BRIGHT HORIZONS FAMILY SOLUTIONS INC. [BFAM] Filings

10-Q 1 bfam-20220630.htm 10-Q bfam-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________

FORM 10-Q

__________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2022


☐			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

80-0188269

(State or other jurisdiction
of incorporation)

(I.R.S. Employer
Identification Number)

2 Wells Avenue

Newton, Massachusetts

02459

(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code: (617) 673-8000

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

BFAM

New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 26, 2022, there were 57,810,875 shares of common stock outstanding.

Table of Contents

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

FORM 10-Q

For the quarterly period ended June 30, 2022

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		Page
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
Signatures		39

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2022		December 31, 2021

	(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	270,425	$	260,980
Accounts receivable — net of allowance for credit losses of $2,790 and $3,006 at June 30, 2022 and December 31, 2021, respectively	171,114		210,971
Prepaid expenses and other current assets	75,370		68,320

Total current assets	516,909		540,271
Fixed assets — net	558,143		598,134
Goodwill	1,441,185		1,481,725
Other intangible assets — net	235,769		251,032
Operating lease right-of-use assets	678,809		696,425
Other assets	94,578		72,460
Total assets	$	3,525,393	$	3,640,047
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	16,000	$	16,000

Accounts payable and accrued expenses	208,458		197,366
Current portion of operating lease liabilities	87,130		87,341
Deferred revenue	212,955		258,438
Other current liabilities	74,815		63,030
Total current liabilities	599,358		622,175
Long-term debt — net	968,989		976,396
Operating lease liabilities	686,971		703,911
Other long-term liabilities	89,952		100,091
Deferred revenue	9,320		9,689
Deferred income taxes	51,817		48,509
Total liabilities	2,406,407		2,460,771
Stockholders’ equity:
Preferred stock, $0.001 par value; 25,000,000 shares authorized; no shares issued or outstanding at June 30, 2022 and December 31, 2021	—		—
Common stock, $0.001 par value; 475,000,000 shares authorized; 58,622,868 and 59,305,160 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively	59		59
Additional paid-in capital	680,618		745,615
Accumulated other comprehensive loss	(77,003)		(37,359)
Retained earnings	515,312		470,961
Total stockholders’ equity	1,118,986		1,179,276
Total liabilities and stockholders’ equity	$	3,525,393	$	3,640,047

See accompanying notes to condensed consolidated financial statements.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021

	(In thousands, except share data)
Revenue	$	490,341	$	441,478	$	950,750	$	832,318
Cost of services	361,816		335,496		712,166		644,978
Gross profit	128,525		105,982		238,584		187,340
Selling, general and administrative expenses	73,673		64,458		145,419		124,568
Amortization of intangible assets	7,030		7,512		14,179		15,052

Income from operations	47,822		34,012		78,986		47,720
Loss on foreign currency forward contracts	(5,917)		—		(5,917)		—
Interest expense — net	(7,942)		(9,580)		(14,988)		(18,596)
Income before income tax	33,963		24,432		58,081		29,124
Income tax expense	(9,018)		(5,617)		(13,730)		(3,177)
Net income	$	24,945	$	18,815	$	44,351	$	25,947

Earnings per common share:
Common stock — basic	$	0.42	$	0.31	$	0.75	$	0.43
Common stock — diluted	$	0.42	$	0.31	$	0.74	$	0.42

Weighted average common shares outstanding:
Common stock — basic	59,113,044		60,551,528		59,103,884		60,573,237
Common stock — diluted	59,252,869		61,106,792		59,334,107		61,216,383

See accompanying notes to condensed consolidated financial statements.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021

	(In thousands)
Net income	$	24,945	$	18,815	$	44,351	$	25,947
Other comprehensive income (loss):
Foreign currency translation adjustments	(46,345)		1,213		(63,351)		699
Unrealized gain on cash flow hedges and investments, net of tax	5,007		964		23,707		2,716
Total other comprehensive income (loss)	(41,338)		2,177		(39,644)		3,415
Comprehensive income (loss)	$	(16,393)	$	20,992	$	4,707	$	29,362

See accompanying notes to condensed consolidated financial statements.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)


	Three months ended June 30, 2022
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount

	(In thousands, except share data)
Balance at April 1, 2022	59,133,183	$	59	$	717,745	$	—	$	(35,665)	$	490,367	$	1,172,506

Stock-based compensation expense				7,672								7,672
Issuance of common stock under the Equity Incentive Plan	50,437	—		1,730								1,730
Shares received in net share settlement of stock option exercises and vesting of restricted stock	(18,718)	—		(1,979)								(1,979)
Purchase of treasury stock						(44,550)						(44,550)
Retirement of treasury stock	(542,034)	—		(44,550)		44,550						—
Other comprehensive loss								(41,338)				(41,338)
Net income										24,945		24,945
Balance at June 30, 2022	58,622,868	$	59	$	680,618	$	—	$	(77,003)	$	515,312	$	1,118,986


	Three months ended June 30, 2021
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount

	(In thousands, except share data)
Balance at April 1, 2021	60,726,701	$	61	$	928,761	$	—	$	(25,831)	$	407,634	$	1,310,625

Stock-based compensation expense				5,829								5,829
Issuance of common stock under the Equity Incentive Plan	75,169	—		5,341								5,341
Shares received in net share settlement of stock option exercises and vesting of restricted stock	(8,114)	—		(1,297)								(1,297)
Purchase of treasury stock						(70,346)						(70,346)
Retirement of treasury stock	(515,000)	(1)		(70,345)		70,346						—
Other comprehensive income								2,177				2,177
Net income										18,815		18,815
Balance at June 30, 2021	60,278,756	$	60	$	868,289	$	—	$	(23,654)	$	426,449	$	1,271,144

See accompanying notes to condensed consolidated financial statements.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)


	Six months ended June 30, 2022
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount

	(In thousands, except share data)
Balance at January 1, 2022	59,305,160	$	59	$	745,615	$	—	$	(37,359)	$	470,961	$	1,179,276

Stock-based compensation expense				13,768								13,768
Issuance of common stock under the Equity Incentive Plan	215,954	1		10,624								10,625
Shares received in net share settlement of stock option exercises and vesting of restricted stock	(44,312)	—		(5,154)								(5,154)
Purchase of treasury stock						(84,236)						(84,236)
Retirement of treasury stock	(853,934)	(1)		(84,235)		84,236						—
Other comprehensive loss								(39,644)				(39,644)
Net income										44,351		44,351
Balance at June 30, 2022	58,622,868	$	59	$	680,618	$	—	$	(77,003)	$	515,312	$	1,118,986


	Six months ended June 30, 2021
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount

	(In thousands, except share data)
Balance at January 1, 2021	60,466,168	$	60	$	910,304	$	—	$	(27,069)	$	400,502	$	1,283,797

Stock-based compensation expense				11,135								11,135
Issuance of common stock under the Equity Incentive Plan	371,561	1		24,337								24,338
Shares received in net share settlement of stock option exercises and vesting of restricted stock	(43,973)	—		(7,142)								(7,142)
Purchase of treasury stock						(70,346)						(70,346)
Retirement of treasury stock	(515,000)	(1)		(70,345)		70,346						—
Other comprehensive income								3,415				3,415
Net income										25,947		25,947
Balance at June 30, 2021	60,278,756	$	60	$	868,289	$	—	$	(23,654)	$	426,449	$	1,271,144

See accompanying notes to condensed consolidated financial statements.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six months ended June 30,
	2022		2021

	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	44,351	$	25,947
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	50,661		55,392


Stock-based compensation expense	13,768		11,135
Loss on foreign currency forward contracts	5,917		—
Deferred income taxes	(4,269)		2,238
Other non-cash adjustments — net	(451)		513
Changes in assets and liabilities:
Accounts receivable	38,255		35,338
Prepaid expenses and other current assets	(5,813)		(10,612)
Accounts payable and accrued expenses	16,636		(1,818)
Income taxes	(10,899)		(19,908)
Deferred revenue	(43,000)		28,117
Leases	734		(2,143)
Other assets	12,087		3,101
Other current and long-term liabilities	7,793		8,425
Net cash provided by operating activities	125,770		135,725

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets	(26,186)		(33,953)
Proceeds from the disposal of fixed assets	6,940		5,490
Purchases of debt securities and other investments	(7,030)		(10,611)
Proceeds from the maturity of debt securities and sale of other investments	11,009		10,500
Settlement of foreign currency forward contracts	(4,591)		—

Payments and settlements for acquisitions — net of cash acquired	(3,282)		(9,082)
Net cash used in investing activities	(23,140)		(37,656)

CASH FLOWS FROM FINANCING ACTIVITIES:



Principal payments of long-term debt	(8,000)		(5,375)
Payments of debt issuance costs	—		(2,057)
Purchase of treasury stock	(72,554)		(70,346)
Proceeds from issuance of common stock upon exercise of options and restricted stock upon purchase	10,554		28,180
Taxes paid related to the net share settlement of stock options and restricted stock	(5,154)		(7,142)

Payments of contingent consideration for acquisitions	(13,865)		—
Net cash used in financing activities	(89,019)		(56,740)
Effect of exchange rates on cash, cash equivalents and restricted cash	(2,215)		(675)
Net increase in cash, cash equivalents and restricted cash	11,396		40,654
Cash, cash equivalents and restricted cash — beginning of period	265,281		388,465
Cash, cash equivalents and restricted cash — end of period	$	276,677	$	429,119

See accompanying notes to condensed consolidated financial statements.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)


	Six months ended June 30,
	2022		2021

	(In thousands)
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	$	270,425	$	418,638
Restricted cash and cash equivalents, included in prepaid expenses and other current assets	6,252		10,481

Total cash, cash equivalents and restricted cash — end of period	$	276,677	$	429,119

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments of interest	$	13,458	$	16,815
Cash payments of income taxes	$	29,187	$	21,200
Cash paid for amounts included in the measurement of lease liabilities	$	64,887	$	72,496

NON-CASH TRANSACTIONS:
Fixed asset purchases recorded in accounts payable and accrued expenses	$	1,999	$	2,849
Contingent consideration issued for acquisitions	$	—	$	7,337
Operating right-of-use assets obtained in exchange for operating lease liabilities — net	$	29,280	$	28,147
Restricted stock reclassified from other current liabilities to equity upon vesting	$	3,160	$	4,178
Treasury stock purchases in other current liabilities	$	11,909	$	—

See accompanying notes to condensed consolidated financial statements.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization — Bright Horizons Family Solutions Inc. (“Bright Horizons” or the “Company”) provides center-based early education and child care, back-up child and adult/elder care, tuition assistance and student loan repayment program administration, educational advisory services, and other support services for employers and families in the United States, the United Kingdom, the Netherlands, Puerto Rico and India. The Company provides services designed to help families, employers and their employees better integrate work and family life, primarily under multi-year contracts with employers who offer child care, dependent care, and workforce education services, as part of their employee benefits packages in an effort to support employees across life and career stages and improve employee engagement. On July 1, 2022, the Company, through wholly-owned subsidiaries, completed the acquisition of the outstanding shares of Only About Children, a child care operator in Australia. See Note 12, Subsequent Event, for additional information.

Basis of Presentation — The accompanying unaudited condensed consolidated balance sheet as of June 30, 2022 and the condensed consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity, and cash flows for the interim periods ended June 30, 2022 and 2021 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required in accordance with U.S. GAAP for complete financial statements and should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

In the opinion of the Company’s management, the Company’s unaudited condensed consolidated balance sheet as of June 30, 2022 and the condensed consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity, and cash flows for the interim periods ended June 30, 2022 and 2021, reflect all adjustments (consisting only of normal and recurring adjustments) necessary to present fairly the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.

Stockholders’ Equity — The board of directors of the Company authorized a share repurchase program of up to $400 million of the Company’s outstanding common stock effective December 16, 2021. The share repurchase program has no expiration date and replaced the prior June 2018 authorization. The shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions, under Rule 10b5-1 plans, or by other means in accordance with federal securities laws. During the six months ended June 30, 2022, the Company repurchased 0.9 million shares for $84.2 million. At June 30, 2022, $296.4 million remained available under the repurchase program. During the six months ended June 30, 2021, 0.5 million shares were repurchased for $70.3 million. All repurchased shares have been retired.

Government Support — During the six months ended June 30, 2022 and 2021, the Company participated in government support programs that were enacted in response to the economic impact of the COVID-19 pandemic, including availing itself of certain tax deferrals, tax credits and federal block grant funding in the United States, as well as employee wage support in the United Kingdom.

During the six months ended June 30, 2022 and 2021, $46.7 million and $17.0 million, respectively, was recorded as a reduction to cost of services in relation to these benefits, of which $16.0 million and $5.7 million, respectively, reduced the operating subsidy revenue due from employers for the related child care centers. Additionally during the six months ended June 30, 2022, amounts received for tuition support of $3.4 million were recorded to revenue. As of June 30, 2022 and December 31, 2021, $1.6 million and $3.3 million, respectively, was recorded in prepaid expenses and other current assets on the consolidated balance sheet for amounts due from government support programs. As of June 30, 2022 and December 31, 2021, $7.0 million and $3.9 million was recorded to other current liabilities related to government support received related to future periods, and as of June 30, 2022 and December 31, 2021, payroll tax deferrals of $7.0 million were recorded in accounts payable and accrued expenses on the consolidated balance sheet.

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2. REVENUE RECOGNITION

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into segments and geographical regions. Revenue disaggregated by segment and geographical region was as follows:


	Full service center-based child care		Back-up care		Educational advisory and other services		Total

	(In thousands)
Three months ended June 30, 2022
North America	$	257,822	$	85,096	$	27,311	$	370,229
Europe	113,494		6,618		—		120,112
	$	371,316	$	91,714	$	27,311	$	490,341
Three months ended June 30, 2021
North America	$	216,327	$	76,660	$	25,567	$	318,554
Europe	118,100		4,824		—		122,924
	$	334,427	$	81,484	$	25,567	$	441,478


	Full service center-based child care		Back-up care		Educational advisory and other services		Total

	(In thousands)
Six months ended June 30, 2022
North America	$	501,059	$	161,025	$	52,944	$	715,028
Europe	224,189		11,533		—		235,722
	$	725,248	$	172,558	$	52,944	$	950,750
Six months ended June 30, 2021
North America	$	408,781	$	147,842	$	49,733	$	606,356
Europe	215,965		9,997		—		225,962
	$	624,746	$	157,839	$	49,733	$	832,318

The classification “North America” is comprised of the Company’s United States and Puerto Rico operations and the classification “Europe” includes the Company’s United Kingdom, Netherlands, and India operations.

Deferred Revenue

The Company records deferred revenue when payments are received in advance of the Company’s performance under the contract, which is recognized as revenue as the performance obligation is satisfied. During the six months ended June 30, 2022 and 2021, $181.0 million and $146.7 million was recognized as revenue related to the deferred revenue balance recorded at December 31, 2021 and December 31, 2020, respectively.

Remaining Performance Obligations

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original contract term of one year or less, or for variable consideration allocated to the unsatisfied performance obligation of a series of services. The transaction price allocated to the remaining performance obligations relates to services that are paid or invoiced in advance. The Company’s remaining performance obligations not subject to the practical expedients were not material.

3. LEASES

The Company has operating leases for certain of its full service and back-up early education and child care centers, corporate offices, call centers, and to a lesser extent, various office equipment, in the United States, the United Kingdom, and the Netherlands. Most of the leases expire within 10 to 15 years and many contain renewal options and/or termination provisions. As of June 30, 2022 and December 31, 2021, there were no material finance leases.

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Lease Expense

The components of lease expense were as follows:


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021

	(In thousands)
Operating lease expense (1)	$	32,359	$	33,652	$	64,887	$	67,277
Variable lease expense (1)	9,768		6,735		19,712		13,677
Total lease expense	$	42,127	$	40,387	$	84,599	$	80,954

(1) Excludes short-term lease expense and sublease income, which were immaterial for the periods presented.

Other Information

The weighted average remaining lease term and the weighted average discount rate were as follows:


	June 30, 2022	December 31, 2021

Weighted average remaining lease term (in years)	10	10
Weighted average discount rate	5.8%	5.8%

Maturity of Lease Liabilities

The following table summarizes the maturity of lease liabilities as of June 30, 2022:


	Operating Leases

	(In thousands)
Remainder of 2022	$	53,830
2023	129,356
2024	120,547
2025	109,078
2026	100,861
Thereafter	508,251
Total lease payments	1,021,923
Less imputed interest	(247,822)
Present value of lease liabilities	774,101
Less current portion of operating lease liabilities	(87,130)
Long-term operating lease liabilities	$	686,971

As of June 30, 2022, the Company had entered into additional operating leases that have not yet commenced with total fixed payment obligations of $27.5 million. The leases are expected to commence between the third quarter of 2022 and the first quarter of 2023 and have initial lease terms of approximately 10 to 15 years.

4. ACQUISITIONS

The Company’s growth strategy includes expansion through strategic and synergistic acquisitions. The goodwill resulting from these acquisitions arises largely from synergies expected from combining the operations of the businesses acquired with the Company’s existing operations, including cost efficiencies and leveraging existing client relationships, as well as from benefits derived from gaining the related assembled workforce.

2022 Acquisitions

During the six months ended June 30, 2022, the Company acquired one center in the Netherlands, which was accounted for as a business combination. This business was acquired for aggregate cash consideration of $3.3 million and consideration payable of $0.2 million. The Company recorded goodwill of $3.1 million related to the full service center-based child care segment in relation to this acquisition, which will not be deductible for tax purposes. In addition, the Company recorded intangible assets of $0.5 million that will be amortized over four years.

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The determination and 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 of June 30, 2022, the purchase price allocation for this acquisition remains open 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 date of acquisition, and were not material to the Company’s financial results.

During the six months ended June 30, 2022, the Company paid contingent consideration of $19.1 million related to an acquisition completed in 2019 and contingent consideration of $0.2 million related to an acquisition completed in 2021. Of the total amounts paid of $19.3 million, $13.9 million had been recorded as a liability at the date of acquisition and presented as cash used in financing activities in the consolidated statement of cash flows with remaining amounts reflected as cash used in operating activities.

On July 1, 2022, the Company, through wholly-owned subsidiaries, completed the acquisition of the outstanding shares of Only About Children, a child care operator in Australia, for aggregate consideration of AUD$450 million. See Note 12, Subsequent Event, for additional information.

2021 Acquisitions

During the year ended December 31, 2021, the Company acquired two centers as well as a school-age camp provider in the United States, 13 centers in the United Kingdom, and three centers in the Netherlands, in five separate business acquisitions, which were each accounted for as a business combination. These businesses were acquired for aggregate cash consideration of $53.2 million, net of cash acquired of $2.2 million, and consideration payable of $0.6 million. Additionally, the Company is subject to contingent consideration payments for two of these acquisitions, and recorded a fair value estimate of $7.3 million in relation to these contingent consideration arrangements at acquisition. Contingent consideration of up to $1.2 million was payable within one year from the date of acquisition if certain performance targets were met for one of the acquisitions, of which $0.8 million was paid in 2021 based on the performance targets met. Contingent consideration is payable in 2026 based on certain financial metrics for the other acquisition. The Company recorded goodwill of $39.5 million related to the full service center-based child care segment, of which $3.4 million will be deductible for tax purposes, and $14.6 million related to the back-up care segment, all of which will be deductible for tax purposes. In addition, the Company recorded intangible assets of $5.7 million that will be amortized over five years, as well as fixed assets of $10.1 million 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 of June 30, 2022, the purchase price allocations for three of the acquisitions remain open as the Company gathers additional information regarding the assets acquired and the liabilities assumed.

During the year ended December 31, 2021, the Company paid $0.6 million for contingent consideration related to acquisitions completed in 2021, which had been recorded as a liability at the date of acquisition.

5. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill were as follows:


	Full service center-based child care		Back-up care		Educational advisory and other services		Total

	(In thousands)




Balance at January 1, 2022	$	1,233,096	$	208,786	$	39,843	$	1,481,725
Additions from acquisitions	3,130		—		—		3,130

Effect of foreign currency translation	(41,052)		(2,618)		—		(43,670)
Balance at June 30, 2022	$	1,195,174	$	206,168	$	39,843	$	1,441,185

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The Company also has intangible assets, which consisted of the following at June 30, 2022 and December 31, 2021:


June 30, 2022	Weighted average amortization period	Cost		Accumulated amortization		Net carrying amount

		(In thousands)
Definite-lived intangible assets:
Customer relationships	14 years	$	396,569	$	(342,659)	$	53,910
Trade names	6 years	11,463		(9,888)		1,575
		408,032		(352,547)		55,485
Indefinite-lived intangible assets:
Trade names	N/A	180,284		—		180,284
		$	588,316	$	(352,547)	$	235,769


December 31, 2021	Weighted average amortization period	Cost		Accumulated amortization		Net carrying amount

		(In thousands)
Definite-lived intangible assets:
Customer relationships	14 years	$	400,399	$	(332,571)	$	67,828
Trade names	6 years	12,358		(10,150)		2,208
		412,757		(342,721)		70,036
Indefinite-lived intangible assets:
Trade names	N/A	180,996		—		180,996
		$	593,753	$	(342,721)	$	251,032

The Company estimates that it will record amortization expense related to intangible assets existing as of June 30, 2022 as follows over the next five years:


	Estimated amortization expense
	(In thousands)
Remainder of 2022	$	14,079
2023	$	26,601
2024	$	12,174
2025	$	1,974
2026	$	971

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6. CREDIT ARRANGEMENTS AND DEBT OBLIGATIONS

Senior Secured Credit Facilities

The Company's senior secured credit facilities consist of a term loan B facility of $600 million (“term loan B”) and a term loan A facility of $400 million (“term loan A”), collectively the “term loan facilities” or “term loans,” as well as a $400 million multi-currency revolving credit facility (“revolving credit facility”). Long-term debt obligations were as follows:


	June 30, 2022		December 31, 2021
	(In thousands)
Term loan B	$	597,000	$	600,000
Term loan A	395,000		400,000
Deferred financing costs and original issue discount	(7,011)		(7,604)
Total debt	984,989		992,396
Less current maturities	(16,000)		(16,000)
Long-term debt	$	968,989	$	976,396

All borrowings under the credit facilities are subject to variable interest. The effective interest rate for the term loans was 3.62% and 2.29% at June 30, 2022 and December 31, 2021, respectively, and the weighted average interest rate was 2.56% and 2.50% for the six months ended June 30, 2022 and 2021, respectively, prior to the effects of any interest rate hedge arrangements. The weighted average interest rate for the revolving credit facility was 5.25% and 4.00% for the six months ended June 30, 2022 and 2021, respectively.

Term Loan B Facility

The seven-year term loan B matures on November 23, 2028 and requires quarterly principal payments equal to 1% per annum of the original aggregate principal amount of the term loan B, with the remaining principal balance due at maturity. Borrowings under the term loan B facility bear interest at a rate per annum of 1.25% over the base rate, or 2.25% over the eurocurrency rate. The eurocurrency rate is the one, three or six month LIBOR rate or, with applicable lender approval, the nine or twelve month or less than one month LIBOR rate, subject to an interest rate floor of 0.50%. The base rate is subject to an interest rate floor of 1.50%.

Term Loan A Facility

The five-year term loan A matures on November 23, 2026 and requires quarterly principal payments equal to 2.5% per annum of the original aggregate principal amount of the term loan A in each of the first three years, 5.0% in the fourth year, and 7.5% in the fifth year. The remaining principal balance is due at maturity. Borrowings under the term loan A facility bear interest at a rate per annum ranging from 0.50% to 0.75% over the base rate, subject to an interest rate floor of 1.00%, or 1.50% to 1.75% over the eurocurrency rate. The eurocurrency rate is the one, three or six month LIBOR rate or, with applicable lender approval, the nine or twelve month or less than one month LIBOR rate.

Revolving Credit Facility

The $400 million multi-currency revolving credit facility matures on May 26, 2026. There were no borrowings outstanding on the revolving credit facility at both June 30, 2022 and December 31, 2021.

Borrowings under the revolving credit facility bear interest at a rate per annum ranging from 0.50% to 0.75% over the base rate, subject to an interest rate floor of 1.00%, or 1.50% to 1.75% over the eurocurrency rate.

Debt Covenants

All obligations under the senior secured credit facilities are secured by substantially all the assets of the Company’s material U.S. subsidiaries. The senior secured credit facilities contain a number of covenants that, among other things and subject to certain exceptions, may restrict the ability of Bright Horizons Family Solutions LLC, the Company’s wholly-owned subsidiary, and its restricted subsidiaries, to: incur 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 the Company’s subsidiaries; alter the business conducted; enter into agreements restricting the Company’s subsidiaries’ ability to pay dividends; and consolidate or merge.

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In addition, the credit agreement governing the senior secured credit facilities requires Bright Horizons Capital Corp., the Company’s direct subsidiary, to be a passive holding company, subject to certain exceptions. The term loan A and the revolving credit facility require Bright Horizons Family Solutions LLC, the borrower, and its restricted subsidiaries, to comply with a maximum first lien net leverage ratio not to exceed 4.25 to 1.00. A breach of the applicable covenant is subject to certain equity cure rights.

Future principal payments of long-term debt are as follows for the years ending December 31:


	Long-term debt

	(In thousands)
Remainder of 2022	$	8,000
2023	16,000
2024	18,500
2025	28,500
2026	351,000
Thereafter	570,000
Total future principal payments	$	992,000

Derivative Financial Instruments

The Company is subject to interest rate risk as all borrowings under the senior secured credit facilities are subject to variable interest rates. The Company’s risk management policy permits using derivative instruments to manage interest rate and other risks. The Company uses interest rate swaps and caps to manage a portion of the risk related to changes in cash flows from interest rate movements. In June 2020, the Company entered into interest rate cap agreements with a total notional value of $800 million, designated and accounted for as cash flow hedges from inception, to provide the Company with interest rate protection in the event the one-month LIBOR rate increases above 1%. Interest rate cap agreements for $300 million notional value have an effective date of June 30, 2020 and expire on October 31, 2023, while interest rate cap agreements for another $500 million notional amount have an effective date of October 29, 2021 and expire on October 31, 2023.

In December 2021, the Company entered into additional interest rate cap agreements with a total notional value of $900 million designated and accounted for as cash flow hedges from inception. Interest rate cap agreements for $600 million, which have a forward starting effective date of October 31, 2023 and expire on October 31, 2025, provide the Company with interest rate protection in the event the one-month LIBOR rate increases above 2.5%. Interest rate cap agreements for $300 million, which have a forward starting effective date of October 31, 2023 and expire on October 31, 2026, provide the Company with interest rate protection in the event the one-month LIBOR rate increases above 3.0%.

During the six months ended June 30, 2022, the Company entered into foreign currency forward contracts in connection with an acquisition in Australia completed in July 2022. The Company entered into the foreign currency forwards to lock the purchase price in US dollars at closing and mitigate the impact of foreign currency fluctuations between signing of the definitive purchase agreement on May 3, 2022 and closing. The forward contracts have a total notional value of approximately AUD$320 million, which included the expected payments for the purchase price and for letters of credit used to guarantee certain lease arrangements. The cash flows associated with the business combination do not meet the criteria to be designated and accounted for as a cash flow hedge and, as such, foreign currency gains and losses on these forwards are recorded on the consolidated statement of income. During the six months ended June 30, 2022, the Company recognized realized losses of $4.6 million and unrealized losses of $1.3 million in relation to these forwards due to fluctuations in the Australian dollar.

The fair value of the derivative financial instruments was as follows for the periods presented:


Derivative financial instruments	Consolidated balance sheet classification	June 30, 2022		December 31, 2021

		(In thousands)
Interest rate caps - asset	Other assets	$	40,514	$	8,809
Foreign currency forward contracts - liability	Other current liabilities	$	(1,326)	$	—

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The effect of the derivative financial instruments on other comprehensive income (loss) was as follows:

Derivatives designated as cash flow hedging instruments

Amount of gain (loss) recognized in other comprehensive income (loss)

Consolidated statement of income classification

Amount of net gain (loss) reclassified into earnings

Total effect on other comprehensive income (loss)

(In thousands)

Three months ended June 30, 2022

Cash flow hedges

BRIGHT HORIZONS FAMILY SOLUTIONS INC. [BFAM] Filings
10-Q	[2022-08-05]
10-Q	[2022-05-06]
10-K	[2022-02-25]
10-Q	[2021-11-05]
10-Q	[2021-08-06]
10-Q	[2021-05-10]
10-K	[2021-03-01]
10-Q	[2020-11-09]
10-Q	[2020-08-10]
10-Q	[2020-05-11]
10-K	[2020-02-27]
10-Q	[2019-11-06]
10-Q	[2019-08-07]
10-Q	[2019-05-09]
10-K	[2019-02-27]
10-Q	[2018-11-06]
10-Q	[2018-08-07]
10-Q	[2018-05-07]
10-K	[2018-02-28]
10-Q	[2017-11-07]
10-Q	[2017-08-07]
10-Q	[2017-05-09]
10-K	[2017-03-01]
10-Q	[2016-11-07]
10-Q	[2016-08-05]
10-Q	[2016-05-06]
10-K	[2016-02-29]
10-Q	[2015-11-09]
10-Q	[2015-08-07]
10-Q	[2015-05-08]
10-K	[2015-03-02]
10-Q	[2014-11-07]
10-Q	[2014-08-08]
10-Q	[2014-05-09]
10-K	[2014-03-25]
S-1	[2013-11-08]
10-Q	[2013-11-07]
10-Q	[2013-08-09]
S-1	[2013-05-29]
10-Q	[2013-05-10]
10-K	[2013-03-26]
S-1	[2012-10-24]