BRIGHT HORIZONS FAMILY SOLUTIONS INC. 10-K

Item 8. Financial Statements and Supplementary Data BRIGHT HORIZONS FAMILY SOLUTIONS INC. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 52 Consolidated Balance Sheets 54 Consolidated Statements of Income 55 Consolidated Statements of Comprehensive Income 56 Consolidated Statements of Changes in Stockholders’ Equity 57 Consolidated Statements of Cash Flows 58 Notes to the Consolidated Financial Statements 60 51 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors Bright Horizons Family Solutions Inc. Newton, Massachusetts Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Bright Horizons Family Solutions Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). 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, 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 These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 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 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. The Company recognizes revenue when a performance obligation is satisfied by transferring control of the promised services to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services. A performance obligation is a promise in a contract to transfer a distinct service to the customer. Revenue is recognized over time as control of the service is transferred to the customer. 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. 52 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to revenue included the following, among others: • We evaluated the Company’s accounting policies for compliance with the applicable revenue recognition accounting guidance. • We performed analytical procedures to test the reasonableness of recorded balances. • We performed procedures to test the transactions were recorded in the appropriate accounting period. • We selected a sample of transactions within each significant revenue stream and performed the following: ◦ Evaluated whether the transaction was accounted for in accordance with the Company’s policies. ◦ Tested the amounts recognized to source documents and tested the mathematical accuracy of the recorded revenue. /s/ Deloitte & Touche LLP Boston, Massachusetts February 25, 2022 We have served as the Company’s auditor since 2005. 53 Table of Contents BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONSOLIDATED BALANCE SHEETS December 31, 2021 2020 (In thousands, except share data) ASSETS Current assets: Cash and cash equivalents $ 260,980 $ 384,344 Accounts receivable — net of allowance for credit losses of $ 3,006 and $ 2,357 at December 31, 2021 and 2020, respectively 210,971 176,617 Prepaid expenses and other current assets 68,320 63,224 Total current assets 540,271 624,185 Fixed assets — net 598,134 628,757 Goodwill 1,481,725 1,431,967 Other intangible assets — net 251,032 274,620 Operating lease right-of-use assets 696,425 717,821 Other assets 72,460 49,298 Total assets $ 3,640,047 $ 3,726,648 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt $ 16,000 $ 10,750 Accounts payable and accrued expenses 197,366 194,551 Current portion of operating lease liabilities 87,341 87,181 Deferred revenue 258,438 197,939 Other current liabilities 63,030 40,393 Total current liabilities 622,175 530,814 Long-term debt — net 976,396 1,020,137 Operating lease liabilities 703,911 729,754 Other long-term liabilities 100,091 105,980 Deferred revenue 9,689 10,215 Deferred income taxes 48,509 45,951 Total liabilities 2,460,771 2,442,851 Commitments and contingencies (Note 19) Stockholders’ equity: Preferred stock, $ 0.001 par value; 25,000,000 shares authorized; no shares issued or outstanding at December 31, 2021 and 2020 — — Common stock, $ 0.001 par value; 475,000,000 shares authorized; 59,305,160 and 60,466,168 shares issued and outstanding at December 31, 2021 and 2020, respectively 59 60 Additional paid-in capital 745,615 910,304 Accumulated other comprehensive loss ( 37,359 ) ( 27,069 ) Retained earnings 470,961 400,502 Total stockholders’ equity 1,179,276 1,283,797 Total liabilities and stockholders’ equity $ 3,640,047 $ 3,726,648 See accompanying notes to consolidated financial statements. 54 Table of Contents BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 2021 2020 2019 (In thousands, except share data) Revenue $ 1,755,307 $ 1,515,093 $ 2,062,017 Cost of services 1,340,296 1,210,544 1,539,081 Gross profit 415,011 304,549 522,936 Selling, general and administrative expenses 256,821 219,563 221,496 Amortization of intangible assets 29,172 31,652 33,621 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 ) Income before income tax 90,348 15,652 222,665 Income tax benefit (expense) ( 19,889 ) 11,340 ( 42,279 ) Net income $ 70,459 $ 26,992 $ 180,386 Earnings per common share: Common stock — basic $ 1.16 $ 0.45 $ 3.10 Common stock — diluted $ 1.15 $ 0.45 $ 3.05 Weighted average common shares outstanding: Common stock — basic 60,312,690 59,533,104 57,838,245 Common stock — diluted 60,871,399 60,309,985 58,947,240 See accompanying notes to consolidated financial statements. 55 Table of Contents BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31, 2021 2020 2019 (In thousands) Net income $ 70,459 $ 26,992 $ 180,386 Other comprehensive income (loss): Foreign currency translation adjustments ( 15,741 ) 25,503 19,813 Unrealized gain (loss) on cash flow hedges and investments, net of tax 5,451 ( 2,241 ) ( 7,789 ) Total other comprehensive income (loss) ( 10,290 ) 23,262 12,024 Comprehensive income $ 60,169 $ 50,254 $ 192,410 See accompanying notes to consolidated financial statements. 56 Table of Contents BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Common Stock Additional Paid-in Capital Treasury Stock, at Cost Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Stockholders’ Equity Shares Amount (In thousands, except share data) Balance at January 1, 2019 57,494,468 $ 57 $ 648,651 $ — $ ( 62,355 ) $ 193,124 $ 779,477 Stock-based compensation expense 17,283 17,283 Issuance of common stock under the Equity Incentive Plan 684,974 1 25,367 25,368 Shares received in net share settlement of stock option exercises and vesting of restricted stock ( 84,021 ) — ( 11,326 ) ( 11,326 ) Purchase of treasury stock ( 31,944 ) ( 31,944 ) Retirement of treasury stock ( 211,401 ) — ( 31,944 ) 31,944 — 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 Issuance of common stock under the Equity Incentive Plan 758,309 1 35,869 35,870 Shares received in net share settlement of stock option exercises and vesting of restricted stock ( 83,428 ) — ( 12,173 ) ( 12,173 ) Purchase of treasury stock ( 32,208 ) ( 32,208 ) Retirement of treasury stock ( 231,313 ) ( 1 ) ( 32,207 ) 32,208 — Other comprehensive income 23,262 23,262 Net income 26,992 26,992 Balance at December 31, 2020 60,466,168 60 910,304 — ( 27,069 ) 400,502 1,283,797 Stock-based compensation expense 23,060 23,060 Issuance of common stock under the Equity Incentive Plan 534,729 1 34,969 34,970 Shares received in net share settlement of stock option exercises and vesting of restricted stock ( 55,985 ) — ( 8,662 ) ( 8,662 ) Purchase of treasury stock ( 214,058 ) ( 214,058 ) Retirement of treasury stock ( 1,639,752 ) ( 2 ) ( 214,056 ) 214,058 — Other comprehensive loss ( 10,290 ) ( 10,290 ) Net income 70,459 70,459 Balance at December 31, 2021 59,305,160 $ 59 $ 745,615 $ — $ ( 37,359 ) $ 470,961 $ 1,179,276 See accompanying notes to consolidated financial statements. 57 Table of Contents BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2021 2020 2019 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 70,459 $ 26,992 $ 180,386 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 108,830 111,662 108,269 Amortization of original issue discount and deferred financing costs 2,617 2,785 1,929 Impairment losses on long-lived assets 10,582 26,227 261 Impairment losses on equity investment — 2,128 — 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 ) Changes in fair value of contingent consideration 7,338 ( 1,390 ) 557 Other non-cash adjustments ( 254 ) 615 ( 2,745 ) Changes in assets and liabilities: Accounts receivable ( 34,624 ) ( 27,470 ) ( 15,718 ) Prepaid expenses and other current assets ( 4,397 ) ( 10,656 ) 1,818 Accounts payable and accrued expenses 6,238 22,998 9,032 Income taxes ( 6,781 ) ( 4,218 ) 4,999 Deferred revenue 60,198 3,686 23,038 Leases ( 5,709 ) 20,411 11,762 Other assets ( 9,813 ) 3,162 ( 904 ) Other current and long-term liabilities 1,934 23,921 1,730 Net cash provided by operating activities 227,253 209,572 330,353 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets ( 63,491 ) ( 84,740 ) ( 111,845 ) Proceeds from the disposal of fixed assets 5,829 11,906 7,080 Purchases of debt securities and other investments ( 29,912 ) ( 25,705 ) ( 28,015 ) Proceeds from the maturity of debt securities and sale of other investments 24,080 22,968 3,000 Payments and settlements for acquisitions — net of cash acquired ( 53,895 ) ( 8,254 ) ( 53,425 ) Purchase of equity method investment — — ( 5,865 ) Net cash used in investing activities ( 117,389 ) ( 83,825 ) ( 189,070 ) 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 992,298 — — Proceeds from stock issuance — net of issuance costs — 249,790 — Borrowings under revolving credit facility — 43,200 288,674 Payments under revolving credit facility — ( 43,200 ) ( 406,532 ) Principal payments of long-term debt ( 8,063 ) ( 10,750 ) ( 10,750 ) Payments for debt issuance costs ( 2,057 ) ( 2,818 ) — 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 ) Payments of deferred and contingent consideration for acquisitions ( 594 ) ( 1,238 ) ( 4,200 ) Net cash provided by (used in) financing activities ( 230,030 ) 228,996 ( 149,128 ) Effect of exchange rates on cash, cash equivalents and restricted cash ( 3,018 ) 2,530 559 Net increase (decrease) in cash, cash equivalents and restricted cash ( 123,184 ) 357,273 ( 7,286 ) Cash, cash equivalents and restricted cash — beginning of year 388,465 31,192 38,478 Cash, cash equivalents and restricted cash — end of year $ 265,281 $ 388,465 $ 31,192 See accompanying notes to consolidated financial statements. 58 Table of Contents BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Years ended December 31, 2021 2020 2019 (In thousands) RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS: Cash and cash equivalents $ 260,980 $ 384,344 $ 27,872 Restricted cash and cash equivalents, included in prepaid expenses and other current assets 4,301 4,121 3,320 Total cash, cash equivalents and restricted cash — end of year $ 265,281 $ 388,465 $ 31,192 SUPPLEMENTAL CASH FLOW INFORMATION: Cash payments of interest $ 32,242 $ 35,349 $ 43,051 Cash payments of income taxes $ 31,662 $ 10,982 $ 50,553 Cash paid for amounts included in the measurement of lease liabilities $ 141,563 $ 121,046 $ 126,071 NON-CASH TRANSACTIONS: Fixed asset purchases recorded in accounts payable and accrued expenses $ 1,957 $ 6,132 $ 4,549 Contingent consideration issued for acquisitions $ 7,337 $ — $ 13,870 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. 59 Table of Contents BRIGHT HORIZONS FAMILY SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Organization — Bright Horizons Family Solutions Inc. (“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 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation — The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP” or “U.S. GAAP”). The Company’s significant accounting policies are described below. 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. Intercompany balances and transactions have been eliminated in consolidation. 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 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. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the period and equity is translated at the historical rates. The cumulative translation effect for subsidiaries using a functional currency other than the U.S. dollar is included in accumulated other comprehensive income or loss as a separate component of stockholders’ equity. The Company’s intercompany accounts are denominated in the functional currency of the foreign subsidiary. Gains and losses resulting from the re-measurement of intercompany receivables that the Company considers to be of a long-term investment nature are recorded as a cumulative translation adjustment in accumulated other comprehensive income or loss as a separate component of stockholders’ equity, while gains and losses resulting from the re-measurement of intercompany receivables from those foreign subsidiaries for which the Company anticipates settlement in the foreseeable future are recorded in the consolidated statement of income. Concentrations of Credit Risk — Financial instruments that potentially expose the Company to concentrations of credit risk consisted mainly of cash and accounts receivable. The Company mitigates its exposure by maintaining its cash in financial institutions of high credit standing. The Company’s accounts receivable is derived primarily from the services it provides, and the related credit risk is dispersed across many clients in various industries with no single client accounting for more than 10% of the Company’s net revenue or accounts receivable. No significant credit concentration risk existed at December 31, 2021 and 2020. 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. 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. 60 Table of Contents 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. Accounts Receivable — The Company generates accounts receivable from fees charged to parents and employer sponsors, which are generally billed monthly as services are rendered or in advance, and are classified as short-term. The Company monitors collections and maintains a provision for expected credit losses based on historical trends, current conditions, and relevant forecasted information, in addition to provisions established for specific collection issues that have been identified. Activity in the allowance for credit losses was as follows: Years ended December 31, 2021 2020 2019 (In thousands) Beginning balance $ 2,357 $ 1,226 $ 2,514 Provision 2,725 2,585 840 Write offs and recoveries ( 2,076 ) ( 1,454 ) ( 2,128 ) Ending balance $ 3,006 $ 2,357 $ 1,226 Fixed Assets — Property and equipment, including leasehold improvements, are carried at cost less accumulated depreciation or amortization. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or their estimated useful lives. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the consolidated balance sheet and the resulting gain or loss is reflected in the consolidated statement of income. Expenditures for maintenance and repairs are expensed as incurred, whereas expenditures for improvements and replacements are capitalized. Depreciation is included in cost of services and selling, general and administrative expenses depending on the nature of the expenditure. Business Combinations — Business combinations are accounted for under the acquisition method of accounting. Amounts paid for an acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition. The accounting for business combinations requires estimates and judgment in determining the fair value of assets acquired and liabilities assumed, regarding expectations of future cash flows of the acquired business, and the allocation of those cash flows to the identifiable intangible assets. The determination of fair value is based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If actual results differ from these estimates, the amounts recorded in the financial statements could be impaired. Acquisition costs are expensed as incurred and recorded in selling, general and administrative expenses; integration costs associated with a business combination are expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date affect income tax expense. Goodwill and Intangible Assets — Goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of the net tangible and identifiable intangible assets acquired. The Company’s intangible assets principally consist of various customer relationships (including both client and parent relationships) and trade names. Goodwill and intangible assets with indefinite lives are not subject to amortization, but are tested annually for impairment or more frequently if there are indicators of impairment. Indefinite lived intangible assets are also subject to an annual evaluation to determine whether events and circumstances continue to support an indefinite useful life. 61 Table of Contents Goodwill impairment assessments are performed at the reporting unit level, which are the full service center-based child care and back-up care operating segments, as well as EdAssist, College Coach, and Sittercity. In performing the goodwill impairment test, the Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying value. Qualitative factors may include, but are not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s services, regulatory developments, cost factors, and entity specific factors such as overall financial performance and projected results. If an initial qualitative assessment indicates that it is more likely than not that the carrying value exceeds the fair value of a reporting unit, an additional quantitative evaluation is performed. Alternatively, the Company may elect to proceed directly to the quantitative impairment test. In performing the quantitative analysis, the Company compares the fair value of the reporting unit with its carrying amount, including goodwill. Fair value for each reporting unit is determined by estimating the present value of expected future cash flows, which are forecasted for each of the next ten years , applying a long-term growth rate to the final year, discounted using the applicable discount rate. If the fair value of the Company’s reporting unit exceeds its carrying amount, the goodwill of the reporting unit is considered not impaired. 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 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. The Company tests certain trade names that are determined to be indefinite-lived intangible assets by comparing the fair value of the trade names with their carrying value. 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, 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. 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 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 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. At contract inception, the Company assesses the services promised in the contract and identifies each distinct performance obligation. The transaction price of a contract is allocated to each distinct performance obligation using the relative stand-alone selling price and recognized as revenue when, or as, control of the service is passed to the customer. The application of these policies to the services provided by each of the Company’s segments is discussed below. 62 Table of Contents Full Service Center-Based Child Care 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: (1) a cost-plus model, where the Company is paid a fee by an employer client for managing a child care center on a cost-plus basis, and (2) a profit and loss (“P&L”) model, where the Company assumes the financial risk of operating a child care center and provides care on either an exclusive or priority enrollment basis to the employees of an employer sponsor, as well as to families in the surrounding community. In both the cost-plus and sponsor P&L models, the employer sponsor retains responsibility for the development of a new child care center (which is generally owned or leased by the sponsor), as well as ongoing maintenance and repairs. 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, 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. Tuition is determined based on the age and developmental level of the child, the child’s attendance schedule, and geographic location of the facility. The full service child care offering provided to parents represents a series of distinct services that are substantially the same and have the same pattern of transfer to the customer over time, which transfers daily. 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 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. The management fee included in contracts with employer sponsors is typically a monthly amount, and generally includes an annual escalator that is intended to reflect expected future cost increases. Annual escalators are generally stated as a percentage or as a reference to a consumer price index. The contracts also generally include a termination right with a notice period. The Company allocates revenue for contracts with an accounting term in excess of one year to the applicable contract year based on the rates applicable for that annual period, which is commensurate with the expected increases to the cost of providing the service, the Company’s standard pricing practices, as well as the overall allocation objective described in the guidance. Services provided to the employer sponsor represent a series of distinct services that are substantially the same and have the same pattern of transfer to the customer over time, which transfers daily. 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). Certain arrangements provide that the employer sponsor pay operating subsidies in lieu of, or to supplement, parent tuition. The employer subsidy for cost-plus managed centers, which consists of variable consideration, is typically calculated as the difference between parent tuition revenue and the operating costs for the center for each respective month and is recognized as revenue in the month the services are provided. The variable consideration relates specifically to efforts to transfer each distinct daily service and the allocation of the consideration earned to that distinct day in which those activities are performed is consistent with the overall allocation objective. Back-Up Care Services 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. 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, and to a network of tutoring service providers. 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. 63 Table of Contents 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. These arrangements generally have contractual terms of three years with varying terms and renewal and cancellation options. Fees for back-up care services are typically determined based on the number of back-up uses purchased, which may be fixed based on a specified number of uses or variable fees paid per use, and are generally billed monthly as services are rendered or in advance. Revenue for back-up care services is recognized over time as the services are performed and is recognized in the month the back-up services are provided. 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 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 The Company’s educational advisory services consist of tuition assistance and student loan repayment program administration, workforce education, and related educational consulting services (“EdAssist Solutions”), and college admissions advisory services (“College Coach”). 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 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. Other services consist of the Sittercity business, an online marketplace for families and caregivers. Revenue is primarily generated from subscriptions, comprised of fixed fees for the subscription period and, to a lesser extent, variable transaction fees collected from users at the point of service. Subscription fees are recognized on a straight-line basis using the time-elapsed method over the contract term, and variable transaction fees earned are allocated to that distinct transaction consistent with the overall allocation objective. Significant Judgments and Estimates The Company generally does not have significant judgments or estimates that significantly affect the determination of the amount, the allocation of the transaction price to performance obligations, or timing of revenue from contracts with customers. The nature of the Company’s services does not require significant judgment or estimates to determine when control transfers to the customer. Based on past practices and customer specific circumstances, the Company occasionally may grant concessions that impact the total transaction price. If the transaction price may be subject to adjustment, significant judgment may be required to ensure that it is probable that significant reversal in the amount of cumulative revenue recognized will not occur. As of December 31, 2021 and 2020, there were no material estimates related to the constraint of cumulative revenue recognized. Deferred Revenue — The Company’s payment terms vary by the type of services offered. Tuition collected from parents is typically billed and collected monthly in advance. Fees collected from employer sponsors may be billed annually or quarterly in advance or may be billed monthly in arrears. The Company’s standard payment terms generally align with the timing of the services performed and do not include a financing component. 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. The Company has the unconditional right to consideration as it satisfies the performance obligations, therefore no contractual assets are recognized. 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. As of December 31, 2021 and 2020, there were no material finance leases. 64 Table of Contents At contract inception, the Company reviews the terms to determine if an arrangement is a lease. At lease commencement, the Company determines whether those lease obligations are operating or finance leases and lease liabilities are recognized on the consolidated balance sheet based on the present value of the unpaid lease payments. The present value of the unpaid lease payments is calculated using the Company’s incremental borrowing rate. Lease commencement occurs on the date the Company takes possession or control of the property or equipment. Leases may contain fixed and variable payment arrangements. Variable lease payments may be based on an index or rate, such as consumer price indices, and include rent escalations or market adjustment provisions. Lease payments used to measure lease liabilities include fixed lease payments as well as variable payments that depend on an index or rate based on the applicable index or rate at the lease commencement date. Lease assets are initially measured as the amount of the initial lease liability, adjusted for initial direct costs, lease payments made at or before the commencement date, and reduced by lease incentives received, such as tenant improvement allowances. The Company does not include options to renew or terminate the lease in the determination of lease assets and lease liabilities until it is reasonably certain that the option will be exercised based on management’s assessment of various relevant factors including economic, entity-specific, and market-based factors, among others. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease payments, including those related to changes in the commencement date index or rate, are expensed as incurred. Lease expense is recognized to cost of services and selling, general and administrative expenses in the consolidated statement of income. The Company’s leases generally do not provide an implicit interest rate. Therefore, the Company uses an estimate of its incremental borrowing rate, based on the lease terms and economic environment at commencement date, in determining the present value of future payments. The Company has real estate leases that contain lease and non-lease components and has elected to account for lease and non-lease components in a contract as a single lease component. The non-lease components typically consist of common-area maintenance and utility costs. Fixed payments for non-lease components are considered part of the single lease component and included in the determination of the lease assets and lease liabilities, and variable payments are expensed as incurred. Additionally, lease contracts typically include other costs that do not transfer a separate good or service, such as reimbursement for real estate taxes and insurance, which are expensed as incurred as variable lease costs. For leases with a term of one year or less (“short-term leases”), the Company elected to not recognize the arrangements on the balance sheet and the lease payments are recognized in the consolidated statement of income on a straight-line basis over the lease term. The Company subleases certain properties that are not used in its operations. The Company’s lease agreements do not contain material restrictive covenants. Equity Method Investment — The Company accounts for its investments in entities over which the Company has significant influence, but not control, using the equity method of accounting. Under the equity method of accounting, the investment is adjusted to reflect Bright Horizons’ proportionate share of the investees’ net earnings or losses, and is reduced by the amortization of embedded intangible assets. The Company reviews the equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company accounts for its 20 % interest in a provider of full service center-based child care and back-up care services in Germany using the equity method. The equity method investment is included in other assets on the consolidated balance sheet and, as of December 31, 2021 and 2020, the investment balance was $ 6.1 million and $ 6.7 million, respectively. The impact on the results of operations were immaterial for the years ended December 31, 2021, 2020 and 2019. 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 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. These securities are recorded at fair value, with unrealized gains and losses recorded in accumulated other comprehensive income (loss). 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. 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, 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. 65 Table of Contents 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. The Company reviews such equity investments for impairment whenever events or changes in circumstances indicate that the carrying amount of such asset may not be recoverable. As of December 31, 2021 and 2020, the equity investments were $ 4.6 million and $ 1.2 million, respectively, which were recorded in other assets on the consolidated balance sheet. During the year ended December 31, 2020, the Company recognized a $ 2.1 million impairment loss on an equity investment. 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. Refer to Note 13, Fair Value Measurements , for additional information. Discount on Long-Term Debt and Deferred Financing Costs — Original issue discounts on the Company’s debt and deferred financing costs are recorded as a reduction of long-term debt and are amortized over the life of the related debt instrument in accordance with the effective interest method. Amortization expense is included in interest expense in the consolidated statement of income. Income Taxes — The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax carryforwards, such as net operating losses. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the provision for income taxes in the period that includes the enactment date. The Company records a valuation allowance to reduce the carrying amount of deferred tax assets if it is more likely than not that such asset will not be realized. Additional income tax expense is recognized as a result of recording valuation allowances. The Company does not recognize a tax benefit on losses in foreign operations where it does not have a history of profitability. 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 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. Stock-based compensation expense is recognized in the consolidated financial statements based on the grant-date fair value of the awards that are expected to vest. This expense is recognized on a straight-line basis over the requisite service period, which generally represents the vesting period of each separately vesting tranche. The Company calculates the fair value of stock options using the Black-Scholes option-pricing model. The fair value of restricted stock, restricted stock units and performance stock units is based on their intrinsic value on the date of grant. Excess tax benefits (deficiencies) associated with stock-based compensation are recognized as a component of income tax expense (benefit). 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. The Company has not recorded a deferred tax liability related to state income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries that are intended to be indefinitely reinvested. Therefore, taxes are not provided for the related currency translation adjustments. Earnings Per Share — Earnings per share is calculated using the two-class method, which requires the allocation of earnings to each class of common stock outstanding and to unvested participating shares. Unvested participating shares are unvested stock-based payment awards of restricted stock that participate equally in dividends with common stock, but do not participate in losses. Net income available to stockholders is allocated on a pro rata basis to each class of common stock outstanding and to unvested participating shares as if all of the earnings for the period had been distributed. Basic earnings per share is calculated by dividing the allocated net income by the weighted-average common shares outstanding. Diluted earnings per share is calculated by dividing net income by the weighted-average common shares and potentially dilutive securities outstanding during the period using the more dilutive of the treasury stock method or the two-class method. 66 Table of Contents 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 . The standard removes certain exceptions to the general principles in Topic 740 and improves the consistent application of U.S. GAAP by clarifying and amending certain areas of the existing guidance. 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. 3. REVENUE RECOGNITION Disaggregation of Revenue The Company disaggregates revenue from contracts with customers into segments and geographical regions. Revenue disaggregated by segment and geographical region was as follows: Full service center-based child care Back-up care Educational advisory and other services Total (In thousands) Year ended December 31, 2021 North America $ 859,237 $ 326,870 $ 106,996 $ 1,293,103 Europe 437,971 24,233 — 462,204 $ 1,297,208 $ 351,103 $ 106,996 $ 1,755,307 Year ended December 31, 2020 North America $ 695,795 $ 373,728 $ 94,533 $ 1,164,056 Europe 336,471 14,566 — 351,037 $ 1,032,266 $ 388,294 $ 94,533 $ 1,515,093 Year ended December 31, 2019 North America $ 1,223,365 $ 280,222 $ 81,681 $ 1,585,268 Europe 460,641 16,108 — 476,749 $ 1,684,006 $ 296,330 $ 81,681 $ 2,062,017 67 Table of Contents 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. 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. Deferred Revenue 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 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. Remaining Performance Obligations The Company does not disclose the value of unsatisfied performance obligations for contracts with an original contract term of one year or less, or for variable consideration allocated to the unsatisfied performance obligation of a series of services. The transaction price allocated to the remaining performance obligations relates to services that are paid or invoiced in advance. The Company’s remaining performance obligations not subject to the practical expedients were not material at December 31, 2021. 4. LEASES Lease Expense The components of lease expense were as follows: Years ended December 31, 2021 2020 2019 (In thousands) Operating lease expense (1) $ 135,318 $ 144,553 $ 126,796 Variable lease expense (1) 31,926 28,423 34,845 Total lease expense $ 167,244 $ 172,976 $ 161,641 (1) Excludes short-term lease expense and sublease income, which were immaterial for the periods presented. 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 The weighted average remaining lease term and the weighted average discount rate were as follows: December 31, 2021 2020 Weighted average remaining lease term (in years) 10 10 Weighted average discount rate 5.8 % 6.0 % 68 Table of Contents Maturity of Lease Liabilities The following table summarizes the maturity of lease liabilities as of December 31, 2021: Operating Leases (In thousands) 2022 $ 121,044 2023 129,218 2024 119,225 2025 105,607 2026 97,075 Thereafter 473,925 Total lease payments 1,046,094 Less imputed interest ( 254,842 ) Present value of lease liabilities 791,252 Less current portion of operating lease liabilities ( 87,341 ) Long-term operating lease liabilities $ 703,911 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 in fiscal 2022 and have initial lease terms of approximately 10 to 15 years. Lease Modifications 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. Such guidance allows lessees to make an election not to evaluate whether a lease concession provided by a lessor should be accounted for as a lease modification, in the event the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. Such concessions would be recorded as negative lease expense in the period of relief. The Company elected this practical expedient in accounting for lease concessions provided for the Company’s center lease agreements and the impact was immaterial. 5. ACQUISITIONS 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, 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, 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; such estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). As of December 31, 2021, the purchase price allocations for these acquisitions remain open as the Company gathers additional information regarding the assets acquired and the liabilities assumed. The operating results for the acquired businesses are included in the consolidated results of operations from the date of acquisition. The acquisitions completed in 2021 contributed revenue of $ 15.6 million during the year ended December 31, 2021. 69 Table of Contents 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 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 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. 2019 Acquisitions During the year ended December 31, 2019, the Company acquired three centers and the tuition program management division of another company in the United States, four centers in the Netherlands, and one back-up care provider in the United Kingdom, in eight separate business acquisitions, which were each accounted for as a business combination. These businesses were acquired for cash consideration of $ 53.3 million, net of cash acquired of $ 1.2 million, and consideration payable of $ 0.7 million. Additionally, contingent consideration of up to $ 20.0 million may be payable if annual performance targets through 2022 are met. The Company recorded a fair value estimate of the contingent consideration of $ 13.9 million at acquisition. The Company recorded goodwill of $ 25.4 million related to the back-up care segment, which will not be deductible for tax purposes, $ 14.0 million related to the educational advisory and other services segment, which will be deductible for tax purposes, and $ 15.2 million related to the full service center-based child care segment, of which $ 3.9 million will be deductible for tax purposes. In addition, the Company recorded intangible assets of $ 14.6 million, primarily consisting of customer relationships that will be amortized over five years , as well as fixed assets and technology of $ 3.1 million, and deferred tax liabilities of $ 1.9 million in relation to these acquisitions. During the year ended December 31, 2019, the Company paid $ 4.2 million for deferred and contingent consideration, which were accrued at the date of acquisition. 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. 6. GOODWILL AND INTANGIBLE ASSETS The changes in the carrying amount of goodwill were as follows: Full service center-based child care Back-up care Educational advisory and other services Total (In thousands) Balance at January 1, 2020 $ 1,181,230 $ 193,842 $ 37,801 $ 1,412,873 Additions from acquisitions 2,117 — 2,017 4,134 Adjustments to prior year acquisitions ( 383 ) — ( 125 ) ( 508 ) Effect of foreign currency translation 14,694 774 — 15,468 Balance at December 31, 2020 1,197,658 194,616 39,693 1,431,967 Additions from acquisitions 39,516 14,557 — 54,073 Adjustments to prior year acquisitions 3,902 — 150 4,052 Effect of foreign currency translation ( 7,980 ) ( 387 ) — ( 8,367 ) Balance at December 31, 2021 $ 1,233,096 $ 208,786 $ 39,843 $ 1,481,725 70 Table of Contents The Company also has intangible assets, which consisted of the following at December 31, 2021 and 2020: December 31, 2021: Weighted average amortization period Cost Accumulated amortization Net carrying amount (In thousands) Definite-lived intangible assets: Customer relationships 14 years $ 400,399 $ ( 332,571 ) $ 67,828 Trade names 6 years 12,358 ( 10,150 ) 2,208 412,757 ( 342,721 ) 70,036 Indefinite-lived intangible assets: Trade names N/A 180,996 — 180,996 $ 593,753 $ ( 342,721 ) $ 251,032 December 31, 2020: Weighted average amortization period Cost Accumulated amortization Net carrying amount (In thousands) Definite-lived intangible assets: Customer relationships 14 years $ 402,319 $ ( 310,587 ) $ 91,732 Trade names 6 years 11,219 ( 9,633 ) 1,586 413,538 ( 320,220 ) 93,318 Indefinite-lived intangible assets: Trade names N/A 181,302 — 181,302 $ 594,840 $ ( 320,220 ) $ 274,620 The Company recorded amortization expense of $ 29.2 million, $ 31.7 million and $ 33.6 million in the years ended December 31, 2021, 2020, and 2019, respectively. The Company estimates that it will record amortization expense related to intangible assets existing as of December 31, 2021 as follows over the next five years: Estimated amortization expense (In thousands) 2022 $ 28,157 2023 $ 26,601 2024 $ 12,174 2025 $ 1,974 2026 $ 971 71 Table of Contents 7. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consisted of the following: December 31, 2021 2020 (In thousands) Investments in available-for-sale debt securities $ 22,712 $ 21,493 Prepaid software and licenses 6,341 5,849 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 8. FIXED ASSETS Fixed assets consisted of the following: December 31, Estimated useful lives 2021 2020 (In years) (In thousands) Buildings 20 - 40 $ 206,453 $ 207,756 Furniture, equipment and software 3 - 10 282,248 283,437 Leasehold improvements Shorter of the lease term or the estimated useful life 539,766 540,828 Land — 102,405 103,996 Total fixed assets 1,130,872 1,136,017 Accumulated depreciation ( 532,738 ) ( 507,260 ) Fixed assets — net $ 598,134 $ 628,757 Fixed assets include construction in progress of $ 16.3 million and $ 34.0 million at December 31, 2021 and 2020, respectively, which was primarily comprised of leasehold improvements. The Company recorded depreciation expense of $ 79.7 million, $ 80.0 million and $ 74.6 million for the years ended December 31, 2021, 2020, and 2019, respectively. 9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following: December 31, 2021 2020 (In thousands) Accrued payroll and employee benefits $ 102,254 $ 89,555 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 $ 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. 72 Table of Contents 10. OTHER CURRENT LIABILITIES Other current liabilities consisted of the following: December 31, 2021 2020 (In thousands) Customer amounts on deposit $ 23,129 $ 24,778 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 $ 63,030 $ 40,393 11. CREDIT ARRANGEMENTS AND DEBT OBLIGATIONS Long term debt obligations were as follows: December 31, 2021 2020 (In thousands) Term loan B $ 600,000 $ 1,034,688 Term loan A 400,000 — Deferred financing costs and original issue discount ( 7,604 ) ( 3,801 ) Total debt 992,396 1,030,887 Less current maturities ( 16,000 ) ( 10,750 ) Long-term debt $ 976,396 $ 1,020,137 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. 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. 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. 73 Table of Contents 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 liens; make investments, loans, advances and acquisitions; incur additional indebtedness or guarantees; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; engage in transactions with affiliates; sell assets, including capital stock of the Company’s subsidiaries; alter the business conducted; enter into agreements restricting the Company’s subsidiaries’ ability to pay dividends; and consolidate or merge. In addition, the credit agreement governing the senior secured credit facilities requires Bright Horizons Capital Corp., the Company's direct subsidiary, to be a passive holding company, subject to certain exceptions. 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. 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 16,000 2024 18,500 2025 28,500 2026 351,000 Thereafter 570,000 Total future principal payments $ 1,000,000 74 Table of Contents 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. 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 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, inclusive of the related income tax effects. 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 facilities is recognized. 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. The fair value of the derivative financial instruments was as follows: December 31, Derivative financial instruments Consolidated balance sheet classification 2021 2020 (In thousands) Interest rate caps - asset Other assets $ 8,809 $ 277 Interest rate swaps - liability Other current liabilities $ — $ 4,775 75 Table of Contents The effect of the derivative financial instruments on other comprehensive income (loss) was as follows: Derivatives designated as cash flow hedging instruments Amount of gain (loss) recognized in other comprehensive income (loss) Consolidated statement of income classification Amount of net gain (loss) reclassified into earnings Total effect on other comprehensive income (loss) (In thousands) (In thousands) Year ended December 31, 2021 Cash flow hedges $ 2,604 Interest expense — net $ ( 4,930 ) $ 7,534 Income tax effect ( 695 ) Income tax expense 1,316 ( 2,011 ) Net of income taxes $ 1,909 $ ( 3,614 ) $ 5,523 Year ended December 31, 2020 Cash flow hedges $ ( 7,608 ) Interest expense — net $ ( 4,581 ) $ ( 3,027 ) Income tax effect 2,031 Income tax expense 1,223 808 Net of income taxes $ ( 5,577 ) $ ( 3,358 ) $ ( 2,219 ) Year ended December 31, 2019 Cash flow hedges $ ( 8,903 ) Interest expense — net $ 1,848 $ ( 10,751 ) Income tax effect 2,395 Income tax expense ( 497 ) 2,892 Net of income taxes $ ( 6,508 ) $ 1,351 $ ( 7,859 ) 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. 12. INCOME TAXES Income (loss) before income taxes consisted of the following: Years ended December 31, 2021 2020 2019 (In thousands) United States $ 121,035 $ 107,489 $ 187,511 Foreign ( 30,687 ) ( 91,837 ) 35,154 $ 90,348 $ 15,652 $ 222,665 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: Years ended December 31, 2021 2020 2019 (In thousands) Current income tax expense (benefit): Federal $ 13,240 $ ( 4,674 ) $ 32,922 State 5,078 5,971 13,379 Foreign 6,567 ( 360 ) 7,321 24,885 937 53,622 Deferred tax benefit: Federal ( 2,390 ) ( 150 ) ( 4,727 ) State ( 566 ) ( 10,971 ) ( 2,739 ) Foreign ( 2,040 ) ( 1,156 ) ( 3,877 ) ( 4,996 ) ( 12,277 ) (11,343) Income tax expense (benefit) $ 19,889 $ ( 11,340 ) $ 42,279 76 Table of Contents 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. federal statutory rate to the effective rate on pretax income: Years ended December 31, 2021 2020 2019 (In thousands) Federal income tax expense computed at statutory rate $ 18,973 $ 3,287 $ 46,760 State income tax expense (benefit) — net of federal income tax 3,140 ( 4,491 ) 8,522 Valuation allowance — net ( 1,836 ) 2,116 — Intercompany interest — — ( 5,213 ) 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 ) Unbenefited foreign loss — 233 — Change in income tax rate 817 ( 360 ) — Global Intangible Low-Taxed Income — ( 1,418 ) 1,277 Change to uncertain tax positions — net 438 ( 510 ) ( 1,931 ) Foreign rate differential 545 1,049 1,914 Income tax expense (benefit) $ 19,889 $ ( 11,340 ) $ 42,279 On December 22, 2017, the U.S. federal government enacted comprehensive tax legislation with the Tax Cuts and Jobs Act (“Tax Act”) that made changes to the U.S. tax code impacting the year ended December 31, 2017 and future years. The Tax Act introduced the Global Intangible Low-Taxed Income (“GILTI”) regime. The taxes on GILTI are accounted for as period costs when incurred. Updated GILTI regulations were released by the U.S. Treasury in July 2020 allowing retroactive annual elections to exclude GILTI that is subject to an effective foreign income tax rate exceeding ninety percent of the maximum U.S. 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. Based on the Company’s jurisdictional mix of taxable income, there was no additional federal income tax expense attributable to GILTI for 2020. Income tax expense was reduced by $ 16.2 million in 2020 for the excess tax benefits associated with the exercise of stock options and vesting of restricted stock . The effective income tax rate for 2019 was 19.0 %. The GILTI regime resulted in additional federal income tax expense of $ 1.3 million during the year. 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. 77 Table of Contents Significant components of the Company’s net deferred tax liability were as follows: December 31, 2021 2020 (In thousands) Deferred tax assets: Reserve on assets $ 390 $ 400 Net operating/capital loss carryforwards 2,005 560 Liabilities not yet deductible 10,042 14,377 Deferred revenue 3,304 3,548 Stock-based compensation 13,322 11,523 Operating lease liabilities 212,201 204,688 Other 4,609 6,414 Deferred tax assets 245,873 241,510 Less: valuation allowance ( 315 ) ( 2,116 ) Total net deferred tax assets 245,558 239,394 Deferred tax liabilities: Operating lease right-of-use assets ( 182,871 ) ( 174,961 ) Intangible assets ( 80,243 ) ( 80,515 ) Depreciation ( 30,812 ) ( 29,869 ) Total deferred tax liabilities ( 293,926 ) ( 285,345 ) 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. 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. 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 the deferred tax assets would not be realized. The Company considers the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and the Company’s specific plans for reinvestment of those subsidiary earnings. The Company has not recorded a deferred tax liability of approximately $ 1.4 million related to the state taxes and foreign withholding taxes on approximately $ 74.5 million of cumulative undistributed earnings of foreign subsidiaries indefinitely invested outside the United States. 78 Table of Contents Uncertain Tax Positions The changes in the unrecognized tax benefits were as follows: Years ended December 31, 2021 2020 2019 (In thousands) Beginning balance $ 2,929 $ 3,725 $ 5,444 Additions for tax positions of prior years 343 118 755 Settlements ( 363 ) — — Reductions for tax positions of prior years ( 55 ) — ( 2,507 ) Lapses of statutes of limitations ( 270 ) ( 854 ) — Effect of foreign currency adjustments — ( 60 ) 33 Ending balance $ 2,584 $ 2,929 $ 3,725 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. 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. The unrecognized tax benefits could change over the next 12 months if certain tax matters ultimately settle with the applicable taxing jurisdiction during this time frame, or if applicable statutes of limitations lapse. The impact of the amount of such changes to previously recorded uncertain tax positions could range from zero to $ 0.5 million. The Company and its domestic subsidiaries are subject to U.S. federal income tax as well as multiple state jurisdictions. U.S. federal income tax returns are typically subject to examination by the Internal Revenue Service (IRS) and the statute of limitations for federal income tax returns is three years. The Company’s filings for the tax years 2018 through 2020 are subject to audit based upon the federal statute of limitations. State income tax returns are generally subject to examination for a period of three to four years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. 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. The tax returns for the Company’s subsidiaries located in foreign jurisdictions are subject to examination for periods ranging from one to five years. 13. FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are classified using a three-level hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The Company uses observable inputs where relevant and whenever possible. The three levels of the hierarchy are defined as follows: Level 1 — Fair value is derived using quoted prices from active markets for identical instruments. Level 2 — Fair value is derived using quoted prices for similar instruments from active markets or for identical or similar instruments in markets that are not active; or, fair value is based on model-derived valuations in which all significant inputs and significant value drivers are observable from active markets. Level 3 — Fair value is derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. The carrying value of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses approximates their fair value because of their short-term nature. 79 Table of Contents 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 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. 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 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 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. 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. 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. 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. 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, 2021 2020 (In thousands) Beginning balance $ 13,721 $ 15,987 Contingent consideration issued for acquisitions 7,337 — Settlements of contingent consideration liabilities ( 594 ) ( 1,238 ) Changes in fair value 7,338 ( 1,390 ) Foreign currency translation ( 328 ) 362 Ending balance $ 27,474 $ 13,721 80 Table of Contents 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 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. During the year ended December 31, 2020, the Company recognized a $ 2.1 million impairment loss on an equity investment. 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 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. 14. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION Preferred Stock 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. The Company’s board of directors may designate the rights, preferences, privileges, and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, and number of shares constituting any series or the designation of any series. The issuance of preferred stock could have the effect of restricting dividends on the Company’s common stock, diluting the voting power of its common stock, impairing the liquidation rights of its common stock, or delaying or preventing a change in control. As of December 31, 2021 and 2020, no shares of preferred stock were outstanding. Issuance of Stock On April 21, 2020, the Company completed the issuance and sale of 2,138,580 shares of common stock, par value $ 0.001 per share, to Durable Capital Master Fund LP at a price of $ 116.90 per share. The Company subsequently filed a registration statement to register the resale of these shares in accordance with the terms of the purchase agreement. The Company received net proceeds from the offering of $ 249.8 million. Treasury Stock 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. During the year ended December 31, 2021, the Company repurchased 1.6 million shares for $ 214.1 million. At December 31, 2021, $ 380.6 million remained available under the repurchase program. During the year ended December 31, 2020, the Company repurchased 0.2 million shares for $ 32.2 million. During the year ended December 31, 2019, the Company repurchased 0.2 million shares for $ 31.9 million. Equity Incentive Plan The Company’s 2012 Omnibus Long-Term Incentive Plan, as Amended and Restated (the “Plan”), allows for the issuance of equity awards of up to 7.4 million shares of common stock. The Plan’s original authorization of 5.0 million shares was increased in 2019 by 2.4 million shares as approved by the Company’s stockholders on May 29, 2019. 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 restricted stock units, which are described below. 81 Table of Contents Stock-Based Compensation 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 $ 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. Income tax benefits realized from the exercise of stock options and vesting of restricted stock in the years ended December 31, 2021, 2020, and 2019 were $ 11.8 million, $ 20.1 million, and $ 16.7 million, respectively, inclusive of the excess tax benefits realized of $ 7.8 million, $ 16.2 million, and $ 13.9 million in the years ended December 31, 2021, 2020, and 2019, respectively. 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 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. Stock Options Stock options granted under the Plan are subject to a service condition and expire in seven years from date of grant or upon termination of the holder’s employment with the Company, unless such termination was due to death, disability or retirement, or unless otherwise determined by the administrator of the Plan. Stock options are granted with an exercise price equal to the closing market price of the Company’s common stock on the date of grant, generally have a requisite service period of five years , and are subject to graded vesting throughout the service term. Stock-based compensation expense for stock options is based on the fair value of the award on the date of grant. The fair value of stock options granted was estimated using the Black-Scholes option pricing model and the following weighted average assumptions: Years ended December 31, 2021 2020 2019 Expected dividend yield 0.0 % 0.0 % 0.0 % Expected stock price volatility 33.7 % 24.7 % 20.0 % Risk free interest rate 0.8 % 0.8 % 2.4 % Expected life of options (years) 5.3 5.1 5.1 Weighted average fair value per share of options granted during the period $ 48.64 $ 35.62 $ 29.16 The expected dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The expected stock price volatility assumption was determined using the historical volatility of the Company’s stock price over a term equal to the expected life of the options. The risk free interest rate was based on the U.S. Treasury rates for U.S. 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. 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. 82 Table of Contents The following table summarizes the stock option activity under the Company’s equity plan for the year ended December 31, 2021: Weighted Average Remaining Contractual Life (In years) Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value (In millions) Outstanding at January 1, 2021 4.4 2,259,475 $ 105.34 Granted 472,440 153.35 Exercised ( 416,708 ) 72.24 Forfeited/Expired ( 155,395 ) 136.65 Outstanding at December 31, 2021 4.1 2,159,812 $ 119.97 $ 38.9 Exercisable at December 31, 2021 2.3 678,948 $ 82.34 $ 30.2 Vested and expected to vest at December 31, 2021 4.1 2,043,281 $ 118.56 $ 38.6 The fair value (pre-tax) of options that vested during the years ended December 31, 2021, 2020, and 2019 was $ 16.6 million, $ 8.6 million, and $ 7.8 million, respectively. The intrinsic value of options exercised during the years ended December 31, 2021, 2020, and 2019 was $ 36.4 million, $ 60.3 million, and $ 54.4 million, respectively. 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. 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. Restricted stock awards generally vest on the earliest of the third anniversary of the grant date, a change in control of the Company, or the termination of employment by reason of death or disability, and are accounted for as non-vested stock. Restricted stock is generally sold for a price equal to 50 % of the fair value of the Company’s common stock at the date of grant. Proceeds from the issuance of restricted stock are recorded as other liabilities in the consolidated balance sheet until the earlier of vesting or forfeiture of the awards. The unvested shares of restricted stock participate equally in dividends with common stock. Restricted stock is considered legally issued at the date of grant, but is not considered common stock issued and outstanding in accordance with accounting guidance until the requisite service period is fulfilled. All outstanding shares of restricted stock are expected to vest. 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. The Company’s stock-based compensation expense recorded in selling, general and administrative expenses in the consolidated statements of income for the years ended December 31, 2021, 2020, and 2019 included $ 6.9 million, $ 5.2 million, and $ 4.2 million, respectively, for restricted stock awards. As of December 31, 2021, total unrecognized compensation expense included $ 9.6 million related to unvested restricted stock, which is expected to be recognized over the weighted average remaining requisite service period of approximately two years . The following table summarizes the restricted stock 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) Non-vested restricted stock shares at January 1, 2021 251,256 $ 67.45 Granted 105,360 81.80 Vested ( 97,780 ) 53.49 Forfeited ( 7,500 ) 82.81 Non-vested restricted stock shares at December 31, 2021 251,336 $ 79.87 $ 12.7 The fair value of restricted shares vested during the years ended December 31, 2021, 2020, and 2019 was $ 5.2 million, $ 4.7 million, and $ 3.6 million, respectively. The weighted average grant date fair value of restricted shares granted during the years ended December 31, 2021, 2020, and 2019 was $ 81.80 , $ 87.65 , and $ 63.65 , respectively. Restricted stock units are awarded to members of the board of directors as allowed under the Plan and are vested upon award. The awards allow for the issuance of a share of the Company’s common stock for each unit upon the earliest of termination of service as a member of the board of directors or five years after 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. 83 Table of Contents The following table summarizes the 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) Restricted stock units at January 1, 2021 48,660 $ 101.04 Granted 6,374 149.09 Converted ( 20,241 ) 88.52 Restricted stock units at December 31, 2021 34,793 $ 117.13 $ 4.4 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 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 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 Granted 20,000 142.35 Forfeited ( 15,000 ) 121.65 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. 15. EARNINGS PER SHARE The following tables sets forth the computation of basic and diluted earnings per share using the two-class method: Years ended December 31, 2021 2020 2019 (In thousands, except share data) Basic earnings per share: Net income $ 70,459 $ 26,992 $ 180,386 Allocation of net income to common stockholders: Common stock $ 70,154 $ 26,876 $ 179,520 Unvested participating shares 305 116 866 Net income $ 70,459 $ 26,992 $ 180,386 Weighted average common shares outstanding: Common stock 60,312,690 59,533,104 57,838,245 Unvested participating shares 257,024 255,733 278,808 Earnings per common share: Common stock $ 1.16 $ 0.45 $ 3.10 84 Table of Contents Years ended December 31, 2021 2020 2019 (In thousands, except share data) Diluted earnings per share: Earnings allocated to common stock $ 70,154 $ 26,876 $ 179,520 Plus: earnings allocated to unvested participating shares 305 116 866 Less: adjusted earnings allocated to unvested participating shares ( 302 ) ( 114 ) ( 850 ) Earnings allocated to common stock $ 70,157 $ 26,878 $ 179,536 Weighted average common shares outstanding: Common stock 60,312,690 59,533,104 57,838,245 Effect of dilutive securities 558,709 776,881 1,108,995 Weighted average common shares outstanding — diluted 60,871,399 60,309,985 58,947,240 Earnings per common share: Common stock $ 1.15 $ 0.45 $ 3.05 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. 16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive income (loss), which is included as a component of stockholders’ equity, is comprised of foreign currency translation adjustments and unrealized gains (losses) on cash flow hedges and investments, net of tax. The changes in accumulated other comprehensive income (loss) by component were as follows: Foreign currency translation adjustments (1) Unrealized gain (loss) on cash flow hedges Unrealized gain (loss) on investments Total (In thousands) Balance at January 1, 2020 $ ( 47,835 ) $ ( 2,566 ) $ 70 $ ( 50,331 ) Other comprehensive income (loss) before reclassifications — net of tax 22,622 ( 5,577 ) ( 22 ) 17,023 Less: amounts reclassified from accumulated other comprehensive income (loss) — net of tax ( 2,881 ) ( 3,358 ) — ( 6,239 ) Net other comprehensive income (loss) 25,503 ( 2,219 ) ( 22 ) 23,262 Balance at December 31, 2020 ( 22,332 ) ( 4,785 ) 48 ( 27,069 ) Other comprehensive income (loss) before reclassifications — net of tax ( 15,354 ) 1,909 ( 72 ) ( 13,517 ) Less: amounts reclassified from accumulated other comprehensive income (loss) — net of tax 387 ( 3,614 ) — ( 3,227 ) Net other comprehensive income (loss) ( 15,741 ) 5,523 ( 72 ) ( 10,290 ) Balance at December 31, 2021 $ ( 38,073 ) $ 738 $ ( 24 ) $ ( 37,359 ) (1) Taxes are not provided for the currency translation adjustments related to the undistributed earnings of foreign subsidiaries that are intended to be indefinitely reinvested. 85 Table of Contents 17. SEGMENT AND GEOGRAPHIC INFORMATION 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 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, 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. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; therefore, no segment asset information is produced or included herein. Revenue and income (loss) from operations by reportable segment were as follows: Full service center-based child care Back-up care Educational advisory and other services Total (In thousands) Year ended December 31, 2021 Revenue $ 1,297,208 $ 351,103 $ 106,996 $ 1,755,307 Income (loss) from operations (1) ( 8,431 ) 115,173 22,276 129,018 Year ended December 31, 2020 Revenue $ 1,032,266 $ 388,294 $ 94,533 $ 1,515,093 Income (loss) from operations (2) ( 155,382 ) 182,938 25,778 53,334 Year ended December 31, 2019 Revenue $ 1,684,006 $ 296,330 $ 81,681 $ 2,062,017 Income from operations (3) 166,011 80,394 21,414 267,819 (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 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: December 31, 2021 2020 2019 (In thousands) North America $ 346,030 $ 370,275 $ 369,851 Europe 252,104 258,482 266,302 Total fixed assets $ 598,134 $ 628,757 $ 636,153 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. 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 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. 86 Table of Contents 18. EMPLOYEE BENEFIT PLANS The Company maintains a 401(k) Retirement Savings Plan (the “401(k) Plan”) for all eligible employees in the United States. To be eligible for the 401(k) Plan, an employee must be at least 20 years of age and have completed their eligibility period of 60 days of service from date of hire. The 401(k) Plan is funded by elective employee contributions of up to 75 % of their compensation, subject to certain limitations. 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 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. These plans are generally funded by employee and employer contributions. Expense under these plans, including employer contributions, totaled approximately $ 10.2 million, $ 9.3 million and $ 9.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company maintains a Non-qualified Deferred Compensation Plan (the “NQDC Plan”) for eligible employees. Eligible employees are employees who have capped contribution levels in the existing 401(k) Plan due to the thresholds dictated by the IRS definition of “highly compensated” employees, as well as other employees at the Company’s discretion. The NQDC Plan is funded by elective employee contributions of up to 50 % of their base compensation and up to 100 % of other forms of compensation, as defined. Under the NQDC Plan, the Company matches 25 % of employee contributions for each participant up to $ 2,500 . 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 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, 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. 19. COMMITMENTS AND CONTINGENCIES Letters of Credit The Company has 56 letters of credit outstanding used to guarantee certain rent payments for up to $ 2.5 million. These letters of credit are secured by cash deposits included in prepaid expenses and other current assets in the consolidated balance sheet. No amounts have been drawn against these letters of credit. Litigation 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. Insurance and Regulatory The Company self-insures a portion of its medical insurance plans and has a high deductible workers’ compensation plan. Additionally, a portion of the general liability coverage is provided by the Company’s wholly-owned captive insurance entity. 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 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. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 87 Table of Contents