SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2001.
Commission File Number 0-24699
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BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 62-1742957
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
200 Talcott Avenue South
Watertown, Massachusetts 02472
(Address of principal executive offices)
(617) 673-8000
(Registrant's telephone number, including area code)
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 [X] No [ ].
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: 12,753,886 shares of common
stock, $.01 par value, at November 13, 2001.
FORM 10-Q
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
A. Consolidated Balance Sheets at September 30, 2001 (unaudited)
and December 31, 2000 3
B. Consolidated Statements of Operations for the Three and Nine
Months ended September 30, 2001 and 2000 (unaudited) 4
C. Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 2001 and 2000 (unaudited) 5
D. Notes to Consolidated Financial Statements (unaudited) 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 16
ITEM 2. Changes in Securities and Use of Proceeds 16
ITEM 3. Defaults Upon Senior Securities 16
ITEM 4. Submission of Matters to a Vote of Security Holders 16
ITEM 5. Other Information 16
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBITS 18
2
Bright Horizons Family Solutions, Inc.
Consolidated Balance Sheets
(in thousands except share data)
September 30, December 31,
2001 2000
--------- ---------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 9,099 $ 8,599
Accounts receivable, net 26,117 23,945
Prepaid expenses and other current assets 2,669 3,508
Current deferred tax asset 5,297 5,297
--------- ---------
Total current assets 43,182 41,349
Fixed assets, net 73,221 64,433
Goodwill and other intangible assets, net 24,180 24,256
Non-current deferred tax asset 6,151 6,151
Other assets 562 706
--------- ---------
Total assets $ 147,296 $ 136,895
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit and short term debt $ 3,500 $ 6,319
Current portion of long-term debt and
obligations under capital leases 115 156
Accounts payable and accrued expenses 25,920 28,007
Deferred revenue 14,946 10,720
Income tax payable 743 540
Other current liabilities 1,302 1,872
--------- ---------
Total current liabilities 46,526 47,614
Long-term debt and obligations under
capital leases, net of current portion 312 425
Accrued rent 1,840 1,744
Other long-term liabilities 3,760 3,358
Deferred revenue, net of current portion 9,531 8,471
--------- ---------
Total liabilities 61,969 61,612
--------- ---------
Stockholders' equity:
Common Stock $.01 par value
Authorized: 30,000,000 shares
Issued: 12,743,000 and 12,564,000 shares September 30, 2001 and
December 31, 2000, respectively
Outstanding: 12,248,000 and 12,069,000 at September 30, 2001 and
December 31, 2000, respectively 127 126
Additional paid in capital 80,948 79,398
Treasury stock, 495,000 shares, at cost (7,081) (7,081)
Cumulative translation adjustment (23) 25
Retained earnings 11,356 2,815
--------- ---------
Total stockholders' equity 85,327 75,283
--------- ---------
Total liabilities and stockholders' equity $ 147,296 $ 136,895
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
3
Bright Horizons Family Solutions, Inc.
Consolidated Statements of Operations
(in thousands except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
-------- ------- --------- --------
Revenues $ 87,173 $74,504 $ 254,665 $213,192
Cost of services 74,746 63,889 217,240 182,035
-------- ------- --------- --------
Gross profit 12,427 10,615 37,425 31,157
Selling, general and administrative 7,062 6,245 20,977 17,834
Amortization 542 527 1,655 1,369
-------- ------- --------- --------
Income from operations 4,823 3,843 14,793 11,954
Net interest income (expense) (7) 38 (72) 162
-------- ------- --------- --------
Income before tax 4,816 3,881 14,721 12,116
Income tax provision 2,029 1,621 6,181 5,045
-------- ------- --------- --------
Net income $ 2,787 $ 2,260 $ 8,540 $ 7,071
======== ======= ========= ========
Earnings per share - basic $ 0.23 $ 0.19 $ 0.70 $ 0.60
======== ======= ========= ========
Weighted average shares - basic 12,229 11,914 12,164 11,857
======== ======= ========= ========
Earnings per share - diluted $ 0.22 $ 0.18 $ 0.67 $ 0.57
======== ======= ========= ========
Weighted average shares - diluted 12,813 12,667 12,793 12,445
======== ======= ========= ========
The accompanying notes are an integral part of the
consolidated financial statements.
4
Bright Horizons Family Solutions, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Nine months ended
September 30,
2001 2000
-------- --------
Net income $ 8,540 $ 7,071
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 7,094 5,234
Loss on disposal of fixed assets -- 11
Non cash expense -- 16
Changes in assets and liabilities:
Accounts receivable (2,146) (4,619)
Prepaid income taxes -- (1,322)
Prepaid expenses and other current assets 848 (1,395)
Accounts payable and accrued expenses (2,161) (406)
Income taxes payable 202 (777)
Deferred revenue 4,919 2,962
Accrued rent 171 268
Other long-term assets 133 (222)
Other current and long-term liabilities (317) (39)
-------- --------
Net cash provided by operating activities 17,283 6,782
-------- --------
Cash flows from investing activities:
Additions to fixed assets, net of acquired amounts (14,450) (13,186)
Proceeds from disposal of fixed assets -- 23
Increase in other assets -- (303)
Cash payments for acquisitions (924) (7,690)
-------- --------
Net cash used in investing activities (15,374) (21,156)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock from exercise
of options 1,551 1,413
Principal payments of long term debt and
obligations under capital leases (145) (25)
Payment of short -term debt (1,115) --
Borrowing through line of credit 5,000 10,674
Repayments under line of credit (6,693) (5,200)
-------- --------
Net cash (used in) provided by financing activities (1,402) 6,862
-------- --------
Effect of exchange rate changes on cash and cash equivalents (7) --
-------- --------
Net increase (decrease) in cash and cash equivalents 500 (7,512)
Cash and cash equivalents, beginning of period 8,599 12,752
-------- --------
Cash and cash equivalents, end of period $ 9,099 $ 5,240
======== ========
Non-cash financing activities:
Options issued in connection with acquisition -- 28
======== ========
Supplemental cash flow information:
Cash payments for interest $ 58 $ 94
======== ========
Cash payments for income taxes $ 6,008 $ 7,161
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
5
ITEM 1.D. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The Company and Basis of Presentation
ORGANIZATION - Bright Horizons Family Solutions, Inc. (the "Company") was
incorporated under the laws of the state of Delaware on April 27, 1998 and
commenced substantive operations upon the completion of the merger by and
between Bright Horizons, Inc. ("BRHZ") and CorporateFamily Solutions, Inc.
("CFAM") on July 24, 1998 (the "Merger"). The Company provides workplace
services for employers and families including childcare, early education and
strategic work/life consulting throughout the United States, Guam, the United
Kingdom, and Ireland.
The Company operates its family centers under various types of arrangements,
which generally can be classified in two forms: (i) the sponsor model, where the
Company operates a family center on the premises of a sponsor and gives priority
enrollment to the sponsor's employees or affiliates, and (ii) the management
model, where the Company manages a work-site family center under a cost-plus
arrangement, typically for a single employer.
BASIS OF PRESENTATION -- The accompanying financial statements have been
prepared by the Company in accordance with the accounting policies described in
the Company's audited financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000, and should be read in
conjunction with the notes thereto.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments which are necessary to
present fairly its financial position as of September 30, 2001 and the results
of its operations for the three and nine month periods ended September 30, 2001
and 2000, and its cash flows for the nine month periods ended September 30, 2001
and 2000, and are of a normal and recurring nature. The results of operations
for interim periods are not necessarily indicative of the operating results to
be expected for the full year.
SEGMENT INFORMATION - In June 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards(SFAS) No. 131,
Disclosures About Segments of an Enterprise and Related Information (SFAS No.
131). As of September 30, 2001, the Company operates solely in one segment,
providing workplace services to employers and families including childcare,
early education and work/life consulting and generates in excess of 90% of
revenue and operating profit domestically.
COMPREHENSIVE INCOME - The Company applies the provisions of SFAS No. 130,
"Reporting Comprehensive Income", which establishes standards for reporting and
displaying comprehensive income and its components in the consolidated financial
6
statements. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. The only components of comprehensive
income reported by the Company are net income and foreign currency translation
adjustments.
For the Nine Months
Ended September 30,
2001 2000
------- ------
Net income $ 8,540 $7,071
Foreign currency translation adjustments (48) --
------- ------
Comprehensive income $ 8,492 $7,071
======= ======
NEW ACCOUNTING PRONOUNCEMENTS - In July 2001, the Financial Accounting Standards
Board issued Statement No. 141, "Accounting for Business Combinations", and
Statement No. 142, "Goodwill and Other Intangible Assets." These Statements
modify accounting for business combinations and will affect the Company's
treatment of goodwill and other intangible assets at the start of the fiscal
year 2002, and for acquisitions consummated after June 30, 2001. The Statements
require that goodwill existing at the date of adoption be reviewed for possible
impairment and that impairment tests be periodically repeated, with impaired
assets written down to fair value. Additionally, existing goodwill and
intangible assets must be assessed and classified with the Statement's criteria.
Intangible assets with estimated useful lives will continue to be amortized over
those periods. Amortization of goodwill and intangible assets with
indeterminable lives will cease. Although the Company has not yet determined the
full impact of these Statements on reported results, amortization expense on
existing goodwill and intangible assets is expected to be approximately $300,000
to $400,000 in 2002.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. This
Statement does not apply to obligations that arise solely from a plan to dispose
of a long-lived asset. This Statement shall be effective for financial
statements issued for fiscal years beginning after June 15, 2002. The Company
does not expect the adoption of this Statement to have a material impact on its
operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This Statement
requires that a long-lived asset to be abandoned, exchanged for a similar
productive asset, or distributed to owners in a spinoff be considered held and
used until it is disposed of. The changes in this Statement require that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and by broadening the
presentation of discontinued operations to include more disposal transactions.
The provisions of this Statement are effective for
7
financial statements issued for fiscal years beginning after December 15, 2001
and interim periods within those fiscal years, with early application
encouraged. The provisions of this Statement generally are to be applied
prospectively. The Company does not expect the adoption of this Statement to
have a material impact on its operations.
3. Earnings Per Share
Earnings per share has been calculated in accordance with SFAS No. 128 "Earnings
per Share" ("SFAS 128"), which established standards for computing and
presenting earnings per share. The computation of net earnings per share is
based on the weighted average number of common shares and common equivalent
shares outstanding during the period.
The following tables present information necessary to calculate earnings per
share:
Three months Ended September 30, 2001
------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- -----------
Basic earnings per share:
Income available to common stockholders $ 2,787,000 12,229,000 $ 0.23
===========
Effect of dilutive securities:
Stock options -- 584,000
----------- -----------
Diluted earnings per share $ 2,787,000 12,813,000 $ 0.22
=========== =========== ===========
Three months Ended September 30, 2000
------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- -----------
Basic earnings per share:
Income available to common stockholders $ 2,260,000 11,914,000 $ 0.19
===========
Effect of dilutive securities:
Stock options -- 753,000
----------- -----------
Diluted earnings per share $ 2,260,000 12,667,000 $ 0.18
=========== =========== ===========
Nine months Ended September 30, 2001
------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- -----------
Basic earnings per share:
Income available to common stockholders $ 8,540,000 12,164,000 $ 0.70
===========
Effect of dilutive securities:
Stock options -- 629,000
----------- -----------
Diluted earnings per share $ 8,540,000 12,793,000 $ 0.67
=========== =========== ===========
8
Nine months Ended September 30, 2000
------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- -----------
Basic earnings per share:
Income available to common stockholders $ 7,071,000 11,857,000 $ 0.60
===========
Effect of dilutive securities:
Stock options -- 588,000
----------- -----------
Diluted earnings per share $ 7,071,000 12,445,000 $ 0.57
=========== =========== ===========
The weighted average number of shares excluded from the above calculations for
the three and nine months ended September 30, 2001 were 24,000 and 15,000,
respectively, and 1,000 and 363,823 for the three and nine months ended
September 30, 2000, respectively, as their effect would be anti-dilutive. For
the three and nine month periods ended September 30, 2001 and 2000, the Company
had no warrants or preferred stock outstanding.
9
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This Form 10-Q contains certain forward-looking statements regarding, among
other things, the anticipated financial and operating results of the Company.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release any modifications or revisions to these
forward-looking statements to reflect events or circumstances occurring after
the date hereof or to reflect the occurrence of unanticipated events. In
connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions investors that future
financial and operating results may differ materially from those projected in
forward-looking statements made by, or on behalf of, the Company. Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors that may cause the actual results, performance, or achievements of
the Company to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. See "Risk
Factors" included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000 and incorporated herein by reference for a description of a
number of risks and uncertainties which could affect actual results.
General
The Company provides workplace services for employers and families, including
child care, early education and strategic work/life consulting, operating 384
child development centers at September 30, 2001. During the three month period
ending September 30, 2001 the Company opened 21 new family centers, and closed 3
family centers which were not meeting operating objectives and/or were
transitioned to other providers. The Company has the capacity to serve
approximately 47,000 children in 36 states, the District of Columbia, Guam, the
United Kingdom, and Ireland and has partnerships with many of the nation's
leading employers, including 82 Fortune 500 companies. Working Mother's 2001
list of the "100 Best Companies for Working Mothers" includes 48 clients of the
Company. Historical revenue growth has primarily resulted from the addition of
new family centers as well as increased enrollment at existing family centers.
The Company reports its operating results on a calendar year basis.
The Company's business is subject to seasonal and quarterly fluctuations. Demand
for child care and early education services has historically decreased during
the summer months. During this season, families are often on vacation or have
alternative child care arrangements. Demand for the Company's services generally
increases in September upon the beginning of the new school year and remains
relatively stable throughout the remainder of the school year. 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 and/or
acquisitions, the length of time required for new centers to achieve
profitability, center closings, refurbishment or relocation, the model mix
(sponsor vs. management) of new and existing centers, competitive factors and
general economic conditions.
10
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of revenue for the three and nine month periods ended September
30, 2001 and 2000:
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of services 85.7 85.8 85.3 85.4
------ ------ ------ ------
Gross profit 14.3 14.2 14.7 14.6
Selling, general & administrative 8.1 8.4 8.2 8.4
Amortization 0.7 0.6 0.7 0.6
------ ------ ------ ------
Income from operations 5.5 5.2 5.8 5.6
Interest income 0.0 0.1 0.0 0.1
------ ------ ------ ------
Income before income taxes 5.5 5.3 5.8 5.7
Income tax provisions 2.3 2.3 2.4 2.4
------ ------ ------ ------
Net income 3.2% 3.0% 3.4% 3.3%
====== ====== ====== ======
Three and Nine Months Ended September 30, 2001 Compared to the Three and Nine
Months Ended September 30, 2000
Revenue. Revenue increased $12.7 million, or 17.0%, to $87.2 million for the
three months ended September 30, 2001 from $74.5 million for the three months
ended September 30, 2000. Revenue increased $41.5 million, or 19.5%, to $254.7
million for the nine months ended September 30, 2001 from $213.2 million for the
nine months ended September 30, 2000. The growth in revenues is primarily
attributable to the net addition of 50 family centers since September 30, 2000,
modest growth in the existing base of family centers and tuition increases at
existing centers of approximately 4% to 6%.
Gross Profit. Cost of services consists of center operating expenses, including
payroll and benefits for center personnel, facilities costs which includes
depreciation, supplies and other expenses incurred at the family center level.
Gross profit increased $1.8 million, or 17.1%, to $12.4 million for the three
month period ended September 30, 2001 from $10.6 million for the three months
ended September 30, 2000. As a percentage of revenue, gross profit increased to
14.3% for the three months ended September 30, 2001 compared to 14.2% for the
three months ended September 30, 2000. Gross profit increased $6.2 million, or
20.1%, to $37.4 million for the nine months ended September 30, 2001 from $31.2
million for the nine months ended September 30, 2000. As a percentage of net
revenues, gross profit increased to 14.7% for the nine months ended September
30, 2001, compared to 14.6% for the same period in 2000.
11
The modest increase in gross profit margins for the nine-month period ended
September 30, 2001 compared to the same period in 2000 resulted from a greater
proportion of centers achieving mature operating levels. In addition, the
Company was operating a greater proportion of new management model centers,
which do not incur losses during the ramp up phase, during the nine month period
ended September 30, 2001, as compared to the same period in 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist of regional and district management personnel,
corporate management and administrative functions, and development expenses for
new and existing centers. Selling, general and administrative expenses increased
$817,000, or 13.1%, to $7.1 million for the three months ended September 30,
2001 from $6.3 million for the three months ended September 30, 2000. As a
percentage of revenue, selling, general and administrative expenses decreased to
8.1% for the three months ended September 30, 2001 from 8.4% for the same period
in 2000. Selling, general and administrative expenses increased $3.2 million, or
17.6%, to $21.0 million for the nine months ended September 30, 2001 from $17.8
million for the nine months ended September 30, 2000. As a percentage of net
revenues, selling, general and administrative expenses decreased to 8.2% for the
nine months ended September 30, 2001 from 8.4% for the nine months ended
September 30, 2000.
The dollar increase in selling, general, and administrative expenses is
primarily attributable to investments in regional and divisional management,
sales personnel, and general corporate and administrative personnel necessary to
support long-term growth as well as selling, general and administrative expenses
associated with expansion in the United Kingdom and Ireland. Selling, general
and administrative expenses, as a percentage of revenue, decreased during the
three months ended September 30, 2001 as compared to the three months ended
September 30, 2000 as a result of a larger revenue base.
Income from Operations. Income from operations totaled $4.8 million for the
three months ended September 30, 2001, an increase of $1.0 million, or 25.5%,
from $3.8 million in the same period for 2000. For the nine months ended
September 30, 2001, income from operations increased $2.8 million, or 23.7%, to
$14.8 million from $12.0 million in the same period for 2000.
Net Interest Income (Expense). Net interest expense was approximately $7,000 for
the three months ended September 30, 2001 as compared with $38,000 of net
interest income for the three months ended September 30, 2000. For the nine
months ended September 30, 2001 the Company had net interest expense of $72,000
as compared to net interest income of $162,000 for the nine months ended
September 30, 2000. The decrease in net interest income in 2001 from 2000 is
primarily attributable to borrowings under the Company's line of credit and
lower levels of invested cash, which also earned interest at a lower rate.
Income Tax Provision. The Company's effective income tax rate was approximately
42.0% for the three and nine month periods ended September 30, 2001 and 41.6%
for the three and nine month periods ended September 30, 2000. Management
expects the tax rate to remain steady throughout 2001.
12
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are the ongoing operations of its
existing centers and the addition of new centers through development or
acquisition. The Company's primary sources of liquidity have been existing cash
balances and cash flow from operations, supplemented by borrowing capacity under
the Company's revolving line of credit. The Company had a working capital
deficit of $3.3 million and $6.3 million as of September 30, 2001 and December
31, 2000, respectively.
Cash provided from operations increased to $17.3 million for the nine months
ended September 30, 2001, from $6.8 million for the nine months ended September
30, 2000. The increase in cash provided by operations is primarily the result of
an increase in net income before depreciation and amortization of $3.3 million
compared to the nine months ended September 30, 2000. The increase in cash
provided by operating activities is also attributable to net decreases in
accounts receivable and prepaid expenses and an increase in deferred revenue.
Cash used in investing activities decreased to $15.4 million for the nine months
ended September 30, 2001 from $21.2 million for the nine months ended September
30, 2000. The decrease was primarily the result of payments for acquisitions
totaling $7.7 million in 2000 compared to $1.0 million in 2001, offset by an
increase of $1.2 million in additional fixed asset additions in 2001. Of the
$14.5 million of fixed asset additions for the nine months ended September 30,
2001, approximately $10.6 million relates to new family centers, with the
remaining balance being primarily utilized for the refurbishment and expansion
of existing family centers. Management expects the current level of center
related fixed asset spending to remain the same for the remainder of 2001.
Cash used in financing activities totaled $1.4 million for the nine months ended
September 30, 2001 as compared to $6.8 million in cash provided by financing
activities for the nine months ended September 30, 2000. The increase in cash
used for financing activities is primarily attributable to the net repayment of
$1.7 million on the Company's line of credit for the nine months ended September
30, 2001 as compared to net borrowings of $5.5 million in the same period in
2000. In addition, $1.2 million of short term debt was repaid in 2001. The
Company received $1.5 million in net proceeds from the issuance of Common Stock
associated with the exercise of stock options in the nine months ended September
30, 2001, as compared to $1.4 million in the same period in 2000.
Management believes that funds provided by operations and the Company's existing
cash and cash equivalent balances and borrowings available under the line of
credit will be adequate to meet planned operating and capital expenditure needs
for at least the next 18 months. However, if the Company were to make any
significant acquisitions or make significant investments in the purchase of
facilities for new or existing centers for corporate sponsors, it may be
necessary for the Company to obtain additional debt or equity financing. There
can be no assurance that the Company would be able to obtain such financing on
reasonable terms, if at all.
13
NEW ACCOUNTING PRONOUNCEMENT DISCLOSURES
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. This
Statement does not apply to obligations that arise solely from a plan to dispose
of a long-lived asset. This Statement shall be effective for financial
statements issued for fiscal years beginning after June 15, 2002. The Company
does not expect the adoption of this statement to have a material impact on
its operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This Statement requires that a
long-lived asset to be abandoned, exchanged for a similar productive asset, or
distributed to owners in a spinoff be considered held and used until it is
disposed of. The changes in this Statement require that one accounting model be
used for long-lived assets to be disposed of by sale, whether previously held
and used or newly acquired, and by broadening the presentation of discontinued
operations to include more disposal transactions. The provisions of this
Statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal years,
with early application encouraged. The provisions of this Statement generally
are to be applied prospectively. The Company does not expect the adoption of
this statement to have a material impact on its operations.
In July 2001, the Financial Accounting Standards Board issued Statement No. 141,
"Accounting for Business Combinations", and Statement No. 142, "Goodwill and
Other Intangible Assets." These statements modify accounting for business
combinations after September 30, 2001 and will affect the Company's treatment of
goodwill and other intangible assets at the start of the fiscal year 2002, and
for acquisitions consummated after September 30, 2001. The statements require
that goodwill existing at the date of adoption be reviewed for possible
impairment and that impairment tests be periodically repeated, with impaired
assets written down to fair value. Additionally, existing goodwill and
intangible assets must be assessed and classified with the Statement's criteria.
Intangible assets with estimated useful lives will continue to be amortized over
those periods. Amortization of goodwill and intangible assets with
indeterminable lives will cease. Although the Company has not yet determined the
full impact of these statements on reported results, amortization expense on
existing goodwill and intangible assets is expected to be approximately $300,000
to $400,000 in 2002.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
There have been no material changes in the Company's investment strategies,
types of financial instruments held or the risks associated with such
instruments which would materially alter the market risk disclosures made in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Foreign Currency Exchange Rate Risk
The Company's exposure to fluctuations in foreign currency exchange rates is
primarily the result of foreign subsidiaries domiciled in the United Kingdom and
Ireland. The Company does not currently use financial derivative instruments to
hedge foreign currency exchange rate risks associated with its foreign
subsidiaries.
The assets and liabilities of the Company's United Kingdom and Ireland
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 effects
for the subsidiaries are included in cumulative translation adjustment in
stockholders' equity.
There have been no changes in the Company's foreign operations that would
materially alter the disclosures on foreign currency exchange risk made in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
15
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings:
Not Applicable
ITEM 2. Changes in Securities and Use of Proceeds:
Not applicable
ITEM 3. Defaults Upon Senior Securities:
None
ITEM 4. Submission of Matters to a Vote of Security Holders:
Not applicable
ITEM 5. Other information:
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 10.1 - Amended and Restated 1998 Stock Incentive Plan
(b) Reports on Form 8-K
Not Applicable
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SIGNATURE
Pursuant to the requirements 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: November 13, 2001
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
By: /s/ Elizabeth J. Boland
------------------------------------
Elizabeth J. Boland
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
17
EXHIBIT INDEX
10.1 Amended and Restated 1998 Stock Incentive Plan
18