<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: APRIL 3, 1998
COMMISSION FILE NUMBER: 0-22811
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CORPORATEFAMILY SOLUTIONS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
TENNESSEE 62-1302117
- ----------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
209 TENTH AVENUE SOUTH, SUITE 300
NASHVILLE, TENNESSEE 37203-4173
- ----------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
(615) 256-9915
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NONE
- --------------------------------------------------------------------------------
(Former name, address and fiscal year if changed since last report)
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 of each of the issuer's classes of common stock,
as of the latest practicable date.
Shares outstanding as of May 1, 1998:
4,720,570
Common Stock, no par value per share
<PAGE> 2
CORPORATEFAMILY SOLUTIONS, INC.
INDEX
<TABLE>
<CAPTION>
Page
Part I. FINANCIAL INFORMATION: Number
------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
April 3, 1998 (Unaudited) and January 2, 1998.................... 3
Consolidated Statements of Income
Three Months ended April 3, 1998
and March 28, 1997 (Unaudited)................................... 4
Consolidated Statements of Cash Flows
Three Months ended April 3, 1998
and March 28, 1997 (Unaudited)................................... 5
Notes to Consolidated Financial Statements
(Unaudited)...................................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 8
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings................................................ 13
Item 2. Changes in Securities............................................ 13
Item 3. Default Upon Senior Securities................................... 13
Item 4. Submission of Matters to a Vote of Security Holders.............. 13
Item 5. Other Information................................................ 13
Item 6. Exhibits and Reports on Form 8-K................................. 13
Signatures................................................................ 14
</TABLE>
2
<PAGE> 3
CORPORATEFAMILY SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 3, January 2,
1998 1998
------------ ------------
ASSETS: (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,474,000 $ 12,349,000
Restricted cash 178,000 176,000
Accounts receivable, less allowance of $131,000 and
$125,000, respectively 6,735,000 6,115,000
Prepaid expenses 152,000 143,000
Current deferred tax asset 1,300,000 1,014,000
------------ ------------
Total current assets 21,839,000 19,797,000
Property and equipment, net 3,675,000 3,593,000
Intangible assets, net 5,550,000 5,651,000
Noncurrent deferred tax asset 103,000 175,000
Other assets 1,035,000 1,001,000
------------ ------------
Total Assets $ 32,202,000 $ 30,217,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 806,000 $ 801,000
Income tax payable 122,000 51,000
Accrued expenses:
Payroll and related benefits 4,380,000 3,914,000
Other 1,075,000 1,097,000
Deferred revenue, current portion 632,000 479,000
Other current liabilities 963,000 463,000
Amounts held in escrow 178,000 176,000
------------ ------------
Total current liabilities 8,156,000 6,981,000
Deferred revenue, net of current portion 833,000 862,000
Other long-term liabilities 1,555,000 1,567,000
------------ ------------
Total liabilities 10,544,000 9,410,000
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; authorized, 10,000,000 and
3,875,000 shares, respectively; issued and outstanding none -- --
Common stock, no par value; authorized, 100,000,000 and
10,000,000 shares, respectively; issued and outstanding
4,608,280 shares and 4,491,104 shares, respectively 25,279,000 24,134,000
Accumulated deficit (3,621,000) (3,327,000)
------------ ------------
Total shareholders' equity 21,658,000 20,807,000
------------ ------------
Total liabilities and shareholders' equity $ 32,202,000 $ 30,217,000
============ ============
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
3
<PAGE> 4
CORPORATEFAMILY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
April 3, March 28,
1998 1997
------------ ------------
<S> <C> <C>
Revenue $ 21,248,000 $ 17,479,000
Expenses:
Operating 18,758,000 15,341,000
Selling, general and administrative 1,570,000 1,416,000
Depreciation and amortization 208,000 200,000
------------ ------------
Operating income 712,000 522,000
Interest (income) expense, net (172,000) 72,000
------------ ------------
Income before income taxes 884,000 450,000
------------ ------------
Income tax expense (benefit):
Current 584,000 18,000
Deferred (214,000) 203,000
------------ ------------
370,000 221,000
------------ ------------
Net income $ 514,000 $ 229,000
============ ============
Earnings per share:
Basic $ 0.11 $ 0.12
============ ============
Diluted $ 0.10 $ 0.07
============ ============
Weighted average common
shares outstanding:
Basic 4,540,812 1,908,221
============ ============
Diluted 5,293,639 3,294,969
============ ============
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
4
<PAGE> 5
CORPORATEFAMILY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
THREE MONTHS ENDED APRIL 3, 1998 AND MARCH 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
April 3, March 28,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 514,000 $ 229,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 208,000 200,000
Changes in assets and liabilities:
Accounts receivable (620,000) 663,000
Prepaid expenses (9,000) (14,000)
Deferred income taxes (214,000) 203,000
Other noncurrent assets (34,000) (133,000)
Accounts payable and accrued expenses 449,000 (1,294,000)
Income taxes payable 522,000 (107,000)
Other current liabilities 500,000 --
Deferred revenue 124,000 (53,000)
Other long-term liabilities (11,000) 31,000
------------ ------------
Net cash provided by (used in) operating activities 1,429,000 (275,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (189,000) (29,000)
------------ ------------
Net cash used in investing activities (189,000) (29,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (1,134,000) --
Proceeds from exercise of stock options and warrants 1,019,000 2,000
Payments on long-term debt -- (222,000)
------------ ------------
Net cash used in financing activities (115,000) (220,000)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,125,000 (524,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,349,000 2,913,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,474,000 $ 2,389,000
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments of interest $ -- $ 101,000
============ ============
Cash payments of income taxes $ 62,000 $ 160,000
============ ============
NONCASH FINANCING ACTIVITIES:
Tax benefit related to stock option exercise $ 451,000 $ --
============ ============
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
5
<PAGE> 6
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of April 3, 1998 and the consolidated
statements of income and cash flows for the three month periods ended April
3, 1998 and March 28, 1997 have been prepared by the Company in accordance
with the accounting policies described in its annual financial statements
for the year ended January 2, 1998, included in the Company's Annual Report
on Form 10-K, and should be read in conjunction with the notes thereto.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in cash flows at April 3, 1998 and for
all periods presented have been made. The results of operations for the
period ended April 3, 1998 are not necessarily indicative of the operating
results for the full year.
2. INITIAL PUBLIC OFFERING
In August 1997, the Company completed an initial public offering of
2,702,500 shares of its common stock, of which 1,401,386 shares were issued
and sold by the Company, at a public offering price of $10.00 per share
(the "Offering"). The Company received net proceeds of approximately $12.1
million (after deducting underwriting discounts and expenses).
Approximately $3.7 million was used to repay all of the Company's then
outstanding bank borrowings. The Company intends to use the balance of the
net proceeds for working capital to further develop its services and
products and for other general corporate purposes, including possible
acquisitions of companies engaged in similar or complementary businesses.
In connection with the Offering, the Company effected a .65 to 1 reverse
stock split. Accordingly, all references in the accompanying financial
statements to common share or per common share information have been
restated to reflect the reverse stock split. Additionally, as a result of
the Offering, all 1,125,000 shares of the Company's issued and outstanding
Series A preferred stock were converted into 1,169,935 shares of common
stock.
3. EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
("SFAS 128"). Under the standards established by SFAS 128, earnings per
share is measured at two levels: basic earnings per share and diluted
earnings per share. Basic earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding during
the year. Diluted earnings per share is computed by dividing net income by
the weighted average number of common shares after considering the
additional dilution related to preferred stock, options and warrants. All
periods presented have been restated to reflect the adoption of SFAS 128.
6
<PAGE> 7
The following tables present information necessary to calculate earnings
per share for the three months ended April 3, 1998 and March 28, 1997:
<TABLE>
<CAPTION>
Three Months Ended April 3, 1998
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share:
Income available to common shareholders $ 514,000 4,540,812 $ 0.11
=========
Effect of dilutive securities:
Options and warrants -- 752,827
----------- -------------
Diluted earnings per share $ 514,000 5,293,639 $ 0.10
=========== ============= =========
<CAPTION>
Three Months Ended March 28, 1997
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share:
Income available to common shareholders $ 229,000 1,908,221 $ 0.12
=========
Effect of dilutive securities:
Options and warrants -- 216,813
Convertible preferred stock -- 1,169,935
----------- -------------
Diluted earnings per share $ 229,000 3,294,969 $ 0.07
=========== ============= =========
</TABLE>
4. SUBSEQUENT EVENT
On April 26, 1998, the Company entered into a definitive Agreement and Plan
of Merger (the "Merger Agreement") with Bright Horizons, Inc., a Delaware
corporation ("BRHZ"). Pursuant to the Merger Agreement, the Company and
BRHZ will form Bright Horizons Family Solutions, Inc., a Delaware
corporation ("Newco") and each of the Company and BRHZ will merge with two
newly formed subsidiaries of Newco (the "Merger"). In the Merger, each
outstanding share of the Company's common stock shall be converted into one
share of Newco common stock, par value $0.01 per share ("Newco Common
Stock") and each outstanding share of BRHZ common stock shall be converted
into 1.15022 shares of Newco Common Stock. The transaction, which is
expected to be completed in the third quarter of 1998, is intended to be
treated as a tax-free reorganization and shall be accounted for as a
pooling of interests. Closing under the Merger Agreement is subject to a
number of conditions, including shareholder and regulatory approval.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains certain forward-looking statements. Although
the Company believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurances that the forward-looking
statements included herein will prove to be accurate. There are many factors
that may cause actual results to differ materially from those indicated by the
forward-looking statements, including the various risk factors set forth in the
Company's Annual Report on Form 10-K for the year ended January 2, 1998 as filed
with the Securities and Exchange Commission. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of any such information should not be regarded as a representation by
the Company that the objectives and plans of the Company will be achieved. The
following discussion and analysis should be read in conjunction with and is
qualified in its entirety by the unaudited consolidated financial statements
including the notes thereto.
GENERAL
The Company is a leading national provider of services for the corporate market
that support families and business success. The Company works with more than 100
employers seeking to create a "family friendly" work environment by providing
work place child care, education, family support programs and consulting
services. The Company manages corporate-sponsored Family Centers, built and
equipped by an employer at or near its offices, providing high quality services
such as early childhood education, child care, back-up child care,
kindergartens, get-well care, summer camps, and parent support services. In
addition, the Company provides work/life consulting services to help employers
realize the benefits of work and family programs and policies and to align
work/life concerns of working families with business strategies of employers.
Consulting services provided by the Company include feasibility studies,
work/life strategic planning, return on investment analyses and development of
work/life programs and policies.
On April 26, 1998, the Company entered into a definitive Agreement and Plan of
Merger (the "Merger Agreement") with Bright Horizons, Inc., a Delaware
corporation ("BRHZ"). Pursuant to the Merger Agreement, the Company and BRHZ
will form Bright Horizons Family Solutions, Inc., a Delaware corporation
("Newco") and each of the Company and BRHZ will merge with two newly formed
subsidiaries of Newco (the "Merger"). The Company and BRHZ will become wholly
owned subsidiaries of Newco. In the Merger, each outstanding share of the
Company's common stock shall be converted into one share of Newco common stock,
par value $0.01 per share ("Newco Common Stock") and each outstanding share of
BRHZ common stock shall be converted into 1.15022 shares of Newco Common Stock.
The transaction, which is expected to be completed in the third quarter of 1998,
is intended to be treated as a tax-free reorganization and shall be accounted
for as a pooling of interests. Closing under the Merger Agreement is subject to
a number of conditions, including shareholder and regulatory approval.
During the quarter ended April 3, 1998, the Company opened five new Family
Centers, including centers for four new corporate clients and one additional
location for an existing client. As of April 3, 1998, the Company managed 100
Family Centers, representing 74 corporate clients, in 29 states and the District
of Columbia. Additionally, the Company had 16 Family Centers under development,
including six for new corporate clients.
The Company's revenue and results of operations fluctuate with the seasonal
demands for childcare. The Company's revenue typically declines during the third
quarter as a result of decreased enrollments in its Family Centers as parents
withdraw their older children for entry into elementary schools. Since a portion
8
<PAGE> 9
of the Company's costs are fixed costs, the Company's results are affected by
fluctuation in Family Center and program utilization. Quarterly results of
operations may also fluctuate based upon the number and timing of Family Center
openings and/or acquisitions, the performance of new and existing Family
Centers, the contractual arrangements under which Family Centers are operated,
the change in the mix of such contractual arrangements, the timing and level of
consulting and development fees, Family Center closings, competitive factors and
general economic conditions.
The Company reports its quarterly results in 13-week increments (two four-week
periods and one five-week period) instead of calendar months.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial data
for the Company expressed as a percentage of revenue.
<TABLE>
<CAPTION>
Three Months Ended
------------------------
April 3, March 28,
1998 1997
---------- ----------
<S> <C> <C>
Revenue 100.0% 100.0%
Operating expenses 88.3 87.8
Selling, general and
administrative expenses 7.4 8.1
Depreciation and amortization 1.0 1.1
----- -----
Operating income 3.3 3.0
Interest expense (income), net (0.8) 0.4
----- -----
Income before income taxes 4.1 2.6
Income tax expense 1.7 1.3
----- -----
Net income 2.4% 1.3%
===== =====
</TABLE>
REVENUE
Revenue increased $3.7 million, or 21.1%, to $21.2 million for the first quarter
ended April 3, 1998 from $17.5 million for the first quarter ended March 28,
1997. The revenue increase was primarily the result of (i) the operation of net
15 new Family Centers opened since the first quarter of 1997; (ii) the operation
of net 10 Family Centers opened during 1996; and (iii) internal growth generated
at mature Family Centers.
OPERATING EXPENSES
Operating expenses increased $3.5 million, or 22.9%, to $18.8 million for the
first quarter ended April 3, 1998 from $15.3 million for the first quarter ended
March 28, 1997. Operating expenses as a percentage of revenue increased to 88.3%
in the first quarter of 1998 from 87.8% for the comparable period in 1997. This
increase was attributable to (i) the net 15 new Family Centers opened since the
first quarter of 1997, which were in an enrollment-building period (typically
the 12 months following the opening of a Family Center), with level expenses but
lower revenues in early months after opening; and (ii) an increase in consulting
expense as the Company expanded its consulting capabilities in anticipation of
growth in this area.
9
<PAGE> 10
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $154,000, or 10.9%, to
$1.6 million for the first quarter ended April 3, 1998 from $1.4 million for the
first quarter ended March 28, 1997. This increase is primarily the result of the
Company increasing its sales and marketing personnel during the second half of
1997 in order to expand its market penetration and enhance its responsiveness to
client requests and proposals. Selling, general and administrative expenses as a
percentage of revenue decreased to 7.4% in first quarter of 1998 from 8.1% for
the comparable period in 1997. This decrease is attributable to economies of
scale as a result of a larger revenue base. Management does not anticipate that
future declines in selling, general and administrative expenses as a percentage
of revenues, if any, will be comparable to declines experienced in prior
periods.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased $8,000 to $208,000 for the first
quarter ended April 3, 1998 from $200,000 for the first quarter ended March 28,
1997. Management anticipates that depreciation expense in the future will
increase at a higher rate than experienced in 1997; however, as a percentage of
revenue such expense is expected to remain comparable.
OPERATING INCOME
Operating income increased $190,000, or 36.4%, to $712,000 for the first quarter
ended April 3, 1998 from $522,000 for the first quarter ended March 28, 1997.
NET INTEREST INCOME/EXPENSE
For the first quarter ended April 3, 1998 the Company recorded net interest
income of $172,000 as compared to net interest expense of $72,000 for the first
quarter ended March 28, 1997. The increase in investment income and decrease in
interest expense was primarily the result of (i) repayment of all of the
Company's outstanding bank borrowings in August 1997 using approximately $3.7
million of the net proceeds received from its initial public offering; and (ii)
the investment of the remaining net proceeds, approximately $8.4 million,
primarily in high quality commercial paper.
INCOME TAXES
The provision for income taxes was $370,000 for the first quarter ended April 3,
1998 as compared to $221,000 for the comparable period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company primarily provides its services under management contracts that
require little or no capital investment by the Company for growth of its
operations. Corporate clients typically assume financial responsibility for
construction costs and ongoing facility expenses. Prior to August 1997, the
Company had financed its operating needs and acquisition from investments from
shareholders, funded debt and cashflow from operations.
In August 1997, the Company completed an initial public offering of 2,702,500
shares of its common stock, of which 1,401,386 shares were issued and sold by
the Company, at a public offering price of $10.00 per share. The Company
received net proceeds of approximately $12.1 million, of which approximately
$3.7 million were used to repay all of the Company's then outstanding bank
borrowings. The Company intends to use the balance of the net proceeds for
working capital to further develop its services and products and
10
<PAGE> 11
for other general corporate purposes, including possible acquisitions of
companies engaged in similar or complementary businesses.
The Company had working capital of $13.7 million and $12.8 million as of April
3, 1998 and January 2, 1998, respectively. During the quarter ended April 3,
1998, net cash provided by operating activities was $1.4 million as compared to
cash used in operating activities of $275,000 for the comparable period in 1997.
The increase in cash provided by operations was primarily the result of
increased net income and the timing of vendor payments in accounts payable and
accrued expenses. Cash used in investing activities during the quarter ended
April 3, 1998 totaled $189,000, as compared to $29,000 for the comparable period
in 1997. Cash used in financing activities during the quarter April 3, 1998
totaled $115,000 as compared to $220,000 for the comparable period in 1997.
During the quarter ended April 3, 1998, the Company utilized $1.1 million of its
capital resources to purchase 48,750 shares of its common stock which were
subsequently reissued during the quarter to fulfill warrant and stock option
exercises. In addition, in January 1998, the Company approved an agreement that
reflected the understandings it had reached with one of its executive officers
in October 1997 regarding the terms of such officer's retirement. Pursuant to
his retirement agreement, during the quarter ended April 3, 1998, the Company
paid $27,000 as a severance payment, vested options consistent with the terms of
the plans pursuant to which the options were granted and agreed to a three year
non-compete agreement.
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Cash equivalents consist primarily
of high quality commercial paper. The carrying value of these instruments
approximates market value due to their short maturities.
The Company has entered into a $5.0 million revolving credit facility to be used
for working capital and other general corporate purposes. Borrowings under the
credit facility, which is subject to renewal on an annual basis, will bear
interest at the lender's prime rate. No amounts were outstanding under this
credit facility at April 3, 1998.
Management believes that funds provided by operations, available borrowing under
the credit facility and the net proceeds from the initial public offering will
be sufficient to meet the Company's needs for working capital, capital
expenditures and the Company's anticipated needs to fund future growth through
the end of 1999. The Company does not anticipate material increases in the level
of capital expenditures during 1998 or 1999. An element of the Company's
strategy is to pursue strategic acquisitions. The Company may be required to
seek external financing sources to pursue such acquisitions. There can be no
assurance that the Company would be able to obtain such financing on reasonable
terms, if at all.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 3, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
requires that all changes in equity during a period, except those resulting from
investment by owners and distribution to owners, be reported in a financial
statement for the period in which they are recognized. For the quarters ended
April 3, 1998 and March 28, 1997, respectively, the Company has no additional
components of comprehensive income, other than net income, in accordance with
SFAS 130.
In April 1998, the Accounting Standards Executive Committee ("AcSEC") of the
American Institute of Certified Public Accountants (AICPA) issued Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5"). SOP
98-5 requires the costs of start-up activities and organization costs, as
defined, be expensed as incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998; the Company will adopt SOP 98-5 during the
first quarter of fiscal 1999. Management anticipates that the initial
application of SOP 98-5 will be reported as a cumulative change in accounting
principle, in accordance with SOP 98-5. Management does not expect the adoption
to have a material impact on the Company's results of operations, financial
condition or cash flows.
11
<PAGE> 12
YEAR 2000 CONVERSION
The Company is coordinating the identification, evaluation, and implementation
of changes to computer systems and applications necessary to achieve a year 2000
date conversion with no effect on customers or disruption to business
operations. These actions are necessary to ensure that the systems and
applications will recognize and process the year 2000 and beyond. The Company is
also evaluating non-system issues relative to the year 2000 and beyond. As
appropriate, the Company is communicating with suppliers, customers, financial
institutions and others with which it does business to coordinate year 2000
conversion. Management does not anticipate the total cost of compliance will
have a significant impact on the Company's consolidated financial statements or
results of operations.
APPLICATION OF OFFERING PROCEEDS FROM INITIAL PUBLIC OFFERING
Pursuant to the Registration Statement on Form S-1, as amended (Registration No.
333-29523) dated August 12, 1997, the Company completed an initial public
offering of 2,702,500 shares of its common stock, which included the sale of
1,401,386 new shares of common stock by the Company, at a public offering price
of $10.00 per share (the "Offering"). The Company received total proceeds of
approximately $14.0 million and incurred expenses of approximately $981,000 for
underwriting discounts and approximately $948,000 in other expenses associated
with the Offering. None of such payments were made to the Company's directors or
officers or their affiliates or to any other affiliate of the Company.
Accordingly, the Company received net proceeds of approximately $12.1 million of
which approximately $3.7 million were used to repay all of the Company's then
outstanding bank borrowings. The Company intends to use the balance of the net
proceeds for working capital to further develop its services and products and
for other general corporate purposes, including possible acquisitions of
companies engaged in similar or complementary businesses. The managing
underwriters for the transaction were Montgomery Securities and J.C. Bradford &
Co.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
EXHIBIT INDEX
2 Agreement and Plan of Merger dated April 26, 1998 by and
between CorporateFamily Solutions, Inc. and Bright
Horizons, Inc. (incorporated by reference to the
Registrant's Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 28, 1998)
10.1 Agreement between David J. Gleason and the Company dated as
of January 14, 1998
10.2 Amendment Number 1 to Employment Agreement of Robert D.
Lurie
27 Financial Data Schedule (for SEC use only)
B. Reports on Form 8-K
The Company filed a Current Report on Form 8-K on April 28, 1998,
pursuant to Item 5 of such form to report entering into a
definitive Agreement and Plan of Merger (the "Merger Agreement")
with Bright Horizons, Inc., a Delaware corporation ("BRHZ").
Pursuant to the Merger Agreement, the Company and BRHZ will form
Bright Horizons Family Solutions, Inc., a Delaware corporation
("Newco") and each of the Company and BRHZ will merge with two
newly formed subsidiaries of Newco (the "Merger").
13
<PAGE> 14
SIGNATURES
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.
CORPORATEFAMILY SOLUTIONS, INC.
Registrant
May 15, 1998 /s/ Michael E. Hogrefe
- -------------------------------- -------------------------------------
(Date) Michael E. Hogrefe
Executive Vice President,
Chief Financial Officer and Secretary
14
<PAGE> 1
EXHIBIT 10.1
AGREEMENT
THIS AGREEMENT, is effective January 14, 1998, by and between David J.
Gleason, a resident of Franklin, Tennessee ("Executive"), and CorporateFamily
Solutions, Inc., a Tennessee corporation (the "Company").
WHEREAS, Executive has served as an officer of the Company since 1988
and has made many contributions to the Company during his employment; and
WHEREAS, Executive retired from his employment to pursue other personal
interests and in consideration of his many years of service to the Company, the
Company wishes to provide to Executive certain benefits as set forth below.
NOW, THEREFORE, in consideration of the mutual premises herein
contained and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Retirement as Officer and Employee. Executive acknowledges that as
of January 2, 1998, he retired as an officer and employee of the Company.
Executive shall be paid his current salary through January 2, 1998, and
thereafter shall be entitled to no salary or benefits except as are set forth in
this Agreement.
2. Benefits; Severance. Executive has been provided the opportunity to
continue medical and dental insurance under COBRA, and has rejected such
continuation. Except as specified in this Agreement, all other benefits shall
cease on the date of his retirement. The Company shall pay Executive Severance
in an amount equal to ten (10) weeks base salary commencing on the first payroll
date immediately following the seven (7) day revocation period specified at
Section 7.11 and on regular Company payroll dates thereafter until the ten (10)
weeks is paid.
3. Common Stock Options. Executive is the holder of certain outstanding
options to purchase common stock of the Company, some of which are qualified
incentive stock options pursuant to the Internal Revenue Code of 1986, as
amended (the "Code"), some of which are non-qualified stock options, some of
which were vested at the date of Executive's retirement and some of which were
not vested. The Compensation Committee of the Company in connection with the
effectiveness of this Agreement has on this date and pursuant to the terms of
the Company's stock option and incentive plans, accelerated the vesting of all
nonvested options so that all such options are vested and the exercise period
for such options is through December 31, 2000.
<PAGE> 2
The following chart reflects the options which are expected to be
outstanding after the exercise of certain vested, outstanding incentive stock
options:
OPTIONS VESTED POST-AGREEMENT
<TABLE>
<CAPTION>
No. of No. of No. of Options No. of Options
Date of Options Options Still Vested Pre- Vested Post- Expiration Exercise
Plan Grant Granted Outstanding Agreement Agreement Date Price
- ---- ----- ------- ----------- --------- --------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1/1/95 39,000 18,479 10,679 18,479 12/31/2000 7.69
1996 1/1/96 165,100 165,100 66,040 165,100 12/31/2000 7.69
</TABLE>
Exercise of options for such number of shares as set forth below are
hereby restricted. Executive agrees that in the event he breaches any of the
covenants contained in this Agreement and such breach is not cured within the
ten (10) day period specified below, specific options as set forth below (the
"Restricted Options") shall be forfeited, be null and void and be of no force
and effect. In the event of a breach of any such covenant, the Company shall
give written notice of said breach and Executive shall have ten (10) days from
receipt of notice to cure the breach. In the event the breach cannot be cured or
is not cured within the ten day period, the Restricted Options shall be
forfeited at such time pursuant to the schedule as set forth below:
<TABLE>
<CAPTION>
Time Period Options
(Measured at the end of 10-day notice period) Subject to Forfeiture
--------------------------------------------- ---------------------
<S> <C>
From the date of this Agreement through December 31, 1998 50,000
January 1, 1999 through December 31, 1999 30,000
January 1, 2000 through July 31, 2000 15,000
</TABLE>
In no event shall the number of Restricted Options ever exceed 50,000
regardless of the date of grant.
The new period for exercising the options set forth in the chart
labeled "Options Vested Post-Agreement" shall survive the death of Executive and
such options shall inure to the benefit of the Executive's estate and final
expiration through December 31, 2000.
4. Covenant by Executive. From and after the date hereof, Executive
will take no action which could dissipate the goodwill of the Company or its
relationship with its employees, former employees, customers, colleagues in the
industry, suppliers, competitors, shareholders, lenders or others.
2
<PAGE> 3
5. Release.
5.1 By Executive. Effective immediately, Executive releases
and discharges the Company and each parent, subsidiary, affiliate and
shareholder of the company, and each present, former and future director,
officer and employee of the Company or any parent, subsidiary, affiliate and
shareholder of the Company (collectively, "Company Affiliates") from all manner
of claims, actions, causes of action or suits, in law or in equity, which
Executive has or hereafter can, shall or may have against the Company or Company
Affiliates or any of them by reason of any matter, cause of thing whatsoever,
including any action arising from or during his employment with the Company,
resulting from his termination of such employment, or related to his status as a
shareholder (through the date hereof) or after. From and after the date hereof,
Executive agrees and covenants not to sue, or threaten suit against, or make any
claim against, the Company or any Company Affiliate for or alleging any of the
claims, actions, causes of action or suits released herein. Executive
acknowledges that this release includes but is not limited to all claims arising
under federal, state or local laws prohibiting employment discrimination and all
claims growing out of any legal restrictions on Company's right to terminate its
employees. This Release specifically encompasses all claims of employment
discrimination based on race, color, religion, sex, disability and national
origin, as provided under Title VII of the Civil Rights Act of 1964, as amended,
the 1991 Civil Rights Act, all claims of discrimination based on age, as
provided under the Age Discrimination in Employment Act of 1967, as amended, the
Employee Retirement Income Security Act, the Americans with Disabilities Act and
all claims of employment discrimination under any state law including as
provided under Tennessee Code Annotated Sections 8-50-103 and 4-21-401, et seq.
5.2 By Company and Company Affiliates. Effective immediately,
Company and Company Affiliates (and each of them) release and discharge the
Executive from all manner of claims, actions, causes of action or suits, in law
or in equity, which Company and/or Company Affiliates, or any of them, has or
hereafter can, shall or may have against the Executive by reason of any matter,
cause or thing arising from or during Executive's employment with the Company,
resulting from his termination of such employment, or related to his status as a
shareholder (through the date hereof) or officer. From and after the date
hereof, Company and Company Affiliates, and each of them, agree and covenant not
to sue, or threaten suit against, or make any claim against, the Executive for
or alleging any of the claims, actions, causes of action or suits released
herein.
6. No Competition; No Disclosure; No Interference. Executive covenants
and agrees that for a period of three years from and after the date hereof,
without the written consent of the Company, neither he nor any person, firm,
organization, company or corporation (whether or not engaged in business for
profit) controlled by him will directly or indirectly own, manage, operate,
join, control or participate in the ownership, management, operation or control
or be connected in any manner with any business within any market for the
Company as such market exists on January 2, 1998, and which as of January 2,
1998 (a) is engaged in the business of providing management or consulting
services for workplace child care, education or family support
3
<PAGE> 4
programs, or any organization whose purpose is related to such business or to
another business that has been previously identified as a business opportunity
that is potentially competing or conflicting (b) is engaged in a business that
competes or conflicts with the business of the Company as of the date of this
Agreement.
From and after the date hereof for a period of three years,
Executive agrees that he will keep confidential and not appropriate any (i)
trade and business secrets or other business practices of the Company, (ii)
information relating to the Company's customers and their contracts or business
relationships with the Company, (iii) information related to business and growth
strategy, or contemplated opportunities for mergers and acquisitions, (iv)
personnel policies, (v) business relations information or client lists, (vi)
proprietary designs or specifications, (vii) financial or other performance
data, (viii) pricing policies or strategies, (ix) bid amounts or rate structures
or (x) any other proprietary or confidential information of the Company whether
or not obtained with the knowledge and permission of the Company or any Company
Affiliates and whether or not developed, devised or otherwise created in whole
or in part by his efforts. Notwithstanding the above, the provisions of this
paragraph shall not apply with respect to any information, documents or other
material that either (a) was known by the Executive through sources other than
by virtue of his employment with the Company, or (b) is otherwise public
information.
From and after the date hereof for a period of three years,
Executive agrees that he shall not, directly or indirectly, for whatever reason,
whether for his own account or for the account of any other person, firm,
corporation or other organization: (i) solicit, employ, deal with or otherwise
interfere with the Company's or any of the Company Affiliates' contracts or
relationships with any employee, officer, director or any independent contractor
whether the person is employed by or associated with the Company or a Company
Affiliate on the date hereof or during such three-year period set forth above;
or (ii) solicit, accept, deal with or otherwise interfere with any of the
Company's or Company Affiliates' contracts or relationships with any independent
contractor, customer, client or supplier of the Company or any Company
Affiliate.
Executive acknowledges that the provisions of this Section 6
are essential to the continued goodwill and profitability of the Company and
further acknowledges that the application or operation thereof shall not involve
a substantial hardship upon his future livelihood. Should any court determine
that the provisions of this Section 6 shall be unenforceable with respect to
scope, duration or geographic area, such court shall be empowered to substitute,
to the extent enforceable, provisions similar hereto or other provisions so as
to provide the Company, to the fullest extent permitted by applicable law, the
benefits intended by this Section 6. A court called upon to enforce the terms of
this Agreement and/or to fashion a remedy for any breach thereof by Executive,
may consider the 50,000 restricted share forfeitures in calculation of any
damage award.
Company acknowledges that with respect to all of the subject
matter contained in this Section 6, this Section 6 represents the entire
agreement and understanding among the
4
<PAGE> 5
Company, the Company Affiliates and the Executive with respect to the subject
matter hereof, and to the extent there exist any other agreements or
understandings concerning such subject matter, such agreements are extinguished
and null and void.
In the event that the Company experiences a change in control
defined as the acquisition of at least a majority of the stock of the Company by
any person, entity or group; the merger or consolidation of the Company with or
into another entity, or the sale of all or substantially all of the Company's
assets, the provisions of Section 6 of this Agreement shall expire.
7. Miscellaneous.
7.1 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the Company, its successors and assigns.
7.2 Survival. All representations and warranties contained in
this Agreement shall survive the execution and delivery hereof.
7.3 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to injunctive relief to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state thereof having jurisdiction, this being in addition to any other
remedy to which they are entitled under this Agreement or at law or in equity.
In addition, a party that is required to enforce the terms and provisions of
this Agreement and is successful therein shall be reimbursed by the other party
for all costs and expenses, including legal fees, that it may incur in bringing
that legal proceeding.
7.4 Entire Agreement. This Agreement constitutes the entire
agreement between the Company and Executive relating to the subject matter
hereof; there are no terms other than those contained herein. This Agreement may
not be modified or amended except in a writing signed by the parties hereto.
7.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee without giving
effect to principles of conflicts of law.
7.6 Counterparts. This Agreement may be executed in
counterparts, which together shall constitute one and the same Agreement.
7.7 Enforceability. If any provision of this Agreement shall
be held or deemed to be or shall, in fact, be invalid, inoperative or
unenforceable as applied in any particular case in any jurisdiction or
jurisdictions, or in all jurisdictions, because it conflicts with any provisions
5
<PAGE> 6
of any constitution, statute, rule or public policy, or for any reason, such
circumstances shall not have the effect of rendering the provision in question
invalid, inoperative or unenforceable in any other case or circumstance, or of
rendering any other provision or provisions of this Agreement invalid,
inoperative or unenforceable to any extent whatever. If any provision of this
Agreement shall be held or deemed to impose restrictions which are too broad,
too lengthy or otherwise unreasonable, the parties hereto agree to be bound by a
court's decision as to what restrictions would be reasonable and acknowledge
that such court has the authority and discretion to make such a determination.
7.8 Acknowledgment by Executive. Executive hereby acknowledges
that he has carefully read and fully understands all the provisions of this
Agreement. He further acknowledges that this Agreement sets forth the entire
agreement between himself and the Company. In addition, he acknowledges that he
has been given a period of at least twenty-one (21) days to consider the terms
of this Agreement and that he has consulted with an attorney of his choice.
Finally, Executive hereby acknowledges that, in considering whether to sign this
Agreement, he has not relied upon any representation or statement, written or
oral, not set forth in this document and that he has not been threatened or
coerced into signing this Agreement by an official of the Company and that he
has read, understood and fully and voluntarily accepts the terms of this
Agreement.
7.9 Notices. If a notice is to be sent by a party pursuant to
the terms of this Agreement, such notice shall be sent to the parties at the
following addresses:
If to Company: CorporateFamily Solutions
209 Tenth Avenue South, Suite 300
Nashville, TN 37203-4173
Telephone: 615-256-9915
Facsimile: 615-256-9881
with a copy to: Karen L. C. Ellis
Bass, Berry & Sims PLC
315 Deadrick Street
2700 First American Center
Nashville, TN 37238
Telephone: 615/742-6266
Facsimile: 615/742-6233
If to Executive: Mr. David J. Gleason
238 St. Andrews Drive
Franklin, TN 37069
Telephone: 615/662-5873
Facsimile: ______________________
6
<PAGE> 7
With a copy to: Christopher Harris, Esq.
Thrailkill, Harris & Wood, PLC
105 Westpark Drive, Suite 400
Brentwood, TN 37027
Telephone: 615-376-3555
Facsimile: 615-376-3016
Written notice shall be deemed received upon the earlier of actual
receipt or the third day following the date postmarked. Notice may be sent by
facsimile, hand delivery, return receipt requested or via overnight courier.
7.10 Captions. The captions herein are for purposes of
identification only and shall not be considered in construing this Agreement.
7.11 Effective Date. This Agreement may be revoked by
Executive at any time during the seven (7) calendar day period immediately after
being signed. This Agreement shall not become effective until the expiration of
such revocation period.
COMPANY:
CORPORATEFAMILY SOLUTIONS, INC.
(on behalf of Company and Company Affiliates)
By: /s/ Michael E. Hogrefe
------------------------------------------
Title: Executive Vice President and CFO
EXECUTIVE:
/s/ David J. Gleason
---------------------------------------------
David J. Gleason
7
<PAGE> 1
EXHIBIT 10.2
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") is effective
as of January 3, 1998, by and between CorporateFamily Solutions, Inc., a
Tennessee corporation (the "Company"), and Robert Lurie (the "Employee").
WHEREAS, the Employee and the Company are parties to the certain
employment agreement dated August 27, 1995 (the "Employment Agreement"); and
desire to amend the Employment Agreement to reflect changes in the terms and
conditions of the Employee's employment with the Company.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. The first two sentences of Section 2 of the Agreement are hereby
amended and restated in their entirety as follows:
2. Positions and Duties. The Employee shall serve as
the Chairman of the Board of Directors and Director of
Research and Development for the Company. The Employee shall
devote approximately half of his working time and efforts (not
to be less than 20 hours per week on average) to the business
and affairs of the Company.
2. The phrase "at the rate comparable to that of the other executive
officers of the Company at the time of Closing" in the first sentence of Section
3(a) shall be deleted, and replaced with the phrase "equivalent to one-half of
Employee's annual salary at the end of 1997", and the remainder of Section 3(a)
shall remain unchanged.
3. The other terms of the Employment Agreement shall remain in force.
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the date first above written.
COMPANY:
CORPORATEFAMILY SOLUTIONS, INC.
By: /s/ Marguerite W. Sallee
-----------------------------------------
Name: Marguerite W. Sallee
Title: President and Chief Executive Officer
EMPLOYEE:
/s/ Robert Lurie
--------------------------------------------
Robert Lurie
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CORPORATE FAMILY SOLUTIONS, INC., FOR THE THREE MONTHS
ENDED APRIL 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-START> JAN-03-1998
<PERIOD-END> APR-03-1998
<EXCHANGE-RATE> 1
<CASH> 13,474,000
<SECURITIES> 0
<RECEIVABLES> 6,866,000
<ALLOWANCES> (131,000)
<INVENTORY> 0
<CURRENT-ASSETS> 21,839,000
<PP&E> 4,971,000
<DEPRECIATION> (1,296,000)
<TOTAL-ASSETS> 32,202,000
<CURRENT-LIABILITIES> 8,156,000
<BONDS> 0
0
0
<COMMON> 25,279,000
<OTHER-SE> (3,621,000)
<TOTAL-LIABILITY-AND-EQUITY> 32,202,000
<SALES> 0
<TOTAL-REVENUES> 21,248,000
<CGS> 0
<TOTAL-COSTS> 20,530,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6000
<INTEREST-EXPENSE> (172,000)
<INCOME-PRETAX> 884,000
<INCOME-TAX> 370,000
<INCOME-CONTINUING> 514,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 514,000
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.10
</TABLE>
