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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 March 31, 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
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(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: 12,164,250 shares of common
stock, $.01 par value, at May 4, 2001.
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FORM 10-Q
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
A. Consolidated Condensed Balance Sheets at March 31,
2001 (unaudited) and December 31, 2000 3
B. Consolidated Statements of Operations for the Three Months
ended March 31, 2001 and 2000 (unaudited) 4
C. Consolidated Statements of Cash Flows for the Three Months
ended March 31, 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 9
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 14
ITEM 2. Changes in Securities and Use of Proceeds 14
ITEM 3. Defaults Upon Senior Securities 14
ITEM 4. Submission of Matters to a Vote of Security Holders 14
ITEM 5. Other Information 14
ITEM 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBITS 16
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Bright Horizons Family Solutions, Inc.
Consolidated Condensed Balance Sheets
(in thousands except share data)
March 31, December 31,
2001 2000
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 6,849 $ 8,599
Accounts receivable, net 24,578 23,945
Prepaid expenses and other current assets 2,932 3,508
Current deferred tax asset 5,297 5,297
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Total current assets 39,656 41,349
Fixed assets, net 66,931 64,433
Goodwill and other intangible assets, net 23,617 24,256
Non-current deferred tax asset 6,151 6,151
Other assets 767 706
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Total assets $ 137,122 $ 136,895
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit and short term debt $ 2,231 $ 6,319
Current portion of long-term debt and
obligations under capital leases 116 156
Accounts payable and accrued expenses 27,048 28,007
Deferred revenue 13,332 10,720
Income tax payable 584 540
Other current liabilities 1,580 1,872
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Total current liabilities 44,891 47,614
Long-term debt and obligations under
capital leases, net of current portion 372 425
Accrued rent 1,836 1,744
Other long-term liabilities 3,337 3,358
Deferred revenue, net of current portion 8,337 8,471
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Total liabilities 58,773 61,612
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Stockholders' equity:
Common Stock $.01 par value
Authorized: 30,000,000 shares
Issued: 12,618,000 and 12,564,000 shares March 31, 2001 and
December 31, 2000, respectively
Outstanding: 12,123,000 and 12,069,000 at March 31, 2001 and
December 31, 2000, respectively 126 126
Additional paid in capital 79,798 79,398
Treasury stock, 495,000 shares, at cost (7,081) (7,081)
Cumulative translation adjustment (98) 25
Retained earnings 5,604 2,815
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Total stockholders' equity 78,349 75,283
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Total liabilities and stockholders' equity $ 137,122 $ 136,895
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The accompanying notes are an integral part
of the consolidated financial statements
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Bright Horizons Family Solutions, Inc.
Consolidated Statements of Operations
(in thousands except per share data)
(Unaudited)
Three months ended March 31,
2001 2000
Revenues $ 81,736 $ 66,622
Cost of services 69,518 56,840
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Gross profit 12,218 9,782
Selling, general and administrative 6,766 5,543
Amortization 582 362
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Income from operations 4,870 3,877
Net interest (expense) income (74) 75
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Income before tax 4,796 3,952
Income tax provision 2,007 1,640
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Net income $ 2,789 $ 2,312
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Earnings per share - basic $ 0.23 $ 0.20
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Weighted average shares - basic 12,085 11,820
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Earnings per share - diluted $ 0.22 $ 0.19
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Weighted average shares - diluted 12,741 12,322
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The accompanying notes are an integral part
of the consolidated financial statements
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Bright Horizons Family Solutions, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Three months ended March 31,
2001 2000
Net income $ 2,789 $ 2,312
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,282 1,588
Loss on disposal of fixed assets -- 23
Changes in assets and liabilities:
Accounts receivable (641) (446)
Prepaid expenses and other current assets 566 (74)
Accounts payable and accrued expenses (734) (2,586)
Income taxes payable 44 (47)
Deferred revenue 2,499 2,776
Accrued rent 117 (52)
Other long-term assets (38) (158)
Other current and long-term liabilities (268) (139)
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Net cash provided by operating activities 6,616 3,197
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Cash flows from investing activities:
Additions to fixed assets, net of acquired amounts (4,581) (4,762)
Cash payments for acquisitions -- (713)
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Net cash used in investing activities (4,581) (5,475)
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Cash flows from financing activities:
Proceeds from issuance of common stock from exercise
of options 400 61
Principal payments of long term debt and
obligations under capital leases (87) (4)
Payment of short term debt (1,115) --
Borrowing through line of credit 500 --
Repayments under line of credit (3,460) --
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Net cash used (provided by) in financing activities (3,762) 57
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Effect of exchange rate changes on cash and cash equivalents (23) --
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Net decrease in cash and cash equivalents (1,750) (2,221)
Cash and cash equivalents, beginning of period 8,599 12,752
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Cash and cash equivalents, end of period $ 6,849 $ 10,531
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Non-cash financing activities:
Assumption of liability in acquisition $ -- $ 5,400
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Supplemental cash flow information:
Cash payments for interest $ 30 $ 23
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Cash payments for income taxes $ 1,969 $ 1,691
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The accompanying notes are an integral part
of the consolidated financial statements
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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 March 31, 2001 and the results of
its operations and cash flows for the three-month periods ended March 31, 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 SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information (SFAS No. 131). As of March 31, 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.
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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
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 Three Months Ended March 31,
2001 2000
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Net income $ 2,789 $ 2,312
Foreign currency translation adjustments (122) -
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Comprehensive income $ 2,667 $ 2,312
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NEW PRONOUNCEMENTS - The Company adopted the provisions of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS 133, as
amended by Statement of Accounting Standards No. 137, requires the Company to
recognize all derivatives as either assets or liabilities in the statement of
financial position and to measure those instruments at fair value. The
accounting for gains and losses from changes in the fair value of a particular
derivative will depend on the intended use of the derivative. These standards
went into effect for the Company's financial reporting beginning in the first
quarter of fiscal 2001 and did not have an impact on the Company's results of
operations, financial condition or cash flows.
3. Earnings Per Share
Earnings per share has been calculated in accordance with Statement of Financial
Accounting Standards 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. For
the three-month periods ended March 31, 2001 and 2000, the Company had no
warrants or preferred stock outstanding.
The following tables present information necessary to calculate earnings per
share:
Three Months Ended March 31, 2001
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Earnings Shares Per Share
(Numerator) (Denominator) Amount
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Basic earnings per share:
Income available to common stockholders $ 2,789,000 12,085,000 $ 0.23
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Effect of dilutive securities:
Stock options -- 656,000
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Diluted earnings per share $ 2,789,000 12,741,000 $ 0.22
=========== ========== ======
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Three Months Ended March 31, 2000
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Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ----------- -----
Basic earnings per share:
Income available to common stockholders $ 2,312,000 11,820,000 $ 0.20
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Effect of dilutive securities:
Stock options -- 502,000
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Diluted earnings per share $ 2,312,000 12,322,000 $ 0.19
=========== ========== ======
In the three months ended March 31, 2001 and March 31, 2000 the weighted
average number of stock options excluded from the above calculation of
earnings per share was approximately 6,100 and 548,000, respectively, as
they were anti-dilutive.
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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 352
child development centers at March 31, 2001. During the three month period
ending March 31, 2001 the Company opened 10 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 44,000 children in 34 states, the District of Columbia, Guam, the
United Kingdom, and Ireland and has partnerships with many of the nation's
leading employers, including 81 Fortune 500 companies. Working Mother's 2000
list of the "100 Best Companies for Working Mothers" includes 44 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.
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RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of revenue for the three-month periods ended March 31, 2001 and 2000:
Three Months Ended
March 31,
2001 2000
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Revenue 100.0% 100.0%
Cost of services 85.1 85.3
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Gross profit 14.9 14.7
Selling, general & administrative 8.2 8.3
Amortization 0.7 0.6
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Income from operations 6.0 5.8
Net interest (expense) income (0.1) 0.1
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Income before income taxes 5.9 5.9
Income tax provision 2.5 2.4
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Net income 3.4% 3.5%
===== ====
Three Months Ended March 31, 2001 Compared to the Three Months Ended
--------------------------------------------------------------------
March 31, 2000
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Revenue. Revenue increased $15.1 million, or 22.7%, to $81.7 million for the
three months ended March 31, 2001 from $66.6 million for the three months ended
March 31, 2000. The growth in revenues is primarily attributable to the net
addition of 43 family centers since March 31, 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 $2.4 million, or 24.9%, to $12.2 million for the three
months ended March 31, 2001 from $9.8 million for the three months ended March
31, 2000. As a percentage of revenue, gross profit increased to 14.9% for the
three months ended March 31, 2001 compared to 14.7% for the same period in 2000.
The Company showed a modest increase in gross profit margins for the three-month
period ended March 31, 2001 compared to the three-month period ended March 31,
2000 as a result of a greater proportion of centers achieving mature operating
levels and a significant number of immature management model centers, which
produce higher initial margins.
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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
$1.3 million, or 22.1%, to $6.8 million for the three months ended March 31,
2001 from $5.5 million for the three months ended March 31, 2000. As a
percentage of revenue, selling, general and administrative expenses decreased to
8.2% for the three months ended March 31, 2001 from 8.3% for the same period in
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 March 31, 2001 as compared to the period ended March 31, 2000
due to a larger revenue base.
Income from Operations. Income from operations totaled $4.9 million for the
three months ended March 31, 2001, an increase of $1.0 million, or 25.6%, from
$3.9 million in the same period for 2000.
Net Interest (Expense) Income. Net interest expense was approximately $74,000
for the three months ended March 31, 2001. The Company had $75,000 of net
interest income for the three months ended March 31, 2000. The increase in net
interest expense in 2001 from 2000 is primarily attributable to borrowings under
the Company's line of credit as well as lower levels of invested cash.
Income Tax Provision. The Company's effective income tax rate was approximately
41.6% for the three months ended March 31, 2001 compared to 41.5% for the three
months ended March 31, 2000. Management expects the tax rate to remain steady
throughout 2001.
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 $5.2 million and $6.3 million as of March 31, 2001 and December 31,
2000, respectively.
Cash provided from operations increased to $6.6 million for the three months
ended March 31, 2001, from $3.2 million for the three months ended March 31,
2000. The increase in cash provided by operations is primarily the result of an
increase in net income before depreciation and amortization of $1.2 million
compared to the three months ended March 31, 2000. The increase in cash provided
by operating activities is also attributable to a smaller net decrease in
accounts payable and accrued expenses as compared to the prior year.
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Cash used in investing activities decreased to $4.6 million for the three months
ended March 31, 2001 from $5.5 million for the three months ended March 31,
2000, which was primarily the result of payments for acquisitions totaling
$713,000 in 2000. Of the $4.6 million of fixed asset additions for the three
months ended March 31, 2001, approximately $3.8 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 increased to $3.8 million for the three months
ended March 31, 2001. The increase in cash used for financing activities is
primarily attributable to the net repayment of $3.0 million on the Company's
line of credit as well as payments of $1.2 million on other short-term debt.
During the three months ended March 31, 2001, the Company received $400,000 in
net proceeds from the issuance of Common Stock associated with the exercise of
stock options, as compared to $61,000 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.
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, and at March 31, 2001 were not material.
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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.
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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:
None
ITEM 5. Other information:
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 10.1 - Second Amendment to the 1998 Stock Incentive Plan
Exhibit 10.2 - Severance Agreement for Mary Ann Tocio
(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: May 12, 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)
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EXHIBIT INDEX
10.1 Second Amendment to the 1998 Stock Incentive Plan
10.2 Severance Agreement for Mary Ann Tocio
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