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KLC Consolidated
2004PF 2005PF

EBITDA $194.6 $174.7

Adjustments to EBITDA
Restructuring Charge Addback¹ 5.1 29.4
(Gains) / Losses on Sales² 2.1 (1.3)
(Gain) / Loss on Minority Investment (2.1) 0.0
Dividend Income³ (1.8) (0.5)
SAR Plan⁴ 0.0 9.9
IDS Expenses⁵ 2.7 (0.0)
Estimated Parallel Organization Costs⁶ 28.1 23.3
Management Fee⁷ 2.5 2.5
Adjusted EBITDA $231.4 $238.0

¹ Represents one-time, non-recurring costs of integrating the AER and KinderCare acquisitions in 2004 and 2005, respectively.
² Represents the non-cash impact of (gains) / losses on the sales of centers.
³ Income earned as a result of ownership in a minority investment.
⁴ Non-cash expenses related to KSI's Stock Appreciation Rights Plan attributed to KLC's employees and payable by KSI in cash upon settlement. $7.8 million has been paid pursuant to SARs in connection with the departure of KLC's chief executive officer in 2006.
⁵ In 2004, KinderCare contemplated an offering of income deposit securities. Costs here reflect the costs incurred as a result of the contemplated offering.
⁶ Result of the costs of operating duplicative infrastructure at KLC and KinderCare following the KinderCare acquisition.
⁷ Management fee paid to affiliate entities.

Restructuring charges. Restructuring charges during the 52 weeks ended December 31, 2005, were $29.4 million. Included in the $29.4 million of non-recurring integration costs were $11.0 million of severance costs that resulted primarily from the closure of KLC's former corporate offices at Golden, CO. Additional restructuring costs in 2005 were the result of consulting, temporary contract-based labor and other charges. Restructuring charges in 2004 were $5.1 million and were related to KLC's acquisition of AER in May 2003.

Parallel Organization Costs. For much of 2005 KLC was burdened with the central operations and infrastructure of both KinderCare and KLC. KLC has defined parallel organization costs as the cost of maintaining these duplicative corporate functions during the overhead rationalization associated with the KinderCare acquisition. KLC believes that approximately 70% of parallel organization costs are related to salaries. Remaining parallel organization costs are related to upkeep, maintenance and utilities at corporate facilities. During the first month of 2006 parallel organization costs had been reduced to $174,042 (annualized run-rate of $2.1 million) compared to an estimated $23.3 million in 2005.

Parallel organization costs for the 2004 fiscal year are estimated based on an annualized run-rate based on the costs incurred during the first month following the KinderCare acquisition. During that month (January 2005), KLC incurred approximately $2.3 million of parallel organization costs ($28.1 million on an annualized run-rate basis).

Interest. Interest expense in 2004 and 2005 is almost identical because both years are pro forma for the financings associated with the Real Estate Transaction, which refinanced the indebtedness incurred to finance the KinderCare acquisition. In 2005 pro forma interest expense of $89.9 million includes $5.1 million of non-cash interest expense. Actual interest expense during the 2005 fiscal year was $80.7 million which did not include $32.2 million related to the early extinguishment of debt.

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