................................
New Jersey .......................................................................................................................................................
New York ..........................................................................................................................................................
North Carolina .................................................................................................................................................
Ohio ..................................................................................................................................................................
Oklahoma .........................................................................................................................................................
Pennsylvania ....................................................................................................................................................
Puerto Rico ......................................................................................................................................................
Rhode Island ....................................................................................................................................................
South Carolina .................................................................................................................................................
South Dakota ....................................................................................................................................................
Tennessee .........................................................................................................................................................
Texas ................................................................................................................................................................
Utah ..................................................................................................................................................................
Virginia ............................................................................................................................................................
Washington .......................................................................................................................................................
West Virginia ....................................................................................................................................................
Wisconsin .........................................................................................................................................................
Total United States ...................................................................................................................................
Canada ..............................................................................................................................................................
Ireland ..............................................................................................................................................................
United Kingdom ...............................................................................................................................................
Netherlands ......................................................................................................................................................
India .................................................................................................................................................................
Total Number of centers ...........................................................................................................................
24
72
15
19
5
20
33
24
48
7
8
6
3
1
13
63
13
8
1
6
3
4
5
4
47
49
19
9
3
60
1
1
4
2
6
35
2
21
26
1
9
690
2
5
205
29
1
932
We 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 Proceedings
We 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 by insurance. We believe the outcome of such pending legal
matters will not have a material adverse effect on our financial position, 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 all liabilities that may arise out of claims brought against us.
Item 4. Mine Safety Disclosures
None.
25
Executive Officers of the Registrant
Set forth below is certain information about our executive officers. Ages are as of December 31, 2015.
David H. Lissy, age 50, 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 to January 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 in the New England region. Prior to that Mr. Lissy held a
similar role at US Healthcare, Inc. prior to that company’s acquisition by Aetna. Mr. Lissy currently serves on
the boards of the March of Dimes, Altegra Health, Jumpstart and Ithaca College.
Mandy Berman, age 45, has served as the Executive Vice President and Chief Administrative Officer of
the Company since January 2016. From January 2014 until December 2015, Ms. Berman served as Executive
Vice President, Back-up and Global Operations and, from September 2005 to December 2013, she served as
Vice President, Back-up Care Operations and then Senior Vice President, Back-up Care Operations. Ms.
Berman joined Bright Horizons through the acquisition of ChildrenFirst, Inc. in 2005 and was made Vice
President of Special Projects. Prior to joining Bright Horizons, Ms. Berman was part of the founding team for
Project Achieve, a provider of management information systems for charter and public schools, and was a
management consultant for the Parthenon Group.
Elizabeth J. Boland, age 56, has served as Chief Financial Officer of the Company since June 1999.
Ms. Boland joined Bright Horizons in September 1997 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 The Visionaries, Inc., an independent television production company. From 1990 to 1994, Ms. Boland
served as vice president-finance for Olsten Corporation, a publicly traded provider of home-health care and
temporary staffing services. From 1981 to 1990, she worked on the audit staff at Price Waterhouse, LLP in
Boston, completing her tenure as a senior audit manager.
Mary Lou Burke Afonso, age 51, has served as Chief Operating Officer, North America Center Operations
of the Company since January 2016 and is a 20-year veteran of the Company. Ms. Burke Afonso served as the
Company’s Executive Vice President of North America Center Operations from January 2014 until December
2015 and, from January 2005 to December 2013, she served as Senior Vice President, Client Relations. Prior to
that she has served as in a variety of leadership positions in Finance, Center Operations, Business Operations,
Client Relations, and College Coach. Prior to joining Bright Horizons in 1995, Ms. Burke Afonso served as the
French controller for BOSE Corporation in France and controller of their retail division in the U.S. She also
worked on the audit staff at Price Waterhouse, LLP in Boston.
Stephen I. Dreier, age 73, has served as Executive Vice President and Secretary of the Company since
January 2016. He joined Bright Horizons as Vice President and Chief Financial Officer in August 1988 and
became its Secretary in November 1988 and Treasurer in September 1994. Mr. Dreier served as Bright
Horizons’ Chief Financial Officer and Treasurer until September 1997, at which time he was appointed to the
position of Chief Administrative Officer. Mr. Dreier served as Chief Administrative Officer of the Company
from 1997 until December 2015. 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 49, has served as the Chief Human Resource Officer since December 2007.
Mr. Henry joined Bright Horizons in May 2004 as the Senior Vice President of Global Human Resources. From
2001 to 2004, Mr. Henry was the executive vice president for FleetBoston Financial where he had responsibility
for the metropolitan Boston consumer banking market. Prior to 2001, Mr. Henry served roles in human
resources management at Blinds To Go Superstores, Staples, Inc. and Pepsi Cola Company. Mr. Henry is the
past board chair of the North East Human Resources Association and has served on the board of the Society of
Human Resource management foundation. He currently sits on the board of directors of Limeade, a private
company, and is also the chair and co-founder of the DJ Dream Fund.
26
Stephen H. Kramer, age 45, has served as President of the Company since January 2016. Mr. Kramer
served as the Chief Development Officer from January 2014 until December 2015 and as Senior Vice President,
Strategic Growth & Global Operations from January 2010 until December 2013. He served as Managing
Director, Europe based in the United Kingdom from January 2008 until December 2009. He joined Bright
Horizons in September 2006 through the acquisition of College Coach, which he cofounded and led for eight
years. Previously he was an Associate at Fidelity Ventures, the venture capital arm of Fidelity Investments and a
consultant with Arthur D. Little.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Principal Market
Our common stock has been listed on the NYSE under the symbol “BFAM” since January 25, 2013. Prior
to that time, there was no public market for our common stock. The following tables set forth the high and low
sales prices of our common stock for each of the fiscal quarters ended March 31, June 30, September 30 and
December 31 for the past two fiscal years as reported on the NYSE.
2015:
First quarter
Second quarter
Third quarter
Fourth quarter
2014:
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
53.19
60.00
66.52
69.09
$
$
$
$
43.77
48.89
56.76
59.85
High
Low
40.05
44.16
43.78
47.30
$
$
$
$
35.65
36.98
39.66
40.60
$
$
$
$
$
$
$
$
As of February 19, 2016, there were 25 holders of record of our common stock.
Dividend Policy
There 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 to pay regular dividends on our common stock. However, we expect
to reevaluate our dividend policy on a regular basis and may, subject to compliance with the covenants
contained in our senior secured credit facilities and other considerations, determine to pay dividends in the
future.
27
Issuer Purchases of Equity Securities
The following table sets forth information regarding purchases of our common stock during the three
months ended December 31, 2015:
Total Number
of Shares
Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)
Approximate
Dollar Value of
Shares that
May Yet Be
Purchased Under
the Plans or
Programs (In
thousands) (1)
— $
165,700 $
1,707 $
167,407
—
63.11
63.02
— $
132,464
165,700 $
122,007
1,707 $
167,407
121,899
Period
October 1, 2015 to October
31, 2015
November 1, 2015 to
November 30, 2015
December 1, 2015 to
December 31, 2015
(1) On February 4, 2015, the board of directors of the Company approved a $250.0 million repurchase
program of its common stock. The repurchase program has no expiration date and replaced the prior share
repurchase authorization from March 28, 2014. The Company repurchased approximately 0.2 million
shares during the three months ended December 31, 2015 primarily in connection with an underwritten
secondary offering. The remaining share repurchases during the three months ended December 31, 2015
were open market transactions pursuant to the February 4, 2015 authorization. All repurchased shares have
been retired.
Equity Compensation Plans
The following table provides information as of December 31, 2015 with respect to shares of our common
stock that may be issued under existing equity compensation plans.
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights (1)
(a)
Weighted
Average
Exercise
Price
of Outstanding
Options,
Warrants and
Rights (1)
(b)
Number of Securities
Remaining Available
For Future Issuance
under Equity
Compensation Plans
(excluding
securities reflected
in column (a))
(c)
4,256,369
$
—
4,256,369
$
24.26
—
24.26
2,860,860
—
2,860,860
Plan Category
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
Total
(1) The amount also includes 15,066 shares that may be issued upon the settlement of restricted stock units.
The restricted stock units are excluded from the weighted average exercise price calculation.
28
Performance Graph
The following performance graph and related information shall not be deemed to be "soliciting material"
or to be "filed" with the SEC, nor shall such information be incorporated by reference into any future filing
under the Securities Act of 1933. as amended, or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing.
The following graph compares the total return to stockholders on our common stock from January 25,
2013, the date our stock became listed on the NYSE, through December 31, 2015, relative to the total return of
the following:
•
•
the New York Stock Exchange Composite Index; and
a peer group that we selected in good faith, consisting of seven other companies in the contracted
outsourced / business services sector: The Advisory Board Company, The Corporate Executive Board
Company, Healthways, IHS Inc., Iron Mountain Inc., Towers Watson and Wageworks (the “Peer
Group”).
The graph assumes that $100 was invested in our common stock, and in the index and peer group noted
above, and that all dividends, if any, were reinvested. No dividends have been declared or paid on our common
stock since January 25, 2013.
The stock price performance shown in the graph is not necessarily indicative of future performance.
Bright Horizons Family Solutions Inc.
NYSE Composite Index
Peer Group
January 25,
2013
December 31,
2013
December 31,
2014
December 31,
2015
$
$
$
100.00 $
100.00 $
100.00 $
129.73 $
119.71 $
136.30 $
166.00 $
127.92 $
140.42 $
235.88
122.82
135.25
29
Item 6. Selected Financial Data
The following table sets forth our selected historical consolidated financial data for the periods indicated,
and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and the consolidated financial statements and the related notes thereto appearing in Part
II, Item 8 of this Annual Report on Form 10-K. The selected historical financial data has been derived from our
audited consolidated financial statements. Historical results are not necessarily indicative of the results to be
expected for future periods.
Consolidated Statement of Income Data:
Revenue
Cost of services
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Income from operations
Gains from foreign currency transactions
Loss on extinguishment of debt (1)
Interest income
Interest expense
Net interest expense and other
Income before income taxes
Income tax (expense) benefit
Net income
Net (loss) income attributable to non-controlling interest
Net income attributable to Bright Horizons Family
Accretion of Class L preference
Accretion of Class L preference for vested options
Net income (loss) available to common shareholders
Allocation of net income (loss) to common shareholders:
Class L—basic and diluted
Common stock—basic
Common stock—diluted
Earnings (loss) per share:
Class L—basic and diluted
Common stock—basic
Common stock—diluted
Weighted average shares outstanding: (2)
Class L—basic and diluted
Common stock—basic
Common stock—diluted
Consolidated Balance Sheet Data (at period end):
Total cash and cash equivalents
Total assets (3)
Total liabilities, excluding debt (3)
Total debt, including current maturities
Total redeemable non-controlling interest
Class L common stock
Total stockholders’ equity (deficit)
$
$
$
$
$
$
$
$
$
$
2015
1,458,445
1,100,690
357,755
148,164
27,989
181,602
—
—
163
(41,609)
(41,446)
140,156
(46,229)
93,927
—
93,927
—
—
93,927
$
$
$
2014
Years Ended December 31,
2013
(In thousands, except share data)
2012
1,352,999
1,039,397
313,602
137,683
28,999
146,920
—
—
103
(34,709)
(34,606)
112,314
(40,279)
72,035
—
72,035
—
—
72,035
$
$
$
1,218,776
937,840
280,936
141,827
30,075
109,034
—
(63,682)
85
(40,626)
(104,223)
4,811
7,533
12,344
(279)
12,623
—
—
12,623
$
$
$
$
1,070,938
825,168
245,770
123,373
26,933
95,464
—
—
152
(83,864)
(83,712)
11,752
(3,243)
8,509
347
8,162
79,211
5,436
(76,485) $
$
— $
$
$
93,287
93,303
— $
$
$
71,755
71,761
— $
$
$
12,623
12,623
$
79,211
(76,485) $
(76,485) $
— $
$
$
1.53
1.50
— $
$
$
1.09
1.07
— $
$
$
0.20
0.20
$
59.73
(12.62) $
(12.62) $
2011
973,701
766,500
207,201
92,938
27,427
86,836
835
—
824
(82,908)
(81,249)
5,587
(825)
4,762
3
4,759
71,568
1,274
(68,083)
71,568
(68,083)
(68,083)
54.33
(11.32)
(11.32)
—
60,835,574
62,360,778
—
65,612,572
67,244,172
—
62,659,264
64,509,036
$
11,539
2,150,541
507,722
915,211
—
—
727,608
$
87,886
2,141,076
468,940
921,177
—
—
750,959
$
29,585
2,102,670
449,310
764,223
—
—
889,137
$
1,326,206
6,058,512
6,058,512
34,109
1,916,108
401,125
906,643
8,126
854,101
(253,887)
1,317,273
6,016,733
6,016,733
30,448
1,771,164
389,986
799,257
15,527
772,422
(206,028)
30
(1)
(2)
(3)
The Company recognized a loss on the extinguishment of debt in the year ended December 31, 2013 in
relation to its debt refinancing on January 30, 2013.
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 A share amounts in the table above and in the
consolidated financial statements included elsewhere herein have been retroactively adjusted to reflect
the reverse 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 in the first quarter
of 2013. These two events are collectively referred to herein as the “Reclassification.”
The Balance Sheet Data table above reflects the early adoption of ASU 2015-17, Balance Sheet
Classification of Deferred Taxes. The adoption of ASU 2015-17 resulted in all current deferred tax
assets and current deferred tax liabilities being reported as non-current in 2015, while prior period
deferred tax assets and deferred tax liabilities were not adjusted.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The 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 contains forward-looking
statements and involves numerous risks and uncertainties. Forward-looking statements can be identified by the
fact that they do not relate 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 and uncertainties, which may cause
actual results to differ materially from those projected or implied by the forward-looking statement. Forward-
looking statements are based on current expectations and assumptions and currently available data and are
neither predictions nor guarantees of future events or performance. You should not place undue reliance on
forward-looking statements, which speak only as of the date hereof. See “Risk Factors” and “Cautionary Note
Regarding Forward-Looking Statements” for a discussion of factors that could cause our actual results to differ
from those expressed or implied by forward-looking statements.
31
Overview
We 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 better address the challenges of work and life. We provide services
primarily under multi-year contracts with employers who offer child care and other dependent care solutions as
part of their employee benefits packages to improve employee engagement, productivity, recruitment and
retention. As of December 31, 2015, we had more than 1,000 client relationships with employers across a
diverse array of industries, including more than 140 Fortune 500 companies and more than 80 of Working
Mother magazine’s 2015 “100 Best Companies for Working Mothers.”
At December 31, 2015, we operated 932 child care and early education centers, consisting of 692 centers
in North America and 240 centers in Europe and India. We have the capacity to serve approximately 107,000
children in 41 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. Our North American child care and early education centers have an average
capacity of 127 children per location, while the centers in Europe and India have an average capacity of 79
children per location.
We operate centers for a diverse group of clients. At December 31, 2015, we managed child care centers
on behalf of single employers in the following industries and also managed lease/consortium locations in
approximately the following proportions:
Classification
Single employer locations:
Consumer
Financial Services
Government
Higher Education
Healthcare and Pharmaceuticals
Industrial/Manufacturing
Professional Services and Other
Technology
Lease/consortium locations
Segments
Percentage of Centers
North America
Europe
7.5%
7.5
9.0
8.5
20.0
2.5
10.0
5.0
70.0
30.0
100.0%
2.5%
2.5
5.0
5.0
5.0
2.5
—
2.5
25.0
75.0
100.0%
Our primary reporting segments are full service center-based care services and back-up dependent care
services. Full service center-based care includes center-based child care, preschool and elementary education.
Back-up dependent care includes center-based back-up child care, in-home well child care, in home mildly ill
child care and adult/elder care. Our remaining business services are included in the other educational advisory
services segment, which includes our college preparation and admissions advisory services as well as tuition
reimbursement administration and educational advising services.
Center Models
We operate our centers under two principal business models, which we refer to as profit & loss (“P&L”)
and cost-plus. Approximately 75% of our centers operate under the P&L model. Under this model, we retain the
financial risk for the child care and early education centers and are therefore subject to variability in financial
performance due to fluctuation in enrollment levels. The P&L model is further classified into two subcategories:
(i) a sponsor model and (ii) a lease/consortium model. Under the sponsor model, we provide child care and
early education services on a priority enrollment basis for employees of an employer sponsor, and the employer
32
sponsor generally funds the development of the facility, pre-opening and start-up capital equipment, and
maintenance costs. Our operating contracts typically have initial terms ranging from three to ten years. Under
the lease/consortium model, the child care center is typically located in an office building or office park in a
property that we lease, and we provide these services to the employees of multiple employers, as well as to
families in the surrounding community. We typically negotiate initial lease terms 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 will typically 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 three years or less
as “ramping centers.” A center will typically achieve breakeven operating performance between 12 to 24
months and will typically achieve a steady 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 state level of enrollment may be
longer or shorter. Centers that have been open more than three years are referred to as “mature centers.”
Approximately 25% of our centers operate under the cost-plus business model. Under this model, we
receive a management fee from the employer sponsor and an additional operating subsidy from the employer to
supplement tuition paid by parents of children in the center. Under this model, the employer sponsor typically
funds the development of the facility, pre-opening and start-up capital equipment, and maintenance costs, and
the center is profitable from the outset. Our cost-plus contracts typically have initial terms ranging from three
to five years. For additional information about the way we operate our centers, see “Business—Our
Operations” in Part I, Item 1 of this Annual Report.
Performance and Growth Factors
We believe that 2015 was a successful year for the Company. We grew our income from operations by
23.6%, from $146.9 million in 2014 to $181.6 million in 2015, and increased net income from $72.0 million in
2014 to $93.9 million in 2015. In addition, we ended 2015 with the capacity to serve approximately 107,000
children and families in our full service and back-up child care centers, and we added 86 child care and early
education centers and closed 38 centers, resulting in a net increase of 48 centers for the year. We expect to add
approximately 25 net new centers in 2016.
Our year-over-year improvement in operating income can be attributed to enrollment gains in ramping
and mature centers, disciplined pricing strategies aimed at covering anticipated cost increases with tuition
increases, contributions from new mature child care centers added through acquisitions or transitions of
management, and expanded back-up dependent care and educational advisory services.
General economic conditions and the business climate in which individual clients operate remain some of
the largest variables in terms of our future performance. 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 enrollment in 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.
33
Cost Factors
Our most significant expense is cost of services. Cost of services consists of direct expenses associated
with the operation of our centers, direct expenses to 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 70%
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 when compared to the centers operating under the
cost-plus model.
As of December 31, 2015, our consolidated total debt was $939.2 million and, a portion of our cash flows
from operations has been used to make interest payments on our indebtedness. Interest payments increased from
$32.5 million in 2014 to $38.1 million in 2015 due to the issuance of $165.0 million in additional term loans in
December 2014 and borrowings on our revolving credit facility in 2015. We expect our interest payments to
approximate $38 million in 2016.
Seasonality
Our business is subject to seasonal and quarterly fluctuations. Demand for child care and early education
and elementary school services has historically decreased during the summer months when school is not in
session, at which time families are often on vacation or have alternative child care arrangements. In addition,
our enrollment declines as older children transition to elementary schools. Demand for our services generally
increases in September and 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 our back-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 the program and impact the results of operations. Results of operations may also fluctuate from quarter
to quarter as a result of, among other things, the performance of existing centers, including enrollment and
staffing fluctuations, the number and timing of new center openings, acquisitions and management transitions,
the length of time required for new centers to achieve profitability, center closings, refurbishment or relocation,
the contract model mix (P&L versus cost-plus) of new and existing centers, the timing and level of sponsorship
payments, competitive factors and general economic conditions.
34
The following table sets forth statement of income data as a percentage of revenue for the three years
ended December 31, 2015, (in thousands, except percentages):
Revenue
Cost of services (1)
Gross profit
Selling, general and administrative
expenses (2)
Amortization of intangible assets
Income from operations
Loss on extinguishment of debt
Net interest expense and other
Income before tax
Income tax (expense) benefit
Net income
Years Ended December 31,
2015
2014
2013
$1,458,445
100.0 % $1,352,999
100.0 % $1,218,776
100.0 %
1,100,690
75.5 % 1,039,397
357,755
24.5 %
313,602
76.8 %
23.2 %
937,840
280,936
76.9 %
23.1 %
148,164
10.2 %
137,683
10.2 %
141,827
11.6 %
27,989
1.9 %
28,999
2.1 %
30,075
181,602
12.4 %
146,920
10.9 %
109,034
—
— %
—
— %
(63,682)
(41,446)
(2.8)%
(34,606)
(2.6)%
(40,541)
140,156
9.6 %
112,314
8.3 %
(46,229)
(3.2)%
(40,279)
(3.0)%
4,811
7,533
$
93,927
6.4 % $
72,035
5.3 % $
12,344
Adjusted EBITDA (3)
$ 273,069
Adjusted income from operations (3) $ 182,467
Adjusted net income (3)
$ 115,391
18.7 % $ 238,081
17.6 % $ 208,541
12.5 % $ 149,620
11.1 % $ 126,850
7.9 % $
97,238
7.2 % $
78,260
2.5 %
9.0 %
(5.2)%
(3.4)%
0.4 %
0.6 %
1.0 %
17.1 %
10.4 %
6.4 %
(1) Cost of services consists of direct expenses associated with the operation of child care centers, and
direct expenses to provide back-up dependent care services, including fees to back-up care providers,
and educational advisory services. Direct expenses consist primarily of salaries, taxes and benefits for
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-based compensation costs) for corporate, regional and business development
personnel. Other overhead costs include information technology, occupancy costs for corporate and
regional personnel, professional services fees, including accounting and legal services, and other general
corporate expenses.
(3) Adjusted EBITDA, adjusted income from operations and adjusted net income are non-GAAP measures,
which are reconciled to net income below under "Non-GAAP Financial Measures and Reconciliations."
Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014
Revenue. Revenue increased $105.4 million, or 8%, to $1.5 billion for the year ended December 31, 2015
from $1.4 billion 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-up dependent care services and
educational advisory services, and typical annual tuition increases of 3% to 4%, partially offset by the effects of
foreign currency translation on our European operations. Revenue generated by full service center-based care
services for the year ended December 31, 2015 increased by $80.1 million, or 7%, when compared to the prior
year. Our acquisition on May 19, 2015 of Hildebrandt Learning Centers, LLC, an operator of 40 centers in the
United States, and on July 15, 2015 of Active Learning Childcare Limited, an operator of nine centers in the
United Kingdom, contributed approximately $29.6 million of incremental revenue in the year ended
December 31, 2015. At December 31, 2015, we operated 932 child care and early education centers compared
to 884 centers at December 31, 2014.
35
Revenue generated by back-up dependent care services in the year ended December 31, 2015 increased by
$18.7 million, or 12%, when compared to the prior year. Additionally, revenue generated by other educational
advisory services in the year ended December 31, 2015 increased by $6.6 million, or 20%, when compared to
the prior year.
Cost of Services. Cost of services increased $61.3 million, or 6%, to $1.1 billion for the year ended
December 31, 2015 when compared to the prior year. Cost of services in the full service center-based care
services segment increased $51.4 million, or 6%, to $982.5 million in 2015 when compared to the prior year.
Personnel costs increased 5% as a result of an 8% increase in overall enrollment, routine wage and benefit cost
increases, and labor costs associated with centers we have added since December 31, 2014 that are in the
ramping stage. In addition, program supplies, materials, food and facilities costs, which comprise
approximately 30% of total cost of services for this segment, increased 7% in connection with the enrollment
growth and the incremental occupancy costs associated with centers that have been added since December 31,
2014. Cost of services in the back-up dependent care segment increased $8.9 million, or 10%, to $99.8 million
for the year ended December 31, 2015, primarily for personnel costs and for increased care provider fees
associated with the higher levels of back-up services provided. Cost of services in the other educational
advisory services segment increased by $1.0 million, or 6%, to $18.4 million for the year ended December 31,
2015 due to personnel and technology costs related to the incremental sales of these services.
Gross Profit. Gross profit increased $44.2 million, or 14%, to $357.8 million for the year ended
December 31, 2015 when compared to the prior year. Gross profit margin was 25% of revenue for the year
ended December 31, 2015 compared to 23% for the year ended December 31, 2014. The increase in gross profit
is primarily due to contributions from new and acquired centers, increased enrollment in our mature and
ramping P&L centers, effective operating cost management, and expanded back-up dependent care and other
educational advisory services revenue with proportionately lower direct costs.
Selling, General and Administrative Expenses. SGA increased $10.5 million, or 8%, to $148.2 million for
the year ended December 31, 2015 compared to $137.7 million for the prior year, and was 10% of revenue for
the year ended December 31, 2015 consistent with the prior year. Results for the year ended December 31,
2015, included $0.9 million of costs associated with secondary offerings and completed acquisitions. Results for
the year ended December 31, 2014, included $2.7 million of costs associated with secondary offerings and costs
associated with amending our credit agreement. After taking these respective charges into account, SGA
increased over the comparable 2014 period due primarily to increases in personnel costs, including annual wage
increases, continued investments in technology and routine increases in SGA costs.
Amortization of Intangible Assets. Amortization expense on intangible assets totaled $28.0 million for the
year ended December 31, 2015, compared to $29.0 million for the prior year due primarily to certain intangible
assets becoming fully amortized during the 2015 period. We do not expect any significant change in
amortization expense in 2016.
Income from Operations. Income from operations increased by $34.7 million, or 24%, to $181.6 million
for the year ended December 31, 2015 when compared to 2014. Income from operations was 12% of revenue
for the year ended December 31, 2015, compared to 11% in the prior year.
•
In the full service center-based care segment, income from operations increased $22.9 million for the
year ended December 31, 2015, compared to the same period in 2014. Results for the year ended
December 31, 2015 included $0.9 million for the costs associated with the completion of secondary
offerings of our common shares and completed acquisitions. Results for the year ended December 31,
2014 included a proportionate charge of $2.4 million for the costs associated with the completion of
secondary offerings of our common shares and costs associated with amending our credit agreement.
After taking these charges into account, income from operations increased $21.4 million in 2015
primarily due to the tuition increases, enrollment gains over the prior year, contributions from new and
acquired centers, and effective cost management, partially offset by the costs incurred during the ramp-
up of certain new lease/consortium centers opened during 2014 and 2015 and the effects of foreign
currency translation on our European business.
36
•
•
Income from operations for the back-up dependent care segment increased $7.6 million for the year
ended December 31, 2015, compared to the same period in 2014 due to the expanding revenue base.
Income from operations in the other educational advisory services segment increased $4.2 million for
the year ended December 31, 2015, compared to the same period in 2014 due to the expanding revenue
base.
Net Interest Expense and Other. Net interest expense and other increased to $41.4 million for the year
ended December 31, 2015 from $34.6 million in 2014 due to the increase in debt from the issuance of $165.0
million in additional term loans in December 2014 and borrowings on our line of credit in 2015.
Income Tax Expense. We recorded an income tax expense of $46.2 million during the year ended
December 31, 2015, compared to an income tax expense of $40.3 million during the prior year. The effective
rate decreased to 33% for 2015 from 36% for 2014. The difference between the effective income tax rate and
the statutory rate for 2015 was due primarily to the treatment of certain permanent and temporary items adjusted
in the first quarter of 2015 by a $1.3 million benefit, and differences resulting from filing tax returns. The
difference between the effective income tax and the statutory rate for 2014 was due primarily to the recognition
of unrecognized tax benefits of approximately $1.5 million due to the completion of tax examinations, a lapse
of the statute of limitations in certain jurisdictions in the fourth quarter of 2014 and differences resulting from
filing tax returns.
Adjusted EBITDA and Adjusted Income from Operations. Adjusted EBITDA and adjusted income from
operations increased $35.0 million, or 15%, and $32.8 million, or 22%, respectively, for the year ended
December 31, 2015 over the comparable period in 2014 primarily as a result of the increase in gross profit due
to additional contributions from full-service centers, including the impact of acquired centers, as well as the
growth in the back-up dependent care and other educational advisory segments, offset by increases in SGA
spending.
Adjusted Net Income. Adjusted net income increased $18.2 million, or 19%, for the year ended
December 31, 2015 when compared to the same period in 2014 primarily due to the incremental gross profit
described above, which was offset by increases in SGA spending to support the growth and increases in interest
expense.
Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013
Revenue. Revenue increased $134.2 million, or 11%, to $1.4 billion for the year ended December 31,
2014 from $1.2 billion for the prior year. Revenue growth was primarily attributable to contributions from new
and ramping child care and early education centers, expanded sales of our back-up dependent care services and
educational advisory services, and typical annual tuition increases of 3% to 4%. Revenue generated by full
service center-based care services in the year ended December 31, 2014 increased by $106.8 million, or 10%,
when compared to the prior year. Our acquisitions of Kidsunlimited, an operator of 64 centers in the United
Kingdom on April 10, 2013, and Children's Choice Learning Centers, Inc., an operator of 49 centers in the
United States on July 22, 2013, contributed approximately $44.7 million of incremental revenue in the year
ended December 31, 2014.
Revenue generated by back-up dependent care services in the year ended December 31, 2014 increased by
$18.4 million, or 13%, when compared to the prior year. Additionally, revenue generated by other educational
advisory services in the year ended December 31, 2014 increased by $9.0 million, or 37%, when compared to
the prior year.
Cost of Services. Cost of services increased $101.6 million, or 11%, to $1.0 billion for the year ended
December 31, 2014 when compared to the prior year. Cost of services in the full service center-based care
services segment increased $89.7 million, or 11%, to $931.1 million in 2014. Personnel costs increased 9% as a
result of a 14% increase in overall enrollment, routine wage and benefit increases, and labor costs associated
with centers we have added since December 31, 2013 that were in the ramping stage. In addition, program
37
supplies, materials, food and facilities costs increased 16% in connection with the enrollment growth and the
incremental occupancy costs associated with centers that have been added since December 31, 2013. Cost of
services in the back-up dependent care segment increased $8.0 million, or 10%, to $90.9 million for the year
ended December 31, 2014, primarily for personnel costs and for increased care provider fees associated with the
higher levels of back-up services provided. Cost of services in the other educational advisory services segment
increased by $3.9 million, or 29%, to $17.4 million for the year ended December 31, 2014, due to personnel and
technology costs related to the incremental sales of these services.
Gross Profit. Gross profit increased $32.7 million, or 12%, to $313.6 million for the year ended
December 31, 2014 when compared to the prior year, and was 23% as a percentage of revenue for the year
ended December 31, 2014, which was consistent with the prior year. The increase in gross profit was primarily
due to contributions from new and acquired centers, increased enrollment in our mature and ramping P&L
centers and expanded back-up services revenue with proportionately lower direct costs partially offset by
training and integration costs of the 2013 acquisitions as well as costs associated with additional lease model
centers opened in 2013 and 2014.
Selling, General and Administrative Expenses. SGA decreased $4.1 million, or 3%, to $137.7 million for
the year ended December 31, 2014 compared to $141.8 million for the prior year, and as a percentage of
revenue decreased to 10% from 12% in the prior year. Results for the year ended December 31, 2014 included a
$2.7 million of costs associated with secondary offerings of common shares and costs associated with amending
our credit agreement. Results for the year ended December 31, 2013, included a $7.5 million fee for the
termination of the management agreement with Bain Capital Partners LLC ("Sponsor termination fee"), a $5.0
million stock-based compensation charge for certain stock options that vested upon completion of the Offering
("performance-based stock compensation charge"), $1.3 million of costs associated with secondary offerings of
common shares and $4.0 million of acquisition related costs. After taking these respective charges into account,
SGA increased over the comparable period due primarily to continued investments in technology and
marketing, incremental overhead associated with the operations of the acquired businesses, an increase in
compensation costs, including annual wage increases and stock-based compensation costs, as well as routine
increases in SGA costs compared to the prior year.
Amortization of Intangible Assets. Amortization expense on intangible assets totaled $29.0 million for the
year ended December 31, 2014, compared to $30.1 million for the prior year. We do not expect any significant
change in amortization expense in 2015.
Income from Operations. Income from operations increased by $37.9 million, or 35%, to $146.9 million
for the year ended December 31, 2014 when compared to 2013. Income from operations was 11% of revenue
for the year ended December 31, 2014, compared to 9% in the prior year.
•
•
In the full service center-based care segment, income from operations increased $25.0 million for the
year ended December 31, 2014 compared to the same period in 2013. Results for the year ended
December 31, 2014 included a proportionate charge of $2.4 million for the costs associated with the
secondary offerings of common shares and costs associated with amending our credit agreement.
Results for the year ended December 31, 2013 included a proportionate charge of $15.1 million for the
Sponsor termination fee, the performance-based stock compensation charge, costs associated with the
completion of a secondary offering of our common shares and acquisition related costs. After taking
these charges into account, income from operations increased $12.3 million in 2014 primarily due to
the tuition increases and enrollment gains over the prior year as well as contributions from new and
acquired centers that have been added since December 31, 2013 partially offset by incremental
overhead from acquired centers during the integration period.
Income from operations for the back-up dependent care segment increased $9.6 million in the year
ended December 31, 2014, compared to the same period in 2013. Results for the year ended December
31, 2014 included a proportionate charge of $0.3 million for the costs associated with the completion
of secondary offerings of our common shares and costs associated with amending our credit
agreement. Results for the year ended December 31, 2013 included an aggregate proportionate charge
38
of $1.9 million for the Sponsor termination fee and the performance-based stock compensation charge.
After taking these charges into account, income from operations increased $8.0 million in 2014 due to
the expanding revenue base.
•
Income from operations in the other educational advisory services segment increased $3.3 million for
the year ended December 31, 2014 compared to the same period in 2013. Results for the year ended
December 31, 2013 included an aggregate proportionate charge of $0.8 million for the Sponsor
termination fee and the performance-based stock compensation charge. After taking these charges into
account, income from operations increased $2.5 million in 2014.
Loss on Extinguishment of Debt. In connection with the refinancing of all of our existing debt on January
30, 2013, we recorded a loss on extinguishment of debt of $63.7 million, which included the redemption
premiums and the write-off of existing deferred financing costs.
Net Interest Expense and Other. Net interest expense and other decreased to $34.6 million for the year
ended December 31, 2014 from $40.5 million in 2013 due to the debt refinancing completed on January 30,
2013, which reduced the rate at which interest is payable, and also reduced total borrowings outstanding.
Income Tax Expense. We recorded an income tax expense of $40.3 million during the year ended
December 31, 2014, compared to an income tax benefit of $7.5 million during the prior year. The difference
between the effective income tax and the statutory rate for 2014 was due primarily to the recognition of
unrecognized tax benefits of approximately $1.5 million due to the completion of tax examinations and a lapse
of the statute of limitations in certain jurisdictions in the fourth quarter of 2014 and differences resulting from
filing tax returns. The difference between the effective income tax and the statutory rate for 2013 was due
primarily to the recognition of unrecognized tax benefits of approximately $5.3 million upon completion of a
tax enquiry in the United Kingdom in the second quarter of 2013 and lapse of the statute of limitations in certain
jurisdictions in the fourth quarter of 2013, recognition of tax credit due to law change, and decrease in the
applicable tax rate in the United Kingdom.
Adjusted EBITDA and Adjusted Income from Operations. Adjusted EBITDA and adjusted income from
operations increased $29.5 million, or 14% and $22.8 million, or 18%, respectively, for the year ended
December 31, 2014 over the comparable period in 2013 primarily as a result of the increase in gross profit due
to additional contributions from full-service centers, including the impact of acquired centers as well as the
growth in the back-up business, offset by increases in SGA spending.
Adjusted Net Income. Adjusted net income increased $19.0 million, or 24% for the year ended December
31, 2014 when compared to the same period in 2013 primarily due to the incremental gross profit described
above, which was offset by increases in SGA spending to support the growth. Adjusted net income also
increased due to the reduction in interest expense associated with the refinancing of our debt in January 2013.
39
Non-GAAP Financial Measures and Reconciliation
In our quarterly reports, earnings press releases and conference calls, we discuss key financial measures
that are not calculated in accordance with generally accepted accounting principles in the United States
("GAAP" or "U.S. GAAP") to supplement our consolidated financial statements presented on a GAAP basis.
These non-GAAP financial measures are not in accordance with generally accepted accounting principles in the
United States and a reconciliation of the non-GAAP measures of adjusted EBITDA, adjusted income from
operations and adjusted net income are as follows (in thousands):
Net income
Interest expense, net
Income tax expense (benefit)
Depreciation
Amortization of intangible assets (a)
EBITDA
Additional adjustments:
Loss on extinguishment of debt (b)
Deferred rent (c)
Stock-based compensation expense (d)
Sponsor management fee (e)
Expenses related to stock offerings, completed acquisitions and the
Credit Agreement amendment (f)
Total adjustments
Adjusted EBITDA
Income from operations
Performance-based stock compensation expense (2013) (d)
Sponsor termination fee (e)
Expenses related to stock offerings, completed acquisitions and the
Credit Agreement amendment (f)
Adjusted income from operations
Net income
Income tax expense (benefit)
Income before tax
Stock-based compensation expense (d)
Sponsor management fee (e)
Amortization of intangible assets (a)
Expenses related to stock offerings, completed acquisitions and the
Credit Agreement amendment (f)
Loss on extinguishment of debt (b)
Adjusted income before tax
Adjusted income tax expense (g)
Adjusted net income
Years Ended December 31,
$
$
2015
93,927
41,446
46,229
50,677
27,989
260,268
$
2014
72,035
34,606
40,279
48,448
28,999
224,367
—
2,736
9,200
—
—
3,092
7,922
—
2013
12,344
40,541
(7,533)
42,733
30,075
118,160
63,682
2,985
10,692
7,674
865
12,801
$ 273,069
2,700
13,714
$ 238,081
5,348
90,381
$ 208,541
$ 181,602
$ 146,920
$ 109,034
—
—
—
—
4,968
7,500
865
$ 182,467
2,700
$ 149,620
5,348
$ 126,850
$
93,927
46,229
140,156
9,200
—
27,989
865
—
178,210
(62,819)
$ 115,391
$
$
72,035
40,279
112,314
7,922
—
28,999
2,700
—
151,935
(54,697)
97,238
$
$
12,344
(7,533)
4,811
10,692
7,674
30,075
5,348
63,682
122,282
(44,022)
78,260
(a) Represents amortization associated with intangible assets recorded in connection with our going private transaction
in May 2008, including approximately $18.0 million, $19.0 million and $20.0 million for the years ended December
31, 2015, 2014 and 2013, respectively.
40
(b) Represents redemption premiums and write off of unamortized debt issue costs and original issue discount
associated with indebtedness that was repaid in connection with a refinancing.
(c) Represents rent in excess of cash paid for rent, recognized on a straight line basis over the lease life in accordance
with Accounting Standards Codification Topic 840, Leases.
(d) Represents non-cash stock-based compensation expense, including performance-based stock compensation expense
in 2013.
(e) Represents fees paid to our Sponsor under a management agreement, including the Sponsor termination fee.
(f) Represents costs associated with completed acquisitions in 2015 and 2013, costs incurred in connection with
secondary offerings of common stock in May, August and November 2015, March and December 2014, and June
2013, costs incurred in connection with the initial public offering of common stock completed in January 2013, and
costs in connection with the November 2014 amendment to the Credit Agreement.
(g) Represents income tax expense calculated on adjusted income before tax at the effective rate of approximately 35%,
36% and 36% in 2015, 2014, and 2013 respectively.
Adjusted EBITDA, adjusted income from operations and adjusted net income are not presentations made
in accordance with GAAP, and the use of the terms adjusted EBITDA, adjusted income from operations, and
adjusted net income may differ from similar measures reported by other companies. We believe that adjusted
EBITDA, adjusted income from operations and adjusted net income provide investors with useful information
with respect to our historical operations. We present adjusted EBITDA, adjusted income from operations and
adjusted net income as supplemental performance measures because we believe they facilitate a comparative
assessment of our operating performance relative to our performance based on our results under GAAP, while
isolating the effects of some items that vary from period to period. Specifically, adjusted EBITDA allows for an
assessment of our operating performance and of our ability to service or incur indebtedness without the effect of
non-cash charges, such as depreciation, amortization, the excess of rent expense over cash rent expense and
stock compensation expense, and the effect of fees associated with our Sponsor management agreement, which
was terminated in connection with the completion of our Offering on January 30, 2013, as well as the expenses
related to the acquisition of businesses and secondary offerings. In addition, adjusted income from operations
and adjusted net income allow us to assess our performance without the impact of the specifically identified
items that we believe do not directly reflect our core operations. These measures also function as benchmarks to
evaluate our operating performance. Adjusted EBITDA, adjusted income from operations and adjusted net
income are not measurements of our financial performance under GAAP and should not be considered in
isolation or as an alternative to income before taxes, net income, net cash provided by operating, investing or
financing activities or any other financial statement data presented as indicators of financial performance or
liquidity, each as presented in accordance with GAAP. Consequently, our non-GAAP financial measures should
not be evaluated in isolation or supplant comparable GAAP measures, but, rather, should be considered together
with our consolidated financial statements, which are prepared in accordance with GAAP and included in Part
II, Item 8, of this Annual Report on Form 10-K. The Company understands that although adjusted EBITDA,
adjusted income from operations and adjusted net income are frequently used by securities analysts, lenders and
others in their evaluation of companies, they have limitations as analytical tools, and you should not consider
them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these
limitations are:
•
•
•
•
adjusted EBITDA, adjusted income from operations, and adjusted net income do not fully reflect the
Company’s cash expenditures, future requirements for capital expenditures or contractual
commitments;
adjusted EBITDA, adjusted income from operations, 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, on debt;
although depreciation and amortization are non-cash charges, the assets being depreciated and
amortized will often have to be replaced in the future; and,
41
•
adjusted EBITDA, adjusted income from operations and adjusted net income do not reflect any cash
requirements for such replacements.
Because of these limitations, adjusted EBITDA, adjusted income from operations, and adjusted net
income should not be considered as discretionary cash available to us to reinvest in the growth of our business
or as measures of cash that will be available to us to meet our obligations.
Non-GAAP Earnings per Share
On January 30, 2013, the Company completed an initial public offering and, after the exercise of the
underwriters’ overallotment option on February 21, 2013, issued a total of 11.6 million shares of common stock.
On January 11, 2013, the Company effected a 1–for–1.9704 reverse split of its Class A common stock. In
addition, the Company converted each share of its Class L common stock into 35.1955 shares of Class A
common stock, and, immediately following the conversion of its Class L common stock, reclassified those
shares as well as all outstanding shares of Class A common stock, into common stock. As a result of the
reclassification of Class A common stock to common stock, all references to “Class A common stock” have
been changed to “common stock” for all periods presented. The number of common shares used in the
calculations of diluted earnings per pro forma common share and diluted adjusted earnings per pro forma
common share for the year ended December 31, 2013 gives effect to the conversion of all weighted average
outstanding shares of Class L common stock at the conversion factor of 35.1955 common shares for each Class
L share, as if the conversion was completed at the beginning of the year.
The calculations of diluted earnings per pro forma common share and diluted adjusted earnings per pro
forma common share also include the dilutive effect of common stock options, using the two class method.
Shares sold in the Offering are included in the diluted earnings per pro forma common share and diluted
adjusted earnings per pro forma common share calculations beginning on the date that such shares were actually
issued. Diluted earnings per pro forma common share is calculated using net income in accordance with GAAP.
Diluted adjusted earnings per pro forma common share is calculated using adjusted net income, as defined
above.
Diluted earnings per pro forma common share and diluted adjusted earnings per pro forma common share
are not presentations made in accordance with GAAP, and our use of the terms diluted earnings per pro forma
common share and diluted adjusted earnings per pro forma common share may vary from similar measures
reported by others in our industry due to the potential differences in the method of calculation. Diluted earnings
per pro forma common share and diluted adjusted earnings per pro forma common share should not be
considered as alternatives to earnings per share derived in accordance with GAAP. Diluted earnings per pro
forma common share and diluted adjusted earnings per pro forma common share have important limitations as
an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as
reported under GAAP. Because of these limitations, we rely primarily on our GAAP results. However, we
believe that presenting diluted earnings per pro forma common share and diluted adjusted earnings per pro
forma common share is appropriate to provide additional information to investors to compare our performance
prior to and after the completion of our initial public offering and related conversion of Class L shares into
common as well as to provide investors with useful information regarding our historical operating results.
42
The following table sets forth the computation of diluted earnings per pro forma common share and
diluted adjusted earnings per pro forma common share:
Diluted earnings per pro forma common share:
Net income
$
93,927
$
72,035
$
12,344
Years Ended December 31,
2015
2014
2013
(In thousands, except share data)
Pro forma weighted average number of common shares—
diluted:
Weighted average number of Class L shares over
period in which Class L shares were outstanding (1)
Adjustment to weight Class L shares over respective
period
Weighted average number of Class L shares over
period
Class L conversion factor
Weighted average number of converted Class L
common shares
—
—
—
—
—
—
—
—
—
—
1,327,115
(1,290,251)
36,864
35.1955
1,297,479
Weighted average number of common shares
60,835,574
65,612,572
62,659,264
Pro forma weighted average number of common shares
—basic
Incremental dilutive shares—stock options using
treasury stock method
Pro forma weighted average number of common shares
—diluted
Diluted earnings per pro forma common share
Diluted adjusted earnings per pro forma common share:
Adjusted net income
$
$
Pro forma weighted average number of common shares
—diluted
Diluted adjusted earnings per pro forma common share $
60,835,574
65,612,572
63,956,743
1,525,204
1,631,600
1,849,772
62,360,778
1.50
115,391
62,360,778
1.85
67,244,172
1.07
97,238
67,244,172
1.45
$
$
$
65,806,515
0.19
78,260
65,806,515
1.19
$
$
$
(1)
The weighted average number of Class L shares in the actual Class L earnings per share calculation for
the year ended December 31, 2013 represents the weighted average from the beginning of the period
up through the date of conversion of the Class L shares into common shares. As such, the pro forma
weighted average number of common shares includes an adjustment to the weighted average number
of Class L shares outstanding to reflect the length of time the Class L shares were outstanding prior to
conversion relative to the respective years. The converted Class L shares are already included in the
weighted average number of common shares outstanding for the period after their conversion.
Liquidity and Capital Resources
Our primary cash requirements are for the ongoing operations of our existing child care centers, back-up
dependent care and other educational advisory services, the addition of new centers through development or
acquisition and debt financing obligations. Our primary sources of liquidity are our cash flows from operations
and borrowings available under our revolving credit facility. There were borrowings outstanding on the
revolving credit facility of $24.0 million at December 31, 2015, and borrowings outstanding during the year
ended December 31, 2015 averaged $11.9 million. There were no borrowings outstanding at December 31,
2014.
43
We had a working capital deficit of $152.6 million and $56.3 million at December 31, 2015 and 2014,
respectively. Our working capital deficit has arisen from using cash generated from operations to make long-
term investments in fixed assets and acquisitions and from share repurchases. We anticipate that we will
continue to generate positive cash flows from operating activities and that the cash generated will be used
principally to fund ongoing operations of our new and existing full service child care centers and expanded
operations in the back-up dependent care and educational advisory segments, as well as to make scheduled
principal and interest payments and to repurchase shares.
The Company's $1.1 billion senior secured credit facilities consist of $955.0 million in secured term loan
facilities and a $100.0 million revolving credit facility. In conjunction with a debt refinancing in January 2013,
$790.0 million in senior secured term loans were issued, with the subsequent issuance of $165.0 million in
additional term loans in December 2014. On January 26, 2016, the Company amended its existing credit
agreement to increase the revolving credit facility from $100.0 million to $225.0 million as further discussed
below under "Debt".
On January 30, 2013, we completed our initial public offering, raising $233.3 million, net of expenses,
underwriting discounts and commissions, including the exercise of the underwriters’ overallotment option
which was completed on February 21, 2013. We used the net proceeds of our Offering and certain proceeds
from the issuance of the $790.0 million senior secured term loan to redeem our senior notes in full for $213.3
million. We used the remainder of the $790.0 million senior secured term loan to refinance all of the remaining
existing indebtedness under the senior credit facilities and the senior subordinated notes.
On March 28, 2014, the board of directors of the Company authorized the repurchase of up to $225.0
million of its common stock. Under this authorization, the Company repurchased a total of 5.0 million shares
for $221.6 million in the year ended December 31, 2014. On February 4, 2015, the board of directors of the
Company approved a $250.0 million repurchase program of its common stock. The repurchase program has no
expiration date and replaced the prior 2014 authorization. During the year ended December 31, 2015, the
Company repurchased 2.2 million shares for $128.1 million. All repurchased shares have been retired. At
December 31, 2015, $121.9 million remained outstanding under the repurchase program. There were no stock
repurchases during the year ended December 31, 2013.
We believe that funds provided by operations, our existing cash and cash equivalent balances and
borrowings available under our revolving credit facility will be adequate to meet planned operating and capital
expenditures for at least the next 12 months under current operating conditions. However, if we were to
undertake any significant acquisitions or investments in the purchase of facilities for new or existing child care
and early education centers, which requires financing beyond our existing borrowing capacity, it may be
necessary for us to obtain additional debt or equity financing. We may not be able to obtain such financing on
reasonable terms, or at all.
Cash Flows
Years Ended December 31,
2015
2014
(In thousands)
2013
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing
activities
$
Cash and cash equivalents (beginning of period) $
$
Cash and cash equivalents (end of period)
$
$
170,056
$
(155,354) $
(90,581) $
$
87,886
$
11,539
174,297
$
(78,001) $
(36,420) $
$
29,585
$
87,886
159,679
(201,132)
36,761
34,109
29,585
Cash Provided by Operating Activities
Cash provided by operating activities was $170.1 million for the year ended December 31, 2015,
compared to $174.3 million in 2014. The increase in net income from 2014 to 2015 of $21.9 million was
44
largely offset by changes in non-cash items and working capital arising primarily from the timing of payments
for income taxes and other routine operating expenses, as well as the timing of billings and collections when
compared to the prior year.
Cash provided by operating activities was $174.3 million for the year ended December 31, 2014,
compared to $159.7 million in 2013. Net income, adjusted for non-cash expenses, decreased by $3.8 million
from 2013 to 2014, due primarily to incremental income taxes paid on higher taxable income when compared to
the prior year. The impact of changes in working capital during 2014 was to increase operating cash flows by
$23.4 million, principally due to the timing of payments for income taxes, payroll and other routine operating
expenses when compared to the prior year.
We expect to generate approximately $200 million in cash from operations in 2016.
Cash Used in Investing Activities
Cash used in investing activities was $155.4 million for the year ended December 31, 2015 compared to
$78.0 million for the same period in 2014 and was related to fixed asset additions for new child care centers,
maintenance and refurbishments in our existing centers, and continued investments in technology, equipment
and furnishings, as well as investments in acquisitions. The Company acquired 57 centers in 2015 for $77.6
million compared to five centers in 2014 for $13.2 million, which is the primary driver to the increase in cash
used in investing activities. Cash used in investing activities in 2014 related primarily to fixed asset additions.
The increase in fixed asset additions of $11.6 million to $77.8 million in 2015 related to investments in new
child care centers.
Cash used in investing activities was $78.0 million for the year ended December 31, 2014 compared to
$201.1 million for the same period in 2013 and was related to fixed asset additions for new child care centers,
maintenance and refurbishments in our existing centers, and continued investments in technology, equipment
and furnishings, as well as investments in acquisitions. The Company acquired five centers in 2014 for $13.2
million compared to 114 centers for $129.8 million in the prior year, which is the primary driver to the reduction
in cash used in investing activities. Cash used in investing activities in 2014 related primarily to fixed asset
additions. The investment in fixed asset additions in 2014 was relatively consistent with 2013.
We estimate that we will spend approximately $80 to $90 million in 2016 on fixed asset additions related
to new child care centers, maintenance and refurbishments in our existing centers and continued investments in
technology and equipment. As part of our growth strategy, we also expect to continue to make selective
acquisitions, which may vary in size and which are less predictable in terms of the timing and amount of the
capital requirements.
Cash Used in Financing Activities
Cash used in financing activities amounted to $90.6 million for the year ended December 31, 2015
compared to $36.4 million in 2014. The increase in cash used in financing activities was due primarily to a
decrease in proceeds from net borrowings and a decrease in proceeds from the exercise of stock options. Cash
used by financing activities in 2015 related principally to stock repurchases of $128.1 million and principal
payments of $9.6 million on our debt, offset by net proceeds of $24.0 million from borrowings under the
revolving credit facility, proceeds from the exercise of stock options of $9.8 million, and proceeds from the
issuance and sale of restricted stock of $3.9 million. Cash used by financing activities in 2014 related
principally to stock repurchases of $221.6 million and principal payments of $7.9 million on our debt, offset by
net proceeds of $161.8 million from the issuance of term loans, proceeds from the exercise of stock options of
$17.4 million, and proceeds from the issuance and sale of restricted stock of $4.7 million.
Cash used in financing activities amounted to $36.4 million for the year ended December 31, 2014
compared to cash provided by financing activities of $36.8 million in 2013. The 2014 decrease in cash
provided by financing activities related to stock repurchases of $221.6 million, offset by net proceeds of $161.8
million from the issuance of term loans, compared to proceeds generated from our Offering of $234.9 million
and from the issuance of term loans of $769.4 million, offset by the extinguishment of debt in 2013.
45
Debt
As of December 31, 2015, the Company's $1.1 billion senior credit facilities consisted of $955.0 million
in secured term loan facilities and a $100.0 million revolving credit facility. The term loans mature on January
30, 2020 and require quarterly principal payments of $2.4 million, with the remaining principal balance due on
January 30, 2020. Outstanding term loan borrowings were as follows at December 31, 2015 and 2014 (in
thousands):
Term loans
Deferred financing costs and original issue discount
Total debt
Less current maturities
Long-term debt
December 31,
2015
2014
929,650
(14,439)
915,211
9,550
905,661
$
$
939,200
(18,023)
921,177
9,550
911,627
$
$
At December 31, 2015, the revolving credit facility had a maturity of January 30, 2018 and there were
borrowings outstanding of $24.0 million, with $76.0 million of the revolving credit facility available for
borrowings. There were no borrowings outstanding on the revolving credit facility at December 31, 2014 with
the full facility available for borrowings.
All borrowings under the credit agreement are subject to variable interest rates. Applicable margin
percentages for the loan facilities range from 1.75% to 2.50% per annum for base rate loans and 2.75% to
3.50% per annum for LIBOR rate loans as defined in the credit agreement, provided that the base rate for the
term loan may not be lower than 2.0% and LIBOR may not be lower than 1.0%.
On January 26, 2016, the Company amended its existing credit agreement to increase the revolving credit
facility from $100.0 million to $225.0 million, to extend the maturity date on the revolving credit facility from
January 30, 2018 to July 31, 2019, and to modify the interest rate applicable to borrowings under the revolving
credit facility from 1.75% over the Base Rate to a range of 1.25% to 1.75% over the Base Rate, or 2.25% to
2.75% over the Eurocurrency Rate.
All obligations under the senior secured credit facilities are secured by substantially all the assets of the
Company's U.S.-based subsidiaries. The agreement governing our senior secured credit facilities contains a
number of covenants that, among other things and subject to certain exceptions, may restrict the ability of
Bright Horizons Family Solutions LLC, our wholly-owned 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 $1.1 billion senior secured credit facilities requires Bright
Horizons Capital Corp., our direct subsidiary, to be a passive holding company, subject to certain exceptions.
The revolving credit facility requires Bright Horizons Family Solutions LLC, the borrower, and its restricted
subsidiaries to comply with a maximum senior secured first lien net leverage ratio financial maintenance
covenant, to be tested only if, on the last day of each fiscal quarter, revolving loans and/or swingline loans in
excess of a specified percentage of the revolving commitments on such date are outstanding under the revolving
credit facility. The breach of this covenant is subject to certain equity cure rights.
The credit agreement governing the senior secured credit facilities contains certain customary affirmative
covenants and events of default. We were in compliance with our financial covenants at December 31, 2015.
46
The following table sets forth our contractual obligations as of December 31, 2015 (in thousands):
Contractual Obligations
Long-term
debt (1)
Interest on long-
term debt (2)
Operating leases
2016
2017
2018
2019
2020
Thereafter
Total
$
9,550
$
9,550
$
9,550
$
9,550
$ 891,450
$
— $ 929,650
35,592
89,547
34,960
84,984
33,953
80,739
33,196
75,045
2,733
71,080
—
441,583
140,434
842,978
Total
$ 134,689
$ 129,494
$ 124,242
$ 117,791
$ 965,263
$ 441,583
$ 1,913,062
(1)
(2)
*
*
Scheduled principal payments on our long-term debt.
Interest on the outstanding principal balance of long-term debt calculated using the weighted average
interest rate for the year ended December 31, 2015 of 4.1%, including commitment fees on the unused
line of credit.
There were borrowings outstanding of $24.0 million on the $100.0 million revolving line of credit
facility.
We are unable to estimate the timing of potential future payments related to our accrual for uncertain
tax positions in the amount of $0.7 million, exclusive of penalties and interest, at December 31, 2015.
Overdraft Facility
Our subsidiaries in the United Kingdom maintain an overdraft facility with a United Kingdom ("U.K.")
bank to support local short-term working capital requirements. The overdraft facility is repayable upon demand
from the U.K. bank. The facility provides maximum borrowings of £0.3 million (approximately $0.4 million at
December 31, 2015) and is secured by a cross guarantee by and among our subsidiaries in the United Kingdom
and 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 rate plus 2.15%. At December 31, 2015 and 2014, there were no
amounts outstanding under the overdraft facility.
Our subsidiary in the Netherlands maintained a multi-purpose revolving credit facility with a Dutch bank
to support working capital, letter of credit requirements, and the construction and fitting out of new child care
centers. The facility was secured by a right of offset against all accounts maintained at the lending bank and by
an additional pledge of certain equipment. The €2.2 million facility was terminated in December 2014. The
weighted average interest rate for the year ended December 31, 2014 was 5.53%.
The Company has 25 letters of credit outstanding used to guarantee certain rent payments for up to $1.0
million. These letters of credit are guaranteed by cash deposits. No amounts have been drawn against these
letters of credit.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with accounting principles generally
accepted in the United States. Preparation of the consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
The accounting policies we believe are critical in the preparation of our consolidated financial statements relate
to revenue recognition and goodwill and other intangibles. We have other significant accounting policies that
are more fully described under the heading “Organization and Significant Accounting Policies” in Note 1 to our
47
consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. Both our critical
and significant policies are important to an understanding of the consolidated financial statements.
Revenue 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 payments from employer sponsors and, to a lesser extent, by payments from
government agencies. Revenue may also include management fees, operating subsidies paid either in lieu of or
to supplement parent tuition and fees for other services.
We enter into contracts with employer sponsors to manage and operate their child care centers and to
provide back-up dependent care services and educational advisory services under various terms. Our contracts
to operate child care and early education centers are generally three to ten years in length with varying renewal
options. Our contracts for back-up dependent care arrangements and for educational advisory services are
generally one to three years in length with varying renewal options.
We record deferred revenue for prepaid tuition and management fees and amounts received from
consulting projects in advance of services being performed. We are also a party to certain agreements where the
performance of services extends beyond an annual operating cycle. In these circumstances, we record 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 assets acquired in a business combination. Our intangible assets principally
consist of various 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 we
derive a benefit. Intangible assets related to customer relationships include relationships with employer clients
and relationships with parents. Customer relationships with parents are amortized using an accelerated method
over their useful lives. All other intangible assets are amortized on a straight line basis over their useful lives.
In valuing the customer relationships and trade names, we utilize variations of the income approach,
which relies on historical financial and qualitative information, as well as assumptions and estimates for
projected financial information. We consider the income approach the most appropriate valuation technique
because the inherent value of these assets is their ability to generate current and future income. Projected
financial information is 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 projected revenues and profitability used in the
valuation calculations, then the intangible assets could be impaired. In determining the value of contractual
rights and customer relationships, we reviewed historical customer attrition rates and determined a rate of
approximately 30% per year for relationships with parents, and approximately 3.5% to 5.0% for employer client
relationships. Our multi-year contracts with client customers typically result in low annual turnover, and our
long-term relationships with clients make it difficult for competitors to displace us. The value of our customer
relationships intangible assets could become impaired if future results differ significantly from any of the
underlying assumptions, including a higher customer attrition rate. Customer relationships are considered to be
finite-lived assets, with estimated lives ranging from four to seventeen years. Certain trade names acquired as
part of our strategy to expand by completing strategic acquisitions are considered to be finite-lived assets, with
estimated lives ranging from five to ten 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 the respective 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 an indefinite period.
Goodwill and intangible assets with indefinite lives are not subject to amortization but are tested annually for
impairment 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
48
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 fair value of each of our
reporting units using the income approach based on discounted estimated future cash flows. The fair value is
also benchmarked against a market approach using the guideline public companies method. We forecasted
future cash flows by reporting unit for each of the next ten years and applied 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
compared the estimated fair value to the net book value of the reporting unit to determine whether we need to
perform step 2 of the analysis. The estimated fair value of the reporting units significantly exceeds 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 revenue attributable to each trademark and then by applying the royalty rate
determined by an analysis of empirical, market-derived royalty rates for guideline intangible assets, consistent
with the initial valuation, or 1% to 2%, and then comparing the estimated fair value of the trademarks with their
carrying value. The forecasts of revenue and profitability growth for use in our long-range plan and the discount
rate were the key assumptions in our intangible fair value analysis. We identified no impairments in the years
ended December 31, 2015, 2014, and 2013.
Definite-lived intangible assets are reviewed for impairment when events or circumstances indicate that
the carrying amount of the asset may not be recovered. Definite-lived intangible assets are considered to be
impaired if the carrying amount of the asset exceeds the undiscounted future cash 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 the amount by which the carrying amount of the asset exceeds its fair value and is charged to
results of operations at that time. We identified no impairments in the years ended December 31, 2015, 2014
and 2013.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk exposures relate to foreign currency exchange rate risk and interest rate risk.
Foreign Currency Risk
Our 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 our foreign
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, respectively, are translated into U.S.
dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at the
average exchange rates prevailing during the period. The cumulative translation effects for 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 each country
unfavorably changed by 10% relative to the U.S. dollar, our consolidated earnings before taxes would have
decreased by approximately $1.1 million for 2015.
Interest Rate Risk
Interest rate exposure relates primarily to the effect of interest rate changes on borrowings outstanding
under our revolving line of credit and term loans. We had borrowings of $24.0 million outstanding at
December 31, 2015 under our revolving credit facility, which were subject to a weighted average interest rate of
3.8%, and we had borrowings of $929.7 million outstanding at December 31, 2015 under our term loan facility,
which were subject to a weighted average interest rate of 4.1%. Based on the borrowings outstanding under the
senior credit facilities during 2015, we estimate that had the average interest rate on our borrowings increased
by 100 basis points in 2015, our interest expense for the year would have increased by approximately $9.6
49
million. This estimate assumes the interest rate of each 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 the gross amount of
our borrowings at that time.
50
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Bright Horizons Family Solutions Inc.
Watertown, Massachusetts
We have audited the accompanying consolidated balance sheets of Bright Horizons Family Solutions Inc. and
subsidiaries (the "Company") as of December 31, 2015 and 2014, and the related consolidated statements of
income, comprehensive income, changes in stockholders' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 2015. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility 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 standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of Bright Horizons Family Solutions Inc. and subsidiaries as of December 31, 2015 and 2014, and the
results of their operations and their cash flows for each of the three years in the period ended December 31,
2015, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2015, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 29, 2016 expressed an adverse
opinion on the Company’s internal control over financial reporting because of a material weakness.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 29, 2016
51
BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable—net
Prepaid expenses and other current assets
Current deferred income taxes
Total current assets
Fixed assets—net
Goodwill
Other intangibles—net
Deferred income taxes
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt
Borrowings on revolving line of credit
Accounts payable and accrued expenses
Deferred revenue
Other current liabilities
Total current liabilities
Long-term debt—net
Deferred rent and related obligations
Other long-term liabilities
Deferred revenue
Deferred income taxes
Total liabilities
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $0.001 par value; 25,000,000 shares authorized and no
shares issued or outstanding at December 31, 2015 and 2014
Common stock, $0.001 par value; 475,000,000 shares authorized;
60,008,136 and 61,534,802 shares issued and outstanding at December 31,
2015 and 2014, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements.
52
December 31,
2015
2014
$
11,539
97,295
43,879
—
152,713
429,736
1,147,809
389,331
—
30,952
$ 2,150,541
$
87,886
83,066
39,147
13,059
223,158
398,947
1,095,738
406,249
580
16,404
$ 2,141,076
$
9,550
24,000
114,776
137,283
19,734
305,343
905,661
50,039
44,182
4,608
113,100
1,422,933
$
9,550
—
116,425
133,048
20,400
279,423
911,627
43,105
23,401
5,525
127,036
1,390,117
—
—
60
983,398
(39,270)
(216,580)
727,608
$ 2,150,541
62
1,083,091
(21,687)
(310,507)
750,959
$ 2,141,076
BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
Years ended December 31,
$
2015
1,458,445
1,100,690
$
2014
1,352,999
1,039,397
$
Revenue
Cost of services
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Income from operations
Loss on extinguishment of debt
Interest income
Interest expense
Income before income taxes
Income tax (expense) benefit
Net income
Net loss attributable to non-controlling interest
Net income attributable to Bright Horizons Family
Solutions Inc.
Allocation of net income to common shareholders:
Common stock—basic
Common stock—diluted
Earnings per share:
Common stock—basic
Common stock—diluted
Weighted average number of common shares
outstanding:
Common stock—basic
Common stock—diluted
$
$
$
$
$
357,755
148,164
27,989
181,602
—
163
(41,609)
140,156
(46,229)
93,927
—
93,927
93,287
93,303
1.53
1.50
$
$
$
$
$
313,602
137,683
28,999
146,920
—
103
(34,709)
112,314
(40,279)
72,035
—
72,035
71,755
71,761
1.09
1.07
$
$
$
$
$
2013
1,218,776
937,840
280,936
141,827
30,075
109,034
(63,682)
85
(40,626)
4,811
7,533
12,344
(279)
12,623
12,623
12,623
0.20
0.20
60,835,574
62,360,778
65,612,572
67,244,172
62,659,264
64,509,036
See notes to consolidated financial statements.
53
BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive (loss) income:
Foreign currency translation adjustments
Total other comprehensive (loss) income
Comprehensive income
Less: Comprehensive income attributable to non-
controlling interest
Comprehensive income attributable to Bright
Horizons Family Solutions Inc.
Years ended December 31,
2015
2014
2013
$
93,927
$
72,035
$
12,344
(17,583)
(17,583)
76,344
(23,103)
(23,103)
48,932
—
—
10,589
10,589
22,933
78
$
76,344
$
48,932
$
22,855
See notes to consolidated financial statements.
54
BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
Common Stock
Shares
Amount
Additional
Paid In
Capital
Treasury
Stock,
at Cost
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
(Deficit)
Balance at January 1, 2013
6,062,653
$
6
$ 150,088
$
— $
(8,816) $
(395,165) $
(253,887)
46,708,466
47
854,054
Conversion of Class L
common stock
Initial public offering, net
of offering costs of $20.6
million
Stock-based compensation
11,615,000
Exercise of stock options
916,695
Excess tax benefits from
stock option exercises
Acquisition of remaining
non-controlling interest
Translation adjustments,
net of $357 attributable to
non-controlling interest
Net income attributable to
Bright Horizons Family
Solutions Inc.
12
—
234,932
10,692
11,040
5,101
4,291
(225)
10,457
12,623
Balance at December 31, 2013
65,302,814
65
1,270,198
—
1,416
(382,542)
Stock-based compensation
Exercise of stock options
1,212,458
2
7,922
17,420
9,123
(221,577)
9,200
9,811
9,397
(128,103)
Excess tax benefits from
stock option exercises
Purchase of treasury stock
Retirement of treasury
stock
Translation adjustments
Net income
Excess tax benefits from
stock option exercises
Purchase of treasury stock
Retirement of treasury
stock
Translation adjustments
Net income
(4,980,470)
(5)
(221,572)
221,577
(23,103)
72,035
Balance at December 31, 2014
61,534,802
62
1,083,091
—
(21,687)
(310,507)
Stock-based compensation
Exercise of stock options
694,381
—
(2,221,047)
(2)
(128,101)
128,103
(17,583)
93,927
Balance at December 31, 2015
60,008,136
$
60
$ 983,398
$
— $
(39,270) $
(216,580) $
727,608
See notes to consolidated financial statements.
55
854,101
234,944
10,692
11,040
5,101
4,066
10,457
12,623
889,137
7,922
17,422
9,123
(221,577)
—
(23,103)
72,035
750,959
9,200
9,811
9,397
(128,103)
—
(17,583)
93,927
BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$ 93,927
$ 72,035
$ 12,344
Years ended December 31,
2014
2013
2015
Depreciation and amortization
Loss on extinguishment of debt
Amortization of original issue discount and deferred financing costs
Interest paid in kind
Non-cash revenue and other
Impairment losses on long-lived assets
Loss on disposal of fixed assets
Stock-based compensation
Deferred income taxes
Deferred rent
Changes in assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Income taxes
Accounts payable and accrued expenses
Deferred revenue
Accrued rent and related obligations
Other assets
Other current and long-term liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets
Proceeds from the disposal of fixed assets
Purchase of long-term investments
Settlement of purchase price for prior year acquisitions
Payments for acquisitions—net of cash acquired
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt, net of issuance costs of $3.2 million in 2014 and $20.6 million in 2013
Extinguishment of long-term debt
Proceeds from initial public offering, net of issuance costs of $20.6 million
Borrowings under revolving line of credit
Payments of revolving line of credit
Principal payments of long-term debt
Purchase of non-controlling interest
Purchase of treasury stock
Proceeds from issuance of common stock upon exercise of options
Proceeds from issuance of restricted stock
Excess tax benefits from stock-based compensation
Net cash (used in) provided by financing activities
Effect of exchange rates on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents—beginning of period
Cash and cash equivalents—end of period
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments of interest
Cash payments of income taxes
Non-cash conversion of Class L common stock
Fixed asset purchases recorded in accounts payable and accrued expenses
See notes to consolidated financial statements.
56
78,666
—
3,583
—
191
41
351
9,200
(758)
2,736
(13,340)
3,825
(12,073)
(6,448)
2,955
4,642
(14,296)
16,854
170,056
(77,785)
50
—
23
(77,642)
(155,354)
—
—
—
267,300
(243,300)
(9,550)
—
(128,103)
9,811
3,864
9,397
(90,581)
(468)
(76,347)
87,886
$ 11,539
77,447
—
3,052
—
(149)
206
667
7,922
(13,376)
3,092
(4,604)
2,174
3,505
9,589
14,259
3,222
(1,672)
(3,072)
174,297
(66,194)
385
—
1,030
(13,222)
(78,001)
72,808
63,682
2,763
2,143
(618)
765
566
10,692
(13,410)
2,985
(11,458)
(5,393)
(13,386)
365
22,350
2,180
149
10,152
159,679
(69,509)
189
(2,000)
—
(129,812)
(201,132)
161,803
769,360
— (972,468)
234,944
—
—
140,800
— (140,800)
(7,900)
(4,138)
—
11,040
—
5,923
36,761
168
(4,524)
34,109
$ 29,585
(7,900)
—
(221,577)
17,422
4,709
9,123
(36,420)
(1,575)
58,301
29,585
$ 87,886
$ 38,110
$ 49,819
$
$
2,000
— $
$
$ 32,473
$ 41,713
$ 34,928
$ 13,931
— $ 854,101
—
$
3,000
BRIGHT HORIZONS FAMILY SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization—Bright Horizons Family Solutions Inc. (“Bright Horizons” or the “Company”) provides
workplace services for employers and families throughout the United States and the United Kingdom, and also
in Puerto Rico, Canada, Ireland, the Netherlands, and India. Workplace services include center-based child care,
education and enrichment programs, elementary school education, back-up dependent care (for children and
elders), before and after school care, college preparation and admissions counseling, tuition reimbursement
program administration, and other family support services.
The Company provides its center-based child care services under two general business models: a profit
and loss (“P&L”) model, where the Company assumes the financial risk of operating a child care center; and a
cost-plus model, where the Company is paid a fee by an employer client for managing a child care center on a
cost-plus basis. The P&L model is further classified into two subcategories: (i) a sponsor model, where Bright
Horizons provides child care and early education services on either an exclusive or priority enrollment basis for
the employees of a specific employer sponsor; and (ii) a lease/consortium model, where the Company provides
child care and early education services to the employees of multiple employers located within a specific real
estate development (for example, an office building or office park), 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, as well
as ongoing maintenance and repair, is typically funded by an employer sponsor with whom the Company enters
into a multi-year contractual relationship. In addition, employer sponsors typically provide subsidies for the
ongoing provision of child care services for their employees. Under each model type, the Company retains
responsibility for all aspects of operating the child care and early education center, including the hiring and
paying of employees, contracting with vendors, purchasing supplies, and collecting tuition and related accounts
receivable.
The Company provides back-up dependent care services through our own centers and through our Back-
Up Care Advantage (“BUCA”) program, which offers access to a contracted network of in-home care agencies
and center-based providers in locations where we do not otherwise have centers with available capacity.
Basis of Presentation—Bright Horizons was acquired by investment funds affiliated with Bain Capital
Partners LLC (the “Sponsor”) as a result of a transaction in 2008, pursuant to which a wholly owned merger
subsidiary was merged with and into Bright Horizons Family Solutions, Inc. (the “Predecessor”). As part of the
transaction, a new basis of accounting was established and the purchase price was allocated to the assets
acquired and liabilities assumed based on their fair values. In July 2012, Bright Horizons Family Solutions Inc.
changed its name from Bright Horizons Solutions Corp.
Stock Offerings—On January 30, 2013, the Company completed an initial public offering (the
“Offering”) and, after the exercise of the underwriters’ overallotment 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 including $1.6
million expensed in 2012. The Company used the proceeds of the Offering, as well as certain amounts from the
2013 refinancing discussed below, to repay the principal and accumulated interest under its senior notes
outstanding on January 30, 2013.
Prior to the Offering, the Company had Class L and Class A common stock outstanding. The Company’s
Class L common stock was classified outside of permanent equity as the timing of the conversion or redemption
event was outside of the control of the Company. In December 2012, the Company’s controlling shareholder
effectively fixed the conversion ratio and the Class L common stock was re-measured to its final redemption
amount using the fixed conversion ratio and the estimated fair value at that time of $854.1 million for the 1.3
million shares issued and outstanding.
57
In connection with the 1–for–1.9704 reverse split of its Class A common stock and as determined by its
holders, the Company converted each share of its Class L common stock into 35.1955 shares of Class A
common stock on January 11, 2013, and immediately reclassified those shares as well as all outstanding shares
of Class A common stock into common stock, for which 475 million shares were authorized. The Company also
authorized 25 million shares of undesignated preferred stock for issuance. As a result of the reclassification of
Class A common stock to common stock, all references to “Class A common stock” have been changed to
“common stock” for all periods presented.
On June 19, 2013, March 25, 2014, December 10, 2014, May 27, 2015, August 10, 2015, and November
18, 2015, certain of the Company’s shareholders affiliated with the Sponsor commenced the sale of 9.8 million,
7.9 million, 8.0 million, 3.0 million, 3.0 million, and 3.65 million shares, respectively, of the Company’s
common stock in secondary offerings (“secondary offerings”). The Company did not receive proceeds from the
sale of shares in the secondary offerings. The Company incurred $0.6 million and $1.0 million in the years
ended December 31, 2015 and 2014, respectively, in offering costs related to the secondary offerings, which are
included in selling, general and administrative expenses. The Company purchased 4.5 million, 1.25 million, 0.7
million, and 0.15 million of the shares sold in the December 10, 2014, May 27, 2015, August 10, 2015, and
November 18, 2015 secondary offerings, respectively, from investment funds affiliated with the Sponsor at the
same price per share paid by the underwriter to the selling shareholders.
Principles of Consolidation—The consolidated financial statements include the accounts of the
Company and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates—The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported
amounts of revenue and expenses during the reporting period. The Company’s significant accounting estimates
in the preparation of the consolidated financial statements relate to the valuation of goodwill and other
intangibles, and income taxes. Actual results may differ from management’s estimates.
Foreign Operations—The functional currency of the Company’s foreign subsidiaries is their local
currency. The assets and liabilities of the Company’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 at the 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 the remeasurement of intercompany receivables that the Company
considers to be of a long-term investment nature are recorded as a cumulative translation adjustment in
accumulated other comprehensive income or loss as a separate component of stockholders’ equity, while gains
and losses resulting from the remeasurement of intercompany receivables from those foreign subsidiaries for
which the Company anticipates settlement in the foreseeable future are recorded in the consolidated statement
of income. The net gains and losses recorded in the consolidated statements of income for the years ended
December 31, 2015, 2014 and 2013 were not significant.
Fair Value of Financial Instruments—The Company defines fair value as the price that would be
received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at
the measurement date and applies the following fair value hierarchy, which prioritizes the inputs used to
measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of
input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to
observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The Company uses
observable inputs where relevant and whenever possible.
Level 1—Quoted prices are available in active markets for identical investments as of the reporting date.
58
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-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 Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable,
accounts payable, borrowings on line of credit, and long-term debt. The fair value of the Company’s financial
instruments, other than long-term debt, approximates their carrying value.
The carrying value and estimated fair value of long-term debt as of December 31, 2015 and 2014 were as
follows (in thousands):
Financial liabilities
December 31, 2015
December 31, 2014
Carrying value
Estimated Fair Value
Carrying value
Estimated Fair Value
Long-term debt
$
929,650
$
924,700
$
939,200
$
921,600
The estimated fair value of our long-term debt is estimated primarily based on current market rates for
debt with similar terms and remaining maturities or current bid prices for our long-term debt. Judgment is
required to develop these estimates. As such, our long-term debt is classified within Level 2, as defined under
U.S. GAAP.
Concentrations of Credit Risk—Financial instruments that potentially expose the Company to
concentrations of credit risk consist mainly of cash and cash equivalents and accounts receivable. The Company
mitigates its exposure by maintaining its cash and cash equivalents in financial institutions of high credit
standing. The Company’s accounts receivable, which are derived primarily from the services it provides, are
dispersed across many clients in various industries with no single client accounting for more than 10% of the
Company’s net revenue or accounts receivable. The Company believes that no significant credit risk exists at
December 31, 2015 and 2014.
Cash and Cash Equivalents—The Company considers all highly liquid investments with maturities,
when purchased, of three months or less to be cash equivalents. Cash equivalents consist primarily of
institutional money market accounts. There were no cash equivalent investments at December 31, 2015 and
2014.
The Company’s cash management system provides for the funding of the main bank disbursement
accounts on a daily basis as checks are presented for payment. Under this system, outstanding checks may be in
excess of the cash balances at certain banks, creating book overdrafts. There were $10.6 million in book
overdrafts at December 31, 2015 included in accounts payable on the consolidated balance sheet. There were no
book overdrafts at December 31, 2014.
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 addition to provisions
established for specific collection issues that have been identified. Accounts receivable are stated net of this
allowance for doubtful accounts.
59
Activity in the allowance for doubtful accounts is as follows (in thousands):
Beginning balance
Provision
Write offs and recoveries
Ending balance
Years ended December 31,
2015
1,235
1,322
(1,001)
1,556
$
$
2014
1,173
551
(489)
1,235
$
$
2013
1,627
437
(891)
1,173
$
$
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 basis over the shorter of the
lease term or their estimated useful lives. The cost and accumulated depreciation of assets sold or otherwise
disposed of are removed from the consolidated balance sheet and the resulting gain or loss is reflected in the
consolidated statements of income. 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.
Business Combinations—Business combinations are accounted for at fair value. Acquisition costs are
expensed as incurred and recorded in selling, general and administrative expenses; integration costs associated
with a business combination are expensed subsequent to the acquisition date; and changes in deferred tax asset
valuation allowances and income tax uncertainties after the acquisition date affect income tax expense. The
accounting for business combinations requires estimates and judgment as to expectations for future cash flows
of the acquired business, the allocation of those cash flows to identifiable intangible assets, and in determining
the estimated fair value for assets acquired and liabilities assumed. The fair values assigned to tangible and
intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as
well as other information compiled by management, including valuations that utilize customary valuation
procedures and techniques. If the actual results differ from these estimates, the amounts recorded in the
financial statements could result in a possible impairment of the intangible assets and goodwill, or require
acceleration of the amortization expense of finite-lived intangible assets.
Goodwill and Intangible Assets—Goodwill represents the excess of the purchase price over the fair
value of the net tangible and identifiable intangible assets acquired in a business combination. The Company’s
intangible assets principally consist of various customer relationships and trade names.
Goodwill and intangible assets with indefinite lives are not subject to amortization, but are tested annually
for impairment or more frequently if there are indicators of impairment. The first step of the goodwill
impairment test compares the fair value of the reporting unit with its carrying amount, including goodwill. Fair
value for each reporting unit is determined by estimating the present value of expected future 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’s estimated discount rate. If the fair value of the Company’s reporting unit exceeds its carrying
amount, the goodwill of the reporting unit is considered not impaired. If the carrying amount of the Company’s
reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure
the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the
amount of impairment loss, compares the implied fair value of the affected reporting unit’s goodwill with the
carrying value of that goodwill. The Company performed an impairment assessment as of October 1, 2015 and
concluded that there was no impairment. No goodwill impairment losses were recorded in the years ended
December 31, 2015, 2014, or 2013.
We test certain trademarks that are included in our indefinite-lived intangible assets, by comparing the fair
value of the trademarks with their carrying value. We estimate the fair value first by estimating the total revenue
attributable to the trademarks and then by applying a royalty rate determined by an analysis of empirical,
market-derived royalty rates for guideline intangible assets, consistent with the initial valuation and then
comparing the estimated fair value of our trademarks with the carrying value. This approach takes into effect
60
level 3 and unobservable inputs. No impairment losses were recorded in the years ended December 31, 2015,
2014 or 2013 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 period benefited, ranging from one to seventeen years.
Intangible assets related to parent relationships are amortized using the double declining balance method over
their 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 circumstances indicate that the carrying amount of such assets may not be
recoverable. Impairment is assessed by comparing the carrying amount of the asset to the estimated
undiscounted future cash flows over the asset’s remaining life. If the estimated cash flows are less than the
carrying amount of the asset, an impairment 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 using discounted cash flows and
quoted market prices based on level 3 inputs. The Company recorded fixed asset impairment losses of less than
$0.1 million in the year ended December 31, 2015 and of $0.2 million and $0.8 million in the years ended
December 31, 2014 and 2013, respectively, which have been included in cost of services.
Other Long Term Assets—Other long term assets includes a cost basis investment of $2.1 million in a
private company, which we review for impairment whenever events or changes in circumstances indicate that
the carrying amount of such asset may not be recoverable.
Deferred Revenue—The Company records deferred revenue for prepaid tuition and management fees
and amounts received from consulting projects in advance of services being performed. The Company is also a
party to agreements where the performance of services extends beyond one year. 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 Deferred Rent—The Company leases space for certain of its centers and corporate offices.
Leases are evaluated and classified as operating or capital for financial reporting purposes. The Company
recognizes rent expense from operating leases with periods of free rent, tenant allowances and scheduled rent
increases on a straight-line basis over the applicable lease term. The difference between rents paid and straight-
line rent expense is recorded as deferred 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 over the life of the related debt instrument in accordance with the
effective interest method. Amortization expense is included in interest expense in the consolidated statements of
income.
Deferred Financing Costs—Deferred financing costs are recorded as a reduction of long-term debt and
are amortized over the life of the related debt instrument in accordance with the effective interest method.
Amortization of this expense is included in interest expense in the consolidated statements of income.
Other Long-Term Liabilities—Other long-term liabilities consist primarily of amounts payable to
clients, pursuant to terms of operating agreements or for deposits held by the Company, liabilities for workers
compensation claims, 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 assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and for tax carryforwards, such as net operating losses. Deferred tax
assets and liabilities are measured using 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 effect on 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. The Company 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
61
losses in foreign operations where it does not have a history of profitability. The Company records penalties and
interest on income tax related items as a component of tax expense.
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 taxing authorities. The Company recognizes accrued interest and
penalties related to unrecognized tax benefits in income tax expense.
Revenue Recognition—The Company recognizes 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.
Center-based care revenues consist primarily of tuition, which consists of amounts paid by parents,
supplemented in some cases by payments from employer sponsors and, to a lesser extent, by payments from
government agencies. Revenue may also include management fees, operating subsidies paid either in 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 the provision of back-up dependent care and other educational advisory
services under various terms. The Company’s contracts to operate child care and early education centers are
generally three to ten years in length with varying renewal options. The Company’s contracts for back-up
dependent care and other educational advisory services are generally one to three years in length with varying
renewal options. Revenue for these services is recognized as they are performed.
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 to vest. This expense is recognized on a straight-line basis
over the requisite service period, which generally represents the vesting period, of each separately vesting
tranche. The Company calculates the fair value of stock options using the Black-Scholes option-pricing model.
Comprehensive Income or Loss—Comprehensive income or loss is comprised of net income or loss and
foreign currency translation adjustments. The Company does not provide for U.S. income taxes on the portion
of undistributed earnings of foreign subsidiaries that are intended to be permanently reinvested. Therefore, taxes
are not provided for the related currency translation adjustments.
Earnings or Loss Per Share—Net earnings or loss per share is calculated using the two-class method,
which is an earnings allocation formula that determines net income or loss per share for the holders of the
Company’s common stock, unvested participating shares and, prior to the completion of the Offering, the
holders of Class L common stock. The Class L shares contained participation rights in any dividend paid by the
Company or upon liquidation of the Company and were entitled to a minimum preferred return of 10% per
annum, compounded quarterly. Unvested participating shares are unvested share-based payment awards of
restricted stock that participate in dividends with common stock. Net income available to common shareholders
includes the effects of any Class L preference amounts for the periods these were outstanding. 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
been distributed. Diluted net income or loss per share is calculated using the more dilutive of (1) the treasury
stock method, or (2) the two-class method for all outstanding stock options and the as-converted method for the
Class L shares.
New Accounting Pronouncements—In February 2016, the Financial Accounting Standards Board
("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). This standard amends
the existing guidance and requires lessees to recognize on the balance sheet assets and liabilities for the rights
and obligations created by those leases with lease terms longer than twelve months. The guidance is effective
for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The
Company is in the process of evaluating the impact this standard will have on the Company’s consolidated
financial statements.
62
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (Topic
740). This standard requires that all deferred tax assets and liabilities, along with any related valuation
allowance, be classified as non-current on the balance sheet. As a result, each jurisdiction will now only have
one net non-current deferred tax asset or liability. The guidance is effective for public companies for interim and
annual reporting periods beginning after December 15, 2016. Early adoption is permitted, and entities may
choose whether to adopt this update prospectively or retrospectively. The Company has chosen early adoption
of the standard and applied the guidance prospectively as of December 31, 2015. Balance sheets for prior
periods were not retrospectively adjusted. Adoption of this standard did not impact results of operations,
retained earnings, or cash flows.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the
Accounting for Measurement-Period Adjustments. This standard amends existing guidance to simplify the
accounting for adjustments made to provisional amounts recognized in a business combination, and the
amendments in this update eliminate the requirement to retrospectively account for those adjustments. This
ASU is effective for fiscal years beginning after December 15, 2015. The Company does not expect this
standard to have a significant effect on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which
provides guidance for revenue recognition. The standard's core principle is that a company will recognize
revenue when it transfers promised goods or services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those goods or services. In doing so, companies
will need to use more judgment and make more estimates than under current guidance. These may include
identifying performance obligations in the contract, estimating the amount of variable consideration included in
the transaction price and allocating the transaction price to each separate performance obligation. On July 9,
2015, the FASB voted to defer the effective date by one year. The guidance is effective for interim and annual
reporting periods beginning on or after December 15, 2017. Early adoption is permitted, but not for periods
beginning on or before December 15, 2016. The Company is currently in the process of evaluating the impact of
adoption of this ASU on the Company's consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs. This standard amends existing guidance to require the
presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related
debt liability. This ASU is effective for fiscal years beginning after December 15, 2015, with early adoption
permitted. The Company does not expect this standard to have a significant effect on the Company's
consolidated financial statements.
2. ACQUISITIONS
As part of the Company’s growth strategy to expand through strategic and synergistic acquisitions, the
Company has made the following acquisitions in the years ended December 31, 2015, 2014, and 2013. The
goodwill resulting from these acquisitions arises largely from synergies expected from combining the operations
of the businesses acquired with our existing operations, as well as from benefits derived from the assembled
workforce acquired.
2015 Acquisitions
On May 19, 2015, the Company acquired Hildebrandt Learning Centers, LLC, an operator of 40 centers
in the United States, for cash consideration of $19.2 million and contingent consideration of $0.5 million, which
was accounted for as a business combination. The Company recorded goodwill of $13.2 million related to the
full service center-based care segment, which will be deductible for tax purposes, and intangible assets of $5.7
million, consisting of customer relationships that will be amortized over 12 years. The Company also acquired
working capital of $0.3 million, including cash of $1.5 million, and fixed assets of $0.5 million.
On July 15, 2015, the Company acquired Active Learning Childcare Limited, an operator of nine centers
in the United Kingdom, for cash consideration of $42.2 million, which was accounted for as a business
combination. The Company recorded goodwill of $31.1 million related to the full service center-based care
63
segment, which will not be deductible for tax purposes, and intangible assets of $3.8 million, consisting
primarily of customer relationships that will be amortized over five years. The Company also acquired a
working capital deficit of $1.8 million, including cash of $2.8 million, fixed assets of $9.8 million, and deferred
tax liabilities of $0.7 million.
Our acquisitions of Hildebrandt Learning Centers, LLC and Active Learning Childcare Limited
contributed approximately $29.6 million of incremental revenue in the year ended December 31, 2015.
During the year ended December 31, 2015, the Company also acquired four additional centers in the
United States and four additional centers in the United Kingdom, in six separate business acquisitions which
were each accounted for as business combinations. The centers were acquired for cash consideration of $20.5
million and contingent consideration of $0.8 million, net of cash acquired of $0.3 million. The company
recorded goodwill of $18.5 million related to the full service center-based care segment, a portion of which will
be deductible for tax purposes. Intangible assets of $2.7 million, consisting primarily of customer relationships
that will be amortized over five years, were also recorded in relation to these acquisitions.
The allocation of purchase price consideration is based on preliminary estimates of fair value; such
estimates and assumptions are subject to change within the measurement period (up to one year from the
acquisition date) as the Company gathers additional information regarding the assets acquired and the liabilities
assumed. The operating results for the acquired businesses are included in the consolidated results of operations
from the dates of acquisition, which were not material to the Company's financial results.
2014 Acquisitions
During the year ended December 31, 2014, the Company acquired two businesses that operate five centers
in the United States for cash consideration of $13.2 million, which were accounted for as business
combinations. The Company recorded goodwill of $11.1 million related to the full service center-based care
segment, which will be deductible for tax purposes. Intangible assets of $2.1 million, consisting primarily of
customer relationships, fixed assets of $0.9 million, and a working capital deficit of $0.9 million were also
recorded in relation to these acquisitions. The purchase price for these acquisitions have been allocated based on
estimates of the fair values of the acquired assets and assumed liabilities at the date of acquisition.
2013 Acquisitions
Children’s Choice Learning Centers, Inc.
On July 22, 2013, the Company acquired all of the outstanding shares of Children’s Choice Learning
Centers, Inc., an operator of 49 employer-sponsored child care centers throughout the United States, for cash
consideration of $50.8 million, inclusive of certain adjustments. The purchase price was financed with available
cash on hand and funds available under the Company’s revolving credit facility, which were repaid in the fourth
quarter of 2013. The Company incurred deal costs of approximately $1.7 million for this transaction in 2013,
which are included in selling, general and administrative expenses.
64
The purchase price for this acquisition has been allocated based on estimates of the fair values of the
acquired assets and assumed liabilities at the date of the acquisition as follows (in thousands):
At acquisition date As
reported September
30, 2013
Measurement
Period
Adjustments
At acquisition date As
reported September
30, 2014
Accounts receivable
Prepaid expenses and other assets
Fixed assets
Intangible assets
Goodwill
Total assets acquired
Accounts payable and accrued expenses
Deferred revenue and parent deposits
Total liabilities assumed
Purchase price
$
$
$
981
334
5,637
12,800
38,818
58,570
(3,441)
(885)
(4,326)
54,244
$
(126) $
411
535
(1,190)
(1,086)
(1,456)
(2,018)
18
(2,000)
(3,456) $
855
745
6,172
11,610
37,732
57,114
(5,459)
(867)
(6,326)
50,788
The Company recorded adjustments to the purchase accounting during the measurement period including
an adjustment for the final settlement of working capital which reduced goodwill by $3.5 million. This
reduction to goodwill was offset by an increase of $1.2 million for taxes payable recorded during the third
quarter of 2014. The Company received cash proceeds of $3.5 million related to working capital settlements for
this acquisition, of which $0.9 million was received in 2014.
The Company recorded goodwill of $37.7 million, which will be deductible for tax purposes as permitted
under federal tax rules. Goodwill related to this acquisition is reported within the full service center-based care
segment. Intangible assets consist primarily of $11.3 million of customer relationships that will be amortized
over approximately eleven years.
Kidsunlimited Group Limited
On April 10, 2013, the Company entered into a share purchase agreement with Lloyds Development
Capital (Holdings) Limited and Kidsunlimited Group Limited pursuant to which it acquired 100% of
Kidsunlimited, an operator of 64 nurseries throughout the United Kingdom, for cash consideration of $68.9
million, inclusive of certain adjustments. The purchase price was financed with available cash on hand. The
Company incurred deal costs of approximately $1.9 million for this transaction in 2013, which are included in
selling, general and administrative expenses.
65
The purchase price for this acquisition has been allocated based on estimates of the fair values of the
acquired assets and assumed liabilities at the date of acquisition as follows (in thousands):
At acquisition date
As reported
June 30, 2013
Measuremen
t Period
Adjustments
At acquisition date
As reported
March 31, 2014
Cash
Accounts receivable
$
Prepaid expenses and other assets
Fixed assets
Favorable leases
Intangible assets
Goodwill
Total assets acquired
Accounts payable and accrued
expenses
Unfavorable leases
Deferred revenue
Other current liabilities
Deferred taxes
Total liabilities assumed
4,888
1,809
2,509
13,901
—
17,442
55,349
95,898
(9,450)
(1,759)
(12,853)
—
(2,735)
(26,797)
$
— $
—
—
(192)
2,892
765
(2,372)
1,093
3,798
(5,325)
8,378
(8,378)
245
(1,282)
Purchase price
$
69,101
$
(189) $
4,888
1,809
2,509
13,709
2,892
18,207
52,977
96,991
(5,652)
(7,084)
(4,475)
(8,378)
(2,490)
(28,079)
68,912
The Company recorded goodwill of $53.0 million, which will not be deductible for tax purposes.
Goodwill related to this acquisition is reported within the full service center-based care segment. Intangible
assets consist primarily of $15.9 million of customer relationships that will be amortized over approximately
eight years. A deferred tax liability of $4.0 million was recorded related to the intangible assets for which the
amortization is not deductible for tax purposes.
Other 2013 Acquisitions
During the year ended December 31, 2013, the Company also acquired two businesses for aggregate cash
consideration of $6.9 million, net of cash acquired of $2.7 million. The Company recorded goodwill of $4.5
million, of which $3.2 million relates to the other educational advisory services segment and $1.3 million
relates to the full service center-based care segment. Goodwill will not be deductible for tax purposes.
Intangible assets of $3.3 million, consisting of customer relationships and trade names, fixed assets of $1.9
million, and working capital of $1.3 million were also recorded in relation to these acquisitions. The Company
received cash proceeds of $0.1 million in 2014 related to working capital settlements for one of these
acquisitions.
66
Pro Forma Information
The operating results for each of the acquisitions are included in the consolidated results of operations
from the respective dates of acquisition. The following table presents consolidated pro forma information as if
the acquisitions of Children's Choice Learning Centers, Inc. and Kidsunlimited had occurred on January 1, 2012
(in thousands);
Revenue
Net income attributable to Bright Horizons Family Solutions, Inc.
Pro forma (Unaudited)
Year ended December 31,
2013
$
$
1,260,453
16,226
The unaudited pro forma results reflect certain adjustments related to the acquisitions, such as increased
amortization expense related to the acquired intangible assets. Nonrecurring deal costs that were incurred by the
Company and the acquired businesses in relation to the respective acquisitions, totaling $6.2 million, were
excluded from the pro forma results for the year ended December 31, 2013.
These acquired businesses contributed total revenues of $71.6 million in the year ended December 31,
2013. The Company has also determined that the presentation of net income for each of those acquisitions, from
the date of acquisition, is impracticable due to the integration of the operations upon acquisition.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following (in thousands):
Prepaid rent and other occupancy costs
Prepaid income taxes
Prepaid workers compensation claims
Reimbursable costs
Prepaid insurance
Other prepaid expenses and current assets
December 31,
2015
2014
12,165
12,569
5,385
2,450
2,097
9,213
43,879
$
$
10,672
4,427
11,092
2,784
1,917
8,255
39,147
$
$
Under the terms of the Company’s workers compensation policy, the Company is required to make
advances to its insurance carrier pertaining to estimated claims for all open plan years.
67
4. FIXED ASSETS
Fixed assets consist of the following (dollars in thousands):
Buildings
Furniture, equipment and software
Leasehold improvements
Land
Total fixed assets
Accumulated depreciation
Fixed assets, net
Estimated useful lives
2015
2014
December 31,
(Years)
20 – 40
3 – 10
Shorter of the lease term
or the estimated useful life
—
$
140,177
$
159,433
318,852
53,050
671,512
(241,776)
429,736
$
$
131,767
144,040
271,757
50,604
598,168
(199,221)
398,947
Fixed assets include construction in progress of $17.8 million and $11.8 million at December 31, 2015
and 2014, respectively, which was primarily comprised of leasehold improvements. The Company recorded
depreciation expense of $50.7 million, $48.4 million and $42.7 million for the years ended December 31, 2015,
2014, and 2013, respectively.
5. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill are as follows (in thousands):
Balance at December 31, 2013
Additions from acquisitions
Adjustments to prior year acquisitions
Effect of foreign currency translation
Balance at December 31, 2014
Additions from acquisitions
Adjustments to prior year acquisitions
Effect of foreign currency translation
Balance at December 31, 2015
Full service
center-based
care
$ 912,134
Back-up
dependent
care
$ 160,145
Other
educational
advisory
services
$
24,004
11,087
902
(11,080)
913,043
62,838
(15)
(10,752)
$ 965,114
—
—
(1,251)
158,894
—
—
—
—
(203)
—
23,801
—
—
—
$ 158,894
$
23,801
Total
$ 1,096,283
11,087
699
(12,331)
1,095,738
62,838
(15)
(10,752)
$ 1,147,809
68
The Company also has intangible assets, which consist of the following at December 31, 2015 and 2014
(in thousands):
Weighted average
amortization period
Cost
Accumulated
amortization
Net carrying
amount
December 31, 2015:
Definite-lived intangibles:
Customer relationships
Trade names
Non-compete agreements
Indefinite-lived intangibles:
Trade names
December 31, 2014:
Definite-lived intangibles:
Customer relationships
Trade names
Non-compete agreements
Indefinite-lived intangibles:
Trade names
14 years
$ 410,205
8 years
5 years
6,046
53
416,304
$ (207,257) $ 202,948
3,298
(2,748)
(48)
(210,053)
5
206,251
N/A
183,080
$ 599,384
—
183,080
$ (210,053) $ 389,331
Weighted average
amortization period
Cost
Accumulated
amortization
Net carrying
amount
15 years
$ 400,097
8 years
5 years
5,772
54
405,923
$ (180,900) $ 219,197
3,595
(2,177)
(44)
(183,121)
10
222,802
N/A
183,447
$ 589,370
—
183,447
$ (183,121) $ 406,249
On an annual basis or if an indicator of impairment exists, indefinite lived trade names are subject to an
evaluation of the remaining useful life to determine whether events and circumstances continue to support an
indefinite useful life, as well as testing for impairment.
The Company recorded amortization expense of $28.0 million, $29.0 million and $30.1 million in the
years ended December 31, 2015, 2014, and 2013, respectively.
The Company estimates that it will record amortization expense related to intangible assets existing as of
December 31, 2015 as follows over the next five years (in thousands):
2016
2017
2018
2019
2020
69
Estimated
amortization
expense
$
$
$
$
$
27,922
26,231
24,903
24,099
23,708
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in thousands):
Accounts payable
Accrued payroll and employee benefits
Accrued insurance
Accrued occupancy costs
Accrued professional fees
Accrued interest
Other accrued expenses
7. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following (in thousands):
Customer amounts on deposit
Deferred rent and other occupancy costs
Income taxes payable
Unfavorable leases
Other liabilities
8. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following (in thousands):
Liabilities for workers compensation claims
Customer amounts on deposit
Liability for unvested restricted stock
Liability for uncertain tax positions
Other liabilities
December 31,
2015
2014
26,944
46,705
6,819
3,541
2,575
869
27,323
114,776
$
$
12,784
59,364
16,154
3,121
2,169
1,004
21,829
116,425
December 31,
2015
2014
12,395
3,438
1,916
776
1,209
19,734
$
$
10,477
2,847
4,802
658
1,616
20,400
December 31,
2015
2014
18,363
12,071
8,573
545
4,630
44,182
$
$
3,400
9,199
4,709
1,594
4,499
23,401
$
$
$
$
$
$
70
9. CREDIT ARRANGEMENTS AND DEBT OBLIGATIONS
As of December 31, 2015, the Company's $1.1 billion senior credit facilities consisted of $955.0 million
in secured term loan facilities and a $100.0 million revolving credit facility. In conjunction with a debt
refinancing in January 2013, $790.0 million in senior secured term loans were issued, with the subsequent
issuance of $165.0 million in additional term loans in December 2014. The term loans mature on January 30,
2020 and require quarterly principal payments of $2.4 million, with the remaining principal balance due on
January 30, 2020. Outstanding term loan borrowings were as follows at December 31, 2015 and 2014 (in
thousands):
Term loans
Deferred financing costs and original issue discount
Total debt
Less current maturities
Long-term debt
December 31,
2015
929,650
(14,439)
915,211
9,550
905,661
$
$
2014
939,200
(18,023)
921,177
9,550
911,627
$
$
At December 31, 2015, the revolving credit facility had a maturity of January 30, 2018 and there were
borrowings outstanding of $24.0 million, with $76.0 million of the revolving credit facility available for
borrowings. There were no borrowings outstanding on the revolving credit facility at December 31, 2014 with
the full facility available for borrowings. On January 26, 2016, the Company amended its existing credit
agreement to increase the revolving credit facility from $100.0 million to $225.0 million, to extend the maturity
date on the revolving credit facility from January 30, 2018 to July 31, 2019, and to modify the interest rate
applicable to borrowings.
All borrowings under the credit agreement are subject to variable interest rates. Borrowings under the
term loan facility bear interest at a rate per annum ranging from 1.75% to 2.5% over the Base Rate or 2.75% to
3.5% over the Eurocurrency Rate defined in the credit agreement. As of December 31, 2015 borrowings under
our revolving facility bore interest at a rate per annum equal to 1.75% over the Base Rate or 2.75% over the
Eurocurrency Rate. The Base Rate is the highest of (1) the prime rate of Goldman Sachs Bank USA, (2) the
federal funds effective rate plus 0.5% and (3) the Eurocurrency Rate with a one month interest period plus
1.0%. The Eurocurrency Rate option is the one, two, three or six month LIBOR rate, as selected by the
Borrower, or, with the approval of the applicable lenders, the nine, twelve or less than one month LIBOR rate.
The Base Rate is subject to an interest rate floor of 2.0% and the Eurocurrency Rate is subject to an interest rate
floor of 1.0%, both only with respect to the term loan facility. In addition, the unused portion of the revolving
credit facility is subject to a commitment fee per annum ranging from 0.375% to 0.500%. On January 26, 2016,
the Company amended its existing credit agreement to increase the revolving credit facility and to extend the
maturity date on the revolving credit facility as noted above, and to modify the interest rate applicable to
borrowings under the revolving credit facility from 1.75% over the Base Rate to a range of 1.25% to 1.75%
over the Base Rate, or 2.25% to 2.75% over the Eurocurrency Rate.
The effective interest rate for the term loans was 4.1% and 3.8% at December 31, 2015 and 2014,
respectively, and the weighted average interest rate for the years ended December 31, 2015 and 2014 was 4.1%
and 3.9%, respectively. The weighted average interest rate for the revolving credit facility was 3.8% and 5.0%
for the years ended December 31, 2015 and 2014, respectively.
All obligations under the senior secured credit facilities are secured by substantially all the assets of the
Company’s U.S.-based subsidiaries. The senior secured credit facilities contain certain customary affirmative
covenants and other covenants that, among other things, may restrict the ability of Bright Horizons Family
Solutions LLC ("BHFS LLC"), our wholly-owned subsidiary, and its restricted subsidiaries, to: incur certain
liens; make investments, loans, advances and acquisitions; incur additional indebtedness or guarantees; engage
in transactions with affiliates; sell assets, including capital stock of our subsidiaries; alter the business
71
conducted; enter into agreements restricting our subsidiaries’ ability to pay dividends; and, consolidate or
merge.
The revolving credit facility requires BHFS LLC, the borrower, and its restricted subsidiaries to comply
with a maximum senior secured first lien net leverage ratio financial maintenance covenant, to be tested only if,
on the last day of each fiscal quarter, the amount of revolving loans and swingline loans outstanding under the
revolving credit facility exceed 25% of the revolving commitments on such date.
The Company incurred financing fees of $14.2 million and original issue discount costs of $9.6 million in
connection with the 2013 and 2014 debt refinancing. These fees are being amortized over the terms of the
related debt instruments and amortization expense is included in interest expense. Amortization expense of
deferred financing costs was $2.2 million, $1.9 million, and $1.7 million in the years ended December 31, 2015,
2014, and 2013, respectively. Amortization expense of original issuance discount costs was $1.4 million, $1.1
million, and $1.0 million in the years ended December 31, 2015, 2014, and 2013, respectively.
10. REDEEMABLE NON-CONTROLLING INTEREST
In July 2011, the Company acquired a 63% ownership interest of a company in the Netherlands. The
Company acquired the remaining 37% interest by acquiring 18.5% in November 2012 and the remaining 18.5%
on December 31, 2013.
The operating results of the company in the Netherlands are included in the Company’s consolidated
results of operations with the non-controlling interest and the net income attributable to the Company presented
separately as applicable from the date of acquisition.
In connection with the initial acquisition, the Company entered into put and call option agreements with
the minority shareholders for the purchase of the non-controlling interest based on a contractually determined
formula. As a result of the option agreements, the non-controlling interest was considered redeemable and was
classified as temporary equity on the Company’s consolidated balance sheet. The minority ownership interest by
the previous owners was presented as redeemable non-controlling interest on the consolidated balance sheet in
the periods prior to the acquisition of the remaining interest on December 31, 2013. The redeemable non-
controlling interest was measured at fair value at the date of acquisition and was reviewed at each subsequent
reporting period and adjusted, as needed, to reflect its then redemption value. No adjustments were recorded.
The acquisition by the Company of 18.5% interest on November 23, 2012 for $3.9 million and of the
remaining 18.5% interest on December 31, 2013 for $4.1 million was treated as an equity transaction and the
difference between the acquisition price and carrying value of the redeemable non-controlling interest was
recorded as an adjustment to additional paid in capital. The accumulated other comprehensive income
associated with the additional acquired interest was also recorded as equity of the Company.
72
11. INCOME TAXES
Income (loss) before income taxes consists of the following (in thousands):
United States
Foreign
Total
Years ended December 31,
2015
134,611
5,545
140,156
$
$
2014
110,585
1,729
112,314
$
$
$
$
2013
5,109
(298)
4,811
Income tax expense (benefit) consists of the following (in thousands):
Current tax expense (benefit)
Federal
State
Foreign
Deferred tax (benefit) expense
Federal
State
Foreign
Income tax expense (benefit)
Years ended December 31,
2015
2014
2013
$
$
29,236
8,723
9,028
46,987
(11,014)
6,776
3,480
(758)
46,229
$
$
$
45,628
8,753
(726)
53,655
(10,497)
(948)
(1,931)
(13,376)
40,279
$
10,546
591
(5,260)
5,877
(9,080)
(1,179)
(3,151)
(13,410)
(7,533)
The following is a reconciliation of the U.S. Federal statutory rate to the effective rate on pretax income
(in thousands):
Federal tax expense computed at statutory rate
State tax expense (benefit), net of federal tax
Valuation allowance, net
Intercompany interest
Permanent differences and other, net
Change in tax rate
Change to uncertain tax positions, net
Foreign rate differential
Income tax expense (benefit)
Years ended December 31,
2015
2014
2013
$
$
49,055
5,849
(185)
(6,919)
(901)
319
(333)
(656)
46,229
$
$
39,310
5,121
245
—
277
(134)
(1,523)
(3,017)
40,279
$
$
1,684
(193)
3
—
(234)
(94)
(4,850)
(3,849)
(7,533)
73
Significant components of the Company’s net deferred tax liability are as follows (in thousands):
Deferred tax assets:
Reserve on assets
Net operating loss and credit carryforwards
Liabilities not yet deductible
Deferred revenue
Stock-based compensation
Depreciation
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Intangible assets
Depreciation
Total deferred tax liabilities
Net deferred tax liability
December 31,
2015
2014
$
566
1,281
33,438
2,418
12,277
53
934
50,967
(1,111)
49,856
466
1,659
28,045
2,724
10,964
73
1,386
45,317
(1,296)
44,021
(144,402)
(18,554)
(162,956)
(113,100) $
(143,732)
(13,686)
(157,418)
(113,397)
$
$
The Company has chosen early adoption of the ASU 2015-17, Balance Sheet Classification of Deferred
Taxes, and applied the guidance prospectively which requires that all deferred assets and liabilities, along with
any related valuation allowance, be classified as noncurrent on the balance sheet. The prior period balance
sheets were not retrospectively adjusted. Amounts for 2014 in the table above have been conformed to the 2015
presentation.
During 2015, the overall deferred tax liability has decreased slightly, primarily due to the book to tax
difference in the treatment of amortization of intangible assets, depreciation and stock-based compensation.
The Company has foreign net operating losses of $8.6 million and has recorded an associated deferred tax
asset totaling $1.4 million. Deferred tax assets associated with federal and state net operating losses total $0.1
million. The net operating losses in foreign jurisdictions will begin to expire in 2023 or can be carried forward
indefinitely. The net operating losses in the United States have expiration dates through 2035. In jurisdictions
in which the Company has not had a history of profitability, the Company has recorded a valuation allowance of
$1.1 million associated with foreign net deferred tax assets. During 2015, the valuation allowance decreased
$0.2 million.
We consider the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United
States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic
cash needs and our specific plans for reinvestment of those subsidiary earnings. We have not recorded a
deferred tax liability of approximately $6.4 million related to the U.S. federal and state income taxes and
foreign withholding taxes on approximately $46.4 million of cumulative undistributed earnings of foreign
subsidiaries indefinitely invested outside the United States. Should we decide to repatriate the foreign earnings,
we would need to adjust our income tax provision in the period we determined that the earnings will no longer
be indefinitely invested outside the United States.
Uncertain Tax Positions
The Company follows the authoritative guidance relating to the accounting for uncertainty in income
taxes. The Company may recognize the tax benefit from 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 the technical merits
74
of the position. The tax benefits recognized in the consolidated financial statements from such a position should
be measured based on the largest 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):
Beginning balance
Additions for tax positions of prior years
Additions for tax positions of current year
Settlements
Reductions for tax positions of prior years
Lapses of statutes of limitations
Effect of foreign currency adjustments
Ending balance
Years ended December 31,
2015
2014
2013
713
353
353
(50)
—
(663)
—
706
$
$
2,034
—
—
—
(490)
(831)
—
713
$
$
7,412
540
—
(1,110)
(4,108)
(712)
12
2,034
$
$
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax
expense. The Company’s current provision for income tax expense for the year ended December 31, 2015
included no interest and penalties. The years ended December 31, 2014 and 2013 included less than $0.1
million of interest and penalties related to tax positions of the Company. There was no liability for total interest
and penalties at December 31, 2015, and at December 31, 2014, the interest and penalties were $0.9 million and
were included in other long-term liabilities. During 2015, the Company recorded an unrecognized tax benefit
for a foreign subsidiary's tax position. Reductions also were recorded due to the lapse in the statute of
limitations for prior tax filings and agreements on audits.
The total amount of unrecognized tax benefits that if recognized would affect the Company’s effective tax
rate is $0.7 million. The Company expects the unrecognized tax benefits to change over the next 12 months if
certain tax matters ultimately settle with the applicable taxing jurisdiction during this time frame, or if
applicable statutes of limitations lapse. The impact of the amount of such changes to previously recorded
uncertain tax positions could range from zero to $0.7 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 tax returns 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 2012 through 2015 are subject to audit based upon the Federal statute of limitations. An audit of a
subsidiary's filing for 2013 began in the second quarter of 2015 and is expected to be settled in 2016.
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 any Federal 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 significant settlements
of state audits during 2015. As of December 31, 2015, there were two income tax audits in process and the tax
years from 2010 to 2015 are subject to audit.
The Company is also subject to corporate income tax at its subsidiaries located in the United Kingdom,
the Netherlands, India, Canada, Ireland, and Puerto Rico. The tax returns for the Company’s subsidiaries located
in foreign jurisdictions are subject to examination for periods ranging from one to seven years.
75
12. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
Preferred Stock
The Company authorized 25 million shares of undesignated preferred stock in 2013 for issuance, of which
none were issued in the years ended December 31, 2015 and 2014. The Company’s board of directors has the
authority, without further action by stockholders, to issue up to 25 million shares of preferred stock in one or
more series. The Company’s board of directors may designate the rights, preferences, privileges, and restrictions
of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preference, and number of shares constituting any series or the designation of any series. The
issuance of preferred stock could have the effect of restricting dividends on the Company’s common stock,
diluting the voting power of its common stock, impairing the liquidation rights of its common stock, or delaying
or preventing a change in control. The ability to issue preferred stock could delay or impede a change in control.
As of December 31, 2015 and 2014, no shares of preferred stock were outstanding.
Treasury Stock
On February 4, 2015, the board of directors of the Company approved a $250.0 million repurchase
program of its common stock. The repurchase program has no expiration date and replaces the prior 2014
authorization. During the year ended December 31, 2015, the Company repurchased 2.2 million shares for
$128.1 million, including a total of 2.1 million shares that were purchased from investment funds affiliated with
the Sponsor in secondary offerings that commenced May 27, 2015, August 10, 2015, and November 18, 2015.
At December 31, 2015, $121.9 million remained outstanding under the repurchase program.
On March 28, 2014, the board of directors of the Company authorized the repurchase of up to $225.0
million of its common stock. Under this authorization, the Company repurchased a total of 5.0 million shares
for $221.6 million in the year ended December 31, 2014, including 4.5 million shares that were purchased from
investment funds affiliated with the Sponsor in conjunction with the sale of 8.0 million shares through an
underwritten secondary offering that commenced on December 10, 2014.
There were no stock repurchases during the year ended December 31, 2013. The Company accounts for
treasury stock under the cost method. All repurchased shares have been retired.
Equity Incentive Plan
The Company has the 2012 Omnibus Long-Term Incentive Plan (the "Plan”), which became effective on
January 24, 2013, and allows for the issuance of equity awards of up to 5 million shares of common stock. As
of December 31, 2015, there were approximately 2.9 million shares of common stock available for grant. Stock
options granted under the Plan are subject to a service condition and expire in seven years from date of grant or
termination of the holder’s employment with the Company, unless such termination was due to death, disability
or retirement, unless otherwise determined by the administrator of the Plan. The majority of the options have a
requisite service period of five years, with 60% of the options vesting on the third anniversary of the date of
grant and 20% vesting on each of the fourth and fifth anniversaries.
The Company also had an incentive compensation plan (the “2008 Equity Incentive Plan”) which, as
amended in March 2012, was authorized to issue 150,000 shares of Class L common stock and 1.5 million
shares of Class A common stock. No additional options will be granted under the 2008 Equity Incentive Plan.
However, all outstanding options continue to be governed by their existing terms.
On January 11, 2013, the Company effected a 1–for–1.9704 reverse split of its Class A common stock.
Therefore, all previously reported options to purchase Class A shares and the related exercise prices in the
accompanying financial statements and related notes have been retroactively adjusted to reflect the reverse
stock split.
In addition, on January 11, 2013, the Company converted each share of its Class L common stock into
35.1955 shares of Class A common stock, and, immediately following the conversion of its Class L common
stock, reclassified those shares, as well as all outstanding shares of Class A common stock, into common stock.
76
All outstanding options to purchase Class L common stock have been converted into options to acquire
common stock using the 35.1955 conversion ratio with a corresponding adjustment to the exercise price.
Stock-Based Compensation
The Company recognized the impact of stock-based compensation in its consolidated statements of
income for the years ended December 31, 2015, 2014, and 2013 and did not capitalize any amounts on the
consolidated balance sheets. In the years ended December 31, 2015 and 2014, the Company recorded stock-
based compensation expense of $9.2 million and $7.9 million, respectively, of which $8.7 million and $7.3
million were recorded in selling, general and administrative expenses, respectively, and $0.5 million and $0.6
million in cost of services, respectively, in the consolidated statements of income in relation to all awards
granted under the equity incentive plans. In the year ended December 31, 2013, the Company recorded stock-
based compensation expense of $10.7 million in selling, general and administrative expenses in the consolidated
statement of income. Stock-based compensation expense generated an income tax benefit of $3.7 million, $3.2
million, and $4.3 million in the years ended December 31, 2015, 2014, and 2013, respectively.
The stock-based compensation expense for the year ended December 31, 2013 includes $5.0 million
associated with options to purchase 1.3 million shares of common stock that had been issued under the 2008
Equity Incentive Plan, which vested upon the effectiveness of the Offering on January 24, 2013.
There were no share-based liabilities paid during the period. As of December 31, 2015, there was $13.5
million of total unrecognized compensation expense related to unvested share-based compensation
arrangements granted under the Plan. That expense is expected to be recognized over the remaining requisite
service period. The weighted average remaining requisite service period was approximately two years at
December 31, 2015.
Stock Options
The fair value of each stock option of common stock granted was estimated on the date of grant using the
Black-Scholes option pricing model using the following weighted average assumptions:
Expected dividend yield
Expected stock price volatility
Risk free interest rate
Expected life of options (years)
Weighted average fair value per share of options granted during the period
Years ended December 31,
2015
0.0%
2014
0.0%
2013
0.0%
30.0% 30.0% 44.3%
1.5%
1.8%
1.0%
5.3
5.3
5.3
$15.37
$11.36
$10.24
The expected dividend yield was based on the Company’s expectation of not paying dividends in the
foreseeable future. Since the Company completed its initial public offering in January 2013, it does not have
sufficient history as a publicly traded company to evaluate its volatility factor. As such, the expected stock price
volatility is based upon the historical volatility of the stock price over the expected life of the options of the
Company and that of peer companies that are publicly traded. The risk free interest rate was based on the U.S.
Treasury rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the
awards being valued. For grants issued during the years ended December 31, 2015, 2014, and 2013, the
expected life of the options was calculated using the simplified method. The simplified method defines the life
as the average of the contractual term of the options and the weighted average vesting period for all option
tranches. This methodology was utilized due to the short length of time our common stock has been publicly
traded.
77
The table below reflects stock option activity under the Company’s equity plan for the year ended
December 31, 2015.
Weighted
Average
Remaining
Contractual
Life in
Years
5.6
Outstanding at January 1, 2015
Granted
Exercised
Forfeited
Outstanding at December 31, 2015
Exercisable at December 31, 2015
Vested and expected to vest at December 31, 2015
4.9
4.4
4.9
Number
of
Options
4,152,617
481,700
(694,381)
(121,358)
3,818,578
1,778,285
3,670,606
$
$
$
$
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
(In millions)
20.24
51.26
14.13
38.69
24.68
14.41
24.03
$
$
$
160.9
93.2
157.0
The fair value (pre-tax) of options that vested during the years ended December 31, 2015, 2014, and 2013
were $2.3 million, $3.9 million, and $9.1 million, respectively. The intrinsic value of options exercised during
the years ended December 31, 2015, 2014, and 2013 were $28.9 million, $32.3 million, and $15.4 million,
respectively.
Cash received by the Company from the exercise of stock options for the years ended December 31, 2015,
2014, and 2013 was $9.8 million, $17.4 million, and $11.0 million, respectively. Income tax benefits realized
from the exercise of stock options in the years ended December 31, 2015, 2014, and 2013 were $11.6 million,
$12.9 million, and $8.2 million, respectively, inclusive of the excess tax benefits realized of $9.4 million, $9.1
million, and $5.9 million in the years ended December 31, 2015, 2014, and 2013, respectively.
Restricted Stock and Restricted Stock Units
Restricted stock awards are granted to certain senior managers at the discretion of the board of directors
as allowed under the Plan. Restricted stock awards vest on the earliest of the third anniversary of the grant date,
a change of control of the Company, and the termination of employment by reason of death or disability, and are
accounted for as nonvested stock. Restricted stock is sold for a price equal to 50% of the fair value of the stock
at the date of grant. Proceeds from the issuance of restricted stock are recorded as other liabilities in the
consolidated balance sheet until the earlier of vesting or forfeiture of the awards. The unvested shares of
restricted stock participate equally in dividends with common stock. Restricted stock is considered legally
issued at the date of grant but is not considered common stock issued and outstanding in accordance with
accounting guidance until the requisite service period is fulfilled. All outstanding shares of restricted stock are
expected to vest. Cash proceeds from the issuance of restricted stock for the years ended December 31, 2015
and 2014 were $3.9 million and $4.7 million, respectively. No restricted stock awards were granted in 2013.
Stock-based compensation expense for restricted stock awards is calculated based on the fair value of the
award on the date of grant, which is recognized on a straight line basis over the requisite service period. The
Company's stock-based compensation expense recorded in selling, general and administrative expenses in the
consolidated statements of income for the years ended December 31, 2015 and 2014 included $2.9 million and
$1.6 million, respectively, for restricted stock awards. As of December 31, 2015, total unrecognized
compensation expense included $4.1 million related to unvested restricted stock, which is expected to be
recognized over the weighted average remaining requisite service period of approximately two years.
78
The table below reflects restricted stock activity under the Company’s equity plan for the year ended
December 31, 2015.
Nonvested restricted stock shares at January 1, 2015
Granted
Vested
Forfeited
Number of
Shares
Weighted Average
Grant Date Fair
Value
Aggregate
Intrinsic Value
(In millions)
259,525
$
163,200
—
—
18.15
23.68
—
—
Nonvested restricted stock shares at December 31, 2015
422,725
$
20.28
$
19.7
Restricted stock units are awarded to members of the board of directors as allowed under the Plan. The
awards allow for the issuance of a share of the Company's common stock for each vested unit upon the earliest
of termination of service as a member of the board of directors or five years after the date of the award. During
the year ended December 31, 2015, 9,000 restricted stock units were awarded at a weighted average fair value
of $53.18. During the year ended December 31, 2014, 6,066 restricted stock units were awarded at a weighted
average fair value of $39.58. At December 31, 2015, there were 15,066 restricted stock units outstanding, with
an intrinsic value of $0.8 million, which vested upon award.
13. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted-average common shares
outstanding. Diluted earnings per share is calculated by dividing net income by the weighted-average common
shares and potentially dilutive securities outstanding during the period.
Earnings per share is calculated using the two-class method, which requires the allocation of earnings to
each class of common stock outstanding and to unvested share-based payment awards that participate in
dividends with common stock, also referred to herein as unvested participating shares.
The Company's unvested stock-based payment awards include unvested shares awarded as restricted
stock awards at the discretion of the Company’s board of directors. The restricted stock awards generally vest
at the end of three years. The unvested shares participate equally in dividends. See Note 12 for a discussion of
the current year unvested stock awards and issuances.
79
Earnings per Share - Basic
The following table sets forth the computation of earnings per share using the two-class method (in
thousands, except share and per share amounts):
Basic earnings per share:
Net income
Allocation of net income to common shareholders:
Common stock
Unvested participating shares
Weighted average number of common shares:
Common stock
Unvested participating shares
Earnings per common share:
Common stock
Earnings per Share - Diluted
Years ended December 31,
2015
2014
2013
93,927
$
72,035
$
12,623
93,287
640
93,927
$
$
71,755
280
72,035
$
$
12,623
—
12,623
$
$
$
60,835,574
417,285
65,612,572
255,920
62,659,264
—
$
1.53
$
1.09
$
0.20
The Company calculates diluted earnings per share for common stock using the more dilutive of (1) the
treasury stock method, or (2) the two-class method. The following table sets forth the computation of diluted
earnings per share using the two-class method (in thousands, except share and per share amounts):
Diluted earnings per share:
Earnings allocated to common stock
Years ended December 31,
2015
2014
2013
$
93,287
$
71,755
$
12,623
Plus earnings allocated to unvested participating shares
Less adjusted earnings allocated to unvested participating shares
Earnings allocated to common stock
$
640
(624)
93,303
$
280
(274)
71,761
—
—
$
12,623
Weighted average number of common shares:
Common stock
Effect of dilutive securities
Earnings per common share:
Common stock
60,835,574
1,525,204
62,360,778
65,612,572
1,631,600
67,244,172
62,659,264
1,849,772
64,509,036
$
1.50
$
1.07
$
0.20
Options outstanding to purchase 0.2 million, 0.7 million and 0.1 million shares of common stock were
excluded from diluted earnings per share for the years ended December 31, 2015, 2014, and 2013, respectively,
since their effect was anti-dilutive, which may be dilutive in the future.
80
14. COMMITMENTS AND CONTINGENCIES
Leases
The 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 10 and 15 years and many contain
renewal options for various periods. Rent expense for the years ended December 31, 2015, 2014, and 2013
totaled $97.3 million, $88.7 million and $76.8 million, respectively.
Future minimum payments under non-cancelable operating leases as of December 31, 2015 are as follows
for the years ending December 31 (in thousands):
2016
2017
2018
2019
2020
Thereafter
Total future minimum lease payments
Long-Term Debt
$
$
89,547
84,984
80,739
75,045
71,080
441,583
842,978
Future minimum payments of long-term debt are as follows for the years ending December 31 (in
thousands):
2016
2017
2018
2019
2020
Total future principal payments
Overdraft Facilities
$
$
9,550
9,550
9,550
9,550
891,450
929,650
The Company’s subsidiaries in the United Kingdom maintain an overdraft facility with a U.K. bank to
support local short-term working capital requirements. The overdraft facility is repayable upon demand from the
U.K. bank. The facility provides maximum borrowings of £0.3 million (approximately $0.4 million at
December 31, 2015) and is secured by a cross guarantee by and among the Company’s subsidiaries in the
United Kingdom and 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 rate plus 2.15%. At December 31, 2015 and 2014,
there were no amounts outstanding under the overdraft facility.
The Company’s subsidiary in the Netherlands maintained a multi-purpose revolving credit facility with a
Dutch bank to support working capital, letter of credit requirements, and the construction and fitting out of new
child care centers. The facility was secured by a right of offset against all accounts maintained at the lending
bank and by an additional pledge of certain equipment. The €2.2 million facility was terminated in December
2014. The weighted average interest rate for the year ended December 31, 2014 was 5.53%.
Letters of Credit
The Company has 25 letters of credit outstanding used to guarantee certain rent payments for up to $1.0
million. These letters of credit are guaranteed by cash deposits. No amounts have been drawn against these
letters of credit.
81
Litigation
The Company is a defendant in certain legal matters in the ordinary course of business. Management
believes the resolution of such pending legal matters will not have a material effect on the Company’s financial
condition, results of operations or cash flows.
Insurance and Regulatory
The Company self-insures a portion of its medical insurance plans and has a high deductible workers’
compensation plan. Management believes that the amounts accrued for these obligations are sufficient and that
ultimate settlement of such claims or costs associated with claims made under these plans will not 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 of a center to comply with applicable regulations can subject it
to governmental sanctions, which could require expenditures by the Company to bring its child care and early
education centers into compliance.
15. EMPLOYEE BENEFIT PLANS
The 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 employee must 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 the 160 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 is funded by elective employee contributions of up to 50% of their compensation,
subject to certain limitations. Under the 401(k) Plan, the Company matches 25% of employee contributions for
each participant up to 8% of the employee’s compensation after one year of service. Expense under the plan,
consisting of Company contributions and plan administrative expenses paid by the Company, totaled
approximately $2.5 million, $2.3 million and $2.1 million for the years ended December 31, 2015, 2014 and
2013, respectively.
The Company maintains a Nonqualified Deferred Compensation Plan (the “NQDC Plan”) for all eligible
employees. Eligible employees are employees who have capped contribution levels in our existing 401(k) Plan
due to the thresholds dictated by the IRS definition of “highly compensated” employees, as well as other
employees at the discretion of the Bright Horizons Family Solutions Nonqualified Deferred Compensation Plan
Committee. The NQDC Plan is funded by elective employee contributions of up to 50% of their compensation.
Under the NQDC Plan, the Company matches 25% of employee contributions for each participant up to $2,500.
The Company records an asset and a corresponding liability on the consolidated balance sheet for the deferred
compensation plan that were $1.1 million and $1.2 million at December 31, 2015, respectively. The deferred
compensation plan asset and liability were both $0.3 million at December 31, 2014.
16. SEGMENT AND GEOGRAPHIC INFORMATION
Bright Horizons work/life services are primarily comprised of full service center-based child care, back-
up dependent care, and other educational advisory services. Full service center-based care includes the
traditional center-based child care, preschool, and elementary education, which have similar operating
characteristics and meet the criteria for aggregation. Full service center-based care derives its revenues
primarily from contractual arrangements with corporate clients and from 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 educational advisory services consists of the remaining services, including college
preparation and admissions counseling, tuition reimbursement program administration, and related consulting
services, which do not meet the quantitative thresholds for separate disclosure and are not material for segment
reporting individually or in the aggregate. The Company and its chief operating decision makers evaluate
performance based on revenues and income from operations.
82
The assets and liabilities of the Company are managed centrally and are reported internally in the same
manner as the consolidated financial statements; therefore, no additional information is produced or included
herein.
Year ended December 31, 2015
Revenue
Amortization of intangible assets
Income from operations (1)
Year ended December 31, 2014
Revenue
Amortization of intangible assets
Income from operations (2)
Year ended December 31, 2013
Revenue
Amortization of intangible assets
Income from operations (3)
Full service
center-based
care
Back-up
dependent
care
Other
educational
advisory
services
(In thousands)
$
$
$
$
$
$
1,236,762
26,690
115,149
1,156,661
27,696
92,229
1,049,854
29,048
67,287
$
$
$
181,574
725
56,891
162,886
725
49,317
144,432
725
39,710
$
$
$
40,109
574
9,562
33,452
578
5,374
24,490
302
2,037
Total
1,458,445
27,989
181,602
1,352,999
28,999
146,920
1,218,776
30,075
109,034
(1)
(2)
(3)
For the year ended December 31, 2015, income from operations includes of $0.9 million of costs
associated with secondary offerings of common shares and completed acquisitions, all of which is
allocated to full service center-based care.
For the year ended December 31, 2014, income from operations includes $2.7 million of costs
associated with secondary offerings of common shares and the amendment to the credit agreement
completed in November 2014 ($2.4 million to full service center-based care and $0.3 million to back-
up dependent care).
For the year ended December 31, 2013, income from operations includes expenses incurred in
connection with the Offering completed in January 2013, including a $7.5 million fee for the
termination of the management agreement with the Sponsor, and $5.0 million for certain stock options
that vested upon completion of the Offering, allocated on a proportionate basis to each segment, $4.0
million of acquisition-related expenses related to full-service center-based care and $1.3 million of
costs associated with secondary offerings of common shares ($15.1 million to full service center-based
care, $1.9 million to back-up dependent care, and $0.8 million to other educational advisory services).
Revenue and long-lived assets by geographic region are as follows (in thousands):
Revenue
North America
Europe and other
Total Revenue
Years ended December 31,
2015
2014
2013
$
$
1,182,629
275,816
1,458,445
$
$
1,074,951
278,048
1,352,999
$
$
980,537
238,239
1,218,776
83
Long-lived assets
North America
Europe and other
Total long-lived assets
December 31,
2015
2014
2013
$
$
308,469
121,267
429,736
$
$
277,971
120,976
398,947
$
$
260,483
130,411
390,894
The classification “North America” is comprised of the Company’s United States, Canada and Puerto
Rico operations and the classification “Europe and other” includes the Company’s United Kingdom,
Netherlands, Ireland, and India operations. Revenues in the United States were $1.2 billion in 2015, $1.1 billion
in 2014, and $975.5 million in 2013. Revenues in the United Kingdom were $238.5 million in 2015, $239.6
million in 2014, and $204.7 million in 2013. Long-lived assets were $306.6 million, $275.7 million, and $257.8
million at December 31, 2015, 2014, and 2013 respectively, in the United States, and $107.8 million, $104.0
million, and $108.9 million at December 31, 2015, 2014, and 2013 respectively, in the United Kingdom.
Revenue and long-lived assets associated with other countries were not material.
17. TRANSACTIONS WITH RELATED PARTIES
The Company had a management agreement with the Sponsor which provided for annual payments of
$2.5 million through May 2018. In connection with the Offering, the Company and the Sponsor terminated the
management agreement in exchange for a $7.5 million payment from the Company to the Sponsor, which is
included in selling, general and administrative expenses in the accompanying statement of income for the year
ended December 31, 2013.
Subsequent to the Offering, on June 19, 2013, March 25, 2014, December 10, 2014, May 27, 2015,
August 10, 2015, and November 18, 2015, certain of the Company’s shareholders affiliated with the Sponsor
commenced the sale of 9.8 million, 7.9 million, 8.0 million, 3.0 million, 3.0 million, and 3.65 million shares,
respectively, of the Company’s common stock in secondary offerings.
The Company purchased 4.5 million, 1.25 million, 0.7 million, and 0.15 million of the shares sold in the
December 10, 2014, May 27, 2015, August 10, 2015, and November 18, 2015 secondary offerings, respectively,
from investment funds affiliated with the Sponsor at the same price per share paid by the underwriter to the
selling shareholders.
As of December 31, 2015, investment funds affiliated with the Sponsor hold approximately 27.5% of the
Company’s common stock. Three members of the Company's board of directors are affiliated with the Sponsor.
18. QUARTERLY RESULTS (UNAUDITED)
In the opinion of the Company’s management, the accompanying unaudited interim consolidated financial
statements contain all adjustments which are necessary for a fair presentation of the quarters presented. The
operating results for any quarter are not necessarily indicative of the results of any future quarter.
84
Selected quarterly financial information follows for the years ended December 31, 2015 and 2014:
Revenue
Gross profit
Income from operations
Net income
Allocation of net income to common
stockholders:
Common stock—basic
Common stock—diluted
Earnings per share:
Common stock—basic
Common stock—diluted
Revenue
Gross profit
Income from operations
Net income
Allocation of net income to common
stockholders:
Common stock—basic
Common stock—diluted
Earnings per share:
Common stock—basic
Common stock—diluted
March 31,
2015
June 30,
2015
September 30,
2015
December 31,
2015
(In thousands, except per share amounts)
$
350,440
$
370,465
$
365,944
$
371,596
86,608
42,841
22,532
22,386
22,390
95,860
52,138
26,919
26,735
26,739
85,384
41,741
20,558
20,415
20,419
$
$
0.36
0.35
$
$
0.44
0.43
$
$
0.34
0.33
$
$
89,903
44,882
23,918
23,751
23,755
0.40
0.39
March 31,
2014
June 30,
2014
September 30,
2014
December 31,
2014
(In thousands, except per share amounts)
$
332,155
$
348,100
$
334,976
$
337,768
77,149
34,011
16,048
15,988
15,990
83,114
42,535
21,714
21,629
21,631
72,861
33,046
15,379
15,319
15,320
$
$
0.24
0.24
$
$
0.33
0.32
$
$
0.23
0.23
$
$
80,478
37,328
18,894
18,819
18,820
0.29
0.28
85
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act that
are intended to ensure that information that would be required to be disclosed in Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms,
and that such information is accumulated and communicated to our management, including the Chief Executive
Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision, and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of December 31, 2015. Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
not effective as of December 31, 2015 due solely to the material weakness in internal control over financial
reporting described below.
In the course of completing its assessment of internal control over financial reporting as of December 31,
2014, management identified a material weakness in its internal control over financial reporting related to
information technology general controls in the areas of user access and program change management, which
material weakness has not been remediated as of December 31, 2015 for the reasons described below. A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of our annual or interim financial
statements will not be prevented or detected on a timely basis. For additional information regarding the nature
of this material weakness, see “Management’s Report on Internal Control Over Financial Reporting” below. We
have implemented a number of remediation efforts for this material weakness over the course of 2015 as part of
a remediation plan, which are described below.
Notwithstanding the identified material weakness and management’s assessment that internal control over
financial reporting was ineffective as of December 31, 2015, management believes that the audited consolidated
financial statements contained in this Annual Report on Form 10-K fairly present, in all material respects, our
financial condition, results of operations and cash flows for the fiscal years presented in conformity with
accounting principles generally accepted in the United States of America. Additionally, this material weakness
did not result in any restatements of the Company's audited consolidated financial statements and disclosures
for any prior period previously reported by the Company.
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control
over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) promulgated
under the Exchange Act as a process, designed by, or under the supervision of the Company’s principal
executive and principal financial officers and effected by the Company’s board of directors, management and
other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America. Internal control over financial reporting includes maintaining records
that in reasonable detail accurately and fairly reflect our transactions and disposition of assets; providing
reasonable assurance that transactions are recorded as necessary for preparation of our financial statements;
providing reasonable assurance that receipts and expenditures are made only in accordance with management
and board authorizations; and providing reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial
statements.
86
Because of its inherent limitations, internal control over financial reporting is not intended to provide
absolute assurance that a misstatement of our financial statements would be prevented or detected. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance with policies or procedures may
deteriorate.
Management, with the participation of the Company’s principal executive and principal financial officers,
conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31,
2015 based on the framework and criteria established in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review
of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating
effectiveness of controls and a conclusion on this evaluation. Based on the foregoing, management concluded
that the Company’s internal control over financial reporting was not effective as of December 31, 2015 for the
reasons described below.
In the course of completing our assessment of internal control over financial reporting as of December 31,
2014, management identified a number of deficiencies related to the design and operating effectiveness of
information technology (“IT”) general controls for information systems that comprise part of the Company’s
system of internal control over financial reporting and are relevant to the preparation of our consolidated
financial statements (such information technology systems are referred to as the “affected IT systems”). These
deficiencies involve user access controls and program change management controls that are intended to ensure
that access to financial applications and data is adequately restricted to appropriate personnel, and that changes
affecting the financial applications and underlying account records are identified, authorized, tested and
implemented appropriately. While the Company has implemented a number of remediation efforts over the
course of 2015 with respect to the identified deficiencies, the Company has not remediated the material
weakness initially identified in connection with the Company’s assessment of internal control over financial
reporting as of December 31, 2014 because certain of the remediation efforts were implemented later in 2015
and sufficient testing of their operating effectiveness had not yet occurred as of December 31, 2015. As a result
of the deficiencies identified, there is a possibility that the effectiveness of business process controls, which are
dependent on the affected IT systems, or electronic data and financial reports generated from the affected IT
systems, could be adversely affected.
Throughout 2015, management has been actively engaged in the implementation of a remediation plan to
ensure that controls contributing to remediation of this material weakness are designed appropriately and will
operate effectively, and has engaged external IT specialist consultants to advise management on these
remediation activities. The remediation actions we have taken to date to address the material weakness and to
improve and strengthen our internal controls include the following:
•
•
Improving the design, operation and monitoring of control activities and procedures associated with
user and administrator access to the affected IT systems, including both preventive and detective
control activities.
Implementing appropriate program change management control activities, including the installation of
third party utility tools, to track access, authorizations and history of changes across the affected IT
systems.
• Hiring additional information technology personnel and expand the resources in the functional areas
•
that support and monitor our IT systems and the information generated therefrom.
Implementing business process controls that directly mitigate the risks related to the electronic data
and financial reports generated from the affected IT systems and used in the performance of underlying
business process controls while remediation is in progress to address the general IT control
deficiencies.
Management believes the steps taken to date, including the design and implementation of new control
activities, have improved the effectiveness of our internal control over financial reporting. However, the
87
material weakness will not be considered remediated until the applicable internal controls operate for a
sufficient period of time and management has concluded, through testing, that these controls are operating
effectively. While significant progress has been made throughout 2015 related to the planned remediation
activities noted above, certain controls were implemented later in 2015, and sufficient testing of the operating
effectiveness had not yet occurred as of December 31, 2015. Therefore, management concluded that the
material weakness in internal controls over financial reporting related to information technology general
controls in the areas of user access and program change management for the affected IT systems had not been
remediated as of December 31, 2015.
Management believes that once the new controls have been in operation for a sufficient period of time to
test such that management can conclude that they are operating effectively, the material weakness will be
remediated. However, we cannot provide any assurance that these remediation efforts will be successful or that
our internal control over financial reporting will be effective as a result of these efforts by any particular date.
In addition, as the Company continues to evaluate and work to improve its internal control over financial
reporting, management may determine to take additional measures to address control deficiencies or determine
to modify the remediation plan described above. Management will continue to test and evaluate the
implementation of these new processes and internal controls during 2016 to ascertain whether they are designed
and operating effectively to provide reasonable assurance that they will prevent or detect a material error in the
Company’s financial statements. Subject to the foregoing, management believes these remediation efforts will
be completed by December 31, 2016.
Attestation Report of the Independent Registered Public Accounting Firm
Our internal control over financial reporting as of December 31, 2015, has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their report, which follows below.
Changes in Internal Control Over Financial Reporting
Except as described above under “Management’s Report on Internal Control Over Financial
Reporting,” there have been no changes in the Company’s internal control over financial reporting that occurred
during the three months ended December 31, 2015 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
88
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Bright Horizons Family Solutions Inc.
Watertown, Massachusetts
We have audited Bright Horizons Family Solutions Inc. and subsidiaries' (the “Company”) internal control over
financial reporting as of December 31, 2015, based on criteria established in Internal Control Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on that risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, or persons performing similar functions, and
effected by the company’s board of directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that the controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the company’s annual or interim
financial statements will not be prevented or detected on a timely basis. The following material weakness has
been identified and included in management’s assessment. Management identified a material weakness in
internal control over financial reporting relating to the design and operating effectiveness of user access and
program change management controls related to certain information systems that are relevant to the preparation
of the Company’s consolidated financial statements and system of internal control over financial reporting. This
material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit
of the consolidated financial statements as of and for the year ended December 31, 2015, of the Company and
this report does not affect our report on such financial statements.
In our opinion, because of the effects of the material weakness identified above on the achievement of the
objectives of the control criteria, the Company has not maintained effective internal control over financial
89
reporting as of December 31, 2015, based on the criteria established in Internal Control Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements of Bright Horizons Family Solutions Inc. and subsidiaries
as of and for the year ended December 31, 2015, and our report dated February 29, 2016 expressed an
unqualified opinion on those financial statements.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 29, 2016
90
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding our executive officers is set forth at the end of Part I of this Annual Report on Form
10-K under the caption "Executive Officers of the Registrant." The remaining information required by this Item
10 will be contained in our definitive Proxy Statement for our 2016 Annual Meeting of Stockholders, which will
be filed not later than 120 days after the close of our fiscal year ended December 31, 2015 (the “Definitive
Proxy Statement”) and is incorporated herein by reference.
Item 11. Executive Compensation
Except for information regarding securities authorized under our equity compensation plans as set forth in
Part II, Item 5 of this Annual Report on Form 10-K under the caption "Equity Compensation Plans," the
information required by this item will be contained in our Definitive Proxy Statement and is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this item will be contained in our Definitive Proxy Statement and is
incorporated herein by reference.
Item 13. Certain Relationships, Related Transactions and Director Independence
The information required by this item will be contained in our Definitive Proxy Statement and is
incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item will be contained in our Definitive Proxy Statement and is
incorporated herein by reference.
91
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
1.
2.
3.
Financial statements: All financial statements are included in Part II, Item 8 of this report.
Financial statement schedules: All other financial statement schedules are omitted
because they are not required or are not applicable, or the required information is
provided in the consolidated financial statements or notes described in Item 15(a)(1)
above.
Exhibits: The following is an index of the exhibits included in this Annual Report on
Form 10-K or incorporated by reference.
Exhibit
Number
3.1
3.2
4.1
10.1†
10.2†
10.3
10.4†
10.5†
10.6†
10.7†
Exhibit Title
Form of Second Restated Certificate of Incorporation of Bright Horizons Family Solutions Inc.
(incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1,
File No. 333-184579, filed October 24, 2012)
Form of Amended and Restated Bylaws of Bright Horizons Family Solutions Inc. (incorporated
by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, File No.
333-184579, filed October 24, 2012)
Form of Amended and Restated Registration Rights Agreement among Bright Horizons Family
Solutions Inc. and certain stockholders of Bright Horizons Family Solutions Inc. (incorporated
by reference to Exhibit 4.1 to Amendment No. 1 to the Company’s Registration Statement on
Form S-1, File No. 333-184579, filed November 9, 2012)
Bright Horizons Family Solutions Inc. (f/k/a Bright Horizons Solutions Corp.) 2008 Equity
Incentive Plan amended (incorporated by reference to Exhibit 10.1 to the Company’s
Registration Statement on Form S-1, File No. 333-184579, filed October 24, 2012)
Amendment to Bright Horizons Family Solutions Inc. 2008 Equity Incentive Plan (incorporated
by reference to Exhibit 10.1(1) to Amendment No. 2 to the Company’s Registration Statement on
Form S-1, File No. 333-184579, filed on January 14, 2013)
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 other lenders party
thereto (incorporated by reference to Exhibit 10.1 on the Company’s Current Report on Form 8-
K dated February 4, 2013)
Form of Non-Statutory Time-Based Option Award under the 2008 Equity Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1,
File No. 333-184579, filed October 24, 2012)
Form of Non-Statutory Performance-Based Option Award under the 2008 Equity Incentive Plan
(incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1,
File No. 333-184579, filed October 24, 2012)
Form of Non-Statutory Continuation Option Award under the 2008 Equity Incentive Plan
(incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1,
File No. 333-184579, filed October 24, 2012)
Amended and Restated Severance Agreement between Bright Horizons Family Solutions LLC
and Stephen I. Dreier (incorporated by reference to Exhibit 10.15 to the Company’s Registration
Statement on Form S-1, File No. 333-188903, filed May 29, 2013)
92
Exhibit
Number
10.8†
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17
10.18
10.19
10.20
10.21
10.22
Exhibit Title
Form of Non-Statutory Stock Option Agreement (Directors) under 2012 Omnibus Long-Term
Incentive Plan (incorporated by reference to Exhibit 10.6(1) to Amendment No. 1 to the
Company’s Registration Statement on Form S-1, File No. 333-184579, filed November 9, 2012)
Form of Non-Statutory Stock Option Agreement (Employees) under 2012 Omnibus Long-Term
Incentive Plan (incorporated by reference to Exhibit 10.6(2) to Amendment No. 1 to the
Company’s Registration Statement on Form S-1, File No. 333-184579, filed November 9, 2012)
Bright Horizons Family Solutions Inc. 2012 Omnibus Long-Term Incentive Plan (incorporated
by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K, filed March 26,
2013)
Bright Horizons Family Solutions Inc. Annual Incentive Plan (incorporated by reference to
Exhibit 10.7 Amendment No. 1 to the Company’s Registration Statement on Form S-1, File No.
333-184579, filed November 9, 2012)
Form of Amended and Restated Severance Agreement between Bright Horizons Family
Solutions LLC and David Lissy (incorporated by reference to Exhibit 10.8 to the Company’s
Registration Statement on Form S-1, File No. 333-184579, filed October 24, 2012)
Form of Amended and Restated Severance Agreement between Bright Horizons Family
Solutions LLC and Mary Ann Tocio (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)
Form of Amended and Restated Severance Agreement between Bright Horizons Family
Solutions LLC and Elizabeth Boland (incorporated by reference to Exhibit 10.10 to the
Company’s Registration Statement on Form S-1, File No. 333-184579, filed October 24, 2012)
Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit
10.16 to the Company’s Registration Statement on Form S-1, File No. 333-184579, filed
October 24, 2012)
Form of Amended and Restated Stockholders Agreement among Bright Horizons Family
Solutions Inc. and certain stockholders named therein (incorporated by reference to Exhibit 10.17
to the Company’s Registration Statement on Form S-1, File No. 333-184579, filed October 24,
2012)
Joinder Agreement by and among Goldman Sachs Credit Partners L.P., Bright Horizons Family
Solutions LLC, Bright Horizons Capital Corp., the Guarantors defined therein, GSCP, as
syndication agent, and General Electric Capital Corporation, dated May 23, 2012 (incorporated
by reference to Exhibit 10.21 to the Company’s Registration Statement on Form S-1, File No.
333-184579, filed October 24, 2012)
Amended and Restated Lease between the President and Fellows of Harvard College and Bright
Horizons Children’s Centers, LLC, dated December 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)
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’s Registration
Statement on Form S-1, File No. 333-184579, filed October 24, 2012)
First Amendment to Amended and Restated Lease between the President and Fellows of Harvard
College and Bright Horizons Children’s Centers LLC, dated July 25, 2011 (incorporated by
reference to Exhibit 10.24 to the Company’s Registration Statement on Form S-1, File No.
333-184579, filed October 24, 2012)
Second Amendment to Amended and Restated lease between the President and Fellows of
Harvard College and Bright Horizons Children’s Centers 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)
Amendment No. 1 to Credit Agreement, dated as of November 19, 2014, among Borrower and
the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K dated November 20, 2014)
93
Exhibit
Number
10.23
10.24†
10.25†
10.26†
10.27†
10.28
10.29†
21.1*
23.1*
31.1*
31.2*
32.1**
32.2**
Exhibit Title
Incremental Joinder to Credit Agreement, dated as of December 9, 2014, among Borrower, the
Lenders and Additional Lenders party thereto and Goldman Sachs Bank USA, as Administrative
Agent (incorporated by reference to Exhibit 10.1 on the Company’s Current Report on Form 8-K
dated December 9, 2014)
Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.24 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed March 2,
2015)
Form of Restricted Stock Agreement (Directors) (incorporated by reference to Exhibit 10.25 to
the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed March
2, 2015)
Amended and Restated Severance Agreement between Bright Horizons Family Solutions LLC
and Stephen Kramer (incorporated by reference to Exhibit 10.26 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2014, filed March 2, 2015)
Amended and Restated Severance Agreement between Bright Horizons Family Solutions LLC
and Danroy T. Henry (incorporated by reference to Exhibit 10.27 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2014, filed March 2, 2015)
Extension and Incremental Amendment, dated as of January 26, 2016, by and among Bright
Horizons Family Solutions LLC, the Extending Revolving Credit Lenders party thereto, the
Incremental Revolving Credit Lenders party thereto, and Goldman Sachs Bank USA, as
Administrative Agent, Swing Line Lender and L/C Issuer (incorporated by reference to Exhibit
10.1 on the Company’s Current Report on Form 8-K dated January 27, 2016)
Bright Horizons Family Solutions Non-Qualified Deferred Compensation Plan (incorporated by
reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2014, filed March 2, 2015)
Subsidiaries of Bright Horizons Family Solutions Inc.
Consent of Independent Registered Public Accounting Firm Deloitte & Touche LLP
Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002 by Chief Executive Officer
Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002 by Chief Financial Officer
Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002 by Chief Executive Officer
Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002 by Chief Financial Officer
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
*
**
†
Exhibits filed herewith
Exhibits furnished herewith
Management contract or compensatory plan
94
Pursuant 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 its behalf by the undersigned, thereunto duly authorized.
Date: February 29, 2016
Signatures
Bright Horizons Family Solutions Inc.
By:
Name:
Title:
/s/ David Lissy
David Lissy
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ David Lissy
David Lissy
/s/ Elizabeth Boland
Elizabeth Boland
/s/ Linda Mason
Linda Mason
/s/ Lawrence Alleva
Lawrence Alleva
/s/ Joshua Bekenstein
Joshua Bekenstein
/s/ Roger Brown
Roger Brown
/s/ E. Townes Duncan
E. Townes Duncan
/s/ Jordan Hitch
Jordan Hitch
/s/ David Humphrey
David Humphrey
/s/ Marguerite Kondracke
Marguerite Kondracke
/s/ Sara Lawrence-Lightfoot
Sara Lawrence-Lightfoot
/s/ Mary Ann Tocio
Mary Ann Tocio
Director, Chief Executive Officer (Principal
Executive Officer)
February 29, 2016
Chief Financial Officer (Principal Financial and
Accounting Officer)
February 29, 2016
Director, Chair of the Board
February 29, 2016
Director
Director
Director
Director
Director
Director
Director
Director
Director
95
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016