Company Discloses Non‑GAAP EBITDA Adjustments in KinderCare Acquisition

NON-GAAP FINANCIAL MEASURES EBITDA, Adjusted EBITDA and Adjusted EBITDAR (including pro forma presentations thereof) and the related ratios presented in this Memorandum are supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the U.S. (“GAAP”). EBITDA, Adjusted EBITDA and Adjusted EBITDAR are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, operating income or any other performance measures derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. EBITDA represents net income before net interest expense, income tax expense, depreciation (including impairment charges) and amortization. Pro forma presentations of EBITDA have also added back KinderCare Learning Centers, Inc.'s (“KinderCare”) discontinued operations, consistent with KLC’s treatment of center closures and sales and KinderCare’s historical presentation of EBITDA. Adjusted EBITDA represents EBITDA plus (i) expenses (minus gains) that we do not consider reflective of our ongoing operations after the KinderCare acquisition, as further described in this Memeorandum and (ii) management fees which are subordinated to our obligations on our 7%% senior subordinated notes (the “Notes") and which are added back in measuring our performance for purposes of our ability to incur debt under our indenture. Our actual and projected Adjusted EBITDA, where applicable, also exclude non- cash stock-based compensation expense, which is also excluded under our indenture; accruals under our stock appreciation rights (“SAR”) plan; and accruals under our long term incentive plan, which are non- cash at the time of award and vest and become payabie in three years subject to continued employment (with certain exceptions). Our pro forma Adjusted EBITDA for 2005 excludes restructuring and integration charges associated with the KinderCare acquisition and the cost of operating parallel organizations during the integration process, which management does not consider reflective of ongoing operations. Adjusted EBITDAR Is Adjusted EBITDA plus rent expense. We present EBITDA, Adjusted EBITDA and Adjusted EBITDAR because we consider them to be important supplemental measures of our perfermance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of issuers, many of which present EBITDA and/or Adjusted EBITDA and/or Adjusted EBITDAR when reporting their results. We are basing our executive incentive compensation payments in part on our performance measured using Adjusted EBITDA including adjustments described herein. We also use financial measures similar to Adjusted EBITDA, though subject to certain different adjustments, in the senior credit facility that we entered into in connection with the KinderCare acquisition and the indenture governing the Notes to measure our compliance with covenants such as interest coverage and debt incurrence. Measures similar to Adjusted EBITDA are alsc widely used by us and others in our industry to evaluate and price potential acquisition candidates. For example, we evaluated the KinderCare acquisition and our 2003 acquisition of ARAMARK Educational Resources to a significant degree based on their historical and potential EBITDA, as adjusted for items we did not consider representative of post-acquisition operations. We believe EBITDA and Adjusted EBITDA facilitate operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structures (affecting relative interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and beok depreciation of facilities and equipment (affecting relative depreciation expense}. We believe Adjusted EBITDAR is a useful measure of performance independent of occupancy costs. We calculate Adjusted EBITDA by adjusting EBITDA to eliminate the impact of a number of items we do not consider indicative of our ongoing operations and for the other reasons noted above. For the reasons indicated herein, you are encouraged to evaluate each adjustment and whether you consider it appropriate. In addition, in evaluating Adjusted EBITDA and Adjusted EBITDAR, you should be aware that in the future we may incur expenses similar to the adjustments in the presentation of Adjusted EBITDA and Adjusted EBITDAR. Our presentation of Adjusted EBITDA and Adjusted EBITDAR should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. HOUSE_OVERSIGHT_024448