What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-28 compared with 2022-02-25 · 223 added, 156 removed, 1042 unchanged (27% of the section changed)

15 unchanged sentences

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”).

and subsidiaries (the “Company”) as of December 31, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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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

Revenue - Refer to Notes 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 provides center-based early education and child care, back-up child and adult/elder care, tuition assistance and student loan repayment program management, 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.

1 unchanged sentence

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.

Revenue is primarily 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.

29 unchanged sentences

Current portion of long-term debt $ 16,000 $ 16,000

Borrowings under revolving credit facility 84,000 —

Accounts payable and accrued expenses 230,634 197,366

34 unchanged sentences

Income from operations 157,585 129,018 53,334

Loss on foreign currency forward contracts ( 5,917 ) — —

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

33 unchanged sentences

Balance at January 1, 2020 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

6 unchanged sentences

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

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

Stock-based compensation expense 23,060 23,060

3 unchanged sentences

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

Other comprehensive income 23,262 23,262

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

Net income 70,459 70,459

18 unchanged sentences

Depreciation and amortization 106,142 108,830 111,662

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 —

Amortization of original issue discount and deferred financing costs, and other non-cash items 2,114 2,363 3,400

Impairment losses 14,061 10,582 28,355

Loss on extinguishment of debt — 2,571 —

Loss on foreign currency forward contracts 5,917 — —

Stock-based compensation expense 28,111 23,060 20,996

1 unchanged sentence

Changes in fair value of contingent consideration 1,305 7,338 ( 1,390 )

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

Changes in assets and liabilities:

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Payments and settlements for acquisitions — net of cash acquired ( 210,409 ) ( 53,895 ) ( 8,254 )

Purchase of equity method investment — — ( 5,865 )

Settlement of foreign currency forward contracts ( 5,917 ) — —

Net cash used in investing activities ( 278,049 ) ( 117,389 ) ( 83,825 )

25 unchanged sentences

Restricted cash and cash equivalents, included in prepaid expenses and other current assets 3,512 4,301 4,121

Restricted cash and cash equivalents, included in other assets 12,158 — —

Total cash, cash equivalents and restricted cash — end of year $ 51,894 $ 265,281 $ 388,465

5 unchanged sentences

Fixed asset purchases recorded in accounts payable and accrued expenses $ 2,704 $ 1,957 $ 6,132

Contingent consideration issued for acquisitions $ 7,337 $ — $ 13,870

Deferred or contingent consideration issued for acquisitions $ 97,653 $ 7,337 $ —

Operating right-of-use assets obtained in exchange for operating lease liabilities — net $ 52,367 $ 71,271 $ 103,668

5 unchanged sentences

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.

(“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 management, educational advisory services, and other support services for employers and families in the United States, the United Kingdom, the Netherlands, Australia, 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.

Since March 2020, the Company’s global operations have been significantly impacted by the COVID-19 pandemic and the measures undertaken in response thereto.

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

Nearly all centers have subsequently re-opened.

As of December 31, 2022, the Company operated 1,078 early education and child care centers, of which 99 % were open.

On July 1, 2022, the Company acquired Only About Children (“OAC”), an operator of approximately 75 child care centers in Australia.

Refer to Note 5, Acquisitions , for additional information.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

22 unchanged sentences

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, 2022, $ 8.6 million in book overdrafts were included in accounts payable and accrued expenses on the consolidated balance sheet.

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

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

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 and in other assets on the consolidated balance sheet.

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

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Indefinite lived intangible assets are also subject to an annual evaluation to determine whether events and circumstances continue to support an indefinite useful life.

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.

Goodwill impairment assessments are performed at the reporting unit level.

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.

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

The Company performed a 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 2022 annual impairment review as of October 1, 2022.

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

No goodwill impairment charges were recorded in the years ended December 31, 2022, 2021, or 2020.

10 unchanged sentences

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.

During the years ended December 31, 2022, 2021 and 2020, the Company recognized impairment losses of $ 14.1 million , $ 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 14, 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.

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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).

Fees paid by the employer sponsor are recognized on a daily basis, but for convenience are 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.

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Back-Up Care Services

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

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, pet care 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 and through other 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.

2 unchanged sentences

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.

Revenue for back-up care services is generally 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.

Revenue for self-sourced reimbursed care and pet care is based on a fee earned for each transaction processed and is recorded on a net basis as the Company is acting as an agent, and is recognized in the month the transactions 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”).

The Company’s educational advisory services consist of tuition assistance and student loan repayment program management, workforce education, and related educational consulting services (“EdAssist”), and college 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.

1 unchanged sentence

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.

Revenue for EdAssist 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.

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

Other services consist of the Sittercity business, an online marketplace for families and caregivers.

13 unchanged sentences

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.

24 unchanged sentences

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 Company accounts for its interests in a provider of full service center-based child care and back-up care services in Germany and a provider of early education and tutoring in the Netherlands using the equity method.

The equity method investments are included in other assets on the consolidated balance sheet and, as of December 31, 2022 and 2021, the investment balance was $ 7.2 million and $ 6.1 million, respectively.

The impact on the results of operations were immaterial for the years ended December 31, 2022, 2021 and 2020.

8 unchanged sentences

At December 31, 2022 and 2021, the amortized cost was $ 29.8 million and $ 30.0 million, respectively.

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

The debt securities held at December 31, 2022 had remaining maturities ranging from less than one year to approximately two 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, 2022, 2021 and 2020.

4 unchanged sentences

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

Refer to Note 14, Fair Value Measurements , for additional information.

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

Government Support — The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), 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;

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 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.

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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.

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

During the years ended December 31, 2022, 2021, and 2020, $ 86.8 million, $ 50.9 million, and $ 83.5 million, respectively, was recorded as a reduction to cost of services in relation to these benefits, of which $ 31.7 million, $ 16.0 million and $ 14.6 million, respectively, reduced the operating subsidies paid by employers for the related child care centers.

Additionally, during the year ended December 31, 2022, amounts received for tuition support of $ 5.5 million were recorded to revenue.

As of December 31, 2022 and 2021, $ 1.2 million and $ 3.3 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, 2022 and 2021, $ 4.6 million and $ 3.9 million, respectively, 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, 2022, the Company did not have any remaining payroll tax deferrals.

REVENUE RECOGNITION

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North America $ 1,002,406 $ 381,849 $ 117,175 $ 1,501,430

Europe 437,971 24,233 — 462,204

International 491,352 27,705 — 519,057

$ 1,493,758 $ 409,554 $ 117,175 $ 2,020,487

1 unchanged sentence

North America $ 859,237 $ 326,870 $ 106,996 $ 1,293,103

Europe 336,471 14,566 — 351,037

International 437,971 24,233 — 462,204

$ 1,297,208 $ 351,103 $ 106,996 $ 1,755,307

1 unchanged sentence

North America $ 695,795 $ 373,728 $ 94,533 $ 1,164,056

Europe 460,641 16,108 — 476,749

International 336,471 14,566 — 351,037

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

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.

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

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

Revenue in the United Kingdom was $ 325.8 million in 2022, $ 334.9 million in 2021, and $ 243.6 million in 2020.

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

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

On July 1, 2022, the Company acquired Only About Children, an operator of approximately 75 child care centers in Australia.

Refer to Note 5, Acquisitions , for additional information.

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

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In 2022, 2021 and 2020, $ 254.2 million, $ 187.1 million and $ 184.6 million was recognized as revenue related to the deferred revenue balance recorded at December 31, 2021, 2020 and 2019, 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.

There were no significant changes in deferred revenue during the years ended December 31, 2022, 2021 and 2020 related to business combinations, impairments, cumulative catch-up or other adjustments other than related to the opening balance sheet for the OAC acquisition.

Refer to Note 5, Acquisitions , for additional information.

Remaining Performance Obligations

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

Operating lease expense for the 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.

Operating lease expense for the years ended December 31, 2022, 2021 and 2020 includes impairment losses on operating lease right-of-use assets of $ 2.8 million, $ 1.3 million, and $ 10.0 million, respectively.

Refer to Note 14, Fair Value Measurements , for additional information.

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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.

On April 10, 2020, the Financial Accounting Standards Board 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.

1 unchanged sentence

The Company elected this practical expedient in accounting for lease concessions provided for the Company’s center lease agreements and the impact was immaterial.

As of December 31, 2022 and 2021, the Company's deferred lease payments were immaterial.

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

1 unchanged sentence

2022 Acquisitions

Only About Children

On July 1, 2022, the Company, through wholly-owned subsidiaries, completed the acquisition of the outstanding shares of Only About Children, a child care operator in Australia with approximately 75 early education and child care centers, for aggregate consideration of AUD$ 450 million (USD$ 310 million), which was accounted for as a business combination.

The Company paid approximately AUD$ 300 million (USD$ 207 million), net of cash acquired and subject to customary purchase price adjustments, and will pay an additional USD$ 106.5 million 18 months after closing.

In October 2022, the Company reached an agreement with the sellers on the final net working capital acquired, resulting in a refund of AUD$ 2.6 million (USD$ 1.8 million), which was received in the fourth quarter of 2022.

The present value of the deferred consideration of USD$ 97.7 million at the acquisition date is included in other current liabilities on the consolidated balance sheet.

During the year ended December 31, 2022, the Company incurred acquisition-related transaction costs of approximately $ 9.2 million, which are included in selling, general and administrative expenses.

In addition, the Company recognized realized losses of $ 5.9 million in relation to foreign currency forward contracts for the purchase of Australian dollars entered into in connection with the acquisition.

Refer to Note 12, Credit Arrangements and Debt Obligations, for additional information on the foreign currency forward contracts.

The purchase price for this acquisition has been allocated based on preliminary estimates of the fair values of the acquired assets and assumed liabilities at the date of acquisition as follows:

At acquisition date

September 30, 2022 Measurement period adjustments At acquisition date

December 31, 2022

(In thousands)

Cash $ 4,705 $ — $ 4,705

Accounts receivable and prepaid expenses 4,295 81 4,376

Fixed assets 21,702 ( 953 ) 20,749

Goodwill 283,466 3,153 286,619

Intangible assets 30,945 ( 3,377 ) 27,568

Operating lease right of use assets 156,678 ( 1,422 ) 155,256

Total assets acquired 501,791 ( 2,518 ) 499,273

Accounts payable and accrued expenses 17,991 249 18,240

Deferred revenue and parent deposits 6,809 ( 31 ) 6,778

Deferred tax liabilities 3,392 ( 3,392 ) —

Operating lease liabilities 161,405 564 161,969

Other long-term liabilities 5,458 92 5,550

Total liabilities assumed 195,055 ( 2,518 ) 192,537

Purchase price $ 306,736 $ — $ 306,736

The Company recorded goodwill of $ 286.6 million related to the full service center-based child care segment, which will not be deductible for tax purposes.

Intangible assets consist of customer relationships of $ 19.7 million with a six year life and trade names of $ 7.9 million with an eleven year life.

The determination and 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, 2022, the purchase price allocation for Only About Children remains open as the Company gathers additional information regarding the assets acquired and the liabilities assumed, primarily in relation to the valuation of intangibles, fixed assets, leases, contingencies, and the Company’s assessment of tax related items.

The operating results for Only About Children are included in the consolidated results of operations from the date of acquisition.

Only About Children contributed total revenue of $ 71.5 million during the year ended December 31, 2022.

Net income for the year ended December 31, 2022 was not materially impacted by the acquisition of Only About Children.

The following table presents consolidated pro forma revenue as if the acquisition of Only About Children had occurred on January 1, 2021:

Pro forma (Unaudited)

Year ended December 31, 2022 Year ended December 31, 2021

(In thousands)

Revenue $ 2,089,404 $ 1,899,037

Other than the impact of shifting the transaction costs incurred in 2022 to 2021, consolidated pro forma net income would not materially change from the reported results.

In assessing the impact to the unaudited pro forma results we considered certain adjustments related to the acquisition, such as increased amortization expense related to the acquired intangible assets, adjusted depreciation associated with the fair value of the acquired fixed assets, and shifting of transaction costs.

Other 2022 Acquisitions

During the year ended December 31, 2022, the Company acquired one center in the United States, one center in the United Kingdom, and one center in the Netherlands, in three separate business acquisitions, which were each accounted for as a business combination.

These businesses were acquired for aggregate cash consideration of $ 6.0 million, net of cash acquired of $ 0.2 million, and consideration payable of $ 0.2 million.

The Company recorded goodwill of $ 5.6 million related to the full service center-based child care segment, of which $ 1.9 million will be deductible for tax purposes.

In addition, the Company recorded intangible assets of $ 1.0 million that will be amortized over four years in relation to these acquisitions.

The determination and 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, 2022, 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, and were not material to the Company’s financial results.

During the year ended December 31, 2022, the Company paid contingent consideration of $ 19.1 million related to an acquisition completed in 2019 and contingent consideration of $ 0.2 million related to an acquisition completed in 2021.

Of the total amounts paid of $ 19.3 million, $ 13.9 million had been recorded as a liability at the date of acquisition and is presented as cash used in financing activities in the consolidated statement of cash flows with remaining amounts reflected as cash used in operating activities.

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.

4 unchanged sentences

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.

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.

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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.

GOODWILL AND INTANGIBLE ASSETS

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The Company recorded amortization expense of $ 31.9 million, $ 29.2 million and $ 31.7 million in the years ended December 31, 2022, 2021, and 2020, 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:

The Company estimates that it will record amortization expense related to intangible assets existing as of December 31, 2022 as follows:

Estimated amortization expense

2 unchanged sentences

2024 $ 16,534

2024 $ 12,174

Thereafter $ 3,569

PREPAID EXPENSES AND OTHER CURRENT ASSETS

1 unchanged sentence

(In thousands)

Interest rate cap derivatives $ 25,464 $ —

Investments in available-for-sale debt securities 17,701 22,712

Prepaid software and licenses 9,272 6,341

Prepaid insurance 5,810 4,158

Prepaid income taxes 9,035 4,849

Restricted cash 4,301 4,121

Prepaid insurance 7,386 5,810

Prepaid rent and other occupancy costs 4,411 3,581

Government support program receivables 3,333 8,372

Other prepaid expenses and current assets 21,047 25,027

14 unchanged sentences

The Company recorded depreciation expense of $ 74.2 million, $ 79.7 million and $ 80.0 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Other assets consisted of the following:

(In thousands)

Interest rate cap derivatives $ 28,553 $ 8,809

Deferred compensation 15,955 16,173

Prepaid workers compensation 13,084 16,321

Restricted cash 12,158 —

Investments in available-for-sale debt securities 11,858 7,211

Equity-method investments 7,165 6,058

Other assets 15,863 17,888

$ 104,636 $ 72,460

Restricted cash relates to letters of credit outstanding used to guarantee certain lease arrangements.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

2 unchanged sentences

Accrued payroll and employee benefits $ 105,684 $ 102,254

Accrued insurance 19,746 17,450

Accrued occupancy costs 10,826 7,632

Accounts payable 24,648 8,503

Accrued professional fees 8,062 9,735

Accrued provider fees 18,912 10,815

Accrued insurance liabilities 18,152 19,746

Accrued occupancy costs 11,732 10,826

Other accrued expenses 51,506 45,222

$ 230,634 $ 197,366

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.

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

There were no payroll taxes deferred pursuant to the provisions of the CARES Act as of December 31, 2022.

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

2 unchanged sentences

(In thousands)

Deferred or contingent consideration payable for acquisitions $ 100,610 $ 19,219

Customer amounts on deposit 23,000 23,129

Contingent consideration payable for business combinations 19,219 —

Liability for unvested restricted stock 7,211 4,030

Government support 3,927 —

Interest rate swaps — 4,775

Other current liabilities 7,753 16,652

$ 138,574 $ 63,030

As of December 31, 2022, the Company had deferred consideration payable that was primarily related to the acquisition of Only About Children.

The acquisition was completed on July 1, 2022 and $ 106.5 million of the consideration is payable 18 months after closing, which had a present value of $ 97.7 million at the acquisition date.

As of December 31, 2021, the Company had contingent consideration that was primarily related to an acquisition in the United Kingdom completed in 2019.

Refer to Note 5, Acquisitions , for additional information.

CREDIT ARRANGEMENTS AND DEBT OBLIGATIONS

Senior Secured Credit Facilities

The Company’s senior secured credit facilities consist of a $ 600 million term loan B facility (“term loan B”) and a $ 400 million term loan A facility (“term loan A”), collectively the “term loan facilities” or “term loans,” as well as a $ 400 million multi-currency revolving credit facility (“revolving credit facility”).

Long-term debt obligations were as follows:

6 unchanged sentences

Long-term debt $ 961,581 $ 976,396

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.

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 of $ 600 million and a new term loan A facility 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.

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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.

On December 21, 2022, the Company amended its existing senior secured credit facilities to replace the LIBOR-based benchmark rate with a term SOFR benchmark rate, which did not alter the applicable interest rates held in effect prior to the change.

The amendment was treated as a modification and the related transaction costs were expensed as incurred.

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

The effective interest rate for the term loans was 6.49 % and 2.29 % at December 31, 2022 and 2021, respectively, and the weighted average interest rate was 3.75 %, 2.51 %, and 2.79 % for the years ended December 31, 2022, 2021, and 2020, 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.

The effective interest rate for the revolving credit facility was 6.51 % at December 31, 2022 and the weighted average interest rate for the revolving credit facility was 4.86 %, 3.75 %, and 4.49 % for the years ended December 31, 2022, 2021, and 2020, 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.

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 adjusted term SOFR rate.

The base rate is subject to an interest rate floor of 1.50 % and the adjusted term SOFR rate is subject to an interest rate floor of 0.50 %.

Term Loan A Facility

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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.

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, or 1.50 % to 1.75 % over the adjusted term SOFR rate.

The base rate is subject to an interest rate floor of 1.00 % and the adjusted term SOFR rate is subject to an interest rate floor of 0.00 %.

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.

Borrowings outstanding on the revolving credit facility were $ 84.0 million and letters of credit outstanding were $ 5.2 million at December 31, 2022, with $ 310.8 million available for borrowing.

There were no borrowings outstanding on the revolving credit facility at December 31, 2021, with the full facility available for borrowing.

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.

Borrowings under the revolving credit facility bear interest at a rate per annum ranging from 0.50 % to 0.75 % over the base rate, or 1.50 % to 1.75 % over the adjusted term SOFR rate.

The base rate is subject to an interest rate floor of 1.00 % and the adjusted term SOFR rate is subject to an interest rate floor of 0.00 %.

Debt Covenants

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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 %.

On December 21, 2022, the Company amended its existing interest rate cap agreements in conjunction with the amendment to its senior secured credit facilities, and replaced the one-month LIBOR rate with the one-month term SOFR rate.

In conjunction with this amendment, and in accordance with the expedients in ASU 2020-04 and 2021-01, Reference Rate Reform (Topic 848), the Company elected to apply the relief offered related to the change in reference rates, thereby not requiring dedesignation of the related cash flow hedging relationships.

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.

8 unchanged sentences

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.

During the year ended December 31, 2022, the Company entered into foreign currency forward contracts in connection with an acquisition in Australia completed on July 1, 2022.

The Company entered into the foreign currency forwards to lock the purchase price in US dollars at closing and mitigate the impact of foreign currency fluctuations between signing of the definitive purchase agreement on May 3, 2022 and closing.

The forward contracts had a total notional value of approximately AUD$ 320 million, which included the expected payments for the purchase price and for letters of credit used to guarantee certain lease arrangements.

The cash flows associated with the business combination do not meet the criteria to be designated and accounted for as a cash flow hedge and, as such, foreign currency gains and losses on these forwards are recorded on the consolidated statement of income.

During the year ended December 31, 2022, the Company recognized realized losses of $ 5.9 million in relation to these forwards due to fluctuations in the Australian dollar.

The fair value of the derivative financial instruments was as follows:

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(In thousands)

Interest rate caps - asset Prepaid and other current assets $ 25,464 $ —

Interest rate caps - asset Other assets $ 28,553 $ 8,809

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

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

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Cash flow hedges $ 53,191 Interest expense — net $ 7,457 $ 45,734

Income tax effect ( 695 ) Income tax expense 1,316 ( 2,011 )

Income tax effect ( 14,202 ) Income tax benefit (expense) ( 2,468 ) ( 11,734 )

Net of income taxes $ 38,989 $ 4,989 $ 34,000

1 unchanged sentence

Cash flow hedges $ 2,604 Interest expense — net $ ( 4,930 ) $ 7,534

Income tax effect 2,031 Income tax expense 1,223 808

Income tax effect ( 695 ) Income tax benefit (expense) 1,316 ( 2,011 )

Net of income taxes $ 1,909 $ ( 3,614 ) $ 5,523

1 unchanged sentence

Cash flow hedges $ ( 7,608 ) Interest expense — net $ ( 4,581 ) $ ( 3,027 )

Income tax effect 2,395 Income tax expense ( 497 ) 2,892

Income tax effect 2,031 Income tax benefit (expense) 1,223 808

Net of income taxes $ ( 5,577 ) $ ( 3,358 ) $ ( 2,219 )

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.

During the next twelve months, the Company estimates that a net gain of $ 27.6 million, pre-tax, will be reclassified from accumulated other comprehensive income and recorded to interest expense related to these derivative financial instruments.

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

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

Included in the 2021 and 2020 U.S.

Included in the U.S.

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

25 unchanged sentences

Valuation allowance — net 3,661 ( 1,836 ) 2,116

Intercompany interest — — ( 5,213 )

Tax credits ( 899 ) ( 988 ) ( 279 )

Permanent differences and other — net ( 733 ) 3,721 2,167

1 unchanged sentence

Stock-based compensation ( 1,513 ) ( 6,133 ) ( 12,901 )

Unbenefited foreign loss — 233 —

Change in income tax rate — 817 ( 360 )

13 unchanged sentences

Based on the Company’s jurisdictional mix of taxable income, there was no additional federal income tax expense attributable to GILTI for 2022.

In 2022, income tax expense was reduced by $ 2.0 million, net with a $ 0.5 million tax benefit in state income tax, for the net excess tax benefit associated with the exercise or expiration of stock options and vesting of restricted stock.

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.

Based on the Company's jurisdiction 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.

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

14 unchanged sentences

Intangible assets ( 84,469 ) ( 80,243 )

Hedge/swap liability ( 12,653 ) —

Depreciation ( 22,929 ) ( 30,812 )

2 unchanged sentences

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.

At December 31, 2022, the Company has foreign net operating loss carryforwards of $ 27.8 million, all of which has a valuation allowance offsetting the related deferred tax asset.

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.

During the year ended December 31, 2022, the Company recorded additional valuation allowance of $ 9.7 million on foreign deferred tax assets, with $ 6.0 million recorded as part of acquisition accounting.

The Company assesses available positive and negative evidence to estimate if there is sufficient future taxable income (inclusive of reversing temporary differences) to recover 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.

1 unchanged sentence

deferred tax assets as of December 31, 2022.

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.

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

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

deferred tax assets as of December 31, 2021.

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

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Total interest and penalties accrued as of December 31, 2022 was $ 1.7 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 2022, the Company reduced unrecognized tax benefits by $ 0.2 million for lapse of statute of limitations, and $ 0.3 million for settlements with certain states.

In 2021, the Company recorded an unrecognized tax benefit of $ 0.3 million and reduced unrecognized tax benefits by $ 0.3 million for lapse of statute of limitations, and $ 0.4 million for settlements with certain 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 $ 3.8 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 unrecognized tax benefits are not expected to change over the next 12 months.

The Company and its domestic subsidiaries are subject to U.S.

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As of December 31, 2022, there was one income tax audit in process and the tax years from 2018 to 2021 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 Company is also subject to corporate income tax at its subsidiaries located in the United Kingdom, the Netherlands, Australia, India 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.

21 unchanged sentences

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.

As of December 31, 2022, the fair value of the interest rate cap agreements was $ 54.1 million, of which $ 25.5 million was recorded in prepaid expenses and other current assets and $ 28.6 million was recorded in other assets on the consolidated balance sheet.

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

During the year ended December 31, 2022, the Company recognized realized losses of $ 5.9 million in relation to these forwards due to fluctuations in the Australian dollar.

Refer to Note 12, Credit Arrangements and Debt Obligations , for additional information on the foreign currency forward contracts.

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

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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.

During the year ended December 31, 2022, contingent consideration liabilities of $ 19.3 million were paid related to acquisitions completed in 2019 and 2021.

The contingent consideration liabilities outstanding as of December 31, 2022 related to acquisitions that occurred in 2021.

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

Refer to Note 5, Acquisitions , for additional information.

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

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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.

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Stock-based compensation expense generated a deferred income tax benefit of $ 6.5 million, $ 5.2 million, and $ 5.5 million in the years ended December 31, 2022, 2021 and 2020, 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.

The net income tax benefits realized from the exercise or expiration of stock options and vesting of restricted stock in the years ended December 31, 2022, 2021, and 2020 were $ 2.7 million, $ 11.8 million, and $ 20.1 million, respectively, inclusive of net excess tax benefits realized of $ 2.0 million, $ 7.8 million, and $ 16.2 million in the years ended December 31, 2022, 2021, and 2020, respectively.

As of December 31, 2022, there was $ 46.2 million of total unrecognized compensation expense, net of estimated forfeitures, related to unvested share-based compensation arrangements granted under the Plan.

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

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

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

For grants issued during the years ended December 31, 2022 and 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 year ended December 31, 2020, 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.

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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.

Cash proceeds from the issuance of restricted stock for the year ended December 31, 2022 were $ 3.1 million, and for each of the years ended December 31, 2021 and 2020 were $ 7.4 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, 2022:

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Vested ( 61,951 ) 65.05

Forfeited ( 7,500 ) 82.81

Non-vested restricted stock shares at December 31, 2022 237,369 $ 79.85 $ 0.5

1 unchanged sentence

The weighted average grant date fair value of restricted shares granted during the years ended December 31, 2022, 2021, and 2020 was $ 64.41 , $ 81.80 , and $ 87.65 , respectively.

Restricted stock units are awarded to members of the board of directors as allowed under the Plan and are vested upon award.

Restricted stock units are awarded to certain employees as allowed under the Plan and vest within three years after the date of the award.

The awards allow for the issuance of a share of the Company’s common stock for each unit upon vesting.

Restricted stock units 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.

6 unchanged sentences

Converted ( 7,692 ) 77.99

Forfeited ( 12,861 ) 123.35

Restricted stock units at December 31, 2022 388,522 $ 101.11 $ 24.5

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Performance restricted stock units at January 1, 2022 26,000 $ 137.57

Granted 20,000 142.35

Forfeited ( 16,000 ) 130.62

Performance restricted stock units at December 31, 2022 10,000 $ 148.70 $ 0.6

There were no performance restricted stock units granted during the year ended December 31, 2022.

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.

As of December 31, 2022, the performance restricted stock units were not deemed probable of vesting.

EARNINGS PER SHARE

28 unchanged sentences

Common stock $ 1.37 $ 1.15 $ 0.45

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.

Options outstanding to purchase 2.0 million shares of common stock were excluded from diluted earnings per share for the year ended December 31, 2022, and 0.9 million shares of common stock were excluded from diluted earnings per share for both the years ended December 31, 2021 and 2020, since their effect was anti-dilutive.

These options may become dilutive in the future.

10 unchanged sentences

Other comprehensive income (loss) before reclassifications — net of tax ( 67,065 ) 38,989 ( 214 ) ( 28,290 )

amounts reclassified from accumulated other comprehensive income (loss) — net of tax 387 ( 3,614 ) — ( 3,227 )

amounts reclassified from accumulated other comprehensive income — net of tax — 4,989 ( 9 ) 4,980

Net other comprehensive income (loss) ( 67,065 ) 34,000 ( 205 ) ( 33,270 )

4 unchanged sentences

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’s back-up care segment consists of center-based back-up child care, in-home care for children and adult/elder dependents, school-age camps, virtual tutoring, pet care and self-sourced reimbursed care.

The Company’s educational advisory and other services segment consists of tuition assistance and student loan repayment program management, workforce education, related educational advising, college 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.

8 unchanged sentences

Revenue $ 1,493,758 $ 409,554 $ 117,175 $ 2,020,487

Income (loss) from operations (1)

Income from operations (1)

12,937 118,788 25,860 157,585

5 unchanged sentences

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

Income from operations (3)

Income (loss) from operations (3)

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

(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.

(1) For the year ended December 31, 2022, income from operations for the full service center-based child care segment included $ 14.1 million of impairment losses related to fixed assets and operating lease right-of-use assets, $ 9.2 million of transaction costs related to acquisitions, and $ 1.9 million of costs incurred in relation to a cyber incident.

Refer to Note 14, 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.

(2) 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 acquisitions.

Refer to Note 14, Fair Value Measurements , for additional information on impairment losses.

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

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 14, 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.

3 unchanged sentences

North America $ 326,711 $ 346,030 $ 370,275

Europe 252,104 258,482 266,302

International 244,760 252,104 258,482

Total fixed assets $ 571,471 $ 598,134 $ 628,757

On July 1, 2022, the Company acquired Only About Children, an operator of approximately 75 child care centers in Australia.

Refer to Note 5, Acquisitions , for additional information.

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 $ 186.5 million, $ 213.5 million, and $ 225.0 million at December 31, 2022, 2021, and 2020, respectively.

Fixed assets associated with other countries were not material.

Fixed assets associated with other countries were less than 10% of total fixed assets.

EMPLOYEE BENEFIT PLANS

3 unchanged sentences

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.

Expense under the 401(k) Plan, consisting of Company contributions and plan administrative expenses paid by the Company, totaled approximately $ 4.5 million, $ 4.1 million, and $ 3.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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

These plans are generally funded by employee and employer contributions.

7 unchanged sentences

NQDC Plan liabilities, included in other current and long-term liabilities in the consolidated balance sheet, were $ 0.7 million and $ 16.1 million at December 31, 2022, 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.

At December 31, 2021, 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.

3 unchanged sentences

The Company has 142 letters of credit outstanding used to guarantee certain rent payments for up to $ 12.3 million.

These letters of credit are secured by cash deposits included in prepaid expenses and other current assets in the consolidated balance sheet.

These letters of credit are secured by cash deposits included in other assets in the consolidated balance sheet.

Additionally, letters of credit of $ 5.2 million reduce availability in the revolving credit facility.

No amounts have been drawn against these letters of credit.

11 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data