KLC OpCo financial projections for School Partnerships and Distance Learning divisions (2005‑2011)

School Partnerships School Partnerships is projected to grow from $48.5 million in pro forma revenues in 2005 to $138.14 million in 2011. As a percentage of revenue, School Partnerships accounts for 3.3% of total pro forma revenue in 2005, and is projected to grow to 6.0% in 2011. KLC OpCo projects that growth in the School Partnerships business will be primarily driven by growth in the SES market (more school districts required to offer supplemental services), and an increase in the number of parent pay locations in the U.S. KC Distance Learning KCDL is projected to grow from $10.0 million in pro forma revenues in 2005 to $41.6 million in 2011, Asa percentage of revenue, KCDL accounts for 0.7% of total pro forma revenue in 2005, and is projected to grow to 1.8% in 2011. KLC OpCo projects that growth in this line will predaminantly come from the expansion of KCDL's direct to family business (which currently accounts for approximately 90% of pro forma revenue) and the expansion of states to digital high school courses (which KLC believes it is in a position to provide on an outsourced basis). Gross Margin KLC OpCo's pro forma gross profit is projected to increase from $244.4 million in 2005 to $501.3 million in 2011. The growth in gross profit is projected to be largely driven by increased center efficiency as a result of improved Utilization, continued tuition increases and the closure of underperforming centers and shift in the revenue mix to more profitable business lines (/.e., more employer-sponsored centers, KCDL, ancillary products and services). KLC OpCo's gross margin is projected to improve from approximately 16.5% of total revenues in fiscal year 2006 to 21.9% in fiscal year 2011 as a result of these factors. Selling, General and Administrative Expenses Due to the relatively fixed nature of KLC OpCo's selling, general and administrative (GG&A) expenses, KLC OpCo projects that SG&A will increase at a rate of 4.5% annually after 2006. Additionally, management estimates that there will be a one-time increase of $2.0 in SG&A related to the expansion of the SES business in 2007. Adjusted EBITDA and Adjusted EBITDA Margins KLC OpCo projects improving pro forma Adjusted EBITDA from $149.9 million in fiscal year 2005 to $320.1 million in fiscal year 2011. Pro forma Adjusted EBITDA margin is expected to improve from 10.1% in fiscal year 2005 to 14.0% in fiscal year 2011. This projected margin improvement reflects the combination of increasing sales and margin improvements outlined above. The table below shows the calculation of pro forma Adjusted EBITDA. 95 HOUSE_OVERSIGHT_024528