Table of Contents

 	
 	
UNITED STATES
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, 2016
OR

¨	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)	
 	 	 	
200 Talcott Avenue South
Watertown, MA	 	02472	
(Address of principal executive offices)	 	(Zip code)	
Registrant’s telephone number, including area code: (617) 673-8000
__________________________________________________
Indicate by check mark whether the registrant has (1) 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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	 	Accelerated filer	¨	
Non-accelerated filer	¨	(Do not check if smaller reporting company)	Smaller reporting company	¨	
Indicate by check mark whether the Registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).    Yes   ¨     No   x
As of October 20, 2016, the Company had 59,502,944 shares of common stock, $0.001 par value, outstanding.

 	

Table of Contents

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
FORM 10-Q
For the quarterly period ended September 30, 2016 
TABLE OF CONTENTS

 	 	 	
 	 	Page	
PART I. FINANCIAL INFORMATION	
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3	
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15	
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24	
Item 4.	Controls and Procedures	24	
 	 	 	
PART II. OTHER INFORMATION	
Item 1.	Legal Proceedings	25	
Item 1A.	Risk Factors	25	
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25	
Item 3.	Defaults Upon Senior Securities	25	
Item 4.	Mine Safety Disclosures	25	
Item 5.	Other Information	25	
Item 6.	Exhibits	27	

2

Table of Contents

PART I. FINANCIAL INFORMATION
t
Item 1. Condensed Consolidated Financial Statements (Unaudited)
t                
BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

 	September 30,
2016	 	December 31,
2015	
ASSETS	 	 	 	
Current assets:	 	 	 	
Cash and cash equivalents	$	19,484	
 	 	$	11,539	
 	
Accounts receivable—net	83,175	
 	 	97,295	
 	
Prepaid expenses and other current assets	43,487	
 	 	43,879	
 	
Total current assets	146,146	
 	 	152,713	
 	
Fixed assets—net	430,260	
 	 	429,736	
 	
Goodwill	1,150,717	
 	 	1,147,809	
 	
Other intangibles—net	372,095	
 	 	389,331	
 	
Other assets	29,479	
 	 	30,952	
 	
Total assets	$	2,128,697	
 	 	$	2,150,541	
 	
LIABILITIES AND STOCKHOLDERS’ EQUITY	 	 	 	
Current liabilities:	 	 	 	
Current portion of long-term debt	$	9,550	
 	 	$	9,550	
 	
Borrowings on revolving line of credit	30,000	
 	 	24,000	
 	
Accounts payable and accrued expenses	113,136	
 	 	114,776	
 	
Deferred revenue	132,237	
 	 	137,283	
 	
Other current liabilities	24,202	
 	 	19,734	
 	
Total current liabilities	309,125	
 	 	305,343	
 	
Long-term debt—net	900,358	
 	 	905,661	
 	
Deferred rent and related obligations	57,376	
 	 	50,039	
 	
Other long-term liabilities	47,265	
 	 	44,182	
 	
Deferred revenue	5,549	
 	 	4,608	
 	
Deferred income taxes	111,063	
 	 	113,100	
 	
Total liabilities	1,430,736	
 	 	1,422,933	

Stockholders’ equity:	 	 	 	
Preferred stock, $0.001 par value; 25,000,000 shares authorized and no shares issued or outstanding at September 30, 2016 and December 31, 2015	—	
 	 	—	
 	
Common stock, $0.001 par value; 475,000,000 shares authorized; 59,025,169 and 60,008,136 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively	59	
 	 	60	
 	
Additional paid-in capital	908,006	
 	 	983,398	
 	
Accumulated other comprehensive loss	(71,164	)	 	(39,270	)	
Accumulated deficit	(138,940	)	 	(216,580	)	
Total stockholders’ equity	697,961	
 	 	727,608	
 	
Total liabilities and stockholders’ equity	$	2,128,697	
 	 	$	2,150,541	
 	
See notes to condensed consolidated financial statements.

3

Table of Contents

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
(Unaudited)

 	Three months ended September 30,	 	Nine months ended September 30,	
 	2016	 	2015	 	2016	 	2015	
Revenue	$	383,929	
 	 	$	365,944	
 	 	$	1,171,304	
 	 	$	1,086,849	
 	
Cost of services	292,457	
 	 	280,560	
 	 	879,673	
 	 	818,997	
 	
Gross profit	91,472	
 	 	85,384	
 	 	291,631	
 	 	267,852	
 	
Selling, general and administrative expenses	39,616	
 	 	36,419	
 	 	120,403	
 	 	110,154	
 	
Amortization of intangible assets	7,141	
 	 	7,224	
 	 	21,338	
 	 	20,978	
 	
Income from operations	44,715	
 	 	41,741	
 	 	149,890	
 	 	136,720	
 	
Interest income	20	
 	 	32	
 	 	64	
 	 	117	
 	
Interest expense	(10,522	)	 	(10,362	)	 	(31,554	)	 	(30,831	)	
Income before income taxes	34,213	
 	 	31,411	
 	 	118,400	
 	 	106,006	
 	
Income tax expense	(11,703	)	 	(10,853	)	 	(40,760	)	 	(35,997	)	
Net income	$	22,510	
 	 	$	20,558	
 	 	$	77,640	
 	 	$	70,009	

Earnings per common share:	 	 	 	 	 	 	 	
Common stock—basic	$	0.38	
 	 	$	0.34	
 	 	$	1.30	
 	 	$	1.14	
 	
Common stock—diluted	$	0.37	
 	 	$	0.33	
 	 	$	1.27	
 	 	$	1.11	
 	
Weighted average number of common shares outstanding:	 	 	 	 	 	 	 	
Common stock—basic	58,928,264	
 	 	60,290,842	
 	 	59,326,525	
 	 	61,112,263	
 	
Common stock—diluted	60,275,902	
 	 	61,846,725	
 	 	60,737,185	
 	 	62,631,444	
 	
See notes to condensed consolidated financial statements.

4

Table of Contents

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

 	Three months ended September 30,	 	Nine months ended September 30,	
 	2016	 	2015	 	2016	 	2015	
Net income	$	22,510	
 	 	$	20,558	
 	 	$	77,640	
 	 	$	70,009	
 	
Other comprehensive (loss) income:	 	 	 	 	 	 	 	
       Foreign currency translation adjustments	(7,054	)	 	(8,065	)	 	(31,894	)	 	(9,337	)	
       Total other comprehensive loss	(7,054	)	 	(8,065	)	 	(31,894	)	 	(9,337	)	
       Comprehensive income	$	15,456	
 	 	$	12,493	
 	 	$	45,746	
 	 	$	60,672	
 	
See notes to condensed consolidated financial statements.

5

Table of Contents

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 	Nine months ended September 30,	
 	2016	 	2015	
CASH FLOWS FROM OPERATING ACTIVITIES:	 	 	 	
Net income	$	77,640	
 	 	$	70,009	
 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	
Depreciation and amortization	62,090	
 	 	58,539	
 	
Amortization of original issue discount and deferred financing costs	2,861	
 	 	2,672	
 	
(Gain) loss on foreign currency transactions	(56	)	 	273	
 	
Non-cash revenue and other	(29	)	 	(137	)	
(Gain) loss on disposal of fixed assets	(79	)	 	280	
 	
Stock-based compensation	8,476	
 	 	6,900	
 	
Deferred rent	1,614	
 	 	2,304	
 	
Deferred income taxes	(4,729	)	 	5,263	
 	
Changes in assets and liabilities:	 	 	 	
Accounts receivable	13,963	
 	 	11,388	
 	
Prepaid expenses and other current assets	49	
 	 	(19,267	)	
Accounts payable and accrued expenses	(1,814	)	 	16,380	
 	
Deferred revenue	(3,531	)	 	(12,732	)	
Accrued rent and related obligations	6,880	
 	 	1,917	
 	
Other assets	1,157	
 	 	(3,919	)	
Other current and long-term liabilities	461	
 	 	2,393	
 	
Net cash provided by operating activities	164,953	
 	 	142,263	
 	
CASH FLOWS FROM INVESTING ACTIVITIES:	 	 	 	
Purchases of fixed assets, net	(50,466	)	 	(61,415	)	
Payments for acquisitions, net of cash acquired	(22,307	)	 	(66,636	)	
Net cash used in investing activities	(72,773	)	 	(128,051	)	
CASH FLOWS FROM FINANCING ACTIVITIES:	 	 	 	
Borrowings under revolving line of credit	270,500	
 	 	118,100	
 	
Repayments under revolving line of credit	(264,500	)	 	(91,600	)	
Principal payments of long-term debt	(7,163	)	 	(7,163	)	
Payments for debt issuance costs	(1,002	)	 	—	
 	
Purchase of treasury stock	(95,677	)	 	(117,538	)	
Taxes paid related to net share settlement of stock options	(7,747	)	 	—	
 	
Proceeds from issuance of common stock upon exercise of options	9,148	
 	 	7,452	
 	
Proceeds from issuance of restricted stock	3,682	
 	 	3,864	
 	
Payments of contingent consideration for acquisitions	(750	)	 	—	
 	
Tax benefit from stock-based compensation	10,484	
 	 	6,379	
 	
Net cash used in financing activities	(83,025	)	 	(80,506	)	
Effect of exchange rates on cash and cash equivalents	(1,210	)	 	(199	)	
Net increase (decrease) in cash and cash equivalents	7,945	
 	 	(66,493	)	
Cash and cash equivalents—beginning of period	11,539	
 	 	87,886	
 	
Cash and cash equivalents—end of period	$	19,484	
 	 	$	21,393	

NON-CASH TRANSACTION:	 	 	 	
Fixed asset purchases recorded in accounts payable and accrued expenses	$	3,000	
 	 	$	3,500	
 	
SUPPLEMENTAL CASH FLOW INFORMATION:	 	 	 	
Cash payments of interest	$	28,752	
 	 	$	28,429	
 	
Cash payments of taxes	$	29,405	
 	 	$	43,153	
 	
See notes to condensed consolidated financial statements.

6

Table of Contents

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 workplace services for employers and families throughout the United States and the United Kingdom, and also in Puerto Rico, Canada, Ireland, the Netherlands, and India. Workplace services include center-based child care, education and enrichment programs, elementary school education, back-up dependent care (for children and elders), before and after school care, college preparation and admissions counseling, tuition reimbursement program management, and other family support services.
Basis of Presentation—The accompanying unaudited condensed consolidated balance sheet as of September 30, 2016 and the condensed consolidated statements of income, comprehensive income and cash flows for the interim periods ended September 30, 2016 and 2015 have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. 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, 2015.
In the opinion of the Company’s management, the Company’s unaudited condensed consolidated balance sheet as of September 30, 2016 and the condensed consolidated statements of income, comprehensive income and cash flows for the interim periods ended September 30, 2016 and 2015, 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.
Stock Offerings—On January 30, 2013, the Company completed an initial public offering (the “Offering”) and, after the exercise of the overallotment option on February 21, 2013, issued a total of 11.6 million shares of common stock. Subsequent to the Offering, certain of the Company's shareholders sold shares of the Company's common stock in secondary offerings (“secondary offerings”) totaling 2.12 million shares in the nine months ended September 30, 2016, and 9.65 million, 15.9 million, and 9.8 million shares in the years ended December 31, 2015, 2014 and 2013, respectively. The Company did not receive proceeds from the sale of shares in the secondary offerings. The Company purchased 1.0 million, 2.1 million and 4.5 million of the shares sold in the secondary offerings in 2016, 2015 and 2014, respectively, from investment funds affiliated with Bain Capital Partners, LLC at the same price per share paid by the underwriter to the selling shareholders.
As of September 30, 2016, investment funds affiliated with Bain Capital Partners, LLC held approximately 24.6% of our common stock.
On August 2, 2016, the Board of Directors of the Company authorized a share repurchase program of up to $300 million of the Company’s outstanding common stock, effective August 5, 2016. The share repurchase program, which has no expiration date, replaces the prior $250 million authorization announced in February 2015, of which $26.3 million remained available at the date the program was replaced. 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.
New Accounting Pronouncements— In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09:  Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . The amendments in this update simplify several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods with early adoption permitted. This update can be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered. The Company is currently evaluating the impact of this update on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This standard amends the existing guidance and requires lessees to recognize on the balance sheet assets and liabilities for the rights and obligations created by those leases with lease terms longer than twelve months. This update is effective for annual and interim reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, and is to be applied using a modified retrospective approach. Early adoption is permitted. The Company is in the process of evaluating the impact this standard will have on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which provides guidance for revenue recognition. The FASB has subsequently issued various ASUs which amend or clarify specific areas of

7

Table of Contents

the guidance. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration included in the transaction price and allocating the transaction price to each separate performance obligation. This new guidance is effective for the Company beginning January 1, 2018 and can be adopted using either a full retrospective or modified approach. The Company is currently in the process of evaluating the impact of adoption of this ASU on the Company's consolidated financial statements.
In 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments  and ASU 2015-03,  Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.  These standards were effective January 1, 2016, and did not have an impact on the Company's consolidated financial statements.
2. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the year ended December 31, 2015 and the nine months ended September 30, 2016 are as follows (in thousands):

 	Full service
center-based
care	 	Back-up
dependent
care	 	Other
educational
advisory
services	 	Total	
Balance at January 1, 2015	$	913,043	
 	 	$	158,894	
 	 	$	23,801	
 	 	$	1,095,738	
 	
Additions from acquisitions	62,838	
 	 	—	
 	 	—	
 	 	62,838	
 	
Adjustments to prior year acquisitions	(15	)	 	—	
 	 	—	
 	 	(15	)	
Effect of foreign currency translation	(10,752	)	 	—	
 	 	—	
 	 	(10,752	)	
Balance at December 31, 2015	965,114	
 	 	158,894	
 	 	23,801	
 	 	1,147,809	
 	
Additions from acquisitions	11,045	
 	 	9,766	
 	 	—	
 	 	20,811	
 	
Adjustments to prior year acquisitions	64	
 	 	—	
 	 	—	
 	 	64	
 	
Effect of foreign currency translation	(17,967	)	 	—	
 	 	—	
 	 	(17,967	)	
Balance at September 30, 2016	$	958,256	
 	 	$	168,660	
 	 	$	23,801	
 	 	$	1,150,717	

The Company also has intangible assets, which consist of the following at September 30, 2016 and December 31, 2015 (in thousands):

 	Weighted average
amortization period	 	Cost	 	Accumulated
amortization	 	Net carrying
amount	
September 30, 2016	 	 	 	 	 	 	 	
Definite-lived intangibles:	 	 	 	 	 	 	 	
Customer relationships	14 years	 	$	413,396	
 	 	$	(226,060	)	 	$	187,336	
 	
Trade names	8 years	 	5,609	
 	 	(2,984	)	 	2,625	
 	
Non-compete agreements	5 years	 	50	
 	 	(50	)	 	—	
 	
 	 	 	419,055	
 	 	(229,094	)	 	189,961	
 	
Indefinite-lived intangibles:	 	 	 	 	 	 	 	
Trade names	N/A	 	182,134	
 	 	—	
 	 	182,134	
 	
 	 	 	$	601,189	
 	 	$	(229,094	)	 	$	372,095	

8

Table of Contents

 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Weighted average
amortization period	 	Cost	 	Accumulated
amortization	 	Net carrying
amount	
December 31, 2015	 	 	 	 	 	 	 	
Definite-lived intangibles:	 	 	 	 	 	 	 	
Customer relationships	14 years	 	$	410,205	
 	 	$	(207,257	)	 	$	202,948	
 	
Trade names	8 years	 	6,046	
 	 	(2,748	)	 	3,298	
 	
Non-compete agreements	5 years	 	53	
 	 	(48	)	 	5	
 	
 	 	 	416,304	
 	 	(210,053	)	 	206,251	
 	
Indefinite-lived intangibles:	 	 	 	 	 	 	 	
Trade names	N/A	 	183,080	
 	 	—	
 	 	183,080	
 	
 	 	 	$	599,384	
 	 	$	(210,053	)	 	$	389,331	
 	
The Company estimates that it will record amortization expense related to intangible assets existing as of September 30, 2016 as follows over the next five years (in thousands):

 	Estimated
amortization
expense	
Remainder of 2016	$	7,101	
 	
2017	$	27,409	
 	
2018	$	26,004	
 	
2019	$	25,036	
 	
2020	$	24,633	
 	
3. ACQUISITIONS
As part of the Company’s growth strategy to expand through strategic and synergistic acquisitions, the Company has made the following acquisitions in the nine months ended September 30, 2016 and year ended December 31, 2015. The goodwill resulting from these acquisitions arises largely from synergies expected from combining the operations of the businesses acquired with our existing operations, as well as from benefits derived from gaining the related assembled workforce.
2016 Acquisitions
During the nine months ended September 30, 2016, the Company acquired eight centers in the United Kingdom in three separate business acquisitions, which were each accounted for as business combinations. The centers were acquired for cash consideration of $12.3 million and contingent consideration of $1.2 million. The Company recorded goodwill of $11.1 million related to the full service center-based care segment, which will not be deductible for tax purposes. Intangible assets of $2.5 million, consisting primarily of customer relationships that will be amortized over five years, and a working capital deficit of $0.9 million were also recorded in relation to these acquisitions.
During the nine months ended September 30, 2016, the Company acquired a provider of back-up care in the United States, which was accounted for as a business combination. The business was acquired for cash consideration of $10.4 million and contingent consideration of $3.8 million. The Company recorded goodwill of $9.8 million related to the back-up care segment, which will not be deductible for tax purposes. Intangible assets of $4.6 million, consisting primarily of the provider network that will be amortized over five years, technology of $2.0 million, and working capital of $0.4 million were also recorded in relation to this acquisition.
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 September 30, 2016, the purchase price allocations for these acquisitions remain 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, which were not material to the Company's financial results.
2015 Acquisitions
On May 19, 2015, the Company acquired Hildebrandt Learning Centers, LLC (“HLC”), an operator of 40 centers in the United States, for cash consideration of $19.2 million and contingent consideration of $0.5 million, which was accounted for as a business combination. The Company recorded goodwill of $13.2 million related to the full service center-based care

9

Table of Contents

segment, which will be deductible for tax purposes, and intangible assets of $5.7 million, consisting of customer relationships that will be amortized over 12 years. The Company also acquired working capital of $0.3 million, including cash of $1.5 million, and fixed assets of $0.5 million.
On July 15, 2015, the Company acquired Active Learning Childcare Limited (“ALC”), an operator of nine centers in the United Kingdom, for cash consideration of $42.2 million, which was accounted for as a business combination. The Company recorded goodwill of $31.1 million related to the full service center-based care segment, which will not be deductible for tax purposes, and intangible assets of $3.8 million, consisting primarily of customer relationships that will be amortized over five years. The Company also acquired a working capital deficit of $1.8 million, including cash of $2.8 million, fixed assets of $9.8 million, and deferred tax liabilities of $0.7 million.
Our acquisitions of HLC and ALC contributed approximately $16.7 million of revenue in the nine months ended September 30, 2015.
During the year ended December 31, 2015, the Company also acquired four additional centers in the United States and four additional centers in the United Kingdom, in six separate business acquisitions which were each accounted for as business combinations. The centers were acquired for cash consideration of $20.5 million and contingent consideration of $0.8 million, net of cash acquired of $0.3 million. The Company recorded goodwill of $18.5 million related to the full service center-based care segment, a portion of which will be deductible for tax purposes. Intangible assets of $2.7 million, consisting primarily of customer relationships that will be amortized over five years, were also recorded in relation to these acquisitions. Contingent consideration of $0.8 million related to one of these acquisitions was paid during the nine months ended September 30, 2016.
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 September 30, 2016, the purchase price allocation for one of these eight acquisitions 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 dates of acquisition, which were not material to the Company's financial results.
4. CREDIT ARRANGEMENTS AND DEBT OBLIGATIONS
The Company's $1.2 billion senior credit facilities consist of $955.0 million in secured term loan facilities and a $225.0 million revolving credit facility. In conjunction with a debt refinancing in January 2013, $790.0 million in senior secured term loans were issued, with the subsequent issuance of $165.0 million in additional term loans in December 2014. The term loans mature on January 30, 2020.
Outstanding term loan borrowings were as follows at September 30, 2016 and December 31, 2015 (in thousands):

 	September 30,
2016	 	December 31,
2015	
Term loans	$	922,488	
 	 	$	929,650	
 	
Deferred financing costs and original issue discount	(12,580	)	 	(14,439	)	
Total debt	909,908	
 	 	915,211	
 	
Less current maturities	9,550	
 	 	9,550	
 	
Long-term debt	$	900,358	
 	 	$	905,661	
 	
On January 26, 2016, the Company amended its existing credit agreement to increase the revolving credit facility from $100.0 million to $225.0 million, to extend the maturity date on the revolving credit facility from January 30, 2018 to July 31, 2019, and to modify the interest rate applicable to borrowings under the revolving credit facility to a range of 1.25% to 1.75% over the base rate and 2.25% to 2.75% over the Eurocurrency rate. Borrowings outstanding on the revolving credit facility were $30.0 million at September 30, 2016 and $24.0 million at December 31, 2015.
The effective interest rate for the term loans was 3.84% at September 30, 2016 and 2015, and the weighted average interest rate was 3.95% and 3.94% for the nine months ended September 30, 2016 and 2015, respectively. The weighted average interest rate for the revolving credit facility was 4.4% and 3.8% for the nine months ended September 30, 2016 and 2015, respectively.
The Company incurred financing fees of $15.4 million and original issue discount costs of $9.6 million in connection with debt refinancings. These fees are being amortized over the terms of the related debt instruments. Amortization expense of deferred financing costs and original issue discount costs in the three and nine months ended September 30, 2016 were $0.6 million and $0.4 million, and $1.8 million and $1.1 million, respectively, which are included in interest expense.

10

Table of Contents

Amortization expense of deferred financing costs and original issue discount costs in the three and nine months ended September 30, 2015 were $0.5 million and $0.4 million, and $1.6 million and $1.1 million, respectively.
The future principal payments under the term loans at September 30, 2016 are as follows (in thousands):

Remainder of 2016	$	2,388	
 	
2017	9,550	
 	
2018	9,550	
 	
2019	9,550	
 	
2020	891,450	
 	
 	$	922,488	
 	
On November 7, 2016, the Company modified its existing senior credit facilities by entering into an incremental and amendment and restatement agreement, which amended and restated the credit agreement and refinanced all of its outstanding term loans into a new seven year term loan facility, of which $925.0 million was funded on November 7, 2016 and $200.0 million will be available, subject to customary conditions, on a delayed draw basis for a three month period for general corporate purposes, including acquisitions. Borrowings under the new term loan facility bear interest rates ranging from 1.5% to 1.75% over the base rate or 2.5% to 2.75% over the Eurocurrency rate, which is the one, two, three or six month LIBOR rate or, with applicable lender approval, the twelve month or less than one month LIBOR rate. The base rate is subject to an interest rate floor of 1.75% and the Eurocurrency rate is subject to an interest rate floor of 0.75%. The Company maintained its $225.0 million revolving credit facility and the interest rate, payment terms and availability of the revolving credit facility under the amended and restated credit agreement have not been modified.
5. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted-average common shares outstanding. Diluted earnings per share is calculated by dividing net income by the weighted-average common shares and potentially dilutive securities outstanding during the period.
Earnings per share is calculated using the two-class method, which requires the allocation of earnings to each class of common stock outstanding and to unvested stock-based payment awards that participate equally in dividends with common stock, also referred to herein as unvested participating shares.
The Company’s unvested stock-based payment awards include unvested shares awarded as restricted stock awards at the discretion of the Company’s Board of Directors. The restricted stock awards generally vest at the end of three years.
Earnings per Share - Basic
The following table sets forth the computation of earnings per share using the two-class method for unvested participating shares (in thousands, except share and per share amounts):

 	Three months ended 
 September 30,	 	Nine months ended 
 September 30,	
 	2016	 	2015	 	2016	 	2015	
Basic earnings per share:	 	 	 	 	 	 	 	
Net income	$	22,510	
 	 	$	20,558	
 	 	$	77,640	
 	 	$	70,009	

Allocation of net income to common stockholders:	 	 	 	 	 	 	 	
Common stock	$	22,306	
 	 	$	20,415	
 	 	$	76,954	
 	 	$	69,536	
 	
Unvested participating shares	204	
 	 	143	
 	 	686	
 	 	473	
 	
 	$	22,510	
 	 	$	20,558	
 	 	$	77,640	
 	 	$	70,009	

Weighted average number of common shares:	 	 	 	 	 	 	 	
Common stock	58,928,264	
 	 	60,290,842	
 	 	59,326,525	
 	 	61,112,263	
 	
Unvested participating shares	538,795	
 	 	422,725	
 	 	528,887	
 	 	415,472	

Earnings per share:	 	 	 	 	 	 	 	
Common stock	$	0.38	
 	 	$	0.34	
 	 	$	1.30	
 	 	$	1.14	

11

Table of Contents

Earnings per Share - Diluted
The Company calculates diluted earnings per share for common stock using the more dilutive of (1) the treasury stock method, or (2) the two-class method. The following table sets forth the computation of diluted earnings per share using the two-class method for unvested participating shares (in thousands, except share and per share amounts):

 	Three months ended 
 September 30,	 	Nine months ended 
 September 30,	
 	2016	 	2015	 	2016	 	2015	
Diluted earnings per share:	 	 	 	 	 	 	 	
Earnings allocated to common stock	$	22,306	
 	 	$	20,415	
 	 	$	76,954	
 	 	$	69,536	
 	
Plus earnings allocated to unvested participating shares	204	
 	 	143	
 	 	686	
 	 	473	
 	
Less adjusted earnings allocated to unvested participating shares	(199	)	 	(139	)	 	(670	)	 	(460	)	
Earnings allocated to common stock	$	22,311	
 	 	$	20,419	
 	 	$	76,970	
 	 	$	69,549	

Weighted average number of common shares:	 	 	 	 	 	 	 	
Common stock	58,928,264	
 	 	60,290,842	
 	 	59,326,525	
 	 	61,112,263	
 	
Effect of dilutive securities	1,347,638	
 	 	1,555,883	
 	 	1,410,660	
 	 	1,519,181	
 	
 	60,275,902	
 	 	61,846,725	
 	 	60,737,185	
 	 	62,631,444	

Earnings per share:	 	 	 	 	 	 	 	
Common stock	$	0.37	
 	 	$	0.33	
 	 	$	1.27	
 	 	$	1.11	
 	
Options outstanding to purchase 0.5 million shares of common stock were excluded from diluted earnings per share for the three and nine months ended September 30, 2016, and 0.1 million and 0.3 million shares of common stock were excluded from diluted earnings per share for the three and nine months ended September 30, 2015, respectively, since their effect was anti-dilutive, which may be dilutive in the future.
6. INCOME TAXES
The Company's effective income tax rates were 34.2% and 34.6% for the three months ended September 30, 2016 and 2015, respectively, and 34.4% and 34.0% for the nine months ended September 30, 2016 and 2015, respectively. The effective income tax rate is based upon estimated income before income taxes for the year, by jurisdiction, and estimated permanent tax adjustments. The effective income tax rate may fluctuate from quarter to quarter for various reasons, including discrete items such as settlement of foreign, Federal and State tax issues.
The Company’s unrecognized tax benefits were $1.0 million and $0.7 million at September 30, 2016 and December 31, 2015, respectively. There were no interest and penalties related to unrecognized tax benefits at September 30, 2016 and December 31, 2015.
The Company expects the unrecognized tax benefits to change over the next twelve months if certain tax matters settle with the applicable taxing jurisdiction during this time frame, or, if the applicable statutes of limitations lapse. The impact of the amount of such changes to previously recorded uncertain tax positions could range from zero to $1.0 million, exclusive of interest and penalties.
The Company and its domestic subsidiaries are subject to audit for U.S. Federal income tax as well as multiple state jurisdictions. U.S. Federal income tax returns are typically subject to examination by the Internal Revenue Service (“IRS”) and have a statute of limitations of three years; therefore, tax filings for 2013 through 2015 are subject to audit. An audit of a subsidiary's filing for 2013 began in the second quarter of 2015 and was settled in the second quarter of 2016 with no assessment.
State income tax returns are generally subject to examination for a period of three to four years after filing of the respective return. The state impact of any Federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. There were three state audits completed with no material adjustments during the nine months ended September 30, 2016. As of September 30, 2016, there were no audits in process and the tax years from 2012 to 2015 are subject to audit.

12

Table of Contents

The Company is also subject to corporate income tax at its subsidiaries located in the United Kingdom, the Netherlands, India, Canada, Ireland, and Puerto Rico. The tax returns for the Company's subsidiaries located in foreign jurisdictions are subject to examination for periods ranging from one to seven years.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date and applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The Company uses observable inputs where relevant and whenever possible.
Level 1—Quoted prices are available in active markets for identical investments as of the reporting date.
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, revolving line of credit, and long-term debt. The fair value of the Company’s financial instruments, other than long-term debt, approximates their book value. The carrying value and estimated fair value of the Company's term loans as of September 30, 2016 and December 31, 2015 were as follows (in thousands):

 	September 30, 2016	 	December 31, 2015	
 	Carrying Value	 	Estimated Fair Value	 	Carrying Value	 	Estimated Fair Value	
Financial liabilities	 	 	 	 	 	 	 	
Term loans	$	922,488	
 	 	$	926,897	
 	 	$	929,650	
 	 	$	924,700	
 	
The estimated fair value of the Company's long-term debt is based on quoted market prices for similar instruments and a model that considers observable inputs. Judgment is required to develop these estimates. As such, our long-term debt is classified as Level 2, as defined by U.S. GAAP.
Financial instruments that potentially expose the Company to concentrations of credit risk consist mainly of cash and cash equivalents and accounts receivable. The Company mitigates its exposure by maintaining its cash and cash equivalents in financial institutions of high credit standing. The Company’s accounts receivable, which are derived primarily from the services it provides, are dispersed across many clients in various industries with no single client accounting for more than 10% of the Company’s net revenue or accounts receivable. The Company believes that no significant credit risk exists at September 30, 2016.
8. SEGMENT INFORMATION
Bright Horizons' workplace services are primarily comprised of full service center-based child care, back-up dependent care, and other educational advisory services. Full service center-based care includes the traditional center-based child care, preschool, and elementary education, which have similar operating characteristics and meet the criteria for aggregation. Full service center-based care derives its revenues primarily from contractual arrangements with corporate clients and from tuition. The Company’s back-up dependent care services consist of center-based back-up child care, in-home care, mildly ill care, and adult/elder care. The Company’s other educational advisory services consists of the remaining services, including college preparation and admissions counseling, tuition reimbursement program administration, and related consulting services, which do not meet the quantitative thresholds for separate disclosure and are not material for segment reporting individually or in the aggregate. The Company and its chief operating decision makers evaluate performance based on revenues and income from operations.

13

Table of Contents

The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements and, as a result, no additional information is produced or included herein.

 	Full service
center-based
care	 	Back-up
dependent
care	 	Other
educational
advisory
services	 	Total	
 	(In thousands)	
Three months ended September 30, 2016	 	 	 	 	 	 	 	
Revenue	$	318,821	
 	 	$	53,229	
 	 	$	11,879	
 	 	$	383,929	
 	
Amortization of intangible assets	6,586	
 	 	411	
 	 	144	
 	 	7,141	
 	
Income from operations (1)	28,107	
 	 	14,183	
 	 	2,425	
 	 	44,715	
 	
Three months ended September 30, 2015	 	 	 	 	 	 	 	
Revenue	$	307,512	
 	 	$	47,935	
 	 	$	10,497	
 	 	$	365,944	
 	
Amortization of intangible assets	6,899	
 	 	181	
 	 	144	
 	 	7,224	
 	
Income from operations (2)	24,414	
 	 	14,082	
 	 	3,245	
 	 	41,741	
 	
(1) Income from operations includes completed acquisition expenses of $0.2 million for the three months ended September 30, 2016, which have been allocated to full service center-based care.
(2) Income from operations includes secondary offering and completed acquisition expenses of $0.2 million for the three months ended September 30, 2015, which have been allocated to full service center-based care.

 	Full service
center-based
care	 	Back-up
dependent
care	 	Other
educational
advisory
services	 	Total	
 	(In thousands)	
Nine months ended September 30, 2016	 	 	 	 	 	 	 	
Revenue	$	991,133	
 	 	$	146,009	
 	 	$	34,162	
 	 	$	1,171,304	
 	
Amortization of intangibles	20,133	
 	 	773	
 	 	432	
 	 	21,338	
 	
Income from operations (1)	101,584	
 	 	41,741	
 	 	6,565	
 	 	149,890	
 	
Nine months ended September 30, 2015	 	 	 	 	 	 	 	
Revenue	$	925,027	
 	 	$	133,940	
 	 	$	27,882	
 	 	$	1,086,849	
 	
Amortization of intangibles	20,003	
 	 	543	
 	 	432	
 	 	20,978	
 	
Income from operations (2)	89,012	
 	 	42,083	
 	 	5,625	
 	 	136,720	
 	
(1) For the nine months ended September 30, 2016, income from operations includes $0.8 million of expenses related to the January 2016 amendment to the Credit Agreement, completed acquisitions and a secondary offering, which have been allocated to full service center-based care.
(2) For the nine months ended September 30, 2015, income from operations includes $0.5 million of secondary offering and completed acquisition expenses, which have been allocated to full service center-based care.

14

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). The following cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the “safe harbor” provisions of the Act. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “expects,” “may,” “will,” “should,” “seeks,” “projects,” “approximately,” “intends,” “plans,” “estimates” or “anticipates,” or, in each case, their negatives or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Quarterly Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies, the industries in which we and our partners operate, the impact of accounting principles, pronouncements and policies, the outcome of acquisitions and the subsequent integration and expected synergies, our fair value estimates, the vesting of Company equity, unrecognized tax benefits and the impact of uncertain tax positions, our tax rates, the outcome of tax audits and tax liabilities, foreign currency exchange rates, our credit risk, the impact of seasonality on results of operations, our share repurchase program, the outcome of litigation and our insurance coverage, the cost, timing and impact of the remediation of our material weakness in internal control over financial reporting, use of derivatives or other instruments, borrowings under our credit facility, our newly amended credit agreement and additional borrowings thereunder, the need for additional debt or equity financings and our ability to obtain such financing, our sources of cash flow, our ability to fund operations, make capital expenditures and payments, and complete share repurchases with cash and cash equivalents and borrowings, and our ability to meet financial obligations and comply with covenants of our credit facility.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and other factors disclosed from time to time in our other filings with the Securities and Exchange Commission.
Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods.
Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments, except as may be required by law.
Introduction and Overview
The following is a discussion of the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of Bright Horizons Family Solutions Inc. (“we” or the “Company”) for the three and nine months ended September 30, 2016 compared to the three and nine months ended September 30, 2015. This discussion should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements of the Company and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Our business is subject to seasonal and quarterly fluctuations. Demand for child care and early education and elementary school services has historically decreased during the summer months when school is not in session, at which time families are often on vacation or have alternative child care arrangements. In addition, our enrollment declines as older children transition to elementary schools. Demand for our services generally increases in September and October coinciding with the beginning of the new school year and remains relatively stable throughout the rest of the school year. In addition, use of our back-up dependent care services tends to be higher when schools are not in session and during holiday periods, which can increase the operating costs of the program and impact the results of operations. Results of operations may also fluctuate from quarter to quarter as a result of, among other things, the performance of existing centers, including enrollment and staffing fluctuations, the number and timing of new center openings, acquisitions and management transitions, the length of time required for new centers to achieve profitability, center closings, refurbishment or relocation, the contract model mix (profit and

15

Table of Contents

loss versus cost-plus) of new and existing centers, the timing and level of sponsorship payments, competitive factors and general economic conditions.
Results of Operations
The following table sets forth statement of income data as a percentage of revenue for the three months ended September 30, 2016 and 2015 (in thousands, except percentages):

 	Three Months Ended September 30,	
 	2016	 	%	 	2015	 	%	
Revenue	$	383,929	
 	 	100.0	 %	 	$	365,944	
 	 	100.0	 %	
Cost of services (1)	292,457	
 	 	76.2	 %	 	280,560	
 	 	76.7	 %	
Gross profit	91,472	
 	 	23.8	 %	 	85,384	
 	 	23.3	 %	
Selling, general and administrative expenses (2)	39,616	
 	 	10.3	 %	 	36,419	
 	 	10.0	 %	
Amortization of intangible assets	7,141	
 	 	1.9	 %	 	7,224	
 	 	2.0	 %	
Income from operations	44,715	
 	 	11.6	 %	 	41,741	
 	 	11.3	 %	
Net interest expense and other	(10,502	)	 	(2.7	)%	 	(10,330	)	 	(2.8	)%	
Income before income tax	34,213	
 	 	8.9	 %	
 	31,411	
 	
 	8.5	 %	
Income tax expense	(11,703	)	 	(3.0	)%	 	(10,853	)	 	(3.0	)%	
Net income	$	22,510	
 	 	5.9	 %	 	$	20,558	
 	 	5.5	 %	
Adjusted EBITDA (3)	$	69,686	
 	 	18.2	 %	 	$	64,729	
 	 	17.7	 %	
Adjusted income from operations (3)	$	44,873	
 	 	11.7	 %	 	$	41,906	
 	 	11.5	 %	
Adjusted net income (3)	$	29,266	
 	 	7.6	 %	 	$	26,509	
 	 	7.2	 %	

The following table sets forth statement of operations data as a percentage of revenue for the nine months ended September 30, 2016 and 2015 (in thousands, except percentages):

 	Nine Months Ended September 30,	
 	2016	 	%	 	2015	 	%	
Revenue	$	1,171,304	
 	 	100.0	 %	 	$	1,086,849	
 	 	100.0	 %	
Cost of services (1)	879,673	
 	 	75.1	 %	 	818,997	
 	 	75.4	 %	
Gross profit	291,631	
 	 	24.9	 %	 	267,852	
 	 	24.6	 %	
Selling, general and administrative expenses (2)	120,403	
 	 	10.3	 %	 	110,154	
 	 	10.1	 %	
Amortization of intangible assets	21,338	
 	 	1.8	 %	 	20,978	
 	 	1.9	 %	
Income from operations	149,890	
 	 	12.8	 %	 	136,720	
 	 	12.6	 %	
Net interest expense and other	(31,490	)	 	(2.7	)%	 	(30,714	)	 	(2.8	)%	
Income before income tax	118,400	
 	 	10.1	 %	 	106,006	
 	 	9.8	%	
Income tax expense	(40,760	)	 	(3.5	)%	 	(35,997	)	 	(3.3	)%	
Net income	$	77,640	
 	 	6.6	 %	 	$	70,009	
 	 	6.5	%	
Adjusted EBITDA (3)	$	222,838	
 	 	19.0	 %	 	$	204,974	
 	 	18.9	 %	
Adjusted income from operations (3)	$	150,658	
 	 	12.9	 %	 	$	137,231	
 	 	12.6	 %	
Adjusted net income (3)	$	97,282	
 	 	8.3	 %	 	$	86,685	
 	 	8.0	 %	
 	 	
(1)	Cost of services consists of direct expenses associated with the operation of child care centers, and direct expenses to provide back-up dependent care services, including fees to back-up care providers, and educational advisory services. Direct expenses consist primarily of salaries, payroll taxes and benefits for personnel, food costs, program supplies and materials, and parent marketing and facilities costs, which include occupancy costs and depreciation.	
 	 	
(2)	Selling, general and administrative expenses consist primarily of salaries, payroll taxes and benefits (including stock-based compensation costs) for corporate, regional and business development personnel. Other overhead costs include information technology, occupancy costs for corporate and regional personnel, professional services fees, including accounting and legal services, and other general corporate expenses.	
 	 	
(3)	Adjusted EBITDA, adjusted income from operations and adjusted net income are non-GAAP measures, which are further discussed and reconciled to net income below under "Non-GAAP Reconciliations."	

16

Table of Contents

Three Months Ended September 30, 2016 Compared to the Three Months Ended September 30, 2015 
Revenue.  Revenue increased $18.0 million, or 5%, to $383.9 million for the three months ended September 30, 2016 from $365.9 million for the same period in 2015. Revenue growth is primarily attributable to contributions from new and ramping child care and early education centers, expanded sales of our back-up dependent care services and educational advisory services, and typical annual tuition increases of 3-4%. Revenue generated by the full service center-based care segment in the three months ended September 30, 2016 increased by $11.3 million, or 4%, when compared to the same period in 2015, due in part to overall enrollment increases of approximately 5%, partially offset by the effect of lower foreign exchange rates for our United Kingdom operations which reduced revenue growth in the full service segment by approximately 3%. At September 30, 2016, we operated 940 child care and early education centers compared to 928 centers at September 30, 2015.
Revenue generated by back-up dependent care services in the three months ended September 30, 2016 increased by $5.3 million, or 11%, when compared to the same period in 2015. Additionally, revenue generated by other educational advisory services in the three months ended September 30, 2016 increased by $1.4 million, or 13%, when compared to the same period in 2015.
Cost of Services.  Cost of services increased $11.9 million, or 4%, to $292.5 million for the three months ended September 30, 2016 from $280.6 million for the same period in 2015. Cost of services in the full service center-based care segment increased $5.6 million, or 2%, to $254.6 million in the three months ended September 30, 2016 when compared to the same period in 2015. Personnel costs, which typically represent approximately 70% of total cost of services for this segment, increased 2% when compared to the same period in 2015 as a result of enrollment growth at new and existing centers, routine wage and benefit cost increases, and labor costs associated with centers we have added since September 30, 2015 that are in the ramping stage. In addition, program supplies, materials, food and facilities costs, which typically represent approximately 30% of total costs of services for this segment, increased 3% in connection with the enrollment growth and the incremental occupancy costs associated with centers that have been added since September 30, 2015. Cost of services in the back-up dependent care segment increased $4.7 million, or 17%, to $32.0 million in the three months ended September 30, 2016, primarily for investments in information technology and personnel, and increased care provider fees associated with the services provided to the expanding revenue base. Cost of services in the other educational advisory services segment increased $1.6 million, or 37%, to $5.8 million in the three months ended September 30, 2016 due to personnel and technology costs related to the incremental sales of these services.
Gross Profit.  Gross profit increased $6.1 million, or 7%, to $91.5 million for the three months ended September 30, 2016 from $85.4 million for the same period in 2015. Gross profit margin as a percentage of revenue was 24% for the three months ended September 30, 2016, compared to 23% for the same period in 2015. The increase in gross profit is primarily due to contributions from new and acquired centers, increased enrollment in our mature and ramping profit and loss centers, effective operating cost management, and expanded other educational advisory services.
Selling, General and Administrative Expenses ("SGA").  SGA increased $3.2 million, or 9%, to $39.6 million for the three months ended September 30, 2016 compared to $36.4 million for the same period in 2015, and was 10% of revenue for the three months ended September 30, 2016, which is consistent with the same period in 2015. SGA increased over the comparable 2015 period due to increases in personnel costs including annual wage increases, continued investments in technology and routine increases in other SGA costs.
Amortization.  Amortization expense on intangible assets of $7.1 million for the three months ended September 30, 2016 decreased from $7.2 million for the same period in 2015 due to decreases from certain intangible assets becoming fully amortized during the period offset by increases from the acquisitions completed in 2015 and 2016.
Income from Operations.  Income from operations increased by $3.0 million, or 7%, to $44.7 million for the three months ended September 30, 2016 when compared to the same period in 2015. Income from operations was 12% of revenue for the three months ended September 30, 2016, which is consistent with the three months ended September 30, 2015. The increase in income from operations was due to the following:
 	 	
•	In the full service center-based care segment, income from operations increased $3.7 million for the three months ended September 30, 2016 when compared to the same period in 2015. Income from operations increased over the comparable period due to tuition increases and enrollment gains over the prior year as well as contributions from new centers that have been added since September 30, 2015, and effective cost management, partially offset by the costs incurred during the ramp-up of certain new lease/consortium centers opened during 2015 and 2016.	
 	 	
•	Income from operations for the back-up dependent care segment increased $0.1 million in the three months ended September 30, 2016 when compared to the same period in 2015 due to the expanding revenue base partially offset by investments in information technology and personnel, and increased care provider fees associated with the incremental revenue.	

17

Table of Contents
 	 	
•	Income from operations in the other educational advisory services segment decreased $0.8 million for the three months ended September 30, 2016 compared to the same period in 2015 due to incremental personnel and technology costs associated with expanding these services to additional customers.	
Net Interest Expense and Other.  Net interest expense and other increased to $10.5 million for the three months ended September 30, 2016 from $10.3 million for the same period in 2015 due to borrowings on our line of credit in the three months ended September 30, 2016 when compared to the same period in 2015.
Income Tax Expense.  We recorded income tax expense of $11.7 million during the three months ended September 30, 2016 compared to $10.9 million during the comparable period in 2015 at an effective rate of 34% for the three months ended September 30, 2016 and 35% for the three months ended September 30, 2015. The difference between the effective income tax rates is primarily attributable to a higher proportion of profit before tax in jurisdictions with lower tax rates.
Adjusted EBITDA and Adjusted Income from Operations.  Adjusted EBITDA and adjusted income from operations increased $5.0 million, or 8%, and $3.0 million, or 7%, respectively, for the three months ended September 30, 2016 over the same period in 2015 primarily as a result of the increase in gross profit due to additional contributions from full-service centers, including the impact of new and acquired centers, as well as growth in other educational advisory services.
Adjusted Net Income.  Adjusted net income increased $2.8 million, or 10%, for the three months ended September 30, 2016 when compared to the same period in 2015 primarily due to the incremental gross profit described above.
 
Nine Months Ended September 30, 2016 Compared to the Nine Months Ended September 30, 2015 
Revenue.  Revenue increased $84.5 million, or 8%, to $1.2 billion for the nine months ended September 30, 2016 from $1.1 billion for the same period in 2015. Revenue growth is primarily attributable to contributions from new and ramping child care and early education centers, expanded sales of our back-up dependent care services and educational advisory services, and typical annual tuition increases of 3-4%. Revenue generated by full service center-based care services in the nine months ended September 30, 2016 increased by $66.1 million, or 7%, when compared to the same period in 2015, due in part to overall enrollment increases of 6%, partially offset by the effect of lower foreign exchange rates for our United Kingdom operations which reduced revenue growth in the full service segment by approximately 2% for the nine month period. Our acquisitions of Hildebrandt Learning Centers ("HLC"), an operator of 40 centers in the United States on May 19, 2015, and Active Learning Childcare Limited ("ALC"), an operator of 9 centers in the United Kingdom on July 15, 2015, contributed approximately $24.5 million of incremental revenue in the nine months ended September 30, 2016.
Revenue generated by back-up dependent care services in the nine months ended September 30, 2016 increased by $12.1 million, or 9%, when compared to the same period in 2015. Additionally, revenue generated by other educational advisory services in the nine months ended September 30, 2016 increased by $6.3 million, or 23%, when compared to the same period in 2015.
Cost of Services.  Cost of services increased $60.7 million, or 7%, to $879.7 million for the nine months ended September 30, 2016 from $819.0 million for the same period in 2015. Cost of services in the full service center-based care services segment increased $45.3 million, or 6%, to $777.4 million in the nine months ended September 30, 2016 when compared to the same period in 2015. Personnel costs increased 7% as a result of the increase in overall enrollment, routine wage and benefit cost increases, and labor costs associated with centers we have added since September 30, 2015 that are in the ramping stage. In addition, program supplies, materials, food and facilities costs increased 5% in connection with the enrollment growth and the incremental occupancy costs associated with centers that have been added since September 30, 2015. Cost of services in the back-up dependent care segment increased $11.4 million, or 15%, to $84.9 million in the nine months ended September 30, 2016, primarily for investments in information technology and personnel, and increased care provider fees associated with the higher levels of back-up services provided. Cost of services in the other educational advisory services segment increased by $4.0 million, or 30%, to $17.4 million in the nine months ended September 30, 2016 due to personnel and technology costs related to the incremental sales of these services.
Gross Profit.  Gross profit increased $23.7 million, or 9%, to $291.6 million for the nine months ended September 30, 2016 from $267.9 million for the same period in 2015. Gross profit margin as a percentage of revenue was 25% for the nine months ended September 30, 2016, which is consistent with the nine months ended September 30, 2015. The increase in gross profit is primarily due to contributions from new and acquired centers, increased enrollment in our mature and ramping profit and loss centers, effective operating cost management, and expanded other educational advisory services.
Selling, General and Administrative Expenses.  SGA increased $10.2 million, or 9%, to $120.4 million for the nine months ended September 30, 2016 compared to $110.2 million for the same period in 2015, and was 10% of revenue for the nine months ended September 30, 2016 consistent with the same period in 2015. Results for the nine months ended September 30, 2016 included approximately $0.8 million of costs related to secondary offerings, the January 2016 amendment to the Credit

18

Table of Contents

Agreement, and completed acquisitions compared to $0.5 million of costs related to secondary offerings included in the nine months ended September 30, 2015. After taking these charges into account, SGA increased over the comparable 2015 period due to increases in personnel costs including annual wage increases, continued investments in technology and routine increases in other SGA costs.
Amortization.  Amortization expense on intangible assets of $21.3 million for the nine months ended September 30, 2016, increased from $21.0 million for the nine months ended September 30, 2015 due to the acquisitions completed in 2015 and 2016 offset by decreases from certain intangibles becoming fully amortized during the period.
Income from Operations.  Income from operations increased by $13.2 million, or 10%, to $149.9 million for the nine months ended September 30, 2016 when compared to the same period in 2015. Income from operations was 13% of revenue for the nine months ended September 30, 2016, which is consistent with the nine months ended September 30, 2015. The increase was due to the following:
 	 	
•	In the full service center-based care segment, income from operations increased $12.6 million for the nine months ended September 30, 2016 when compared to the same period in 2015. Income from operations increased over the comparable period due to tuition increases and enrollment gains over the prior year as well as contributions from new centers that have been added since September 30, 2015, and effective cost management, partially offset by the costs incurred during the ramp-up of certain new lease/consortium centers opened during 2015 and 2016.	
 	 	
•	Income from operations for the back-up dependent care segment decreased $0.3 million in the nine months ended September 30, 2016 when compared to the same period in 2015 due to investments in information technology and personnel, and increased care provider fees associated with services provided to the expanding revenue base.	
 	 	
•	Income from operations in the other educational advisory services segment increased $0.9 million for the nine months ended September 30, 2016 when compared to the same period in 2015 due to the expanding revenue base.	
Net Interest Expense and Other.  Net interest expense and other increased to $31.5 million for the nine months ended September 30, 2016 from $30.7 million for the same period in 2015 due to borrowings on our line of credit in the nine months ended September 30, 2016 when compared to the same period in 2015.
Income Tax Expense.  We recorded an income tax expense of $40.8 million during the nine months ended September 30, 2016 compared to an income tax expense of $36.0 million during the comparable period in 2015. The effective rate for the nine months ended September 30, 2016 and 2015 was 34%. We expect that the annual effective rate in 2016 to approximate 34%.
Adjusted EBITDA and Adjusted Income from Operations.  Adjusted EBITDA and adjusted income from operations increased $17.9 million, or 9%, and $13.4 million, or 10% respectively, for the nine months ended September 30, 2016 over the comparable period in 2015 primarily as a result of the increase in gross profit due to additional contributions from full-service centers, including the impact of new and acquired centers, as well as the growth in other educational advisory services.
Adjusted Net Income.  Adjusted net income increased $10.6 million, or 12%, for the nine months ended September 30, 2016 when compared to the same period in 2015 primarily due to the incremental gross profit described above.

19

Table of Contents

Non-GAAP Reconciliations
In our quarterly and annual reports, earnings press releases and conference calls, we discuss key financial measures that are not calculated in accordance with GAAP. A reconciliation of the non-GAAP measures of adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per share are as follows (in thousands, except share data):

 	Three Months Ended 
 September 30,	 	Nine Months Ended 
 September 30,	
 	2016	 	2015	 	2016	 	2015	
Net income	$	22,510	
 	 	$	20,558	
 	 	$	77,640	
 	 	$	70,009	
 	
Interest expense, net	10,502	
 	 	10,330	
 	 	31,490	
 	 	30,714	
 	
Income tax expense	11,703	
 	 	10,853	
 	 	40,760	
 	 	35,997	
 	
Depreciation	13,858	
 	 	12,649	
 	 	40,752	
 	 	37,561	
 	
Amortization of intangible assets (a)	7,141	
 	 	7,224	
 	 	21,338	
 	 	20,978	
 	
EBITDA	65,714	
 	 	61,614	
 	 	211,980	
 	 	195,259	
 	
Additional Adjustments:	 	 	 	 	 	 	 	
Deferred rent (b)	984	
 	 	650	
 	 	1,614	
 	 	2,304	
 	
Stock-based compensation expense (c)	2,830	
 	 	2,300	
 	 	8,476	
 	 	6,900	
 	
Expenses related to the Credit Agreement amendment, stock offerings and completed acquisitions (d)	158	
 	 	165	
 	 	768	
 	 	511	
 	
Total adjustments	3,972	
 	 	3,115	
 	 	10,858	
 	 	9,715	
 	
Adjusted EBITDA	$	69,686	
 	 	$	64,729	
 	 	$	222,838	
 	 	$	204,974	

Income from operations	$	44,715	
 	 	$	41,741	
 	 	$	149,890	
 	 	$	136,720	
 	
Expenses related to the Credit Agreement amendment, stock offerings and completed acquisitions (d)	158	
 	 	165	
 	 	768	
 	 	511	
 	
Adjusted income from operations	$	44,873	
 	 	$	41,906	
 	 	$	150,658	
 	 	$	137,231	

Net income	$	22,510	
 	 	$	20,558	
 	 	$	77,640	
 	 	$	70,009	
 	
Income tax expense	11,703	
 	 	10,853	
 	 	40,760	
 	 	35,997	
 	
Income before tax	34,213	
 	 	31,411	
 	 	118,400	
 	 	106,006	
 	
Stock-based compensation expense (c)	2,830	
 	 	2,300	
 	 	8,476	
 	 	6,900	
 	
Amortization of intangible assets (a)	7,141	
 	 	7,224	
 	 	21,338	
 	 	20,978	
 	
Expenses related to the Credit Agreement amendment, stock offerings and completed acquisitions (d)	158	
 	 	165	
 	 	768	
 	 	511	
 	
Adjusted income before tax	44,342	
 	 	41,100	
 	 	148,982	
 	 	134,395	
 	
Adjusted income tax expense (e)	(15,076	)	 	(14,591	)	 	(51,700	)	 	(47,710	)	
Adjusted net income	$	29,266	
 	 	$	26,509	
 	 	$	97,282	
 	 	$	86,685	
 	
Weighted average number of common shares—diluted	60,275,902	
 	 	61,846,725	
 	 	60,737,185	
 	 	62,631,444	
 	
Diluted adjusted earnings per common share	$	0.49	
 	 	$	0.43	
 	 	$	1.60	
 	 	$	1.38	

(a)	Represents amortization of intangible assets, including approximately $4.5 million and $5.0 million for the three months ended September 30, 2016 and 2015, respectively, and $13.5 million and $14.0 million for the nine months ended September 30, 2016 and 2015, respectively, associated with intangible assets recorded in connection with our going private transaction in May 2008.	
 	 	
(b)	Represents rent expense in excess of cash paid for rent, recognized on a straight line basis over the life of the lease in accordance with Accounting Standards Codification Topic 840,  Leases .	
 	 	
(c)	Represents non-cash stock-based compensation expense.	
 	 	
(d)	Represents costs incurred in connection with the January 2016 amendment to the Credit Agreement, secondary offerings and completed acquisitions.	
 	 	
(e)	Represents income tax expense calculated on adjusted income before tax at the year to date effective rate of approximately 35% and 36% in 2016 and 2015, respectively.	

20

Table of Contents

Adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share are not presentations made in accordance with GAAP, and the use of the terms adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share may differ from similar measures reported by other companies. We believe that adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share provide investors with useful information with respect to our historical operations. We present adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share as supplemental performance measures because we believe they facilitate a comparative assessment of our operating performance relative to our performance based on our results under GAAP, while isolating the effects of some items that vary from period to period. Specifically, adjusted EBITDA allows for an assessment of our operating performance and of our ability to service or incur indebtedness without the effect of non-cash charges, such as depreciation, amortization, the excess of rent expense over cash rent expense and stock-based compensation expense, as well as the expenses related to secondary offerings, debt financing transaction expenses, and acquisitions. In addition, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share allow us to assess our performance without the impact of the specifically identified items that we believe do not directly reflect our core operations. These non-GAAP measures also function as key performance indicators used to evaluate our operating performance internally, and they are used in connection with the determination of incentive compensation for management, including executive officers. Adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share are not measurements of our financial performance under GAAP and should not be considered in isolation or as an alternative to income before taxes, net income, diluted earnings per common share, net cash provided by operating, investing or financing activities or any other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. The Company understands that although adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share are frequently used by securities analysts, lenders and others in their evaluation of companies, they have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
 	 	
•	adjusted EBITDA, adjusted income from operations and adjusted net income do not fully reflect the Company’s cash expenditures, future requirements for capital expenditures or contractual commitments;	
 	 	
•	adjusted EBITDA, adjusted income from operations and adjusted net income do not reflect changes in, or cash requirements for, the Company’s working capital needs;	
 	 	
•	adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt;	
 	 	
•	although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future; and adjusted EBITDA, adjusted income from operations and adjusted net income do not reflect any cash requirements for such replacements.	
Because of these limitations, adjusted EBITDA, adjusted income from operations and adjusted net income should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
Liquidity and Capital Resources
Our primary cash requirements are for the ongoing operations of our existing child care centers, back-up dependent care services and other educational advisory services, the addition of new centers through development or acquisition and debt financing obligations. Our primary sources of liquidity are our cash flows from operations and borrowings available under our revolving credit facility. Borrowings outstanding on our revolving credit facility at September 30, 2016 and December 31, 2015 were $30.0 million and $24.0 million, respectively.
The net impact from changes in foreign currency exchange rates was not material for the three and nine months ended September 30, 2016 and 2015, and the Company does not currently expect that the effects of continued potentially unfavorable changes in foreign currency exchange rates will have a material net impact on the Company's liquidity, capital resources or results from operations for the remainder of 2016. We had $19.5 million in cash at September 30, 2016, of which $14.3 million was held in foreign jurisdictions. Additionally, operations outside of North America accounted for 19% of the Company's consolidated revenue for the nine months ended September 30, 2016.
We had a working capital deficit of $163.0 million and $152.6 million at September 30, 2016 and December 31, 2015, respectively. Our working capital deficit has arisen from using cash generated from operations to make long-term investments in fixed assets and acquisitions and from share repurchases. We anticipate that we will continue to generate positive cash flows from operating activities and that the cash generated will be used principally to fund ongoing operations of our new and existing full service child care centers and expanded operations in the back-up dependent care and other educational advisory segments, as well as to make scheduled principal and interest payments and for share repurchases.

21

Table of Contents

The Company's $1.2 billion senior credit facilities consist of $955.0 million in secured term loan facilities and a $225.0 million revolving credit facility. In conjunction with a debt refinancing in January 2013, $790.0 million in senior secured term loans were issued, with the subsequent issuance of $165.0 million in additional term loans in December 2014. On January 26, 2016, the Company amended its existing credit agreement to increase the revolving credit facility from $100.0 million to $225.0 million.
On November 7, 2016, the Company modified its existing senior credit facilities by entering into an incremental and amendment and restatement agreement, which amended and restated the credit agreement and refinanced all of its outstanding term loans into a new seven year term loan facility, of which $925.0 million was funded on November 7, 2016 and $200.0 million will be available, subject to customary conditions, on a delayed draw basis for a three month period for general corporate purposes, including acquisitions. The Company also maintained its $225.0 million revolving credit facility. The amended and restated credit agreement is further discussed below under “Debt” and in Item 5 of this Quarterly Report on Form 10-Q.
On February 4, 2015, the Board of Directors of the Company approved a $250.0 million repurchase program of its common stock. The repurchase program had no expiration date and replaced the prior 2014 authorization under which $221.6 million was repurchased. On August 2, 2016, the Board of Directors of the Company authorized a share repurchase program of up to $300.0 million of the Company's outstanding common stock, effective August 5, 2016. The share repurchase program, which has no expiration date, replaces the February 2015 authorization under which $223.7 million was repurchased. The Company repurchased 1.5 million shares of common stock for $95.8 million in the nine months ended September 30, 2016 under these authorizations. All repurchased shares have been retired.
We believe that funds provided by operations, our existing cash balances and borrowings available under our revolving credit facility will be adequate to meet planned operating and capital expenditures for at least the next 12 months under current operating conditions. However, if we were to undertake any significant acquisitions or investments in the purchase of facilities for new or existing child care and early education centers, which requires financing beyond our existing borrowing capacity, it may be necessary for us to obtain additional debt or equity financing. We may not be able to obtain such financing on reasonable terms, or at all.
Cash Flows

 	Nine Months Ended September 30,	
 	2016	 	2015	
 	(In thousands)	
Net cash provided by operating activities	$	164,953	
 	 	$	142,263	
 	
Net cash used in investing activities	$	(72,773	)	 	$	(128,051	)	
Net cash used in financing activities	$	(83,025	)	 	$	(80,506	)	
Cash and cash equivalents (beginning of period)	$	11,539	
 	 	$	87,886	
 	
Cash and cash equivalents (end of period)	$	19,484	
 	 	$	21,393	
 	
Cash Provided by Operating Activities
Cash provided by operating activities was $165.0 million for the nine months ended September 30, 2016, compared to $142.3 million for the same period in 2015. The increase in cash provided by operating activities resulted from changes in working capital arising from an increase in collections due to timing and growth, lower cash tax payments in the period, the timing of other routine operating expenses, and the timing of routine tenant improvement allowances. In addition, the increase in net income contributed $7.6 million, which was partially offset by changes in non-cash items.
Cash Used in Investing Activities
Cash used in investing activities was $72.8 million for the nine months ended September 30, 2016 and was primarily related to fixed asset additions for new child care centers, maintenance and refurbishments in our existing centers, and continued investments in technology, equipment and furnishings. In the nine months ended September 30, 2016, the Company used $22.3 million to acquire eight centers in the United Kingdom and a franchisor of back-up care in the United States. Cash used in investing activities was $128.1 million for the same period in 2015 and primarily related to fixed asset additions for new child care centers, maintenance and refurbishments in our existing centers, and continued investments in technology, equipment and furnishings. The Company acquired 54 centers for $66.6 million in the nine months ended September 30, 2015.

22

Table of Contents

Cash Used in Financing Activities
Cash used in financing activities amounted to $83.0 million for the nine months ended September 30, 2016 compared to $80.5 million for the same period in 2015. The increase in cash used in financing activities was primarily due to a decrease in proceeds received. For the nine months ended September 30, 2016, share repurchases totaled $95.7 million, taxes paid related to net share settlement of stock awards were $7.7 million, and principal payments on our debt were $7.2 million. These uses of cash were offset by proceeds from the tax benefit on stock-based compensation of $10.5 million, the exercise of options to purchase common stock of $9.1 million, net borrowings on the revolving credit facility of $6.0 million, and proceeds from the issuance and sale of restricted stock of $3.7 million. Cash used in financing activities for the nine months ended September 30, 2015 consisted principally of share repurchases of $117.5 million, and principal payments on our debt of $7.2 million. These uses of cash were offset by proceeds from net borrowings on the revolving credit facility of $26.5 million, the exercise of options to purchase common stock of $7.5 million, the tax benefit of stock-based compensation in the amount of $6.4 million, and proceeds from the issuance and sale of restricted stock of $3.9 million.
Debt
As of September 30, 2016, the Company's $1.2 billion senior credit facilities consisted of $955.0 million in secured term loan facilities and a $225.0 million revolving credit facility. The term loans mature on January 30, 2020 and require quarterly principal payments of $2.4 million, with the remaining principal balance due on January 30, 2020.
Outstanding term loan borrowings were as follows at September 30, 2016 and December 31, 2015 (in thousands):

 	September 30, 2016	 	December 31, 2015	
Term loans	$	922,488	
 	 	$	929,650	
 	
Deferred financing costs and original issue discount	(12,580	)	 	(14,439	)	
Total debt	909,908	
 	 	915,211	
 	
Less current maturities	9,550	
 	 	9,550	
 	
Long-term debt	$	900,358	
 	 	$	905,661	
 	
On January 26, 2016, the Company amended its existing credit agreement to increase the revolving credit facility from $100.0 million to $225.0 million, to extend the maturity date on the revolving credit facility from January 30, 2018 to July 31, 2019, and to modify the interest rate applicable to borrowings under the revolving credit facility to a range of 1.25% to 1.75% over the base rate and 2.25% to 2.75% over the Eurocurrency rate. Borrowings outstanding on the revolving credit facility were $30.0 million at September 30, 2016 and $24.0 million at December 31, 2015.
On November 7, 2016, the Company modified its existing senior credit facilities by entering into an incremental and amendment and restatement agreement, which amended and restated the credit agreement and refinanced all of its outstanding term loans into a new seven year term loan facility, of which $925.0 million was funded on November 7, 2016 and $200.0 million will be available, subject to customary conditions, on a delayed draw basis for a three month period for general corporate purposes, including acquisitions.
Borrowings under the new term loan facility bear interest rates ranging from 1.5% to 1.75% over the base rate or 2.5% to 2.75% over the Eurocurrency rate, which is the one, two, three or six month LIBOR rate or, with applicable lender approval, the twelve month or less than one month LIBOR rate. The base rate is subject to an interest rate floor of 1.75% and the Eurocurrency rate is subject to an interest rate floor of 0.75%. The Company maintained its $225.0 million revolving credit facility and the interest rate, payment terms and availability of the revolving credit facility under the amended and restated credit agreement have not been modified.
All obligations under the senior secured credit facilities are secured by substantially all of the assets of the Company's U.S. based subsidiaries. The newly amended and restated credit agreement governing the $1.35 billion senior secured credit facilities contains a number of covenants that, among other things and subject to certain exceptions, may restrict the ability of Bright Horizons Family Solutions LLC, our wholly-owned subsidiary, and its restricted subsidiaries, to: incur certain 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 our subsidiaries; alter the business conducted; enter into agreements restricting our subsidiaries’ ability to pay dividends; and consolidate or merge.
In addition, the credit agreement governing the senior secured credit facilities requires Bright Horizons Capital Corp., our direct subsidiary, to be a passive holding company, subject to certain exceptions. The revolving credit facility requires Bright Horizons Family Solutions LLC, the borrower, and its restricted subsidiaries to comply with a maximum senior secured first lien net leverage ratio financial maintenance covenant, to be tested only if, on the last day of each fiscal quarter,

23

Table of Contents

revolving loans and/or swing-line loans in excess of a specified percentage of the revolving commitments on such date are outstanding under the revolving credit facility. The breach of this covenant is subject to certain equity cure rights.
The credit agreement governing the senior secured credit facilities contains certain customary affirmative covenants and events of default. The financial covenants were not required to be tested as of September 30, 2016.
Off-Balance Sheet Arrangements
As of September 30, 2016, we had no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates and foreign currency rate fluctuations. Since December 31, 2015, there have been no material changes in the Company’s exposures to interest rate or foreign currency rate fluctuations. See Part II, Item 7A. “Quantitative and Qualitative Disclosures about Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2015 for further information regarding market risk. The Company currently does not enter into derivatives or other market risk sensitive instruments for the purpose of hedging or for trading purposes.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of September 30, 2016, the Company conducted an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) regarding the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). The term "disclosure controls and procedures" means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods and that such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were not effective as of September 30, 2016 due to the material weakness in internal control over financial reporting described below.
Remediation of the Material Weakness
As disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2015, our management concluded that our internal control over financial reporting was not effective at December 31, 2015. As of December 31, 2014, management identified a material weakness in internal control over financial reporting related to information technology general controls in the areas of user access and program change management related to certain information systems that are relevant to the preparation of the Company's consolidated financial statements and system of internal control over financial reporting. While the Company implemented a number of remediation efforts over the course of fiscal 2015 with respect to the identified deficiencies, as discussed in Item 9A of our Annual Report on Form 10-K, the material weakness had not been remediated as of December 31, 2015.
We are actively engaged in completing the remediation plan that was implemented in 2015 to ensure that controls contributing to this material weakness are designed appropriately and also operate effectively. We expect that our remediation efforts will continue through 2016, although the material weakness will not be considered remediated until the applicable internal controls operate for a sufficient period of time, and management has concluded, through testing, that these controls are operating effectively.
Notwithstanding the identified material weakness and the conclusion above that our disclosure controls and procedures were not effective as of September 30, 2016, management believes that the consolidated financial statements contained in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting, except for our remediation efforts described above.

24

Table of Contents

PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are, from time to time, subject to claims and suits arising in the ordinary course of business, some of which have not been fully adjudicated. Such claims have in the past generally been covered by insurance. We believe the resolution of such legal matters will not have a material adverse effect on our financial condition, results of operations or cash flows, although we cannot predict the ultimate outcome of any such actions. Furthermore, there can be no assurance that our insurance will be adequate to cover all liabilities that may arise out of claims brought against us.
Item 1A. Risk Factors
Our operations and financial results are subject to various risks and uncertainties, including those disclosed in Part I, Item 1A. “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, which could adversely affect our business, financial condition and operating results. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2015.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The table below sets forth information regarding the Company's repurchases of its common stock during the three months ended September 30, 2016:

Period	 	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be  Purchased Under the Plans or Programs (In thousands) (1)	
July 1, 2016 to July 31, 2016	 	—	
 	$	—	
 	—	
 	$	26,779	
 	
August 1, 2016 to August 31, 2016	 	8,398	
 	$	64.08	
 	8,398	
 	$	299,900	
 	
September 1, 2016 to September 30, 2016	 	1,160	
 	$	65.99	
 	1,160	
 	$	299,823	
 	
 	 	9,558	
 	 	9,558	

(1)	On February 4, 2015, the Board of Directors of the Company authorized the repurchase of up to $250 million of its common stock. The repurchase program had no expiration date and replaced the prior share repurchase authorization from March 2014. On August 2, 2016, the Board of Directors of the Company authorized a share repurchase program of up to $300 million of the Company's outstanding common stock, effective August 5, 2016. The share repurchase program, which has no expiration date, replaced the February 2015 authorization. All repurchased shares have been retired.	
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
On November 7, 2016 (the “Effective Date”), Bright Horizons Family Solutions LLC (the “Borrower”), Bright Horizons Capital Corp. (“Holdings”), Goldman Sachs Bank USA, as administrative agent, swing line lender and L/C issuer, JPMorgan Chase Bank, N.A., as successor administrative agent and L/C issuer and each Incremental Term Lender (as defined therein) modified the Company’s existing senior credit facilities by entering into an Incremental and Amendment and Restatement Agreement (the “Amendment”), which amended and restated the Credit Agreement, dated as of January 30, 2013, among the Borrower, Holdings, Goldman Sachs Bank USA, as administrative agent, swing line lender and L/C issuer, and the Lenders (as defined therein) and the other parties party thereto from time to time (as amended by Amendment No. 1 to Credit Agreement, dated as of November 19, 2014, the Incremental Joinder to Credit Agreement, dated as of December 9, 2014 and the Extension and Incremental Amendment, dated as of January 26, 2016, the “Existing Credit Agreement”) (the senior credit facilities as so amended and restated, the “Amended and Restated Credit Agreement”).

25

Table of Contents

Pursuant to the Amendment, among other changes, the Borrower refinanced all of its outstanding term loans into a new seven year term loan facility, of which $925.0 million was funded on the Effective Date and $200.0 million will be available, subject to customary conditions, on a delayed draw basis for a three month period beginning on the Effective Date for general corporate purposes, including acquisitions. Any term loans borrowed on a delayed draw basis after the Effective Date will be part of the same class as, and fungible with, the term loans borrowed on the Effective Date. The Company maintains its $225.0 million revolving credit facility and the interest rate, payment terms and availability of the revolving credit facility under the Amended and Restated Credit Agreement have not been modified.
Borrowings under the new term loan facility bear interest at a rate per annum ranging from 150 to 175 basis points over the Base Rate or 250 to 275 basis points over the Eurocurrency Rate as defined in the Amended and Restated Credit Agreement.  The Eurocurrency Rate option is the one, two, three or six month LIBOR rate, as selected by the Borrower, or, with the approval of the applicable lenders, twelve or less than one month LIBOR rate.  The Base Rate is subject to an interest rate floor of 1.75% and the Eurocurrency Rate is subject to an interest rate floor of 0.75%.  The new term loan facility requires scheduled quarterly amortization payments (commencing with the fiscal quarter ending March 31, 2017), each equal to 0.25% of the original principal amount of the loans under the new term loan facility (including any loans made on a delayed draw basis after the Effective Date).  Beginning thirty days after the Effective Date, unused commitments on the delayed draw portion of the new term loan facility will accrue a commitment fee equal to the applicable margin for Eurocurrency Rate term loans plus the 75 basis point Eurocurrency Rate floor.
The Amended and Restated Credit Agreement requires the same mandatory prepayments as provided under the Existing Credit Agreement, except that the excess cash flow prepayment will commence with the fiscal year ending December 31, 2017 and there is no cap on reinvestment of the net cash proceeds from asset sales under the general disposition basket.  Voluntary prepayments of the new term loan facility in connection with a Repricing Transaction, as defined in the Amended and Restated Credit Agreement, on or prior to six months after the Effective Date will be subject to a call premium of 1.0%.  Otherwise, outstanding loans under the new term loan facility may be voluntarily prepaid at any time without premium or penalty.
Certain of the Lenders and certain of their affiliates have performed investment banking, commercial lending and underwriting services for the Company, the Borrower, their subsidiaries and their respective affiliates, from time to time, for which they have received customary fees and expenses. These parties may, from time to time, engage in transactions with, and perform services for the Company, the Borrower, their subsidiaries or their respective affiliates in the ordinary course of their business.

26

Table of Contents

Item 6. Exhibits
(a) Exhibits:

31.1*	Principal Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002.	
31.2*	Principal Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002.	
32.1**	Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
32.2**	Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
Ex. 101.INS*	XBRL Instance Document	
Ex. 101.SCH*	XBRL Taxonomy Extension Schema Document	
Ex. 101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document	
Ex. 101.LAB*	XBRL Taxonomy Extension Label Linkbase Document	
Ex. 101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document	
Ex. 101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document	

 	 	
*	Exhibits filed herewith.	
**	Exhibits furnished herewith.	

27

Table of Contents

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.

BRIGHT HORIZONS FAMILY SOLUTIONS INC.	 	 	
Date:	November 7, 2016	By:	/s/ David Lissy	
 	 	 	David Lissy	
 	 	 	Chief Executive Officer	

28

Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER, BRIGHT HORIZONS FAMILY SOLUTIONS INC.
I, David Lissy, certify that:
 	 	
1.	I have reviewed this quarterly report on Form 10-Q of Bright Horizons Family Solutions Inc.;	
 	 	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 	 	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 	 	
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 	 	
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	 	
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	 	
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	 	
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 	 	
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 	 	
a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	 	
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

 	
 	 	 	
November 7, 2016	 	/s/ David Lissy	
Date	 	David Lissy	
 	 	Chief Executive Officer	

Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER, BRIGHT HORIZONS FAMILY SOLUTIONS INC.
I, Elizabeth Boland, certify that:
 	 	
1.	I have reviewed this quarterly report on Form 10-Q of Bright Horizons Family Solutions Inc.;	
 	 	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 	 	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 	 	
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 	 	
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	 	
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	 	
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	 	
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 	 	
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 	 	
a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	 	
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

 	
 	 	 	
November 7, 2016	 	/s/ Elizabeth Boland	
Date	 	Elizabeth Boland	
 	 	Chief Financial Officer	

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Bright Horizons Family Solutions Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Lissy, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:
 	 	
1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
 	 	
2)	
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

 	
/s/ David Lissy	
David Lissy	
Chief Executive Officer	
Dated: November 7, 2016 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Bright Horizons Family Solutions Inc. and will be retained by Bright Horizons Family Solutions Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Bright Horizons Family Solutions Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Elizabeth Boland, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:
 	 	
1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
 	 	
2)	
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

 	
/s/ Elizabeth Boland	
Elizabeth Boland	
Chief Financial Officer	
Dated: November 7, 2016
 
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Bright Horizons Family Solutions Inc. and will be retained by Bright Horizons Family Solutions Inc. and furnished to the Securities and Exchange Commission or its staff upon request.