What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-25 compared with 2021-03-01 · 259 added, 347 removed, 939 unchanged (39% of the section changed)

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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets

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Notes to the Consolidated Financial Statements

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue - Refer to Notes 2 and 3 to the financial statements.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue - Refer to Note 2 and 3 to the financial statements

Critical Audit Matter Description

The Company provides center-based child care and early education, back-up care (for children and adult/elders), tuition reimbursement program management and related educational consulting services, college admissions advisory services, and other support services for employers and families.

The Company provides center-based early education and child care, back-up child and adult/elder care, tuition assistance and student loan repayment program administration, educational advisory services, and other support services for employers and families.

The Company generates revenue from services based on the consideration specified in contracts with customers, which primarily consist of employer sponsors and parents.

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Given the Company’s disparate services require recording a significant volume of transactions in multiple systems, performing audit procedures to test revenue required a high degree of auditor judgment and an increased extent of effort.

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How the Critical Audit Matter Was Addressed in the Audit

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• We evaluated the Company’s accounting policies for compliance with the applicable revenue recognition accounting guidance.

• We tested the relevant general information technology and business process controls over revenue transactions.

• We performed analytical procedures to test the reasonableness of recorded balances.

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Boston, Massachusetts

March 1, 2021

February 25, 2022

We have served as the Company’s auditor since 2005.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

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Preferred stock, $ 0.001 par value;

25,000,000 shares authorized and no shares issued or outstanding at December 31, 2020 and 2019

25,000,000 shares authorized;

no shares issued or outstanding at December 31, 2021 and 2020

Common stock, $ 0.001 par value;

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See accompanying notes to consolidated financial statements.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

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Income from operations 129,018 53,334 267,819

Loss on extinguishment of debt ( 2,571 ) — —

Interest expense — net ( 36,099 ) ( 37,682 ) ( 45,154 )

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Net income $ 70,459 $ 26,992 $ 180,386

Allocation of net income to common stockholders:

Common stock — basic $ 26,876 $ 179,520 $ 157,096

Common stock — diluted $ 26,878 $ 179,536 $ 157,114

Earnings per common share:

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See accompanying notes to consolidated financial statements.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

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See accompanying notes to consolidated financial statements.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

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Retirement of treasury stock ( 211,401 ) — ( 31,944 ) 31,944 —

Other comprehensive loss ( 29,059 ) ( 29,059 )

Other comprehensive income 12,024 12,024

Net income 180,386 180,386

Balance at December 31, 2019 57,884,020 58 648,031 — ( 50,331 ) 373,510 971,268

Issuance of common stock 2,138,580 2 249,788 249,790

Stock-based compensation expense 20,996 20,996

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Balance at December 31, 2020 60,466,168 60 910,304 — ( 27,069 ) 400,502 1,283,797

Issuance of common stock 2,138,580 2 249,788 249,790

Stock-based compensation expense 23,060 23,060

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Retirement of treasury stock ( 1,639,752 ) ( 2 ) ( 214,056 ) 214,058 —

Other comprehensive income 23,262 23,262

Other comprehensive loss ( 10,290 ) ( 10,290 )

Net income 70,459 70,459

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See accompanying notes to consolidated financial statements.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

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Impairment losses on equity investment — 2,128 —

Loss (gain) on foreign currency transactions 2,875 ( 42 ) 116

(Gain) loss on disposal of fixed assets ( 2,110 ) ( 2,261 ) 488

Loss on extinguishment of debt 2,571 — —

Stock-based compensation expense 23,060 20,996 17,283

Deferred income taxes ( 4,996 ) ( 12,277 ) ( 11,344 )

Deferred rent — — 1,317

Changes in fair value of contingent consideration 7,338 ( 1,390 ) 557

Other non-cash adjustments ( 254 ) 615 ( 2,745 )

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CASH FLOWS FROM FINANCING ACTIVITIES:

Extinguishment of long-term debt ( 1,026,625 ) — —

Borrowings of long-term debt, net of issuance costs of $ 7.7 million

Proceeds from stock issuance — net of issuance costs — 249,790 —

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Payments for debt issuance costs ( 2,057 ) ( 2,818 ) —

Proceeds from issuance of common stock upon exercise of options and restricted stock upon purchase 38,843 26,559 22,933

Purchase of treasury stock ( 213,830 ) ( 32,658 ) ( 31,553 )

Proceeds from issuance of common stock upon exercise of options and restricted stock upon purchase 37,503 38,843 26,559

Taxes paid related to the net share settlement of stock options and restricted stock ( 8,662 ) ( 12,173 ) ( 11,326 )

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See accompanying notes to consolidated financial statements.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

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Restricted cash and cash equivalents, included in prepaid expenses and other current assets 4,301 4,121 3,320

Restricted cash and cash equivalents, included in other assets — — 20,000

Total cash, cash equivalents and restricted cash — end of year $ 265,281 $ 388,465 $ 31,192

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Operating right-of-use assets obtained in exchange for operating lease liabilities — net $ 71,271 $ 103,668 $ 133,043

Restricted stock reclassified from other current liabilities to equity upon vesting $ 4,867 $ 4,445 $ 3,576

Treasury stock purchases in other current liabilities $ 228 $ — $ 450

See accompanying notes to consolidated financial statements.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

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Organization — Bright Horizons Family Solutions Inc.

(“Bright Horizons” or the “Company”) provides center-based child care and early education, back-up child and adult/elder care, tuition assistance and student loan repayment program administration, educational advisory services, and other support services for employers and families in the United States, the United Kingdom, the Netherlands, Puerto Rico, and India.

During the year ended December 31, 2020, the Company divested its child care center business in Canada and ceased to operate its two centers in that geography.

(“Bright Horizons” or the “Company”) provides center-based early education and child care, back-up child and adult/elder care, tuition assistance and student loan repayment program administration, educational advisory services, and other support services for employers and families in the United States, the United Kingdom, the Netherlands, Puerto Rico, and India.

The Company provides services designed to help families, employers and their employees better integrate work and family life, primarily under multi-year contracts with employers who offer child care, dependent care, and workforce education services, as part of their employee benefits packages in an effort to support employees across life and career stages and improve employee engagement.

COVID-19 Pandemic — Since March 2020, the Company’s global operations have been significantly impacted by the COVID-19 pandemic and the measures to prevent its spread, such as required business and school closures and stay-at-home orders.

In mid-March 2020, in response to the challenges presented by COVID-19, the Company temporarily closed a significant portion of its child care centers, while continuing to operate critical health care client and “hub” centers to provide care and support services to the children whose parents worked on the front lines of the response.

Countries and local jurisdictions have since lifted certain restrictions, and the Company has re-opened a significant portion of the temporarily closed centers.

As of December 31, 2020, the Company operated 1,014 child care and early education centers, of which 910 were open, including 549 centers in the United States, 299 centers in the United Kingdom, and 62 centers in the Netherlands.

The Company’s centers are operating with stringent COVID-19 protocols in order to protect the health and safety of the children, families and staff, including social distancing procedures for pick-up and drop-off, daily health screenings, the use of face masks by the Company’s staff, limited group sizes, and enhanced hygiene and cleaning practices.

As the Company continues to analyze the current environment, it may decide to close or not re-open certain centers in locations where demand and economic trends have shifted.

During the year ended December 31, 2020, the Company added 18 new centers and permanently closed 88 centers, for a total of 70 net center reductions in 2020.

The Company’s back-up care and educational advisory services have remained operational to clients and their employees.

As a result of the economic effects of the COVID-19 pandemic, the Company recognized a $ 26.2 million impairment loss during the year ended December 31, 2020 on long-lived assets for closed centers and certain centers that are unlikely to recover the carrying amount of their long-lived assets due to the operational disruption caused by the pandemic, including certain locations that the Company has decided to not re-open or expects not to continue operating on a long-term basis.

Given the current risks and uncertainties associated with the COVID-19 pandemic and its impact on the Company’s operations, additional impairment losses may occur.

Refer to Note 2, Summary of Significant Accounting Policies , for additional details.

The broad effects of COVID-19, its duration and scope of the ongoing disruption cannot be predicted and is affected by many interdependent variables and decisions by government authorities and the Company’s client partners, as well as demand, economic trends, the adoption and effectiveness of a vaccine, and developments in the persistence and treatment of COVID-19.

The Company cannot anticipate how long it will take for re-opened centers to reach typical enrollment levels and there is no assurance that centers currently open will continue to operate.

While the Company experienced increased demand for certain back-up care services during the peak of the pandemic in the second quarter, such as in-home care and self-sourced reimbursed care, and more limited disruption to providing educational advisory services, these conditions and trends may not continue in subsequent periods.

Given these factors, the Company expects the effects of COVID-19 to continue to adversely impact the results of its operations in 2021.

As a result of the temporary closure of a significant portion of the Company’s child care centers, the Company implemented measures to mitigate the impact on the Company's financial position and operations, as well as improve liquidity and access to financial resources.

In addition to actions to reduce spending, the Company amended its credit agreement in April 2020 and May 2020 to increase the borrowing capacity of the Company’s revolving credit facility from $ 225 million to $ 400 million;

and raised $ 249.8 million in net proceeds from the issuance and sale of common stock in April 2020.

Refer to Note 11, Credit Arrangements and Debt Obligations , for additional information on the amendments to the Company’s credit agreement.

In light of these actions and based on the Company’s assumptions about the continued impact of COVID-19 on its operations, the Company believes it has sufficient liquidity to satisfy its obligations for at least the next twelve months.

COVID-19 Pandemic — Since March 2020, the Company’s global operations have been significantly impacted by the ongoing COVID-19 pandemic and the measures undertaken to prevent its spread.

During the early stages of the pandemic, most of the Company’s centers were temporarily closed.

While nearly all centers have re-opened, the Company continues to be impacted by the ongoing effects of COVID-19.

As of December 31, 2021, the Company operated 1,014 early education and child care centers, of which 977 early education and child care centers were open.

The Company remains focused on the enrollment of its centers and expanding the delivery of back-up use across our network of providers.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The Company’s significant accounting policies are described below.

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Reclassification — Reclassifications have been made to further disaggregate certain prior year amounts within the consolidated statements of cash flows to conform to the current year presentation.

Reclassification — Certain reclassifications have been made to prior year amounts within the consolidated statements of cash flows and certain footnotes to conform to the current year presentation.

Principles of Consolidation — The consolidated financial statements include the accounts of the Company and its subsidiaries.

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Use of Estimates — The preparation of the consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period.

The Company’s significant accounting estimates in the preparation of the consolidated financial statements relate to the valuation of goodwill and other intangibles, long-lived assets, and income taxes.

Actual results may differ from management’s estimates.

GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto.

Actual results may differ from those estimates.

Foreign Operations — The functional currency of the Company’s foreign subsidiaries is their local currency.

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dollars at exchange rates in effect at the balance sheet date.

Income and expense items are translated at the average exchange rates prevailing during the period.

Income and expense items are translated at the average exchange rates prevailing during the period and equity is translated at the historical rates.

The cumulative translation effect for subsidiaries using a functional currency other than the U.S.

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Concentrations of Credit Risk — Financial instruments that potentially expose the Company to concentrations of credit risk consisted mainly of cash and accounts receivable.

During the year ended December 31, 2020, cash and cash equivalents increased significantly in connection with the $ 249.8 million net proceeds received from the sale of common stock in April 2020.

The Company mitigates its exposure by maintaining its cash in financial institutions of high credit standing.

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No significant credit concentration risk existed at December 31, 2021 and 2020.

Cash, Cash Equivalents, and Restricted Cash — The Company considers all highly liquid investments with maturities, when purchased, of three months or less to be cash equivalents.

Cash, Cash Equivalents, and Restricted Cash — Cash and cash equivalents consist of cash on hand and highly liquid investments with maturities of three months or less from the date of purchase.

The Company’s cash management system provides for the funding of the main bank disbursement accounts on a daily basis as checks are presented for payment.

Under this system, outstanding checks may be in excess of the cash balances at certain banks, creating book overdrafts.

There were $ 12.5 million and $ 12.4 million in book overdrafts at December 31, 2020 and 2019, respectively, included in accounts payable and accrued expenses on the consolidated balance sheet.

The Company’s cash and cash equivalents that are restricted in nature as to withdrawal or usage are included in prepaid expenses and other current assets.

As of December 31, 2021, there were no book overdrafts.

As of December 31, 2020, $ 12.5 million in book overdrafts were included in accounts payable and accrued expenses on the consolidated balance sheet.

The Company’s cash and cash equivalents that are restricted in nature as to withdrawal or usage are classified as restricted cash and are included in prepaid expenses and other current assets.

Restricted cash is primarily comprised of cash deposits that guarantee letters of credit, and cash and cash equivalents associated with the Company’s wholly-owned captive insurance company.

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Ending balance $ 3,006 $ 2,357 $ 1,226

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Fixed Assets — Property and equipment, including leasehold improvements, are carried at cost less accumulated depreciation or amortization.

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If the carrying amount of the Company’s reporting unit exceeds its fair value, the Company would recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value, up to the amount of goodwill allocated to that reporting unit.

The Company performed a quantitative assessment during the annual impairment review as of October 1, 2020 and concluded the fair value of the Company’s reporting units exceeded their carrying amount and no risk of impairment existed.

The Company performed a qualitative assessment during the annual impairment review as of October 1, 2021 and concluded that it is not more likely than not that the fair value of the Company’s reporting units are less than their carrying amount.

The Company performed a quantitative assessment in the 2020 annual impairment review as of October 1, 2020.

No goodwill impairment charges were recorded in the years ended December 31, 2021, 2020, or 2019.

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The Company estimates the fair value by estimating the total revenue attributable to the trade names and applying market-derived royalty rates for guideline intangible assets, consistent with the initial valuation of the intangibles.

No impairment losses were recorded in the years ended December 31, 2020, 2019 or 2018 in relation to intangible assets.

Intangible assets that are separable from goodwill and have determinable useful lives are valued separately and are amortized over the estimated period benefited, ranging from two to seventeen years .

No impairment losses were recorded in the years ended December 31, 2021, 2020 or 2019 in relation to these intangible assets.

Intangible assets that are separable from goodwill and have determinable useful lives are valued separately and are amortized over the estimated period benefited, generally ranging from two to seventeen years .

Intangible assets related to parent relationships are amortized using an accelerated method over their useful lives.

All other intangible assets are amortized on a straight-line basis over their useful lives.

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Impairment of Long-Lived Assets — The Company reviews long-lived assets, including definite-lived intangible assets, for possible impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable.

Impairment is assessed by comparing the carrying amounts of the assets to the estimated undiscounted future cash flows over the assets remaining lives.

If the estimated cash flows are less than the carrying amounts of the assets, an impairment loss is recognized to reduce the carrying amounts of the assets to its estimated fair value.

The impairment is allocated to the long-lived assets on a pro rata basis using the relative carrying amounts, but only to the extent the carrying amount of an asset is above its fair value.

During the year ended December 31, 2020, the Company recognized impairment losses of $ 26.2 million on fixed assets and operating lease right-of-use assets for which the carrying amount exceeded the fair value for certain centers.

The Company permanently closed 88 centers during the year and incurred impairment losses.

In addition, the Company evaluated other centers when indicators of impairment were present.

Based on the estimated undiscounted future cash flow assessment, certain of the Company’s open and temporarily closed centers had long-lived asset carrying amounts that exceeded the estimated undiscounted future cash flows over the assets remaining life.

For the centers that had impairment indicators, the fair value was determined based on discounting estimated cash flows.

Impairment losses were allocated between long-lived assets, including consideration of market rates for leased assets.

Impairment is assessed by comparing the carrying amounts of the assets in the asset group to the estimated undiscounted future cash flows expected to be generated over the remaining useful lives of the asset group.

If the estimated cash flows are less than the carrying amounts of the assets, an impairment loss is recognized to reduce the carrying amounts of the assets to their estimated fair value.

The impairment is allocated to the long-lived assets in the asset group on a pro rata basis using the relative carrying amounts, but only to the extent the carrying amount of an asset is above its fair value.

The determination of fair value for leased assets includes consideration of market rates and what market participants would pay to use the assets.

During the years ended December 31, 2021 and 2020, the Company recognized impairment losses of $ 10.6 million and $ 26.2 million, respectively, on fixed assets and operating lease right-of-use assets for certain centers where the carrying amount exceeded the fair value.

Refer to Note 13, Fair Value Measurements , for additional information.

Impairment losses were immaterial for the years ended December 31, 2019 and 2018.

Impairment losses were immaterial for the year ended December 31, 2019.

Revenue Recognition — The Company generates revenue from services based on the nature of the promise and the consideration specified in contracts with customers.

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Full Service Center-Based Child Care

The Company’s full-service center-based child care includes traditional center-based child care and early education, preschool, and elementary education.

The Company’s full service center-based child care includes traditional center-based early education and child care, preschool, and elementary education.

The Company provides its center-based child care services under two principal business models:

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In addition, employer sponsors typically provide subsidies for the ongoing provision of child care services to their employees.

Under all model types, the Company retains responsibility for all aspects of operating the child care center, including the hiring and paying of employees, contracting with vendors, purchasing supplies, and collecting tuition and related accounts receivable.

Under all model types, the Company retains responsibility for all aspects of operating the child care center, including the hiring, training, supervising and compensating employees, contracting with vendors, purchasing supplies, and collecting tuition and related accounts receivable.

Revenue generated from full service center-based child care services is primarily comprised of monthly tuition paid by parents.

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The tuition paid by parents is recognized on a daily basis, but for convenience is recorded on a monthly basis.

The Company enters into contracts with employer sponsors to manage and operate their child care and early education centers for a management fee, or to provide child care services to their employees on an exclusive or priority basis.

The Company enters into contracts with employer sponsors to manage and operate their early education and child care centers for a management fee, or to provide child care services to their employees on an exclusive or priority basis.

These arrangements generally have a contractual term of three to ten years with varying terms and renewal and cancellation options, and may also include operating subsidies paid either in lieu of or to supplement parent tuition.

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Fees paid by the employer sponsor are recognized on a daily basis, but for convenience is recorded on a monthly basis (i.e., the same monthly amount within the contract year using the time elapsed method).

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Certain arrangements provide that the employer sponsor pay operating subsidies in lieu of, or to supplement, parent tuition.

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Back-Up Care Services

Back-up care services consist of center-based back-up child care, in-home child and adult/elder dependent care, and self-sourced reimbursed care.

The Company provides back-up care services through the Company’s child care centers and in-home care providers, as well as through the back-up care network.

Bright Horizons back-up care offers access to a contracted network of in-home service agencies and center-based providers in locations where the Company does not otherwise have in-home care providers or centers with available capacity.

Self-sourced reimbursed care is a reimbursement program for clients to utilize in emergency-type situations to provide payments to their employees.

Back-up care services consist of center-based back-up child care, in-home child and adult/elder dependent care, school-age camps, virtual tutoring, and self-sourced reimbursed care.

The Company provides back-up care services through the Company’s early education and child care centers, school-age camps and in-home care providers, as well as through the back-up care network.

Self-sourced reimbursed care is a reimbursement program available to employer sponsors when other care solutions are not available, to provide payments to their employees to assist with the cost of self-sourced dependent care.

Back-up care revenue is primarily comprised of fixed and variable consideration paid by employer sponsors, and, to a lesser extent, co-payments collected from users at the point of service.

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Allocation of the consideration earned as the service is performed is consistent with the overall allocation objective.

Revenue for self-sourced reimbursed care is based on a fee earned for each payment processed (i.e., on a net basis as the Company is acting as an agent for the payment of the self-sourced care reimbursement from clients to their employees) and is recognized in the month the payments are processed.

Revenue for self-sourced reimbursed care is based on a fee earned for each payment processed and is recorded on a net basis as the Company is acting as an agent for the payment of the self-sourced care reimbursement from clients to their employees, and is recognized in the month the payments are processed.

Educational Advisory and Other Services

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Educational advisory services revenue is primarily comprised of fixed and variable fees paid by employer clients for program management, coaching, and subscription of content, and, to a lesser extent, retail fees collected from users at the point of service.

These arrangements generally have contractual terms of one to three years with varying terms and renewal and cancellation options.

These arrangements generally have contractual terms of three years with varying terms and renewal and cancellation options.

Fees for educational advisory services are determined based on the expected number of program participants and the services selected, and are generally billed in advance.

Revenue for EdAssist Solutions is recognized on a straight-line basis using the time-elapsed method over the contract term with additional charges recognized in the month the additional services are provided consistent with the overall allocation objective.

Additionally, revenue for tuition assistance and student loan repayments is based on a fee earned for each payment processed and is recorded on a net basis as the Company is acting as agent for the processing of the payment from clients to their employees, and is recognized in the month the payments are processed.

Revenue for College Coach is recognized over the contract term as college admissions advisory services are provided and customers receive the benefit.

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The Company has the unconditional right to consideration as it satisfies the performance obligations, therefore no contractual assets are recognized.

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Leases — The Company has operating leases for certain of its full-service and back-up child care and early education centers, corporate offices, call centers, and to a lesser extent, various office equipment, in the United States, the United Kingdom, and the Netherlands.

Leases — The Company has operating leases for certain of its full service and back-up early education and child care centers, corporate offices, call centers, and to a lesser extent, various office equipment, in the United States, the United Kingdom, and the Netherlands.

Most of the leases expire within 10 to 15 years and many contain renewal options and/or termination provisions.

The Company does not have any finance leases as of December 31, 2020.

As of December 31, 2021 and 2020, there were no material finance leases.

At contract inception, the Company reviews the terms to determine if an arrangement is a lease.

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The impact on the results of operations were immaterial for the years ended December 31, 2021, 2020 and 2019.

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Debt Securities — The Company’s investment in debt securities, which are classified as available-for-sale, consisted of U.S.

Debt Securities — The Company’s investment in debt securities, which are classified as available-for-sale, consist of U.S.

Treasury and U.S.

government agency securities, certificate of deposits, and treasury bills with maturities greater than three months.

government agency securities and certificates of deposits.

These securities are held in escrow by the Company’s wholly-owned captive insurance company and were purchased with restricted cash.

As such, these securities are not available to fund the Company’s operations as these assets are restricted to fund the captive insurance company operations and capitalization.

As such, these securities are not available to fund the Company’s operations.

These securities are recorded at fair value, with unrealized gains and losses recorded in accumulated other comprehensive income (loss).

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At December 31, 2021 and 2020, the amortized cost was $ 30.0 million and $ 27.9 million, respectively.

The debt securities held at December 31, 2020 primarily had remaining maturities ranging from less than one year to approximately 1.5 years.

Unrealized gains and losses, net of tax, on available-for-sale debt securities were immaterial for the years ended December 31, 2020 and 2019.

The Company did not realize any gains or losses on its debt securities during the years ended December 31, 2020 and 2019.

Other Investments — The Company’s investments in equity securities are primarily in a limited partnership.

The debt securities held at December 31, 2021 had remaining maturities ranging from less than one year to approximately 1.5 years.

Unrealized gains and losses, net of tax, and realized gains and losses, on available-for-sale debt securities were immaterial for the years ended December 31, 2021, 2020 and 2019.

Other Investments — The Company’s investments in equity securities are primarily in limited partnerships.

The equity investments without readily determinable fair value are measured at cost, less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions.

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The Company does not recognize a tax benefit on losses in foreign operations where it does not have a history of profitability.

The Company records penalties and interest on income tax related items as a component of tax expense.

Obligations for uncertain tax positions are recorded based on an assessment of whether the position is more likely than not to be sustained by the taxing authorities.

The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Stock-Based Compensation — The Company accounts for stock-based compensation using a fair value method.

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Excess tax benefits (deficiencies) associated with stock-based compensation are recognized as a component of income tax expense (benefit).

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Comprehensive Income or Loss — Comprehensive income or loss is comprised of net income or loss, foreign currency translation adjustments, and unrealized gains or losses on cash flow hedges and investments, net of tax.

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Diluted earnings per share is calculated by dividing net income by the weighted-average common shares and potentially dilutive securities outstanding during the period using the more dilutive of the treasury stock method or the two-class method.

Government Support — The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States, which is an economic aid package to help mitigate the impact of the pandemic.

Additionally, other foreign governmental legislation that provides relief provisions has been enacted in response to the economic impact of COVID-19.

The Company has participated in certain government support programs, including availing itself of certain tax deferrals and tax credits allowed pursuant to the CARES Act in the United States, as well as certain tax deferrals, tax credits, and employee wage support in the United Kingdom, and may continue to do so in the future.

Governmental support received is recorded on the consolidated statement of income as a reduction to the related expenses that the assistance is intended to defray.

During the year ended December 31, 2020, $ 83.5 million was recorded as a reduction to cost of services in relation to these benefits, of which $ 8.4 million was recorded in prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2020 for amounts receivable from government support programs.

Additionally, the Company had payroll tax deferrals totaling $ 20.4 million as of December 31, 2020, of which $ 10.2 million was included in accounts payable and accrued expenses and $ 10.2 million was included in other long-term liabilities.

Recently Adopted Pronouncements — On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which amends the existing guidance on the accounting for credit losses of certain financial instruments.

This guidance requires entities to recognize the expected credit loss over the lifetime of certain financial instruments and modifies the impairment model for available-for-sale debt securities.

This standard is applied by recording a cumulative effect adjustment to retained earnings upon adoption.

There was no impact to the Company’s consolidated financial statements upon the adoption of this guidance.

Refer to the Accounts Receivable accounting policy section above for the activity in the allowance for credit losses.

The Company’s investments in debt securities, which were classified as available-for-sale, are further disclosed in Note 13, Fair Value Measurements .

As of December 31, 2020, the available-for-sale debt securities are not in an unrealized loss position, and therefore there is no allowance for credit losses.

The Company adopted ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“Topic 848”), which provides optional expedients and exceptions for applying U.S.

GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference the London Interbank Offered Rate (“LIBOR”) or another rate that is expected to be discontinued as a result of reference rate reform.

The guidance is effective on or subsequent to March 12, 2020 through December 31, 2022 and may be applied prospectively.

The Company elected to apply the hedge accounting expedients related to probability of forecasted transactions and the assessments of effectiveness.

Additionally, the Company elected to apply the expedients to qualifying modifications of debt agreements within the scope of ASC 470, Debt .

There was no impact to the Company’s consolidated financial statements upon the adoption of this guidance.

Recently Issued Pronouncements — In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740):

Government Support — The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Consolidated Appropriations Act, 2021 (“CAA”), and the American Rescue Plan Act of 2021 (“ARPA”) were enacted in the United States on March 27, 2020, January 1, 2021, and March 11, 2021, respectively;

all are economic aid packages to help mitigate the impact of the pandemic.

Additionally, other foreign governmental legislation that provided relief provisions was enacted in response to the economic impact of COVID-19.

The Company has participated in certain government support programs, including availing itself of certain tax deferrals, tax credits and federal block grant funding in the United States, as well as certain tax deferrals, tax credits, and employee wage support in the United Kingdom.

On December 27, 2020, the employee retention tax credit, originally enacted under the CARES Act in the United States, was expanded and extended under the CAA to wages paid through the first two quarters of 2021, among other changes.

The Company has applied the accounting principles within the International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance , (“IAS 20”) framework to account for government grants received, which are recognized when there is reasonable assurance that the Company will (1) comply with the conditions associated with the grant and (2) receive the grant.

Reasonable assurance is generally the same threshold as “probable” as defined in ASC 450, Contingencies , (i.e.

“likely to occur”).

When the Company has met the reasonable assurance threshold, it applies IAS 20 by recognizing governmental support received in the consolidated statement of income as a reduction to the related expenses that the assistance is intended to defray.

Amounts received for tuition support is recognized as revenue if such payments are made on behalf of the customers.

During the years ended December 31, 2021 and 2020, $ 50.9 million and $ 83.5 million, respectively, was recorded as a reduction to cost of services in relation to these benefits, of which $ 16.0 million and $ 14.6 million, respectively, reduced the operating subsidies paid by employers for the related child care centers, and amounts recognized as revenue to date have been immaterial.

As of December 31, 2021 and 2020, $ 3.3 million and $ 8.4 million, respectively, was recorded in prepaid expenses and other current assets on the consolidated balance sheet for amounts due from government support programs, and as of December 31, 2021, $ 3.9 million was recorded to other current liabilities related to government support received related to future periods.

As of December 31, 2021, payroll tax deferrals of $ 7.0 million were recorded in accounts payable and accrued expenses on the consolidated balance sheet and as of December 31, 2020, payroll tax deferrals were $ 20.4 million, of which $ 10.2 million was included in accounts payable and accrued expenses and $ 10.2 million was included in other long-term liabilities.

Recently Adopted Pronouncements — In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

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GAAP by clarifying and amending certain areas of the existing guidance.

This ASU is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted.

The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures .

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The Company adopted the new guidance on January 1, 2021.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

REVENUE RECOGNITION

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Revenue disaggregated by segment and geographical region was as follows:

center-based child care Back-up care Educational

advisory and other services Total

child care Back-up care Educational

other services Total

(In thousands)

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

Revenues in the United States were substantially all of the North America revenues.

Revenues in the United Kingdom were $ 243.6 million in 2020, $ 382.1 million in 2019, and $ 371.5 million in 2018.

Revenue associated with other countries was not in excess of 10% of total revenues.

Revenue in the United States was substantially all of the revenue in North America.

Revenue in the United Kingdom was $ 334.9 million in 2021, $ 243.6 million in 2020, and $ 382.1 million in 2019.

Revenue associated with other countries was less than 10% of total revenue.

During the year ended December 31, 2020, the Company divested its child care center business in Canada and ceased to operate its two centers in that geography.

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The Company records deferred revenue when payments are received in advance of the Company’s performance under the contract, which is recognized as revenue as the performance obligation is satisfied.

In 2020, $ 184.6 million was recognized as revenue related to the deferred revenue balance recorded at December 31, 2019.

In 2019, $ 169.0 million was recognized as revenue related to the deferred revenue balance recorded at December 31, 2018.

In 2021, 2020 and 2019, $ 187.1 million, $ 184.6 million and $ 169.0 million was recognized as revenue related to the deferred revenue balance recorded at December 31, 2020, 2019 and 2018, respectively.

There were no significant changes in deferred revenue during the years ended December 31, 2021, 2020 and 2019 related to business combinations, impairments, cumulative catch-up or other adjustments.

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The Company’s remaining performance obligations not subject to the practical expedients were not material at December 31, 2021.

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Lease Expense

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Years ended December 31,

2021 2020 2019

(In thousands)

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

Operating lease expense for the year ended December 31, 2020 includes an impairment loss on operating lease right-of-use assets of $ 10.0 million.

Refer to Note 13, Fair Value Measurements , for additional disclosure.

Rent expense for the year ended December 31, 2018 was $ 127.4 million, as determined under ASC 840.

Operating lease expense for the years ended December 31, 2021 and 2020 include impairment losses on operating lease right-of-use assets of $ 1.3 million and $ 10.0 million, respectively.

Refer to Note 13, Fair Value Measurements , for additional information.

Other Information

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As of December 31, 2021, the Company had entered into additional operating leases that have not yet commenced with total fixed payment obligations of $ 30.9 million.

The leases are expected to commence between the first quarter of fiscal 2021 and the second quarter of fiscal 2023 and have initial lease terms of approximately 10 to 15 years.

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The leases are expected to commence in fiscal 2022 and have initial lease terms of approximately 10 to 15 years.

Lease Modifications

In response to the broad effects of COVID-19, the Company re-negotiated certain payment terms with lessors to mitigate the impact on the Company’s financial position and operations.

As of December 31, 2020, the Company had deferred lease payments of $ 7.7 million.

The majority of these lease payments are payable over the next year.

As of December 31, 2021 and 2020, the Company had deferred lease payments of $ 0.6 million and $ 7.7 million, respectively.

On April 10, 2020, the FASB issued guidance for lease concessions provided to lessees in response to the effects of COVID-19.

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The Company’s growth strategy includes expansion through strategic and synergistic acquisitions.

The goodwill resulting from these acquisitions arises largely from synergies expected from combining the operations of the businesses acquired with the Company's existing operations, as well as from benefits derived from gaining the related assembled workforce.

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

2021 Acquisitions

During the year ended December 31, 2020, the Company acquired two child care centers and the Sittercity business, an online marketplace for families and caregivers, in the United States, in three separate business acquisitions, which were each accounted for as a business combination.

These businesses were acquired for cash consideration of $ 8.1 million, net of cash acquired of $ 1.3 million, and consideration payable of $ 0.1 million, and include fixed assets and technology of $ 4.1 million, as well as a trade name of $ 0.7 million that will be amortized over five years .

The Company recorded goodwill of $ 2.0 million related to the educational advisory and other services segment and $ 2.1 million related to the full-service center-based child care segment, all of which will be deductible for tax purposes.

During the year ended December 31, 2021, the Company acquired two centers as well as a school-age camp provider in the United States, 13 centers in the United Kingdom, and three centers in the Netherlands, in five separate business acquisitions, which were each accounted for as a business combination.

These businesses were acquired for aggregate cash consideration of $ 53.2 million, net of cash acquired of $ 2.2 million, and consideration payable of $ 0.6 million.

Additionally, the Company is subject to contingent consideration payments for two of these acquisitions, and recorded a preliminary fair value estimate of $ 7.3 million in relation to these contingent consideration arrangements at acquisition.

Contingent consideration of up to $ 1.2 million may be payable within one year from the date of acquisition if certain performance targets are met for one of the acquisitions, and contingent consideration is payable in 2026 based on certain financial metrics for the other acquisition.

The Company recorded goodwill of $ 39.5 million related to the full service center-based child care segment, of which $ 3.4 million will be deductible for tax purposes, and $ 14.6 million related to the back-up care segment, all of which will be deductible for tax purposes.

In addition, the Company recorded intangible assets of $ 5.7 million that will be amortized over five years , as well as fixed assets of $ 10.1 million in relation to these acquisitions.

The allocation of purchase price consideration is based on preliminary estimates of fair value;

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The acquisitions completed in 2021 contributed revenue of $ 15.6 million during the year ended December 31, 2021.

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

2020 Acquisitions

These businesses were acquired for cash consideration of $ 8.1 million, net of cash acquired of $ 1.3 million, and consideration payable of $ 0.1 million, and included fixed assets and technology of $ 4.1 million, as well as a trade name of $ 0.7 million that will be amortized over five years .

The Company recorded goodwill of $ 2.0 million related to the educational advisory and other services segment and $ 2.1 million related to the full service center-based child care segment, all of which will be deductible for tax purposes.

During the year ended December 31, 2020, the Company paid $ 1.2 million for contingent consideration related to acquisitions completed in 2018 and 2019, which had been recorded as a liability at the date of acquisition.

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Of this settlement, $ 3.5 million was for deferred consideration payable related to an acquisition completed in 2018, and $ 0.7 million was the final installment for contingent consideration related to an acquisition completed in 2016.

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2018 Acquisitions

During the year ended December 31, 2018, the Company acquired ten centers in the Netherlands, six centers in the United States, and 20 centers in the United Kingdom, in seven separate business acquisitions, which were each accounted for as a business combination.

The centers were acquired for cash consideration of $ 66.8 million, net of cash acquired of $ 4.2 million, and consideration payable of $ 5.4 million.

The Company recorded goodwill of $ 60.3 million related to the full-service center-based child care segment, of which $ 13.9 million will be deductible for tax purposes.

In addition, the Company recorded intangible assets of $ 8.6 million, consisting of trade names and customer relationships that will be amortized over two to five years , as well as fixed assets of $ 8.3 million, working capital of $ 1.1 million and deferred tax liabilities of $ 1.9 million in relation to these acquisitions.

During the year ended December 31, 2018, the Company paid $ 3.1 million for the settlement of a portion of the contingent consideration related to an acquisition completed in 2016, of which $ 3.0 million was accrued contingent consideration at acquisition with the remaining balance recorded to the income statement.

GOODWILL AND INTANGIBLE ASSETS

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

child care Back-up

care Educational

advisory and other services Total

child care Back-up care Educational

other services Total

(In thousands)

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December 31, 2021:

Weighted average amortization

period Cost Accumulated

Weighted average amortization period Cost Accumulated

amortization Net carrying

(In thousands)

Definite-lived intangibles:

Definite-lived intangible assets:

Customer relationships 14 years $ 400,399 $ ( 332,571 ) $ 67,828

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412,757 ( 342,721 ) 70,036

Indefinite-lived intangibles:

Indefinite-lived intangible assets:

Trade names N/A 180,996 — 180,996

$ 593,753 $ ( 342,721 ) $ 251,032

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December 31, 2020:

Weighted average amortization

period Cost Accumulated

Weighted average amortization period Cost Accumulated

amortization Net carrying

(In thousands)

Definite-lived intangibles:

Definite-lived intangible assets:

Customer relationships 14 years $ 402,319 $ ( 310,587 ) $ 91,732

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413,538 ( 320,220 ) 93,318

Indefinite-lived intangibles:

Indefinite-lived intangible assets:

Trade names N/A 181,302 — 181,302

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2024 $ 12,174

2024 $ 11,242

PREPAID EXPENSES AND OTHER CURRENT ASSETS

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Investments in available-for-sale debt securities $ 22,712 $ 21,493

Government support program receivables 8,372 —

Prepaid software and licenses 6,341 5,849

Prepaid workers’ compensation claims 5,268 4,150

Prepaid insurance 5,810 4,158

Prepaid income taxes 4,849 322

Restricted cash 4,301 4,121

Prepaid rent and other occupancy costs 3,581 3,371

Government support program receivables 3,333 8,372

Other prepaid expenses and current assets 17,393 15,538

$ 68,320 $ 63,224

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Fixed assets consisted of the following:

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Accrued payroll and employee benefits $ 102,254 $ 89,555

Accounts payable 29,958 31,600

Accrued insurance 19,746 17,450

Accrued occupancy costs 10,826 7,632

Accounts payable 8,503 29,958

Accrued professional fees 8,062 9,735

Other accrued expenses 47,975 40,221

$ 197,366 $ 194,551

Payroll taxes deferred pursuant to the provisions of the CARES Act totaling $ 10.2 million are recorded in accrued payroll and employee benefits as of December 31, 2020.

Payroll taxes deferred pursuant to the provisions of the CARES Act totaling $ 7.0 million and $ 10.2 million are recorded in accrued payroll and employee benefits as of December 31, 2021 and 2020 respectively.

Accrued insurance primarily consisted of reserves for claims associated with workers’ compensation and general liability.

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Customer amounts on deposit $ 23,129 $ 24,778

Interest rate swaps 4,775 —

Liability for unvested restricted stock 4,178 4,424

Income taxes payable 3,660 6,671

Contingent consideration payable for business combinations 19,219 —

Liability for unvested restricted stock 4,030 4,178

Government support 3,927 —

Interest rate swaps — 4,775

Other current liabilities 12,725 6,662

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CREDIT ARRANGEMENTS AND DEBT OBLIGATIONS

Senior Secured Credit Facilities

The Company’s senior secured credit facilities consisted of a secured term loan facility (“term loan facility”) and a $ 400 million multi-currency revolving credit facility (“revolving credit facility”).

The term loans mature on November 7, 2023 and require quarterly principal payments of $ 2.7 million, with the remaining principal balance due on November 7, 2023.

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Outstanding term loan borrowings were as follows:

Long term debt obligations were as follows:

(In thousands)

Term loans $ 1,034,688 $ 1,045,438

Term loan B $ 600,000 $ 1,034,688

Term loan A 400,000 —

Deferred financing costs and original issue discount ( 7,604 ) ( 3,801 )

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Long-term debt $ 976,396 $ 1,020,137

The revolving credit facility matures on July 31, 2022.

There were no borrowings outstanding on the revolving credit facility at both December 31, 2020 and 2019.

Senior Secured Credit Facilities

On November 23, 2021, the Company amended its existing senior secured credit facilities to refinance the existing secured term loan facility with a new term loan B facility (“term loan B”) of $ 600 million and a new term loan A facility (“term loan A”) of $ 400 million, collectively the “term loan facilities” or “term loans.” Proceeds of $ 1 billion from the new term loans, together with cash on hand, were used to repay $ 1.03 billion in outstanding term loans and related fees and expenses.

The terms of the existing $ 400 million multi-currency revolving credit facility (“revolving credit facility”) were not modified in the November 2021 amendment.

The repayment of the existing term loan was treated as a debt extinguishment.

In conjunction with the issuance of the new term loans, the Company incurred $ 7.7 million in fees that have been recorded as a reduction to long term debt and are amortized over the terms of the related debt instruments.

A loss on the extinguishment of the existing term loan of $ 2.6 million was recorded in the year ended December 31, 2021, related to the unamortized original issue cost and deferred financing fees that were written off in connection with the November 2021 debt refinancing.

All borrowings under the credit agreement are subject to variable interest.

Effective as of May 31, 2018, borrowings under the term loan facility bear interest at a rate per annum of 0.75 % over the base rate, or 1.75 % over the eurocurrency rate, which is the one, two, three or six month LIBOR rate or, with applicable lender approval, the twelve month or less than one month LIBOR rate.

With respect to the term loan facility, the base rate is subject to an interest rate floor of 1.75 % and the eurocurrency rate is subject to an interest rate floor of 0.75 %.

Effective as of April 24, 2020, borrowings under the revolving credit facility bear interest at a rate per annum ranging from 0.50 % to 1.25 % over the base rate, or 1.50 % to 2.25 % over the eurocurrency rate, and the unused commitment fee applicable to the revolving credit commitments ranges from 30 to 50 basis points.

Prior to the April 2020 credit amendment, borrowings under the revolving credit facility bore interest at a rate per annum ranging from 0.50 % to 0.75 % over the base rate, or 1.50 % to 1.75 % over the eurocurrency rate.

The effective interest rate for the term loans was 2.29 % and 2.50 % at December 31, 2021 and 2020, respectively, and the weighted average interest rate was 2.51 %, 2.79 %, and 4.07 % for the years ended December 31, 2021, 2020, and 2019, respectively, prior to the effects of any interest rate hedge arrangements.

The weighted average interest rate for the revolving credit facility was 3.75 %, 4.49 %, and 4.20 % for the years ended December 31, 2021, 2020, and 2019, respectively.

Certain financing fees and original issue discount costs are capitalized and are being amortized over the terms of the related debt instruments and amortization expense is included in interest expense.

Amortization expense of deferred financing costs was $ 2.4 million, $ 1.5 million and $ 1.5 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Amortization expense of original issue discount costs was $ 0.4 million for each of the years ended December 31, 2020, 2019, and 2018.

All obligations under the senior secured credit facilities are secured by substantially all of the assets of the Company’s U.S.

Term Loan B Facility

The seven year term loan B matures on November 23, 2028 and requires quarterly principal payments equal to 1 % per annum of the original aggregate principal amount of the term loan B, with the remaining principal balance due at maturity.

Effective as of November 23, 2021, borrowings under the term loan B facility bear interest at a rate per annum of 1.25 % over the base rate, or 2.25 % over the eurocurrency rate.

The eurocurrency rate is the one, three or six month LIBOR rate or, with applicable lender approval, the nine or twelve month or less than one month LIBOR rate, subject to an interest rate floor of 0.50 %.

The base rate is subject to an interest rate floor of 1.50 %.

Prior to the November 2021 credit amendment, borrowings under the term loan facility bore interest at a rate per annum of 0.75 % over the base rate, subject to an interest rate floor of 1.75 %, or 1.75 % over the eurocurrency rate, subject to an interest rate floor of 0.75 % and had an original maturity date of November 7, 2023.

Term Loan A Facility

The five year term loan A matures on November 23, 2026 and requires quarterly principal payments equal to 2.5 % per annum of the original aggregate principal amount of the term loan A in each of the first three years, 5 % in the fourth year, and 7.5 % in the fifth year.

The remaining principal balance is due at maturity.

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

The eurocurrency rate is the one, three or six month LIBOR rate or, with applicable lender approval, the nine or twelve month or less than one month LIBOR rate.

Revolving Credit Facility

The $ 400 million multi-currency revolving credit facility matures on May 26, 2026.

There were no borrowings outstanding on the revolving credit facility at both December 31, 2021 and 2020.

On May 26, 2021, the Company amended its existing senior secured credit facilities to, among other changes, extend the revolving credit facility maturity date from July 31, 2022 to May 26, 2026, and reduce the interest rates applicable to borrowings outstanding on the revolving credit facility.

In conjunction with this credit amendment, the Company incurred $ 2.1 million in fees that have been capitalized in other assets on the consolidated balance sheet and are amortized over the contractual life of the revolving credit facility.

In April and May 2020, the Company amended its existing senior secured credit facilities to, among other things, increase the borrowing capacity of the revolving credit facility from $ 225 million to $ 400 million, modify the interest rates applicable to borrowings outstanding on the revolving credit facility, and modify the terms of the applicable covenants.

In conjunction with these credit amendments, the Company incurred $ 2.8 million in fees that have been capitalized in other assets on the consolidated balance sheet and were being amortized over the contractual life of the revolving credit facility.

Effective as of May 26, 2021, borrowings under the revolving credit facility bear interest at a rate per annum ranging from 0.50 % to 0.75 % over the base rate, subject to an interest rate floor of 1.00 %, or 1.50 % to 1.75 % over the eurocurrency rate.

Prior to the May 2021 credit amendment, borrowings under the revolving credit facility bore interest at a rate per annum ranging from 0.50 % to 1.25 % over the base rate, or 1.50 % to 2.25 % over the eurocurrency rate.

Debt Covenants

All obligations under the senior secured credit facilities are secured by substantially all the assets of the Company’s material U.S.

subsidiaries.

The senior secured credit facilities contain a number of covenants that, among other things and subject to certain exceptions, may restrict the ability of Bright Horizons Family Solutions LLC, the Company’s wholly-owned subsidiary, and its restricted subsidiaries, to:

incur certain liens;

make investments, loans, advances and acquisitions;

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In addition, the credit agreement governing the senior secured credit facilities requires Bright Horizons Capital Corp., the Company's direct subsidiary, to be a passive holding company, subject to certain exceptions.

Effective as of April 24, 2020, the revolving credit facility requires Bright Horizons Family Solutions LLC, the borrower, and its restricted subsidiaries, to comply with a maximum first lien gross leverage ratio for four fiscal quarters, followed by a maximum first lien net leverage ratio in the quarters thereafter.

The maximum first lien gross leverage ratio was 6.00 to 1.00 for the fiscal quarter ending June 30, 2020, 7.50 to 1.00 for the fiscal quarter ending September 30, 2020, 8.00 to 1.00 for the fiscal quarter ending December 31, 2020, and 7.50 to 1.00 for the fiscal quarter ending March 31, 2021.

Beginning with the fiscal quarter ending June 30, 2021, the Company will be required to comply with its previous maximum first lien net leverage ratio of 4.25 to 1.00.

The term loan A facility and the revolving credit facility require Bright Horizons Family Solutions LLC, the borrower, and its restricted subsidiaries, to comply with a maximum first lien net leverage ratio not to exceed 4.25 to 1.00.

A breach of the applicable covenant is subject to certain equity cure rights.

Prior to the April 2020 credit amendment, the Company was required to comply with a maximum first lien net leverage ratio.

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

Long-term debt

(In thousands)

2022 $ 16,000

2023 1,013,188

Thereafter 570,000

Total future principal payments $ 1,000,000

Credit Amendments

In April 2020, the Company amended its existing senior credit facilities to, among other things, increase the borrowing capacity of the revolving credit facility from $ 225 million to $ 385 million, modify the interest rates applicable to borrowings outstanding on the revolving credit facility, and modify the terms of the applicable covenants.

In May 2020, the Company further increased the borrowing capacity of its revolving credit facility from $ 385 million to $ 400 million.

In conjunction with the April and May 2020 credit amendments, the Company incurred $ 2.8 million in fees that have been capitalized in other assets on the consolidated balance sheet and will be amortized over the remaining life of the revolving credit facility.

In May 2018, the Company amended its existing senior credit facilities to, among other changes, reduce the applicable interest rates of the term loan facility and the revolving credit facility.

The Company incurred $ 1.0 million in fees associated with this amendment in the year ended December 31, 2018, which were included in selling, general and administrative expenses.

Derivative Financial Instruments

The Company is subject to interest rate risk as all borrowings under the senior secured credit facilities are subject to variable interest rates.

In October 2017, the Company entered into variable-to-fixed interest rate swap agreements to mitigate the exposure to variable interest arrangements on $ 500 million notional amount of the outstanding term loan borrowings.

These swap agreements, designated and accounted for as cash flow hedges from inception, are scheduled to mature on October 31, 2021.

The Company is required to make monthly payments on the notional amount at a fixed average interest rate, plus the applicable rate for eurocurrency loans.

Effective as of May 31, 2018, the notional amount is subject to a total interest rate of approximately 3.65 %.

In exchange, the Company receives interest on the notional amount at a variable rate based on the one-month LIBOR rate, subject to a 0.75 % floor.

The Company's risk management policy permits using derivative instruments to manage interest rate and other risks.

The Company uses interest rate swaps and caps to manage a portion of the risk related to changes in cash flows from interest rate movements.

In June 2020, the Company entered into interest rate cap agreements with a total notional value of $ 800 million, designated and accounted for as cash flow hedges from inception, to provide the Company with interest rate protection in the event the one-month LIBOR rate increases above 1 %.

Interest rate cap agreements for $ 300 million notional value have an effective date of June 30, 2020 and expire on October 31, 2023, while interest rate cap agreements for another $ 500 million notional amount have a forward starting effective date of October 29, 2021, which coincides with the maturity of the interest rate swap agreements, and expire on October 31, 2023.

Interest rate cap agreements for $ 300 million notional value have an effective date of June 30, 2020 and expire on October 31, 2023, while interest rate cap agreements for another $ 500 million notional amount have an effective date of October 29, 2021 and expire on October 31, 2023.

In December 2021, the Company entered into additional interest rate cap agreements with a total notional value of $ 900 million designated and accounted for as cash flow hedges from inception.

Interest rate cap agreements for $ 600 million, which have a forward starting effective date of October 31, 2023 and expire on October 31, 2025, provide the Company with interest rate protection in the event the one-month LIBOR rate increases above 2.5 %.

Interest rate cap agreements for $ 300 million, which have a forward starting effective date of October 31, 2023 and expire on October 31, 2026, provide the Company with interest rate protection in the event the one-month LIBOR rate increases above 3.0 %.

In October 2017, the Company entered into variable-to-fixed interest rate swap agreements on $ 500 million notional amount of the outstanding term loan borrowings.

These swap agreements, designated and accounted for as cash flow hedges from inception, matured on October 31, 2021.

The Company was required to make monthly payments on the notional amount at a fixed average interest rate, plus the applicable rate for eurocurrency loans.

Effective as of May 31, 2018, the notional amount was subject to a total interest rate of approximately 3.65 %.

In exchange, the Company received interest on the notional amount at a variable rate based on the one-month LIBOR rate, subject to a 0.75 % floor.

The interest rate swaps and interest rate caps are recorded on the Company’s consolidated balance sheet at fair value and classified based on the instruments’ maturity dates.

The Company records gains and losses resulting from changes in the fair value of the interest rate swaps and interest rate caps to accumulated other comprehensive income or loss.

These gains and losses are subsequently reclassified into earnings and recognized to interest expense in the Company’s consolidated statement of income in the period that the hedged interest expense on the term loan facility is recognized.

The premium paid for the interest rate cap was recorded as an asset and will be allocated to each of the individual hedged interest payments on the basis of their relative fair values.

The Company records gains and losses resulting from changes in the fair value of the interest rate swaps and interest rate caps to accumulated other comprehensive income or loss, inclusive of the related income tax effects.

The premium paid for each interest rate cap agreement was recorded as an asset and will be allocated to each of the individual hedged interest payments on the basis of their relative fair values.

The change in each respective allocated fair value amount will be reclassified out of accumulated other comprehensive income when each of the hedged forecasted transactions impacts earnings and recognized to interest expense in the Company’s consolidated statement of income.

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(In thousands)

Interest rate swaps - liability Other current liabilities $ 4,775 $ —

Interest rate swaps - liability Other long-term liabilities $ — $ 2,850

Interest rate caps - asset Other assets $ 8,809 $ 277

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Interest rate swaps - liability Other current liabilities $ — $ 4,775

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

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Net of income taxes $ ( 6,508 ) $ 1,351 $ ( 7,859 )

During the next twelve months, the Company estimates that a net loss of $ 4.9 million, pre-tax, will be reclassified from accumulated other comprehensive income (loss) and recorded to interest expense, related to these derivative financial instruments.

During the next twelve months, the Company estimates that a net loss of $ 0.5 million, pre-tax, will be reclassified from accumulated other comprehensive income and recorded to interest expense related to these derivative financial instruments.

Income (loss) before income taxes consisted of the following:

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The allocation of income before income taxes may fluctuate year to year due to activity within the Bright Horizons consolidated group.

Included in the 2021 and 2020 U.S.

and foreign income (loss) before income taxes is intercompany interest.

Income tax expense (benefit) consisted of the following:

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Income tax expense (benefit) $ 19,889 $ ( 11,340 ) $ 42,279

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The CARES Act provided a technical correction regarding Qualified Improvement Property (“QIP”) and the election to take bonus depreciation on such property.

This correction allows taxpayers to retroactively accelerate depreciation on QIP.

The Federal current and deferred benefit for 2020 includes the impact of a $ 10 million acceleration of the tax deduction for depreciation related to 2019 additions.

In 2020, the CARES Act provided a technical correction regarding Qualified Improvement Property (“QIP”) and the election to take bonus depreciation on such property.

This correction allowed taxpayers to retroactively accelerate depreciation on QIP.

The Federal current and deferred benefit for 2020 included the impact of a $ 10 million acceleration of the tax deduction for depreciation related to 2019 additions.

The following is a reconciliation of the U.S.

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Permanent differences and other — net 2,733 1,655 1,940

Change in contingent consideration 1,212 — —

Stock-based compensation ( 6,133 ) ( 12,901 ) ( 10,990 )

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corporate tax rate.

The effective income tax rate for 2021 was 22.0 %.

Based on the Company’s jurisdictional mix of taxable income, there was no additional federal income tax expense attributable to GILTI for 2021.

Income tax expense was reduced by $ 7.8 million in 2021 for the excess tax benefits associated with the exercise of stock options and vesting of restricted stock.

The effective income tax rate for 2020 was a benefit of ( 72.5 )% and includes current tax benefit of $ 3.4 million related to prior years and a $ 1.4 million retroactive reduction of GILTI for taxable years 2018 and 2019 for the high-tax exclusion that was included in the updated GILTI regulations.

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Additionally, income tax expense was reduced by $ 13.9 million in 2019 for the excess tax benefits associated with the exercise of stock options and vesting of restricted stock.

The effective income tax rate for 2018 was 17.5 %.

The GILTI regime resulted in additional federal income tax expense of $ 2.9 million during the year.

Additionally, income tax expense was reduced by $ 12.1 million in 2018 for the excess tax benefits associated with the exercise of stock options and vesting of restricted stock.

Included in permanent differences and other — net in the rate reconciliation above is a $ 3.7 million benefit related to finalizing intercompany interest deductions for prior year foreign tax returns.

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Significant components of the Company’s net deferred tax liability were as follows:

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Net deferred tax liability $ ( 48,368 ) $ ( 45,951 )

At December 31, 2021, the net deferred tax liability of $ 48.4 million includes foreign deferred tax assets of $ 0.1 million, which are included in other assets in the consolidated balance sheet.

The Company has foreign net operating loss carryforwards of $ 2.0 million and has recorded an associated deferred tax asset totaling $ 0.5 million.

The net operating losses are in certain foreign jurisdictions and can be carried forward indefinitely.

These net operating losses can be carried forward indefinitely.

During the year ended December 31, 2021, the Company released a valuation allowance of $ 1.8 million on foreign deferred tax assets.

The Company assesses available positive and negative evidence to estimate if there is sufficient future taxable income to use the existing deferred tax assets.

Based on the weight of evidence, the Company determined that it was more likely than not that a portion of the deferred tax assets would not be realized.

A $ 0.3 million valuation allowance remains on U.S.

deferred tax assets as of December 31, 2021.

During the year ended December 31, 2020, the Company recorded a valuation allowance on $ 2.1 million of deferred tax assets.

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Based on the weight of evidence, the Company determined that it was more likely than not that the deferred tax assets would not be realized.

At December 31, 2019, the net deferred tax liability of $ 58.8 million includes deferred tax assets of $ 0.1 million which are included in other assets in the consolidated balance sheet.

The Company considers the earnings of certain non-U.S.

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Additions for tax positions of prior years 343 118 755

Additions for tax positions of current year — — 684

Settlements ( 363 ) — —

Reductions for tax positions of prior years ( 55 ) — ( 2,507 )

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Ending balance $ 2,584 $ 2,929 $ 3,725

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The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense, which were immaterial for each of the years ended December 31, 2021, 2020 and 2019.

Total interest and penalties accrued as of December 31, 2021 was $ 1.3 million.

In 2021, the Company reduced unrecognized tax benefits by $ 0.3 million for lapse of statute of limitations, and $ 0.4 million for settlements with states.

In 2020, the Company reduced unrecognized tax benefits by $ 0.9 million for lapse of statute of limitations, and recorded an unrecognized tax benefit for prior year tax positions in the U.S.

In 2019, the Company reduced unrecognized tax benefits by $ 2.5 million for prior year tax positions of foreign subsidiaries.

During 2018, the Company recorded unrecognized tax benefits for the U.S.

and a foreign subsidiary’s prior year tax positions.

The total amount of unrecognized tax benefits that if recognized would affect the Company’s effective tax rate is $ 3.9 million, inclusive of interest.

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The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.

As of December 31, 2020, there were two income tax audits in process and the tax years from 2016 to 2019 are subject to audit.

As of December 31, 2021, there was one income tax audit in process and the tax years from 2017 to 2020 are subject to audit.

The Company is also subject to corporate income tax at its subsidiaries located in the United Kingdom, the Netherlands, India, Ireland and Puerto Rico.

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Long-term Debt — The Company’s long-term debt is recorded at adjusted cost, net of original issue discounts and deferred financing costs.

The fair value of the Company’s long-term debt is based on current bid prices, which approximates carrying value.

The fair value of the Company’s long-term debt is based on current bid prices or prices for similar instruments from active markets, which approximates carrying value.

As such, the Company’s long-term debt was classified as Level 2.

As of December 31, 2020, the carrying value and estimated fair value of long-term debt was $ 1.03 billion and $ 1.02 billion, respectively.

As of December 31, 2019, the carrying value and estimated fair value of long-term debt was $ 1.05 billion.

Derivative Financial Instruments — The Company’s interest rate swap agreements and interest rate cap agreements are recorded at fair value, which were estimated using market-standard valuation models.

Derivative Financial Instruments — The Company’s derivative financial instruments, comprised of interest rate cap agreements and interest rate swap agreements, are recorded at fair value and estimated using market-standard valuation models.

Such models project future cash flows and discount the future amounts to a present value using market-based observable inputs.

Additionally, the fair value of the interest rate swaps and interest rate caps included consideration of credit risk.

Additionally, the fair value of the derivative financial instruments included consideration of credit risk.

The Company used a potential future exposure model to estimate this credit valuation adjustment (“CVA”).

The inputs to the CVA were largely based on observable market data, with the exception of certain assumptions regarding credit worthiness.

As the magnitude of the CVA was not a significant component of the fair value of the interest rate swaps and interest rate caps, it was not considered a significant input.

The fair value of the interest rate swaps and interest rate caps are classified as Level 2.

As of December 31, 2020 and 2019, the fair value of the interest rate swap agreements was a liability of $ 4.8 million and $ 2.9 million, which were recorded in other current liabilities and other long-term liabilities on the consolidated balance sheet, respectively.

As the magnitude of the CVA was not a significant component of the fair value of the derivative financial instruments, it was not considered a significant input.

The fair value of the derivative financial instruments are classified as Level 2.

The Company's interest rate swap agreements matured on October 31, 2021.

As of December 31, 2021, the fair value of the interest rate cap agreements was $ 8.8 million, which was recorded in other assets on the consolidated balance sheet.

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Debt Securities — The Company’s investments in debt securities, which are classified as available-for-sale, consisted of U.S.

As of December 31, 2020, the fair value of the interest rate swap agreements was $ 4.8 million, which was recorded in other current liabilities on the consolidated balance sheet and the fair value of the interest rate cap agreements was $ 0.3 million, which was recorded in other assets on the consolidated balance sheet.

Debt Securities — The Company’s investments in debt securities, which are classified as available-for-sale, consist of U.S.

Treasury and U.S.

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As such, these securities are not available to fund the Company’s operations.

These securities are recorded at fair value using quoted prices available in active markets.

As such, the Company’s debt securities are classified as Level 1.

These securities are recorded at fair value using quoted prices available in active markets and are classified as Level 1.

As of December 31, 2021, the fair value of the available-for-sale debt securities was $ 29.9 million and was classified based on the instruments’ maturity dates, with $ 22.7 million included in prepaid expenses and other current assets and $ 7.2 million in other assets on the consolidated balance sheet.

As of December 31, 2020, the fair value of the available-for-sale debt securities was $ 27.9 million, with $ 21.5 million included in prepaid expenses and other current assets and $ 6.4 million in other assets on the consolidated balance sheet.

Liabilities for Contingent Consideration — The Company is subject to contingent consideration arrangements in connection with certain business combinations as disclosed in Note 5, Acquisitions .

Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration payable for the related business combination and subsequent changes in fair value recorded to selling, general and administrative expenses in the Company’s consolidated statements of income.

The fair value of the contingent consideration was calculated using a real options model based on probability-weighted outcomes of meeting certain future performance targets and related to a 2019 acquisition.

The key inputs to the valuation are the projections of future financial results in relation to the business.

The Company classified the contingent consideration liability as a Level 3 fair value measurement due to the lack of observable inputs used in the model.

The following table provides a roll forward of the fair value of recurring Level 3 fair value measurements:

Liabilities for Contingent Consideration — The Company is subject to contingent consideration arrangements in connection with certain business combinations.

Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration payable for the related business combination and subsequent changes in fair value recorded to selling, general and administrative expenses on the Company’s consolidated statement of income.

The fair value of contingent consideration was generally calculated using customary valuation models based on probability-weighted outcomes of meeting certain future performance targets and forecasted results.

The key inputs to the valuations are the projections of future financial results in relation to the business and the company-specific discount rates.

The Company classified the contingent consideration liabilities as a Level 3 fair value measurement due to the lack of observable inputs used in the model.

The contingent consideration liabilities outstanding as of December 31, 2021 related to 2019 and 2021 acquisitions.

The contingent consideration liabilities outstanding as of December 31, 2020 related to a 2019 acquisition.

See Note 5, Acquisitions , for additional information.

The following table provides a roll forward of the recurring Level 3 fair value measurements:

Years ended December 31,

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Beginning balance $ 13,721 $ 15,987

Issuance of contingent consideration in connection with acquisitions — 13,870

Contingent consideration issued for acquisitions 7,337 —

Settlements of contingent consideration liabilities ( 594 ) ( 1,238 )

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Ending balance $ 27,474 $ 13,721

Nonrecurring Fair Value Estimates — During the year ended December 31, 2020, the Company recognized impairment losses of $ 16.2 million and $ 10.0 million, respectively, on fixed assets and operating lease right-of-use assets for certain centers.

The impairment losses were included in cost of services on the consolidated statement of income, which have been allocated to the full-service center-based child care segment.

Nonrecurring Fair Value Estimates — During the year ended December 31, 2021, the Company recognized impairment losses of $ 10.6 million, of which $ 9.3 million related to fixed assets and $ 1.3 million related to operating lease right-of-use assets.

During the year ended December 31, 2020, the Company recognized impairment losses of $ 26.2 million, of which $ 16.2 million related to fixed assets and $ 10.0 million related to operating lease right-of-use assets.

The impairment losses were included in cost of services on the consolidated statement of income and were allocated to the full service center-based child care segment.

The estimated fair value of the applicable center long-lived assets was based on the fair value of the asset groups, calculated using a discounted cash flow model, with unobservable inputs.

The fair value of the fixed assets was insignificant given the current and expected cash flows of these centers and the valuation of the lease right-of-use-assets considered the amount a market participant would pay for use of the asset.

The fair value of the fixed assets was insignificant given the current and expected cash flows for the related centers and the valuation of the lease right-of-use-assets considered the amount a market participant would pay for use of the asset.

The Company classified the center long-lived assets as a Level 3 fair value measurement due to the lack of observable inputs used in the model.

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The impairment loss was included in cost of services on the consolidated statement of income, which has been allocated to the back-up care segment.

The estimated fair value of the equity investment was based on a qualitative assessment that considered the economic environment, business prospects and transaction information in the entity’s securities, among other factors considered.

The estimated fair value of the equity investment was based on a qualitative assessment that considered the current economic environment, business prospects and transaction information in the entity’s securities, among other factors considered.

The Company classified the equity investment as a Level 3 fair value measurement due to the lack of observable inputs.

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Preferred Stock

The Company authorized 25 million shares of undesignated preferred stock in 2013 for issuance, of which none have been issued.

The Company has 25 million shares of authorized undesignated preferred stock available for issuance, of which none have been issued.

The Company’s board of directors has the authority, without further action by stockholders, to issue up to 25 million shares of preferred stock in one or more series.

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As of December 31, 2021 and 2020, no shares of preferred stock were outstanding.

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Issuance of Stock

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Treasury Stock

The board of directors of the Company authorized a share repurchase program of up to $ 300 million of the Company’s outstanding common stock, effective June 12, 2018.

The share repurchase program has no expiration date and replaced the prior August 2016 authorization.

The board of directors of the Company authorized a share repurchase program of up to $ 400 million of the Company’s outstanding common stock, effective December 16, 2021.

The share repurchase program has no expiration date and replaced the prior June 2018 authorization, of which $ 0.2 million remained available thereunder.

The shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions, under Rule 10b5-1 plans, or by other means in accordance with federal securities laws.

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During the year ended December 31, 2020, the Company repurchased 0.2 million shares for $ 32.2 million.

During the year ended December 31, 2018, the Company repurchased 1.2 million shares for $ 126.7 million, including a total of 0.8 million shares that were purchased from investment funds affiliated with Bain Capital Partners LLC and other selling stockholders in a secondary offering at the same price per share paid by the underwriter to the selling stockholders.

Investment funds affiliated with Bain Capital Partners LLC sold their remaining holdings of the Company’s common stock in the secondary offering completed March 2018.

During the year ended December 31, 2019, the Company repurchased 0.2 million shares for $ 31.9 million.

Equity Incentive Plan

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As of December 31, 2021, there were approximately 2.0 million shares of common stock available for grant.

The equity awards that have been granted under the Plan consist of time-based stock options, restricted stock, restricted stock units, and performance stock units, which are described below.

The equity awards that have been granted under the Plan consist of time-based stock options, restricted stock, restricted stock units, and performance restricted stock units, which are described below.

Stock-Based Compensation

The Company recognized the impact of stock-based compensation in its consolidated statements of income for the years ended December 31, 2020, 2019, and 2018 and did not capitalize any amounts on the consolidated balance sheets.

The Company recognized the impact of stock-based compensation in its consolidated statement of income for the years ended December 31, 2021, 2020, and 2019 and did not capitalize any amounts on the consolidated balance sheet.

In the years ended December 31, 2021, 2020, and 2019 the Company recorded stock-based compensation expense of $ 23.1 million, $ 21.0 million, and $ 17.3 million, respectively.

Stock-based compensation expense of $ 19.1 million, $ 15.8 million, and $ 13.1 million was recorded in selling, general and administrative expenses in the years ended December 31, 2020, 2019, and 2018, respectively, and $ 1.9 million, $ 1.5 million, and $ 0.7 million was recorded in cost of services, respectively, in the consolidated statements of income in relation to all awards granted under the equity incentive plans.

Stock-based compensation expense of $ 21.0 million, $ 19.1 million, and $ 15.8 million was recorded in selling, general and administrative expenses in the years ended December 31, 2021, 2020, and 2019, respectively, and $ 2.1 million, $ 1.9 million, and $ 1.5 million was recorded in cost of services, respectively, in the consolidated statement of income in relation to all awards granted under the equity incentive plans.

Stock-based compensation expense generated a deferred income tax benefit of $ 5.2 million, $ 5.5 million, and $ 4.5 million in the years ended December 31, 2021, 2020 and 2019, respectively.

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As of December 31, 2021, there was $ 33.6 million of total unrecognized compensation expense, net of estimated forfeitures, related to unvested share-based compensation arrangements granted under the Plan.

That expense is expected to be recognized over a weighted average remaining requisite service period of approximately three years .

That expense is expected to be recognized over a weighted average remaining requisite service period of approximately two years .

Estimated forfeitures are based on the Company’s historical forfeitures and is adjusted periodically based on actual results.

There were no share-based awards classified as a liability during the year ended December 31, 2021.

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Stock Options

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Treasury zero-coupon bonds with maturities similar to those of the expected term of the awards being valued.

For grants issued during the year ended December 31, 2021, the expected life of the options was based on historical exercise behavior for similar awards, giving consideration to the contractual terms, vesting schedules, and expectations of future employee behavior.

For grants issued during the years ended December 31, 2020, and 2019, the expected life of the options was calculated using the simplified method.

The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches.

We utilized the simplified method because the Company did not have sufficient historical exercise data over the life of awards to provide a reasonable basis upon which to estimate expected term.

The following table summarizes the stock option activity under the Company’s equity plan for the year ended December 31, 2021:

Life in Years

Options Weighted

Price Aggregate

Weighted Average Remaining Contractual Life

Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value

(In millions)

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Cash proceeds from the exercise of stock options for the years ended December 31, 2021, 2020, and 2019 were $ 30.1 million, $ 31.4 million, and $ 21.8 million, respectively.

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Restricted Stock, Restricted Stock Units, and Performance Stock Units

Restricted Stock, Restricted Stock Units, and Performance Restricted Stock Units

Restricted stock awards are granted to certain senior managers at the discretion of the board of directors as allowed under the Plan.

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All outstanding shares of restricted stock are expected to vest.

Cash proceeds from the issuance of restricted stock for the years ended December 31, 2020, 2019, and 2018 were $ 7.4 million, $ 4.8 million, and $ 4.5 million, respectively.

Cash proceeds from the issuance of restricted stock for each of the years ended December 31, 2021 and 2020 were $ 7.4 million, and for the year ended December 31, 2019 were $ 4.8 million.

Stock-based compensation expense for restricted stock awards is based on the intrinsic value of the award on the date of grant.

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The weighted average grant date fair value of restricted stock units granted during the years ended December 31, 2021, 2020, and 2019 was $ 149.09 , $ 124.82 , and $ 135.14 , respectively.

Performance stock units were awarded to certain senior managers as allowed under the Plan and vest upon certain performance conditions being met.

Performance restricted stock units are awarded to certain employees as allowed under the Plan and vest upon certain performance conditions being met.

The awards allow for the issuance of a share of the Company’s common stock for each unit upon the achievement of stated performance goals, which are generally within five years from the date of the award.

The fair value of restricted stock unit awards is the closing market price of the Company’s common stock at the date of grant.

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The following table summarizes the performance stock unit activity under the Company’s equity plan for the year ended December 31, 2020:

Number of Shares Weighted Average Grant Date Fair Value Aggregate Intrinsic Value (In millions)

The fair value of performance restricted stock unit awards is the closing market price of the Company’s common stock at the date of grant.

The following table summarizes the performance restricted stock unit activity under the Company’s equity plan for the year ended December 31, 2021:

Number of Shares Weighted Average Grant Date Fair Value Aggregate Intrinsic Value

(In millions)

Performance restricted stock units at January 1, 2021 21,000 $ 121.65

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Performance restricted stock units at December 31, 2021 26,000 $ 137.57 $ 3.3

The weighted average grant date fair value of performance restricted stock units granted during the years ended December 31, 2021 and 2020 was $ 142.35 and $ 121.61 , respectively.

As of December 31, 2021, 24,350 shares of performance restricted stock units were not deemed probable of vesting.

EARNINGS PER SHARE

The following table sets forth the computation of earnings per share using the two-class method:

The following tables sets forth the computation of basic and diluted earnings per share using the two-class method:

Years ended December 31,

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Common stock $ 1.16 $ 0.45 $ 3.10

The Company calculated diluted earnings per share for common stock using the more dilutive of the treasury stock method, or the two-class method.

The following table sets forth the computation of diluted earnings per share using the two-class method:

Years ended December 31,

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Common stock $ 1.15 $ 0.45 $ 3.05

Options outstanding to purchase 0.9 million, 0.4 million, and 0.5 million shares of common stock were excluded from diluted earnings per share for the years ended December 31, 2020, 2019, and 2018, respectively, since their effect was anti-dilutive.

Options outstanding to purchase 0.9 million shares of common stock were excluded from diluted earnings per share for both the years ended December 31, 2021 and 2020, and 0.4 million shares of common stock were excluded from diluted earnings per share for the year ended December 31, 2019, since their effect was anti-dilutive.

These options may become dilutive in the future.

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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The Company’s reportable segments are comprised of (1) full service center-based child care, (2) back-up care, and (3) educational advisory and other services.

The full-service center-based child care segment includes the traditional center-based child care and early education, preschool, and elementary education.

The full service center-based child care segment includes the traditional center-based early education and child care, preschool, and elementary education.

The Company’s back-up care segment consists of center-based back-up child care, in-home child and adult/elder care, and self-sourced reimbursed care.

The Company’s educational advisory and other services segment consists of tuition assistance and student loan repayment program administration, educational consulting services, and college admissions advisory services, as well as the Sittercity business, an online marketplace for families and caregivers, which have been aggregated as they do not meet the thresholds for separate disclosure.

The Company and its chief operating decision maker evaluate performance based on revenues and income from operations.

The Company’s educational advisory and other services segment consists of tuition assistance and student loan repayment program administration, workforce education and related educational advising, college admissions advisory services, and an online marketplace for families and caregivers, which have been aggregated.

The Company and its chief operating decision maker evaluate performance based on revenue and income from operations.

Intercompany activity is eliminated in the segment results.

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therefore, no segment asset information is produced or included herein.

Revenue and income (loss) from operations by reportable segment was as follows:

center-based child care Back-up

care Educational

advisory and other services Total

Revenue and income (loss) from operations by reportable segment were as follows:

child care Back-up care Educational

other services Total

(In thousands)

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Revenue $ 1,032,266 $ 388,294 $ 94,533 $ 1,515,093

Income from operations (2)

Income (loss) from operations (2)

( 155,382 ) 182,938 25,778 53,334

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166,011 80,394 21,414 267,819

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(1) For the year ended December 31, 2020, income (loss) from operations included impairment costs of $ 28.3 million, of which $ 16.2 million related to fixed assets and $ 10.0 million related to operating lease right-of-use assets in the full-service center-based child care segment, and $ 2.1 million related to an equity investment in the back-up care segment.

(1) For the year ended December 31, 2021, loss from operations for the full service center-based child care segment included $ 10.6 million of impairment losses related to fixed assets and operating lease right-of-use assets, and $ 0.6 million of transaction costs related to completed acquisitions.

Refer to Note 13, Fair Value Measurements , for additional information on impairment losses.

(2) For the year ended December 31, 2020, income (loss) from operations included impairment losses of $ 26.2 million related to fixed assets and operating lease right-of-use assets in the full service center-based child care segment, and $ 2.1 million related to an equity investment in the back-up care segment.

Additionally, loss from operations in the full service center-based child care segment included $ 6.6 million in costs primarily associated with the closure of centers, including related severance and facilities costs.

Refer to Note 2, Summary of Significant Accounting Policies , for additional information on impairment costs.

(2) For the year ended December 31, 2019, income from operations includes $ 0.6 million of transaction costs related to completed acquisitions, of which $ 0.2 million was allocated to the full-service center-based child care segment and $ 0.4 million to the back-up care segment.

(3) For the year ended December 31, 2018, income from operations includes $ 1.9 million of transaction costs related to an amendment to the credit agreement, a secondary offering, and completed acquisitions, all of which were allocated to the full-service center-based child care segment.

Refer to Note 13, Fair Value Measurements , for additional information on impairment losses.

(3) For the year ended December 31, 2019, income from operations included $ 0.6 million of transaction costs related to completed acquisitions, of which $ 0.2 million was allocated to the full service center-based child care segment and $ 0.4 million to the back-up care segment.

Refer to Note 3, Revenue Recognition , for revenue by geographic region.

Fixed assets by geographic region were as follows:

Fixed assets 2020 2019 2018

2021 2020 2019

(In thousands)

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During the year ended December 31, 2020, the Company divested its child care center business and ceased to operate its two centers in Canada.

Fixed assets were $ 370.3 million, $ 368.5 million, and $ 346.3 million at December 31, 2020, 2019, and 2018, respectively, in the United States, and $ 225.0 million, $ 240.5 million, and $ 231.8 million at December 31, 2020, 2019, and 2018, respectively, in the United Kingdom.

Fixed assets in the United States were substantially all of the fixed assets in North America, and fixed assets in the United Kingdom were $ 213.5 million, $ 225.0 million, and $ 240.5 million at December 31, 2021, 2020, and 2019, respectively.

Fixed assets associated with other countries were not material.

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Under the 401(k) Plan, the Company matches 25 % of employee contributions for each participant up to 8 % of the employee’s compensation after one year of service.

Expense under the plan, consisting of Company contributions and plan administrative expenses paid by the Company, totaled approximately $ 3.4 million for each of the years ended December 31, 2020, 2019 and 2018.

Expense under the 401(k) Plan, consisting of Company contributions and plan administrative expenses paid by the Company, totaled approximately $ 4.1 million for the year ended December 31, 2021, and approximately $ 3.4 million for each of the years ended December 31, 2020 and 2019.

The Company maintains other defined contribution and defined benefit pension plans that cover eligible employees in the United Kingdom and the Netherlands.

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The Company holds investments in company-owned life insurance policies to offset the Company’s liabilities under the NQDC Plan.

Total investments, included in prepaid expenses and other current assets and other assets in the consolidated balance sheet, were $ 0.9 million and $ 11.5 million, respectively, at December 31, 2020.

Total investments included in prepaid expenses and other current assets and in other assets in the consolidated balance sheet were $ 1.0 million and $ 16.1 million, respectively, at December 31, 2021.

NQDC Plan liabilities, included in other current and long-term liabilities in the consolidated balance sheet, were $ 1.0 million and $ 16.2 million at December 31, 2021, respectively.

At December 31, 2019, total investments, included in other assets, were $ 9.4 million, and total plan liabilities, included in other long-term liabilities, were $ 10.0 million .

At December 31, 2020, total investments included in prepaid expenses and other assets and in other assets were $ 0.9 million, and $ 11.5 million.

respectively.

NQDC Plan liabilities, included in other current and long-term liabilities in the consolidated balance sheet, were $ 1.0 million and $ 12.3 million at December 31, 2020, respectively.

COMMITMENTS AND CONTINGENCIES

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No amounts have been drawn against these letters of credit.

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The Company is a defendant in certain legal matters in the ordinary course of business.

The Company is a defendant in certain legal matters in the ordinary course of business and records accruals for outstanding legal matters when the Company believes it is probable that a loss has been incurred, and the amount can be reasonably estimated.

The Company's accruals for outstanding legal matters are not material, individually or in the aggregate, to the Company's consolidated financial position.

Management believes the resolution of such pending legal matters will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows, although the Company cannot predict the ultimate outcome of any such actions.

The Company is currently subject to a governmental investigation and may be subject to one or more potential health and safety charges in the United Kingdom related to an incident at a Company nursery in July 2019.

The Company is unable to determine a reasonable estimate of a possible loss or range of loss associated with this unasserted matter at this time, but does not expect that this matter will have a material adverse effect on the Company’s consolidated financial position.

Insurance and Regulatory

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Management believes that the amounts accrued for these obligations are sufficient and that ultimate settlement of such claims or costs associated with claims made under these plans will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

The net assets of the captive insurance subsidiary, which are restricted for potential claims, were $ 0.9 million and $ 2.2 million as of December 31, 2020 and 2019, respectively.

The Company’s child care and early education centers are subject to numerous federal, state and local regulations and licensing requirements.

Failure of a center to comply with applicable regulations can subject it to governmental sanctions, which could require expenditures by the Company to bring its child care and early education centers into compliance.

QUARTERLY RESULTS (UNAUDITED)

In the opinion of the Company’s management, the accompanying unaudited interim consolidated financial statements contain all adjustments which are necessary for a fair presentation of the quarters presented.

The operating results for any quarter are not necessarily indicative of the results of any future quarter.

The Company’s operations were significantly impacted in 2020 due to the temporary closure of a significant portion of the Company’s child care centers, reduced enrollment at child care centers that re-opened during the year, and impairment costs and other costs primarily associated with the closure of centers.

Selected quarterly financial information follows for the years ended December 31, 2020 and 2019:

2020 June 30,

2020 September 30,

2020 December 31,

(In thousands, except share data)

Revenue $ 506,323 $ 293,772 $ 337,920 $ 377,078

Gross profit $ 108,859 $ 65,236 $ 55,171 $ 75,283

Income (loss) from operations $ 43,281 $ 8,114 $ ( 5,927 ) $ 7,866

Net income (loss) $ 30,732 $ 359 $ ( 6,654 ) $ 2,555

Allocation of net income (loss) to common stockholders:

Common stock — basic $ 30,587 $ 358 $ ( 6,654 ) $ 2,544

Common stock — diluted $ 30,589 $ 358 $ ( 6,654 ) $ 2,545

Earnings (loss) per common share:

Common stock — basic (1)

$ 0.53 $ 0.01 $ ( 0.11 ) $ 0.04

Common stock — diluted (1)

$ 0.52 $ 0.01 $ ( 0.11 ) $ 0.04

(1) Due to the losses incurred in the third quarter, earnings per common share for the annual period were calculated on a discrete period basis, and as a result, the sum of the quarterly earnings per share does not agree to the total for the year.

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2019 June 30,

2019 September 30,

2019 December 31,

(In thousands, except share data)

Revenue $ 501,758 $ 528,060 $ 511,584 $ 520,615

Gross profit $ 126,947 $ 139,621 $ 125,220 $ 131,148

Income from operations $ 62,910 $ 74,833 $ 62,629 $ 67,447

Net income $ 42,042 $ 49,327 $ 41,254 $ 47,763

Allocation of net income to common stockholders:

Common stock — basic $ 41,845 $ 49,088 $ 41,055 $ 47,532

Common stock — diluted $ 41,849 $ 49,093 $ 41,059 $ 47,535

Earnings per common share:

Common stock — basic (1)

$ 0.73 $ 0.85 $ 0.71 $ 0.82

Common stock — diluted (1)

$ 0.71 $ 0.83 $ 0.69 $ 0.81

(1) Due to rounding, the sum of the quarterly earnings per common share amounts may not agree to the total for the year.

The net assets of the captive insurance subsidiary were not material to the consolidated financial statements as of December 31, 2021 and 2020, respectively.

The Company’s early education and child care centers are subject to numerous federal, state and local regulations and licensing requirements.

Failure of a center to comply with applicable regulations can subject it to governmental sanctions, which could require expenditures by the Company to bring its early education and child care centers into compliance.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data