BRIGHT HORIZONS FAMILY SOLUTIONS INC.BFAM
BRIGHT HORIZONS FAMILY SOLUTIONS INC. Income Taxes Disclosure
INCOME TAXES
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-09 (“ASU 2023-09”), Improvements to Income Tax Disclosures (Topic 740). ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. We adopted ASU 2023-09 on a prospective basis effective January 1, 2025.
Income (loss) before income taxes consisted of the following:
| Years ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| United States | $ | 274,374 | $ | 234,098 | $ | 176,261 | |||||||||||
| Foreign | (4,467) | (36,240) | (56,629) | ||||||||||||||
| $ | 269,907 | $ | 197,858 | $ | 119,632 | ||||||||||||
The allocation of income before income taxes may fluctuate year to year due to activity within the Bright Horizons consolidated group. Included in the United States and foreign income (loss) before income taxes is intercompany interest.
Income tax expense consisted of the following:
| Years ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Current income tax expense: | |||||||||||||||||
| Federal | $ | 48,195 | $ | 43,060 | $ | 39,421 | |||||||||||
| State | 17,922 | 17,479 | 14,760 | ||||||||||||||
| Foreign | 12,955 | 7,057 | 2,944 | ||||||||||||||
| 79,072 | 67,596 | 57,125 | |||||||||||||||
| Deferred tax benefit: | |||||||||||||||||
| Federal | (1,455) | (7,664) | (8,089) | ||||||||||||||
| State | (764) | (1,436) | (2,883) | ||||||||||||||
| Foreign | (62) | (829) | (744) | ||||||||||||||
| (2,281) | (9,929) | (11,716) | |||||||||||||||
| Income tax expense | $ | 76,791 | $ | 57,667 | $ | 45,409 | |||||||||||
Income taxes paid, net of refunds, pursuant to the disclosure requirements of ASU 2023-09, consisted of the following:
| Year ended December 31, 2025 | |||||
| (In thousands) | |||||
| Federal | $ | 42,900 | |||
| State | 17,451 | ||||
| Foreign | 12,239 | ||||
| Income taxes paid, net of refunds | $ | 72,590 | |||
Income taxes paid, net of refunds, pursuant to the disclosure requirements of ASU 2023-09, exceeded 5% of total income taxes paid in the following jurisdictions:
| Year ended December 31, 2025 | |||||
| (In thousands) | |||||
| Foreign | |||||
| United Kingdom | $ | 6,488 | |||
| Netherlands | $ | 5,466 | |||
The following is a reconciliation of the U.S. federal statutory rate to the effective rate on pretax income, pursuant to the disclosure requirements of ASU 2023-09:
| Year ended December 31, 2025 | |||||||||||
| (In thousands) | % | ||||||||||
| Federal income tax expense computed at statutory rate | $ | 56,681 | 21.00 | % | |||||||
State income tax expense, net of federal income tax effect (1) | 13,248 | 4.91 | % | ||||||||
| Tax credits | (625) | (0.23) | % | ||||||||
| Non taxable or nondeductible items | 2,248 | 0.83 | % | ||||||||
| Change in unrecognized tax benefits | 903 | 0.33 | % | ||||||||
| Effect of changes in income tax laws or rates enacted in the current period | 173 | 0.06 | % | ||||||||
| Other | (912) | (0.34) | % | ||||||||
| Foreign tax effects | |||||||||||
| Other foreign jurisdictions | $ | 5,075 | 1.89 | % | |||||||
| Income tax expense | $ | 76,791 | 28.45 | % | |||||||
(1)State taxes in California, Massachusetts, New York and New Jersey made up the majority (greater than 50 percent) of the tax effect in this category.
A reconciliation of the U.S. federal statutory income tax rates to our effective tax rate for the years ended December 31, 2024 and 2023 pursuant to the disclosure requirements prior to the adoption of ASU 2023-09 is as follows:
| Years ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
| Federal income tax expense computed at statutory rate | $ | 41,550 | $ | 25,123 | |||||||
| State income tax expense — net of federal income tax | 12,755 | 10,041 | |||||||||
| Valuation allowance — net | 4,721 | 8,235 | |||||||||
| Tax credits | (721) | (749) | |||||||||
| Permanent differences and other — net | 4,114 | 924 | |||||||||
| Stock-based compensation | 812 | 2,297 | |||||||||
| Change to uncertain tax positions — net | (4,745) | 741 | |||||||||
| Foreign rate differential | (819) | (1,203) | |||||||||
| Income tax expense | $ | 57,667 | $ | 45,409 | |||||||
The effective income tax rate for 2025 was 28.5%. In 2025, income tax expense was decreased by a total of $1.2 million, with $0.3 million in state income tax, for the net excess tax benefit associated with the exercise or expiration of stock options and vesting of each type of restricted stock.
The effective income tax rate for 2024 was 29.1%. In 2024, income tax expense was increased by a total of $1.0 million, with $0.2 million in state income tax, for the net shortfall tax expense associated with the exercise or expiration of stock options and vesting of each type of restricted stock.
The effective income tax rate for 2023 was 38.0%. In 2023, income tax expense was increased by $2.9 million, net with $0.6 million in state income tax, for the net shortfall tax expense associated with the exercise of stock options and vesting of each type of restricted stock.
The Organization for Economic Cooperation and Development introduced a framework to implement a global 15% minimum corporate tax (“Pillar Two”). The European Union issued a directive to its member states to enact the Pillar Two in their local laws effective after December 2023. A number of other countries have implemented similar legislation with effective dates in the year ended 2024. The Company has evaluated the impact of Pillar Two in the jurisdictions in which the Company operates and has determined no additional top-up tax is required in the years 2024 and 2025.
Significant components of the Company’s net deferred tax liability were as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Reserve on assets | $ | 687 | $ | 746 | |||||||
| Net operating loss and other carryforwards | 11,601 | 16,178 | |||||||||
| Liabilities not yet deductible | 16,517 | 12,630 | |||||||||
| Deferred revenue | 3,884 | 4,227 | |||||||||
| Stock-based compensation | 18,757 | 22,058 | |||||||||
| Operating lease liabilities | 220,619 | 237,441 | |||||||||
| Other | 7,696 | 5,693 | |||||||||
| Deferred tax assets | 279,761 | 298,973 | |||||||||
| Less: valuation allowance | (23,179) | (23,725) | |||||||||
| Total net deferred tax assets | 256,582 | 275,248 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Operating lease right-of-use assets | (181,303) | (199,612) | |||||||||
| Intangible assets | (79,933) | (78,706) | |||||||||
| Cash flow hedges | — | (3,040) | |||||||||
| Depreciation | (10,219) | (14,189) | |||||||||
| Total deferred tax liabilities | (271,455) | (295,547) | |||||||||
| Net deferred tax liability | $ | (14,873) | $ | (20,299) | |||||||
At December 31, 2025 and 2024, the Company had foreign net operating loss carryforwards of $35.3 million and $57.0 million, respectively, most of which had a valuation allowance offsetting the related deferred tax asset. These net operating losses can be carried forward indefinitely.
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. During the year ended December 31, 2025, the Company had a net reduction of valuation allowance of $0.5 million resulting in total valuation allowances of $23.2 million. During the year ended December 31, 2024 the Company recorded a net additional valuation allowance of $5.5 million on foreign deferred tax assets, resulting in total valuation allowances of $23.7 million.
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. Where necessary, taxes resulting from foreign distributions of current and accumulated earnings, in the form of dividends, related to the state taxes and foreign withholding taxes, have been considered in the Company’s provision for income taxes and are not material.
Uncertain Tax Positions
The changes in the unrecognized tax benefits were as follows:
| Years ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Beginning balance | $ | 130 | $ | 2,280 | $ | 2,084 | |||||||||||
| Additions for tax positions of prior years | — | — | 196 | ||||||||||||||
| Additions for tax positions of current year | 983 | — | — | ||||||||||||||
| Lapses of statutes of limitations | (69) | (2,150) | — | ||||||||||||||
| Ending balance | $ | 1,044 | $ | 130 | $ | 2,280 | |||||||||||
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, 2025, 2024 and 2023. Total interest and penalties accrued as of December 31, 2025 was less than $0.1 million. In 2025, the Company increased unrecognized tax benefits by $1.0 million for domestic tax positions. In 2024, the Company reduced unrecognized tax benefits by $2.2 million for lapse of statute of limitations. In 2023, the Company increased unrecognized tax benefits by $0.2 million for a domestic tax position.
The total amount of unrecognized tax benefits that if recognized would affect the Company’s effective tax rate is $1.0 million, inclusive of interest.
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 2022 through 2024 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 and the tax years from 2021 to 2024 are subject to audit. 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.
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 six years.
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law in the U.S. In accordance with ASC 740, the Company has recognized the effects of the new tax law in the period of enactment ended September 30, 2025. The OBBBA includes tax reform provisions, such as the permanent extension of certain expiring provisions of the 2017 Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business expenses. The legislation has various effective dates, ranging from early 2025 through 2026. These changes do not have a material impact on the Company’s consolidated financial statements.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Feb 27, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 29, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.