<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2000.
Commission File Number 0-24699
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BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 62-1742957
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
200 Talcott Avenue South
Watertown, MA 02472
(Address of principal executive office)
(617) 673-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ].
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: 11,972,848 shares of common
stock, $.01 par value, at November 3, 2000.
<PAGE> 2
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
A. Consolidated Balance Sheets at September 30, 2000 (Unaudited) and December 31,
1999 3
B. Consolidated Statements of Operations for the Three and Nine Months ended
September 30, 2000 and 1999 (Unaudited) 4
C. Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2000
and 1999 (Unaudited) 5
D. Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 15
ITEM 2. Changes in Securities and Use of Proceeds 15
ITEM 3. Defaults Upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security Holders 15
ITEM 5. Other information 15
ITEM 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT INDEX 17
</TABLE>
2
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Bright Horizons Family Solutions, Inc.
Consolidated Condensed Balance Sheets
(in thousands except share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,240 $ 12,752
Accounts receivable, net 22,603 17,858
Prepaid expenses and other current assets 4,054 2,251
Prepaid income taxes 1,322 --
Current deferred tax asset 4,966 4,966
---------- ----------
Total current assets 38,185 37,827
Fixed assets, net 59,337 48,437
Goodwill and other intangible assets, net 22,202 15,909
Non-current deferred tax asset 4,192 4,192
Other assets 1,233 708
---------- ----------
Total assets $ 125,149 $ 107,073
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of Credit $ 5,474 $ --
Current portion of long-term debt and
obligations under capital leases 172 172
Accounts payable and accrued expenses 24,039 23,017
Deferred revenue, current portion 11,161 9,462
Income tax payable -- 780
Other current liabilities 1,174 1,054
---------- ----------
Total current liabilities 42,020 34,485
Long-term debt and obligations under
capital leases, net of current portion 490 515
Accrued rent 1,668 1,400
Other long-term liabilities 2,790 2,692
Deferred revenue, net of current portion 7,367 5,695
---------- ----------
Total liabilities 54,335 44,787
---------- ----------
Stockholders' equity:
Common Stock $.01 par value
Authorized: 30,000,000 shares
Issued: 12,462,000 and 12,310,000 shares at September 30, 2000 and
December 31, 1999, respectively
Outstanding: 11,967,000 and 11,815,000 at September 30, 2000 and
December 31, 1999, respectively 125 123
Additional paid in capital 77,096 75,641
Treasury stock, 495,000 shares, at cost (7,081) (7,081)
Retained earnings (deficit) 674 (6,397)
---------- ----------
Total stockholders' equity 70,814 62,286
---------- ----------
Total liabilities and stockholders' equity $ 125,149 $ 107,073
========== ==========
</TABLE>
The accompanying notes are an integral part of
the consolidated condensed financial statements
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Bright Horizons Family Solutions, Inc.
Consolidated Statements of Operations
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues $ 74,504 $ 61,139 $213,192 $180,560
Cost of services 63,889 52,774 182,035 154,957
-------- -------- -------- --------
Gross profit 10,615 8,365 31,157 25,603
Selling, general and administrative 6,245 5,172 17,834 15,566
Amortization 527 229 1,369 675
-------- -------- -------- --------
Income from operations 3,843 2,964 11,954 9,362
Net interest income 38 211 162 567
-------- -------- -------- --------
Income before tax 3,881 3,175 12,116 9,929
Income tax provision 1,621 1,299 5,045 4,069
-------- -------- -------- --------
Net income $ 2,260 $ 1,876 $ 7,071 $ 5,860
======== ======== ======== ========
Earnings per share - basic $ 0.19 $ 0.15 $ 0.60 $ 0.49
======== ======== ======== ========
Weighted average shares - basic 11,914 12,104 11,857 11,996
======== ======== ======== ========
Earnings per share - diluted $ 0.18 $ 0.15 $ 0.57 $ 0.46
======== ======== ======== ========
Weighted average shares - diluted 12,667 12,608 12,445 12,699
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
the consolidated condensed financial statements
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Bright Horizons Family Solutions, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
<S> <C> <C>
Net income $ 7,071 $ 5,860
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 5,234 3,534
Asset writedowns and loss on disposal of fixed assets 11 24
Non cash expenses 16 --
Changes in assets and liabilities:
Accounts receivable, trade (4,619) (4,399)
Prepaid income taxes (1,322) 2,486
Prepaid expenses and other current assets (1,395) (596)
Accounts payable and accrued expenses (406) (2,034)
Income taxes payable (777) --
Deferred revenue 2,962 769
Accrued rent 268 (89)
Other long-term assets (222) 516
Other current and long-term liabilities (39) 102
-------- --------
Net cash provided by operating activities 6,782 6,173
-------- --------
Cash flows from investing activities:
Additions to fixed assets, net of acquired amounts (13,186) (11,605)
Proceeds from disposal of fixed assets 23 20
Increase in other assets (303) (400)
Payments for acquisitions, net of cash acquired (7,690) (832)
-------- --------
Net cash used for investing activities (21,156) (12,817)
-------- --------
Cash flows from financing activities:
Purchase of treasury stock -- (4,682)
Proceeds from issuance of common stock 1,413 4,622
Principal payments of long term debt and
obligations under capital leases (25) (532)
Borrowing through line of credit 10,674 --
Payments on line of credit (5,200) --
-------- --------
Net cash provided(used) by financing activities 6,862 (592)
-------- --------
Net decrease in cash and cash equivalents (7,512) (7,236)
Cash and cash equivalents, beginning of period 12,752 20,439
-------- --------
Cash and cash equivalents, end of period $ 5,240 $ 13,203
======== ========
Non-cash investing activities:
Transfer of fixed assets in connection
with child care center management contract $ -- $ 2,300
======== ========
Non-cash financing activities:
Options issued in connection with acquisition 28 --
Tax benefit related to stock option exercises $ -- $ 2,481
======== ========
Supplemental cash flow information:
Cash payments for interest $ 94 $ 45
======== ========
Cash payments for income taxes $ 7,161 $ 1,666
======== ========
</TABLE>
The accompanying notes are an integral part of
the consolidated condensed financial statements
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ITEM 1.D. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The Company and Basis of Presentation
ORGANIZATION - Bright Horizons Family Solutions, Inc. (the "Company") was
incorporated under the laws of the State of Delaware on April 27, 1998 and
commenced substantive operations upon the completion of the merger by and
between Bright Horizons, Inc. ("BRHZ") and CorporateFamily Solutions, Inc.
("CFAM") on July 24, 1998 (the "Merger"). The Company provides workplace
services for employers and families including childcare, early education and
strategic worklife consulting throughout the United States and in the United
Kingdom.
The Company operates its family centers under various types of arrangements,
which generally can be classified in two forms: (i) the corporate-sponsored
model, where the Company operates a family center on the premises of a corporate
sponsor and gives priority enrollment to the corporate sponsor's employees and
(ii) the management contract model, where the Company manages a work-site family
center under a cost-plus arrangement, typically for a single employer. The
Company receives tuition revenue from parents, and management fees and operating
subsidies from corporate sponsors for its childcare services.
BASIS OF PRESENTATION -- The accompanying financial statements have been
prepared by the Company in accordance with the accounting policies described in
the Company's audited financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999, and should be read in
conjunction with the notes thereto.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments which are necessary to
present fairly its financial position as of September 30, 2000, the results of
its operations for the three and nine month periods ended September 30, 2000 and
1999, and its cash flows for the nine month periods ended September 30, 2000 and
1999, and are of a normal and recurring nature. The results of operations for
interim periods are not necessarily indicative of the operating results to be
expected for the full year.
FOREIGN OPERATIONS - In April 2000 the Company assumed the operation of three
child care centers for the U.S. Navy in Guam. Additionally, in May 2000 the
Company acquired Nurseryworks Limited, based in London, England which operates
nine child care centers in the greater London area. The assets and liabilities
of the Company's United Kingdom subsidiaries, which are not material to the
Company's consolidated financial statements, are translated into U.S. dollars at
exchange rates in effect at the balance sheet date. Income and expense items are
translated at the average exchange rates prevailing during the period. The
cumulative translation effects for subsidiaries using a functional currency
other than the U.S. dollar will be included as a
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cumulative translation adjustment in stockholders' equity. At September 30, 2000
the cumulative effect was immaterial.
NEW PRONOUNCEMENTS - Beginning in the first quarter of fiscal 2001 the Company
will be required to adopt the provisions of Statement of Financial Accounting
Standards No.133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"), which establishes accounting and reporting standards for
derivative instruments and hedging activities. SFAS 133, as amended by Statement
of Accounting Standards No. 137, will require the Company to recognize all
derivatives as either assets or liabilities in the statement of financial
position and to measure those instruments at fair value. The accounting for
gains and losses from changes in the fair value of a particular derivative will
depend on the intended use of the derivative. The Company does not expect the
adoption of SFAS 133 to have a material impact on the Company's results of
operations, financial condition or cash flows.
In December 1999, the American Institute of Certified Public Accountants (AICPA)
issued Staff Accounting Bulletin (SAB) 101 to clarify the accounting rules on
revenue recognition and to provide more specific guidance on existing broad
revenue recognition rules. The Company will be required to adopt this new
framework beginning in the quarter ending December 31, 2000. The Company does
not expect adoption of this bulletin to have a material effect on the Company's
results of operations, financial condition or cash flows.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of Accounting Principles Board (APB) Opinion No. 25." This
interpretation provides guidance on the application of APB Opinion No. 25,
including (1) the definition of an employee, (2) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (3) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award and (4) the accounting for an exchange of stock compensation
awards in a business combination. The interpretation is effective July 1, 2000
and the effects of applying the interpretation are recognized on a prospective
basis. The adoption of this interpretation did not have a material impact on the
Company's results of operations, financial condition or cash flows.
RECLASSIFICATIONS -- Certain amounts in the prior year financial statements have
been reclassified to conform to the current year's presentation.
2. Line of Credit
The Company entered into a $40.0 million unsecured line of credit for working
capital, acquisition financing and general corporate purposes with two banks
effective March 30, 2000. This facility replaces the line of credit facility
that the Company had in place at December 31, 1999. The credit facility consists
of a revolving line of credit, which expires on June 30, 2002, at which time any
outstanding indebtedness will be converted into a three-year term loan. At the
Company's option, the line of credit will bear interest at either i) Prime or
ii) LIBOR plus a spread based on debt levels and coverage ratios. The agreement
requires the Company to comply with certain
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covenants, which include, among other things, the maintenance of specified
financial ratios, and prohibits the payment of dividends without bank approval.
At September 30, 2000 the Company had $5.5 million outstanding and approximately
$34.5 million available under the line of credit and was in compliance with the
covenants of the agreement.
3. Earnings Per Share
Earnings per share has been calculated in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings per Share", ("SFAS 128"), which
established standards for computing and presenting earnings per share. The
computation of net earnings per share is based on the weighted average number of
common shares and common equivalent shares outstanding during the period. Common
equivalent shares include stock options and are determined using the modified
treasury stock method
The following tables present information necessary to calculate earnings per
share:
<TABLE>
<CAPTION>
Three months ended September 30, 2000
-----------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ ---------
<S> <C> <C> <C>
Basic earnings per share:
Income available to common
stockholders $2,260,000 11,914,000 $0.19
=====
Effect of dilutive securities:
Stock options -- 753,000
---------- ----------
Diluted earnings per share $2,260,000 12,667,000 $0.18
========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
Three months ended September 30, 1999
-----------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ ---------
<S> <C> <C> <C>
Basic earnings per share:
Income available to common
stockholders $1,876,000 12,104,000 $0.15
=====
Effect of dilutive securities:
Stock options -- 504,000
---------- ----------
Diluted earnings per share $1,876,000 12,608,000 $0.15
========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, 2000
-----------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ ---------
<S> <C> <C> <C>
Basic earnings per share:
Income available to common
stockholders $7,071,000 11,857,000 $0.60
=====
Effect of dilutive securities:
Stock options -- 588,000
---------- ----------
Diluted earnings per share $7,071,000 12,445,000 $0.57
========== ========== =====
</TABLE>
8
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<TABLE>
<CAPTION>
Nine months ended September 30, 1999
-----------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ ---------
<S> <C> <C> <C>
Basic earnings per share:
Income available to common
stockholders $5,860,000 11,996,000 $0.49
=====
Effect of dilutive securities:
Stock options -- 703,000
---------- ----------
Diluted earnings per share $5,860,000 12,699,000 $0.46
========== ========== =====
</TABLE>
The weighted average number of shares excluded from the above calculations for
the three month and nine months ended September 30, 2000 were 1,000 and 363,823
respectively, and 623,135 and 230,977 for the three and nine months ended
September 30, 1999, respectively, as their effect would be anti-dilutive.
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<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-Q contains certain forward-looking statements regarding,
among other things, the anticipated financial and operating results of
the Company. Investors are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release any
modifications or revisions to these forward-looking statements to
reflect events or circumstances occurring after the date hereof or to
reflect the occurrence of unanticipated events. In connection with the
"safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995, the Company cautions investors that future financial and
operating results may differ materially from those projected in
forward-looking statements made by, or on behalf of, the Company. Such
forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause the actual results,
performance, or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or
implied by such forward-looking statements. See "Risk Factors" included
in the Company's Annual Report on Form 10-K for the year ended December
31, 1999 and incorporated herein by reference for a description of a
number of risks and uncertainties which could affect actual results.
General
The Company provides workplace services for employers and families,
including childcare, early education and strategic worklife consulting,
operating 334 family centers at September 30, 2000. The Company has the
capacity to serve more than 41,800 families in 34 states, the District
of Columbia, the United Kingdom and the Pacific Rim. The Company has
partnerships with many of the nation's leading employers, including 77
Fortune 500 companies. Working Mother's 2000 list of the "100 Best
Companies for Working Mothers" includes 44 clients of the Company. The
Company's historical revenue growth has been primarily due to the
addition of new family centers as well as increased enrollment at
existing family centers. The Company reports its operating results on a
calendar year basis.
The Company's business is subject to seasonal and quarterly
fluctuations. The Company's experience has been that the demand for
child development services decreases during the summer months. During
this season, families are often on vacation or have alternative child
care arrangements, and many preschool age children graduate to
elementary school programs. Demand for the Company's services generally
increases in September upon the beginning of the new school year and
remains relatively stable throughout the rest of the school year. The
Company's results of operations may also fluctuate from quarter to
quarter as a result of, among other things, the performance of existing
centers, the number and timing of new center openings and/or
acquisitions, the length of time required for new centers to achieve
profitability, center closings, refurbishment or relocation, the
sponsorship model mix of new and existing centers, the timing and level
of sponsorship payments, competitive factors and general economic
conditions.
In April 2000 the Company assumed the operation of three child care
centers for the U.S. Navy in Guam. Additionally, in May, 2000 the
Company acquired Nurseryworks
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Limited, based in London, England which operates nine child care
centers in the greater London area. The operations of the Company's
non-domestic child care centers are not material to the Company's
operating results, financial position or cash flows.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as
a percentage of revenue for the three and nine month periods ending
September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of services 85.8 86.3 85.4 85.8
----- ----- ----- -----
Gross profit 14.2 13.7 14.6 14.2
Selling, general & administrative 8.4 8.5 8.4 8.6
Amortization 0.6 0.4 0.6 0.4
----- ----- ----- -----
Income from operations 5.2 4.8 5.6 5.2
Net interest income 0.1 0.4 0.1 0.3
----- ----- ----- -----
Income before income taxes 5.3 5.2 5.7 5.5
Income tax provisions 2.3 2.1 2.4 2.3
----- ----- ----- -----
Net income 3.0% 3.1% 3.3% 3.2%
===== ===== ===== =====
</TABLE>
Three and Nine Months Ended September 30, 2000 Compared to the Three
--------------------------------------------------------------------
and Nine Months Ended September 30, 1999
----------------------------------------
Net Revenues. Net revenues increased $13.4 million, or 21.9%, to $74.5
million for the three months ended September 30, 2000 from $61.1
million for the three months ended September 30, 1999. Net revenues
increased $32.6 million, or 18.1%, to $213.2 million for the nine
months ended September 30, 2000 from $180.6 million for the nine months
ended September 30, 1999. The growth in revenues is attributable to the
net addition of 43 child development centers since September 30, 1999,
enrollment increases in the Company's newer family centers, and tuition
increases at existing centers of approximately 4% to 6%. Additionally,
the Company had non-recurring revenue of approximately $0.5 million in
the three months ended September 30, 2000 from the sale of educational
materials in conjunction with a client program.
Gross Profit. Cost of services consists of center operating expenses,
including payroll and benefits for center personnel, facilities costs
including depreciation, supplies and other expenses incurred at the
center level. Gross profit increased $2.2 million, or 26.9%, to $10.6
million for the three months ended September 30, 2000 from $8.4 million
for the three months ended September 30, 1999. As a percentage of net
revenues, gross profit increased to 14.2% for the three months ended
September 30, 2000 compared to 13.7% for the same period in 1999. Gross
profit increased $5.6 million, or 21.7%, to $31.2 million for the nine
months ended September 30, 2000 from $25.6 million for the nine months
ended September 30, 1999. As a percentage of
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net revenues, gross profit was 14.6% for the nine months ended
September 30, 2000, compared to 14.2% for the same period in 1999.
The Company showed an increase in gross profit margin for the three and
nine month periods ending September 30, 2000 compared to the same
periods in 1999 as a result of a greater proportion of centers
achieving mature operating levels and strong enrollment in newer family
centers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist of regional and district management
personnel, corporate management and administrative functions, and
marketing and development expenses for new and existing centers.
Selling, general and administrative expenses increased $1.0 million, or
20.7%, to $6.2 million for the three months ended September 30, 2000
from $5.2 million for the three months ended September 30, 1999. As a
percentage of net revenues, selling, general and administrative
expenses decreased to 8.4% for the three months ended September 30,
2000 from 8.5% for the same 1999 period. Selling, general and
administrative expenses increased $2.2 million, or 14.6%, to $17.8
million for the nine months ended September 30, 2000 from $15.6 million
for the nine months ended September 30, 1999. As a percentage of net
revenues, selling, general and administrative expenses decreased to
8.4% for the nine months ended September 30, 2000 from 8.6% for the
nine months ended September 30, 1999.
The decrease in selling and general administrative expenses as a
percentage of revenue during the first nine months of this year is
primarily attributable to a larger revenue base and increased
efficiencies. The dollar increase is primarily attributable to
investments in regional management, sales personnel, and operations
personnel necessary to support long term growth and in selling and
general administrative expenses to support foreign expansion.
Amortization. Amortization increased $298,000, or 130.1%, to $527,000
for the three months ended September 30, 2000 from $229,000 for the
three months ended September 30, 1999. Amortization increased $694,000,
or 102.8%, to $1.4 million for the nine months ended September 30, 2000
from $675,000 for the nine months ended September 30, 1999. The
increase is attributable to the amortization of intangible assets
arising from acquisitions.
Income from Operations. Income from operations increased 29.7%, or
$879,000, to $3.8 million for the three months ended September 30, 2000
from $3.0 million for the three months ended September 30, 1999. Income
from operations increased 27.7%, or $2.6 million, to $12.0 million for
the nine months ended September 30, 2000 from $9.4 million for the nine
months ended September 30, 1999.
Net Interest Income. Net interest income of $38,000 for the three
months ended September 30, 2000 decreased $173,000 from $211,000 of net
interest income for the three months ended September 30, 1999. Net
interest income of $162,000 for the nine months ended September 30,
2000 decreased $405,000 from $567,000 of net interest income for the
nine months ended September 30, 1999. The decrease in net interest
income is attributable to lower levels of invested cash and by
borrowing under the line of credit.
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Income Taxes Provision. The Company's effective income tax rate was
approximately 41.7% for the three and nine month periods ended
September 30, 2000 and 41.0% for the three and nine month periods ended
September 30, 1999. Management expects the tax rate for 2000 to
approximate the annual rate for 1999 of 41.5%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are the ongoing operations of
its existing family centers and the addition of new family centers
through development or acquisition. The Company's primary source of
liquidity has been cash provided by operating activities. The Company
had a working capital deficit of $3.8 million as of September 30, 2000
and working capital of $3.3 million as of December 31, 1999. The
decrease in working capital is the result of the utilization of surplus
cash and cash equivalent balances to fund long term investments in
fixed assets, new family centers, and acquisitions. Management believes
that the Company will continue to operate with a working capital
deficit for the next 6 to 12 months after which time the Company
anticipates it will generate cash flow from operating activities in
excess of its projected investment needs.
Cash provided by operating activities totaled $6.8 million for the nine
months ended September 30, 2000 compared to $6.2 million for the nine
months ended September 30, 1999. The increase in cash provided by
operations is the result of increases in net income before depreciation
and amortization and additional deferred revenue. These amounts were
offset by an increase in payments for income taxes in the period ended
September 30, 2000.
Cash used in investing activities increased to $21.2 million for the
nine months ended September 30, 2000 from $12.8 million for the nine
months ended September 30, 1999. In addition to acquisitions of child
care centers, totaling $7.7 million for the nine months ended September
30, 2000, the Company had $13.2 million of fixed asset additions for
the nine months ended September 30, 2000. Of the $13.2 million of fixed
asset additions approximately $9.0 million relates to new family
centers, $1.7 million relates to expenditures for the refurbishment and
expansion of existing family centers, with the remainder being incurred
at the corporate level, including the relocation of the Company's
corporate office. Management expects the current level of fixed asset
spending to decrease slightly for the remainder of 2000, and to remain
at the annualized 2000 levels in 2001.
Cash provided by financing activities increased to $6.9 million for the
nine months ended September 30, 2000 from cash used by financing
activities of $600,000 for the nine months ended September 30, 1999.
During the nine months ended September 30, 2000, the Company had net
borrowings of $5.5 million from its bank line of credit. The Company
also received $1.4 million in net proceeds from the exercise of common
stock options, as compared to $4.6 million in the same period in 1999.
The amounts received in 1999 were offset by treasury stock purchases
totaling $4.7 million. In the nine months ended September 30, 2000, the
Company repaid long term debt of $25,000.
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Management believes that funds provided by operations, the Company's
existing cash and cash equivalent balances, and borrowings available
under the line of credit will be adequate to meet currently anticipated
operating and capital expenditure needs for at least the next 18
months. However, if the Company were to make any significant
acquisition(s) or make significant investment(s) in facilities for new
or existing centers for corporate sponsors, it may be necessary for the
Company to obtain additional debt or equity financing. There can be no
assurance that the Company would be able to obtain such financing on
reasonable terms, if at all.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
There have been no material changes in the Company's investment
strategies, types of financial instruments held or the risks associated
with such instruments which would materially alter the market risk
disclosures made in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
Foreign Currency Exchange Rate Risk
The Company's exposure to fluctuations in foreign currency exchange
rates is primarily the result of foreign subsidiaries domiciled in the
United Kingdom. The Company does not currently use financial derivative
instruments to hedge foreign currency exchange rate risks associated
with the United Kingdom subsidiaries.
The assets and liabilities of the Company's United Kingdom
subsidiaries, whose functional currency is the British pound, are
translated into U.S. dollars at exchange rates in effect at the balance
sheet date. Income and expense items are translated at the average
exchange rates prevailing during the period. The cumulative translation
effects for the subsidiaries are included in cumulative translation
adjustment in stockholders' equity, and at September 30, 2000 were not
material.
The operations of the Company's United Kingdom subsidiaries are not
material to the Company's consolidated results of operations;
therefore, the impact of a 10% change in the exchange would not have a
significant impact on the Company's results of operations or financial
position.
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings:
Not Applicable
ITEM 2. Changes in Securities and Use of Proceeds:
None
ITEM 3. Defaults Upon Senior Securities:
None
ITEM 4. Submission of Matters to a Vote of Security Holders:
None
ITEM 5. Other information:
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 27 (for SEC use only)
(b) Reports on Form 8-K.
None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
Date: November 10, 2000
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
By: /s/ Elizabeth Boland
-----------------------------------------
Elizabeth Boland
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
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EXHIBIT INDEX
27 Financial Data Schedule (for Commission use only)
17
