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11. THE OPERATING COMPANY (“KLC OPCO”)

KLC’s mission is to provide a quality education to children from birth to college. KLC was formed from the combination of KLC and AER which occurred in May 2003 and the subsequent acquisition of KinderCare in January of 2005. Based in Portland, Oregon, KLC consists of (i) KLC OpCo, a collection of operating companies and (ii) KLC PropCo, a collection of special purpose subsidiaries owning substantially all of KLC’s real estate.

11.1. KLC OpCo

KLC OpCo is the largest for-profit provider of ECE and care services in the U.S., the second largest provider of employer-sponsored ECE to the corporate segment in the U.S. and the largest for-profit provider of before and after school programs in the U.S. Through one of its subsidiaries, KLC OpCo also operates accredited high school distance learning programs that have served over 200,000 students since 1975. On a pro forma basis for the fiscal year ended December 31, 2005, KLC OpCo generated revenue and Adjusted EBITDA of $1,477.7 million and $149.9 million, respectively.

[Chart: KLC OpCo Business Units]
- Early Childhood Education ("ECE")
(Community Centers) 1,812 centers 90% of Pro Forma Revenue
(Employer Sponsored Centers) 122 centers 6% of Pro Forma Revenue
- School Partnerships
(Before and after school care)
573 sites
3% of Pro Forma Revenue
- Distance Learning
(Online Education)
1% of Pro Forma Revenue

11.2. Early Childhood Education Unit (96% of Pro Forma FYE December 31, 2005 Revenue)

As of FYE December 31, 2005, KLC OpCo provided ECE services through its 1,812 company-operated community centers (90% of pro forma revenue) and 122 employer-sponsored centers (6% of pro forma revenue). In total the ECE Unit operated 1,934 centers in 39 states and Washington D.C., offering ECE programs primarily for children aged six weeks to five years. The programs are marketed primarily under the KinderCare, Children’s World, Children’s Discovery Centers, Knowledge Beginnings and Mulberry Child Care & Preschool brand names.

KLC OpCo’s centers typically contain classrooms, recreational areas, kitchens and bathroom facilities. The centers usually accommodate the grouping of children according to age. The centers have outdoor playgrounds, often with separate areas designed for infants and toddlers, with the exception of some downtown urban centers that may utilize nearby parks. Each center is equipped with a variety of audio and visual aids, educational supplies, games, toys and indoor and outdoor play equipment. In addition, most of the centers are equipped with personal computers with programs specifically designed for both pre-school and school-age children. The typical center can serve between 120–140 students, although actual enrollments can be higher as some children are enrolled on a part-time basis. Children are usually enrolled on a weekly basis for either full-day or half-day sessions. Most centers provide enrolled children with meals and two snacks.

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