HOUSE_OVERSIGHT_024529.jpg

KLC OpCo
2005PF 2006P 2007P 2008P 2009P 2010P 2011P

EBITDA $86.6 $146.3 $167.8 $188.1 $217.8 $257.1 $296.8

Adjustments to EBITDA
Restructuring Charge Addback¹ $29.4 $6.3 $0.0 $0.0 $0.0 $0.0 $0.0
(Gains) / Losses on Sales² (1.3) 0.0 0.0 0.0 0.0 0.0 0.0
Dividend Income³ (0.5) 0.0 0.0 0.0 0.0 0.0 0.0
SAR Plan⁴ 9.9 2.1 3.1 3.2 3.7 4.7 5.6
Estimated Parallel Organization Costs⁵ 23.3 2.0 0.0 0.0 0.0 0.0 0.0
Management Fee⁶ 2.5 2.5 2.5 2.5 2.5 2.5 2.5
Long Term Incentive Plan⁷ 0.0 2.6 6.6 11.1 13.5 14.6 15.2
Adjusted EBITDA $149.9 $161.7 $179.9 $204.8 $237.5 $279.0 $320.1

¹ Represents one-time non-recurring costs of integrating AER and KinderCare acquisitions in 2004 and 2005 respectively.
² Represents the non-cash impact of (gains) / losses on the sale of centers.
³ Income earned as a result of ownership in a minority investment.
⁴ Represents accruals related to KSI's SAR plan. Approximately $7.8 million has been paid pursuant to SARs in connection with the departure of KLC's chief executive officer in 2006.
⁵ Result of the costs of operating duplicative infrastructure at KLC and KinderCare following the KinderCare acquisition.
⁶ Management fee paid to affiliate entities.
⁷ For more information, see the discussion below under the heading "- Long Term Incentive Plan."

Long Term Incentive Plan

Our Adjusted EBITDA projections do not include the effect of any payments that may be made pursuant to our Long Term Incentive Compensation Plan. Under this new plan, which provides performance-based incentive compensation awards beginning in 2006 based on our performance against specific Adjusted EBITDA targets, we will accrue expenses ranging from $2.6 million in 2006 to $15.2 million in 2011 if our Adjusted EBITDA meets the projections set forth in this Memorandum. Each award is payable at the end of three years based on performance and subject to continued employment (with certain exceptions). The accrued expenses associated with an award in each period are non-cash, subject to cash settlement when and if the award for that period is earned at the end of the third year. The actual expenses could be higher or lower depending on whether actual Adjusted EBITDA performance exceeds or is less than the amounts projected herein.

Working Capital

KLC OpCo does not expect revenue or expenses to have a meaningful impact on working capital ratios in the future.

96
HOUSE_OVERSIGHT_024529