AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1997
REGISTRATION NO. 333-14981
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BRIGHT HORIZONS HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
8351
DELAWARE (PRIMARY STANDARD [PENDING]
INDUSTRIAL (I.R.S. EMPLOYER
IDENTIFICATION NO.)
(STATE OR OTHER CLASSIFICATION CODE
JURISDICTION OF NUMBER)
INCORPORATION OR
ORGANIZATION)
---------------
ONE KENDALL SQUARE, BUILDING 200, CAMBRIDGE, MASSACHUSETTS 02139, (617) 577-
8020
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
ROGER H. BROWN, CHIEF EXECUTIVE OFFICER
ONE KENDALL SQUARE, BUILDING 200, CAMBRIDGE, MASSACHUSETTS 02139, (617) 577-
8020
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
ALFRED O. ROSE, ESQ. LESLIE E. DAVIS, ESQ.
ROPES & GRAY TESTA, HURWITZ & THIBEAULT, LLP
ONE INTERNATIONAL PLACE 125 HIGH STREET
BOSTON, MASSACHUSETTS 02110-2624 BOSTON, MASSACHUSETTS 02110
(617) 951-7000 (617) 248-7000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(1)(2) REGISTRATION FEE(2)
- -------------------------------------------------------------------------------------------------
Common Stock, $.01 par
value.................. 3,105,000 Shares $12.00 $37,260,000 $11,291
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 405,000 shares of Common Stock which the Underwriters have the
option to purchase solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1993. This amendment
increases the proposed maximum aggregate offering price by $14,260,000
from the amount referred to in the original filing, at which time the
Company paid a registration fee of $6,970. Based on the increased proposed
maximum aggregate offering price, the additional fee paid herewith is
$4,321.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
2,700,000 Shares SEPTEMBER 15, 1997
LOGO
Common Stock
--------
Of the 2,700,000 shares of Common Stock offered hereby, 1,350,000 shares are
being offered by Bright Horizons Holdings, Inc. ("Bright Horizons" or the
"Company") and 1,350,000 shares are being offered by the Selling Stockholders.
The Company will not receive any proceeds from the sale of shares by the
Selling Stockholders. See "Principal and Selling Stockholders." Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be
between $10.00 and $12.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "BRHZ."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(3)
- -------------------------------------------------------------------------------------------------------
Per Share............... $ $ $ $
- -------------------------------------------------------------------------------------------------------
Total(3)................ $ $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2) Before deducting expenses of the offering payable by the Company estimated
at $600,000.
(3) The Selling Stockholders have granted to the Underwriters a 30-day option
to purchase up to an additional 405,000 shares of Common Stock solely to
cover over-allotments, if any. To the extent that the option is exercised,
the Underwriters will offer the additional shares at the Price to Public
shown above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to
Selling Stockholders will be $ , $ , $ , and $ , respectively.
See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the
offices of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about
, 1997.
EVEREN Securities, Inc.
BT Alex. Brown
THE DATE OF THIS PROSPECTUS IS , 1997.
[PHOTOGRAPHS OF CHILD DEVELOPMENT CENTERS]
------------
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and with quarterly reports containing unaudited financial
information for the first three quarters of each fiscal year.
------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING".
2
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and the consolidated financial
statements and notes thereto appearing elsewhere in this Prospectus. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors." Unless the context otherwise requires, all references herein to
"Bright Horizons" or the "Company" refer to Bright Horizons Holdings, Inc. and
its subsidiaries. The Company's fiscal year ends on June 30. All references to
fiscal years in this Prospectus refer to the fiscal years ending in the
calendar years indicated (e.g., fiscal 1997 refers to the fiscal year ended
June 30, 1997).
THE COMPANY
Bright Horizons is the nation's largest provider of early education and
family support services for the corporate market, operating 140 child
development centers for 134 clients. The Company serves more than 13,500
children and their families in 25 states and the District of Columbia. With the
changing demographics of today's workforce and the prevalence of dual career
families, a growing number of corporations are creating family benefits to
attract and retain employees and support them as parents. The Company provides
early childhood education, full and part-time child care, emergency backup
care, before and after school care for school age children, summer camps,
vacation care, special event child care, elementary school (kindergarten
through third grade) and family support services. Bright Horizons partners with
corporate sponsors to provide these services.
Bright Horizons serves many of the nation's leading corporations including
Allstate Insurance Company, Apple Computer, Duke Power, DuPont, First Union
National Bank, Glaxo Wellcome, IBM, Merck & Co., Motorola, Paramount Pictures,
Pfizer, Salomon Brothers, Sony Pictures Entertainment, Time Warner, Universal
Studios, Warner Bros. and Xerox. In addition, the Company provides early
education services for well known institutions such as the United Nations, New
York Hospital, The George Washington University, John F. Kennedy Airport and
Beth Israel Deaconess Medical Center. None of these corporations or
institutions accounted for more than 4% of the Company's revenues during fiscal
1997. The Company operates multiple centers and services for 13 of its clients.
Bright Horizons has achieved 37% compound annual growth in revenues over the
last four years, growing from $23.8 million in fiscal 1993 to $85.0 million in
fiscal 1997. The Company has increased the number of its child development
centers from 54 at the end of fiscal 1993 to 140 at the end of fiscal 1997,
most of which are operated under contracts with initial terms of five to ten
years. In addition, Bright Horizons has 25 new centers under development and
six existing centers undergoing expansion. The Company has concentrated on
building a strong market presence in major metropolitan markets including
Boston, Charlotte, Chicago, Hartford, Los Angeles, New York, Raleigh/Durham,
San Francisco, Seattle and Washington, D.C.
The key elements of the Company's growth strategy are to: (i) open centers
for new corporate sponsors; (ii) increase revenue from existing corporate
sponsor relationships by opening new centers and adding new services; (iii)
assume the management of corporate-sponsored centers that are currently
operated by sponsors or other providers of early education; (iv) acquire
smaller work-site early education companies capable of providing high quality
care; and (v) market additional, complementary early education and family
support services.
Bright Horizons is well-positioned to serve corporate sponsors due to the
Company's national scale, track record of serving major corporate sponsors,
established reputation and position as a quality leader. The Company
3
and its management were selected by BusinessWeek as one of 1997's "Best
Entrepreneurs." In addition, co-founders Roger Brown and Linda Mason were
selected by Ernst & Young and Nasdaq to be the 1996 national winners of "The
Entrepreneur of the Year" in the service category. Bright Horizons is the only
early education company to be selected as one of WorkingMother magazine's "100
Best Companies for Working Mothers."
Bright Horizons is taking advantage of the growing demand for corporate-
sponsored early education and family support services. The Company estimates
the total market size for these services to be in excess of $2.0 billion. A
Hewitt Associates survey found that the corporate-sponsored child care market,
which emerged in the late 1980s, has been growing at 30% per year in the last
five years. An increasing number of corporations, hospitals, real estate
developers, government agencies and universities sponsor work-site centers in
order to increase the productivity, loyalty and commitment of their work forces
and to gain a competitive advantage in recruiting and retaining talented
employees. Work-site child development centers are often the most convenient
child care option for parents with demanding commuting and work schedule needs.
Bright Horizons' mission is to be a quality leader in the education and care
of young children. Bright Horizons operates its child development centers to
qualify for accreditation under the stringent criteria developed by the
National Association for the Education of Young Children ("NAEYC"), and has
more NAEYC-accredited work-site centers than any other provider. Bright
Horizon's innovative, age-appropriate curricula distinguish it in an industry
typically lacking educational programs by creating a dynamic and interactive
environment that stimulates learning and development. As part of its
comprehensive curricula, the Company has developed the proprietary ?Language
Works! preschool curriculum which facilitates mastery of language by early
exposure to words and symbols, extensive use of language in all activity areas,
composition of books and immersion in literature. Bright Horizons is currently
advised by several education experts. Dr. T. Berry Brazelton, a well known
pediatrician, and Dr. Ed Zigler and Dr. Sharon Lynn Kagan of Yale University
serve on its Advisory Board. Dr. Sara Lawrence-Lightfoot of the Harvard School
of Education serves on its Board of Directors.
The Company is a holding company incorporated in Delaware in May 1997. The
principal operations of the Company are conducted through its wholly owned
subsidiary Bright Horizons Children's Centers, Inc., a Delaware corporation
incorporated in 1986. Bright Horizons' home office is located at One Kendall
Square, Building 200, Cambridge, Massachusetts 02139 and its telephone number
is (617) 577-8020.
THE OFFERING
Common Stock offered by:
The Company........... 1,350,000 shares
The Selling
Stockholders............ 1,350,000 shares
Total............... 2,700,000 shares
Common Stock to be
outstanding after the
offering............... 5,405,134 shares(1)(2)
Use of proceeds......... Repayment of indebtedness, working capital and other general
corporate purposes, including possible acquisitions.
Proposed Nasdaq National
Market symbol.......... BRHZ
- -------
(1) Based upon the number of shares outstanding as of August 31, 1997. Excludes
(i) 877,772 shares of Common Stock reserved for issuance upon exercise of
options outstanding with a weighted average exercise price of $5.09 per
share, (ii) 66,667 shares of Common Stock reserved for issuance upon
exercise of a warrant issued to The ServiceMaster Company, L.P.
("ServiceMaster") at an exercise price of $10.50 per share and (iii)
639,067 shares of Common Stock reserved for future grants of Common Stock
or options to purchase Common Stock under the Company's 1997 Equity
Incentive Plan. See "Management--Stock Plans."
(2) Gives effect to the conversion of all outstanding shares of the Company's
Series A Mandatorily Redeemable Convertible Preferred Stock, Series B
Mandatorily Redeemable Convertible Preferred Stock, and Series C
Mandatorily Redeemable Convertible Preferred Stock (collectively, the
"Convertible Preferred Stock") into an aggregate of 3,100,550 shares of
Common Stock and the exercise on a cashless basis of outstanding warrants
(which would otherwise terminate upon the closing of the offering) into
288,428 shares of Common Stock. See Notes 7 and 8 to Consolidated Financial
Statements.
4
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
FISCAL YEAR ENDED JUNE 30,
------------------------------------------
1993 1994 1995 1996(1) 1997
------- ------- ------- ------- -------
STATEMENT OF OPERATIONS DATA:
Net revenues..................... $23,812 $32,012 $43,693 $64,181 $85,001
Cost of services(2).............. 20,611 27,592 37,209 55,615 72,675
------- ------- ------- ------- -------
Gross profit................... 3,201 4,420 6,484 8,566 12,326
Selling, general and
administrative expenses(2)...... 3,034 3,578 5,174 6,376 9,007
Amortization of non-compete
agreements(2)(3)................ -- -- 80 1,680 560
Transaction costs(4)............. -- -- -- -- 543
------- ------- ------- ------- -------
Income from operations......... 167 842 1,230 510 2,216
Interest income (expense), net... (14) (17) 21 (194) (275)
------- ------- ------- ------- -------
Income before income taxes....... 153 825 1,251 316 1,941
Income tax benefit
(provision)(5).................. -- 319 382 1,005 (794)
------- ------- ------- ------- -------
Net income....................... $ 153 $ 1,144 $ 1,633 $ 1,321 $ 1,147
======= ======= ======= ======= =======
Pro forma net income per
share(6)........................ $ 0.26
=======
Pro forma weighted average number
of common and common equivalent
shares(6)....................... 4,427
=======
SELECTED OPERATING DATA:
Number of centers at end of
period.......................... 54 72 87 124 140
Number of clients at end of
period.......................... 53 70 85 119 134
Licensed capacity at end of
period(7)....................... 4,625 6,318 7,607 12,642 14,156
JUNE 30, 1997
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(8)
-------- --------------
BALANCE SHEET DATA:
Working capital..................................... $ 87 $10,130
Total assets........................................ 28,519 37,762
Long-term debt and capital lease obligations, net of
current portion(9)............................. 3,440 89
Mandatorily redeemable convertible preferred stock.. 19,705 --
Total stockholders' equity (deficit)................ $(11,160) $21,939
- --------
(1) Effective December 1, 1995, the Company acquired the business and some of
the assets and liabilities of GreenTree Child Care Services, Inc.
("GreenTree"). Fiscal 1996 results include seven months of GreenTree
operating results. If the GreenTree acquisition had occurred on July 1,
1995, the Company's pro forma net revenues, gross profit and net income for
fiscal 1996 would have been $70.4 million, $8.8 million and $988,000,
respectively.
(2) Total depreciation and amortization is comprised of (i) center depreciation
included in cost of services, (ii) corporate facility depreciation and
amortization of goodwill included in selling, general and administrative
expenses and (iii) amortization of non-compete agreements discussed in Note
3 below. Total depreciation and amortization was approximately $517,000,
$652,000, $871,000, $2.8 million and $2.2 million in fiscal 1993, 1994,
1995, 1996 and 1997, respectively.
(3) In connection with the acquisitions of Burud & Associates, Inc. ("Burud")
in fiscal 1995 and GreenTree in fiscal 1996, the Company received, in each
case, an agreement from the seller not to compete with the Company for a
certain future period. The Company recorded intangible assets for the non-
compete agreements of $600,000 in fiscal 1995 and $2.0 million in fiscal
1996. These amounts are being amortized over the estimated period of
benefit. The Company anticipates recording the remaining $280,000 in
amortization expense associated with these non-compete agreements in fiscal
1998.
5
(4) In fiscal 1997, the Company incurred costs of $543,000 associated with a
proposed public offering of securities. Because the offering was delayed,
the amounts incurred were treated as a period cost.
(5) In each of fiscal 1994, 1995 and 1996 the Company recorded an income tax
benefit on pre-tax earnings. These benefits include $652,000, $1.0 million
and $1.4 million for fiscal 1994, 1995 and 1996, respectively, representing
decreases in the tax valuation allowance, net of $1.1 million applied to
reduce goodwill in 1996. In fiscal 1997, the Company recorded an income tax
provision which was not materially affected by changes in the valuation
allowance net of amounts applied to reduce goodwill. See Note 10 to
Consolidated Financial Statements.
(6) Assumes conversion of all Convertible Preferred Stock and the exercise on a
cashless basis of warrants which would otherwise terminate upon the closing
of the offering. Calculated on the basis described in Note 1 to
Consolidated Financial Statements.
(7) Represents the total capacity permitted under applicable state licenses.
(8) As adjusted to reflect (i) the conversion of all Convertible Preferred
Stock into an aggregate of 3,100,550 shares of Common Stock, (ii) the
exercise of outstanding warrants (which would otherwise terminate upon the
closing of the offering) into 288,428 shares of Common Stock and (iii) the
sale by the Company of the 1,350,000 shares of Common Stock offered hereby
at an assumed initial public offering price of $11.00 per share and the
application of the estimated net proceeds therefrom.
(9) Excludes $480,000 of debt incurred subsequent to June 30, 1997 associated
with the mortgage for the Company's Orange, Connecticut child development
center.
Except as otherwise noted, all information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option, (ii) reflects a one-for-
three reverse split of the Company's Common Stock effective upon the closing of
the offering, (iii) reflects the conversion of all outstanding shares of
Convertible Preferred Stock into an aggregate of 3,100,550 shares of Common
Stock; (iv) assumes the exercise of outstanding warrants (which would otherwise
terminate upon the closing of the offering) into 288,428 shares of Common
Stock; and (v) reflects an amendment to the Company's Certificate of
Incorporation, to be filed upon the closing of this offering, to remove the
Company's existing series of Convertible Preferred Stock and to create a class
of authorized but undesignated Preferred Stock. See "Capitalization,"
"Description of Capital Stock," "Underwriting" and Notes 7 and 8 to
Consolidated Financial Statements.
6
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered hereby.
Competition. The Company competes for enrollment as well as corporate
sponsorship in a market that is highly fragmented and competitive. In the
competition for enrollment, Bright Horizons competes with family child care
(operated out of the caregiver's home) and center-based child care
(residential and work-site child care centers, full and part-time nursery
schools, and church-affiliated and other not-for-profit providers). In
addition, substitutes for organized child care, such as relatives, nannies,
and the option of one parent caring for a child, compete with the Company. The
Company believes its ability to compete successfully depends on a number of
factors, including quality, locational convenience and price. The Company is
often at a price disadvantage with respect to family child care providers, who
operate with little or no rental expense and generally do not comply or are
not required to comply with the same health, safety, insurance and operational
regulations as the Company. Many of the Company's competitors in the center-
based segment also offer child care at a substantially lower price than the
Company, and some have substantially greater financial resources than the
Company or have greater name recognition. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors, or that competitive pressures faced by the Company will not have
a material adverse effect on its business, results of operations and financial
condition.
In the competition for corporate sponsorship, the Company competes with
residential center-based child care chains, some of which have divisions which
compete for corporate sponsorship opportunities and with other organizations
which focus exclusively on the work-site segment of the child care market. The
Company believes there are less than ten companies that currently operate
work-site child care centers on a national basis. CorporateFamily Solutions is
the Company's primary competitor although the Company also competes against
other large child care chains with divisions that focus on work-site child
care, such as Kindercare and Children's Discovery Centers. Many of these
competitors are able to offer child care at a lower price than the Company by
utilizing lower faculty-child ratios and/or offering their staff lower
compensation, enabling them to operate profitably with lower levels of
corporate sponsorship. Some of these competitors for corporate sponsorship
also have greater penetration than the Company in certain geographic regions
and multiple relationships with corporate sponsors. Increased competition for
corporate sponsorships on a national or local basis could result in increased
pricing pressure and/or loss of market share, thereby materially adversely
affecting the Company's business, financial condition and results of
operations, as well as its ability to attract and retain qualified center
directors and faculty and successfully pursue its growth strategy. See
"Business--Competition" and "Business--Growth Strategy."
Risks Associated with Expansion. The Company intends to grow its business in
part by expanding into new geographic regions. When entering new markets, the
Company will be required to develop sponsor relationships, establish or
acquire suitable child care centers, hire personnel and establish marketing
programs, all of which may place substantial strain on the Company's financial
resources and management systems. The Company generally hires an average of 25
faculty members for each newly opened center. To manage its expansion, the
Company must continuously evaluate the adequacy of its existing systems and
procedures, including, among others, its data processing, financial and
internal control systems and management structure. There can be no assurance
that management will adequately anticipate all of the changing demands that
growth will impose on the Company's financial resources, systems, procedures
and structure. Any failure to adequately anticipate and respond to such
changing demands could have a material adverse effect on the quality of the
Company's services, its ability to attract and retain key personnel and its
business, financial condition and results of operations. In addition, the
Company's future operating results will depend upon its ability to generate
additional corporate clients. In order to execute this strategy, the Company
has recently expanded its sales force from four to six people and has hired a
Vice President of Development. There can be no assurance that the addition
7
of these sales personnel will result in an increase in the rate of newly
opened centers. The failure to add a significant number of additional centers
could have a material adverse effect on the Company's ability to sustain
historical revenue and operating income growth rates. See "Business--Growth
Strategy."
Risk of Limited Future Market Growth. Although the center-based segment of
the child care industry has gained significant market share during the past
two decades relative to other forms of child care, center-based child care
accounted for only 30% of the total market as of 1993. There can be no
assurance that demographic trends, including the increasing percentage of
mothers in the workforce, as well as trends in the preferences of working
parents and employers for center-based child care, will continue to lead to
increased market share for the center-based segment in general and the work-
site segment in particular. In addition, there can be no assurance that
employers will continue to view work-site child care as cost-effective or
beneficial to their workforces. Any change in current trends or preferences
would materially adversely affect the Company's business, financial condition
and results of operations and its ability to pursue its growth strategy. See
"Business--Market Overview" and "Business--Growth Strategy."
Integration of Acquisitions. The Company intends to grow its business in
part by pursuing selective acquisitions of other providers of early education
and family support services. Acquisitions involve numerous risks, including
difficulties in the assimilation of acquired operations, the diversion of
management's attention from other business concerns and the potential loss of
key employees of the acquired company. Future acquisitions by the Company also
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses
related to goodwill and other intangible assets, any of which could materially
adversely affect the Company's operating results and financial condition.
Also, there is a risk with any future acquisition that customers of the
acquired company will not continue to do business with the Company following
the acquisition or that the Company will not be able to successfully implement
its business strategy and/or achieve adequate operating results at the
acquired centers. See "--Risks Associated with Expansion" and "Business--
Growth Strategy."
Dependence on Relationships; Customer Concentration. A significant portion
of the Company's business is derived from corporate sponsors for whom it
provides work-site child care services pursuant to management contracts. While
the specific terms of such contracts vary, management contracts are generally
of short duration and, in some instances, are subject to early termination by
the corporate sponsor without cause. The Company also maintains relationships
with corporate sponsors for which it operates multiple work-site child care
centers. In addition, a significant percentage of the Company's corporate
sponsors are concentrated in the pharmaceutical industry, the entertainment
industry, hospitals and the federal government. The early termination or
nonrenewal of a significant number of corporate sponsorships, the termination
of any multiple-site sponsor relationship, or the downturn in economic
conditions in any sponsor industry would have a material adverse effect on the
Company's business, financial condition and operating results. See "--Adverse
Publicity" and "--Competition."
Adverse Publicity. The Company and certain other providers of child care
services have received negative publicity concerning alleged child abuse,
inadequate supervision and on-site accidents and injuries. Any such publicity,
whether or not directly relating to or involving the Company and irrespective
of veracity, could result in decreased enrollment at the Company's centers,
termination of existing sponsorship relationships, inability to attract new
sponsors or increased insurance costs, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "--Dependence on Relationships; Customer Concentration" and
"--Insurance."
Litigation. Due to the nature of its business, the Company is and expects
that in the future it may be subject to claims and litigation alleging
negligence, inadequate supervision, and other grounds for liability arising
from injuries or other harm to children. In addition, claimants may seek
damages from the Company for child abuse, sexual abuse and other criminal acts
allegedly committed by Company
8
employees. The Company has occasionally been sued for claims relating to
injuries to children in its care and there is a claim pending regarding
alleged sexual abuse by one of its employees. There can be no assurance that
additional suits will not be filed, that the Company's insurance will be
adequate to cover liabilities resulting from any claim or that any such claim
or the adverse publicity resulting from it will not have a material adverse
effect on the Company's business, financial position or results of operations,
including, without limitation, adverse effects caused by increased cost or
decreased availability of insurance and decreased demand for the Company's
services from corporate sponsors and parents. See "--Insurance" and
"Business--Legal Proceedings."
Seasonality and Quarterly Fluctuations. The Company's revenues and results
of operations fluctuate with the seasonal demands for child care. The
Company's revenues typically decline during the summer months due to decreased
enrollments in its centers as parents take family vacations and/or remove
their older children in preparation for grade school. There can be no
assurance that the Company will be able to adjust its expenses on a short-term
basis to minimize the effect of these fluctuations in revenues. The Company's
quarterly results of operations may also fluctuate based upon the number and
timing of center openings and/or acquisitions, the length of time required for
new centers to achieve profitability, the performance of existing centers, the
timing and level of sponsorship payments, center closings, refurbishments or
relocations, the sponsorship model mix of new and existing centers,
competitive factors and general economic conditions. The Company's experience
has been that newly opened corporate-sponsored centers can take up to one year
to achieve profitability. The inability of existing centers to maintain their
current profitability or the failure of newly opened centers to contribute to
profitability could result in additional fluctuations in the future operating
results of the Company on a quarterly or annual basis. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Quarterly Results and Seasonality."
Dependence on Key Management Personnel; Need to Hire Additional Qualified
Personnel. The Company's long-term success and its growth strategy depend on
its senior management, particularly Roger H. Brown, the Company's Chairman and
Chief Executive Officer, and Linda A. Mason, the Company's President. Mr.
Brown and Ms. Mason are husband and wife. The loss of service of one or more
of the Company's key senior management personnel could have an adverse effect
on the Company's business, financial condition and results of operations. The
Company's success and future growth will also depend on management's ability
to attract, hire, train, integrate and retain skilled personnel in all areas
of its business. In this regard, the Company has recently expanded its senior
management, hiring a new Chief Financial Officer and Vice President of
Development. If the Company is unable to successfully attract, hire, train,
integrate and retain such skilled personnel, the Company's business, financial
condition and results of operations could be adversely affected. See
"Management--Directors and Executive Officers."
General Economic Conditions. The Company's revenues depend, in part, on the
number of dual-income families and working single parents who require child
care services. A deterioration of general economic conditions may adversely
impact the Company because of the tendency of out-of-work parents to
discontinue utilization of child care services. In addition, a significant
percentage of the Company's child development facilities are sponsored by real
estate developers offering on-site child care as an amenity to attract tenants
to their buildings. Changes in the supply and demand of real estate could
adversely affect real estate developers' willingness to subsidize child care
operations at new developments or their ability to obtain financing for
developments offering developer-sponsored child care services. A general
economic downturn could cause corporate sponsors to eliminate or reduce the
level of child care services they provide to their employees. Any of the
foregoing events could have a material adverse effect on the Company's
business, financial condition and results of operations. See "--Dependence on
Relationships; Customer Concentration."
Substantial Control by Officers and Directors and their Affiliates. Upon
completion of the offering, the Company's executive officers and directors and
their affiliates will beneficially own or control approximately % ( % if the
Underwriters' over-allotment option is exercised in full) of the outstanding
9
shares of Common Stock, assuming exercise of vested options. Because of their
stock ownership, the Company's executive officers and directors and their
affiliates will be in a position to elect all of the Company's directors and
to control other actions requiring stockholder approval, including any merger,
consolidation or sale of all or substantially all of the Company's assets. See
"Principal and Selling Stockholders."
Impact of Governmental Regulation. Child care centers are subject to
numerous state, federal and local regulations and licensing requirements.
Although these regulations vary greatly from jurisdiction to jurisdiction,
government agencies generally review, among other things, the adequacy of
buildings and equipment, licensed capacity, the ratio of staff to children,
staff training, record keeping, the dietary program, the daily curriculum and
compliance with health and safety standards. The Company also is required to
comply with the Americans with Disabilities Act (the "ADA"), which prohibits
discrimination on the basis of disability in public accommodations and
employment. Failure of a center to comply with applicable regulations or the
ADA can subject it to governmental sanctions, which might include fines,
corrective orders, being placed on probation, or, in more serious cases,
suspension or revocation of the center's license to operate, or an award of
damages to private litigants, and could require significant expenditures by
the Company to bring the Company's centers into compliance. There can be no
assurance that governmental agencies will not impose additional restrictions
on the Company's operations which could adversely affect the Company's
business, financial condition and results of operations. In addition, under
the Internal Revenue Code, certain tax incentives are available to parents
utilizing child care programs. Any change in such incentives could cause a
number of parents to remove their children from the Company's centers, which
would adversely affect the Company's business, financial condition and results
of operations. Although none of the Company's employees are paid at the
minimum wage, increases in the federal minimum wage could result in a
corresponding increase in the wages paid to the Company's employees, which
could adversely affect the Company's business, financial condition and results
of operations. See "Business--Regulation."
Insurance. Recently, as a result of alleged incidents of child physical and
sexual abuse in the child care industry, and the length of time before the
expiration of applicable statutes of limitations for the bringing of child
abuse and personal injury claims (typically a number of years after the child
reaches the age of majority), many operators of child care centers have had
difficulty obtaining adequate general liability insurance or child abuse
liability insurance or have been able to obtain such insurance only at
unacceptably high rates. The Company currently maintains the following types
of insurance policies: workers' compensation, commercial general liability,
automobile liability, commercial property liability, professional liability
and excess "umbrella" liability. These policies provide for a variety of
coverages and are subject to various limitations, exclusions, and deductibles.
The commercial general liability policy provides for annual coverage of $2.0
million per location and $1.0 million per occurrence, although the policy
limits coverage for child sexual abuse to an annual aggregate of $1.0 million
per site and per person. The Company's excess "umbrella" coverage, relating to
general liabilities other than those related to child sexual abuse claims,
provides coverage in the amount of $20.0 million per year. There can be no
assurance that such liability limitations will be adequate, that insurance
premiums for such coverages will not increase, or that in the future the
Company will be able to obtain insurance at acceptable rates, if at all. Any
such inadequacy of or inability to obtain insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operation. See "--Adverse Publicity," "--Litigation," and
"Business--Insurance."
Potential Effect of Anti-Takeover Provisions. The Company's Amended and
Restated Certificate of Incorporation and Bylaws will, after the completion of
the offering, contain certain provisions that could make more difficult the
acquisition of the Company by means of a tender offer, a proxy contest or
otherwise. These provisions establish staggered terms for members of the
Company's Board of Directors and include advance notice procedures for
stockholders to nominate candidates for election as directors of the Company
and for stockholders to submit proposals for consideration at stockholders'
meetings. In addition, the Company will be subject to Section 203 of the
Delaware General Corporation Law ("DGCL")
10
which limits transactions between a publicly held company and "interested
stockholders" (generally, those stockholders who, together with their
affiliates and associates, own 15% or more of a company's outstanding capital
stock). The restrictions of Section 203 would not apply to those who were
"interested stockholders" prior to the consummation of the offering. This
provision of the DGCL may have the effect of deterring certain potential
acquisitions of the Company. The Company's Amended and Restated Certificate of
Incorporation will provide for 3,000,000 authorized but unissued shares of
Preferred Stock, the rights, preferences, qualifications, limitations and
restrictions of which may be fixed by the Board of Directors without any
further action by stockholders. See "Description of Capital Stock."
No Prior Public Market; Determination of Public Offering Price; Possible
Volatility of Stock Price. Prior to the offering, there has been no public
market for the Common Stock, and there can be no assurance that an active
trading market will develop or be sustained, or that, if such market develops,
the market price will equal or exceed the public offering price set forth on
the cover of this Prospectus. The initial public offering price will be
determined by negotiations among the Company, the Selling Stockholders and the
representatives of the Underwriters based on several factors, including
prevailing market conditions and recent operating results of the Company, and
may not be indicative of the market price of the Common Stock after the
offering. The prices at which the Common Stock will trade will be determined
by the marketplace and may be influenced by many factors, including the
liquidity of the market for the Common Stock, investor perception of the
Company and of the child care industry generally, and general economic and
market conditions. In addition, the stock market historically has experienced
volatility which has affected the market price of securities of many companies
and which has sometimes been unrelated to the operating performance of such
companies. In addition, factors such as announcements of new services or
offices or acquisitions by the Company or its competitors or third parties, as
well as market conditions in the Company's industry, may have a significant
impact on the market price of the Common Stock. The market price may also be
affected by movements in prices of stocks in general. See "Underwriting."
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market after this offering could adversely affect the
prevailing market price of the Common Stock. In addition to the 2,700,000
shares of Common Stock offered hereby, as of the date of this Prospectus (the
"Effective Date"), based upon shares outstanding as of August 31, 1997, there
will be 2,705,134 shares of Common Stock outstanding, all of which are
restricted shares (the "Restricted Shares") under the Securities Act of 1933,
as amended (the "Securities Act"). Approximately Restricted Shares may be
eligible for sale immediately following the Effective Date in reliance on Rule
144(k) promulgated under the Securities Act. Beginning 90 days after the
Effective Date, approximately additional Restricted Shares may become
eligible for sale in the public market pursuant to Rules 144 and 701
promulgated under the Securities Act, of which Restricted Shares are
subject to 180-day lock-up agreements with the Underwriters. Of the Restricted
Shares that will first become eligible for sale in the public market 180 days
after the Effective Date upon expiration of the lockup agreements,
approximately shares may be subject to certain volume and other resale
restrictions pursuant to Rule 144. In addition, pursuant to a registration
statement on Form S-8 which the Company intends to file with the Securities
and Exchange Commission 90 days following the Effective Date, an aggregate of
approximately and shares issuable upon exercise of stock options
(subject to the vesting provisions of the options) will first become eligible
for sale in the public market 90 days and 180 days following the Effective
Date, respectively. Certain stockholders are also entitled to registration
rights. See "Principal and Selling Stockholders" and "Shares Eligible for
Future Sale."
Absence of Dividends. The Company has never paid any cash dividends on the
Common Stock and does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. See "Dividend Policy."
Dilution. Purchasers of the Common Stock offered hereby will suffer an
immediate and substantial dilution of $7.32 per share in the net tangible book
value per share of the Common Stock from the initial public offering price,
assuming an initial public offering price of $11.00 per share. See "Dilution."
11
USE OF PROCEEDS
The net proceeds to the Company from this offering (at an assumed initial
public offering price of $11.00 per share) are estimated to be $13.2 million
after deducting estimated offering expenses payable by the Company and
underwriting discounts and commissions. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
The principal purposes of this offering are to increase the Company's equity
capital and to create a public market for the Company's Common Stock, which
will facilitate future access by the Company to the public financial markets
and help to attract and retain key employees. The Company intends to use
approximately $3.9 million of the net proceeds to repay indebtedness. The
Company intends to use the balance of the net proceeds for working capital and
general corporate purposes, including the financing of potential acquisitions
and new centers currently under development that the Company would otherwise
finance with mortgage debt. Although the Company regularly evaluates
acquisition opportunities, it is not a party to any letter of intent or other
agreement regarding any acquisition. Pending such uses, the Company intends to
invest the net proceeds of this offering primarily in investment grade,
interest-bearing securities.
The Company intends to repay unsecured indebtedness outstanding as of August
31, 1997, of approximately $2.4 million, plus accrued interest, to
ServiceMaster incurred in connection with the acquisition of GreenTree in
December 1995, which indebtedness is required to be repaid in the event of an
initial public offering. This indebtedness began accruing interest June 1,
1996 at a variable rate per annum equal to the prime rate declared by First
National Bank of Chicago. The principal balance of this indebtedness was $2.6
million as of June 30, 1997. At August 31, 1997, the interest rate on this
indebtedness was 8.5%. The Company also intends to repay approximately $1.5
million in mortgage debt outstanding as of August 31, 1997 under three
mortgage notes consisting of: $650,000 owed to BankBoston--Connecticut, N.A.,
which debt has a maturity date of November 1999 and bears interest at a
variable rate per annum equal to the base rate plus 1.0%; $370,000 owed to
SouthTrust Bank of West Florida, which debt has a maturity of October 2000 and
bears interest at a fixed rate of 9.0% per annum; and $500,000 owed to Fleet
National Bank, which debt has a maturity date of June 2016 and bears interest
at a variable rate per annum, equal to the base rate plus .25%. At August 31,
1997, the interest rate on the mortgage note to BankBoston--Connecticut, N.A.
was 9.5% and the interest on the mortgage note to Fleet National Bank was
8.75%.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock
and does not intend to do so in the foreseeable future. The Company intends to
retain earnings to finance future operations and expansions. The Company is
also prohibited by the terms of its revolving line of credit and its mortgage
notes from paying cash dividends without the prior written consent of the
lending institution.
12
DILUTION
The Company's pro forma net tangible book value as of June 30, 1997 was
approximately $6.3 million or $1.59 per share. Pro forma net tangible book
value per share represents the Company's total tangible assets less total
liabilities, divided by the total number of shares of Common Stock
outstanding, assuming (i) the conversion of all outstanding shares of
Convertible Preferred Stock into 3,100,550 shares of Common Stock and (ii) the
exercise on a cashless basis of outstanding warrants to purchase 288,428
shares of Common Stock.
After giving effect to the sale of the 1,350,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$11.00 per share and the receipt of the net proceeds therefrom, the pro forma
net tangible book value of the Company as of June 30, 1997 would have been
approximately $19.5 million or $3.68 per share. This represents an immediate
increase in pro forma net tangible book value of $2.09 per share to the
existing stockholders and an immediate dilution in pro forma net tangible book
value of $7.32 per share to purchasers of Common Stock in the offering. The
following table illustrates the dilution in pro forma net tangible book value
per share to new investors:
Assumed initial public offering price per share................... $11.00
Pro forma net tangible book value per share as of June 30, 1997. $1.59
Increase per share attributable to new investors................ 2.09
-----
Pro forma net tangible book value per share after the offering.... 3.68
------
Dilution per share to new investors............................... $ 7.32
======
The following table sets forth, as of June 30, 1997, on a pro forma basis
after giving effect to the conversion of all outstanding shares of Convertible
Preferred Stock into 3,100,550 shares of Common Stock and the exercise of
outstanding warrants to purchase 288,428 shares of Common Stock upon the
closing of this offering, the number of shares purchased from the Company, the
total cash paid to the Company and the average price per share paid by
existing stockholders and to be paid by purchasers of the shares of Common
Stock offered hereby at an assumed initial public offering price of $11.00 per
share (before deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
----------------- ------------------- -------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
Existing stockholders....... 3,945,710 74.5% $19,888,009 57.3% $ 5.04
New investors............... 1,350,000 25.5% $14,850,000 42.7% $11.00
--------- ----- ----------- -----
Total..................... 5,295,710 100.0% $34,738,009 100.0%
========= ===== =========== =====
The above information assumes no exercise of (i) the Underwriters' over-
allotment option and (ii) except as noted above, stock options or warrants
after June 30, 1997. As of June 30, 1997, the Company had reserved 852,972
shares of Common Stock for issuance upon exercise of outstanding options at a
weighted average exercise price of $4.89 per share and 66,667 shares for
issuance upon the exercise of a warrant issued to ServiceMaster at an exercise
price of $10.50 per share. To the extent any of such options and warrants are
exercised, there will be further dilution to new investors. See "Management--
Stock Plans."
13
CAPITALIZATION
The following table sets forth, as of June 30, 1997, (i) the actual short-
term debt and capitalization of the Company and (ii) the short-term debt and
capitalization of the Company as adjusted to reflect the conversion of all
outstanding shares of the Company's Convertible Preferred Stock into an
aggregate of 3,100,550 shares of Common Stock, the exercise on a cashless
basis of outstanding warrants (which otherwise would terminate upon the
closing of the offering) into 288,428 shares of Common Stock, the issuance and
sale by the Company of the 1,350,000 shares of Common Stock offered hereby (at
an assumed initial public offering price of $11.00 per share) and the
application of the net proceeds therefrom. This table should be read in
conjunction with the consolidated financial statements, including the notes
thereto appearing elsewhere in this Prospectus.
JUNE 30, 1997
---------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
Short-term debt:
Current portion of long-term debt and capital leases... $ 834 $ 35
======== ========
Long-term debt:
Note payable to ServiceMaster.......................... 1,875 --
Mortgage notes(1)...................................... 1,476 --
Other long-term liabilities............................ 89 89
-------- --------
Total long-term debt................................. 3,440 89
-------- --------
Mandatorily redeemable convertible preferred stock, $0.01
par value;
1,860,330 shares authorized, issued and outstanding,
actual;
no shares authorized, issued and outstanding, as
adjusted................................................ 19,705 --
Stockholders' equity (deficit):
Preferred Stock, $0.01 par value; 3,000,000 shares
authorized;
no shares issued and outstanding, actual and as
adjusted..............................................
Common Stock, $0.01 par value; 12,000,000 shares
authorized;
556,732 issued and outstanding, actual; 5,295,710
shares issued
and outstanding, as adjusted(2)....................... 6 53
Additional paid-in capital............................. 66 33,118
Accumulated deficit.................................... (11,232) (11,232)
-------- --------
Total stockholders' equity (deficit)................ (11,160) 21,939
-------- --------
Total capitalization............................... $ 11,985 $ 22,028
======== ========
- --------
(1) Excludes $480,000 of debt incurred subsequent to June 30, 1997 associated
with the mortgage for the Company's Orange, Connecticut child development
center. The Company does not intend to repay this indebtedness with the
proceeds from the offering.
(2) Based upon the number of shares outstanding as of June 30, 1997. Excludes
(i) 852,972 shares of Common Stock reserved for issuance upon exercise of
options outstanding with a weighted average exercise price of $4.89 per
share (ii) 66,667 shares of Common Stock reserved for issuance upon
exercise of the warrant issued to ServiceMaster at an exercise price of
$10.50 per share, and (iii) 666,667 shares of Common Stock reserved for
future grants of Common Stock or options to purchase Common Stock under
the Company's 1997 Equity Incentive Plan. See "Management--Stock Plans."
14
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The selected consolidated financial and operating data set forth below is
qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto
included elsewhere in this Prospectus. The selected consolidated financial
data as of June 30, 1996 and 1997 and for each of the years in the three-year
period ended June 30, 1997 have been derived from the Company's Consolidated
Financial Statements, which have been audited by Price Waterhouse LLP,
independent public accountants, and are included elsewhere in this Prospectus.
The selected consolidated balance sheet data at the end of fiscal 1993, 1994
and 1995 and the selected consolidated statement of income data for each of
fiscal years 1993 and 1994 have been derived from Consolidated Financial
Statements, which have also been audited by Price Waterhouse LLP, not included
herein.
FISCAL YEAR ENDED JUNE 30,
------------------------------------------------
1993 1994 1995 1996(1) 1997
-------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Net revenues................ $ 23,812 $ 32,012 $ 43,693 $ 64,181 $85,001
Cost of services(2)......... 20,611 27,592 37,209 55,615 72,675
-------- -------- -------- -------- --------
Gross profit.............. 3,201 4,420 6,484 8,566 12,326
Selling, general and
administrative
expenses(2)................ 3,034 3,578 5,174 6,376 9,007
Amortization of non-compete
agreements(2)(3)........... -- -- 80 1,680 560
Transaction costs(4)........ -- -- -- -- 543
-------- -------- -------- -------- --------
Income from operations.... 167 842 1,230 510 2,216
Interest income (expense),
net........................ (14) (17) 21 (194) (275)
-------- -------- -------- -------- --------
Income before income
taxes.................... 153 825 1,251 316 1,941
Income tax benefit
(provision)(5)............. -- 319 382 1,005 (794)
-------- -------- -------- -------- --------
Net income................ $ 153 $ 1,144 $ 1,633 $ 1,321 $ 1,147
======== ======== ======== ======== ========
Pro forma net income per
share(6)................... $ 0.26
========
Pro forma weighted average
number of common and
common equivalent
shares(6).................. 4,427
========
SELECTED OPERATING DATA:
Number of centers at end of
period..................... 54 72 87 124 140
Number of clients at end of
period..................... 53 70 85 119 134
Licensed capacity at end of
period(7).................. 4,625 6,318 7,607 12,642 14,156
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............. $ 802 $ 544 $ 900 $ 2,412 $ 87
Total assets................ 8,104 10,467 12,970 24,535 28,519
Long-term debt and capital
lease obligations.......... 718 12 749 4,248 3,440
Mandatorily redeemable
convertible preferred
stock...................... 15,311 16,410 17,508 18,607 19,705
Total stockholders'
deficit.................... $(12,031) $(11,983) $(11,447) $(11,215) $(11,160)
- --------
(1) Effective December 1, 1995, the Company acquired the business and some of
the assets and liabilities of GreenTree. Fiscal 1996 results include seven
months of GreenTree operating results. If the GreenTree acquisition had
occurred on July 1, 1995, the Company's pro forma net revenues, gross
profit and net income for fiscal 1996 would have been $70.4 million, $8.8
million and $988,000, respectively.
(2) Total depreciation and amortization is comprised of (i) center
depreciation included in cost of services, (ii) corporate facility
depreciation and amortization of goodwill included in selling, general and
administrative expenses and (iii) amortization of non-compete agreements
discussed in Note 3 below. Total depreciation and amortization was
approximately $517,000, $652,000, $871,000, $2.8 million and $2.2 million
in fiscal 1993, 1994, 1995, 1996 and 1997, respectively.
(3) In connection with the acquisitions of Burud in fiscal 1995 and GreenTree
in fiscal 1996, the Company received, in each case, an agreement from the
seller not to compete with the Company for a certain future period. The
Company recorded intangible assets for the non-compete agreements of
$600,000 in fiscal 1995 and $2.0 million in fiscal 1996. These amounts are
being amortized over the estimated period of benefit. The Company
anticipates recording the remaining $280,000 in amortization expense
associated with these non-compete agreements in fiscal 1998.
15
(4) In fiscal 1997, the Company incurred costs of $543,000 associated with a
proposed public offering of securities. Because the offering was delayed,
the amounts incurred were treated as a period cost.
(5) In each of fiscal 1994, 1995 and 1996 the Company recorded an income tax
benefit on pre-tax earnings. These benefits include $652,000, $1.0 million
and $1.4 million for fiscal 1994, 1995 and 1996, respectively,
representing decreases in the tax valuation allowance, net of $1.1 million
applied to reduce goodwill in 1996. In fiscal 1997, the Company recorded
an income tax provision which was not materially affected by changes in
the valuation allowance net of amounts applied to reduce goodwill.
(6) Assumes conversion of all Convertible Preferred Stock and the exercise of
warrants on a cashless basis which would otherwise terminate upon the
closing of the Offering. Calculated on the basis described in Note 1 to
Consolidated Financial Statements.
(7) Represents the total capacity permitted under applicable state licenses.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Bright Horizons was founded in 1986 by current Chairman and Chief Executive
Officer Roger H. Brown and current President Linda A. Mason to provide
corporate-sponsored early education and family support services. Bright
Horizons operates the largest number of corporate-sponsored child development
centers in the United States, with 140 centers providing care and education to
more than 13,500 children and their families.
The Company opened its first two centers in August 1987, grew to 54 centers
by June 30, 1993 and to 140 centers by June 30, 1997. The Company's revenue
growth has been primarily due to the addition of new centers as well as
increased enrollment at existing centers. Bright Horizons serves many of the
nation's leading corporations including Allstate Insurance Company, Apple
Computer, Duke Power, DuPont, First Union National Bank, Glaxo Wellcome, IBM,
Merck & Co., Motorola, Paramount Pictures, Pfizer, Salomon Brothers, Sony
Pictures Entertainment, Time Warner, Universal Studios, Warner Bros., and
Xerox. In addition, the Company provides early education services for well
known institutions such as the United Nations, New York Hospital, The George
Washington University, John F. Kennedy Airport and Beth Israel Deaconess
Medical Center. The Company operates multiple centers and services for 13 of
its clients. The Company seeks to cluster centers in geographic areas to
enhance operating efficiencies and create a leading market presence. The
Company has created a major market presence in Boston, Charlotte, Chicago,
Hartford, Los Angeles, New York, Raleigh/Durham, San Francisco, Seattle and
Washington, D.C.
Sponsorship Models. Although the specifics of the Company's corporate
sponsorship arrangements vary widely, there are two basic forms--the
corporate-sponsored model and the management contract model. Under the
corporate-sponsored model, which comprises approximately 80% of the Company's
operating sites, Bright Horizons operates a child development center on the
premises of a corporate sponsor, giving priority enrollment to the children of
the corporate sponsor's employees. Bright Horizons maintains profit-and-loss
responsibility for the operation of the center, and, as part of the
arrangement, receives financial support from the corporate sponsor, which can
take various forms, including reduced occupancy costs, tuition-assistance and
start-up and/or operating cost assistance. Newly opened corporate-sponsored
centers generally operate at a loss until utilization levels of approximately
60% or more are achieved, which typically occur by the end of the first year
of operations. When the Company takes over an existing corporate-sponsored
center operated by another provider, the Company also generally sustains
operating losses, though for a shorter period than with newly opened centers.
Under the management contract model, which comprises approximately 20% of
the Company's operating sites, Bright Horizons operates a work-site child
development center, generally under a cost-plus agreement. The sponsor is
typically responsible for all start-up costs and facility maintenance under
this model. Therefore, the Company does not sustain pre-opening or initial
operating losses under the management contract model. The management contract
model centers experience slightly lower operating margins than the corporate-
sponsored model at full maturity. At the end of fiscal year 1997, the Company
operated 114 centers under the corporate sponsored model and 26 centers under
the management contract model.
Under the corporate-sponsored model, the Company's revenues consist
primarily of tuition paid by parents, supplemented in some cases by direct
payments from corporate sponsors and, to a far lesser extent, direct payment
from government agencies. Under the management contract model, in addition to
tuitions, revenues also include management fees and reimbursable expenses. In
all cases, revenues are recognized as services are performed. Tuition payments
are generally received in advance and are typically payable by parents
monthly, and in some cases, weekly. Management fees payable by corporate
sponsors
17
are generally received monthly in advance, while reimbursable expenses are
received monthly in arrears. Frequently, the Company maintains an advance from
the corporate sponsor against reimbursable expenses. Tuition, management fees
and fees for reservation of priority enrollment rights paid in advance are
recorded as deferred revenue and recognized in the appropriate period.
Center Economics. The Company's investment in a new corporate-sponsored
child development center consists of pre-opening expenses, post-opening losses
and capital expenditures. The amount the Company is required to invest to open
a new center varies considerably, based primarily on the size of the center,
the type of sponsorship model under which the center will operate and the
specific contractual arrangements between the Company and the center sponsor.
The Company is generally not required to make a significant investment in
centers that operate under the management contract model. Since 1991, the
Company's average investment in corporate-sponsored centers that have been
open at least two full fiscal years (excluding centers acquired in the
GreenTree acquisition) was approximately $100,000, and those centers achieved
an average operating profit (before center-level depreciation and any
allocation of corporate overhead and interest) of approximately $90,000 per
center in their second full fiscal year of operation.
Bright Horizons currently has 25 new centers under development for fiscal
1998 and six additional centers undergoing expansion. The Company anticipates
that the addition of these centers will require that it hire approximately
three new corporate administrative personnel as well as an average of 25
faculty members for each newly opened center. After the initial start-up
periods for newly opened centers, during which time those centers operate
below full occupancy, the Company believes that the hiring of these additional
personnel will not significantly impact its operating margins.
Recent Acquisitions. On December 1, 1995, the Company acquired all of the
outstanding common stock of GreenTree of Downers Grove, Illinois, the operator
of 24 GreenTree Child Care centers. Total consideration included $6.0 million
in cash and a warrant to purchase 66,667 shares of Common Stock at an exercise
price of $10.50 per share. To finance the GreenTree purchase, the Company
borrowed $2.0 million under its bank line of credit and $3.0 million from the
seller. Prior to their acquisition, the GreenTree centers generally
experienced operating margins below the Company's average. Since their
acquisition, however, the GreenTree centers have experienced ongoing growth in
enrollment, and the gross margin of the acquired centers has improved from
7.1% for the eleven months preceding the acquisition on December 1, 1995 to
10.6% for fiscal 1997. On July 1, 1997, the Company acquired substantially all
the assets and liabilities of Pacific Preschools, Inc. dba The Learning
Garden, which manages four child development centers in the Seattle,
Washington metropolitan area. The total consideration consisted of $1.6
million in cash and 108,333 shares of Common Stock. The operating margins of
The Learning Garden centers are expected to be consistent with the remainder
of the Company's centers. Each of these acquisitions was accounted for under
the purchase method.
Amortization of Non-Compete Agreements. In connection with the acquisition
of Burud and GreenTree, the Company received, in each case, an agreement from
the seller not to compete with the Company for a certain future period. The
Company recorded intangible assets for the non-compete agreements of $600,000
in fiscal 1995 and $2.0 million in fiscal 1996, respectively. These amounts
are being amortized over the estimated period of benefit. The Company
anticipates recording the remaining $280,000 in amortization expense
associated with these non-compete agreements in fiscal 1998.
Transaction Costs. In fiscal 1997, the Company incurred costs of $543,000
associated with a proposed public offering of securities. Because the offering
was delayed, the amounts were treated as a period cost.
18
RESULTS OF OPERATIONS
The following table sets forth statement of operations data as a percentage
of net revenues for the periods indicated.
FISCAL YEAR ENDED
JUNE 30,
-------------------
1995 1996 1997
----- ----- -----
Net revenues............................................... 100.0% 100.0% 100.0%
Cost of services........................................... 85.2 86.7 85.5
----- ----- -----
Gross profit............................................. 14.8 13.3 14.5
Selling, general and administrative expenses............... 11.8 9.9 10.6
Amortization of non-compete agreements..................... 0.2 2.6 0.7
Transaction costs.......................................... -- -- 0.6
----- ----- -----
Income from operations................................... 2.8 0.8 2.6
Interest income (expense), net............................. -- (0.3) (0.3)
----- ----- -----
Income before income taxes............................... 2.8 0.5 2.3
Income tax benefit (provision)............................. 0.9 1.6 (0.9)
----- ----- -----
Net income............................................... 3.7% 2.1% 1.4%
===== ===== =====
Number of centers open at end of period.................. 87 124 140
FISCAL 1997 COMPARED TO FISCAL 1996
Net Revenues. Net revenues increased $20.8 million, or 32.4%, to $85.0
million for fiscal 1997 from $64.2 million for fiscal 1996. Of the increase,
$8.9 million is attributable to 24 GreenTree centers acquired in December
1995, for which there was a full period of operations in fiscal 1997 as
compared to seven months in fiscal 1996. The remainder of the increase is
primarily attributable to a full period of operations from the 13 centers
opened in fiscal 1996, the addition of 16 centers in fiscal 1997 (13 of which
were corporate-sponsored and three of which were management contract centers)
and an average tuition increase of 5%.
Gross Profit. Cost of services consists of center operating expenses,
including payroll and benefits for center personnel, facilities costs
including depreciation, supplies and other expenses incurred at the center
level. Gross profit increased $3.8 million, or 43.9%, to $12.3 million in
fiscal 1997 from $8.5 million in fiscal 1996. As a percentage of net revenues,
gross profit increased to 14.5% in fiscal 1997 from 13.3% in fiscal 1996. The
improved gross margin is attributable to improved performance of the GreenTree
centers after the initial period of integration and to other centers that
reached mature levels of operation in fiscal 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist of regional and district management personnel
and corporate management and administrative functions, as well as marketing
and development expenses for new and existing centers. Selling, general and
administrative expenses increased $2.6 million, or 41.3%, to $9.0 million in
fiscal 1997 from $6.4 million in fiscal 1996. The additional administrative
expenses were primarily to support the increased number of centers in
operation and to make necessary personnel investments to support future
expansion.
Amortization of Non-Compete Agreements. Expenses associated with the
amortization of non-compete agreements decreased $1.1 million to $560,000 in
fiscal 1997 from $1.7 million in fiscal 1996 due to the method of amortization
applied. See Note 1 to Notes to Consolidated Financial Statements. The Company
anticipates recording the remaining $280,000 in amortization expense
associated with the non-compete agreements in fiscal 1998.
19
Income from Operations. Income from operations increased $1.7 million to
$2.2 million in fiscal 1997 from $510,000 in fiscal 1996, due primarily to the
decrease in expenses associated with the amortization of non-compete
agreements and the increase in gross margin. In fiscal 1997, the Company
incurred costs of $543,000 associated with a proposed public offering of
securities. Because the offering was delayed, the amounts incurred were
treated as a period cost. Excluding this charge and the amortization of the
non-compete agreements, operating income would have increased $1.1 million to
$3.3 million in fiscal 1997 from $2.2 in fiscal 1996 and, as a percentage of
net revenues, would have increased to 3.9% in fiscal 1997 from 3.4% in fiscal
1996.
Interest Income (Expense), net. The Company's net interest expense increased
$81,000, or 41.8%, to $275,000 in fiscal 1997 from $194,000 in fiscal 1996,
primarily due to a full year of interest on the principal balance of the $3.0
million note incurred in connection with the GreenTree acquisition in fiscal
1997 compared to seven months in fiscal 1996.
Income Tax Benefit (Provision). The Company's income tax provision was
$794,000 for fiscal 1997 compared to a benefit of $1.0 million for fiscal
1996. The benefit recorded in fiscal 1996 included $2.5 million attributable
to the decrease in the valuation allowance less $1.1 million representing the
benefit of acquired deferred tax assets applied to reduce goodwill associated
with the GreenTree acquisition. The provision recorded in fiscal 1997 was not
materially affected by changes in the valuation allowance net of amounts
applied to reduce goodwill and return to provision adjustments. As there is no
valuation allowance on deferred tax assets at June 30, 1997, the Company's
future earnings are not expected to be favorably impacted by changes in the
valuation allowance.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Revenues. Net revenues increased $20.5 million, or 46.9%, to $64.2
million for fiscal 1996 from $43.7 million for fiscal 1995. Of the increase,
$10.2 million is attributable to 24 GreenTree centers acquired in December
1995, for which there was no comparable revenue amount in fiscal 1995. The
remainder of the increase is primarily attributable to a full period of
operations from the 15 centers opened in fiscal 1995, the addition of 13
centers by the Company in fiscal 1996 (seven of which were corporate-sponsored
and six of which were management contract centers) and an average tuition
increase of approximately 5%.
Gross Profit. Gross profit increased $2.1 million, or 32.1%, to $8.6 million
in fiscal 1996 from $6.5 million in fiscal 1995. As a percentage of net
revenues, gross profit declined to 13.3% in fiscal 1996 from 14.8% in fiscal
1995. The decrease is primarily attributable to the lower gross margins of the
acquired GreenTree centers during the initial period of integration.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.2 million, or 23.2%, to $6.4 million in
fiscal 1996 from $5.2 million in fiscal 1995, primarily to support the larger
number of centers. As a percentage of net revenues, selling, general and
administrative expenses decreased to 9.9% in fiscal 1996 from 11.8% in fiscal
1995, due primarily to the Company's ability to increase net revenues without
a commensurate increase in selling, general and administrative expenses.
Amortization of Non-Compete Agreements. Expenses associated with the
amortization of non-compete agreements increased to $1.7 million in fiscal
1996 from $80,000 in fiscal 1995. This increase was due to the recording of a
$2.0 million intangible asset for the non-compete agreement in connection with
the GreenTree acquisition in December 1995 and a full period of amortization
for the Burud non-compete agreements.
Income from Operations. Income from operations decreased to $510,000 in
fiscal 1996 from $1.2 million in fiscal 1995, due primarily to the increased
expenses associated with the amortization of non-compete agreements. Excluding
expenses related to amortization of non-compete agreements, income from
operations would have increased $880,000, or 67.2%, to $2.2 million in fiscal
1996 from $1.3 million in fiscal year 1995 and, as a percentage of net
revenues, would have increased to 3.4% in fiscal 1996 from 3.0% in fiscal
1995.
20
Interest Income (Expense), net. The Company's net interest expense increased
$215,000 to $194,000 in fiscal 1996 from net interest income of $21,000 in
fiscal 1995, due to the $5.0 million of debt incurred in connection with the
GreenTree acquisition in December 1995 and the addition of $978,000 in mortgage
notes during fiscal 1996.
Income Tax Benefit (Provision). The Company's provision for income taxes was
a benefit of $1.0 million for fiscal 1996 compared to a benefit of $382,000 for
fiscal 1995. This benefit includes $1.0 million and $2.5 million attributable
to changes in the valuation allowance in 1995 and 1996, respectively, less $1.1
million in 1996 representing the benefit of acquired deferred tax assets
applied to reduce goodwill associated with the GreenTree acquisition. The
change in the valuation allowance reflects the benefit of net operating loss
carryforwards.
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth certain unaudited quarterly results of
operations data of the Company for each of the four quarters in each of fiscal
1997 and fiscal 1996. The Company believes that this information has been
prepared on the same basis as the audited Consolidated Financial Statements and
that all necessary adjustments, consisting only of the normal recurring
adjustments, have been included to present fairly the selected quarterly
information when read in conjunction with the audited Consolidated Financial
Statements and the Notes thereto included elsewhere in the Prospectus. The
operating results for any quarter are not necessarily indicative of results for
any future period.
THREE MONTHS ENDED
--------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1997 1997
--------- -------- -------- --------
(IN THOUSANDS)
Net revenues.............................. $19,713 $20,195 $21,857 $23,236
Cost of services.......................... 17,215 17,530 18,291 19,639
------- ------- ------- -------
Gross profit............................ 2,498 2,665 3,566 3,597
Selling, general and administrative
expenses.................................. 2,049 2,003 2,374 2,581
Amortization of non-compete agreements.... 140 140 140 140
Transaction costs......................... -- -- -- 543
------- ------- ------- -------
Income from operations.................. 309 522 1,052 333
Interest income (expense), net............ (68) (75) (83) (49)
------- ------- ------- -------
Income before income taxes ............. 241 447 969 284
Income tax benefit (provision)............ (99) (183) (396) (116)
------- ------- ------- -------
Net income ............................. $ 142 $ 264 $ 573 $ 168
======= ======= ======= =======
THREE MONTHS ENDED
--------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1996 1996
--------- -------- -------- --------
(IN THOUSANDS)
Net revenues.............................. $11,932 $14,232 $18,271 $19,746
Cost of services.......................... 10,467 12,254 15,946 16,948
------- ------- ------- -------
Gross profit............................ 1,465 1,978 2,325 2,798
Selling, general and administrative
expenses.................................. 1,259 1,496 1,660 1,961
Amortization of non-compete agreements.... 87 277 658 658
------- ------- ------- -------
Income from operations.................. 119 205 7 179
Interest income (expense), net............ 16 (14) (48) (148)
------- ------- ------- -------
Income (loss) before income taxes....... 135 191 (41) 31
Income tax benefit (provision)............ 430 604 (127) 98
------- ------- ------- -------
Net income (loss)....................... $ 565 $ 795 $ (168) $ 129
======= ======= ======= =======
21
The Company's business is subject to seasonal and quarterly fluctuations.
The Company's experience has been that the demand for child development
services decreases during the summer months. During this season, families are
often on vacation or have alternative child care arrangements. In addition,
children who will begin primary school in the fall often leave the Company's
programs over the summer. Demand for the Company's services generally
increases in September upon the beginning of the new school year and remains
relatively stable throughout the rest of the year. The reduction in summer
enrollment generally results in lower revenue and gross profit in the first
quarter of the Company's fiscal year. During the summer, the Company reduces
staffing levels and offers summer programs to retain children and attract new
children. The Company's results of operations may also fluctuate from quarter
to quarter as a result of, among other things, the performance of existing
centers, the number and timing of new center openings and/or acquisitions, the
length of time required for new centers to achieve profitability, center
closings, refurbishment or relocation, the sponsorship model mix of new and
existing centers, the timing and level of sponsorship payments, competitive
factors and general economic conditions. See "Risk Factors--Seasonality and
Quarterly Fluctuations."
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are the ongoing operations of its
existing centers and the addition of new centers through development or
acquisition. The Company's primary source of liquidity has been cash flow from
operations, supplemented by borrowings under its revolving line of credit with
Fleet National Bank.
The Company has a $5.0 million revolving line of credit with Fleet National
Bank, $2.0 million of which may be used for working capital and general
corporate purposes and $3.0 million of which may be used for real estate loans
to be secured by mortgages. The revolving line of credit has a maturity date
of September 30, 1998 and bears interest at a variable rate per annum equal to
the bank's prime rate.
Cash provided from operations was $7.4 million in fiscal 1997, $4.9 million
in fiscal 1996 and $1.5 million in fiscal 1995. Cash provided in fiscal 1997
included $1.1 million of net income, $2.2 million of depreciation and
amortization (of which $560,000 represented amortization of non-compete
agreements), a $2.5 million increase in accounts payable and accrued expenses,
and $1.4 million of increases in deferred revenue partially offset by an
$866,000 increase in deferred income taxes. The fiscal 1996 amount included
$1.3 million of net income, $2.8 million of depreciation and amortization (of
which $1.7 million represents amortization of non-compete agreements arising
from the Burud and GreenTree acquisitions), $1.3 million of increases in
deferred revenue, and $1.5 million in increases of other current and long-term
liabilities, partially offset by a $2.4 million increase in deferred income
taxes.
Cash used in investing activities was $4.9 million during fiscal 1997, $4.8
million during fiscal 1996 and $2.0 million during fiscal 1995. The fiscal
1997 amount was primarily used to purchase fixed assets and leasehold
improvements in new and existing centers. The fiscal 1996 amount included $3.1
million used in the GreenTree acquisition and $1.7 million used to purchase
fixed assets, primarily for new child care centers. The fiscal 1995 amount
included $510,000 used in the Burud acquisition and $1.8 million used for
purchases of fixed assets.
Financing activities used cash of $1.0 million in fiscal 1997, provided cash
of $363,000 in fiscal 1996 and used $87,000 in fiscal 1995. During fiscal
1997, the Company repaid $500,000 borrowed in 1996 under its bank line of
credit and made $543,000 of principal payments on the GreenTree note and other
mortgages and capital leases. The fiscal 1996 amount consisted of amounts
borrowed to finance the GreenTree acquisition, including $2.0 million borrowed
under the Company's bank line of credit, offset by $1.6 million in principal
payments on outstanding debt, including the Company's bank line of credit.
22
The Company makes capital expenditures primarily to build and equip new
child development centers or to refurbish existing centers. The Company is
generally not required to make capital expenditures for centers that operate
under the management contract model. In contrast, the Company may bear
anything from all to none of the capital expenditures for centers that operate
under the corporate-sponsored model depending on the nature of the subsidies
provided by the center sponsor. The sponsor generally will provide for the
construction of the center, and at times will pay for other real estate
related costs such as architectural and design fees and real estate broker
fees. The construction costs for a typical Bright Horizons center range from
approximately $100 to $150 per square foot, though such costs may be
considerably higher depending upon the size and amenities of the center. At
times, the corporate sponsor will also pay for the center's capital equipment
and initial supplies, the costs of which may range from approximately $75,000
to $150,000. Any capital expenditures for equipment which are either paid for
directly or reimbursed by the corporate sponsor are excluded from the accounts
of the Company. The Company may purchase or construct centers when it is able
to obtain favorable purchase terms, or when a sponsor agrees to pay fees in
advance for long-term priority enrollment rights in the center or for other
guarantees. These fees, generally paid during the construction period, are
included in deferred revenue in the balance sheet and are recognized over the
rights period, typically ten years or more. Capital expenditures totaled $4.7
million in fiscal 1997, of which $2.4 million related to the construction of
centers where the Company had secured long-term priority enrollment rights
contracts or other sponsor guarantees. Capital expenditures are expected to
approximate $7.0 million in fiscal 1998, of which approximate $4.0 million
will relate to the construction of centers where the Company has secured long-
term priority enrollment rights contracts or other sponsor guarantees.
The Company intends to use $3.9 million of the net proceeds of the offering
to repay indebtedness. The Company intends to invest the remainder of the net
proceeds in investment grade, interest-bearing securities or for other
corporate purposes.
The Company believes that the net proceeds of this offering, together with
cash provided by operating activities and the Company's line of credit will be
adequate to meet planned operating and capital expenditure needs for at least
the next 18 months. However, if the Company were to make any significant
acquisitions or make significant investments in the purchase of facilities for
new or existing centers for corporate sponsors, it may be necessary for the
Company to obtain additional debt or equity financing.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The FASB issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128) which is required to be adopted by the Company
in its fiscal 1998 financial statements. SFAS 128 requires the Company to
disclose a basic and a diluted earnings per share calculation. The basic
earnings per share calculation excludes Common Stock equivalents from the
earnings per share calculation, while diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. At
June 30, 1997, basic and diluted pro forma net income per share (calculated on
the basis described in Note 1 to Consolidated Financial Statements) would have
been $0.29 and $0.26, respectively.
The FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131) which is required to be adopted by the Company in its fiscal 1999
financial statements. SFAS 131 establishes standards for reporting information
on operating segments and for related disclosures about products and services,
geographic areas, and major customers. The Company is currently reviewing the
impact of SFAS 131 on its financial statements.
23
INFLATION
Certain of the Company's leases call for increases in rent and related
payments which correspond in part to changes in the Consumer Price Index.
However, the Company does not believe that inflation has had a material effect
on its results of operations. There can be no assurance, however, that the
Company's business will not be affected by inflation in the future.
24
BUSINESS
OVERVIEW
Bright Horizons is the nation's largest provider of early education and
family support services for the corporate market, operating 140 child
development centers for 134 clients. The Company serves more than 13,500
children and their families in 25 states and the District of Columbia. With
the changing demographics of today's workforce and the prevalence of dual
career families, a growing number of corporations are creating family benefits
to attract and retain employees and support them as parents. The Company
provides early childhood education, full and part-time child care, emergency
backup care, before and after school care for school age children, summer
camps, vacation care, special event child care, elementary school
(kindergarten through third grade), and family support services. Bright
Horizons partners with corporate sponsors to provide these services.
Bright Horizons serves many of the nation's leading corporations including
Allstate Insurance Company, Apple Computer, Duke Power, DuPont, First Union
National Bank, Glaxo Wellcome, IBM, Merck & Co., Motorola, Paramount Pictures,
Pfizer, Salomon Brothers, Sony Pictures Entertainment, Time Warner, Universal
Studios, Warner Bros., and Xerox. Six of the top ten companies selected by
WorkingMother magazine as 1997's "Top 100 Companies for Working Mothers" are
clients of Bright Horizons. In addition, the Company provides early education
services for well known institutions such as the United Nations, New York
Hospital, The George Washington University, John F. Kennedy Airport and Beth
Israel Deaconess Medical Center. None of these corporations or institutions
accounted for more than 4% of the company's revenues during fiscal 1997. The
Company operates multiple centers for 13 of its clients.
MARKET OVERVIEW
The market for early education and family support services in the United
States is large and experiencing a shift toward center-based child care.
According to industry sources, approximately $32 billion was spent on child
care services in 1996. Although the number of births has remained relatively
constant since 1990, the child care market in the U.S. has continued to grow
steadily. This growth has been driven primarily by demographic factors,
particularly the growing percentage of mothers in the work force. Over 60% of
mothers with children under six are currently in the work force, compared to
22% in 1960. Among college-educated women, which is the Company's primary
market, 70% of mothers with children under a year old are in the work force.
Industry surveys indicate that the preference for center-based child care
increases with the education level of the parents.
The Company estimates the total market size for work-site child care
services to be in excess of $2.0 billion. Many corporations and other
employers have found that work-site early childhood education services enhance
employee productivity, loyalty and commitment. For these reasons, corporations
have increasingly recognized child care benefits as a key element of their
employee recruitment and retention strategy, and over 85% of large employers
currently provide some form of child care assistance to their employees, as
compared to 64% in 1990. Employers are increasingly providing this benefit
through work-site child development centers, with 10% of large companies
providing work-site centers in 1995, compared to 6% in 1990. A wide variety of
employers currently sponsor work-site child development centers, including
corporations, hospitals, government agencies and universities. The Company has
found that the decision by an industry leader to sponsor a work-site child
development center often exerts competitive pressure on other industry
participants to follow suit.
Corporate-sponsored work-site child care, which emerged in the 1980s, offers
distinct advantages to parents and corporations. Parents value the higher
quality care and education made possible by corporate support. The 1995 Cost,
Quality, and Child Outcomes in Child Care Centers Study demonstrated the
strong correlation between outside funding, such as corporate support, and the
provision of high-quality early childhood education. Work-site centers are
also convenient to parents in terms of location and hours of operation.
Parents are able to monitor quality on a daily basis and participate in their
child's ongoing
25
care and education by taking advantage of the Company's "open door" policy to
visit the center during the work day. Mothers also have the opportunity to
nurse their infants during the work day and are nearby in case of illness or
emergency.
In a 1997 study of 12 of the Company's larger clients conducted by the
Simmons Graduate School of Management, 93% of employee respondents cited work-
site child care as important in considering a job change. This same study
revealed that 19% of employee respondents had turned down or not pursued a job
change because of child care issues and 42% responded that child care was an
important factor in their decision to join a company. The clients
participating in this survey included Motorola, Glaxo Wellcome, Warner Bros.,
First Union National Bank and Salomon Brothers among others.
The market for child care services is highly fragmented, with national child
care providers holding less than 5% of the industry's licensed capacity, and
the 50 largest providers accounting for less than 10% of licensed capacity.
The Company believes there are less than 10 companies providing work-site
child care services on a national basis.
BUSINESS STRATEGY
The Company has gained nationwide recognition as a quality service provider
and is well-positioned to serve corporate sponsors due to its national scale,
track record of serving major corporate sponsors, established reputation, and
position as a quality leader. The major elements of its business strategy are
the following:
Corporate Sponsorship. Corporate sponsorship enables Bright Horizons to
address simultaneously the three most important criteria used by parents to
evaluate and select an early education provider: quality of care, convenience
and cost. By reducing the Company's start-up and operating costs, corporate
sponsorship enables Bright Horizons to concentrate its investment in those
areas that directly translate into high-quality care, including faculty
compensation, teacher-child ratios, curricula, continuing faculty education,
facilities and equipment. The Company's corporate-sponsored work-site
facilities are conveniently located at or near the parents' place of
employment, and generally conform their hours of operation to the work
schedule of the corporate sponsor. Work-site child development centers allow
parents to spend more time with their children, both while commuting and
during the work day, and to participate in and monitor their child's ongoing
care and education. Finally, because corporate support generally defrays a
portion of the Company's start-up and/or operating costs, Bright Horizons is
able to offer its customers high-quality early childhood education at
competitive tuition levels. Some corporations offer subsidized tuition to
their employees as part of their overall family benefits package.
Quality Leadership. The critical elements of the Company's quality
leadership focus include:
. NAEYC Accreditation. Bright Horizons operates its centers to qualify
for accreditation by the National Association for the Education of
Young Children ("NAEYC"), a national organization dedicated to
improving the quality of care and developmental education provided for
young children. The Company believes that its commitment to meeting
NAEYC accreditation is an advantage in the competition for corporate
sponsorship opportunities, due to the Company's experience with an
increasing number of potential corporate sponsors that are requiring
adherence to NAEYC criteria. NAEYC accreditation criteria cover a wide
range of quantitative and qualitative factors, including, among
others, faculty qualifications and development, staffing ratios,
physical environment, and health and safety. NAEYC criteria generally
are more stringent than state regulatory requirements. The majority of
center-based child care providers are not NAEYC-accredited, and the
Company has more NAEYC-accredited work-site child development centers
than any other provider.
. High Teacher-Child Ratios. High teacher-child ratios are a critical
factor in providing quality early education, facilitating more focused
care and enabling teachers to forge relationships with children and
their parents. Under Bright Horizons' approach, each child has a
teacher who is
26
designated as the child's primary caregiver. This teacher is responsible
for monitoring a child's developmental progress, tailoring programs to
meet the child's individual needs, while engaging parents in
establishing and achieving goals. The Company is committed to
maintaining the NAEYC-recommended teacher-child ratios for all age
groups. Many Bright Horizons centers exceed the NAEYC recommended
minimum ratios. By contrast, most center-based child care providers
conform only to the minimum teacher-child ratios mandated by applicable
governmental regulations, which are generally less intensive than NAEYC
standards and vary widely from state to state.
. Above-Average Compensation. The Company believes that its above-average
compensation, comprehensive and affordable benefits package and
opportunities for internal career advancement enable Bright Horizons to
attract highly qualified, well-educated, experienced and committed
center directors and faculty. Based on data provided by the 1995 Cost,
Quality and Child Outcomes in Child Care Centers Study, Bright Horizons'
average center director compensation is more than 30% above the industry
average. The Company believes that its benefits package, which includes
medical, dental and disability insurance, paid vacation and sick leave,
a 401(k) savings plan, incentive stock options, tuition reimbursement
and child care discounts, is unusually comprehensive and affordable by
industry standards. These benefits are an important recruitment and
retention tool for the Company in the relatively low-paying child care
industry.
. Highly Qualified Center Directors and Faculty. Bright Horizons believes
its faculty's education and experience are exceptional when compared to
other national child care organizations. The typical Bright Horizons
center director has more than ten years of child care experience and a
college degree in an education-related field, with many center directors
holding advanced degrees. Because Bright Horizons considers ongoing
training essential to maintaining high quality service, centers have
training budgets for their faculty that provide for in-center training,
attendance at selected outside conferences and seminars and partial
tuition reimbursement for continuing education.
. Innovative Curricula. Bright Horizons' innovative, age-appropriate
curricula distinguish it in an industry typically lacking educational
programs. The Company is committed to improving upon the typical early
education experience by creating a dynamic and interactive environment
that stimulates learning and development. As part of its comprehensive
curricula, the Company has developed the proprietary !Language Works!
preschool curriculum which facilitates mastery of language by early
exposure to words and symbols, extensive use of language in all activity
areas, composition of books and immersion in literature. The Company
seeks to involve parents in the center's activities and supports the
extension of learning into the home. Bright Horizons is currently
advised by several education experts. Dr. T. Berry Brazelton, a well
known pediatrician, and Dr. Ed Zigler and Dr. Sharon Lynn Kagan of Yale
University serve on its Advisory Board. Dr. Sara Lawrence-Lightfoot of
the Harvard School of Education serves on its Board of Directors.
. Attractive, Child-Friendly Facilities. The Company believes that
attractive, spacious, child-friendly facilities are an important element
in fostering high-quality learning environments for children. The
Company's centers are custom-built and are designed to be open and
bright and to maximize visibility throughout the center. The Company
devotes considerable resources to equipping its centers with child-sized
amenities, indoor and outdoor play areas with age-appropriate materials
and design, family hospitality areas and computer centers.
In recognition of its quality leadership, the Company and its management
were selected by BusinessWeek as one of 1997's "Best Entrepreneurs." In
addition, co-founders Roger Brown and Linda Mason were selected by Ernst &
Young and Nasdaq to be the 1996 national winners of the "Entrepreneur of the
Year" in the service category. Bright Horizons is the only early education
company to be selected as one of the WorkingMother magazine's "100 Best
Companies for Working Mothers."
27
Leading Market Presence. The Company's strategy has been to gain a leading
market presence by clustering its centers in selected metropolitan markets.
Strong market presence allows the Company to leverage its reputation in on-
going marketing and to increase its market penetration. Clustering permits the
Company to strengthen quality, develop local recruiting networks, and
efficiently allocate its faculty among nearby centers in cases of illness,
vacation or leave. Clustering also provides the Company with economies of
scale in management, purchasing and recruiting. The Company believes that
regional clustering serves as a competitive advantage in developing its
reputation within geographic regions and securing new corporate sponsorships
in those areas. The Company currently has a major market presence in Boston,
Charlotte, Chicago, Hartford, Los Angeles, New York, Raleigh/Durham, San
Francisco, Seattle and Washington, D.C.
GROWTH STRATEGY
The key elements of the Company's growth strategy are as follows:
Open Centers for New Corporate Sponsors. Bright Horizons' senior management,
as well as the Company's regional and home office sales force, actively pursue
potential new corporate sponsors, particularly in industries that provide
work-site early education and family support services as a standard benefit.
The Company believes that its national scale, quality leadership and track
record of serving corporate sponsors give it a competitive advantage in
securing new corporate sponsorship relationships. As a result of the Company's
national visibility as a high quality provider of work-site early education
and family support services, sponsors regularly contact Bright Horizons
requesting proposals for operating a child care center. See "Risk Factors--
Risk of Limited Future Market Growth" and "--Competition."
Expand Relationships with Existing Corporate Sponsors. Bright Horizons aims
to increase revenue from its existing corporate sponsor relationships by
developing new centers for sponsors who have multiple corporate sites and
offering additional services at its existing centers. The Company's experience
has been that corporate sponsors are more inclined to employ Bright Horizons
on a multi-site basis following the successful operation of an initial center.
The Company currently operates child care centers at multiple sites for 13
sponsors.
Assume Management of Existing Child Care Centers. Assuming the management of
existing centers enables Bright Horizons to serve an existing customer base
with little start-up investment. As corporations reduce their involvement in
non-core business activities, the Company has assumed the management of a
number of work-site child care centers previously managed by a corporate
sponsor. Bright Horizons has also assumed the management of work-site early
education and family support centers formerly operated by other providers.
Many such providers have experienced operating difficulties because they lack
the management expertise or financial depth needed to provide high-quality
child care services to corporate sponsors. The Company assumed the management
of 15 centers from employers and other child care providers over the last
three fiscal years.
Pursue Strategic Acquisitions. Bright Horizons seeks to acquire existing
work-site child development centers and local and regional networks to expand
quickly and efficiently into new markets and increase its presence in existing
geographic clusters. The fragmented nature of the work-site segment of the
early education and family support services market continues to provide
acquisition opportunities. The Company believes that many of the smaller
regional chains and individual providers seek liquidity and/or lack the
professional management and financial resources that sponsors increasingly
demand. In July 1997, the Company acquired four child development centers in
the Seattle, Washington area operating under the name The Learning Garden. In
December 1995, the Company purchased from ServiceMaster 24 centers in the
Midwest operating under the GreenTree name. In November 1994, the Company
acquired Burud, which manages five work-site child development centers in
California.
28
Develop and Market Additional Services. The Company plans to continue to
develop and market additional early childhood education and family support
services, full and part-time child care, emergency back-up work-site child
care (serving parents when their primary child care options are unavailable),
seasonal services (extending hours at existing centers to serve sponsors with
highly seasonal work schedules), school vacation clubs, summer programs,
elementary school programs (kindergarten through third grade), before and
after school care for school age children, vacation care, special event child
care, and to add residential child development centers in areas where tuition
levels can support Bright Horizons' quality standards.
SPONSORSHIP MODELS
Although the specifics of the Company's corporate sponsorship arrangements
vary widely, they generally can be classified into two forms: (i) the
corporate-sponsored model, where Bright Horizons operates a child development
center on the premises of a corporate sponsor, gives priority enrollment to
the corporate sponsor, receives some form of start-up and/or operating
financial support from the corporate sponsor and maintains profit-and-loss
responsibility, and (ii) the management contract model, where Bright Horizons
manages a work-site child development center under a cost plus agreement.
The Corporate-Sponsored Model. Corporate-sponsored model centers currently
represent approximately 80% of Bright Horizons' child development centers.
Bright Horizons typically designs and operates a work-site child development
center in exchange for some form of financial or operating support from the
corporate sponsor. This sponsorship can take a variety of forms, including
reduced occupancy costs, tuition assistance, payment of pre-opening expenses
and assistance with start-up costs, such as architectural and design fees,
real estate broker fees, as well as capital equipment and initial supplies.
Historically, the Company has received the greatest support in the form of
reduced occupancy costs. The Company maintains profit-and-loss responsibility
for corporate-model child development centers. The corporate model can be
classified into two subcategories: (i) employer-sponsored, where Bright
Horizons provides child care on a priority enrollment basis for employees of a
single employer sponsor, and (ii) developer-sponsored, where Bright Horizons
provides priority child care to the employees of multiple employers located
within a developer's property.
The Employer-Sponsored Model. The employer-sponsored model is typically
characterized by a single employer (corporation, hospital, government
agency or university), or occasionally a consortium of employers entering
into a contract with Bright Horizons to provide early education at a
facility located in or near the sponsor's offices. The sponsor generally
provides for the construction of the center and on an ongoing basis pays
for maintenance and repairs. In some cases, the sponsor also provides
tuition assistance and enrollment guarantees. Children of the sponsors'
employees typically are granted priority enrollment at the center.
Operating contracts under the employer-sponsored model have terms that
generally range from three to ten years, require ongoing reporting and, in
some cases, limit annual tuition increases.
The Developer-Sponsored Model. A developer-sponsored center is located in a
real estate developer's office building or office park. The center serves
as an amenity to the developer's tenants, giving the developer an advantage
in attracting quality tenants to its site. In return for leasing the
facility to the Company at a discounted rent, Bright Horizons offers
priority enrollment to the children of the site's employees. Bright
Horizons typically negotiates lease terms of ten to 25 years, including the
initial term and renewal options. Under the developer-sponsored model,
Bright Horizons' typically operates its child development centers with few
ongoing operating restrictions or reporting requirements.
The Management Contract Model. Management contract centers currently
represent approximately 20% of Bright Horizons' child development centers.
Under the management contract model, Bright
29
Horizons receives a management fee and is reimbursed for any expenses in
excess of tuition revenues within an agreed upon budget. The sponsor is
typically responsible for all start-up costs and facility maintenance. The
management contract model enables the corporate sponsor to have a greater
degree of control with respect to budgeting, spending and operations.
Management contracts require Bright Horizons to satisfy certain periodic
reporting requirements and generally range in length from one to five years,
with some terminable by the sponsor without cause or financial penalty. The
Company is responsible for maintenance of quality standards, recruitment of
center directors and faculty, implementation of curricula and programs and
interaction with parents.
OPERATIONS
General. Consistent with its strategy of establishing a leading market
presence, the Company is organized into four operational regions--the
Northeast, Southeast, Midwest and West. Each region is managed by a Regional
Vice President and is divided into three to six districts, each headed by a
District Manager responsible for supervising the quality and operating
performance of six to ten centers. A typical center is managed by a director
with a staff ranging from 20 to 25 faculty and administrative personnel. A
center director has operating responsibility and is responsible for
supervising local marketing, hiring new teachers and performing administrative
tasks such as payroll and tuition collection. The Company's home office
handles most finance, human resources, administration, business development
and marketing functions.
Center hours of operation are designed to match the schedules of the
employer or developer sponsor. Most centers are open ten to twelve hours a
day, Monday through Friday. Typical hours of operation are from 7:00 a.m. to
6:00 p.m. The Company offers a variety of enrollment options, ranging from
full-time (40-50 hours per week) to part-time options. Over 60% of children
who attend the Company's centers are enrolled on a full-time basis. The
majority of children enrolled in the Company's child development centers are
those of the employer-sponsor or those of employees of the developer-sponsor's
tenants. The remaining enrolled children come from the general public.
Monthly tuition depends upon the age of the child, geographic location and
the extent to which tuition is subsidized by a corporate sponsor. In fiscal
1997, average full-time monthly tuition was $853 for infants, $690 for
toddlers and $640 for preschoolers. Tuition at most of the Company's centers
is payable in advance and is due monthly. In some cases, parents can pay
tuition through payroll deduction.
Facilities. The Company's child development centers are primarily operated
in work-site locations and vary in design and capacity in accordance with
sponsor needs and state and federal regulatory requirements. A prototypical
Bright Horizons center is approximately 7,000 to 8,000 square feet, and has a
capacity for 16 infants, 40 toddlers and 60 preschoolers. There are typically
two infant rooms, four toddler rooms and three preschool rooms. As of the end
of fiscal 1997, the Company's centers had a total licensed capacity of
approximately 14,156 children, with the smallest having a capacity of 31
children and the largest having a capacity of over 250 children.
The Company believes that attractive, spacious, child-friendly facilities
are an important element in fostering a high-quality learning environment for
children. Bright Horizons centers are designed to be open and bright and to
maximize visibility throughout the center. The Company devotes considerable
resources to equipping its centers with child-sized amenities, indoor and
outdoor play areas of age-appropriate materials and design, family hospitality
areas and computer centers. Commercial kitchens are present in those centers
which require hot meals to be prepared on site.
Health and Safety. The safety and well-being of the children in its care is
a high priority for Bright Horizons. The Company employs a variety of security
measures at its centers, which may include electronic access systems, security
guards, or other site-specific procedures. In addition, the Company's high
ratio of teachers to children, together with the presence of center directors
and other management
30
personnel, leads to enhanced supervision. Centers are designed to minimize the
risk of injury to small children by incorporating such features as child-size
amenities, rounded corners on furniture and fixtures, age-appropriate toys and
equipment and cushioned fall-zones surrounding play structures.
The Company conducts ongoing training of personnel in the areas of health,
safety and emergency protocol. The Company requires CPR and first aid
certification of center management personnel, and offers such certification to
all center faculty. The Company conforms to federal OSHA requirements with
respect to annual blood-born pathogen training of all center personnel.
CURRICULA
The Company's dynamic and interactive age-appropriate curricula focuses on
hands-on learning activities for children. Early childhood experts and
educators believe that children learn best through exploration and play-
oriented learning. Children grow and acquire skills at their own pace, taking
advantage of age-appropriate activities to challenge themselves, build
feelings of success, develop school competence and reach higher levels of
learning. Bright Horizons programs are built on this developmental approach
and the belief that learning is fun. Programs vary but typically share the
following characteristics: consistent responsiveness to children's needs; a
balance of structure and flexibility in daily schedules to accommodate
individual interests; connection of routine, daily tasks such as eating or
dressing to opportunities for social interaction and learning; respect for and
celebration of cultural diversity; and encouragement of parental
participation. In addition, Bright Horizons' educational programs feature
!Language Works!, a learning process that helps children learn about language
in ways that are meaningful to them, experiencing language as part of every
curriculum activity throughout the day.
The teacher's role in the Bright Horizons classroom is to plan and prepare a
rich environment in which children are stimulated to learn, to provide a
variety of activity choices and to facilitate the child's hands-on engagement
in chosen activities. A Bright Horizons teacher strives to supplement the
primary role of parents in providing care, and faculty encourage parents to
become involved in the center's activities and support the extension of
learning into the home.
MARKETING
Bright Horizons markets its services to two constituencies: corporate
sponsors and parents. Bright Horizons' senior management, as well as the
Company's regional and home office sales force, maintains relationships with
larger customers and actively pursues potential new corporate sponsors,
particularly in industries that provide work-site child care as a standard
benefit in order to recruit and retain talented employees. The Company's sales
force is organized on a regional basis and is responsible for identifying
potential corporate sponsors and managing the overall sales process, which
generally ranges from three to nine months from initial contact to execution
of the sponsorship agreement. In order to execute its growth strategy, the
Company has expanded its sales force from four to six people and has hired a
Vice President of Development to lead these efforts. In addition, the
Company's sales effort is focused on identifying potential corporate clients,
targeting real estate developers and identifying potential acquisitions. As a
result of the Company's national visibility as a high-quality child care
provider, potential sponsors regularly contact Bright Horizons requesting
proposals. The Company competes for most employer sponsorship opportunities
via a request for proposal process.
At the center level, directors are responsible for marketing to parents. The
Company seeks to develop a local reputation by promoting its high quality
faculty, facilities, programs, and interactive, hands-on curricula. The
Company's pre-opening and ongoing local marketing efforts include open houses,
local direct mail, parent referrals and community outreach. Many centers have
parent advisory organizations, which assist in marketing and also act as a
sounding board for developments in the education program. Center directors
typically receive assistance from corporate sponsors, who often advertise the
center in internal publications, provide mailing lists, answer questions and
facilitate interaction between the Company and parents. The Company also has
an established corporate marketing department that acts as a central resource
for center-level marketing programs, including the preparation of promotional
materials.
31
Bright Horizons has found that the parents it serves generally are well
compensated, highly educated and willing to bear the cost of high-quality early
childhood education. The Company's 1995 and 1996 parent surveys found that 73%
of the mothers who use Bright Horizons' services hold bachelor degrees and 86%
work more than 31 hours per week. The same surveys indicate that approximately
70% of the parents who use Bright Horizons child development centers are
engaged in professional or managerial occupations and average annual household
income exceeds $90,000. The Company is also able to serve a broad range of
parents due to corporate sponsor support, which reduces tuition costs and
sometimes takes the form of partial tuition subsidies to lower-income families.
COMPETITION
The market for early education services is highly fragmented and competitive.
The Company experiences competition for enrollment and for corporate
sponsorship.
The Company believes that the key factors in the competition for enrollment
are quality of service, locational convenience and cost. Bright Horizons
competes for enrollment with nannies, relatives, family child care and center-
based child care providers. Corporate sponsor support enables Bright Horizons
to limit its start-up and operating costs and concentrate its investment in
those areas that directly translate into high-quality early education,
specifically faculty compensation, teacher-child ratios, curricula, continuing
faculty education, facilities and equipment. The Company believes that many
center-based child care providers are able to offer care at a lower price than
the Company by utilizing lower faculty-child ratios, and offering their staff
lower pay and limited or unaffordable benefits. While the Company's tuition
levels are generally above those of its competitors, the Company believes it is
able to compete effectively, particularly for well-educated parents, by
offering the convenience of a work-site location and a higher quality of care.
See "Risk Factors--Competition."
The Company believes its ability to compete successfully for corporate
sponsorship depends on a number of factors, including reputation, quality of
service, cost, the ability to customize sponsorship arrangements and national
scale. Many residential center-based child care chains either have divisions
that compete for corporate sponsorship opportunities or are larger and have
substantially greater financial or other resources that could permit them to
compete successfully against the Company in the work-site segment. Other child
care organizations focus exclusively on the work-site segment of the child care
market. The Company believes there are less than 10 companies that currently
operate work-site child care centers on a national basis. CorporateFamily
Solutions is the Company's primary competitor, although it also competes
against other large child care chains with divisions that focus on work-site
child care, such as Kindercare and Children's Discovery Centers. The Company
believes it is well-positioned to attract corporate sponsors who wish to
outsource the management of new or existing work-site early education centers
due to the Company's national scale, established reputation, position as a
quality leader and track record of serving major corporate sponsors. In
addition, an increasing number of potential corporate sponsors are requiring
adherence to NAEYC criteria. The Company believes that its commitment to NAEYC
accreditation is an advantage in the competition for corporate sponsorship
opportunities. See "Risk Factors--Competition."
32
PROPERTIES
The following table summarizes the locations of the Company's centers by
state as of September 12, 1997:
LOCATION NUMBER
- -------- ------
California..................... 20
Connecticut.................... 12
Delaware....................... 2
District of Columbia........... 4
Florida........................ 3
Georgia........................ 1
Illinois....................... 18
Iowa........................... 5
Maine.......................... 1
Maryland....................... 3
Massachusetts.................. 24
Missouri....................... 2
New Hampshire.................. 1
LOCATION NUMBER
- -------- ------
New Jersey.............. 4
New Mexico.............. 1
New York................ 8
North Carolina.......... 16
Ohio.................... 2
Pennsylvania............ 1
Rhode Island............ 2
South Carolina.......... 1
Tennessee............... 1
Texas................... 2
Utah.................... 1
Washington.............. 4
Wisconsin............... 2
As of September 12, 1997, the Company operated 141 centers in 25 states and
the District of Columbia, of which, five were owned and the remaining were
operated under leases or operating agreements. The Company's owned centers in
Tampa, Florida; Glastonbury, Connecticut; Quincy, Massachusetts and Orange,
Connecticut are subject to mortgages of $400,000, $700,000, $528,000 and
$480,000, respectively. The Company's center in Raleigh, North Carolina is not
subject to a mortgage. The leases have terms ranging from five to 20 years,
often with renewal options, with most leases having an initial term of five to
10 years. Some of the leases provide for contingent payments if the center's
operating revenues, profits or enrollment exceed a specified level.
Although the Company's corporate sponsorship arrangements vary widely, they
generally are classified as either a corporate-sponsored model or management
contract model. See "Business--Sponsorship Models." Approximately 80% of the
Company's child care centers are operated under the corporate-sponsored model
and have leases and/or operating arrangements with terms expiring as follows:
FISCAL YEAR NUMBER EXPIRING
----------- ---------------
1998........................................ 16
1999........................................ 16
2000 and later.............................. 82
The remaining 20% of the Company's child development centers are operated
under the management contract model. These arrangements are generally of short
duration and, in some instances, are subject to termination by the corporate
sponsor without cause.
The Company also leases approximately 7,700 square feet for its home office
in Cambridge, Massachusetts under an operating lease that expires August 31,
1999, and a total of approximately 4,700 square feet for its two administrative
offices in El Segundo, CA and Downers Grove, Illinois under operating leases
that expire December 2001 and October 1997, respectively.
EMPLOYEES
As of August 31, 1997, the Company employed approximately 4,200 employees
(including part-time and substitute teachers), of whom 79 were employed at
Bright Horizons home and regional offices, 22
33
were employed as district or regional managers and the remainder were employed
at the Company's child development centers. Center employees include faculty
and administrative personnel. The Company does not have an agreement with any
labor union and believes that its relations with its employees are good. All
of the Company's personnel are paid above the Federal minimum wage.
REGULATION
Child care centers are subject to numerous federal, state and local
regulations and licensing requirements. Although these regulations vary from
jurisdiction to jurisdiction, government agencies generally review, among
other things, the adequacy of buildings and equipment, licensed capacity, the
ratio of teacher to children, faculty training, record keeping, the dietary
program, the daily curriculum and compliance with health and safety standards.
In most jurisdictions, these agencies conduct scheduled and unscheduled
inspections of centers, and licenses must be renewed periodically. In some
jurisdictions, regulations have been enacted which establish requirements for
employee background checks or other clearance procedures for employees of
child development centers. Center directors and district managers are
responsible for monitoring each center's compliance with such regulations.
Repeated failures by a center to comply with applicable regulations can
subject it to sanctions, which can include fines, corrective orders, being
placed on probation or, in more serious cases, suspension or revocation of the
center's license to operate. The Company also is required to comply with the
Americans with Disabilities Act ("ADA"), which prohibits discrimination on the
basis of disability in public accommodations and employment. Costs incurred to
date by the Company to comply with ADA have not been significant. The Company
believes it is in substantial compliance with all material regulations
applicable to its business. See "Risk Factors--Regulation."
There are currently certain tax incentives for parents utilizing child care
programs. Section 21 of the Internal Revenue Code provides a federal income
tax credit ranging from 20% to 30% of certain child care expenses for
"qualifying individuals" (as defined therein). The fees paid to the Company
for child care services by eligible taxpayers qualify for the tax credit,
subject to the limitations of Section 21. The amount of the qualifying child
care expenses is limited to $2,400 for one child and $4,800 for two or more
children and, therefore, the maximum credit ranges from $480 to $720 for one
child and from $960 to $1,440 for two or more children.
INSURANCE
The Company currently maintains the following types of insurance policies:
workers' compensation, commercial general liability, automobile liability,
commercial property liability, professional liability and excess "umbrella"
liability. The policies provide for a variety of coverages, are subject to
various limitations and exclusions, and deductibles. The commercial general
liability policy provides for annual coverage of $2.0 million per location and
$1.0 million per occurrence, although the policy specifically limits coverage
for child sexual abuse to an annual aggregate limit of $1.0 million per site
and per person. The Company's excess "umbrella" coverage, relating to general
liabilities other than those related to child sexual abuse claims, includes
coverage in the amount of $20.0 million per year. Management believes that the
Company's current insurance coverages are adequate to meet its needs. See
"Risk Factors--Litigation."
The Company has not experienced difficulty in obtaining insurance coverage,
but there can be no assurances that adequate insurance coverage will be
available in the future, or that the Company's current coverage will protect
it against all possible claims. See "Risk Factors--Adverse Publicity" and
"Risk Factors--Insurance."
THE HORIZONS INITIATIVE
To complement its mission to improve the care and development of young
children, in 1988, the Company founded The Horizons Initiative, a non-profit
organization that develops and implements
34
programs to enrich the lives of homeless children in the Boston area. In 1994,
The Horizons Initiative opened the Community Children's Center, the first
child development center in Boston specifically for homeless children. The
Horizons Initiative is an independent entity, and while the Company provided
some start-up resources, such as office space and administrative support, The
Horizons Initiative is now entirely supported by charitable gifts and public
funding.
LEGAL PROCEEDINGS
The Company has been and is from time to time subject to claims and suits
incidental to the conduct of its business. There can be no assurance that the
Company's insurance will be adequate to cover all liabilities that may arise
out of such claims. Although the Company intends to defend itself vigorously
against all such claims, the ultimate outcome of the claims cannot be
accurately predicted. A complaint is pending in the Massachusetts Superior
Court for Middlesex County against Bright Horizons and one of its employees
seeking monetary damages for harms related to alleged sexual abuse by the
employee. This case, insofar as it pertains to claims against Bright Horizons,
has been referred to, and is currently being defended by, Bright Horizons'
insurance company. The Company does not believe that this or any other claim
of which it is currently aware will have a material adverse effect to its
business, financial condition or results of operation. See "Risk Factors--
Litigation" and "Risk Factors--Adverse Publicity."
35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Roger H. Brown................. 41 Chairman of the Board of Directors and Chief
Executive Officer
Linda A. Mason................. 43 President and Director
Elizabeth J. Boland............ 38 Chief Financial Officer and Treasurer
Stephen I. Dreier.............. 54 Chief Administrative Officer and Secretary
Mary Ann Tocio................. 49 Chief Operating Officer
David H. Lissy................. 32 Vice President of Development
Joshua Bekenstein(1)........... 39 Director
Robert S. Benson............... 55 Director
John M. Reynolds(2)............ 48 Director
Sara Lawrence-Lightfoot........ 53 Director
Ernest C. Parizeau(1)(2)....... 40 Director
Rebecca Haag................... 45 Director
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Mr. Brown co-founded the Company and has served as Chairman and Chief
Executive Officer of the Company since its inception in 1986. Prior to 1986,
he worked as a management consultant for Bain & Company, Inc. Mr. Brown
currently serves as a director on the Governing Board of the National
Association for the Education of Young Children, the Child Care Action
Campaign, a not-for-profit organization which promotes quality child care, The
Horizons Initiative, an organization that provides support for homeless
children and their families, and Advantage Schools, Inc. a charter school
management company. Mr. Brown is a graduate of the Yale School of Management
and Davidson College. Mr. Brown is the husband of Linda A. Mason.
Ms. Mason co-founded the Company and has served as a director and President
of the Company since its inception in 1986. From its inception until September
1994, Ms. Mason also acted as the Company's Treasurer. Prior to joining the
Company, Ms. Mason was co-director of the Save the Children relief and
development effort in Sudan and worked as a program officer with CARE in
Thailand. Prior to 1986, Ms. Mason worked as a management consultant with
Booz, Allen and Hamilton. Ms. Mason also is a director of The Horizons
Initiative and Whole Foods Market, Inc., which owns and operates retail food
stores, and serves on the Advisory Board for the Yale School of Management.
Ms. Mason is a graduate of the Yale School of Management and Cornell
University. Ms. Mason is the wife of Roger H. Brown.
Ms. Boland joined the Company as Chief Financial Officer and Treasurer in
September 1997. From 1994 to 1997, Ms. Boland was Chief Financial Officer of
The Visionaries, Inc., an independent television production company. From 1990
to 1994, Ms. Boland served as Vice President--Finance for The Olsten
Corporation, a publicly-traded provider of home-health care and temporary
staffing services. From 1981 to 1990, she worked on the audit staff at Price
Waterhouse LLP in Boston, completing her tenure as a senior audit manager. Ms.
Boland is a graduate of the University of Notre Dame.
Mr. Dreier joined the Company as Vice President and Chief Financial Officer
in 1988 and became its Secretary in November 1988 and Treasurer in September
1994. Mr. Dreier served as Chief Financial Officer and Treasurer until
September, 1997, at which time he was appointed to the position of Chief
Administrative Officer. From 1976 to 1988, Mr. Dreier was Senior Vice
President of Finance and Administration for the John S. Cheever/Paperama
Company. Prior to that time, Mr. Dreier served as
36
Manager of Financial Control for the Westinghouse Worldwide Construction
Product Group. Mr. Dreier is a graduate of the Massachusetts Institute of
Technology Sloan School of Management.
Ms. Tocio joined the Company in 1992 as Vice President and General Manager of
Child Care Operations. She was appointed Chief Operating Officer in November,
1993. From 1983 to 1992, Ms. Tocio held several positions with Wellesley
Medical Management, Inc., including Senior Vice President of Operations, where
she managed more than 100 ambulatory care centers nationwide. Prior to that
time, Ms. Tocio held various management positions with several Boston-area
hospitals. Ms. Tocio is a graduate of the Simmons College Graduate School of
Management.
Mr. Lissy joined the Company as Vice President of Development in September
1997. Prior to joining the Company, Mr. Lissy served as Senior Vice
President/General Manager at Aetna/U.S. Healthcare, the employee benefits
division of Aetna, Inc., in the Northern New England region. Prior to that
role, Mr. Lissy was Vice President of Sales and Marketing for U.S. Healthcare
and had been with U.S. Healthcare in various sales and management roles since
1987. Mr. Lissy is a graduate of Ithaca College.
Mr. Bekenstein has been a director of the Company since 1986. Since 1993, Mr.
Bekenstein has been a Managing Director of Bain Capital, Inc. and has been a
general partner of Bain Venture Capital since its inception in 1987. Mr.
Bekenstein also serves as a director of Waters Corporation, a manufacturer and
distributor of high performance liquid chromatography instruments, Stage Tours,
Inc., a family apparel retailer, Small Fry Snack Foods, a snack food
manufacturer, and The Horizons Initiative.
Mr. Benson has been a director of the Company since 1990. Since April 1996,
Mr. Benson has been President of Professional Assist Corporation, a privately-
held membership association company. From 1987 to 1994, Mr. Benson served as
president of VICORP Restaurants, Inc., an owner and operator of restaurants.
From 1975 to 1987, Mr. Benson was President of Children's World, Inc., the
third largest child care provider in the United States. Mr. Benson also has
been a general partner of Boettcher Venture Capital Partners since 1985.
Mr. Reynolds has been a director of the Company since its founding in 1987.
Since 1995, Mr. Reynolds has been a consultant with Cambridge Associates, Inc.,
a firm providing investment and financial consulting services. From 1986
through 1995, Mr. Reynolds served in several executive positions with North
American Management Corp., a private multi-family investment management group.
Dr. Lawrence-Lightfoot has been a director of the Company since 1993. Since
1972, Dr. Lawrence-Lightfoot has been a professor of education at Harvard
University. In addition to serving as a director of the Company, Dr. Lawrence-
Lightfoot is also a director of the Boston Globe Company. Dr. Lawrence-
Lightfoot has received honorary degrees from 16 universities and colleges
including Bank Street College and Wheelock College, two of the nation's
foremost schools of early childhood education.
Mr. Parizeau has been a director of the Company since October 1990. He joined
Norwest Venture Capital Management Inc., a venture capital firm, in 1984, and
is currently the partner responsible for its east coast office. Mr. Parizeau is
also a partner of Itasca Partners, the General Partner of Norwest Equity
Partners IV L.P. In addition to serving as a director of the Company, Mr.
Parizeau is also a director of Raptor Systems, Inc., a developer of Internet
security software, and Workgroup Technology, a developer of product data
management software and several private companies.
Ms. Haag has been a director of the Company since October, 1996. Ms. Haag has
been Senior Vice President for Human Resources at Hill Holiday since October
1996. From 1988 to 1996, Ms. Haag served as a consultant and Senior Vice
President at WFD, Inc., formerly Work/Family Directions, a work/life consulting
and service delivery company.
37
DIRECTORS; COMMITTEES
The Company's By-Laws provide for a Board of Directors of one or more
directors, and the number of directors is currently fixed at nine. Under the
terms of the Company's Amended and Restated Certificate of Incorporation to be
effective upon the closing of the offering, the Board of Directors is composed
of three classes of similar size, each elected in a different year, so that
only approximately one-third of the Board of Directors is elected in any single
year. John M. Reynolds and Ernest C. Parizeau are designated Class I directors
and have been elected for a term expiring in 1998 and until their successors
are elected and qualified; Joshua Bekenstein, Rebecca Haag and Linda Mason are
designated Class II directors and have been elected for a term expiring in 1999
and until their successors are elected and qualified; and Roger H. Brown,
Robert S. Benson and Dr. Sara Lawrence-Lightfoot are designated Class III
directors and have been elected for a term expiring in 2000 and until their
successors are elected and qualified. Executive officers of the Company are
elected by the Board of Directors and serve at the discretion of the Board.
The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee, consisting of Joshua Bekenstein and Ernest C.
Parizeau, has the authority to approve salaries and bonuses and other
compensation matters for officers of the Company, to approve employee health
and benefit plans and to administer the Company's stock plans. The Audit
Committee, consisting of John M. Reynolds and Ernest C. Parizeau, has the
authority to recommend the appointment of the Company's independent auditors
and review the results and scope of audits, internal accounting controls and
tax and other accounting related matters. The Company does not have a
Nominating Committee.
DIRECTOR COMPENSATION
Dr. Sara Lawrence-Lightfoot and Rebecca Haag are paid $1,000 each for each
Board of Directors meeting attended. None of the other members of the Board of
Directors of the Company receives any compensation.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table shows all compensation paid
by the Company for services rendered during fiscal 1997 to the Chief Executive
Officer and the highest paid executive officers who received more than $100,000
in salary and bonus during fiscal 1997 (the "Named Executive Officers").
LONG-TERM
ANNUAL COMPENSATION COMPENSATION (1)
------------------- ----------------
SHARES OF COMMON
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(2) OPTIONS (#) COMPENSATION(3)
- --------------------------- -------------------- ---------------- ---------------
Roger H. Brown........... $ 163,077 $65,200 160,000 $2,008
Chairman and Chief
Executive Officer
Linda A. Mason(4)........ $ 83,065$ 12,900 83,333 $1,395
President
Stephen I. Dreier(5)..... $ 139,077$ 30,000 33,333 $2,613
Chief Administrative
Officer and Secretary
Mary Ann Tocio........... $ 137,923$ 35,000 66,667 $8,924
Chief Operating Officer
- --------
(1) The Company did not make restricted stock awards, grant any stock
appreciation rights or make long-term incentive payments to the Named
Executive Officers during fiscal 1997.
(2) Bonuses indicated were paid in fiscal 1997 and were based upon the
officer's performance in fiscal 1996.
(3) Consists of contributions made by the Company on behalf of the Named
Executive Officers for car allowances and for the Company's 401(k) Plan.
(4) Ms. Mason was on maternity leave and worked part-time during fiscal 1997.
(5) Mr. Dreier served as Chief Financial Officer during fiscal 1997 and is
currently serving as Chief Administrative Officer.
38
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information for the Named Executive Officers
with respect to grants of stock options during the fiscal year ended June 30,
1997. None of the Named Executive Officers exercised any options during the
fiscal year 1997.
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES
SHARES OF % OF OF STOCK PRICE
COMMON STOCK TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM($)(3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------
NAME GRANTED(#)(1) FISCAL YEAR(2) PRICE DATE 5% 10%
- ---- ------------- -------------- -------- ---------- ------- ---------
Roger H. Brown.......... 160,000 38.9% $9.00 01/07/07 514,700 1,672,500
Linda A. Mason.......... 83,333 20.2% $9.00 01/07/07 268,100 871,100
Stephen I. Dreier....... 33,333 8.1% $9.00 01/07/07 107,200 348,400
Mary Ann Tocio.......... 66,667 16.2% $9.00 01/07/07 214,400 696,900
- --------
(1) Each of these option grants vests forty percent (40%) in January 1999 and
an additional twenty percent (20%) each year thereafter. All options were
granted at above fair market value on the date of grant as determined by
the Board of Directors of the Company.
(2) Based on options to purchase an aggregate of 411,680 shares of Common Stock
granted to all employees of the Company during fiscal 1997.
(3) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (5% and 10%) on
the market value of the Common Stock on the date of option grant over the
term of the options. These numbers are calculated based on rules
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth. Actual gains, if any,
on stock option exercises and Common Stock holdings are dependent on the
timing of such exercise and the future performance of the Common Stock.
There can be no assurance that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by the
individuals.
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers as of
June 30, 1997.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END(1)
------------------------------ ------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (NUMBER) (NUMBER) ($) ($)
- ---- ------------ -------------- ---------------- -----------------
Roger H. Brown.......... 92,000 173,333 184,000 346,666
Linda A. Mason.......... 70,000 88,333 140,000 176,667
Stephen I. Dreier....... 41,067 41,267 82,134 82,533
Mary Ann Tocio.......... 38,667 77,000 77,334 154,000
- --------
(1) There was no public trading market for the Common Stock as of June 30,
1997. Accordingly, these values have been calculated on the basis of an
assumed initial public offering price of $11.00 per share, less the
applicable exercise price.
STOCK PLANS
The Company has historically granted options for the purchase of Common Stock
pursuant to the 1987 Stock Option and Incentive Plan and the 1996 Equity
Incentive Plan. All options that were originally issued under those plans were
assumed by Bright Horizons, Inc. in connection with its formation as a holding
company. No further options may be granted under the 1987 Stock Option and
Incentive Plan or the 1996 Equity Incentive Plan.
1997 Equity Incentive Plan. The Company's 1997 Equity Incentive Plan (the
"Plan") was adopted by the Board of Directors on May 22, 1997 and by the
Company's stockholders on July 1, 1997. The
39
Plan is subject to administration by the Board of Directors, unless the Board
delegates such authority to a committee of the Board of Directors. The Plan
provides for the grant of a variety of stock and stock-based awards and related
benefits, including stock options, restricted and unrestricted shares, deferred
stock, performance awards, rights to receive cash or shares with respect to an
increase in the value of the Common Stock, cash payments sufficient to offset
the federal, state, and local ordinary income taxes of participants resulting
from the transactions under the Plan and loans to participants in connection
with awards. The Plan's eligibility criteria are intended to encompass those
employees of the Company and its subsidiaries as well as other persons or
entities, including directors, who are in a position to make a significant
contribution to the success of the Company or its subsidiaries.
The Plan permits the granting of options that qualify as incentive stock
options and nonqualified options. The option exercise price of each option
shall be determined by the Board of Directors, but in the case of incentive
stock options shall not be less than 100% of the fair market value of the
shares on the date of grant (110% in the case of incentive stock options
granted to an individual with stockholdings in excess of certain limits).
In general, and except as otherwise determined by the Board of Directors, all
rights under awards granted pursuant to the Plan to which the participant has
not become irrevocably entitled will terminate upon termination of the
participant's employment, consulting or service relationship with the Company.
No award granted under the Plan (other than an award in the form of an outright
transfer of cash or unrestricted stock) may be transferred other than by will
or by the laws of descent and distribution and during a participant's lifetime
an award requiring exercise may be exercised only by the participant (or in the
event of the participant's incapacity, the person or persons legally appointed
to act on the participant's behalf).
Subject to adjustment for stock splits and similar events, the total number
of shares of Common Stock that can be issued under the Plan is 666,667 shares.
As of August 31, 1997, options to purchase an aggregate of 877,772 shares of
Common Stock at a weighted average exercise price of $5.09 were outstanding
under the stock option plans.
COMPENSATION COMMITTEE--INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Joshua
Bekenstein and Ernest C. Parizeau, neither of whom have served as officers of
the Company.
40
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1997 and as
adjusted to reflect the sale of the shares offered hereby by (i) each person
who is known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director and Named Executive Officer of the
Company, (iii) all directors and executive officers of the Company as a group,
and (iv) each Selling Stockholder. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock, except to the
extent authority is shared by spouses under applicable law.
NUMBER OF
SHARES
SHARES BENEFICIALLY SHARES BENEFICIALLY OFFERED IN
OWNED PRIOR OWNED AFTER THE OVER-
NAMES TO OFFERING(1)(2)(3) NUMBER OF OFFERING(1)(2)(3)
----- ----------------------- SHARES ---------------------- ALLOTMENT
DIRECTORS AND EXECUTIVE OFFICERS NUMBER PERCENT OFFERED NUMBER PERCENT OPTION(4)
- -------------------------------- ------------ ---------- --------- --------- ---------- ----------
Joshua Bekenstein+...... 5,252 **
Ernest C. Parizeau(5)+.. 710,464 17.52%
Roger H. Brown(6)+*..... 439,584 10.58%
Linda A. Mason(7)+*..... 410,918 9.96%
John M. Reynolds(8)+.... 245,358 6.04%
Elizabeth J. Boland*.... -- --
David H. Lissy*......... -- --
Stephen I. Dreier(9)*... 42,533 1.04%
Mary Ann Tocio(10)*..... 41,333 1.01%
Robert S. Benson(11)+... 15,000 **
Dr. Sara Lawrence-
Lightfoot(12)+.......... 8,333 **
Rebecca Haag+........... -- --
All Directors and
Executive Officers as a
Group
(12 persons)(13)....... 1,577,858 36.47%
5% STOCKHOLDERS
- ---------------
Bessemer Venture
Partners................ 750,187 18.50%
1025 Old Country Road,
Suite 205
Westbury, NY 11590
Norwest Equity Partners
IV...................... 710,464 17.52%
40 William Street, Suite
305
Wellesley, MA 02181
William Blair Venture
Partners................ 432,748 10.67%
222 West Adams Street
Chicago, IL 60606
Boston Capital Ventures. 253,737 6.26%
45 School Street
Boston, MA 02108
OTHER SELLING STOCKHOLDERS
- ---------------------------
- --------
+ Director of the Company
* Named Executive Officer
** Less than one percent
(1) Unless otherwise indicated in these footnotes, each of the persons or
entities named in the table has sole voting and sole investment power with
respect to all shares shown as beneficially owned by that person, subject
to applicable community property laws.
(2) For purposes of determining beneficial ownership of the Company's Common
Stock, owners of options exercisable within 60 days are considered to be
the beneficial owners of the shares of Common Stock for which such
securities are exercisable.
(3) The percentage ownership of the outstanding Common Stock reported herein is
based on the assumption (expressly required by the applicable rules of the
Securities and Exchange Commission) that only the person whose ownership is
being reported has converted his options into shares of Common Stock.
41
(4) Assumes that the Underwriter's over-allotment option is exercised in full.
(5) Includes 710,464 shares of Common Stock owned by certain of the funds of
Norwest Venture Capital Management, Inc., with which the named stockholder
is affiliated by virtue of being a general partner or principal, or a
general partner or a principal of the general partner, of each of the
funds, and as to whose shares he disclaims beneficial interest of, except
to the extent of any individual interest in such entities.
(6) Includes 98,667 shares of Common Stock subject to purchase upon exercise
of stock options exercisable within 60 days after September 30, 1997,
166,667 shares of Common Stock owned by Linda A. Mason and 7,584 shares
held in joint tenancy with Linda A. Mason.
(7) Includes 70,000 shares of Common Stock subject to purchase upon exercise
of stock options exercisable within 60 days after September 30, 1997,
166,667 shares of Common Stock owned by Roger H. Brown and 7,584 shares
held in joint tenancy with Roger H. Brown.
(8) Includes 59,031 shares of Common Stock held in the Reynolds Revocable
Trust of July 1, 1983, 50,000 shares of Common Stock held by Bright
Horizons Associates, 18,963 shares of Common Stock held by Family Ventures
III, 59,031 shares of Common Stock held by Family Ventures IV and 8,333
shares of Common Stock subject to purchase upon exercise of stock options
exercisable within 60 days after September 30, 1997.
(9) Includes 42,533 shares of Common Stock subject to purchase upon exercise
of stock options exercisable within 60 days after September 30, 1997.
(10) Includes 41,333 shares of Common Stock subject to purchase upon exercise
of stock options exercisable within 60 days after September 30, 1997.
(11) Includes 1,667 shares of Common Stock subject to purchase upon exercise
of stock options exercisable within 60 days after September 30, 1997.
(12) Includes 8,333 shares of Common Stock subject to purchase upon exercise
of stock options exercisable within 60 days after September 30, 1997.
(13) Includes 252,733 shares of Common Stock subject to purchase upon exercise
of stock options exercisable within 60 days after September 30, 1997.
42
CERTAIN TRANSACTIONS
CERTAIN STOCK TRANSACTIONS
In March 1987, Bright Horizons Children's Centers, Inc., a wholly owned
subsidiary of the Company ("BHCC"), issued 600,000 shares of its Series A
Mandatorily Redeemable Convertible Preferred Stock (the "Series A Preferred
Stock") to certain directors and other investors at a per share purchase price
of $3.33. Prior to the closing of the offering herein, each holder of the
Series A Preferred Stock converted each share of such Series A Preferred Stock
into 1.67 shares of Common Stock of the Company.
In October 1988, BHCC also sold to certain directors and 5% stockholders or
their affiliated entities an aggregate of 600,000 shares of Series B
Mandatorily Redeemable Convertible Preferred Stock (the "Series B Preferred
Stock") at a per share purchase price of $6.67. Prior to the closing of the
offering herein, each holder of the Series B Preferred Stock converted each
share of such Series B Preferred Stock into 1.67 shares of Common Stock of the
Company.
In July 1990, BHCC issued to certain of its directors, executive officers
and existing stockholders or their affiliated entities subordinated term notes
(the "Bridge Notes") in an aggregate amount of $1,119,999.99 and warrants (the
"Bridge Warrants") to purchase 140,000 shares of its Common Stock at an
exercise price of $0.60 per share.
In October and November of 1990, BHCC issued to certain directors, executive
officers and 5% stockholders or their affiliated entities an aggregate of
660,330 shares of Series C Mandatorily Redeemable Convertible Preferred Stock
(the "Series C Preferred Stock," collectively with the Series A Preferred
Stock and Series B Preferred Stock, the "Convertible Preferred Stock") and
warrants to purchase 171,748 shares of Common Stock (the "Series C Warrants"
and, together with the Bridge Warrants, the "Warrants"), of which 6,667 of
such Series C Warrants have been repurchased by the Company. The Series C
Preferred Stock was sold at a price of $7.50 per share and the Series C
Warrants were issued with an exercise price of $0.60 per share. In lieu of
paying cash upon the exercise of the Warrants, the holders of Warrants have
the right to have the Company convert, without the payment of cash, all or a
portion of the Warrants into shares of Common Stock. The Bridge Notes were
canceled in connection with the issuance of the Series C Preferred Stock. The
Warrants expire upon the earlier to occur of October 12, 1999 or the closing
of a "Qualified Public Offering" (as defined therein). Accordingly, prior to
the closing of the offering, the holders of the Warrants elected to exercise
their right to convert such Warrants on a cashless basis into a number of
shares of Common Stock which is expected to be 288,428 (based on an assumed
initial public offering price of $11.00 per share). In addition, prior to the
closing of the offering herein, each holder of the Series C Preferred Stock
converted each share of the Series C Preferred Stock into 1.67 shares of
Common Stock.
On May 22, 1997, the Board of Directors extended the exercise period for the
Warrants to October 12, 1999. On July 1, in connection with the formation of
the Company as a holding company, each outstanding share of the capital stock
of BHCC was exchanged for an identical share of the capital stock of Bright
Horizons. In addition, in connection with its formation as a holding company,
the Company extended the redemption date for the Series C Preferred Stock from
October 1, 1997 to October 1, 1999 and the redemption date for the Series A
and Series B Preferred Stock from November 1, 1997 to November 1, 1999.
The holders of the Common Stock issued upon conversion of the Convertible
Preferred Stock or exercise of the Warrants (the "Registrable Shares") are
entitled to require the Company to register under the Securities Act of 1933
(the "Act") up to a total of 3,388,978 shares, of which are being
registered in this offering. See "Shares Eligible for Future Sale--
Registration Rights."
43
DESCRIPTION OF CAPITAL STOCK
GENERAL
Effective upon the closing of the offering, the authorized capital stock of
the Company will consist of 12,000,000 shares of Common Stock, par value $.01
per share, and 3,000,000 shares of Preferred Stock, par value $.01 per share
(the "Preferred Stock"). As of June 30, 1997, on a pro forma basis giving
effect to the conversion of the Convertible Preferred Stock into 3,100,550
shares of Common Stock and the exercise of outstanding warrants on a cashless
basis into 288,428 shares of Common Stock, there were 3,945,710 shares of
Common Stock outstanding, held of record by 163 stockholders. Based on the
number of shares outstanding as of that date and giving effect to the issuance
of 1,350,000 shares of Common Stock offered by the Company hereby, there will
be 5,295,710 shares of Common Stock outstanding upon the closing of this
offering. There will be no shares of Preferred Stock outstanding upon the
closing of this offering.
Each holder of Common Stock is entitled to one vote per share for the
election of directors and for all other matters to be voted on by the
Company's stockholders. Subject to preferences that may be applicable to any
outstanding series of Preferred Stock, the holders of Common Stock are
entitled to share ratably in such dividends, if any, as may be declared from
time to time by the Board of Directors from funds legally available therefore.
See "Dividend Policy." Upon liquidation or dissolution of the Company, subject
to preferences that may be applicable to any outstanding series of Preferred
Stock, the holders of Common Stock are entitled to share ratably in all assets
available for distribution to stockholders. There are no preemptive or other
subscription rights, conversion rights, or redemption or sinking fund
provisions with respect to shares of Common Stock. All of the outstanding
shares of Common Stock are fully paid and nonassessable.
The Company's Amended and Restated Certificate of Incorporation provides
that the Company may, by vote of its Board of Directors, designate the
numbers, relative rights, preferences and limitations of one or more series of
Preferred Stock and issue the securities so designated. Such provisions may
discourage or preclude certain transactions, whether or not beneficial to
stockholders, and could discourage certain types of tactics that involve an
actual or threatened acquisition or change of control of the Company. The
Company has no current intention to issue any of its unissued, authorized
shares of Preferred Stock. However, the issuance of any shares of Preferred
Stock in the future could adversely affect the rights of the holders of Common
Stock. The Amended and Restated Certificate of Incorporation provides that no
director of the Company shall be liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty, except to the extent
otherwise required by Delaware General Corporation Law. This provision does
not prevent stockholders from obtaining injunctive or other relief against the
directors nor does it shield directors from liability under federal or state
securities laws.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Amended and Restated Certificate of Incorporation and Amended and
Restated By-laws provide for the division of the Board of Directors into three
classes as nearly equal in size as possible with staggered three-year terms.
See "Management." In addition, the Amended and Restated Certificate of
Incorporation and Amended and Restated By-laws provide that directors may be
removed only for cause
44
by the affirmative vote of the holders of two-thirds of the shares of capital
stock of the Company entitled to vote. Under the Amended and Restated
Certificate of Incorporation and the Amended and Restated By-laws, any vacancy
on the Board of Directors, however occurring, including a vacancy resulting
from an enlargement of the Board, may only be filled by vote of a majority of
the directors then in office. The classification of the Board of Directors and
the limitations on the removal of directors and filling of vacancies could
have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from acquiring, control of the Company.
The Amended and Restated Certificate of Incorporation and Amended and
Restated By-laws also provide that any action required or permitted to be
taken by the stockholders of the Company at an annual meeting or special
meeting of stockholders may only be taken if it is properly brought before
such meeting and may not be taken by written action in lieu of a meeting. The
Amended and Restated Certificate of Incorporation and the Amended and Restated
By-laws further provide that special meetings of the stockholders may only be
called by the Chairman of the Board of Directors, the Chief Executive Officer
or, if none, the President of the Company or by the Board of Directors. Under
the Company's Amended and Restated By-laws, in order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
certain requirements regarding advance notice to the Company. The foregoing
provisions could have the effect of delaying until the next stockholders'
meeting stockholder actions which are favored by the holders of a majority of
the outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the Common
Stock, because such person or entity, even if it acquired a majority of the
outstanding voting securities of the Company, would be able to take action as
a stockholder (such as electing new directors or approving a merger) only at a
duly called stockholders' meeting, and not by written consent.
The Company's Amended and Restated Certificate of Incorporation contains
certain provisions permitted under the General Corporation Law of Delaware
relating to the liability of directors. The provisions eliminate a director's
liability to the Company or its stockholders for monetary damages for a breach
of fiduciary duty, except in circumstances involving certain wrongful acts,
such as the breach of a director's duty of loyalty or acts or omissions which
involve intentional misconduct or a knowing violation of law. The Amended and
Restated Certificate of Incorporation also contains provisions obligating the
Company to indemnify its directors to the fullest extent permitted by the
General Corporation Law of Delaware. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
45
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering based on the number of shares outstanding as
of August 31, 1997, the Company will have 5,405,134, outstanding shares of
Common Stock. Of these shares, the 2,700,000 shares sold in the offering will
be freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by an "affiliate" of the
Company as that term is defined in Rule 144 under the Securities Act (an
"Affiliate"). Any shares purchased in the offering by an Affiliate of the
Company may not be resold except pursuant to an effective registration
statement filed by the Company or an applicable exemption from registration,
including an exemption under Rule 144.
SALES OF RESTRICTED SHARES
The remaining shares of Common Stock are deemed "restricted securities"
under Rule 144. Of these restricted securities, up to shares may be
eligible for sale in the public market
immediately after the offering pursuant to Rule 144(k) under the Securities
Act; of these shares are subject to the lock-up agreements described
below (the "Lock-up Agreements"). Beginning 90 days after the Effective Date,
approximately additional Restricted Shares may first become eligible for
sale in the public market pursuant to Rules 144 and 701 promulgated under the
Securities Act, of which Restricted Shares are subject to the Lock-up
Agreements. Of the Restricted Shares that may become eligible for sale in the
public market 180 days after the Effective Date upon expiration of the Lock-up
Agreements, approximately shares will be subject to certain volume and
other resale restrictions pursuant to Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated for purposes of such rule), including an
Affiliate, who has beneficially owned restricted securities (as that term is
defined in Rule 144) for a period of at least one year from the later of the
date such restricted securities were acquired from the Company or the date
they were acquired from an Affiliate, is entitled to sell, within any three-
month period, a number of such securities that does not exceed the greater of
1% of the then outstanding shares of the Company's Common Stock (approximately
shares immediately after the offering) or the average weekly trading
volume in the Company's Common Stock on the Nasdaq National Market or reported
through the automated quotation system of a registered securities association
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain restrictions on the manner of sale, notice
requirements, and the availability of current public information about the
Company. Affiliates may sell shares not constituting restricted securities in
accordance with the foregoing volume limitations and other restrictions, but
without regard to the two-year holding period.
Under Rule 144(k), if a period of at least two years has elapsed between the
later of the date restricted securities were acquired from the Company or the
date they were acquired from an Affiliate of the Company, a holder of such
restricted securities who is not an Affiliate of the Company at the time of
the sale and has not been an Affiliate of the Company from at least three
months prior to the sale would be entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
Rule 701 under the Act provides that the shares of Common Stock acquired
upon exercise of currently outstanding options may be resold by persons, other
than Affiliates, beginning 90 days after the date of this Prospectus, subject
only to the manner of sale provisions of Rule 144, and by Affiliates under
Rule 144 without compliance with its one-year minimum holding period, subject
to certain limitations.
No precise prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price of the Common Stock prevailing from time to time. The Company is unable
to estimate the number of shares that may be sold in the public market
pursuant to Rule 144, since this will depend on the market price of Common
Stock, the personal circumstances of the sellers and other factors.
Nevertheless, sales of significant amounts of the Common
46
Stock of the Company in the public market could adversely affect the market
price of the Company's Common Stock.
LOCK-UP AGREEMENTS
The Company and certain of its directors, officers and stockholders,
including affiliates of the Company, have agreed not to offer or sell or
otherwise dispose of any Common Stock or any securities convertible into or
exchangeable or exercisable for any such shares until the expiration of 180
days following the date of this Prospectus without the prior written consent
of the BT Alex. Brown Incorporated. See "Underwriting."
STOCK OPTIONS
The Company intends to file one or more registration statements on Form S-8
under the Act to register all shares of Common Stock subject to outstanding
stock options and Common Stock issuable pursuant to the Company's stock option
and purchase plans that do not qualify for an exemption under Rule 701 from
the registration requirements of the Act. The Company expects to file these
registration statements 90 days following the closing of the offering, and
such registration statements are expected to become effective upon filing.
Shares covered by these registration statements will thereupon be eligible for
sale in the public markets, subject to the Lock-up Agreements, to the extent
applicable.
REGISTRATION RIGHTS
The holders of the Common Stock issued upon conversion of the Convertible
Preferred Stock or exercise of the Warrants (the "Registrable Shares") are
entitled to require the Company to register under the Securities Act of 1933
(the "Act") up to a total of approximately 3,388,978 shares of Common Stock,
of which are being registered in this offering. The agreements governing
the purchase of the Convertible Preferred Stock provide that in the event the
Company proposes to register any of its securities under the Act at any time
or times, the holders of the Convertible Preferred Stock, subject to certain
exceptions, shall be entitled to include the Registrable Shares in such
registration. However, the managing underwriter of any such offering may
exclude for marketing reasons some or all of such Registrable Shares from such
registration. The holders of Convertible Preferred Stock have, subject to
certain conditions and limitations, additional rights to require the Company
to prepare and file a registration statement under the Act with respect to
their Registrable Shares if holders of the Convertible Preferred Stock holding
at least 30% of the Registrable Shares held by all holders of Convertible
Preferred Stock so request. The Company is generally required to bear the
expenses of all such registrations, except underwriting discounts and
commissions. The Company also has granted certain demand and piggyback
registration rights to Pacific Preschools, Inc. with respect to 108,333 shares
of the Common Stock of the Company issued as consideration in connection with
the acquisition of substantially all of the assets of such company. See
"Management Discussion and Analysis of Financial Condition and Results of
Operations--Recent Acquisitions." Additionally, under a common stock purchase
warrant (the "GreenTree Warrant") issued by the Company in connection with the
acquisition of GreenTree, ServiceMaster has been granted certain "piggy-back"
registration rights with respect to the 66,667 shares of Common Stock issuable
upon exercise of the GreenTree Warrant.
47
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
BT Alex. Brown Incorporated and EVEREN Securities, Inc. have severally agreed
to purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
NUMBER OF
UNDERWRITER SHARES
----------- ---------
BT Alex. Brown Incorporated........................................
EVEREN Securities, Inc. ...........................................
---
Total..........................................................
===
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of Common Stock offered hereby if any of such shares are
purchased.
The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other dealers. After the initial public offering, the
offering price and other selling terms may be changed by the Representatives
of the Underwriters.
The Selling Stockholders have granted to the Underwriters an option,
exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 405,000 additional shares of Common Stock at the initial
offering price less the underwriting discounts and commissions set forth on
the cover page of this Prospectus. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof that the number of shares
of Common Stock to be purchased by it shown in the above table bears to the
2,700,000 shares of Common Stock offered hereby, and the Selling Stockholders
will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of the Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on
the same terms as those on which the 2,700,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may
bid for or purchase Common Stock for the purpose of stabilizing its market
price. The Underwriters also may create a short position for the account
48
of the Underwriters by selling more Common Stock in connection with the
offering than they are committed to purchase from the Company, and in such
case may purchase Common Stock in the open market following completion of the
offering to cover all or a portion of such short position. The Underwriters
may also cover all or a portion of such short position, up to 405,000 shares,
by exercising the Underwriters' over-allotment option referred to above. The
Representatives, on behalf of the Underwriters, may impose "penalty bids"
under contractual arrangements with the Underwriters whereby it may reclaim
from an Underwriter (or dealer participating in the offering), for the account
of the other Underwriters, the selling concession with respect to the Common
Stock that is distributed in the offering but subsequently purchased for the
account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of these transactions described in this paragraph is required,
and, if undertaken, they may be discontinued at any time.
The Company, each of its officers and directors, and certain of its security
holders have agreed, subject to certain exceptions, not to offer, sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of the BT Alex.
Brown Incorporated, except to the extent being sold in the offering. The
Representatives of the Underwriters may, in their sole discretion and at any
time without notice, release all or any portion of the securities subject to
Lock-up Agreements. See "Shares Eligible for Future Sale."
The Representatives of the Underwriters have advised the Company and the
Selling Stockholders that the Underwriters do not intend to confirm sales to
any accounts over which they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiations among the Company, representatives of
the Selling Stockholders and the Representatives of the Underwriters. Among
the factors to be considered in such negotiations are the prevailing market
conditions, the results of operations of the Company in recent periods, the
market capitalizations and stages of development of other companies which the
Company, representatives of the Selling Stockholders and the Representatives
of the Underwriters believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant. Application has been made to
have the Common Stock approved for quotation on The Nasdaq National Market
under the symbol "BRHZ."
VALIDITY OF COMMON STOCK
The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by Ropes & Gray, Boston, Massachusetts.
Certain legal matters in connection with the offering will be passed upon for
the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts who
advises the Company on labor and employment matters.
EXPERTS
The financial statements of each of Bright Horizons Holdings, Inc. and
GreenTree Child Care Services, Inc. included in this Prospectus have been so
included in reliance on the reports of Price Waterhouse LLP, independent
accountants, as of the dates indicated in their reports appearing elsewhere
herein and on the authority of said firm as experts in auditing and
accounting.
49
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement, to
which reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to above are
necessarily incomplete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement reference is hereby
made to the exhibit for a more complete description of the matter involved,
and each statement shall be deemed qualified in its entirety by such
reference. The Registration Statement, including exhibits and schedules
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices at Seven World Trade
Center, Thirteenth Floor, New York, New York 10048 and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies may be
obtained at the prescribed rates from the Public Reference Section of the
Commission at its principal office in Washington, D.C. The Commission
maintains a Web site that contains reports, proxy and information statements
and other information regarding the Company; the address of such site is
http://www.sec.gov.
50
INDEX TO FINANCIAL STATEMENTS
BRIGHT HORIZONS HOLDINGS, INC.
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheet............................................... F-3
Consolidated Statement of Income......................................... F-4
Consolidated Statement of Changes in Stockholders' Deficit............... F-5
Consolidated Statement of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements............................... F-7
GREENTREE CHILD CARE SERVICES, INC.
Report of Independent Accountants........................................ F-17
Balance Sheet............................................................ F-18
Statement of Operations.................................................. F-19
Statement of Changes in Stockholder's Deficit............................ F-20
Statement of Cash Flows.................................................. F-21
Notes to Financial Statements............................................ F-22
BRIGHT HORIZONS HOLDINGS, INC.
Unaudited Pro Forma Combined Financial Data.............................. F-26
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Bright Horizons Holdings, Inc.
The three-for-one reverse stock split and the change in common and preferred
shares authorized described in Note 14 to the financial statements have not
been consummated at September 12, 1997. When they have been consummated, we
will be in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' deficit and of
cash flows present fairly, in all material respects, the financial position of
Bright Horizons Holdings, Inc. and its subsidiaries at June 30, 1996 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
Price Waterhouse LLP
Boston, Massachusetts August 1, 1997
F-2
BRIGHT HORIZONS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
PRO FORMA
(NOTE 7)
JUNE 30, JUNE 30,
------------------------- 1997
1996 1997
------------ ----------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............ $ 4,583,257 $ 6,059,349 $ 6,059,349
Accounts receivable, trade, net of
allowance for doubtful accounts of
$307,458 and $316,637 at June 30,
1996 and 1997, respectively......... 3,468,341 2,766,997 2,766,997
Prepaid expenses and other current
assets.............................. 1,000,415 1,253,008 1,253,008
Deferred income taxes................ 2,284,000 2,753,000 2,753,000
------------ ----------- -----------
Total current assets............... 11,336,013 12,832,354 12,832,354
Fixed assets, net...................... 7,762,863 11,250,311 11,250,311
Deferred charges, net.................. 443,210 315,227 315,227
Goodwill, net.......................... 2,185,202 1,321,611 1,321,611
Other intangible assets, net........... 1,782,334 1,121,649 1,121,649
Other assets........................... 131,471 386,476 386,476
Deferred income taxes.................. 894,000 1,291,000 1,291,000
------------ ----------- -----------
$ 24,535,093 $28,518,628 $28,518,628
============ =========== ===========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK, AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit....................... $ 500,000 $ -- $ --
Current portion of long-term debt and
obligations under
capital leases...................... 485,250 834,481 834,481
Accounts payable and accrued
expenses............................ 4,771,808 7,282,694 7,282,694
Income taxes payable................. 87,856 41,214 41,214
Other current liabilities............ -- 490,344 490,344
Deferred revenue..................... 3,079,340 4,096,336 4,096,336
------------ ----------- -----------
Total current liabilities.......... 8,924,254 12,745,069 12,745,069
Long-term debt and obligations under
capital leases......................... 4,247,559 3,440,132 3,440,132
Accrued rent........................... 1,665,279 1,540,886 1,540,886
Other long-term liabilities............ 1,464,749 1,005,880 1,005,880
Deferred revenue....................... 841,666 1,241,666 1,241,666
------------ ----------- -----------
17,143,507 19,973,633 19,973,633
------------ ----------- -----------
Mandatorily redeemable convertible
preferred stock, $.01 par value;
1,860,330 shares authorized, issued
and outstanding, at issuance cost plus
accumulated dividends of $7,732,455
and $8,830,679 at June 30, 1996 and
1997, respectively, none outstanding
pro forma............................. 18,606,736 19,704,960 --
------------ ----------- -----------
Stockholders' equity (deficit):
Preferred stock, $.01 par value,
3,000,000 shares authorized, none
issued or outstanding...............
Common stock, $.01 par value;
12,000,000 shares, authorized;
550,710, and 556,732 shares issued
and outstanding at June 30, 1996 and
1997, respectively, and 3,657,282
shares issued and outstanding pro
forma............................... 5,507 5,567 36,573
Additional paid-in capital........... 60,333 65,986 19,739,940
Accumulated deficit.................. (11,280,990) (11,231,518) (11,231,518)
------------ ----------- -----------
Total stockholders' equity
(deficit)........................... (11,215,150) (11,159,965) 8,544,995
------------ ----------- -----------
Commitments (Note 13).................. -- -- --
------------ ----------- -----------
$ 24,535,093 $28,518,628 $28,518,628
============ =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
BRIGHT HORIZONS HOLDINGS, INC.
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JUNE 30,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
Net revenues........................... $43,693,026 $64,181,377 $85,000,892
Cost of services....................... 37,208,535 55,614,948 72,675,157
----------- ----------- -----------
Gross profit.......................... 6,484,491 8,566,429 12,325,735
Selling, general and administrative
expenses.............................. 5,174,518 6,376,212 9,006,726
Amortization of non-compete agreements. 80,000 1,680,031 560,004
Transaction costs...................... -- -- 542,882
----------- ----------- -----------
Income from operations................ 1,229,973 510,186 2,216,123
Interest income........................ 99,210 97,544 107,415
Interest expense....................... (78,549) (291,899) (382,042)
----------- ----------- -----------
Income before income taxes ........... 1,250,634 315,831 1,941,496
Income tax benefit (provision)......... 382,000 1,005,000 (793,800)
----------- ----------- -----------
Net income............................ $ 1,632,634 $ 1,320,831 $ 1,147,696
=========== =========== ===========
Unaudited pro forma data (Note 1):
Net income per share................... $ 0.26
===========
Weighted average number of common and
common equivalent shares.............. 4,427,162
===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
BRIGHT HORIZONS HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
COMMON STOCK
---------------- ADDITIONAL TOTAL
NUMBER OF PAR PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT DEFICIT
--------- ------ ---------- ------------ -------------
Balance at June 30,
1994.................... 532,794 $5,328 $49,947 $(12,038,053) $(11,982,778)
Exercise of stock
options.............. 1,772 18 1,060 -- 1,078
Accretion of
mandatorily
redeemable
convertible preferred
stock dividends...... -- -- -- (1,098,201) (1,098,201)
Net income............ -- -- -- 1,632,634 1,632,634
------- ------ ------- ------------ ------------
Balance at June 30,
1995.................... 534,566 5,346 51,007 (11,503,620) (11,447,267)
Exercise of stock
options.............. 16,144 161 9,326 -- 9,487
Accretion of
mandatorily
redeemable
convertible preferred
stock dividends...... -- -- -- (1,098,201) (1,098,201)
Net income............ -- -- -- 1,320,831 1,320,831
------- ------ ------- ------------ ------------
Balance at June 30,
1996.................... 550,710 5,507 60,333 (11,280,990) (11,215,150)
Exercise of stock
options.............. 6,022 60 5,653 -- 5,713
Accretion of
mandatorily
redeemable
convertible preferred
stock dividends...... -- -- -- (1,098,224) (1,098,224)
Net income............ -- -- -- 1,147,696 1,147,696
------- ------ ------- ------------ ------------
Balance at June 30,
1997................... 556,732 $5,567 $65,986 $(11,231,518) $(11,159,965)
======= ====== ======= ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
BRIGHT HORIZONS HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30,
----------------------------------
1995 1996 1997
---------- ---------- ----------
Cash flows from operating activities:
Net income................................ $1,632,634 $1,320,831 $1,147,696
Adjustments to reconcile net income to net
cash provided by operating activities,
net of acquired amounts:
Depreciation and amortization............. 871,320 2,831,208 2,204,069
Loss (gain) on disposal of fixed assets... 100,123 (23,448) (24,660)
Write-down of impaired assets............. 160,923 -- --
Decrease in goodwill from utilization of
acquired tax benefits..................... -- 1,142,000 737,000
Changes in assets and liabilities:
Deferred income taxes..................... (470,000) (2,358,000) (866,000)
Accounts receivable, trade................ (895,360) (1,005,128) 701,344
Prepaid expenses and other current
assets................................... (139,164) (351,312) (252,593)
Accounts payable and accrued expenses..... 215,200 663,921 2,510,886
Income taxes payable...................... 18,452 54,404 (46,642)
Deferred revenue.......................... 10,144 1,257,032 1,416,996
Accrued rent.............................. (9,475) (68,252) (124,393)
Other current and long-term liabilities... (2,666) 1,457,832 31,475
---------- ---------- ----------
Total adjustments....................... (140,503) 3,600,257 6,287,482
---------- ---------- ----------
Net cash provided by operating
activities............................. 1,492,131 4,921,088 7,435,178
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of short-term
investments.............................. 400,000 -- --
Additions to fixed assets, net of
acquired amounts......................... (1,839,384) (1,646,991) (4,730,355)
Proceeds from disposal of fixed assets.... 58,777 32,725 80,544
Increase in deferred charges.............. (71,327) (68,586) (17,017)
(Increase) decrease in other assets....... 209 (39,204) (255,005)
Payment for acquisition, net of acquired
cash..................................... (509,874) (3,067,089) --
---------- ---------- ----------
Net cash used in investing activities... (1,961,599) (4,789,145) (4,921,833)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock.... 1,078 9,487 5,713
Net borrowings under line of credit....... -- 500,000 --
Payments on line of credit................ -- -- (500,000)
Principal payment of long-term debt and
obligations under capital leases......... (87,607) (146,112) (542,966)
---------- ---------- ----------
Net cash provided by (used in) financing
activities............................. (86,529) 363,375 (1,037,253)
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents............................ (555,997) 495,318 1,476,092
Cash and cash equivalents, beginning of
period..................................... 4,643,936 4,087,939 4,583,257
---------- ---------- ----------
Cash and cash equivalents, end of period... $4,087,939 $4,583,257 $6,059,349
========== ========== ==========
Supplemental disclosure of cash flow
information:
Cash paid for interest..................... $ 78,549 $ 81,521 $ 382,042
========== ========== ==========
Cash paid for income taxes................. $ 70,284 $ 156,596 $ 989,450
========== ========== ==========
Supplemental schedule of noncash investing and financing activities:
The Company acquired certain centers by entering into mortgages of
approximately $978,000 in fiscal 1996 (Note 6).
During fiscal years 1996 and 1997, capital lease obligations of $27,264 and
$84,770, respectively, were incurred in connection with lease agreements for
automobiles and office equipment.
The Company purchased child care management companies during the fiscal year
1995 and 1996. In conjunction with these acquisitions, liabilities were
assumed as follows:
1995 1996
---------- -----------
Fair value of assets acquired.......................... $1,186,939 $ 8,577,717
Cash paid.............................................. (509,874) (3,067,089)
---------- -----------
Liabilities assumed, including note payable............ $ 677,065 $ 5,510,628
========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
BRIGHT HORIZONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bright Horizons Holdings, Inc. (the "Company") is a provider of early
childhood education and family support services throughout the United States.
The Company operates its centers under various types of arrangements, which
generally can be classified into two forms: (i) the corporate-sponsored model,
where Bright Horizons operates a child development center on the premises of a
corporate sponsor and gives priority enrollment to the corporate sponsor's
employees and (ii) the management contract model, where Bright Horizons
manages a work-site child development center under a cost-plus arrangement,
typically for a single employer. The Company's primary customers are large
corporations as well as individual customers. The Company receives tuition and
management fees for its services. The following is a summary of significant
accounting policies employed by the Company in the preparation of the
accompanying consolidated financial statements.
Basis of Presentation--The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. The principal
operations of the Company are conducted through its wholly owned subsidiary,
Bright Horizons Children's Centers, Inc., which was incorporated in 1986. All
significant intercompany transactions and balances have been eliminated.
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation. These reclassifications had no
effect on net income.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from these estimates.
Cash and Cash Equivalents--For purposes of the statement of cash flows, the
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. The Company invests excess cash
in money market accounts, repurchase agreements, and certificates of deposit.
Accordingly, the investments are subject to minimal credit and market risk.
All of the Company's investments are classified as available-for-sale. The
carrying amount approximates fair value because of the short maturity of the
instruments.
The Company at June 30, 1997 and periodically throughout the year has
maintained cash balances in various operating accounts in excess of federally
insured limits. The Company limits the amount of credit exposure with any one
financial institution by evaluating the creditworthiness of the financial
institutions with which it invests.
Fair Value of Financial Instruments:
Long-term Debt--The carrying amount approximates fair value. The fair value
is estimated based on the current rates offered to the Company for debt of the
same remaining maturities.
Mandatorily Redeemable Convertible Preferred Stock--The fair value of the
mandatorily redeemable convertible preferred stock is estimated to be
$16,278,000. Fair value is estimated based on the common stock equivalent of
the preferred stock at the fair market value of the common stock at June 30,
1997. This estimate is not necessarily indicative of the amount the holders
could realize in a current market exchange.
Revenue Recognition--Revenues are recognized as services are performed. In
both the corporate-sponsored model and the management contract model, revenues
consist primarily of tuition paid by parents, supplemented in some cases by
tuition payments from corporate sponsors and, to a lesser extent,
F-7
BRIGHT HORIZONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
(CONTINUED)
by payments from government agencies. Revenues also include management fees
paid by corporate sponsors which are not material. In the management contract
model, in addition to tuition and management fee revenues, revenue is also
recognized for reimbursable expenses paid either in lieu of, or to supplement,
tuitions. The reimbursable expenses are not material.
Fixed Assets--Fixed assets are recorded at cost and are depreciated over
their estimated useful lives using the straight-line method. Maintenance and
repairs are expensed as incurred.
Intangibles--Goodwill is amortized on a straight-line basis over the
estimated period of benefit, not exceeding twenty-five years. Other intangible
assets, primarily comprised of contract rights, unfavorable leases and non-
compete agreements are amortized over the estimated period of benefit which
ranges from 3 to 10 years. Amortization periods approximate the stated terms
of the respective agreements. At June 30, 1996 and 1997, accumulated
amortization of intangible assets was approximately $1,923,361 and $2,672,599,
respectively.
Advertising Costs--Advertising costs are expensed as incurred.
Impairment Write-downs--Impairment losses are recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. The impairment write-down represents the net
book value at the time of write-down of goodwill and other assets recorded in
connection with an acquisition that ocurred in fiscal 1994.
Start up costs--Start up costs are costs incurred prior to the opening of a
center facility which include pre-opening operating expenses, which are
expensed as incurred; architectural and design fees, legal fees and real
estate broker fees specifically attributable to a center's facility, which are
classified as deferred charges and capitalized and amortized on a straight-
line basis over the lesser of the lease term or the estimated useful life of
the center; and capital equipment and initial supplies, which are capitalized
and depreciated over their estimated useful lives using the straight-line
method. Start up costs that are either paid by the Company and reimbursed by a
sponsor or paid directly by a sponsor are not capitalized.
Other Liabilities--Other current liabilities consist primarily of amounts
refundable to clients pursuant to certain management contracts. Other long-
term liabilities consist primarily of deposits held pursuant to certain
management contracts which expire beyond one year. The deposits will be
remitted to the clients upon termination of the respective contracts.
Income Taxes--The Company utilizes the liability method of accounting for
income taxes, as set forth in Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). FAS 109 prescribes an asset
and liability approach that requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the financial reporting and tax basis of assets and
liabilities. Deferred tax assets are recognized, net of any valuation
allowance, for the estimated future tax effects of deductible temporary
differences and tax operating loss carryforwards.
F-8
BRIGHT HORIZONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
(CONTINUED)
Stock Compensation--The Company's employee stock option plans are accounted
for in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees". In fiscal 1997, the Company adopted the
disclosure requirements of Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" (Note 9).
Unaudited Pro Forma Net Income Per Share--Pro forma net income per share is
determined by dividing the net income attributable to common stockholders by
the weighted average number of common stock and common stock equivalents
outstanding during the period, assuming the conversion of all convertible
preferred stock and assuming a cashless exercise of the warrants issued in
connection with the Series C redeemable convertible preferred stock (see Note
8). Common stock equivalents (stock options and warrants) issued at prices
below the offering price per share during the twelve months preceding the
anticipated public offering of the Company's common stock have been included
in the calculation of unaudited pro forma net income per share using the
treasury stock method as if outstanding since the beginning of each period
presented. Historical net income per share is not presented in the
accompanying financial statements as such amounts are not meaningful.
2. ACQUISITIONS
Effective December 1, 1995, the Company acquired the business and some of
the assets and liabilities of GreenTree Child Care Services, Inc.
("GreenTree"), a child care management company, for approximately $6,000,000,
including a $3,000,000 note payable (see Note 6). The purchase price has been
allocated based on the estimated fair value of the assets and liabilities
acquired at the date of acquisition; $2,000,000 of the purchase price ascribed
to a non-compete agreement between the Company and The ServiceMaster Company,
L.P. (the prior owner of GreenTree) and $1,000,000 of the purchase price
ascribed to contract rights acquired, resulting in goodwill of approximately
$3,000,000, which was reduced by approximately $1,200,000 in fiscal 1996 due
to the benefit of acquired deferred tax assets, and which is being amortized
over 25 years. In 1997, goodwill was further reduced by approximately $740,000
due to additional benefits of acquired deferred tax assets. The Company also
issued a common stock purchase warrant for 66,667 shares of the Company's
common stock at an exercise price of $10.50 per share which expires on
November 30, 1998. No value was ascribed to the warrants upon issuance as such
value was considered immaterial. The acquisition was accounted for by the
purchase method. Accordingly, the operating results of the acquired company
have been included from the date of the acquisition.
The following unaudited pro forma summary presents the consolidated results
of operations assuming that the acquisition of GreenTree had occurred on July
1, 1994 and July 1, 1995. No adjustments are required to conform the
accounting policies of the Company and GreenTree. These pro forma results have
been prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the transaction been effected on
the date indicated above or of results which may occur in the future.
YEAR ENDED JUNE 30,
------------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
Net revenues......................................... $56,271,787 $70,440,949
Net income (loss).................................... $ (505,387) $ 987,862
F-9
BRIGHT HORIZONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. FIXED ASSETS
Fixed assets consist of the following:
JUNE 30,
DEPRECIABLE ----------------------
LIVES (YEARS) 1996 1997
--------------- ---------- -----------
Land.................................. -- $ 821,938 $ 1,509,778
Buildings............................. 40 1,233,772 3,206,700
Furniture and fixtures................ 10 2,604,747 2,804,096
Equipment............................. 3-15 4,868,159 5,627,386
Leasehold improvements................ 3/Life of lease 1,663,570 2,229,021
Construction in Progress.............. -- -- 588,520
---------- -----------
11,192,186 15,965,501
Less--accumulated depreciation and
amortization......................... 3,429,323 4,715,190
---------- -----------
$7,762,863 $11,250,311
========== ===========
Fixed assets at June 30, 1996 and 1997 include automobiles and office
equipment of $228,417 and $311,572, respectively, held under capital leases.
Amortization expense relating to fixed assets under capital leases was
$18,440, $26,459 and $45,602 for the years ended June 30, 1995, 1996 and 1997,
respectively. Accumulated amortization relating to fixed assets under capital
leases totaled $164,603 and $210,205 at June 30, 1996 and 1997, respectively.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
JUNE 30,
---------------------
1996 1997
---------- ----------
Accounts payable....................................... $ 379,212 $ 487,645
Accrued payroll and employee benefits.................. 2,867,750 4,465,631
Accrued other expenses................................. 1,524,846 2,329,418
---------- ----------
$4,771,808 $7,282,694
========== ==========
5. LINE OF CREDIT
In December 1996, the Company obtained a $5,000,000 unsecured line of credit
with a bank, which bears interest at the bank's prime rate (8.50% at June 30,
1997). At June 30, 1997, there was no outstanding balance. An unused fee of
1/4% per annum is paid quarterly for the first $2,000,000 of the revolver. The
credit line expires on September 30, 1998. The agreement requires the Company
to comply with certain covenants which include, among other things, the
maintenance of specified financial ratios and limitations on the redemption
and repayment of preferred stock with credit line proceeds. At June 30, 1996,
$500,000 was outstanding under a previous credit line which expired on
September 30, 1996 and bore interest at the bank's prime rate (8.25% at June
30, 1996).
F-10
BRIGHT HORIZONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Long-term debt and obligations under capital leases are summarized as
follows:
JUNE 30,
---------------------
1996 1997
---------- ----------
Note payable--sixteen quarterly installments including
interest at the variable prime lending rate (8.25% and
8.5% at June 30, 1996 and 1997, respectively) with a
final installment of $187,500 due in November 2000.... $3,000,000 $2,625,000
Mortgage payable to bank in monthly installments of
approximately $5,940 including interest at the bank's
prime lending rate plus 1/4% (8.5% and 8.75% at June
30, 1996 and 1997, respectively), with a final
installment of approximately $2,200 in June 2016;
collateralized by related real estate................. 528,000 501,600
Mortgage payable to bank in monthly installments of
approximately
$4,057 including interest of 9%, with the payment in
full due
in October 2000; collateralized by related real
estate................................................ 388,693 374,186
Mortgage payable--monthly installments of approximately
$507
including interest of 9%, paid in full as of July
1996.................................................. 48,775 --
Mortgage payable to bank in monthly installments of
approximately
$6,000 including interest at the bank's prime lending
rate plus 1%
(9.25% and 9.5% at June 30, 1996 and 1997,
respectively),
with a final installment of approximately $645,000 in
November 1999; collateralized by related real estate.. 658,583 650,359
Notes payable--three semiannual installments including
interest of 8%
with a final installment of $42,280 paid in December
1996.................................................. 42,280 --
Obligations under capital leases at rates of 8% to
10.24%, collateralized by automobiles and certain
office equipment; due in 2001......................... 66,478 123,468
---------- ----------
4,732,809 4,274,613
Less--current portion.................................. 485,250 834,481
---------- ----------
$4,247,559 $3,440,132
========== ==========
Future minimum lease payments as of June 30, 1997 under capitalized leases
are as follows:
1998......................................................... 47,415
1999......................................................... 46,245
2000......................................................... 26,589
2001......................................................... 22,049
--------
Total minimum lease payments................................. 142,298
Less--imputed interest....................................... 18,830
--------
$123,468
========
Total interest expense on these leases was approximately $1,569, $6,875 and
$11,260 for the years ended June 30, 1995, 1996 and 1997, respectively.
F-11
BRIGHT HORIZONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
JUNE 30,
-----------------------
1996 1997
----------- -----------
Series A mandatorily redeemable convertible
preferred stock, 600,000 shares authorized,
issued and outstanding, at issuance cost plus
accumulated dividends of $1,783,980 and
$1,983,180 at June 30, 1996 and 1997,
respectively................................... $ 3,751,698 $ 3,950,898
Series B mandatorily redeemable convertible
preferred stock, 600,000 shares authorized,
issued and outstanding, at issuance cost plus
accumulated dividends of $3,069,989 and
$3,468,389 at June 30, 1996 and 1997,
respectively................................... 7,056,379 7,454,779
Series C mandatorily redeemable convertible
preferred stock, 660,330 shares authorized,
issued and outstanding, at issuance cost plus
accumulated dividends of $2,878,486 and
$3,379,110 at June 30, 1996 and 1997,
respectively................................... 7,798,659 8,299,283
----------- -----------
$18,606,736 $19,704,960
=========== ===========
Each share of Series A, Series B and Series C preferred stock is convertible
into 1.67 shares of common stock at the option of the holder or automatically
at the closing of an underwritten public offering of the Company's common
stock. The preferred stockholders are entitled to a liquidation preference of
$3.33 per share of Series A preferred stock, $6.67 per share of Series B
preferred stock and $7.50 per share of Series C preferred stock.
The common stock and preferred stock shall vote together as a single class.
The preferred stockholders are entitled to the number of votes equal to the
number of shares of common stock into which the shares of preferred stock can
be converted.
Dividends on the preferred stock are cumulative and accrue at a quarterly
rate of $.083 per share of Series A preferred stock, $.166 per share of Series
B preferred stock and $.1875 per share of Series C preferred stock on issued
and outstanding shares for which full payment has been received.
Dividends become payable when and if declared by the Board of Directors or
upon redemption of the preferred stock. No accrued but then unpaid dividends
shall be paid or payable upon the conversion of the preferred stock.
The Company is required to redeem all of the outstanding shares of Series A
preferred stock, Series B preferred stock, and Series C preferred stock on
October 1, 1999 at a price of $3.33, $6.67 and $7.50 per share, respectively,
plus any accrued and unpaid dividends. The Company has recorded charges of
$1,098,201, $1,098,201 and $1,098,224 to accumulated deficit for the years
ended June 30, 1995, 1996 and 1997, respectively, to reflect the accretion of
preferred stock dividends.
8. COMMON STOCK
Certain shares of the Company's common stock, issued under the 1987 stock
option plan, were issued pursuant to restricted stock purchase agreements
providing the Company with a right of first refusal to repurchase any shares
offered for sale.
In connection with the issuance of the Series C redeemable convertible
preferred stock and the issuance of convertible debt, which was subsequently
retired, to stockholders in fiscal 1991, the Company issued warrants for the
purchase of 305,082 shares of common stock. The warrants are exercisable at
$.60
F-12
BRIGHT HORIZONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK--(CONTINUED)
per share and expire on the earlier of October 1, 1999 or the closing of a
qualified public offering, as defined in the agreement. No value was ascribed
to the warrants upon issuance as such value was considered immaterial. All
warrants previously issued were outstanding at June 30, 1995, 1996 and 1997,
respectively.
In connection with the acquisition of GreenTree, the Company issued a common
stock purchase warrant for 66,667 shares of the Company's common stock at an
exercise price of $10.50 per share, which expires on November 30, 1998.
9. STOCK OPTION PLAN
In May 1987, the Company adopted a stock option plan (the 1987 Plan) which
provides for the granting of both incentive stock options and nonqualified
stock options. In August 1996, the Company adopted a new stock option plan (the
1996 Plan) which also provides for the granting of both incentive stock options
and nonqualified options. The Board of Directors approved 666,667 common shares
available under the 1987 Plan and 333,333 common shares available under the
1996 plan. As of June 30, 1997, there were no shares available for grant under
the 1987 Plan or the 1996 Plan. On July 1, 1997 the Company established a new
stock option plan (the 1997 Plan) and approved 666,667 common shares available
to the 1997 Plan.
The option price for each incentive stock option granted under any of the
above plans shall not be less than the fair market value per share of common
stock on the date of grant. The option price for each nonqualified option
granted under any of the above plans is typically not less than the lesser of
(i) the book value per share of common stock as of the end of the immediately
preceding fiscal year or (ii) 50% of the fair market value per share of common
stock on the date of grant. Options under the plans become exercisable over
periods determined by the Board of Directors at a rate generally not to exceed
20% per year beginning with the first anniversary of the date of grant. Stock
options expire on the tenth anniversary of the grant.
The following is a summary of the stock option plan activity:
JUNE 30, 1996 JUNE 30, 1997
----------------- -----------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- -------- ------- --------
Outstanding beginning of year............... 443,735 $1.02 461,529 $1.38
Granted..................................... 65,800 4.20 411,680 8.76
Exercised................................... (16,144) .60 (6,022) .96
Forfeited................................... (31,862) 2.61 (14,215) 5.07
------- ----- ------- -----
Outstanding end of year..................... 461,529 $1.38 852,972 $4.89
======= ===== ======= =====
Options exercisable at end of year.......... 290,681 341,496
======= =======
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based
Compensation," issued in October 1995. The Company continues to measure
compensation cost using the intrinsic value based method of accounting
prescribed by APB Opinion 25. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant date
as prescribed by SFAS No. 123, net income would have been reduced to $1,300,261
and $1,074,475 in 1996 and 1997, respectively, compared to reported net income
of $1,320,831 and $1,147,696, respectively.
F-13
BRIGHT HORIZONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCK OPTION PLAN--(CONTINUED)
The fair value of each option grant was estimated on the grant date using the
Black-Scholes option-pricing model with the following weighted average
assumptions for fiscal years 1996 and 1997: risk free interest rate of 6.76%
and 6.42% in fiscal 1996 and 1997, respectively, and expected option term of
7.0 and 7.5 years for 1996 and 1997, respectively. The weighted average fair
value per option for options granted with option exercise prices equal to the
fair value of the underlying common stock in fiscal years 1996 and 1997 was
$3.39 and $3.00, respectively. The weighted average fair value per option for
options granted with exercise prices above the fair value of the underlying
common stock in fiscal year 1997 was $2.13.
Because the determination of the fair value of all options granted includes
vesting periods over several years and additional option grants are expected to
be made each year, the above pro forma disclosures are not representative of
pro forma effects of reported net income for future periods.
In the event of termination of the optionee's relationship with the Company,
options not yet exercised terminate at the earlier of sixty days or the end of
the exercise period.
10. INCOME TAXES
The components of the income tax benefit (provision) are as follows:
YEAR ENDED JUNE 30,
-------------------------------
1995 1996 1997
-------- ---------- ---------
Current:
Federal................................... $(32,000) $ (45,000) $(585,000)
State..................................... (56,000) (166,000) (337,800)
-------- ---------- ---------
(88,000) (211,000) (922,800)
-------- ---------- ---------
Benefit of acquired deferred tax assets
applied to reduce goodwill................. -- (1,142,000) (737,000)
-------- ---------- ---------
Deferred:
Federal................................... 353,000 2,159,000 669,000
State..................................... 117,000 199,000 197,000
-------- ---------- ---------
470,000 2,358,000 866,000
-------- ---------- ---------
Income tax benefit (provision).............. $382,000 $1,005,000 $(793,800)
======== ========== =========
Deferred tax assets and liabilities are as follows:
JUNE 30,
----------------------
1996 1997
---------- ----------
Deferred tax assets:
Net operating loss carryforwards.................... $1,229,000 $ 603,000
Accrued rent........................................ 643,000 262,000
Deferred revenue.................................... 411,000 981,000
Accrued employee benefits........................... 275,000 736,000
Amortization........................................ 750,000 897,000
Other............................................... 286,000 565,000
---------- ----------
Gross deferred tax asset.............................. 3,594,000 4,044,000
Deferred tax asset valuation allowance................ (416,000) --
---------- ----------
Net deferred tax asset................................ $3,178,000 $4,044,000
========== ==========
F-14
BRIGHT HORIZONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES--(CONTINUED)
The benefit (provision) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income tax
rate to pretax income as a result of the following differences:
YEAR ENDED JUNE 30,
---------------------------------------------------
1995 1996 1997
AMOUNT % AMOUNT % AMOUNT %
---------- --- ---------- ---- --------- ---
Taxes computed at
federal statutory
rate.................. $( 425,000) (34)% $( 107,000) (34)% $(660,100) (34)%
Change in valuation
allowance............. 1,000,000 80 2,530,000 801 416,000 21
Benefit of acquired
deferred tax assets
applied to reduce
goodwill.............. -- -- (1,142,000) (361) (737,000) (38)
Return to provision
adjustments impacting
deferred tax assets... -- -- -- -- 420,300 22
State income taxes, net
of federal benefit.... (93,000) (7) (210,000) (66) (198,000) (10)
Meals and
entertainment......... -- -- (21,000) (7) -- --
Goodwill amortization.. -- -- (24,000) (8) -- --
Permanent differences.. (34,000) (3) -- -- (35,000) (2)
Other.................. (66,000) (5) (21,000) (7) -- --
---------- --- ---------- ---- --------- ---
Income tax benefit
(provision)......... $ 382,000 31% $1,005,000 318% $(793,800) (41)
========== === ========== ==== ========= ===
At June 30, 1997 the Company has net operating loss carryforwards of
approximately $1,562,000 which expire at various dates through 2007. These net
operating loss carryforwards are subject to limitation and may only be used to
offset future income generated by GreenTree on a separate company basis. In
fiscal 1997, the Company released a deferred tax asset valuation allowance
that was recorded at June 30, 1996 because the Company's history of sustained
profitability, and projections of continued profitability and successful
absorption of the operations of GreenTree, led management to believe that it
is more likely than not that the remaining deferred tax assets will be
realized prior to the expiration of any net operating loss carryforwards.
Subsequent ownership changes could limit the amount of net operating loss
and tax credit carryforwards that can be utilized to offset future taxable
income or tax liability in future years.
11. EMPLOYEE RETIREMENT PLAN AND INCENTIVE COMPENSATION PLAN
The Company has an employee retirement plan which meets the requirements of
Section 401(k) of the Internal Revenue Code. The plan allows employees meeting
certain requirements to contribute up to 15% of their salary. The Company will
contribute 25% of amounts contributed by employees, up to a maximum of 8% of
their salary, with a vesting period of six years. Employees are vested in
their contributions at all times. The Company also has incentive compensation
plans for certain directors and faculty of the child care centers. These
employees are rewarded financially for achieving performance milestones, as
outlined in each plan. The expense for the 401(k) plan and the incentive
compensation plan for the years ended June 30, 1995, 1996 and 1997, was
approximately $198,000, $381,000 and $811,000, respectively.
F-15
BRIGHT HORIZONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. TRANSACTION COSTS
In fiscal 1997, the Company incurred costs of $542,882 associated with a
public offering of securities. Because the offering was delayed, the amounts
incurred were treated as a period cost.
13. COMMITMENTS
The Company has noncancellable operating leases for its office and center
facilities. Many of the leases contain renewal options for various periods.
Certain leases contain provisions which include additional payments based upon
revenue performance, enrollment or the level of the Consumer Price Index at a
future date. Future minimum rental commitments as of June 30, 1997 under these
leases are summarized as follows:
FISCAL
------
1998....................................................... $ 4,253,549
1999....................................................... 4,101,497
2000....................................................... 3,814,015
2001....................................................... 3,223,201
2002....................................................... 2,503,569
Thereafter................................................. 12,444,772
-----------
$30,340,603
===========
Total rent expense was $2,404,386, $3,663,265 and $4,461,803 for the years
ended June 30, 1995, 1996 and 1997, respectively.
14. SUBSEQUENT EVENTS
Acquisition
Effective July 1, 1997, the Company acquired the business and substantially
all the assets and liabilities of Pacific Preschools, Inc. dba The Learning
Garden for approximately $1,600,000 in cash and 108,333 shares of common stock
and was accounted for by the purchase method. The purchase price will be
allocated based on the estimated fair value of the assets and liabilities
acquired at the date of acquisition.
Reverse Stock Split
Subsequent to June 30, 1997, the Board of Directors authorized a 1-for-3
reverse stock split of the Company's common stock. All shares of common stock,
common stock options and warrants, preferred stock conversion ratios and per
share amounts included in the accompanying financial statements have been
adjusted to give retroactive effect to the reverse stock split for all periods
presented.
Common and Preferred Stock
Subsequent to June 30, 1997, the Board of Directors authorized 3,000,000
shares of preferred stock that may be issued in one or more series and as may
be determined by the Board of Directors, who may establish from time to time
the number of shares to be included in each such series, to fix the
designation, powers, preference and rights of the shares of each such series
and any qualifications, limitations, or restrictions thereof, and to increase
or decrease the number of shares of any such series without any further vote
or action by the stockholders. Accordingly, all share data has been restated
to reflect the additional preferred shares authorized.
F-16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of GreenTree Child Care Services,
Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of GreenTree Child
Care Services, Inc. at December 31, 1994 and November 30, 1995 and the results
of their operations and their cash flows for the years ended December 31, 1993
and 1994 and the eleven months ended November 30, 1995 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts July 2, 1996
F-17
GREENTREE CHILD CARE SERVICES, INC.
BALANCE SHEET
DECEMBER 31, NOVEMBER 30,
1994 1995
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 308,804 $1,839,171
Accounts receivable, trade, net of allowance for
doubtful accounts of $133,000 and $88,190, at June
30, 1994 and 1995 respectively.................... 405,968 648,215
Prepaid expenses and other current assets.......... 189,501 240,479
---------- ----------
Total current assets............................. 904,273 2,727,865
Fixed assets, net.................................... 1,526,297 2,100,116
Note receivable...................................... 66,881 --
Other intangibles, net............................... 76,250 62,500
Other assets......................................... -- 4,208
---------- ----------
$2,573,701 $4,894,689
========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Payable to parent.................................. $3,986,219 $6,241,928
Note payable to parent............................. 372,000 372,000
Accounts payable and accrued expenses.............. 843,303 1,111,422
Deferred revenue................................... 53,026 118,346
---------- ----------
Total current liabilities........................ 5,254,548 7,843,696
Accrued rent......................................... 253,490 349,447
---------- ----------
5,508,038 8,193,143
---------- ----------
Stockholder's deficit:
Common stock, $.01 par value; 1,000 shares
authorized,
issued and outstanding............................ 10 10
Additional paid-in capital......................... 92,990 92,990
Accumulated deficit................................ (3,027,337) (3,391,454)
---------- ----------
Total stockholder's deficit...................... (2,934,337) (3,298,454)
---------- ----------
Commitments (Note 6)................................. -- --
---------- ----------
$2,573,701 $4,894,689
========== ==========
The accompanying notes are an integral part of the financial statements.
F-18
GREENTREE CHILD CARE SERVICES, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31,
------------------------- ELEVEN MONTHS ENDED
1993 1994 NOVEMBER 30, 1995
----------- ------------ -------------------
Net revenues.................. $ 7,812,591 $ 10,891,786 $13,076,925
Cost of services.............. 7,482,663 10,158,980 12,142,787
----------- ------------ -----------
Gross profit................ 329,928 732,806 934,138
Selling, general and
administrative expenses...... 915,861 1,046,527 1,268,471
----------- ------------ -----------
Loss from operations........ (585,933) (313,721) (334,333)
Interest expense, net......... (41,280) (41,280) (29,784)
----------- ------------ -----------
Net loss.................... $ (627,213) $ (355,001) $ (364,117)
=========== ============ ===========
The accompanying notes are an integral part of the financial statements.
F-19
GREENTREE CHILD CARE SERVICES, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIT
COMMON STOCK
--------------- ADDITIONAL TOTAL
NUMBER OF PAR PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES VALUE CAPITAL DEFICIT DEFICIT
--------- ----- ---------- ----------- -------------
Balance at January 1,
1993.................. 1,000 $10 $92,990 $(2,045,123) $(1,952,123)
Net loss............. -- -- -- (627,213) (627,213)
----- --- ------- ----------- -----------
Balance at December 31,
1993.................. 1,000 10 92,990 (2,672,336) (2,579,336)
Net loss............. -- -- -- (355,001) (355,001)
----- --- ------- ----------- -----------
Balance at December 31,
1994.................. 1,000 10 92,990 (3,027,337) (2,934,337)
Net loss............. -- -- -- (364,117) (364,117)
----- --- ------- ----------- -----------
Balance at November 30,
1995.................. 1,000 $10 $92,990 $(3,391,454) $(3,298,454)
===== === ======= =========== ===========
The accompanying notes are an integral part of the financial statements.
F-20
GREENTREE CHILD CARE SERVICES, INC.
STATEMENT OF CASH FLOWS
ELEVEN MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ NOVEMBER 30,
1993 1994 1995
----------- ----------- -------------
Cash flows from operating activities:
Net loss.............................. $ (627,213) $ (355,001) $ (364,117)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization........ 284,350 283,702 315,313
Change in assets and liabilities:
Accounts receivable, trade........... (340,930) 119,787 (242,247)
Prepaid expenses and other current
assets.............................. (107,153) 23,998 (50,978)
Note receivable...................... 9,453 11,648 66,881
Other assets......................... 4,811 4,811 (4,208)
Accounts payable and accrued
expenses............................ 186,465 203,824 268,119
Deferred revenue..................... 39,574 (974) 65,320
Accrued rent......................... 69,494 81,911 95,957
----------- ----------- ----------
Total adjustments.................. 146,064 728,707 514,157
----------- ----------- ----------
Net cash (used for) provided by
operating activities................ (481,149) 373,706 150,040
----------- ----------- ----------
Cash flows from investing activities:
Additions to fixed assets............ (691,156) (265,124) (875,382)
----------- ----------- ----------
Net cash used for investing
activities.......................... (691,156) (265,124) (875,382)
----------- ----------- ----------
Cash flows from financing activities:
Net financing from parent............ 1,238,940 33,572 2,255,709
----------- ----------- ----------
Net cash provided by financing
activities.......................... 1,238,940 33,572 2,255,709
----------- ----------- ----------
Net increase in cash and cash
equivalents......................... 66,635 142,154 1,530,367
Cash and cash equivalents, beginning of
period................................ 100,015 166,650 308,804
----------- ----------- ----------
Cash and cash equivalents, end of
period................................ $ 166,650 $ 308,804 $1,839,171
=========== =========== ==========
The accompanying notes are an integral part of the financial statements.
F-21
GREENTREE CHILD CARE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GreenTree Child Care Services, Inc. (the "Company") was incorporated on
April 1, 1990, and is engaged in the development and management of high-
quality work-site child care centers. The following is a summary of
significant accounting policies employed by the Company in the preparation of
the accompanying financial statements.
Cash and Cash Equivalents--For purposes of the statement of cash flows, the
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Revenue Recognition--Revenues are recognized as services are performed. In
both the corporate-sponsored model and the management contract model, revenues
consist primarily of tuition paid by parents, supplemented in some cases by
tuition payments from corporate sponsors and, to a lesser extent, by payments
from government agencies. Revenues also include management fees paid by
corporate sponsors. Indirect forms of operating support from corporate
sponsors such as reduced occupancy costs or enrollment guarantees or the
reimbursement of start-up capital expenditures are not recorded as revenue.
Tuition and management fees paid in advance are recorded as deferred revenue
and recognized when services are performed. In the management contract model,
in addition to tuition and management fee revenues, revenue is also recognized
for reimbursable expenses paid either in lieu of, or to supplement, tuitions.
Fixed Assets--Fixed assets are recorded at cost and are depreciated over
their estimated useful lives using the straight-line method. Maintenance and
repairs are expensed as incurred.
Advertising Costs--Advertising costs are expensed as incurred.
Impairment Write-downs--Impairment losses are recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. No impairment losses have occurred.
Expense Allocations--An intercompany charge was made by the former parent
company for services rendered to the Company. Items subject to such a charge
included rent, payroll and accounts payable services and other minor office
charges and were allocated on the basis of related measures such as square
footage and salary charges which management have deemed reasonable. The
intercompany charges for such services totaled $133,250 for the year ended
December 31, 1993, $124,620 for the year ended December 31, 1994 and $121,250
for the eleven months ended November 30, 1995. These expenses are charged to
general use and administrative expenses.
Income Taxes--The Company utilizes the liability method of accounting for
income taxes, as set forth in Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). FAS 109 prescribes an asset
and liability approach that requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the financial reporting and tax basis of assets and
liabilities. Deferred tax assets are recognized, net of any valuation
allowance, for the estimated future tax effects of deductible temporary
differences and tax operating loss carryforwards.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
F-22
GREENTREE CHILD CARE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. FIXED ASSETS
Fixed assets consist of the following:
DEPRECIABLE DECEMBER 31, NOVEMBER 30,
LIVES (YEARS) 1994 1995
------------- ------------ ------------
Furniture and fixtures............... 10 $1,581,139 $2,114,998
Software............................. 5 313,521 399,100
Leasehold improvements............... Life of lease 159,320 349,916
Automobiles.......................... 3 13,869 13,869
---------- ----------
2,067,849 2,877,883
Less--accumulated depreciation and
amortization........................ 541,552 777,767
---------- ----------
$1,526,297 $2,100,116
========== ==========
Depreciation and amortization expense related to fixed assets totaled
$269,350 and $268,702 for the years ended December 31, 1993 and 1994,
respectively and $301,563 for the period ended November 30, 1995.
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
DECEMBER 31, NOVEMBER 30,
1994 1995
------------ ------------
Accounts payable.................................... $167,436 $ 224,538
Accrued payroll and employee benefits............... 271,742 307,088
Accrued expenses.................................... 404,125 579,796
-------- ----------
$843,303 $1,111,422
======== ==========
4. BORROWINGS
The Company has a note payable to parent of $372,000 at December 31, 1994
and November 30, 1995. The note bears interest at 11%. The note and interest
is payable on demand.
The Company also maintains an intercompany current account with its parent
company. This account is non-interest bearing and is payable on demand.
F-23
GREENTREE CHILD CARE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES
The components of the income tax provision are as follows:
ELEVEN
YEAR ENDED MONTHS ENDED
DECEMBER 31, NOVEMBER 30,
1994 1995
------------ ------------
Deferred:
Federal........................................... 50,010 114,700
State............................................. 11,590 26,580
--------- -----------
61,600 141,280
Valuation allowance................................ (61,600) (141,280)
--------- -----------
Income tax provision............................... $ -- $ --
========= ===========
Deferred tax assets and liabilities are as follows:
DECEMBER 31, NOVEMBER 30,
1994 1995
------------ ------------
Deferred tax assets:
Net operating loss carryforwards.................. $ 463,550 416,020
Accrued expenses.................................. 255,150 360,550
Fixed assets and intangibles...................... 226,110 266,790
Other............................................. 54,790 97,520
--------- -----------
Gross deferred tax assets.......................... 999,600 1,140,880
Deferred tax asset valuation allowance............. (999,600) (1,140,880)
--------- -----------
Net deferred tax asset............................. $ -- $ --
========= ===========
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income tax
rate to pretax income as a result of the following differences:
ELEVEN
YEAR ENDED MONTHS ENDED
DECEMBER 31, NOVEMBER 30,
1994 % 1995 %
------------ ---- ------------ ----
Taxes computed at federal statutory
rate................................ $(120,700) (34)% $(123,800) (34)%
Change in valuation allowance........ 61,600 17.4 141,280 38.8
State income taxes, net of federal
benefit............................. (17,040) (4.8) (17,480) (4.8)
Effect of forfeited net operating
loss carryforward................... 76,140 21.4 -- --
--------- ---- --------- ----
Income tax provision................. $ -- -- % $ -- -- %
========= ==== ========= ====
At November 30, 1995, the Company has federal net operating loss
carryforwards of approximately $1,072,000 which expire at various dates
through 2007 and state net operating loss carryforwards of approximately
$1,161,000 which expire at various dates through 2007.
Subsequent ownership changes could limit the amount of net operating loss
and tax credit carryforwards that can be utilized to offset future taxable
income or tax liability in future years.
F-24
GREENTREE CHILD CARE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS
The Company has noncancellable operating leases for its office and center
facilities. Many of the leases contain renewal options for various periods.
Certain leases contain provisions which include additional payments based upon
revenue performance, enrollment or the level of the Consumer Price Index at a
future date. Future minimum rental commitments as of November 30, 1995 under
these leases are summarized as follows:
1996........................................................ $1,121,331
1997........................................................ 1,163,911
1998........................................................ 1,183,106
1999........................................................ 1,201,593
2000........................................................ 1,106,085
Thereafter.................................................. 1,830,292
----------
$7,606,318
==========
Total rent expense was $1,136,306 and $1,356,415 for the years ended
December 31, 1993 and 1994, respectively and $1,450,271 for the period ended
November 30, 1995.
7. SUBSEQUENT EVENT
The ServiceMaster Company, L.P. (the owner of the Company) sold the Company
to Bright Horizons Children's Centers, Inc. effective December 1, 1995.
F-25
BRIGHT HORIZONS HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The unaudited pro forma combined statement of operations for the fiscal year
ended June 30, 1996 gives effect to the GreenTree acquisition as if it had
occurred on July 1, 1995. The pro forma combined financial data has been
prepared by management and should be read in conjunction with the notes
included herewith, the Company's Consolidated Financial Statements,
GreenTree's Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The pro forma combined
financial data do not purport to represent what the Company's results of
operations actually would have been had such transactions and events occurred
on the dates specified, or to project the Company's results of operations for
any future period or date. The pro forma adjustments are based upon available
information and certain adjustments that management believes are reasonable.
In the opinion of management, all adjustments have been made that are
necessary to present fairly the pro forma data.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JUNE 30, 1996
(IN THOUSANDS)
HISTORICAL
BRIGHT HISTORICAL PRO FORMA PRO FORMA
HORIZONS(A) GREENTREE(B) ADJUSTMENTS COMBINED
----------- ------------ ----------- ---------
Net revenues................ $64,181 $6,260 $ -- $70,441
Cost of services. 55,615 6,014 -- 61,629
------- ------ ----- -------
Gross profit.............. 8,566 246 -- 8,812
Selling, general and
administrative expenses..... 6,376 448 49(c) 6,873
Amortization of noncompete
agreements.................. 1,680 -- -- 1,680
------- ------ ----- -------
Income (loss) from
operations............... 510 (202) (49) 259
Interest income (expense),
net......................... (194) (17) (103)(d) (314)
------- ------ ----- -------
Income (loss) before
income taxes............. 316 (219) (152) (55)
Income tax benefit
(provision)................. 1,005(f) (3) 41(e) 1,043(f)
------- ------ ----- -------
Net income (loss)......... $ 1,321(f) $ (222) $(111) $ 988(f)
======= ====== ===== =======
- --------
(a) Includes results for GreenTree after its acquisition on December 1, 1995.
(b) Includes the five-month period of GreenTree results from July 1, 1995 to
November 30, 1995 prior to its acquisition by Bright Horizons.
(c) Represents five months of additional expenses for the amortization of
intangible assets and liabilities, including goodwill, contract rights and
unfavorable leases acquired by Bright Horizons in the GreenTree
acquisition as if the acquisition had occurred on July 1, 1995, using the
straight line method over the estimated period of benefit. The amount is
comprised of $49,000 goodwill, $42,000 contract rights and $42,000 lease
losses, which are being amortized of a period of 25 years, 10 years and 10
years, respectively.
(d) Represents five additional months of interest expense using the applicable
interest rate on the note to ServiceMaster and amounts drawn on the
Company's revolving line of credit to finance the GreenTree acquisition as
if the acquisition had occurred on July 1, 1995. The acquisition was
financed by a promissory note to ServiceMaster for $3 million and
borrowings under a revolving line of credit for $2 million, both at an
interest rate of 8.25%, which is variable based upon prime rate. However,
the revolving line of credit was substantially paid off within 4 months
subsequent to December 1, 1995. Therefore, assuming the Company would pay
off the line of credit in the same period of time subsequent to July 1,
1995, no adjustment is required, as the historical Bright Horizons'
amounts include such interest expense.
(e) Reflects the tax benefit on interest expense using an assumed tax rate of
40%.
(f) The income tax benefit (provision) incudes a benefit of $2.5 million
attributable to the decrease in the valuation allowance net of $1.1
million applied to reduce goodwill associated with the GreenTree
acquisition. The impact on earnings of the tax valuation allowance
reversal will not be a recurring item as the remaining tax valuation
allowance of $416,000 at June 30, 1996 will be applied to reduce goodwill
when management determines that it is more likely than not that such
deferred tax assets will be realized.
F-26
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE AN OFFER OR SOLICITATION WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Dilution.................................................................. 13
Capitalization............................................................ 14
Selected Financial and Operating Data..................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 17
Business.................................................................. 25
Management................................................................ 36
Principal and Selling Stockholders........................................ 41
Certain Transactions...................................................... 43
Description of Capital Stock.............................................. 44
Shares Eligible for Future Sale........................................... 46
Underwriting.............................................................. 48
Validity of Common Stock.................................................. 49
Experts................................................................... 49
Additional Information.................................................... 50
Index to Consolidated Financial Statements................................ F-1
------------
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS PRO-
SPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
BRIGHT HORIZONS HOLDINGS, INC.
Common Stock
------------
PROSPECTUS
------------
BT Alex. Brown
EVEREN Securities, Inc.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates,
except the Securities and Exchange Commission registration fee and the
National Association of Securities Dealers, Inc. filing fee.
ITEM AMOUNT
---- -------
SEC Registration Fee................................................ $11,291
NASD Filing Fee..................................................... 4,500
Nasdaq National Market Listing Fee..................................
Blue Sky Fees and Expenses.......................................... 5,000
Transfer Agent and Registrar Fees...................................
Accounting Fees and Expenses........................................
Legal Fees and Expenses.............................................
Printing Expenses...................................................
Miscellaneous.......................................................
-------
Total............................................................. $
=======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Amended and Restated Certificate of Incorporation provides
that the Registrant's Directors shall not be liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the exculpation from liabilities is not permitted
under the Delaware General Corporation Law as in effect at the time such
liability is determined. The Amended and Restated By-Laws provide that the
Registrant shall indemnify its directors to the full extent permitted by the
laws of the State of Delaware.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Registrant has issued the following securities which were not registered under
the Securities Act of 1933, as amended (the "Securities Act"):
On December 1, 1995, in connection with the acquisition of all the issued
and outstanding stock of GreenTree from ServiceMaster, the Company issued a
Promissory Note in the aggregate principal amount of $3.0 million and warrants
to purchase 66,667 shares of the Company's Common Stock at an exercise price
of $10.50 per share.
On July 1, 1997, in connection with the acquisition of substantially all of
the assets of Pacific Preschools, Inc., the Company issued 108,333 shares of
its Common Stock. In addition, in connection with its formation as a holding
company, the Company issued shares of its Common Stock and Convertible
Preferred Stock in exchange for all of the outstanding shares of the capital
stock of BHCC.
The Company also issued options under its 1987 Stock Option Plan and
Incentive Plan, 1996 Equity Incentive Plan and 1997 Equity Incentive Plan to
purchase 582,447 shares of the Company's Common Stock at a weighted average
exercise price of $7.13. Of these, 23,938 shares have been issued upon
exercise of such options.
The securities issued pursuant to the paragraphs above were issued in
reliance on the exemption from registration under Section 4(2) of the
Securities Act or Regulation D thereunder as a transaction not involving a
public offering or pursuant to Rule 701 promulgated under the Securities Act.
All of the foregoing securities are deemed restricted securities for purposes
of the Securities Act.
II-1
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following is a list of exhibits filed as a part of this registration
statement.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1* -- Form of Underwriting Agreement
3.1* -- Amended and Restated Certificate of Incorporation (to be filed
prior to the closing of the offering)
3.2* -- Amended and Restated By-Laws of the Company
4.1* -- Specimen Certificate for Common Stock
4.2+ -- Purchase Agreement dated October 12, 1990 among the Company and
certain Investors named therein
4.3 -- Amendment No. 1 to Purchase Agreement dated November 27, 1990
4.4 -- Amendment No. 2 to Purchase Agreement dated July 1, 1997
5* -- Opinion of Ropes & Gray
10.1+ -- 1987 Stock Option and Incentive Plan
10.2+ -- 1996 Equity Incentive Plan
10.3+ -- Purchase Agreement dated December 1, 1995 by and between the
Company and The ServiceMaster Company.
10.4 -- 1997 Equity Incentive Plan
10.5 -- Revolving Credit Loan Agreement dated December 18, 1996
21 -- Subsidiaries
23.1* -- Consent of Ropes & Gray (See Exhibit 5)
23.2 -- Consent of Price Waterhouse LLP
24 -- Power of Attorney (Page II-4)
27 -- Financial Data Schedule
- --------
* To be filed by amendment.
+ Previously filed.
(b) The following Financial Statement Schedules of the Registrant for the
Three Years Ended June 30, 1997 are included in this Registration
Statement:
Schedule II - Valuation and Qualifying Accounts of Bright Horizons
Children's Centers, Inc. for the three years ended June 30, 1997. All other
schedules are omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS
(a)Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14--
Indemnification of Directors and Officers" above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
(b)The undersigned Registrant hereby undertakes that:
(1)It will provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as requested by the Underwriters to permit prompt delivery to
each purchaser.
(2)For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(3)For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Cambridge, MA on this 12th day of September, 1997.
Bright Horizons Holdings, Inc.
By:
/s/ Roger H. Brown
------------------------------------
ROGER H. BROWN
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated. Each person whose signature appears below hereby
authorizes Roger H. Brown and Elizabeth J. Boland, and each of them, with full
power to them, to execute in the name and on behalf of such person any
amendment (including any post-effective amendment) to this Registration
Statement (or any other registration statement for the same offering that is to
be effective upon filing pursuant to Rule 462(b) under the Securities Act) and
to file the same, with exhibits thereto, and other documents in connection
therewith, making such changes in this Registration Statement as the person(s)
so acting deems appropriate, and appoints each of such persons, each with full
power of substitution, attorney-in-fact to sign any amendment (including any
post-effective amendment) to this Registration Statement (or any other
registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act) and to file the same,
with exhibits thereto, and other documents in connection therein.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Roger H. Brown Chairman of the September 12, 1997
- ------------------------------------ Board and Chief
ROGER H. BROWN Executive Officer
(Principal
Executive Officer)
/s/ Elizabeth J. Boland Chief Financial September 12, 1997
- ------------------------------------ Officer and
ELIZABETH J. BOLAND Treasurer
(Principal
Financial Officer
and Principal
Accounting
Officer)
/s/ Joshua Bekenstein Director September 12, 1997
- ------------------------------------
JOSHUA BEKENSTEIN
/s/ Robert S. Benson Director September 12, 1997
- ------------------------------------
ROBERT S. BENSON
II-4
SIGNATURE TITLE DATE
--------- ----- ----
/s/ John M. Reynolds Director September 12, 1997
- ------------------------------------
JOHN M. REYNOLDS
/s/ Sara Lawrence-Lightfoot Director September 12, 1997
- ------------------------------------
SARA LAWRENCE-LIGHTFOOT
/s/ Ernest C. Parizeau Director September 12, 1997
- ------------------------------------
ERNEST C. PARIZEAU
/s/ Linda A. Mason Director September 12, 1997
- ------------------------------------
LINDA A. MASON
/s/ Rebecca Haag Director September 12, 1997
- ------------------------------------
REBECCA HAAG
II-5
SCHEDULE II
BRIGHT HORIZONS HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
------------------------
BALANCE AT CHARGED CHARGED DEDUCTIONS BALANCE
BEGINNING TO COSTS AND TO OTHER AND AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) WRITE-OFFS PERIOD
- ----------- ---------- ------------ ----------- ----------- ----------
Allowance for doubtful
accounts
Year ended June 30,
1995................. $ 79,000 $72,177 $ -- $ (39,541) $ 111,636
Year ended June 30,
1996................. 111,636 95,854 165,996 (66,028) 307,458
Year ended June 30,
1997................. 307,458 133,824 -- (124,645) 316,637
Deferred tax asset
valuation allowance
Year ended June 30,
1995................. $2,389,000 $ -- $ -- $(1,000,000) $1,389,000
Year ended June 30,
1996................. 1,389,000 -- 1,557,000 (2,530,000) 416,000
Year ended June 30,
1997................. 416,000 -- -- (416,000) 0
- --------
(1) Amounts were acquired from the acquisition of GreenTree Child Care
Services, Inc.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1* -- Form of Underwriting Agreement
3.1* -- Amended and Restated Certificate of Incorporation (to be filed prior to the closing of the
offering)
3.2* -- Amended and Restated By-Laws of the Company
4.1* -- Specimen Certificate for Common Stock
4.2+ -- Purchase Agreement dated October 12, 1990 among the Company and certain Investors
named therein
4.3 -- Amendment No. 1 to Purchase Agreement dated November 27, 1990
4.4 -- Amendment No. 2 to Purchase Agreement dated July 1, 1997
5* -- Opinion of Ropes & Gray
10.1+ -- 1987 Stock Option and Incentive Plan
10.2+ -- 1996 Equity Incentive Plan
10.3+ -- Purchase Agreement dated December 1, 1995 by and between the Company and
The ServiceMaster Company.
10.4 -- 1997 Equity Incentive Plan
10.5 -- Revolving Credit Loan Agreement dated December 18, 1996
21 -- Subsidiaries
23.1* -- Consent of Ropes & Gray (See Exhibit 5)
23.2 -- Consent of Price Waterhouse LLP
24 -- Power of Attorney (Page II-4)
27 -- Financial Data Schedule
- --------
* To be filed by amendment.
+ Previously filed.