HOUSE_OVERSIGHT_024525.jpg

11.14. Real Estate

As a result of a November 9, 2005 Real Estate Transaction, substantially all of the real estate owned by KLC OpCo was transferred to KLC PropCo. Although the expectation is that newly acquired real estate will be owned by KLC PropCo and leased back to KLC OpCo, KLC OpCo continues to be actively involved in new center design, development and management. In addition to development of new centers, the team is responsible for maintaining existing centers. The real estate group within KLC OpCo is headed by Wayne Pipes, Vice President.

11.15. Environmental

KLC OpCo is not aware of any existing environmental conditions that currently or in the future could reasonably be expected to have a material adverse effect on its financial position, operating results or cash flows. It has not incurred material expenditures to address environmental conditions at any property. However, it has not undertaken an in-depth environmental review of all of its owned and leased centers. Consequently, there may be material environmental liabilities of which it is unaware.

In addition, future laws, ordinances or regulations may impose material environmental liability, and the current environmental condition of the centers may be adversely affected by conditions at locations in the vicinity of those centers (such as the presence of leaking underground storage tanks) or by third parties unrelated to the company.

11.16. Summary Financial Information and Projections Discussion

The following summary historical and projected financial data should be read in conjunction with the financial statements and "Management's Discussion and Analysis of KLC's Pro Forma Results of Operations" presented elsewhere in this Memorandum. See also "Non-GAAP Financial Measures" elsewhere in this Memorandum for a discussion of the derivation and limitations of Adjusted EBITDA and Adjusted EBITDAR. The historical information is pro forma for the effects of the acquisition of KinderCare in January 2005 and the separation of KLC into KLC OpCo and KLC PropCo in November 2005, as if those transactions and related financing had occurred on January 1, 2004.

KLC OpCo's pro forma results reflect KLC's consolidated pro forma results adjusted to include $96.3 million of rent expense payable to KLC PropCo.

Projected results presented below are based on assumptions management believes to be reasonable, but which are inherently uncertain and may not be realized. KLC OpCo's ability to perform as projected depends on a number of variables that cannot be predicted with certainty and actual performance could be adversely affected by a number of factors, including those described in "Risk Factors," particularly the risk factor related to projections elsewhere in this Memorandum. Also see "Forward-Looking Statements."

92

HOUSE_OVERSIGHT_024525