KINDERCARE LEARNING CENTERS INC /DE, S-1, 1999-04-09

KINDERCARE LEARNING CENTERS INC /DE
S-1, 1999-04-09
CHILD DAY CARE SERVICES

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1999

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

KINDERCARE LEARNING CENTERS, INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 8351 63-0941966
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation) Classification Code Number) Identification Number)
</TABLE>

650 N.E. HOLLADAY STREET, SUITE 1400
PORTLAND, OREGON 97232
(503) 872-1300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------

EVA KRIPALANI, ESQ.
KINDERCARE LEARNING CENTERS, INC.
650 N.E. HOLLADAY STREET, SUITE 1400
PORTLAND, OREGON 97232
(503) 872-1300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------

COPIES OF ALL CORRESPONDENCE TO:

<TABLE>
<S> <C>
JOHN B. TEHAN, ESQ. VALERIE FORD JACOB, ESQ.
SIMPSON THACHER & BARTLETT FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
425 LEXINGTON AVENUE ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10004-1980
(212) 455-2000 (212) 859-8000
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------

CALCULATION OF REGISTRATION FEE

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<CAPTION>
PROPOSED
TITLE OF SECURITIES MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.01 per share...................................... $200,000,000 $55,600
</TABLE>

(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933 solely
for the purpose of calculating the registration fee.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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<PAGE>
EXPLANATORY NOTE

This registration statement contains two forms of prospectus: one to be used
in connection with a United States and Canadian offering of the registrant's
common stock, which is referred to as the "U.S. prospectus," and one to be used
in connection with a concurrent international offering of the registrant's
common stock, which is referred to as the "international prospectus." The
international prospectus will be identical to the U.S. prospectus except that it
will have a different front cover page, underwriting section and back cover
page. The U.S. prospectus is included in this registration statement and is
followed by the alternate pages to be used in the international prospectus. The
alternate pages to be used in the international prospectus have been labeled
"ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS."
<PAGE>
SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED APRIL 9, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS

[LOGO]
SHARES
KINDERCARE LEARNING CENTERS, INC.

COMMON STOCK

---------------------

We are issuing and selling shares of common stock, and stockholders
are selling shares of common stock. The U.S. underwriters will offer
shares in the United States and Canada, and the international managers
will offer shares outside the United States and Canada.

We expect the public offering price to be between $ and $ per
share. Currently, our common stock does not trade on a national securities
exchange and only a very limited public market exists for the shares. After
pricing of the offering, we expect that the common stock will trade on The New
York Stock Exchange under the symbol " ."

INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 11 OF THIS PROSPECTUS.

---------------------

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PER SHARE TOTAL
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<S> <C> <C>
Public offering price............................................................. $ $
Underwriting discount............................................................. $ $
Proceeds, before expenses, to KinderCare.......................................... $ $
Proceeds, before expenses, to the selling stockholders............................ $ $
</TABLE>

The U.S. underwriters may also purchase up to an additional
shares from the selling stockholders at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The international managers may similarly purchase up to an
aggregate of an additional shares from the selling stockholders.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

Merrill Lynch & Co. is acting as sole book-running manager for the offering.
Merrill Lynch & Co. and Credit Suisse First Boston are acting as joint lead
managers. The shares of common stock will be ready for delivery in New York, New
York on or about , 1999.

------------------------

JOINT LEAD MANAGERS

MERRILL LYNCH & CO. CREDIT SUISSE FIRST BOSTON

------------------

SALOMON SMITH BARNEY NATIONSBANC MONTGOMERY SECURITIES LLC

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The date of this prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS

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PAGE
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Summary.................................................................................................... 3
Risk Factors............................................................................................... 11
Use of Proceeds............................................................................................ 18
Dividend Policy............................................................................................ 18
Price Range of Common Stock................................................................................ 19
Capitalization............................................................................................. 20
Dilution................................................................................................... 21
Selected Financial and Other Data.......................................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 25
Business................................................................................................... 39
Management................................................................................................. 60
Relationships and Transactions Related to KinderCare....................................................... 67
Principal and Selling Stockholders......................................................................... 69
Description of Long-term Indebtedness...................................................................... 71
Description of Capital Stock............................................................................... 74
Shares Eligible for Future Sale............................................................................ 76
United States Tax Consequences to Non-United States Holders................................................ 79
Underwriting............................................................................................... 82
Legal Matters.............................................................................................. 86
Experts.................................................................................................... 86
Available Information...................................................................................... 86
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>

FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about KinderCare Learning Centers, Inc.,
including: (a) our anticipated growth strategies, (b) future expenditures for
capital projects, (c) our ability to continue to control costs and maintain
quality, (d) the general economic environment, (e) federal and state legislation
regarding welfare reform, the child care industry, transportation safety and
labor and employment issues, (f) competitive conditions in the child care and
early education industries, (g) availability of a qualified labor pool, (h) the
impact of labor organization efforts, (i) various factors affecting occupancy
levels, (j) availability of sites and/or licensing or zoning requirements
affecting new center development and (k) the impact of Year 2000 compliance by
us and those entities with which we do business.

We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information or future events. In light of
these risks, uncertainties and assumptions, the forward-looking events discussed
in this prospectus might not occur.

------------------------

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.

2
<PAGE>
SUMMARY

The following section highlights the key information contained in this
prospectus. You should read the entire prospectus, including the financial data
and related notes, before making an investment decision.

KINDERCARE LEARNING CENTERS

KinderCare Learning Centers, Inc., founded in 1969, is the leading
for-profit provider of early childhood care and educational services in the
United States. We provide center-based early childhood care and educational
services five days a week throughout the year to children between the ages of
six weeks and twelve years. At March 5, 1999, we operated a total of 1,151 child
care centers and served approximately 124,000 children and their families in 39
states, as well as the United Kingdom. For the twelve months ended March 5,
1999, our net revenue was $623.6 million and our Adjusted EBITDA was $101.1
million.

We are the nation's leading provider of early childhood care and education
in terms of number of centers, number of children we serve, geographical breadth
and number of teachers and caregivers we employ. Our high quality early
education and child care services have enabled us to develop a strong brand
identity and reputation in an industry where personal trust and parent referrals
play an important role in attracting new customers. We believe that our brand
name enjoys widespread recognition and that our brand awareness is substantially
greater than that of our competitors.

We operate two primary types of child care and early education centers:
KinderCare community centers and KinderCare At Work-Registered Trademark-
centers. KinderCare community centers, which comprise the vast majority of our
centers, typically provide center-based educational and child care services to
children between the ages of six weeks and 12 years. For our KinderCare At
Work-Registered Trademark- centers, we partner with employers to meet their
individual needs for on-site/near-site child care for their employees. At March
5, 1999, we operated 39 on-site/near-site centers for 34 different employers. We
intend to grow our core business by adding new community and employer-sponsored
centers and upgrading our existing community centers.

OUR INDUSTRY

We are part of the education industry, a $650 billion per year industry in
the United States that includes preschool to post-secondary education, as well
as training at corporations nationwide. Within this industry, the child care and
early education sector is highly fragmented, with the top 50 for-profit child
care companies serving less than 2% of the estimated 50 million children under
the age of 12. In recent years, this sector has received increased media and
government attention as research has been publicized highlighting the importance
of quality child care experiences to early childhood development.

The child care segment of the education industry generated an estimated $33
billion in revenues in 1998, with approximately 100,000 centers throughout the
United States, and grew at a compound annual growth rate of 11.6% from 1982 to
1998. From 1998 to 2003, the overall child care segment is expected to grow at a
7.1% compound annual growth rate to an estimated $46.5 billion in 2003,
according to Marketdata Enterprises. The growth in this industry segment has
been, and is expected to continue to be, driven by a number of factors,
including the following:

- the growing number of mothers in the workforce

- the increasing population of children under the age of five

- the increasing amount of scientific research emphasizing, and the
resulting public awareness of, the importance of education during a
child's early development

- the increasing use of center-based care

3
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- proposed increases in federal and state support of child care service
providers

INITIATIVES SINCE THE RECAPITALIZATION

In February 1997, affiliates of Kohlberg Kravis Roberts & Co. became
beneficial owners of 83.6% of our outstanding common stock in a recapitalization
transaction. Since that time, we have significantly improved the quality of our
operations, positioning our company to benefit from the industry's positive
growth trends. Key elements of our transformation include the following:

- NEW MANAGEMENT TEAM. Beginning with the February 1997 addition of David J.
Johnson as our chief executive officer and the subsequent addition of nine
other officers, we added significant depth and professionalism to our
senior management team. Mr. Johnson was formerly chief executive officer
of Red Lion Hotels where he gained multi-unit management expertise while
growing that company significantly. Since the recapitalization, we have
relocated our headquarters to Portland, Oregon, substantially rebuilt our
corporate staff with experienced professionals and redesigned many
management processes. We made these changes with minimal disruption to our
center-level operations while also improving our strong field management
team.

- INCREASED INVESTMENT IN OUR PEOPLE. We took steps to strengthen field
operations personnel following the recapitalization by adding back field
management positions that had been eliminated in prior years, including
adding 27 area manager positions, bringing the total to 77, and 12
regional support positions. We also began a program of recruiting
individuals with multi-unit retail experience for area manager positions,
instituting incentive pay programs designed to focus center and area
managers on center-level performance and enhancing other employee
benefits. These measures have increased the support and control of our
field operations, as well as the quality and professionalism of our field
employees.

- ACCELERATED NEW CENTER DEVELOPMENT AND IMPROVED NEW CENTER ECONOMICS.
Following the recapitalization, we developed a new center prototype which
reflects a larger and more physically appealing design than prior
prototypes. These larger centers are designed to generate higher revenues,
operating income and margins than our existing centers. At 70% occupancy,
our new centers have average annual revenue potential of approximately
$920,000, compared to approximately $480,000 for our centers opened in
fiscal 1996 and earlier. At March 5, 1999, in our centers opened in fiscal
1996 and earlier, the average licensed capacity was 120 and the average
weekly tuition rate was $111, while in our centers opened after fiscal
1996, the average licensed capacity was 180 and the average weekly tuition
rate was $141. In order to take advantage of these improved economics, we
added 20 of our new prototype centers in fiscal 1998 and expect to open 40
more during fiscal 1999.

- QUALITY INITIATIVES, INCLUDING ACCREDITATION OF OUR CENTERS. We have
pursued a variety of initiatives since the recapitalization designed to
increase the quality and consistency of our operations. These initiatives
include promoting operating standards at our centers and enhancing
training for staff and management personnel. Although not mandated by any
regulatory authority, we are also aggressively pursuing accreditation of
our centers by the National Association for the Education of Young
Children, a national organization that has established comprehensive
criteria for providing quality early childhood education and care.

- MANAGEMENT FOCUS ON CENTER-LEVEL PERFORMANCE. Our new management team has
increased the focus of both corporate and field staff on center-level
management of all aspects of our operations. We linked incentives to
center-level results, involved center directors in budgeting and held them
accountable for center-level operating results. We believe that these
initiatives have improved our center-level performance by increasing the
quality of our information and improving our ability to react to
individual market conditions.

4
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- UPGRADED BASE OF EXISTING CENTERS. We have invested, and will continue to
invest, in a renovation program that is designed to bring all of our
centers to a company standard for physical plant and equipment and to
enhance the curb appeal of these centers. In addition, we conduct regular
strategic reviews of our centers to assess their profitability and
potential, and we close centers when our review process indicates that
such centers are not meeting performance expectations.

- IMPROVED SITE SELECTION AND NEW CENTER DEVELOPMENT PROCESS. We have
refined and expanded our new center site selection and development process
to more effectively target not only attractive markets but also specific
locations within those markets with the greatest convenience and retail
appeal. As part of this process, we perform comprehensive studies to
determine near and long-term potential for both occupancy and tuition
growth. We have also streamlined the new center opening process to more
efficiently transition our centers from the construction phase to full
operation.

OUR COMPETITIVE STRENGTHS

Our objective is to build on our position as the nation's leading provider
of early childhood care and educational services by further developing our
competitive strengths. Our unique operating strengths include the following:

- LEADING MARKET POSITION. At March 5, 1999, we operated 1,151 child care
centers with total center licensed capacity of approximately 145,000
full-time children. Our current licensed capacity represents more than 20%
of the aggregate capacity of the top 50 for-profit child care service
providers. Our position as the industry leader with a large, nationwide
customer base gives us both the ability to spread the costs of programs
and services over a large number of centers and a valuable distribution
network for new products and services. We believe that this position makes
us an attractive strategic partner for companies with high quality,
compatible products and services.

- STRONG BRAND IDENTITY AND REPUTATION. With 30 years of experience in the
industry, we believe that we enjoy strong brand recognition and a
reputation for quality. This represents a valuable asset in our industry
where personal trust and parent referrals play an important role in
attracting new customers. We strive to reinforce our positive image
through our many quality initiatives and our targeted marketing to current
and potential customers.

- HIGH QUALITY EDUCATIONAL PROGRAMS. Under the direction of our education
department led by a professional with a Ph.D. in early childhood
education, we have developed high quality proprietary curricula targeted
to children in each of the age and development levels we serve. Our
training programs for our teachers focus on delivery of our curricula and
foster an understanding of developmentally appropriate practices. Our
programs are updated and enhanced as new research becomes available. We
believe that educational content is becoming increasingly important as a
distinguishing factor in our industry and that our high-quality
educational programs are an increasingly important part of our business.

- GEOGRAPHICALLY DIVERSE OPERATIONS. Our broad national presence, with
centers located throughout 39 states, enhances brand awareness and
mitigates the potential impact of changing local or regional economic
trends, demographic trends or regulatory factors.

- ABILITY TO ATTRACT AND RETAIN A QUALIFIED WORKFORCE. We believe our
ability to provide enhanced employee benefits and recognition programs
gives us a competitive advantage in attracting and retaining a high
quality workforce, which is an important factor in the successful
operation of our centers. Our focus on investing in our people has led us
to improve our benefit and incentive programs, employee recognition
programs and training programs, while our size allows us to spread these
costs over a larger base than our competitors.

5
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- FINANCIAL FLEXIBILITY. We have an attractive capital structure and
following the offering will have substantially reduced our outstanding
debt. In addition, we have a real estate portfolio of 747 owned centers,
which provide us with the opportunity to pursue sale leaseback
arrangements or other strategies to improve our financial flexibility. We
believe that our capital structure and real estate assets are a
competitive advantage, providing us with capital to invest in our business
and finance our future growth.

OUR GROWTH STRATEGY

We are implementing a growth strategy that contains the following key
elements:

- CONTINUE ACCELERATED OPENING OF CENTERS WITH IMPROVED ECONOMICS. We plan
to continue the accelerated opening of new community centers in attractive
markets. We expect to add approximately 50 new centers in fiscal year
2000. We believe there are opportunities to continue to locate centers in
many attractive markets across the United States. From siting to opening,
a new center typically requires an 18 to 24 month lead time. Accordingly,
the centers we have planned for fiscal years 1999 and 2000 are currently
in various stages of development. We expect that our improved development
and opening process, along with the recent addition of a Senior Director
of New Centers, will allow us to continue to open new centers with
economics that compare favorably to our existing center base.

- EXPAND EMPLOYER-SPONSORED CHILD CARE SERVICES. We believe that we have an
opportunity to expand our KinderCare At Work-Registered Trademark-
operations based on the quality of our curricula and the strength of our
brand. We consider on-site/near-site employer-sponsored child care to be
one of the fastest growing segments of our industry. We are already one of
the leading providers of this service, although we have not yet
aggressively pursued employer-sponsored child care. At March 5, 1999 we
operated 39 on-site/near-site centers for 34 different employers,
including Delco Electronics Corp., Fred Meyer, Inc., Lego Systems, Inc.
and The Walt Disney Company. We intend to actively pursue growth in this
area of our business.

- PURSUE STRATEGIC RELATIONSHIPS AND ACQUISITIONS. We believe that we have a
number of opportunities for strategic partnerships or acquisitions in
areas in which our core strengths can be used to our advantage. We plan to
actively investigate and pursue opportunities by: (a) acquiring regional
or local child care service providers and employer-sponsored child care
businesses that complement and accelerate our internal growth of community
and KinderCare At Work-Registered Trademark- centers, (b) enhancing our
proprietary educational curricula through partnerships with, or
acquisitions of, companies offering high quality educational products, (c)
partnering with or acquiring companies that develop or distribute
educational products and services for the kindergarten to 12(th) grade
market and (d) acquiring private and/or charter schools to take advantage
of our corporate infrastructure, real estate management expertise and
ability to manage multi-site curricula delivery. To better focus our
efforts in this area, we recently hired a Vice President, Business
Development.

- INCREASE EXISTING CENTER REVENUE. We plan to increase our existing center
occupancy and our customer retention by continuing our focus on quality
and implementing targeted marketing programs to further enhance our brand
image and awareness. We also will continue to evaluate and implement a
center-specific tuition strategy designed to capitalize on our high
quality services and reputation. We believe that our broad customer base
offers an opportunity for the delivery of additional high quality
educational products and services that will complement the services we
currently provide and provide opportunities to better serve our customers.

- IMPROVE OUR OPERATIONAL EFFICIENCIES. We believe that we can improve our
operating performance by further consolidating our purchasing power and
continuing our focus on center-level

6
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economics. We intend to continually review the effectiveness of our
support services and information and reporting systems as a means to
improve efficiencies.

- INCREASE THE NUMBER OF ACCREDITED CENTERS. We intend to aggressively
pursue NAEYC accreditation for our centers and have hired four regional
coordinators to assist our centers in completing the lengthy accreditation
process. We believe that the accreditation process strengthens our centers
by motivating our teaching staff, reinforcing developmentally-appropriate
practices and improving our reputation for quality.

We believe we have established a strategy that has positioned us to grow
based on our leading market share and access to capital. We also have the
infrastructure and resources necessary to operate a large, growing company. We
believe that these factors will enhance our position in the education industry
and our opportunities for growth.

------------------------

Our principal executive offices are located at 650 N.E. Holladay Street,
Suite 1400, Portland, Oregon 97232, and our telephone number is (503) 872-1300.

7
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THE OFFERING

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Common stock offered by:

KinderCare:

U.S. offering............... shares

International offering...... shares
----------

Total..................... shares

The selling stockholders (1):

U.S. offering............... shares

International offering...... shares
----------

Total..................... shares

Shares outstanding after the shares
offering...................... (2)

We estimate that the net proceeds to be received by us from
the offering, will be approximately $ million. We
intend to use these net proceeds to redeem $ million
principal amount of our outstanding senior subordinated
notes, which also requires payment of a $ million
premium, and to repay approximately $ million of our
bank indebtedness. We will not receive any proceeds from
Use of proceeds................. the sale of shares of common stock by the selling
stockholders.

See the "Risk Factors" section beginning on page 11 and the
other information included in this prospectus for a
discussion of factors you should carefully consider before
Risk Factors.................... deciding to invest in shares of our common stock.

Proposed NYSE symbol............
</TABLE>

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(1) The selling stockholders in the offering will be .

(2) Excludes 737,093 shares of our common stock reserved for issuance pursuant
to options granted under our stock option plan as of April 2, 1999.
------------------------

Except as otherwise indicated, the information in this prospectus assumes
that the underwriters' over-allotment options are not exercised.

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SUMMARY HISTORICAL FINANCIAL INFORMATION

The following table sets forth summary consolidated financial and other data
for our business. The historical consolidated statement of operations data for
the five fiscal years ended June 3, 1994 (53 weeks), June 2, 1995, May 31, 1996,
May 30, 1997 and May 29, 1998 have been derived from, and should be read in
conjunction with, our audited consolidated financial statements and the related
notes included elsewhere in this prospectus or documents that we have previously
filed with the Securities and Exchange Commission. The historical unaudited
consolidated financial data for the forty weeks ended March 6, 1998 and March 5,
1999 have been derived from, and should be read in conjunction with, the
unaudited consolidated financial statements and the related notes included
elsewhere in this prospectus. The pro forma financial information gives effect
to the offering and the use of proceeds contemplated in this prospectus. In the
opinion of our management, all adjustments considered necessary for a fair
presentation have been included in the unaudited consolidated financial
statements. Interim results for the forty weeks ended March 5, 1999 are not
necessarily indicative of results that can be expected for the entire 1999
fiscal year.

PER SHARE DATA:
Basic net income (loss) per share........... $ 0.87 $ 1.10 $ 1.10 $ (0.79) $ 0.36 $ 0.26 $ 1.10
Diluted net income (loss) per share......... 0.85 1.07 1.07 (0.79) 0.36 0.26 1.08
Pro forma basic net income (loss) per
share..................................... -- -- -- -- --
Pro forma diluted net income (loss) per
share..................................... -- -- -- -- --

OTHER FINANCIAL DATA:
Adjusted EBITDA (a)......................... $ 72,314 $ 77,969 $ 87,165 $ 81,907 $ 93,247 $ 66,934 $ 74,814
Depreciation................................ 25,148 28,071 33,972 34,253 42,553 26,898 27,061
Capital expenditures........................ 35,710 74,376 67,304 43,748 84,954 59,461 69,427

CHILD CARE CENTER DATA:
Number of centers at end of period.......... 1,132 1,137 1,148 1,144 1,147 1,145 1,151
Center licensed capacity at end of period... 136,000 137,000 141,000 143,000 143,000 142,000 145,000
Occupancy (b)............................... n/c(c) n/c(c) 70.3% 70.0% 70.6% 69.3% 68.8%
Average tuition rate (b).................... $ n/c(c) $ n/c(c) $ 99.24 $ 101.93 $ 106.81 $ 106.20 $ 112.78
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 5, 1999
----------------------
ACTUAL PRO FORMA
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(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Property and equipment, net................................................................. $ 549,557 $
Total assets................................................................................ 633,731
Total debt (d).............................................................................. 439,027
Stockholders' equity........................................................................ 42,555
</TABLE>

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(a) We define Adjusted EBITDA as our earnings before interest expense, income
taxes, depreciation, amortization, recapitalization expenses, restructuring
and other charges (income), net, investment income, net and extraordinary
items. Adjusted EBITDA is not intended to indicate that cash flow is
sufficient to fund all of our cash needs or represent cash flow

(FOOTNOTES CONTINUED ON FOLLOWING PAGE)

9
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from operations as defined by generally accepted accounting principles. In
addition, Adjusted EBITDA should not be used as a tool for comparison as the
computation may not be similar for all companies.

(b) We define occupancy, a measure of the utilization of center capacity, as the
full-time equivalent, or FTE, attendance at all of our centers divided by
the sum of the licensed capacity of all of our centers. FTE attendance is
not a strict head count. Rather, the methodology used is to determine an
approximate number of full-time children based on weighted averages. For
example, an enrollment of one full-time child equates to one FTE, while a
part-time child enrolled for a half-day would equate to 0.5 FTE. The FTE
measurement of center capacity utilization does not necessary reflect the
actual number of full- and part-time children enrolled. We define average
tuition rate as net revenues, exclusive of fees, which are primarily for
reservation and registration, and non-tuition income, divided by FTE
attendence for the respective period. The average tuition rate represents
the approximate weighted average tuition rate paid by a parent for a child
to attend one of our centers five full days during one week. The occupancy
mix between full- and part-time children at our centers, however, can
significantly affect these averages.

(c) Prior to June 3, 1995, we used average occupancy and the three year old
tuition rate to measure performance. Average occupancy was defined as actual
operating revenues for the respective period divided by the building
capacity of each of our centers multiplied by such center's basic tuition
rate for full-time, three-year-old students for the respective period. The
three-year-old tuition rate represented the weekly tuition rate paid by a
parent for a three-year-old child to attend one of our centers five full
days during one week. The tuition rate represented an approximate average of
all tuition rates at each center. At June 3, 1995, we changed our method of
measuring performance to the utilization of occupancy and average tuition
rate. Prior to fiscal 1996, we did not track licensed capacity or full-time
equivalent attendance. Therefore, occupancy and average tuition rate can not
be calculated for fiscal 1995 and 1994. For further information regarding
our measurement of occupancy and tuition rates, see "Selected Financial and
Other Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

(d) Total debt includes long-term debt and the current portion of long-term
debt.

10
<PAGE>
RISK FACTORS

You should carefully consider these risk factors, together with all of the
other information included in this prospectus, before you decide whether to
purchase shares of our common stock.

WE FACE INTENSE COMPETITION IN THE CHILD CARE AND EDUCATIONAL SERVICES INDUSTRY
FROM NUMEROUS OTHER TYPES OF PROVIDERS.

The early childhood care and educational services industry is highly
fragmented and competitive. Our competition consists principally of the
following:

- local nursery schools and child care centers, some of which are
non-profit, including church-affiliated centers

- other for-profit, center-based child care providers

- providers of services that operate out of homes

- substitutes for organized child care, such as relatives, nannies and one
parent caring full-time for a child

- preschool and before and after school programs provided by public schools

Local nursery schools, child care centers and in-home providers generally
charge less for their services than we do. Many church-affiliated and other
non-profit child care centers have lower operating expenses than we do and may
receive donations and/or other funding to subsidize operating expenses.
Consequently, operators of such centers often charge tuition rates that are less
than our rates. In addition, fees for home-based care are normally substantially
lower than fees for center-based care because providers of home-based care are
not always required to satisfy the same health, safety, insurance or operational
regulations as our centers.

In addition, in some markets we face competition with respect to preschool
services and before and after school programs from public schools that offer
such services at little or no cost to parents. The number of school districts
offering these services is growing, and we expect this form of competition to
increase in the future.

Our competition also includes other large, national, for-profit early
education and child care companies, many of which offer child care at a
substantially lower price than we do.

Our KinderCare At Work-Registered Trademark- centers compete with
center-based child care chains, some of which have divisions that compete for
employer-sponsorship opportunities, and with other organizations that focus
exclusively on the work-site segment of the child care market. Many of these
competitors are able to offer child care at a lower price than we do by
utilizing higher child-teacher ratios and/or offering their staff lower
compensation, enabling them to operate profitably while charging lower prices.
Some of our competitors for employer-sponsored programs also have greater
penetration in specific geographic regions and significantly more relationships
with employer-sponsors than we do. Increased competition for employer-sponsored
programs on a national or local basis could result in increased pricing pressure
and/or loss of market share, which could negatively impact our
employer-sponsored child care business, as well as our plans to grow that
business.

OUR FAILURE TO COMPLY WITH PRESENT OR FUTURE GOVERNMENTAL REGULATION AND
LICENSING REQUIREMENTS FOR CHILD CARE CENTERS COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR OPERATIONS.

Child care centers are subject to numerous state and local regulations and
licensing requirements. Although these regulations vary greatly from
jurisdiction to jurisdiction, government agencies generally review the fitness
and adequacy of buildings and equipment, the ratio of staff to enrolled
children, staff training, record keeping, the dietary program, the daily
curriculum and compliance with health and safety standards. These regulations
and requirements may be changed at any time, resulting in the imposition of
additional restrictions on our activities. Some changes, such as increasing the
ratio of staff

11
<PAGE>
to enrolled children, can result in significantly increased costs to operate our
business. In addition, if one of our centers fails to comply with applicable
regulations, that center could be subject to state sanctions. These sanctions
may include fines, corrective orders, placement on probation or, in more serious
cases, suspension or revocation of the center's license to operate. Repeated
failures to comply with such regulations by one or more of our centers could
also lead to sanctions against our other centers located in the same state. This
type of action could generate negative publicity extending beyond the
sanctioning state.

Although we believe that we are in substantial compliance with laws and
regulations currently in effect, failure to comply with such laws or regulations
or changes in such laws or regulations could have a material adverse effect on
our operations.

IF WE ARE UNABLE TO ATTRACT AND RETAIN SUFFICIENT QUALIFIED EMPLOYEES OR IF OUR
EMPLOYEES UNIONIZE, OUR RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED.

Our success is largely dependent on our ability to attract and retain
qualified employees. Many of our child care center staff are entry-level wage
earning employees. Competition for such employees has been particularly intense
during the recent period of low unemployment. If we are unable to hire
sufficient numbers of quality employees or are only able to hire such employees
by paying significantly greater salaries, wages and benefits than we currently
do, our operations may be adversely affected. In addition, continued low
unemployment rates and positive economic trends in the United States economy may
increase this risk.

Since early 1998, union organization efforts in the child care industry have
received considerable publicity. While union officials associated with the
American Federation of State, County and Municipal Employees and Service
Employees International have announced their intention to engage in a national
effort to organize child care workers, organization efforts to date have been
principally localized in Philadelphia and Seattle. Although we are not aware of
any organization efforts at any of our centers, such efforts may occur and, if
successful, could have an adverse effect on our relationships with employees and
our labor costs. In addition, the general publicity surrounding such efforts,
even if not focused on our centers, could result in increased wages for child
care workers and, as a result, increase our labor costs.

A LOSS OF GOVERNMENT FUNDING FOR CHILD CARE ASSISTANCE PROGRAMS COULD ADVERSELY
AFFECT US.

During the forty weeks ended March 5, 1999, approximately 17% of our net
revenues were generated from federal and state child care assistance programs.
Funding for such programs is subject to changes that are unpredictable and
outside our control. Accordingly, funding for such federal and state programs
may not continue at current levels and a significant reduction in such funding
may have an adverse impact on us. If we fail to satisfy the requirements for
participation in such a program or if one or more of our centers fails to adhere
to applicable program standards, we may be forced to return revenues received
from such program and/or may be barred from further participation in the
program. In addition, we may be subject to fines or other penalties.

IF WE ARE UNABLE TO SUCCESSFULLY EXECUTE OUR GROWTH STRATEGY, OUR REVENUE
GROWTH, EARNINGS AND CASH FLOW COULD BE DIMINISHED.

Our ability to increase revenues and operating cash flow significantly over
time depends, in part, on our success in building and/or acquiring new centers
on satisfactory terms, successfully integrating them into our operations and
achieving operational maturity within our targeted time frame. Acceptable
acquisition opportunities and appropriate sites for our expansion program might
not be available. The availability and price of sites and acquisition
opportunities could be adversely impacted by the expansion activities of our
competitors. In addition, our ability to take successful advantage of any
available acquisition opportunity will be dependent, in part, on the
availability of adequate financial resources, to which we may not have access.
We also may have to incur material expenditures to

12
<PAGE>
relicense centers that we acquire in the future because state and local
licensing regulations often do not allow family services companies, such as
child care centers, to transfer their licenses.

Our growth strategy contemplates developing or acquiring businesses in
education-related businesses with which we do not have significant direct prior
experience, such as private and charter schools. Competition for acquiring such
businesses has been significant and has driven up prices for such acquisition
opportunities. Accordingly, such business opportunities may not be available on
reasonable terms, or, if available, may not be executed successfully.

As our business develops and expands, we may need to implement enhanced
operational and financial systems, in addition to those already in place or in
the process of being implemented, and may require additional employees and
management, operational and financial resources. We may not be able to implement
and maintain successfully those operational and financial systems or obtain,
integrate and utilize successfully the required employees and management,
operational and financial resources to manage a rapidly developing and expanding
business. Failure to implement such systems successfully and to use such
resources effectively could have a material adverse effect on us.

LITIGATION AND ADVERSE PUBLICITY CONCERNING INCIDENTS AT CHILD CARE CENTERS
COULD HURT OUR REPUTATION AND LIMIT OUR ABILITY TO OBTAIN INSURANCE.

We believe our success in the child care business, where personal trust and
parent referrals play a key role, is directly related to our reputation and
favorable brand identity. However, like our major competitors, we are
periodically subject to claims and litigation alleging negligence, inadequate
supervision and other grounds for liability arising from injuries or other harm
to children. In addition, claimants may seek damages from us for child abuse,
sexual abuse or other criminal acts arising out of alleged incidents at our
centers. Any adverse publicity concerning such incidents at one of our child
care centers, or child care centers generally, could greatly damage our
reputation and could have an adverse effect on occupancy levels at our centers.

Many operators of child care centers have had difficulty obtaining general
liability insurance or other liability insurance that covers child abuse, or
have been able to obtain such insurance only at substantially higher rates,
because of the adverse publicity risks discussed above and because the statutes
of limitations for the bringing of child abuse and personal injury claims
typically do not expire until a number of years after the child reaches the age
of majority.

To date, we have been able to obtain insurance in amounts we believe to be
appropriate. However, our insurance premiums may increase in the future as a
consequence of conditions in the insurance business generally, or our situation
in particular, and continuing publicity with respect to alleged instances of
child abuse in our industry may result in our inability to obtain insurance.
Furthermore, our current insurance coverage may not protect us against all of
such claims.

IF WE ARE UNABLE TO OPEN NEW CHILD CARE CENTERS AS PLANNED THROUGHOUT THE YEAR,
AS WELL AS DURING THE IMPORTANT MONTHS OF AUGUST AND DECEMBER, OUR ANNUAL AND
QUARTERLY RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED.

Our growth plan contemplates opening new child care centers throughout the
year. Delays in opening these centers can occur due to construction delays,
delays in the receipt of necessary regulatory approvals or other factors, some
of which are beyond our control. If we are unable to open new centers as
planned, our revenue and earnings growth could be materially adversely affected.

In addition, our revenues and the initial success of new centers are subject
to seasonal variation, because enrollments are generally highest in September
and January when children return to child care and/or school after summer and
holiday vacations. Accordingly, August and December are ideal months to open new
centers. Centers which open at other times usually experience a lower rate of
enrollment during early months of operation. In addition, enrollment generally
decreases 5% to 10% during holiday periods and summer months. If for any reason
we are unable to open new child care centers

13
<PAGE>
during these important months to our business, then our results of operations,
including enrollment and occupancy, could be materially adversely affected. We
may also be unable to adjust our expenses on a short-term basis to offset these
fluctuations in revenues.

BECAUSE WE ARE CONTROLLED BY KKR, OTHER STOCKHOLDERS HAVE A REDUCED ABILITY TO
INFLUENCE OUR BUSINESS.

Following the offering, KLC Associates, L.P., a partnership controlled by
Kohlberg Kravis Roberts & Co., will own approximately % of our outstanding
common stock on a fully diluted basis and will continue to control us.
Accordingly, affiliates of KKR will be able to:

- elect our entire board of directors, other than one director appointed by
Oaktree Capital Management, LLC pursuant to a stockholders' agreement
among Oaktree, affiliates of The TCW Group Inc., affiliates of KKR and our
company

- control our management and policies

- determine, without the consent of our other stockholders, the outcome of
any corporate transaction or other matter submitted to our stockholders
for approval, including mergers, consolidations and the sale of all or
substantially all of our assets

Affiliates of KKR will be able to prevent or cause a change in control of
our company and amend our certificate of incorporation and bylaws. The interests
of KKR may also conflict with the interests of the other holders of our common
stock.

ANY REDUCTION IN, OR OTHER CHANGES TO, THE GENERAL LABOR FORCE REDUCES THE NEED
FOR OUR CHILD CARE SERVICES.

Demand for our child care services may be subject to fluctuations in general
economic conditions, and our revenues depend, in part, on the number of working
mothers and working single parents who require child care services. Recessionary
pressure on the economy, and a consequent reduction in the general labor force,
may adversely impact us because of the tendency of out-of-work parents to stop
using child care services. In addition, demand for our KinderCare At
Work-Registered Trademark- centers may decrease if employers come to view
work-site child care, such as our KinderCare At Work-Registered Trademark-
centers, as not cost-effective or beneficial to their workforce.

In addition, demographic trends, including the increasing percentage of
mothers in the workforce, as well as trends in the preference of working parents
and employers for center-based child care, may not continue. Any change in
current trends or preferences could materially adversely affect our business.

OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH.

We incurred substantial indebtedness in connection with the recapitalization
in 1997 and consequently are highly leveraged. As of March 5, 1999, we had
$439.0 million of consolidated indebtedness and $42.6 million of consolidated
stockholders' equity, and on a pro forma basis after giving effect to the
offering and the use of proceeds described in this prospectus, we would have had
$ million of consolidated indebtedness and $ million of consolidated
stockholders equity. We may incur additional indebtedness in the future, subject
to the limitations contained in the instruments governing our indebtedness.
Accordingly, we will continue to have significant debt service obligations in
the future. In addition, we may enter into additional debt agreements or other
financing arrangements in the future that could impose additional financial and
operational restrictions upon us.

Our debt service obligations could have important consequences to you,
including the following:

- a substantial portion of our cash flow from operations is, and will
continue to be, dedicated to the payment of principal and interest on our
indebtedness, which reduces the funds available for

14
<PAGE>
our operations and future business opportunities and increases our
vulnerability to adverse general economic and industry conditions

- our ability to obtain additional financing in the future may be limited

- portions of our borrowings, including amounts borrowed under our credit
facilities, will be at variable rates of interest, which could cause us to
be vulnerable to increases in interest rates

In addition, our borrowing agreements contain numerous financial and
operating covenants that limit the discretion of our management with respect to
various business matters. These covenants place significant restrictions on our
ability to: (1) incur additional indebtedness, (2) create liens or other
encumbrances, (3) make dividend payments and investments and (4) sell or
otherwise dispose of assets and merge or consolidate with other companies. Our
borrowing agreements also require us to meet financial ratios and tests.

A failure to comply with the obligations contained in our borrowing
agreements could result in an event of default under our borrowing agreements,
which could result in acceleration of the debt related to the particular
borrowing agreement, as well as the debt under other borrowing instruments that
contain cross-acceleration or cross-default provisions.

Our ability to make scheduled payments of the principal of or interest on,
or to refinance, our indebtedness and to make scheduled payments under our
operating leases depends on our future performance, which to an extent is
subject to economic, financial, competitive and other factors beyond our
control. Based upon the current level of operations and anticipated growth, we
believe that future cash flow from our operations, together with available
borrowings under our revolving credit facility, will be adequate to meet our
anticipated requirements for capital expenditures, interest payments and
scheduled principal payments. There can be no assurance, however, that our
business will continue to generate sufficient cash flow from our operations in
the future to service debt and make necessary capital expenditures. If we are
unable to do so, we may be required to refinance all or a portion of our
existing debt, to sell assets or to obtain additional financing. Such
refinancing might not be possible, and such sales of assets or additional
financing might not be achieved.

THE LOSS OF ANY OF OUR KEY MANAGEMENT EMPLOYEES COULD ADVERSELY EFFECT OUR
BUSINESS.

Our success and growth strategy depend upon our senior management,
particularly David J. Johnson, our chief executive officer. However, we do not
have employment agreements with, or key man life insurance for, Mr. Johnson or
any of our senior management. If any of our key employees becomes unable or
unwilling to participate in the business and operations of KinderCare and/or we
are unable to continue to attract and retain additional highly qualified senior
management personnel, our future business and operations could be materially and
adversely affected.

PRIOR TO THE OFFERING THE MARKET FOR OUR COMMON STOCK HAS BEEN LIMITED, AND WE
CAN NOT PREDICT WHETHER A LIQUID MARKET WILL DEVELOP AFTER THE OFFERING.

Following the recapitalization, our common stock was delisted from the
Nasdaq National Market. Since February 13, 1997, our common stock has been
traded in the over-the-counter market, in the "pink sheets" published by the
National Quotation Bureau and has been listed on the OTC Bulletin Board under
the symbol "KDCR," but the market for our common stock is very limited due to
the relatively low trading volume and the small number of brokerage firms acting
as market makers. Thus, the delisting of our common stock, together with the
substantial decrease in the number of shares of our common stock held by holders
other than KLC Associates, L.P. has resulted in a substantial decrease in the
liquidity of our common stock.

We have applied to list our common stock on The New York Stock Exchange. A
NYSE listing does not, however, guarantee that a trading market for the common
stock will develop or, if a market

15
<PAGE>
does develop, the depth of the trading market for the common stock. As a result,
the ability to buy and sell shares of our common stock may be limited.

THE PRICE FOR OUR COMMON STOCK MAY DECLINE AFTER THE OFFERING OR FLUCTUATE
WIDELY.

The public offering price of the common stock will be determined by
negotiations among ourselves, the selling stockholders and the representatives
of the underwriters. The common stock may trade at prices significantly below
the public offering price, and investors may be unable to resell their shares of
our common stock at or above the public offering price.

Furthermore, the price of our common stock after the offering may fluctuate
widely, depending upon many factors, including the following:

- the perceived prospects of our business

- differences between our actual financial and operating results and those
expected by investors and research analysts

- changes in research analysts' recommendations or projections

- the issuance of additional shares in connection with an acquisition or
otherwise

- changes in general economic or market conditions or specific economic
factors in our industry

In the past, companies with volatile stock prices have been the object of
securities class action litigation. If we were the object of securities class
action litigation, it could be costly and divert our management's attention and
resources.

SALES BY OUR EXISTING STOCKHOLDERS OF THEIR COMMON STOCK CURRENTLY HELD OR
OBTAINED THROUGH EXERCISE OF STOCK OPTIONS COULD ADVERSELY AFFECT THE MARKET
PRICE OF THE COMMON STOCK SOLD IN THE OFFERINGS.

As of April 2, 1999, there were 9,480,837 shares of our common stock
outstanding, without giving effect to the offering. Except for 157,895 shares of
common stock currently held by our chief executive officer, all shares of common
stock, including common stock underlying options, held by our management, are
registered under the Securities Act of 1933, although most of those shares are
subject to restrictions on transfer. See "Management" and "Shares Eligible for
Future Sale." In addition, after the offering, persons who currently hold common
stock not registered under the Securities Act will be entitled to register their
common stock under the Securities Act at our expense pursuant to their
registration rights. We cannot predict the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the common stock. Sales of substantial amounts of common stock, or the
perception that such sales could occur, may adversely affect prevailing market
prices for the common stock. We, the selling stockholders and our officers and
directors, who in the aggregate owned shares at , 1999,
have agreed not to offer, sell, contract to sell or otherwise dispose of any
common stock for a period of 180 days after the date of this prospectus without
the written consent of Merrill Lynch on behalf of the underwriters.

WE MAY BE ADVERSELY AFFECTED BY THE YEAR 2000 PROBLEM.

We are currently in the process of testing our information and
non-information technology systems for Year 2000 compliance. We are also
determining whether critical third parties with which we do business are Year
2000 compliant. Our failure, or the failure of third parties with which we do
business, to become Year 2000 compliant by January 1, 2000 could result in the
following adverse consequences to our business:

- We may be unable to receive materials and supplies from our vendors that
are necessary for operating our existing child care centers or building
and opening new centers

- Heating and cooling, security and other operational systems and equipment
at our centers could fail

16
<PAGE>
- Our payroll/human resources software, our financial reporting system
software and other software we use could fail and cause disruption to our
business, including delayed payment of salaries and wages to our
employees, our inability to produce financial information to manage our
business or other unforeseen problems

- Our receipt of payments from governmental agencies that administer tuition
reimbursement programs could be delayed

For further description of our Year 2000 compliance efforts, you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."

BECAUSE WE OWN OR LEASE A SUBSTANTIAL NUMBER OF REAL PROPERTIES, OUR RESULTS OF
OPERATIONS COULD BE ADVERSELY AFFECTED IF ENVIRONMENTAL CONTAMINATION IS
DISCOVERED ON OUR PROPERTIES.

We are subject to federal, state and local environmental laws, regulations
and ordinances that may impose liability for the costs of cleaning up, and
damages resulting from, past spills, disposals and other releases of hazardous
substances. In particular, under applicable environmental laws, we may be
responsible for investigating and remediating environmental conditions and may
be subject to associated liability, including lawsuits brought by private
litigants, relating to our centers and our properties. These obligations could
arise whether we own or lease the center or property at issue and regardless of
whether the environmental conditions were created by us or by a prior owner or
tenant. Although we currently conduct environmental reviews prior to acquiring
or leasing new centers or properties, environmental conditions unknown to us at
this time relating to prior, existing or future centers or related properties
may be discovered and have a material adverse effect on our results of
operations. See "Business--Site Selection of Child Care Centers" and
"--KinderCare Properties."

PURCHASERS OF OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION AND MAY BE FURTHER DILUTED IN THE FUTURE.

If you purchase common stock in this offering, you will experience immediate
and substantial dilution of $ per share in the net tangible book value of
the common stock from the public offering price. See "Dilution." In addition, we
may also issue additional capital stock in the future in connection with
acquisitions, management incentives or otherwise, which would have a dilutive
effect on our stockholders.

OUR CHARTER INCLUDES PROVISIONS THAT MAY HAVE THE EFFECT OF PREVENTING OR
HINDERING A CHANGE IN OUR CONTROL.

Our certificate of incorporation gives our board of directors the authority
to issue up to 10 million shares of preferred stock and to determine the rights
and preferences of this preferred stock without obtaining stockholder approval.
The existence of this preferred stock could discourage an attempt to obtain
control of KinderCare by means of a tender offer, merger, proxy contest or
otherwise or make such a transaction more difficult. Furthermore, this preferred
stock could be issued with other rights, including economic rights, senior to
our common stock, and, therefore, issuance of the preferred stock could have an
adverse effect on the market price of our common stock. We have no present plans
to issue any shares of our preferred stock.

THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS WHICH COULD DIFFER FROM
ACTUAL FUTURE RESULTS.

Some of the matters discussed in this prospectus include forward-looking
statements. Statements that are predictive in nature, that depend upon or refer
to future events or conditions or that include words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates" and similar
expressions are forward-looking statements. Although we believe that these
statements are based upon reasonable assumptions, we can give no assurance that
such expectations will prove to have been correct. These forward-looking
statements are made as of the date of this prospectus, and we assume no
obligation to update them or the reasons why actual results may differ.

17
<PAGE>
USE OF PROCEEDS

The net proceeds to us from the sale of the shares of common stock
offered by us, after deducting the underwriting discount and estimated offering
expenses, are estimated to be approximately $ million. These proceeds
will be used to redeem $ million principal amount of our 9 1/2% Senior
Subordinated Notes due 2009 at a redemption price of % of the principal
amount, which will require payment of approximately a $ million premium in
addition to the principal amount of the senior subordinated notes, and to repay
$ million of indebtedness under our credit facilities with The Chase Manhattan
Bank and other lenders. The credit facilities consist of a $90.0 million term
loan facility maturing on February 13, 2006, of which $50.0 million was drawn at
the time of the recapitalization and $40.0 million has since expired, and a
$300.0 million revolving credit facility maturing on February 13, 2004. As of
March 5, 1999, $49.0 million of loans under the term loan facility were
outstanding, $48.0 million of the revolving credit facility was drawn down and
the weighted average interest rate on the credit facilities was 7.29% for the
forty weeks ended March 5, 1999. For further information regarding the senior
subordinated notes and the credit facilities, see "Description of Long-Term
Indebtedness" in this prospectus.

We will receive no proceeds from the sale of common stock in the offering by
the selling stockholders.

DIVIDEND POLICY

During the past three fiscal years, we have not declared or paid any cash
dividends or distributions on our capital stock. We do not intend to pay any
cash dividends for the foreseeable future but instead intend to retain earnings,
if any, for the future operation and expansion of our business. Any
determination to pay dividends in the future will be at the discretion of our
board of directors and will be dependent upon our results of operations,
financial condition, contractual restrictions, restrictions imposed by
applicable law and other factors deemed relevant by our board of directors. In
addition, both our credit facilities and the indenture governing our senior
subordinated notes currently contain limitations on our ability to declare or
pay cash dividends on our common stock. Future indebtedness or loan arrangements
incurred by us may also prohibit or restrict our ability to pay dividends and
make distributions to our stockholders.

18
<PAGE>
PRICE RANGE OF COMMON STOCK

Since February 13, 1997, the date of the recapitalization, our common stock
has been traded in the over-the-counter market, in the "pink sheets" published
by the National Quotation Bureau, and has been listed on the OTC Bulletin Board
under the symbol "KDCR." The market for our common stock must be characterized
as a limited market due to the relatively low trading volume and the small
number of brokerage firms acting as market makers. The following table sets
forth, for the periods indicated, information with respect to the high and low
bid quotations for our common stock as reported by a market maker for our common
stock. The quotations represent inter-dealer quotations without retail markups,
markdowns or commissions and may not represent actual transactions.

<TABLE>
<CAPTION>
COMMON STOCK
----------------
HIGH
BID LOW BID
------- -------
<S> <C> <C>
FISCAL YEAR ENDED MAY 28, 1999
Fourth quarter (through , 1999)..........................................................
Third quarter.................................................................................. $24 $21 1/2
Second quarter................................................................................. 26 1/2 21 1/2
First quarter.................................................................................. 26 1/2 21 1/2

FISCAL YEAR ENDED MAY 29, 1998
Fourth quarter................................................................................. $22 $18 3/4
Third quarter.................................................................................. 19 5/8 18 1/8
Second quarter................................................................................. 19 1/2 18
First quarter.................................................................................. 19 3/8 18

FISCAL YEAR ENDED MAY 30, 1997
Fourth quarter................................................................................. N/A* N/A*
Third quarter (from February 13, 1997)......................................................... $19 $19
</TABLE>

- ------------------------

* We were unable to identify any trades in our common stock in the over-the
counter market during this period.

Until February 13, 1997, our common stock traded on the NASDAQ National
Market System under the symbol "KCLC." Following the recapitalization, our
common stock was delisted from the NASDAQ National Market System. The following
table sets forth, for the fiscal periods indicated, the high and low sales
prices, rounded to the nearest sixteenth, reported by the NASDAQ National Market
System with respect to sales of the common stock prior to February 13, 1997:

<TABLE>
<CAPTION>
COMMON STOCK
----------------
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDED MAY 30, 1997
Third quarter (through February 13, 1997)........................................................ $20 $18 1/8
Second quarter................................................................................... 20 15 1/4
First quarter.................................................................................... 15 11/16 13 7/8
</TABLE>

At , 1999, the high and low bid quotations for our common stock
as quoted by a market maker for our common stock, were $ and $ ,
respectively. At April 2, 1999, there were approximately 89 holders of record of
our common stock.

19
<PAGE>
CAPITALIZATION

The following table sets forth our debt and capitalization at March 5, 1999,
and after giving pro forma effect to the following:

- the receipt by us of the net proceeds from the sale of shares of
common stock offered by us in this offering at an assumed public offering
price of $ per share, after deducting the underwriting discount and
estimated offering expenses payable by us in the offering

- the application of the net proceeds from the offering as described under
"Use of Proceeds"

In addition, the following table should be read in conjunction with the
Consolidated Financial Statements and the accompanying notes, which are
contained later in this prospectus.

<TABLE>
<CAPTION>
MARCH 5, 1999
--------------------------
ACTUAL PRO FORMA
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion:
Credit facilities.................................................................. $ 97,000 $
9 1/2% senior subordinated notes due 2009.......................................... 300,000
Other debt (1)..................................................................... 42,027
---------- -------
Total debt....................................................................... 439,027

Stockholders' equity:
Common stock, par value $.01 per share; 20,000,000 shares authorized; 9,480,837
shares issued and outstanding at March 5, 1999................................... 95
Additional paid-in capital......................................................... 2,144
Retained earnings.................................................................. 41,567
Other stockholders' equity......................................................... (1,251)
---------- -------
Total stockholders' equity....................................................... 42,555
---------- -------
Total capitalization........................................................... $ 481,582 $
---------- -------
---------- -------
</TABLE>

- ------------------------

(1) Consists of industrial revenue bonds and obligations secured by mortgages.

20
<PAGE>
DILUTION

Our tangible book value at March 5, 1999 was $42.5 million, or $4.48 per
outstanding share of common stock. The net tangible book value per share of
common stock is equal to our total tangible assets, which is defined as total
assets less intangible assets, less our total liabilities, divided by the number
of shares of common stock outstanding. After giving effect to the sale of
shares of common stock to be sold by us in the offering at a public
offering price of $ per share, and the application by us of the estimated
net proceeds as described in "Use of Proceeds," our net tangible book value at
, 1999 would have been $ million, or $ per share of common
stock. This represents an immediate increase in net tangible book value of
$ per share of common stock and an immediate dilution in net tangible book
value of $ per share of common stock to new investors of common stock in
this offering.

The following table illustrates the per share dilution that would have
occurred if this offering had been consummated on , 1999:

<TABLE>
<S> <C> <C>
Assumed public offering price per share of common stock......... $
Net tangible book value per share before the offering........... $
Increase per share attributable to the offering (1).............
---------
Net tangible book value per share after the offering............
---------
Dilution per share to new investors (2).........................
---------
---------
</TABLE>

- ------------------------

(1) After deducting the underwriting discounts and estimated expenses payable by
us in the offering.

(2) Dilution is determined by subtracting net tangible book value per share
after giving effect to the offering from the assumed public offering price
paid by new investors.

The following table summarizes the differences, as of , 1999,
between the existing stockholders and the new investors with respect to the
number of shares purchased from us, the total consideration paid and the average
price per share paid. For the purpose of the following table only, the shares
purchased from us exclude the shares sold by the selling stockholders in this
offering.

<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
-------------------------- --------------------------
NUMBER AMOUNT AVERAGE
(IN (IN PRICE
THOUSANDS) PERCENT THOUSANDS) PERCENT PER SHARE
------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................... % $ % $
New investors.......................................
------------- ----- ------------- -----
Total............................................. % %
------------- ----- ------------- -----
------------- ----- ------------- -----
</TABLE>

- ------------------------

(1) Includes shares purchased by officers and directors.

The computations made above do not give effect to either of the following:

- 737,093 shares of common stock issuable upon exercise of stock options
outstanding as of April 2, 1999, of which options to purchase 253,522
shares of common stock were then exercisable

- 1,492,596 shares of common stock reserved for future issuance under our
stock option plan

To the extent that shares are issued in connection with the exercise of
stock options at prices below the offering price, there will be further dilution
to new investors. In addition, sales by the selling stockholders in this
offering will reduce the number of shares held by current stockholders to
, or % of the total number of shares outstanding after this
offering, and will increase the number of shares of common stock held by new
investors to , or % of the total number of shares of common stock
outstanding after this offering. See "Principal and Selling Stockholders."

21
<PAGE>
SELECTED FINANCIAL AND OTHER DATA

The following table sets forth selected historical consolidated financial
and other data for KinderCare. The historical consolidated financial statements
of KinderCare for the five most recent fiscal years have been audited, and the
historical consolidated financial data for these five fiscal years have been
derived from, and should be read in conjunction with, the audited consolidated
financial statements of KinderCare and the related notes included elsewhere in
this prospectus or from documents previously filed with the Securities and
Exchange Commission. The historical unaudited consolidated financial data for
the forty weeks ended March 6, 1998 and March 5, 1999 have been derived from,
and should be read in conjunction with, the unaudited consolidated financial
statements of KinderCare and the related notes included elsewhere in this
prospectus. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included in the unaudited consolidated
financial statements of KinderCare. The pro forma financial information gives
effect to the offering and the use of proceeds contemplated in the prospectus.
Interim results for the forty weeks ended March 5, 1999 are not necessarily
indicative of results that can be expected for the entire 1999 fiscal year.
KinderCare's fiscal year ends on the Friday closest to May 31. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and the accompanying notes, which are
contained later in this prospectus.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED FORTY WEEKS ENDED
-------------------------------------------------------- ------------------------
JUNE 3, 1994 JUNE 2, MAY 31, MAY 30, MAY 29, MARCH 6, MARCH 5,
(53 WEEKS) 1995 1996 1997 1998 1998 1999
------------ --------- --------- --------- --------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND CHILD CARE CENTER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net.......................... $ 488,726 $ 506,505 $ 541,264 $ 563,135 $ 597,070 $ 450,972 $ 477,550
Operating expenses, exclusive of
recapitalization expenses,
restructuring and other charges
(income), net........................ 441,560 456,607 488,071 515,481 546,376 410,936 429,797
Recapitalization expenses (a).......... -- -- -- 17,277 -- -- --
Restructuring and other charges
(income), net (b).................... -- (888) 1,484 10,275 5,201 4,947 (521)
------------ --------- --------- --------- --------- ----------- -----------
Total operating expenses............. 441,560 455,719 489,555 543,033 551,577 415,883 429,276
------------ --------- --------- --------- --------- ----------- -----------
Operating income................... 47,166 50,786 51,709 20,102 45,493 35,089 48,274
Investment income, net................. 3,176 2,635 250 232 612 518 390
Interest expense....................... (17,675) (17,318) (16,727) (22,394) (40,677) (31,960) (32,026)
------------ --------- --------- --------- --------- ----------- -----------
Income (loss) before income taxes and
extraordinary items................ 32,667 36,103 35,232 (2,060) 5,428 3,647 16,638
Income tax expense..................... 12,837 14,037 13,549 3,375 2,002 1,240 6,250
------------ --------- --------- --------- --------- ----------- -----------
Income (loss) before extraordinary
items.............................. 19,830 22,066 21,683 (5,435) 3,426 2,407 10,388
Extraordinary items, net of income
taxes (c)............................ (2,397) -- -- (7,532) -- -- --
------------ --------- --------- --------- --------- ----------- -----------
Net income (loss).................. $ 17,433 $ 22,066 $ 21,683 $ (12,967) $ 3,426 $ 2,407 $ 10,388
------------ --------- --------- --------- --------- ----------- -----------
------------ --------- --------- --------- --------- ----------- -----------
INCOME (LOSS) PER SHARE:
Basic--Income (loss) before
extraordinary items.................. $ 0.99 $ 1.10 $ 1.10 $ (0.33) $ 0.36 $ 0.26 $ 1.10
Extraordinary items, net............. (0.12) -- -- (0.46) -- -- --
------------ --------- --------- --------- --------- ----------- -----------
Net income (loss).................. $ 0.87 $ 1.10 $ 1.10 $ (0.79) $ 0.36 $ 0.26 $ 1.10
------------ --------- --------- --------- --------- ----------- -----------
------------ --------- --------- --------- --------- ----------- -----------
Diluted--Income (loss) before
extraordinary items.................. $ 0.97 $ 1.07 $ 1.07 $ (0.33) $ 0.36 $ 0.26 $ 1.08
Extraordinary items, net............. (0.12) -- -- (0.46) -- -- --
------------ --------- --------- --------- --------- ----------- -----------
Net income (loss).................. $ 0.85 $ 1.07 $ 1.07 $ (0.79) $ 0.36 $ 0.26 $ 1.08
------------ --------- --------- --------- --------- ----------- -----------
------------ --------- --------- --------- --------- ----------- -----------

(CONTINUED ON FOLLOWING PAGE)
</TABLE>

22
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FORTY WEEKS ENDED
-------------------------------------------------------- ------------------------
JUNE 3, 1994 JUNE 2, MAY 31, MAY 30, MAY 29, MARCH 6, MARCH 5,
(53 WEEKS) 1995 1996 1997 1998 1998 1999
------------ --------- --------- --------- --------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND CHILD CARE CENTER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA FINANCIAL DATA:
Pro forma income (loss)................ $ -- $ -- $ -- $ -- $ $ -- $
Pro forma basic net income (loss) per
share................................ -- -- -- -- --
Pro forma diluted net income (loss) per
share................................ -- -- -- -- --

OTHER FINANCIAL DATA:
Adjusted EBITDA (d).................... $ 72,314 $ 77,969 $ 87,165 $ 81,907 $ 93,247 $ 66,934 $ 74,814
Depreciation........................... 25,148 28,071 33,972 34,253 42,553 26,898 27,061
Capital expenditures................... 35,710 74,376 67,304 43,748 84,954 59,461 69,427

CHILD CARE CENTER DATA:
Number of centers at end of period..... 1,132 1,137 1,148 1,144 1,147 1,145 1,151
Center licensed capacity at end of
period............................... n/c(e) n/c(e) 141,000 143,000 143,000 142,000 145,000
Occupancy (f).......................... n/c(e) n/c(e) 70.3% 70.0% 70.6% 69.3% 68.8%
Average tuition rate (g)............... n/c(e) n/c(e) $ 99.24 $ 101.93 $ 106.81 $ 106.20 $ 112.78

BALANCE SHEET DATA (AT END OF PERIOD):
Property and equipment, net............ $ 403,954 $ 442,446 $ 468,525 $ 471,558 $ 508,113 $ 504,026 $ 549,557
Total assets........................... 458,920 503,274 527,476 569,878 591,539 593,653 633,731
Total debt............................. 178,692 160,394 146,617 394,889 403,097 413,300 439.027
Stockholders' equity................... 203,882 241,216 262,435 27,707(h) 31,900 30,687 42,555
</TABLE>

- ------------------------------

(a) In fiscal year 1997, KinderCare incurred non-recurring expenses in order to
fund the transactions undertaken in the recapitalization.

(b) Restructuring and other charges (income), net, include the following:
<TABLE>
<CAPTION>
FORTY WEEKS
FISCAL YEAR ENDED ENDED
--------------------------------------------------------------- -----------
JUNE 3, 1994 JUNE 2, MAY 31, MAY 30, MAY 29, MARCH 6,
(53 WEEKS) 1995 1996 1997 1998 1998
--------------- ----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Restructuring charges................. $ -- $ -- $ 6,499 $ 3,400 $ 5,697 $ 5,443
Losses on asset impairments........... -- -- 6,319 6,900 -- --
Write-offs of assets.................. -- -- -- 1,518 -- --
Gains on litigation settlements....... -- (888) (11,334) (1,543) (496) (496)
----- ----- --------- --------- ----------- -----------
Total................................. $ -- $ (888) $ 1,484 $ 10,275 $ 5,201 $ 4,947
----- ----- --------- --------- ----------- -----------
----- ----- --------- --------- ----------- -----------

MARCH 5,
1999
-----------
<S> <C>
Restructuring charges................. $ (521)
Losses on asset impairments........... --
Write-offs of assets.................. --
Gains on litigation settlements....... --
-----
Total................................. $ (521)
-----
-----
</TABLE>

(c) In fiscal years 1994 and 1997, KinderCare retired debt prior to maturity,
the losses on which were recorded as extraordinary items.

(d) Adjusted EBITDA is defined by KinderCare as earnings before interest
expense, income taxes, depreciation, amortization, recapitalization
expenses, restructuring and other charges (income), net, investment income,
net and extraordinary items. Adjusted EBITDA is not intended to indicate
that cash flow is sufficient to fund all of our cash needs or represent cash
flow from operations as defined by generally accepted accounting principles.
In addition, Adjusted EBITDA should not be used as a tool for comparison as
the computation may not be similar for all companies.

(FOOTNOTES CONTINUED ON FOLLOWING PAGE)

23
<PAGE>
(e) Prior to June 3, 1995, KinderCare used average occupancy and the three year
old tuition rate to measure performance. Average occupancy was defined as
actual operating revenues for the respective period divided by the building
capacity of each of KinderCare's centers multiplied by such center's basic
tuition rate for full-time, three-year-old students for the respective
period. The three-year-old tuition rate represented the weekly tuition rate
paid by a parent for a three-year-old child to attend a KinderCare center
five full days during one week. The tuition rate represented an approximate
average of all tuition rates at each center. The child care center data
utilized in prior fiscal years to measure performance is as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
JUNE 3, 1994
(53 WEEKS) JUNE 2, 1995 MAY 31, 1996
------------ ------------ -------------
<S> <C> <C> <C>
Center building capacity at end of period............... 136,000 137,000 141,000
Average occupancy....................................... 77% 76% 76%
Average three-year-old tuition rate..................... $ 90 $ 96 $ 100
</TABLE>

At June 3, 1995, KinderCare changed its method of measuring performance to
the utilization of occupancy and average tuition rate. Prior to fiscal
1996, KinderCare did not track licensed capacity or full-time equivalent
attendance. Therefore, occupancy and average tuition rate can not be
calculated for fiscal 1994 and 1995.

(f) Occupancy, a measure of the utilization of center capacity, is defined by
KinderCare as the full-time equivalent, or FTE, attendance at all of
KinderCare's centers divided by the sum of the licensed capacity of all of
KinderCare's centers. FTE attendance is not a strict head count. Rather, the
methodology used is to determine an approximate number of full-time children
based on weighted averages. For example, an enrolled full-time child equates
to one FTE, while a part-time child enrolled for a half-day would equate to
0.5 FTE. The FTE measurement of center capacity utilization does not
necessarily reflect the actual number of full- and part-time children
enrolled.

(g) Average tuition rate is defined by KinderCare as actual net revenues,
exclusive of fees, which are primarily reservation and registration fees,
and non-tuition income, divided by FTE attendance for the respective period.
The average tuition rate represents the approximate weighted average tuition
rate at each center paid by a parent for a child to attend a KinderCare
center five full days during one week. The occupancy mix between full- and
part-time children, however, can significantly affect these averages with
respect to any specific child care center.

(h) In connection with the recapitalization and related transactions, KinderCare
paid $382.4 million to redeem common stock, warrants and options. KKR
contributed $148.8 million in common equity for approximately 83.6% of the
9,368,421 shares outstanding immediately after the recapitalization and
existing stockholders retained approximately 16.4% of the shares outstanding
immediately after the recapitalization.

24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

INTRODUCTION

The following discussion should be read in conjunction with the Consolidated
Financial Statements and the related notes included elsewhere in this
prospectus. KinderCare's fiscal year ends on the Friday closest to May 31. The
information presented refers to the years ended May 31, 1996 as "fiscal 1996,"
May 30, 1997 as "fiscal 1997" and May 29, 1998 as "fiscal 1998," each of which
was a 52-week fiscal year. KinderCare has one 16-week and three 12-week quarters
each fiscal year.

KinderCare plans to use the net proceeds of the offering to redeem
$ million aggregate principal amount of the 9 1/2% senior subordinated
notes and to repay $ million of its term loan facility. Subsequent to the
offering, lower interest expense is expected compared to that incurred since the
recapitalization.

We have recently developed a new center prototype that is larger and has a
more physically appealing design than prior prototypes. The new centers have an
average licensed capacity of 180 children and average weekly tuition rates of
$141, as of March 5, 1999. This compares to average licensed capacity of 120
children and average weekly tuition rates of $111, as of March 5, 1999, for
centers constructed during fiscal 1996 and earlier. When mature, these larger
centers are designed to generate higher revenues, operating income and margins
than our existing centers. These new centers have a higher average cost of
construction and typically take three to four years to reach maturity. Based on
our prototype, on average a new center should begin to produce positive EBITDA
by the end of its first year of operation and begin to produce positive net
income by the end of its second year of operation. Accordingly, as we accelerate
the opening of our new centers, profitability will be negatively impacted in the
short-term, but is expected to be enhanced in the long-term once these new, more
profitable centers achieve anticipated levels. We added 20 new centers in fiscal
1998 and expect to add 40 in fiscal 1999 and approximately 50 in fiscal 2000.

KinderCare anticipates substantially increasing its capital expenditure
budget for the foreseeable future due to an increased rate of opening and/or
acquiring new centers and the renovation of existing facilities. Based on the
planned increase in capital expenditures, KinderCare expects higher depreciation
expense in the future. However, KinderCare is currently evaluating alternatives
to finance new center growth, including possible implementation of a synthetic
lease facility. Under a synthetic lease facility, an unaffiliated special
purpose entity would acquire or lease real estate and finance construction of
centers for Kindercare's use. The centers constructed pursuant to such a
facility would be leased to KinderCare under operating leases. The facility
would obligate KinderCare, (1) to guarantee the debt incurred by the special
purpose entity to finance the acquisition of the property and construction of
the centers and (2) to acquire the centers at the end of the lease term,
typically three to five years, or to forfeit them for sale to satisfy the debt.
In addition, we may enter into one or more sale leaseback arrangements with
respect to our existing centers. Implementation of either a synthetic lease
facility or a sale leaseback arrangement may result in lower depreciation, debt
and interest expense and higher rent expense. The accounting benefits associated
with synthetic lease facilities are subject to change. In addition, we may not
be able to find synthetic lease or sale leaseback financing on acceptable terms.

We focus on managing tuition and occupancy on a center by center basis to
maximize company-wide revenues. Since the recapitalization, we have focused on
tuition increases to drive revenue, implementing a center-specific tuition
pricing strategy and selectively implementing tuition increases after evaluating
the expected impact on occupancy. These strategies have allowed us to increase
tuition 10.6% from May 1997 to March 1999 while sustaining only a minimal loss
in occupancy.

25
<PAGE>
KinderCare defines occupancy, a measure of the utilization of center
capacity, as the full-time equivalent, or FTE, attendance at all of KinderCare's
centers divided by the sum of the licensed capacity of all of KinderCare's
centers. FTE attendance is not a strict head count. Rather, the methodology used
is to determine an approximate number of full-time children based on weighted
averages. For example, an enrolled full-time child equates to one FTE, while a
part-time child enrolled for a half-day would equate to 0.5 FTE. The FTE
measurement of center capacity utilization does not necessarily reflect the
actual number of full- and part-time children enrolled.

KinderCare defines average tuition rate as actual net revenues, exclusive of
fees, which are primarily reservation and registration fees, and non-tuition
income, divided by FTE attendance for the respective period. The average tuition
rate represents the approximate weighted average tuition rate at each center
paid by a parent for a child to attend a KinderCare center five full days during
one week. The occupancy mix between full-time and part-time children at a
center, however, can significantly affect these averages with respect to any
specific child care center.

FORTY WEEKS ENDED MARCH 5, 1999 COMPARED TO FORTY WEEKS ENDED MARCH 6, 1998

The following table shows the comparative operating results of KinderCare,
with dollars in thousands:

<TABLE>
<CAPTION>
FORTY WEEKS FORTY WEEKS CHANGE
ENDED PERCENT OF ENDED PERCENT OF AMOUNT
MARCH 6, 1998 REVENUES MARCH 5, 1999 REVENUES INCREASE/DECREASE
------------- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues, net.................................... $ 450,972 100.0% $ 477,550 100.0% $ 26,578
------------- ----- ------------- ----- -------
Operating expenses:
Salaries, wages and benefits:
Center expense............................... 230,274 51.1 245,122 51.3 14,848
Field and corporate expense.................. 17,364 3.8 18,618 3.9 1,254
------------- ----- ------------- ----- -------
Total salaries, wages and benefits......... 247,638 54.9 263,740 55.2 16,102
Depreciation................................... 26,898 5.9 27,061 5.7 163
Rent........................................... 21,099 4.7 22,629 4.7 1,530
Other.......................................... 115,301 25.6 116,367 24.4 1,066
Restructuring charges and other income, net.... 4,947 1.1 (521) (0.1) (5,468)
------------- ----- ------------- ----- -------
Total operating expenses................... 415,883 92.2 429,276 89.9 13,393
------------- ----- ------------- ----- -------
Operating income................................. $ 35,089 7.8% $ 48,274 10.1% $ 13,185
------------- ----- ------------- ----- -------
------------- ----- ------------- ----- -------
</TABLE>

REVENUES, NET--Net revenues increased $26.6 million, or 5.9%, to $477.6
million in the forty weeks ended March 5, 1999 from the comparable period last
year. The increase in net revenues is primarily attributable to a company-wide
tuition increase implemented in the first and second quarters of fiscal 1999.
The average tuition rate increased $6.58, or 6.2%, to $112.78 for the forty
weeks ended March 5, 1999 from $106.20 for the forty weeks ended March 6, 1998.
KinderCare continually evaluates its tuition structure and may implement further
changes during the fiscal year at targeted local levels. Occupancy declined 0.5
percentage points to 68.8% for the forty weeks ended March 5, 1999 from 69.3%
for the forty weeks ended March 6, 1998. The decline is primarily a result of
the increased rate of opening new centers. New centers tend to open with lower
than average enrollment and will grow enrollment over a two to three year
maturity cycle. Existing center enrollment has been relatively flat, as FTE
attendance has been adversely affected in some markets by public school
provision of preschool and full day kindergarten for some children. During the
forty weeks ended March 5, 1999, centers opened within the current and two most
previous fiscal years contributed incremental net revenues of

26
<PAGE>
$14.7 million over the comparable period last year. The increase in net revenues
was offset in part by an incremental reduction of $5.9 million due to the
closure of centers.

During the forty weeks ended March 5, 1999, KinderCare opened 26 centers, 25
community centers and one KinderCare At Work-Registered Trademark- center, and
closed or sold 22 community centers. During the forty weeks ended March 6, 1998,
KinderCare opened 11 community centers and closed 10 centers.

SALARIES, WAGES AND BENEFITS--Salaries, wages and benefits, which include
bonus incentives, increased $16.1 million, or 6.5%, to $263.7 million in the
forty weeks ended March 5, 1999 from the comparable period last year. The
expense directly associated with the centers was $245.1 million in the forty
weeks ended March 5, 1999, an increase of $14.8 million from the forty weeks
ended March 6, 1998. The center level increase is primarily attributable to
increased staff wage rates and, to a lesser degree, increased hours and rising
health benefit costs. The expense related to field management and corporate
administration was $18.6 million in the forty weeks ended March 5, 1999, an
increase of $1.3 million from the forty weeks ended March 6, 1998. The increase
is attributable to the addition of field management positions during fiscal 1998
and 1999.

At the center level, salaries, wages and benefits expense, as a percentage
of net revenues, increased slightly to 51.3% for the forty weeks ended March 5,
1999 from 51.1% for the comparable period last year due to higher wage rates
discussed above. Total salaries, wages and benefits expense, as a percentage of
net revenues, increased to 55.2% for the forty weeks ended March 5, 1999 from
54.9% for the comparable period last year.

DEPRECIATION--Depreciation expense increased $0.2 million to $27.1 million
in the forty weeks ended March 5, 1999 from the comparable period last year. The
increase is a result of the accelerated development of new centers. The increase
in depreciation expense during fiscal 1999 was offset in part by a $1.3 million
reduction in expenditures for the replacement of educational supplies and
equipment as a result of a capital expenditure program during fiscal 1998 to
upgrade the quantity and quality of such items in each center.

RENT--Rent expense increased $1.5 million to $22.6 million in the forty
weeks ended March 5, 1999 from the comparable period last year. The increase is
primarily a result of KinderCare's occupancy of its new headquarters in
Portland, Oregon during the second quarter of fiscal 1998. In addition, the
rental rates experienced on center leases entered into currently and renewed
center leases are higher than those experienced in previous periods.

OTHER OPERATING EXPENSES--Other operating expenses increased $1.1 million,
or 0.9%, to $116.4 million in the forty weeks ended March 5, 1999 from the
comparable period last year. The increase is due primarily to increased center
pre-opening costs and taxes and licenses, offset by reduced expenses related to
insurance. As a percentage of net revenues, other operating expenses decreased
to 24.4% for the forty weeks ended March 5, 1999 from 25.6% for the comparable
period last year. The improvement in other operating expenses, as a percentage
of net revenues, is due to effective overall cost control by management.

RESTRUCTURING CHARGES AND OTHER INCOME, NET--During fiscal year 1997,
KinderCare decided to relocate its corporate offices from Montgomery, Alabama to
Portland, Oregon in fiscal 1998. In connection with the relocation, KinderCare
recognized $5.4 million in restructuring charges during the forty weeks ended
March 6, 1998. Expenses incurred were primarily for the retention, recruitment
and relocation of employees and travel costs related to the office relocation.
During the third quarter of fiscal 1999, the remaining relocation reserve
balance related to employee termination benefits of $0.6 million was reversed
following a favorable determination in an arbitration proceeding.

During the third quarter of fiscal 1998, KinderCare, as a member of the
Presidential Life Global Class Action, received a $0.5 million payment, net of
attorney's fees, as settlement of a claim in the United States District Court in
New York.

27
<PAGE>
OPERATING INCOME--Operating income increased $13.2 million to $48.3 million
in the forty weeks ended March 5, 1999 from the comparable period last year. The
increase is due primarily to the higher average tuition rate, resulting in
increased net revenues, the effective control of operating expenses and the
absence of significant restructuring charges during the forty weeks ended March
5, 1999, offset in part by increased labor costs, as discussed above.

EBITDA, defined as earnings before interest expense, income taxes,
depreciation and amortization, for the forty weeks ended March 5, 1999 was $75.7
million, $13.2 million above the comparable period last year. As a percentage of
net revenues, EBITDA for the forty weeks ended March 5, 1999 was 15.9% compared
to 13.9% for the forty weeks ended March 6, 1998. Adjusted EBITDA, defined as
EBITDA exclusive of restructuring and other charges (income), net and investment
income, net and extraordinary items was $74.8 million in the forty weeks ended
March 5, 1999, an increase of $7.9 million from the comparable period last year.
As a percentage of net revenues, Adjusted EBITDA was 15.7% for the forty weeks
ended March 5, 1999 and 14.8% for the forty weeks ended March 6, 1998. Neither
EBITDA nor Adjusted EBITDA is intended to indicate that cash flow is sufficient
to fund all of KinderCare's cash needs or represent cash flow from operations as
defined by generally accepted accounting principles. In addition, EBITDA and
Adjusted EBITDA should not be used as tools for comparison as the computation
may not be similar for all companies.

INTEREST EXPENSE--Interest expense was $32.0 million in both the forty weeks
ended March 5, 1999 and March 6, 1998. KinderCare's weighted average interest
rate on its long-term debt, including amortization of deferred financing costs,
was 9.9% for the forty weeks ended March 5, 1999 versus 10.3% for the forty
weeks ended March 6, 1998.

INCOME TAX EXPENSE--Income tax expense during the forty weeks ended March 5,
1999 and March 6, 1998 of $6.3 and $1.2 million, respectively, was computed by
applying estimated effective income tax rates to income before income taxes.
Income tax expense varies from the statutory federal income tax rate due to
state income taxes, offset by tax credits.

FISCAL 1998 COMPARED TO FISCAL 1997

The following table shows the comparative operating results of KinderCare,
with dollars in thousands:

<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR CHANGE
ENDED PERCENT ENDED PERCENT AMOUNT
MAY 30, OF MAY 29, OF INCREASE/
1997 REVENUES 1998 REVENUES (DECREASE)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues, net................................................. $ 563,135 100.0% $ 597,070 100.0% $ 33,935
----------- ----- ----------- ----- -----------
Operating Expenses:
Salaries, wages and benefits:
Center expense............................................ 284,646 50.6 304,288 51.0 19,642
Field and corporate expense............................... 15,934 2.8 22,873 3.8 6,939
----------- ----- ----------- ----- -----------
Total salaries, wages and benefits...................... 300,580 53.4 327,161 54.8 26,581
Depreciation................................................ 34,253 6.1 42,553 7.1 8,300
Rent........................................................ 28,140 4.9 27,985 4.7 (155)
Other....................................................... 152,508 27.1 148,677 24.9 (3,831)
Recapitalization expenses................................... 17,277 3.1 -- -- (17,277)
Restructuring and other charges (income), net............... 10,275 1.8 5,201 0.9 (5,074)
----------- ----- ----------- ----- -----------
Total operating expenses.................................. 543,033 96.4 551,577 92.4 8,544
----------- ----- ----------- ----- -----------
Operating income.............................................. $ 20,102 3.6% $ 45,493 7.6% $ 25,391
----------- ----- ----------- ----- -----------
----------- ----- ----------- ----- -----------
</TABLE>

28
<PAGE>
REVENUES, NET--Net revenues increased $33.9 million, or 6.0%, to $597.1
million in fiscal 1998 from fiscal 1997. The increase in net revenues was
primarily attributable to an approximate 4.4% weighted average tuition increase
implemented in the second quarter of fiscal 1998. The average tuition rate and
occupancy, respectively, increased to $106.81 and 70.6% for fiscal 1998 from
$101.93 and 70.0% for fiscal 1997. Centers opened during fiscal 1998 and 1997
contributed incremental net revenues of $12.6 million in fiscal 1998. The
positive effect of those factors on net revenues was offset in part by center
closings.

During fiscal 1998, KinderCare opened 20 community centers and closed 17
centers. During fiscal 1997, KinderCare opened 16 centers, including: 15
community centers and one KinderCare at Work-Registered Trademark- center, and
closed or sold 20 centers. Total licensed capacity was approximately 143,000 at
the end of both fiscal 1998 and 1997.

SALARIES, WAGES AND BENEFITS--Salaries, wages and benefits, which include
incentives, expense increased $26.6 million, or 8.8%, to $327.2 million in
fiscal 1998 from fiscal 1997. The expense directly associated with the centers
was $304.3 million in fiscal 1998, an increase of $19.6 million from fiscal
1997. The center level increase was attributable to increased staff wage rates,
employee health costs and bonus expense.

The expense related to field management and corporate administration was
$22.9 million in fiscal 1998, an increase of $6.9 million from fiscal 1997. The
increase was attributable to the addition of field management positions, higher
salaries as a result of the relocation of the corporate office to Portland,
Oregon and increased bonus expense.

At the center level, salaries, wages and benefits expense, as a percentage
of net revenues, increased only slightly to 51.0% for fiscal 1998 from 50.6% for
fiscal 1997 despite increased wage rates and bonus expense due to the control of
labor hours by field management. See "Inflation and Wage Increases." Total
salaries, wages and benefits expense, as a percentage of net revenues, increased
to 54.8% for fiscal 1998 from 53.4% for fiscal 1997.

DEPRECIATION--Depreciation expense increased $8.3 million to $42.6 million
in fiscal 1998 from fiscal 1997 due primarily to additional depreciation expense
of $9.4 million related to a change in the estimated useful life of center
auxiliary equipment. Auxiliary equipment is comprised of educational supplies,
such as toys, books, video games and playground equipment, furniture, cots and
kitchen and other equipment used in the operation of a center. See Note 1 to
KinderCare's Consolidated Financial Statement. Exclusive of the impact from the
change in estimate, depreciation expense decreased slightly due to the effect of
assets reaching the end of their estimated depreciable lives.

RENT--Rent expense remained relatively flat at $28.0 million for fiscal 1998
and $28.1 million for fiscal 1997. During fiscal 1998, 17 leased centers were
closed, while three leased centers were opened. The rental rates experienced on
leases entered into currently are higher than those experienced in previous
periods. Administrative rent expense increased primarily as a result of
KinderCare's occupancy of its new headquarters in Portland, Oregon during the
second quarter of fiscal 1998. See "Business-- Properties."

OTHER OPERATING EXPENSES--Other operating expenses decreased $3.8 million,
or 2.5%, to $148.7 million in fiscal 1998 from fiscal 1997. Other operating
expenses include costs directly associated with the centers, such as food,
educational materials, janitorial and maintenance costs, utilities and
transportation, and expenses related to field management and corporate
administration. The decrease was primarily due to a reduction in expenses
related to self-insurance, which was offset by additional marketing expense to
fund a targeted marketing program during the fall of fiscal 1998 and increased
bad debt expense. As a percentage of net revenues, other operating expenses
decreased to 24.9% for fiscal 1998 from 27.1% for fiscal 1997. The improvement
in other operating expenses, as a percentage of net revenues, was due to
effective cost control by management.

29
<PAGE>
RECAPITALIZATION EXPENSES--During fiscal 1997 and in connection with the
recapitalization of KinderCare by KCLC Acquisition Corp., a wholly owned
subsidiary of a partnership formed at the direction of Kohlberg Kravis Roberts &
Co., a private investment firm, KinderCare repaid the then outstanding $91.6
million balance on KinderCare's previous $150.0 million credit facility and paid
$382.4 million to redeem common stock, warrants and options. In order to fund
the recapitalization, KinderCare issued $300.0 million principal amount of its
9 1/2% senior subordinated notes, entered into a $300.0 million revolving credit
facility, borrowed $50.0 million against a term loan facility and issued
7,828,947 shares of common stock to affiliates to KKR. During fiscal 1997,
non-recurring recapitalization costs of approximately $17.3 million were
incurred and expensed and financing costs of approximately $27.2 million were
deferred and are being amortized over the lives of the new debt facilities. See
Notes 2 and 8 to KinderCare's Consolidated Financial Statements.

RESTRUCTURING AND OTHER CHARGES (INCOME), NET--During fiscal 1997,
KinderCare decided to relocate its corporate offices from Montgomery, Alabama to
Portland, Oregon in fiscal 1998. In connection with the relocation, KinderCare
recognized $5.7 million in restructuring costs in fiscal 1998, primarily
expenses incurred in the retention, recruitment and relocation of employees and
travel costs related to the office relocation. During fiscal 1997, restructuring
costs, primarily severance related, of $3.4 million and a $5.0 million charge to
write down KinderCare's then headquarters facility in Montgomery, Alabama to net
realizable value, were recognized.

During fiscal 1997, KinderCare recorded impairment losses of $1.9 million,
comprised of $1.3 million with respect to various long-lived assets and $0.6
million related to anticipated lease termination costs for Kids Choice-TM-
centers, which are centers for school age children in separate facilities
designed for this age group. See "Capital Expenditures." Additionally, charges
of approximately $1.5 million were incurred to write-off marketing materials and
deferred pre-opening costs on new centers.

During fiscal 1998 KinderCare, as a member of the Presidential Life Global
Class Action, received a $0.5 million payment, net of attorney's fees, as
settlement of KinderCare's claim in the United States District Court in New
York. During fiscal 1997, a $1.5 million interest payment was received from
Enstar Group Inc., KinderCare's former parent, in connection with a settlement
of KinderCare's claim against Enstar in the U.S. Bankruptcy court in Montgomery,
Alabama.

OPERATING INCOME--Operating income increased $25.4 million to $45.5 million
in fiscal 1998 from fiscal 1997. Operating income before recapitalization
expenses, restructuring and other charges (income), net, increased $3.0 million
to $50.7 million in fiscal 1998 from fiscal 1997. The increase is primarily due
to the higher average tuition rate and occupancy growth combined with strong
cost controls, which was offset partially by additional depreciation expense of
$9.4 million due to a change in estimate, as discussed above.

EBITDA for fiscal 1998 of $88.7 million was $41.6 million above fiscal 1997.
As a percentage of net revenues, EBITDA for fiscal 1998 was 14.8% compared to
8.4% for fiscal 1997. Adjusted EBITDA was $93.2 million in fiscal 1998, an
increase of $11.3 million from fiscal 1997. As a percentage of net revenues,
Adjusted EBITDA was 15.6% for fiscal 1998 and 14.5% for fiscal 1997. Neither
EBITDA nor Adjusted EBITDA is intended to indicate that cash flow is sufficient
to fund all of KinderCare's cash needs or represent cash flow from operations as
defined by generally accepted accounting principles.

INTEREST EXPENSE--Interest expense increased to $40.7 million in fiscal 1998
from $22.4 million in fiscal 1997. This increase was substantially attributable
to the $350.0 million of long-term debt which was incurred in the third quarter
of fiscal 1997 to fund the recapitalization and repay $91.6 million on
KinderCare's then existing line of credit. KinderCare's weighted average
interest rate on its long-term debt, including amortization of deferred
financing costs, was 10.1% for fiscal 1998 versus 8.5% for fiscal 1997.

30
<PAGE>
INCOME TAX EXPENSE--Income tax expense during fiscal 1998 and 1997 of $2.0
and $3.4 million, respectively, was computed by applying estimated effective
income tax rates to income before income taxes. Income tax expense varies from
the statutory federal income tax rate due to state income taxes and, during
fiscal 1997, non-deductible recapitalization expenses, offset by tax credits.

EXTRAORDINARY ITEMS--During fiscal 1997, KinderCare purchased $99.4 million
aggregate principal amount of its 10 3/8% senior subordinated notes for an
aggregate price of $108.3 million. The transactions included the write-off of
deferred financing costs of $1.7 million and resulted in an extraordinary loss
of $6.5 million, net of income taxes of $4.1 million. In connection with the
recapitalization and retirement of existing debt, an extraordinary loss of $1.0
million, net of income taxes of $0.7 million, was recognized for the write-off
of deferred financing costs related to KinderCare's previous credit facility.

FISCAL 1997 COMPARED TO FISCAL 1996

The following table shows the comparative operating results of KinderCare,
with dollars in thousands:

<TABLE>
<CAPTION>
CHANGE
FISCAL YEAR FISCAL YEAR AMOUNT
ENDED PERCENT OF ENDED PERCENT OF INCREASE/
MAY 31, 1996 REVENUES MAY 30, 1997 REVENUES (DECREASE)
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues, net............................................ $ 541,264 100.0% $ 563,135 100.0% $ 21,871
------------ ----- ------------ ----- -----------
Operating expenses:
Salaries, wages and benefits:
Center expense....................................... 264,994 49.0 284,646 50.6 19,652
Field and corporate expense.......................... 19,121 3.5 15,934 2.8 (3,187)
------------ ----- ------------ ----- -----------
Total salaries, wages and benefits................. 284,115 52.5 300,580 53.4 16,465
Depreciation........................................... 33,972 6.3 34,253 6.1 281
Rent................................................... 26,515 4.9 28,140 4.9 1,625
Other.................................................. 143,469 26.5 152,508 27.1 9,039
Recapitalization expenses.............................. -- -- 17,277 3.1 17,277
Restructuring and other charges (income), net.......... 1,484 0.2 10,275 1.8 8,791
------------ ----- ------------ ----- -----------
Total operating expenses............................. 489,555 90.4 543,033 96.4 53,478
------------ ----- ------------ ----- -----------
Operating income......................................... $ 51,709 9.6% $ 20,102 3.6% $ (31,607)
------------ ----- ------------ ----- -----------
------------ ----- ------------ ----- -----------
</TABLE>

REVENUES, NET--Net revenues increased $21.9 million, or 4.0%, to $563.1
million in fiscal 1997 from fiscal 1996. The increase in net operating revenues
was primarily attributable to an approximate 4.7% weighted average tuition
increase implemented in the fall of 1996 and to new center openings and
acquisitions. The average tuition rate increased to $101.93 in fiscal 1997 from
$99.24 in fiscal 1996. The positive effect of those factors on net revenues was
offset in part by center closings and a decline in total occupancy.

Total occupancy decreased slightly to 70.0% in fiscal 1997 from 70.3% in
fiscal 1996. KinderCare believes the decline in occupancy was caused by a
variety of factors including, in particular, the following implemented
initiatives: (a) a reduced, lower-cost marketing program, (b) an expanded
employee child care discount program that may have precluded the enrollment of
tuition paying children and (c) changes in field management, which provided less
direct center supervision. KinderCare evaluated such initiatives and made
revisions, including funding a targeted marketing program for early fiscal 1998,
limiting the employee child care discount effective July 1997 and adding area
manager positions and additional regional field support to increase center
supervision.

31
<PAGE>
During fiscal 1997, KinderCare opened 16 new centers, including 15
KinderCare community centers and one KinderCare At Work-Registered Trademark-
center; and closed or sold 20 centers. During fiscal 1996, KinderCare opened 37
new centers, including 22 KinderCare community centers, six KinderCare At
Work-Registered Trademark- centers and nine Kid's Choice-TM- centers, including
the conversion of one community center to a Kid's Choice-TM- center; and closed
or sold 26 centers. Total licensed capacity increased to approximately 143,000
at the end of fiscal 1997 from approximately 141,000 at the end of fiscal 1996.

SALARIES, WAGES AND BENEFITS--Salaries, wages and benefits, which include
incentives, expense increased $16.5 million, or 5.8%, to $300.6 million in
fiscal 1997 from fiscal 1996. The expense directly associated with the centers
was $284.6 million in fiscal 1997, an increase of $19.7 million from fiscal
1996. The center level increase is attributable to increased staff wage rates
and hours and employee health insurance costs, offset in part by reduced bonus
expense. The expense related to field management and corporate administration
decreased $3.2 million from fiscal 1996. The decrease is attributable to the
reduction of field management staff and reduced bonus expense.

At the center level, salaries, wages and benefits expense, as a percentage
of net revenues, increased to 50.6% for fiscal 1997 from 49.0% for fiscal 1996
due to higher labor hours. Total salaries, wages and benefits expense, as a
percentage of net revenues, increased to 53.4% for fiscal 1997 from 52.5% for
fiscal 1996.

DEPRECIATION--Depreciation expense increased to $34.3 million in fiscal 1997
from $34.0 million in fiscal 1996 due to asset additions related to renovations
of existing centers, purchases of short lived assets and the opening of 16 new
centers, offset partially by the closing of 20 older centers in fiscal 1997 and
by a reduction in depreciation expense related to assets reaching the end of
their estimated depreciable lives.

RENT--Rent expense increased $1.6 million to $28.1 million in fiscal 1997
from fiscal 1996. The increase was primarily a result of lease renewals at
current market rates. During fiscal 1997, five leased centers were opened and 17
leased centers were closed. The rental rates experienced on leases entered into
in fiscal 1997 were higher than those experienced in previous years. See
"Business--Properties."

OTHER OPERATING EXPENSES--Other operating expenses increased $9.0 million,
or 6.3%, to $152.5 million in fiscal 1997 from fiscal 1996. As a percentage of
net revenues, other operating expenses increased to 27.1% for fiscal 1997 from
26.5% for fiscal 1996. This increase was principally due to increased center
level operating and insurance costs and a provision for lease termination costs,
offset partially by a reduced, lower cost marketing program and improved
administrative and field management efficiencies from re-engineering efforts
initiated during fiscal 1996.

RECAPITALIZATION EXPENSES--During fiscal 1997 and in connection with the
recapitalization, KinderCare repaid the $91.6 million balance on KinderCare's
previous $150.0 million credit facility and paid $382.4 million to redeem common
stock, warrants and options. In order to fund the recapitalization, KinderCare
issued $300.0 million principal amount 9 1/2% senior subordinated notes, entered
into a $300.0 million revolving credit facility, borrowed $50.0 million against
a term loan facility and issued 7,828,947 shares of common stock to affiliates
of KKR. During fiscal 1997, non-recurring recapitalization costs of
approximately $17.3 million were incurred and expensed and financing costs of
approximately $27.2 million were deferred and are being amortized over the lives
of the new debt facilities. See Notes 2 and 8 to KinderCare's Consolidated
Financial Statements.

RESTRUCTURING AND OTHER CHARGES (INCOME), NET--During fiscal 1997,
KinderCare decided to relocate its corporate offices from Montgomery, Alabama to
Portland, Oregon in fiscal 1998. In connection with the relocation, KinderCare
recognized $3.4 million in restructuring costs, primarily severance related, and
recorded a $5.0 million charge to write-down its Montgomery, Alabama
headquarters facility to net realizable value. Additionally, impairment losses
of $1.9 million, comprised of $1.3 million with respect to long-lived assets and
$0.6 million related to Kids Choice-TM- anticipated lease termination costs,
were

32
<PAGE>
recorded. KinderCare also recorded charges of approximately $1.5 million to
write-off marketing materials and deferred pre-opening costs on new centers.
Finally, a $1.5 million interest payment was received from Enstar Group, Inc.,
KinderCare's former parent, in connection with a settlement of KinderCare's
claim against Enstar in the U.S. Bankruptcy Court in Montgomery, Alabama.

During fiscal 1996, substantial changes were made to the field operations,
facilities management and support functions. As a result of these changes,
KinderCare provided $6.5 million for restructuring costs, primarily to cover
severance arrangements for the approximately 100 positions which were
eliminated. Additionally, KinderCare limited the development of its Kid's
Choice-TM- centers to contracts in process and recorded an impairment loss of
$6.3 million, consisting of a writedown of $5.3 million for the recoverability
of long lived assets, primarily leasehold improvements, which were valued based
on anticipated discounted cash flows, and $1.0 million for anticipated lease
termination costs. Finally, a cash distribution of $11.3 million was received
from Enstar in connection with KinderCare's claim against Enstar referred to
above.

OPERATING INCOME--Operating income decreased $31.6 million, or 61.1%, to
$20.1 million in fiscal 1997 from fiscal 1996. Operating income before
recapitalization expenses, restructuring and other charges (income), net,
decreased $5.5 million to $47.7 million in fiscal 1997 from fiscal 1996. The
decrease was due to lower occupancy, increases in employee child care discounts
and increased labor expenses, as discussed above. KinderCare took various steps
to address these issues, including funding a targeted marketing program for
early fiscal 1998, limiting the employee child care discount effective July 1997
and adding area manager positions and additional regional field support to
increase center supervision.

EBITDA for fiscal 1997 of $47.1 million was $38.9 million below fiscal 1996.
As a percentage of net revenues, EBITDA for fiscal 1997 was 8.4% compared to
15.9% for fiscal 1996. Adjusted EBITDA was $81.9 million in fiscal 1997, a
decrease of $5.3 million from fiscal 1996. As a percentage of net revenues,
Adjusted EBITDA was 14.5% for fiscal 1997 and 16.1% for fiscal 1996. In addition
to the factors discussed above, as part of KinderCare's normal review of the
adequacy of reserves, during fiscal 1996, self insurance reserves were reduced
by $2.0 million, the impact of which was to increase EBITDA and Adjusted EBITDA
by a like amount. In fiscal 1997, as part of the normal review of the adequacy
of reserves, KinderCare increased self insurance reserves, which reduced EBITDA
and Adjusted EBITDA by $2.0 million. In addition, during fiscal 1997, KinderCare
recorded provisions of $1.2 million for anticipated lease termination costs
which are included in other operating expenses.

INTEREST EXPENSE--Interest expense increased to $22.4 million in fiscal 1997
from $16.7 million in fiscal 1996. This increase was substantially attributable
to the $350.0 million of long-term debt which was incurred in the third quarter
of fiscal 1997 to fund the recapitalization and repay $91.6 million on
KinderCare's then existing line of credit. KinderCare's weighted average
interest rate on its long-term debt, including amortization of debt issuance
costs, was 8.5% for fiscal 1997 versus 10.8% for fiscal 1996.

INCOME TAX EXPENSE--Income tax expense during fiscal 1997 and 1996 of $3.4
and $13.5 million, respectively, was computed by applying estimated effective
tax rates to income before taxes. Income tax expense varies from the statutory
federal income tax rate due to state income taxes and, during fiscal 1997,
non-deductible recapitalization expenses, offset by tax credits.

33
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

KinderCare's principal sources of liquidity are cash flow generated from
operations and borrowings under the $300.0 million revolving credit facility.
KinderCare's principal uses of liquidity are meeting debt service requirements,
financing its capital expenditures and renovations and providing working
capital.

In connection with the recapitalization, KinderCare entered into credit
facilities totaling $390.0 million, comprised of (a) a $90.0 million term loan
facility, of which $50.0 million was drawn at the time of the recapitalization
and $40.0 million has since expired, and (b) a $300.0 million revolving credit
facility. In addition, KinderCare issued $300.0 million of 9 1/2% senior
subordinated notes. At March 5, 1999, KinderCare was committed on outstanding
letters of credit totaling $42.2 million and had outstanding draws of $48.0
million under the revolving credit facility. KinderCare's availability under the
revolving credit facility at March 5, 1999 was $209.8 million.

The term loan facility is subject to mandatory repayment with the proceeds
of asset sales and debt offerings and a portion of excess cash flow, as defined
in such facility. The term loan facility will mature on February 13, 2006 and
provides for nominal annual amortization. The revolving credit facility will
terminate on February 13, 2004. See "Description of Long-term Indebtedness."

KinderCare plans to use the net proceeds of the offering to redeem
$ million aggregate principal amount of the 9 1/2% senior subordinated
notes and to repay $ million of its term loan facility.

KinderCare's consolidated net cash provided by operating activities for the
forty weeks ended March 5, 1999 was $29.7 million, which represents a $8.4
million increase in net cash flow from operations from the comparable period
last year. The increase in net cash flow from operations is primarily a result
of an $8.0 million increase in net income, the components of which are discussed
above. Cash and cash equivalents totaled $9.8 million at March 5, 1999, compared
to $11.8 million at May 29, 1998, and the ratio of current assets to current
liabilities was 0.53 to one at March 5, 1999, versus 0.46 to one at May 29,
1998.

During the first quarter of fiscal 1997, KinderCare repurchased $30.0
million aggregate principal amount of its 10 3/8% Senior Subordinated Notes due
2001 at an aggregate price of $31.5 million which resulted in an extraordinary
loss of $1.2 million, net of income taxes. During the second quarter of fiscal
1997 and in connection with the recapitalization, KinderCare announced and
completed a tender offer and consent solicitation for the remainder of its
outstanding 10 3/8% senior subordinated notes seeking the elimination of
substantially all of the restrictive covenants, and 99.7% of such notes were
purchased at an aggregate price of $76.8 million. This second transaction
resulted in an extraordinary loss of $5.3 million, net of income taxes.

On June 3, 1996, the board of directors of KinderCare authorized the
repurchase of $23.0 million of KinderCare's common stock. During fiscal 1997,
852,500 shares and 315,000 warrants were repurchased for $14.1 million. All
shares that were repurchased have been retired. Other than in connection with
the recapitalization, no shares of common stock or warrants have been purchased
by KinderCare since July 22, 1996 and the stock buyback programs were terminated
at the effective time of the recapitalization.

KinderCare utilized approximately $40.2 million of net operating loss
carryforwards to offset taxable income in its 1995 through 1998 fiscal years.
Approximately $26.3 million of net operating loss carryforwards are available to
be utilized in fiscal 1999 and future fiscal years. If such net operating loss
carryforwards were reduced due to a change of control or otherwise, KinderCare
would be required to pay additional taxes and interest, which would reduce
available cash.

34
<PAGE>
KinderCare's new enrollments are generally highest in September and January
and attendance generally declines during the summer months and the calendar
year-end holiday period. Accordingly, such decreased attendance may result in
decreased liquidity during these periods. See "Seasonality."

Management believes that cash flow generated from operations and borrowings
under the revolving credit facility will adequately provide for its working
capital and debt service needs and will be sufficient to fund KinderCare's
expected capital expenditures for the foreseeable future. In addition,
KinderCare is currently evaluating new sources of capital, including the
possible implementation of a synthetic lease facility to finance capital
expenditures on new centers, as well as sale leaseback arrangements with respect
to existing centers. Any future acquisitions, joint ventures or similar
transactions may require additional capital, and such capital may not be
available to KinderCare on acceptable terms or at all. Although no assurance can
be given that such sources of capital will be sufficient, the capital
expenditure program has substantial flexibility and is subject to revision based
on various factors, including but not limited to, business conditions, changing
time constraints, cash flow requirements, debt covenants, competitive factors
and seasonality of openings. If KinderCare experiences a lack of working
capital, it may reduce its capital expenditures. In the long term, if these
expenditures were substantially reduced, in management's opinion, its operations
and its cash flow would be adversely impacted.

CAPITAL EXPENDITURES

KinderCare anticipates substantial increases in its capital expenditures
budget over the next several years. During fiscal 1999, KinderCare expects to
open approximately 40 new centers. Over the next three years, KinderCare expects
to increase its rate of opening and/or acquiring new centers to approximately 50
new centers per year, which KinderCare expects will be primarily community
centers, and to continue its practice of closing centers that are identified as
not meeting performance expectations.

The length of time from site selection to the opening of a community center
ranges from 18 to 24 months. The average total cost per community center
typically ranges from $1.5 million to $2.0 million depending on the size and
location of the center; however, the actual costs of a particular center may
vary from such range. New centers are located based upon detailed site analyses
that include feasibility and demographic studies and financial modeling.
However, KinderCare may not be able to successfully negotiate and acquire
properties, meet its targets for new center additions or meet targeted
deadlines. Frequently, new site negotiations are delayed or canceled or
construction is delayed for a variety of reasons, many outside the control of
KinderCare.

KinderCare also plans to make significant capital expenditures in connection
with a renovation program that is designed to bring all of its existing
facilities to a company standard for plant and equipment.

During the forty weeks ended March 5, 1999, KinderCare opened 26 centers,
which included 25 community centers and one KinderCare At
Work-Registered Trademark- center. During fiscal 1998, KinderCare opened 20
community centers. In fiscal 1997, KinderCare opened 16 centers, including 15
community centers and one KinderCare At Work-Registered Trademark- center.
Fiscal 1996 center openings totaled 37 centers, consisting of 22 community
centers, six KinderCare At Work-Registered Trademark- centers and nine Kid's
Choice-TM- centers, including the conversion of one community center to a Kid's
Choice-TM- center. Kid's Choice-TM- centers cater solely to school age children
during before and after school hours. KinderCare has discontinued implementing
this concept in its new centers.

Capital expenditures during the forty weeks ended March 5, 1999 totaled
approximately $69.4 million compared to $59.5 million in the comparable period
last year. Expenditures for new center development were $42.0 and $23.8 million,
while expenditures for renovations of existing facilities were $16.4 and $17.3
million during the forty weeks ended March 5, 1999 and March 6, 1998,

35
<PAGE>
respectively. Purchases of equipment and corporate information systems were $8.3
and $2.7 million, respectively, during the forty weeks ended March 5, 1999, and
$16.3 and $2.1 million, respectively, during the forty weeks ended March 6,
1998.

Capital expenditures during fiscal 1998 amounted to approximately $85.0
million. Approximately $36.5 million was spent on new center development and
$23.7 million was spent on renovations of existing facilities. Purchases of
equipment and corporate information systems were $22.3 and $2.5 million,
respectively. Capital expenditures during fiscal 1997 totaled approximately
$43.7 million compared to $67.3 million in fiscal 1996. Expenditures for new
center development were $21.3 and $40.0 million, while expenditures for
renovations of existing facilities were $12.2 and $15.6 million during fiscal
1997 and 1996, respectively. Purchases of equipment and corporate information
systems were $7.2 and $3.0 million, respectively, during fiscal 1997 and $9.8
and $1.9 million, respectively, during fiscal 1996.

Capital expenditure limits under KinderCare's credit facilities for fiscal
1999 are $155.0 million. Capital expenditure limits may be increased by
carryover of a portion of unused amounts from previous periods and are subject
to exceptions. Also, KinderCare is permitted a degree of flexibility under the
provisions of the indenture under which the senior subordinated notes were
issued and the credit facilities with respect to the incurrence of additional
indebtedness, including through mortgages or sale-leaseback transactions.

YEAR 2000 COMPLIANCE

The Year 2000 issue is the result of computer programs being written to use
two digits to define year dates. Computer programs running date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in systems failure or miscalculations causing
disruptions of operations. KinderCare does not use information technology in
delivery of its services, but it uses such technology extensively for financial
reporting systems, payroll, purchasing and other important support functions.

KinderCare has completed an inventory of all hardware, software applications
and data flow exchanges to, or from, third parties and has identified and
assigned test priorities for systems that are critical to KinderCare's
operations. KinderCare has completed testing of approximately 30% of its
critical systems, has determined that there are no material Year 2000 weaknesses
in those systems and has remediated any minor weaknesses identified. KinderCare
expects to complete testing of all remaining critical systems and remediation of
any identified weaknesses by the end of July 1999.

KinderCare's current payroll system, provided by an outside vendor, is not
Year 2000 compliant. Based primarily on other business considerations,
KinderCare has purchased a new human resource/ payroll software package from a
different vendor. The vendor has represented that the software is Year 2000
compliant and KinderCare plans to test the software for compliance during
software implementation. KinderCare expects to complete implementation and
testing of the new system's essential features by the end of July 1999.
KinderCare anticipates the total cost of purchasing and implementing the human
resource/payroll system, most of which will be incurred in fiscal year 1999, to
be approximately $2 million and that these costs will be expensed as incurred or
will be amortized over five years in accordance with generally accepted
accounting principles.

KinderCare has sent Year 2000 compliance questionnaires to third party
vendors, utility companies and government agencies administering subsidized
tuition programs. KinderCare has also requested compliance certificates from any
vendors identified as critical.

Based on a preliminary assessment of responses received, KinderCare's
critical vendors are representing that they will achieve Year 2000 compliance.
KinderCare will continue to monitor the

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compliance statements of these vendors and will develop test and/or contingency
plans as deemed necessary.

KinderCare is having limited success in obtaining Year 2000 certifications
from government agencies administering subsidized tuition programs. However,
KinderCare's preliminary assessment of the Year 2000 risks is that, although
payments from these agencies may be delayed, payments ultimately will be made.
Management believes that Year 2000 failures among these agencies would not have
a material adverse effect on KinderCare's business and operations.

KinderCare is developing a contingency plan to address any material Year
2000 risks, and this plan is expected to be complete by June 1999. After such
time, KinderCare will continue to monitor its Year 2000 risks and will make
modifications to its contingency plan as appropriate.

KinderCare has not incurred significant incremental costs specifically in
connection with its Year 2000 project and all upgrades and system replacements
made in connection with its Year 2000 project were part of previously planned
software and hardware upgrades. In order to achieve Year 2000 compliance,
KinderCare has needed, and expects that it will continue to need, only existing
employees who otherwise have been assigned to planned upgrades of KinderCare's
software and hardware. Although KinderCare has engaged a Year 2000 consultant to
validate its testing methodology and to conduct a readiness review, the
associated costs are expected to be immaterial.

Notwithstanding KinderCare's progress to date, there are several ways in
which its systems could still be affected by the Year 2000 problem. First, the
software code KinderCare uses in its information systems may not in fact be Year
2000 compliant in all instances. Second, KinderCare may be unable to complete
the remaining upgrades to its information technology systems by the year 2000.
Third, even if KinderCare completes the system upgrades by the year 2000, it may
be unable to fully test and monitor the upgrades, making it difficult for
KinderCare to identify and remedy any problems that might exist. Fourth,
KinderCare's vendors, governmental agencies and other third parties with which
KinderCare does business may be unable to achieve Year 2000 compliance in time.

KinderCare is still collecting information necessary to evaluate its most
reasonably likely worst-case Year 2000 scenario. However, management currently
believes that the most reasonably likely worst-case scenario resulting from
KinderCare's inability, or the inability of KinderCare vendors or government
agencies, to become Year 2000 compliant, includes the following adverse effects:

- VENDOR PROBLEMS. KinderCare may be unable to receive materials and
supplies due to Year 2000-related failures on the part of its suppliers
causing KinderCare to be unable to meet its scheduled new center openings.
In addition, suppliers of food and other products necessary to operate
existing centers could be affected. Although KinderCare believes that it
could obtain these supplies from alternate sources, it would likely result
in increased costs.

- PAYMENT DELAYS. As discussed above, payments from governmental agencies
administering tuition programs could be delayed, requiring KinderCare to
fund cash flow requirements through additional borrowings.

KinderCare's assessment of its Year 2000 compliance is based on numerous
assumptions about future events, including third party modification plans.
However, there can be no guarantee that this assessment is correct and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes and similar uncertainties.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for
disclosure about operating segments in

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annual financial statements and requires disclosure of selected information
about operating segments in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. This statement superceded SFAS No. 14, FINANCIAL REPORTING
FOR SEGMENTS OF A BUSINESS ENTERPRISE. The new standard becomes effective for
KinderCare's fiscal year 1999 and requires that comparative information from
earlier years be restated to conform to the requirements of this standard.
KinderCare does not believe any substantial changes to its disclosures will be
made at the time SFAS No. 131 is adopted.

In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. This statement requires
that an entity recognize all derivatives as either assets or liabilities and
measure those instruments at fair value. The new standard becomes effective for
KinderCare's fiscal year 2001. KinderCare does not believe the adoption of SFAS
No. 133 will have a material impact on its financial position or results of
operations.

SEASONALITY

New enrollments are generally highest in September and January. Enrollment
generally decreases 5% to 10% during the summer months and calendar year-end
holiday periods. Average enrollment of full-time and part-time children in all
centers for the most recent fifty-two weeks ended March 5, 1999 was 119,000.

INFLATION AND WAGE INCREASES

Management does not believe that the effect of inflation on the results of
KinderCare's operations has been significant in recent periods, including its
last three fiscal years and the forty weeks ended March 5, 1999.

Salaries, wages and benefits represented approximately 55.2% of net revenues
for the forty weeks ended March 5, 1999. Low unemployment rates and positive
economic trends have challenged recruiting efforts and put pressure on wage
rates in many of KinderCare's markets. During 1996, Congress enacted an increase
in the minimum hourly wage from $4.25 to $4.75 effective October 1, 1996, with
an additional increase to $5.15 effective on September 1, 1997. The effect of
the federal minimum wage increase has not been material to the results of
operations. KinderCare believes that, through increases in its tuition rates, it
can recover any future increase in expenses caused by the minimum wage rate or
other market adjustments. However, KinderCare may not be able to increase its
rates sufficiently to offset such increased costs. KinderCare continually
evaluates its wage structure and may implement changes at targeted local levels.

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BUSINESS

THE EDUCATION INDUSTRY

Over $650 billion is spent annually on education in the U.S., including
preschool to post-secondary education as well as training at corporations
nationwide. The education industry is second in size only to health care and
constitutes nearly 8% of the U.S. Gross Domestic Product. However, this industry
remains highly fragmented and largely under government control. The private
sector is becoming increasingly involved as the market opportunity begins to be
realized.

The economy has undergone a fundamental shift, moving from a resource-based
economy to a knowledge-based economy. Knowledge is increasingly making the
difference in how an individual, a company, and even the country performs
economically. To the extent that traditional American educational institutions
do not adequately meet educational needs, a significant opportunity exists for
for-profit providers who will respond to these potential customer needs.

CHILD CARE SEGMENT. The U.S. child care segment of the education industry
generated an estimated $33 billion in revenues in 1998, with approximately
100,000 child care centers throughout the U.S. This segment grew at a compound
annual growth rate of 11.6% from 1982 to 1998. From 1998 to 2003, the overall
child care segment is expected to grow at a 7.1% compound annual growth rate to
an estimated $46.5 billion in 2003, according to Marketdata Enterprises.

The growth in the child care segment of the education industry has been, and
is expected to continue to be, driven by a number of factors, including the
following:

GROWING NUMBER OF MOTHERS IN THE WORKFORCE. As the number of traditional
single earner and stay-at-home parent families declines, many parents are forced
to struggle with alternative care options for their children. In 1996,
approximately 65% of all U.S. families with children were dual-income or single
parent households, with a declining percentage of children receiving care from a
stay-at-home parent.

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As a growing number of women and mothers enter the workforce, the demand for
child care has increased proportionally. According to the U.S. Bureau of Labor
Statistics, the labor force participation rate of married mothers with children
under the age of six has increased from approximately 30% in 1970 to
approximately 64% in 1997.

PERCENT OF MARRIED MOTHERS WITH CHILDREN UNDER SIX WORKING OUTSIDE THE HOME

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

-------------------------------
SOURCE: U.S. BUREAU OF LABOR STATISTICS.

In 1995, approximately 37% of all children were born to mothers over 30, as
compared to 21% in 1980. These mothers are typically more committed to a career
than their younger counterparts and are also more likely to be part of a two
income household with more to spend on child care services.

INCREASED POPULATION OF CHILDREN UNDER THE AGE OF FIVE. According to the
U.S. Bureau of Labor Statistics, the annual number of live births was
approximately 3.9 million in 1997, versus approximately 2.7 million in 1980. The
annual number of live births is projected to increase to approximately 4.5
million in 2015. In addition, the number of children under the age of five has
grown from approximately 16.3 million in 1980 to an estimated 19.2 million in
1997, according to the U.S. Bureau of Labor Statistics.

GROWING AWARENESS OF THE IMPORTANCE OF EARLY CHILDHOOD DEVELOPMENT. The
demand for quality child care is increasing as scientific research highlights
the importance of education during a child's early developmental years. In 1996,
the Families and Work Institute completed research demonstrating the importance
of early childhood experiences in a child's overall cognitive development. In
addition, recent scientific research into early childhood development has drawn
widespread media and political attention, increasing parents' awareness of, and
the demand for, quality educational facilities for their children. For example,
a 1997 National Institute of Child Health and Human Development study reviewed
the impact of child care on children and found that the quality of early
childhood care had a statistically significant and direct relationship with a
child's cognitive growth.

SHIFT TOWARDS CENTER-BASED CARE. There has been a significant increase in
the use of center-based child care facilities, which typically offer a more
structured curriculum, better educational materials,

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more experienced personnel and more opportunity for social interaction than
alternative forms of child care. According to Child Care Information Exchange,
nearly one of every three preschool-aged children is enrolled in a child care
center.

INCREASE IN FEDERAL AND STATE GOVERNMENT SUPPORT OF CHILD CARE SERVICE
PROVIDERS. The subject of child care services has been given considerable
attention by the federal government. In 1988 and 1990, child care funding
increased substantially when Congress enacted four new programs aimed at low
income families. In addition, the federal government currently funds numerous
early childhood programs, including Child Care Development Block Grants and Head
Start. In 1999, President Clinton proposed significant funding increases aimed
at improving the quality and accessibility of early education and child care,
including tax credits for corporations that pay for child care.

EMPLOYER-SPONSORED CHILD CARE SERVICES. Within the child care segment of
the education industry, there is an emerging trend toward employer-sponsored
child care services as more large- and medium-size employers recognize the value
of child care assistance as an employee benefit. According to Child Care
Information Exchange, the total market size for this sector is estimated to be
in excess of $2.0 billion, growing at 25% annually. Many corporations and other
employers have found that providing early childhood education services enhances
employee productivity, loyalty and commitment. For these reasons, employers have
increasingly recognized child care benefits as a key element of their employee
recruitment and retention strategy, and are increasingly providing this benefit
through employer-sponsored child development centers. Approximately 8% of large
companies provided employer-sponsored centers in 1995, and this number is
growing rapidly. A wide variety of employers currently sponsor on-site/near-site
child development centers, including corporations, hospitals, government
agencies and universities.

HIGH FRAGMENTATION OF THE CHILD CARE SEGMENT. The child care segment of the
U.S. education industry is highly fragmented, with the top 50 for-profit child
care companies having aggregate child care capacity of approximately 630,000
children, which is less than 2% of the estimated 50 million children under the
age of 12.

FOR-PROFIT CHAINS CAPTURE ONLY 6% OF MARKET

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
INDEPENDENT NON-PROFIT 29.0%
<S> <C>
FOR PROFIT CHAINS 6.0%
INDEPENDENT NON-PROFIT 25.0%
OTHER SPONSORED NON-PROFIT 8.0%
PUBLIC SCHOOL 8.0%
CHURCH HOUSED 15.0%
HEAD START 9.0%
</TABLE>

--------------------------------------------
SOURCE: CHILD CARE INFORMATION EXCHANGE (1996).

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Approximately 35% of all child care centers are operated for-profit, as
independent businesses or as part of a local or national chain, according to
Child Care Information Exchange. Non-profit centers, such as churches,
employers, government agencies and YMCAs, account for the remaining 65%. Of the
approximately 100,000 child care centers in the U.S., approximately 4,750 are
operated by the top 50 for-profit child care companies. Furthermore, only twelve
companies have total capacity in excess of 10,000 children, and only eight
companies have more than 100 centers.

INITIATIVES SINCE THE RECAPITALIZATION

Following the recapitalization of KinderCare in February 1997, management
has focused on improving the quality of our operations. We believe that these
efforts have successfully positioned us to take advantage of the positive growth
trends in our industry. Key elements of our transformation include the
following:

NEW MANAGEMENT TEAM. Since February 1997, we have been led by our new chief
executive officer, David J. Johnson. Mr. Johnson was the chief executive officer
of Red Lion Hotels from 1991 to 1996, where he gained significant multi-unit
management expertise, while growing that company significantly. The combination
of KKR's investment, the leadership of Mr. Johnson and the relocation of the
corporate offices from Montgomery, Alabama to Portland, Oregon enabled us to
attract an impressive new senior management team, while also retaining key
senior management personnel in operations, education and information systems.
Since the recapitalization, we have also substantially rebuilt our corporate
staff with experienced professionals and redesigned numerous management
processes. These changes have increased the quality and professionalism of our
management. We made these changes with minimal disruption to our center-level
operations while also improving our strong field management team.

INCREASED INVESTMENT IN OUR PEOPLE. We have made a significant investment
in our people, resulting in a more professional, motivated workforce. Prior to
the recapitalization, KinderCare had significantly reduced field staff. This
reduction resulted in reduced operating controls and a slowing of revenue
growth. Our new management team has taken positive steps to address these
issues. Since the recapitalization, we have added 27 new area manager positions
to bring our total to 77, which has reduced the span of control of our area
managers and permitted them to provide more effective support to the centers
they supervise. Many of our new area managers also have multi-unit retail
experience. We also added four new regional human resource managers and four new
area controllers during fiscal year 1998 to better support our area managers.

In addition, we instituted new incentive pay programs for our field
management at the level of center director and higher, which are designed to
focus them on center-level performance. These new incentive plans resulted in
81% of our center directors and 94% of our area managers receiving a bonus for
fiscal 1998. We also enhanced our employee benefits by adding a matching company
contribution to our 401(k) plan, adding a vision benefit to our medical plan and
generally upgrading the quality and administration of our benefit plans.

ACCELERATED NEW CENTER DEVELOPMENT AND IMPROVED NEW CENTER ECONOMICS. We
added 20 new community centers during fiscal 1998 and expect to open 40 more in
fiscal 1999. We also plan to open approximately 50 centers in fiscal 2000, which
are currently in various stages of development. Our new center prototype
reflects a larger and more physically appealing design than in prior years, and
these larger centers are designed to generate higher revenues, operating income
and margins than our existing centers. New centers are constructed with capacity
typically in excess of 180 children per center, versus an average of 120
children per center for the existing centers constructed prior to fiscal 1996.

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The economics generated by our newer centers, and those we plan on opening
in the future, compare very favorably with those of our older centers. At March
5, 1999, the average licensed capacity was 120 and the average tuition rate was
$111 for centers opened in fiscal 1996 and earlier, while the average licensed
capacity was 180 and average tuition rate was $141 for centers opened after
1996.

Our strategy is to accelerate the construction of these new larger centers,
while continuing to selectively close older, underperforming centers. We believe
this strategy will result in improved revenue growth and return on investment.

QUALITY INITIATIVES, INCLUDING ACCREDITATION OF OUR CENTERS. Since the
recapitalization, management has pursued a variety of initiatives designed to
promote the quality and consistency of our operations. These initiatives include
promoting operating standards at our centers and enhancing training for our
staff and management personnel.

As a complement to the quality improvement focus already in place at our
centers, we are actively pursuing the accreditation of our centers by the
National Association for the Education of Young Children, a national
organization that has established comprehensive criteria for providing quality
early childhood education and care. Although not mandated by any regulatory
authority, we believe that the accreditation process strengthens our centers by
enhancing the understanding of center staff of appropriate early childhood
practices. It also provides external validation of the success of our efforts to
promote quality. We believe that this validation improves the morale of the
center staff involved in the process.

On March 31, 1999, we had 85 accredited centers and approximately 500
centers were in various stages of the accreditation process. It typically takes
from eight months to three years for a center to become accredited. To
accelerate the accreditation of our centers, we recently hired four regional
accreditation coordinators to assist centers in completing the necessary
self-study, self-improvement and program description components of the
accreditation process.

MANAGEMENT FOCUS ON CENTER-LEVEL PERFORMANCE. Our new management team has
increased the focus of both corporate and field staff on center-level
management. We have restructured the planning process, financial reporting and
incentive compensation arrangements to encourage management of the business on a
center-by-center basis. Instead of planning globally and then pushing the
results down to the centers, planning is now done at the center level. Annual
budgets are prepared for each center and reviewed and approved at the region and
corporate levels. Tuition rates are set separately for each center and for each
age group within a center. Wage rates and labor productivity are also analyzed
for each center, so that we can tailor expectations to local market conditions.
We believe that managing on a center-by-center basis gives us greater
flexibility and greater ability to react to individual market conditions, which
helps us to enhance performance at centers and address underperforming centers.
We also linked incentives to center-level results, involved center directors in
budgeting and held them accountable for center-level operating results. We
believe that these initiatives have increased the quality of information
received from our centers and our ability to impact performance of our centers.

UPGRADED BASE OF EXISTING CENTERS. We have invested, and will continue to
invest, in a renovation program that is designed to bring all of our centers to
a company standard for physical plant and equipment and to enhance the curb
appeal of these centers. Once we have achieved the initial standard, our goal is
to renovate each center every five years. To further enhance the curb appeal of
our centers, we are upgrading our centers' signage and have instituted a plan to
ensure that all of our centers have uniform signage. Furthermore, during fiscal
1999, we developed a new interior and exterior renovation prototype intended to
create a learning environment that is both functional and fun for the children
at our centers. We believe the bright and engaging design will add vitality and
customer appeal to these renovated centers.

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We also spent approximately $16.4 million in fiscal year 1998 to provide our
centers with new toys and equipment. In addition, we have invested significantly
in improving the delivery of required maintenance services to our centers. We
added eleven maintenance technician positions in fiscal year 1999 and have
implemented a computerized maintenance information system to further improve
service to our centers.

Consistent with our focus on center-level economics, we also conduct regular
strategic reviews of our centers to individually assess their current
profitability and future potential. The results of these analyses have led us to
close 47 centers since the recapitalization.

IMPROVED SITE SELECTION AND NEW CENTER DEVELOPMENT PROCESS. We believe we
have significantly improved our system of child care center site selection and
development. Prior to the recapitalization, site selection generally targeted
the lowest cost real estate alternative in communities with attractive
demographics. Our site selection targets now reflect the desire of our customers
for convenience and more appealing locations and take advantage of the
opportunity generated by drive-by customers. We make specific location decisions
for new centers based upon comprehensive studies of geographic markets to assess
near- and long-term potential for both occupancy and tuition growth. These
studies include analyses of existing center areas, land prices, development
costs, competitors, tuition pricing and demographic data, including population,
age, household income, employment levels, and growth. In addition, our selection
team often analyzes several alternative sites within a prospective area and
evaluates each of them against our standards for location, convenience,
visibility, traffic patterns, size, layout, affordability and functionality, as
well as potential competition. We seek to identify attractive new sites for our
centers in large, metropolitan markets and smaller, growth markets that meet our
operating and financial goals and where we believe the market for child care
services will support higher tuition rates than our current average rates.

The real estate and development staff have worked closely with operations,
purchasing, human resources and marketing personnel to streamline the new center
opening process, resulting in the more efficient transition of new centers from
the construction phase to full operation. To assist in the smooth transition to
a fully-operating center, we have recently hired a Senior Director of New
Centers.

COMPETITIVE STRENGTHS

KinderCare is one of the few companies in the early childhood care and
education segment of the education industry that operates on a national scale.
Our leadership position in the industry, as well as the size and breadth of our
operations, give us a number of unique competitive advantages over other
operators. Our competitive advantages include (1) greater resources available to
invest in developing and regularly updating high quality educational programs,
services and curriculum materials, (2) greater expertise to manage the
complexities involved in complying with various state and local regulations and
licensing requirements, (3) greater ability to attract and retain talented
people, (4) the ability to spread fixed corporate and centralized support costs,
including real estate, marketing and educational staff, over a larger center
base and (5) greater purchasing power in areas such as insurance, equipment,
supplies and food. Our unique operating strengths include the following:

LEADING MARKET POSITION. Based on the number of our centers, the number of
children we serve, our geographical breadth and the number of teachers and
caregivers we employ, we are the leading provider of early childhood care and
education in the United States. At March 5, 1999, we operated 1,151 child care
centers in 39 states and the United Kingdom, with total center licensed capacity
of approximately 145,000 full-time children. Our current licensed capacity
represents more than 20% of the aggregate capacity of the top 50 for profit
child care service providers.

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Our position as the industry leader with a large, nationwide customer base
give us the ability to spread the costs of programs and services over a large
number of centers, as well as giving us a valuable distribution network for new
products and services. We also believe our strong market position enhances our
opportunities for capitalizing on consolidation of the highly fragmented child
care segment of the education industry, which will enable us to acquire small
regional operators that meet our standards for quality and growth potential. Our
leading position also makes us an attractive strategic partner for companies
with high quality, compatible products and services.

STRONG BRAND IDENTITY AND REPUTATION. Our high quality early childhood care
and education services developed over 30 years have enabled us to develop a
strong brand identity and reputation in the child care segment of our industry,
where personal trust and parent referrals play an important role in attracting
new customers. This brand recognition enhances our new center marketing efforts
and encourages potential customers to try our centers. Throughout all of our
communications, including informational brochures, parent handbooks, advertising
and marketing materials, we reinforce our image as the market leader with a
caring, well-trained staff and the resources necessary to provide high quality
early childhood care and education services.

HIGH QUALITY EDUCATIONAL PROGRAMS. Our education department is led by a
professional with a Ph.D. in early childhood education and staffed by curriculum
specialists. Under their direction, we have developed high-quality proprietary
curricula that incorporate age-specific learning programs based on the latest
educational research. We periodically revise our educational programs to take
advantage of the latest developments in early childhood education. All of our
educational programs are designed to respond to the needs of children and
parents we serve and to prepare children for success in school and in life. We
provide curriculum-specific training for our staff to ensure effective delivery
of our programs. See "Educational Programs."

GEOGRAPHICALLY DIVERSE OPERATIONS. We operate on a national scale, while
the majority of companies in the early education and child care segment are
regional or single center operations. Our operations are also geographically
diversified, with 1,149 child care centers located throughout 39 states in the
United States and two centers located in the United Kingdom. We believe that our
broad national presence enhances our brand awareness. In addition, our
geographic diversity mitigates the potential adverse impact of regional economic
downturns, adverse changes in regulations or changing demographics in
communities or regions.

ABILITY TO ATTRACT AND RETAIN A QUALIFIED WORKFORCE. We believe that our
size and financial resources allow us to maintain employee benefit, training and
recognition programs that give us a competitive advantage in attracting and
retaining a high-quality workforce. In a period of low unemployment such as the
United States is currently experiencing, the ability to attract and retain a
high quality workforce is very important to the successful operation of our
community and at work centers. To address this need, we have improved employee
benefit, incentive and recognition programs, and we are in the process of
implementing new employee orientation and training programs. We believe that
these efforts, in addition to our national reputation and quality focus, give us
a competitive advantage in hiring and retaining staff. In addition, our
corporate infrastructure and large number of centers allow us to spread the
costs of administering benefit programs, designing and implementing training
programs and rewarding individual employee longevity and performance over a
large base of centers.

FINANCIAL FLEXIBILITY. We currently have considerable access to capital
under existing borrowing facilities to finance our growth. Following the
offering, we will have substantially reduced our outstanding debt and improved
our access to capital. In addition, our real estate portfolio provides us with
considerable financial flexibility. At March 5, 1999, we owned 747, or 65%, of
our 1,151 centers, with land and buildings having a net book value of $435.1
million. We are considering various strategies

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to employ these assets, including sale leaseback arrangements. We are also
considering implementation of a synthetic lease facility to finance new center
construction.

OUR GROWTH STRATEGY

We intend to capitalize on the initiatives that have taken place since the
recapitalization and our competitive strengths to pursue a growth strategy
containing the following key elements:

CONTINUE ACCELERATED OPENING OF CENTERS WITH IMPROVED ECONOMICS. We plan to
expand by continuing our accelerated opening of new community centers in
attractive markets where we believe the market for child care services will
support higher tuition rates than our current average rates. We will continue to
focus on our larger and physically more appealing prototype, which has
demonstrated superior economic performance when compared to the smaller centers
that represented our typical model prior to the recapitalization.

We anticipate the addition of approximately 14 more centers during the
remainder of fiscal year 1999, resulting in a total of 40 new centers for the
full fiscal year. We also plan to add approximately 50 new centers in fiscal
year 2000. We believe there are opportunities to continue to locate centers in
many attractive markets across the United States. From siting to opening, a new
center typically requires an 18 to 24 month lead time. Accordingly, the centers
we have planned for fiscal years 1999 and 2000 are in various stages of
development. To assist us in implementing this accelerated center opening
schedule, we have hired a new Senior Director of New Centers, who has primary
responsibility for transitioning our centers from the construction stage to full
operation.

EXPAND EMPLOYER-SPONSORED CHILD CARE SERVICES. Due to the changing
demographics of today's workforce and the prevalence of dual career families, a
growing number of employers are providing on-site/near-site child care to
attract and retain employees. We consider this to be one of the fastest growing
segments of our industry and a significant opportunity for KinderCare.

We believe that we have an opportunity to expand our KinderCare At
Work-Registered Trademark- operations based on the quality of our curricula and
the strength of our brand. We are already one of the leading providers of
on-site/near-site employer child care, although we have not yet aggressively
pursued this sector. At March 5, 1999 we operated 39 on-site/near-site centers
for 34 different employers, including Delco Electronics Corp., Fred Meyer, Inc.,
Lego Systems, Inc. and The Walt Disney Company. We intend to actively pursue
growth in this area of our business through expanded relationships with our
existing customers, as well as expansion of our customer base through internal
growth, selective acquisitions and strategic alliances.

PURSUE STRATEGIC RELATIONSHIPS AND ACQUISITIONS. We plan to actively
investigate and pursue strategic investments in, joint ventures with or
acquisitions of companies in our industry that offer products and services that
complement our business strategy. We believe that we can use these alliances to
pursue our strategy to become a more broad-based education company. To better
focus our efforts in this area, we recently hired a Vice President, Business
Development.

We intend to actively pursue opportunities in the following areas:

- REGIONAL OR LOCAL CHILD CARE CHAINS. In addition to accelerating our new
center development, we seek to acquire existing child care centers where
demographics, quality of facilities, operating standards and programs
complement our business strategy. We believe that our competitive
position, diverse locations and financial strength uniquely position us to
capitalize on selective acquisition opportunities in the growing,
fragmented child care industry.

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- EMPLOYER-SPONSORED CHILD CARE. The Child Care Information Exchange
estimates the total market size for employer-sponsored child care services
to be in excess of $2.0 billion, growing at 25% annually. KinderCare
expects this strong growth to continue as an increased number of employers
offer additional benefits to attract and retain employees. We view this as
an opportunity not only to grow our existing KinderCare at
Work-Registered Trademark- business, but to acquire complementary
businesses.

- EDUCATIONAL CONTENT. KinderCare serves approximately 124,000 children in
its centers in 39 states and the United Kingdom. We view our customer base
of children and their parents as a unique and attractive market for
high-quality educational content and related products and services. To
date, KinderCare has delivered only its proprietary curricula with
selected educational enhancements to our customers. However, we believe
there is opportunity to selectively acquire or partner with companies
offering content-rich products that could be delivered to KinderCare's
customers to enhance the value of its services.

- PRODUCTS AND SERVICES TO THE KINDERGARTEN TO 12TH GRADE MARKET. In recent
years there has been an increase in the types of products and services
provided by third-party vendors to the kindergarten through 12(th) grade
educational market. KinderCare believes it has core strengths and an
efficient corporate infrastructure that position it well for expansion
into this market. For instance, KinderCare has experience in curriculum
development and distribution and in the provision of educational programs
and before and after school care for school age children. These
competencies make us an attractive partner for smaller companies with a
product or service designed to serve the kindergarten through 12(th) grade
market. For example, we believe opportunities exist to provide educational
programming for the after-school market and content-rich summer school and
vacation programs. After-school care and education has received a great
deal of media and political attention as a result of, among other things,
research which shows that most juvenile crime occurs during late afternoon
and early evening.

- PRIVATE SCHOOLS. We believe that there is an opportunity to establish a
system of for-profit kindergarten through 12(th) grade private schools to
serve the growing number of parents who are dissatisfied with current
public school systems. We also believe that our experience in multi-site
curriculum delivery, our corporate infrastructure and our experience with
real estate asset acquisition and management would give us an advantage in
acquiring one or more existing, high-quality private schools and
replicating our educational and business model at other locations.

- CHARTER SCHOOLS. We view the increasingly prominent charter school segment
as another opportunity for expansion. Charter schools have arisen as a
publicly-funded alternative to public schools in those states that have
passed enabling legislation. In those markets, charter schools have
received public funding and successfully drawn students away from
traditional public schools. We view the charter school market as an
opportunity to acquire and replicate a successful educational and business
model in those states with sufficient per-student funding to support
quality programs and services.

INCREASE EXISTING CENTER REVENUE. We will continue to focus on increasing
center occupancy and customer retention through quality initiatives and targeted
marketing programs designed to enhance brand image and awareness. We will also
continue to implement our center-specific tuition pricing strategy, selectively
implementing increases to take advantage of opportunities after evaluating the
expected impact any changes might have on occupancy. Those strategies have
enabled us to increase tuition at many of our centers with no or minimal loss in
occupancy.

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Our goal is to increase tuition where possible, while also increasing
occupancy rates. We plan to increase occupancy and customer retention by (1)
emphasizing quality at the center level, (2) implementing customer retention
programs and (3) improving training, employee recognition and incentive programs
to retain qualified employees. We believe that this accelerated revenue growth
is possible at our existing centers without significantly increasing our
overhead expenses, which will result in improved operating performance.

We also believe that with our broad customer base of children and parents,
we have a valuable system for delivery of additional high-quality educational
products and services to children between the ages of six weeks and twelve
years. There are many businesses with innovative products and services that
could enhance or complement the services we currently provide. We plan to look
at opportunities to invest in, or partner with these businesses and to take
advantage of these innovations to better serve our customers. For example, we
have begun an initiative to enhance our core curriculum with a phonics-based
program created by an outside educational publishing company.

IMPROVE OUR OPERATIONAL EFFICIENCIES. We plan to further improve our
operating performance by reducing costs through consolidating our center-level
purchasing to increase our purchasing power and spreading relatively fixed
corporate and centralized support costs over a larger center base. We also plan
to continue our focus on center-level economics, which makes each center
director accountable for center expenditures. This focus has had, and we believe
will continue to have, a positive effect on cost control at our centers.

We also plan to improve our operating efficiencies by continually reviewing
the effectiveness and coverage of our support services and by providing
management with more timely information through our nationwide communications
network and our automated information systems. We are in the process of
implementing additional upgrades to our information systems, which will enable
us to obtain better and more timely information on such items as weekly
revenues, expenses, enrollments, attendance, payroll and staff hours. We also
plan to continue to assess new ways in which we can effectively use the internet
and company-wide intranet applications, providing improved communications among
the corporate office and our centers and better access to corporate information.

INCREASE NUMBER OF ACCREDITED CENTERS. We will continue to aggressively
pursue NAEYC accreditation as we seek to improve the quality of our centers,
which we believe will further enhance our brand and help us grow in the future.
We believe that the accreditation process strengthens our centers by motivating
the teaching staff and enhancing their understanding of developmentally-
appropriate early childhood practices. As of March 5, 1999, we had 85 accredited
centers and approximately 500 centers in various stages of the accreditation
process. We expect the recent hiring of four regional accreditation coordinators
to increase our rate of center accreditation.

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EDUCATIONAL PROGRAMS

We have developed a complete array of educational programs, including five
separate proprietary age-appropriate curricula, under the direction of our
education department, which is led by a professional with a Ph.D. in early
childhood education and staffed by curriculum specialists. KinderCare's
educational programs recognize the recent emphasis by experts on brain growth
during the first years of a child's life, the importance of adult-child
interactions and environmental stimulation and brain compatible learning, which
focuses on teaching children in a way that is compatible with how the brain is
believed to learn during various stages of a child's development. With this
recognition of the importance of early childhood education, KinderCare has
positioned itself as "Your Child's First Classroom.-TM-" Educational programs
are revised on a rotating basis to take advantage of the latest research in
early childhood learning, and, when appropriate, qualified consultants are
retained to assist in the revision process.

Our curricula and other educational programs are designed to respond to the
needs of the children and parents we serve, and to prepare children for success
in school and in life. Our curricula provide for advancement of the whole child,
promoting physical, emotional, intellectual and social development.

TRAINING. We provide curriculum-specific training for our teachers and
caregivers to assist them in effectively delivering our programs. Each
curriculum is designed to provide teachers with the necessary autonomy to
enhance the programs based on the resources and needs of the local community. We
emphasize selection of staff who are responsive to children and each teacher is
given the opportunity, training and resources to plan active and creative
programs. Opportunity for professional growth is available through a systematic
training progression. This process involves company-wide training programs, such
as the Certification of Excellence Program, which is a professional development
program established by us. We also make available more advanced training
opportunities for our teachers and caregivers, including tuition reimbursement
for employment-related college courses or course work in connection with
obtaining a Child Development Associate credential.

INFANT AND TODDLER CURRICULUM. Our program for infants and toddlers,
Welcome to Learning-Registered Trademark-, is an award winning, brain compatible
curriculum designed for children six weeks to 36 months. The program is in two
distinct parts, targeted first to infants and then to toddlers. The curriculum
encourages children to learn with age and stage appropriate learning
environments and activities.

PRESCHOOL CURRICULA. We have two preschool programs designed for children
ages three to five years. My Window On The World-Registered Trademark-
encourages inquisitive children to discover questions and formulate answers
using the world of nature. We use YOUR BIG BACKYARD, the National Wildlife
Federation's magazine for preschoolers, as a resource for this program. Our Once
Upon A Time . . .-Registered Trademark- preschool program is based on children's
literature, both classic and modern. These preschool programs emphasize
pre-reading skills, basic math concepts, developing social skills and problem
solving. We are enhancing our preschool programs with additional reading
readiness materials, including Kinderletters-Registered Trademark-, a
phonics-based program created by The Rigby Company, a publisher of literacy and
reading materials, to respond to parents' desires for a greater emphasis on
phonics. We believe that school readiness is becoming increasingly important in
customers' selection of a preschool program.

KINDERGARTEN CURRICULUM. For five year olds, we offer the Kindergarten at
KinderCare: Journey to Discovery-Registered Trademark- program. In this thematic
program, which incorporates resources developed by the nationally recognized
company, Development Learning Materials, a division of Science Research
Associates, Inc., children learn through play, hands-on exploration and
activities and experiences that are real-world and sensory in nature. This
curriculum emphasizes reading development, beginning math concepts and those
skills necessary to give children the confidence to succeed in school.
KinderCare offers a kindergarten program in approximately two-thirds of its
centers that meets state requirements for instructional curriculum prior to
first grade.

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SCHOOL-AGED CURRICULUM. KinderCare's KC Imagination
Highway-Registered Trademark- program is a project approach based curriculum,
designed to meet the needs of school-aged children. The program includes a
number of stimulating and challenging activities and projects, ranging from loud
and active to quiet, thoughtful and social, and culminates with an event or
finale for parents. Parents are increasingly looking for content-rich
after-school experiences that keep school-aged children interested and involved.
We believe our school-aged curricula provides these experiences.

Our focus on quality and enriching proprietary educational programs sets us
apart as a leader in early educational services. We believe that educational
content in preschool and earlier care settings is becoming a differentiating
factor in attracting new customers.

EMPLOYER-SPONSORED CHILD CARE SERVICES

Through KinderCare At Work-Registered Trademark- we can offer a more
flexible format for our services by individually evaluating the needs of each
employer to find the appropriate format to fit their needs for on-site/near-site
employee child care. Our current relationships with employers include various
forms of management contracts, as well as owned or leased centers. KinderCare At
Work-Registered Trademark- can also assist organizations in one or more aspects
of implementing a child care related benefit, including needs assessments,
financial analysis, architectural design and development plans.

We believe that KinderCare At Work-Registered Trademark- can be a
particularly effective provider of employer-sponsored child care based on the
quality of KinderCare's curriculum and the strength of its brand identity.
KinderCare intends to aggressively pursue new relationships with major
employers.

At March 5, 1999, KinderCare operated 39 on-site/near-site
employer-sponsored child centers for 34 different employers, including Delco
Electronics Corp., Fred Meyer, Inc., Lego Systems, Inc., The Walt Disney
Company, Inc. and several other businesses, universities and hospitals. Of the
39 on-site/ near-site centers, 36 were KinderCare owned or leased and three were
operated by KinderCare under management fee contracts. The management contracts
for KinderCare At Work-Registered Trademark- centers generally provide for a
three to five year initial period with renewal options ranging from two to five
years. Our compensation under these existing agreements is generally based on a
fixed fee with annual escalation.

MARKETING, ADVERTISING AND PROMOTIONS

We believe that our national presence and reputation for quality early
childhood care and educational services have created valuable and strong name
recognition and parent loyalty for KinderCare. In an industry where personal
trust and word-of-mouth referrals play a key role in attracting new customers,
we believe that our reputation and strong name recognition are important
competitive advantages.

We intend to continue our marketing efforts through various promotional
activities and customer retention and customer referral programs. In addition,
our marketing efforts include targeted direct mail, yellow pages advertising and
have included magazine and radio advertisements. We continually evaluate the
effectiveness of our marketing efforts and attempt to use the most
cost-effective means of advertising. Since the recapitalization, we have
improved our ability to gain information about our current and potential
customers to better target our direct marketing efforts and have focused more
attention on marketing to our existing customers in an effort to increase
retention of those customers. We have also improved the content of our marketing
materials by more prominently highlighting our high quality curriculum. Our
consumer magazine advertising campaign for fiscal year 1999 won the 1998 Award
of Excellence from Communication Arts Advertising Annual.

Since the recapitalization, we have also focused on the marketing
opportunities that are a natural outgrowth of our other improved business
practices, such as (1) choosing sites that are convenient for customers to
encourage drive-by identification, (2) renovating our existing centers to
enhance their curb

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appeal and (3) upgrading the signage at our centers to a uniform standard to
enhance customer recognition of our centers.

Our center pre-opening marketing efforts include direct mail and newspaper
support, as well as local public relations support. Every new center hosts an
open house and provides center tours where parents and children have
opportunities to talk with staff, visit classrooms and play with educational
toys and computers.

During fiscal years 1998 and 1999, we introduced a new video training
program designed to enhance the marketing capabilities of our center directors
and assistant directors. This training emphasizes telephone skills and how to
give a center tour. Other aspects of the local marketing programs offered by
each KinderCare center include periodic extended evening hours and a five
o'clock snack that is provided to the children as they are picked up by their
parents. KinderCare also sponsors a referral program under which parents receive
tuition credits for every new customer referral that leads to a new enrollment.

Our center directors and area managers also are encouraged to market to
parents via local speaking engagements and interaction with local regulatory
agencies that may then refer potential customers to KinderCare. We hold parent
orientation meetings in the fall at which center directors and staff explain our
educational programs as well as policies and procedures. We also periodically
hold "meet the teachers" events and have established programs to involve parents
in center activities and events. These events offer us an opportunity to build
an awareness of the center in the local community.

TUITION

We determine tuition charges based upon a number of factors including the
age of child, full- or part-time attendance, location and competition. Tuition
is generally collected on a weekly basis in advance, and tuition rates are
generally adjusted company-wide each year in the fall. However, we may adjust
individual center rates at any time based on competitive position, occupancy
levels and consumer demand. Our focus on center-level economics has enabled us
to better implement market specific increases in rates without losing occupancy
in centers where the quality of our services, demand and other market conditions
support such increases. KinderCare's weighted average tuition rate on a weekly
basis was $112.78 for the forty weeks ended March 5, 1999, $106.81 for the
fiscal year ended May 29, 1998 and $101.93 for the fiscal year ended May 30,
1997.

SITE SELECTION OF CHILD CARE CENTERS

KinderCare seeks to identify attractive new sites for its centers in large,
metropolitan markets and smaller, growth markets that meet our operating and
financial goals and where we believe the market for child care services will
support higher tuition rates than our current average rates. Our real estate
department performs comprehensive studies of geographic markets to determine
potential areas for new center development. These studies include analysis of
existing center areas, land prices, development costs, competitors, tuition
pricing and demographic data such as population, age, household income,
employment levels and growth opportunities for that market. In addition, we
review state and local laws, including zoning requirements, development
regulations and child care licensing regulations to determine the timing and
probability of receiving the necessary approvals to construct and operate a new
child care center.

Our site selection targets reflect the desire of our customers for
convenience and more appealing locations and take advantage of the opportunities
generated by drive-by customers. We make specific site location decisions for
new centers based upon a detailed site analysis that includes feasibility and
demographic studies, as well as comprehensive financial modeling. Within a
prospective area, we often analyze several alternative sites. Each potential
site is evaluated against our standards for location,

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convenience, visibility, traffic patterns, size, layout, affordability and
functionality, as well as potential competition.

Because environmental laws could make us responsible for investigating and
remediating environmental conditions that may be identified at centers or
properties that we own or lease and for associated liabilities, following the
recapitalization, we initiated an expanded environmental assessment process for
all prospective owned or leased sites. The assessment process is undertaken with
the assistance of a national environmental consulting firm. We apply strict
assessment criteria to reduce the likelihood of acquiring or leasing properties
with environmental liabilities at any of the properties. See "Risk
Factors--Because we own or lease a substantial number of real properties, our
results of operations could be adversely affected if environmental contamination
is discovered on our properties." and "KinderCare Properties."

The real estate and development staff have worked closely with operations,
purchasing, human resources and marketing personnel to streamline the new center
opening process, resulting in the more efficient transition of new centers from
the construction phase to field operation. Our goal is to open new centers with
the highest achievable occupancy and profitability levels.

KINDERCARE'S REAL ESTATE ASSET MANAGEMENT PROGRAM

At March 5, 1999, KinderCare owned 747, or 65%, of its 1,151 centers, with
land and buildings having a net book value of $435.1 million. We are currently
evaluating strategies to capitalize upon this valuable asset to increase our
financial flexibility, including possible implementation of a synthetic lease
facility to finance our new center growth, as well as sale leaseback
arrangements with respect to our existing centers.

We routinely analyze the profitability of our existing centers through a
detailed evaluation that considers leased versus owned status, lease options,
operating history, premises expense, capital requirements, area demographics,
competition and site assessment. Through this evaluation process, the asset
management staff formulates a plan for the property reflecting our strategic
direction and marketing objectives. In growth markets, we attempt to renegotiate
long-term, fixed-rate leases for leased centers, avoiding rental increases tied
to market value or consumer indices. If a center is underperforming, exit
strategies are employed to minimize our financial liability. We make an effort
to time center closures to minimize the negative impact on affected families.
During fiscal year 1998, KinderCare closed 17 leased centers. During the first
three quarters of fiscal year 1999, KinderCare has closed 22 centers, 21 of
which were leased.

Our asset management department also manages the disposition of all surplus
real estate owned or leased by us. These real estate assets include undeveloped
sites, unoccupied buildings and closed centers. We disposed of 12 surplus
properties in fiscal year 1998 and seven surplus properties in fiscal year 1999
to date and are in the process of marketing an additional 23 surplus properties.

HUMAN RESOURCES

At March 5, 1999, we employed approximately 24,000 people. Of these
employees, approximately 270 were corporate headquarters employees, 290 were
regional or area managers and their support personnel and the remainder were
employees at our centers. Center employees include center directors; assistant
directors, regular full-time and part-time teachers, temporary and substitute
teachers; teachers' aides and non-teaching staff, including cooks and van
drivers. Approximately 8% of our 24,000 employees, including all management and
supervisory personnel are salaried; all other employees are paid on an hourly
basis. We do not have an agreement with any labor union and believe that we have
good relations with our employees. See "Risk Factors--If we are unable to
attract and retain sufficient qualified employees or if our employees unionize,
our results of operations may be adversely affected."

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REGIONAL AND CENTER PERSONNEL. At March 5, 1999, our center operations were
organized into four regions and 77 areas reporting to four Regional Vice
Presidents and a Vice President of Operations. During fiscal year 1998, we added
22 area manager positions and eight additional regional human resource and
financial control personnel to support field management's focus on quality. In
fiscal year 1999, we have continued to expand field management by adding five
additional area manager positions and four accreditation coordinators.

Individual centers are managed by a director and an assistant director. All
center directors participate in periodic training programs or meetings and must
be familiar with applicable state and local licensing regulations.

TRAINING PROGRAMS. All center teachers and other non-management staff are
required to attend an initial half-day training session prior to being assigned
full duties and to complete a six week on-the-job basic training program.
Additionally, we have developed and implemented training programs to certify
personnel as teachers of various age groups in accordance with our internal
standards and in connection with our age-specific educational programs. We are
in the process of implementing a new video series of orientation and staff
training programs that is expected to be easier to deliver and more effective
than prior programs. We have added a Director of Employee Development to oversee
implementation of our quality training programs.

EMPLOYEE BENEFITS. During fiscal year 1999, we have enhanced our employee
benefit programs, employee recognition programs and our recruitment and
retention efforts. Those enhancements include the addition of matching payments
by KinderCare to our 401(k) plan, the addition of a vision plan and the
implementation of programs to reward employees for length of service. Corporate
human resources monitors salaries and benefits for competitiveness. We also plan
to develop an employee assessment program that will aid in identification of
high quality area manager and center director candidates. Due to high employee
turnover rates in the child care segment of the education industry in general,
we emphasize recruiting and retaining qualified personnel. The turnover of
personnel experienced by KinderCare and other providers in the child care
segment of our industry results in part from the fact that a significant portion
of our employees earn entry-level wages and are part-time employees.

CHILD CARE CENTER SAFETY. Our first priority is to ensure the care and
safety of the children enrolled in our centers. We take extensive precautions to
ensure the safety and well-being of all children. However, a small number of
incidents of alleged child abuse or neglect have been reported. It is our policy
to report any allegation of abuse to the appropriate authorities, to investigate
all allegations of abuse, and, if appropriate, to suspend any accused employee
involved in the alleged incident pending the outcome of the investigation.
Although allegations of abuse may occur in the future, our procedures are
designed to prevent child abuse and we have not historically experienced a
material adverse impact from allegations of child abuse.

KINDERCARE'S COMMUNICATION AND INFORMATION SYSTEMS

We have a fully automated information, communication and financial reporting
system for our centers. This system uses personal computers and links every
center and regional office to the corporate headquarters. The system provides
timely information on such items as weekly revenues, expenses, enrollments,
attendance, payroll and staff hours. We recently completed the installation of
new personal computers and fax machines in all of our centers as well. The new
personal computers use a Windows NT-Registered Trademark- operating system,
which is expected to result in more efficient information processing and
exchange between the field and corporate office. We are also updating our
financial reporting, payroll and human resources systems to provide more
comprehensive and timely information throughout our business.

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KinderCare also seeks to improve its operating efficiencies by continually
reviewing the effectiveness and coverage of its support services and providing
management with more timely information through its nationwide communications
network and its automated information systems. KinderCare employs company-wide
e-mail and on-line inquiry for all managers.

We have expanded our nationwide network to include the internet and
company-wide intranet applications. Through the use of Netscape
Navigator-Registered Trademark- software, KinderCare's intranet allows center
directors to have immediate access to corporate information and provides center
directors with the ability to distribute reports and questionnaires, update
databases and revise center listings on a daily basis. We are constantly finding
new uses for our intranet as a tool to communicate with our centers. We believe
that the sophistication and scope of our communications network and information
system makes our system one of the more advanced in the child care industry and
enables us to further improve the efficiency and quality of child care as well
as enhancing the educational experience of our students.

Many of our computer systems have been or will be upgraded, modified or
replaced in order to render these systems Year 2000 compliant by the end of July
1999. For additional information regarding our Year 2000 compliance, see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Year 2000 Compliance."

COMPETITION IN THE EDUCATION AND CHILD CARE INDUSTRY

The early childhood care and educational services industry is highly
fragmented and competitive. Our competition consists principally of the
following:

- local nursery schools and child care centers, some of which are
non-profit, including church-affiliated centers

- other for profit, center-based child care providers

- providers of services that operate out of homes

- substitutes for organized child care, such as relatives, nannies and one
parent caring full-time for a child

- preschool and before and after school programs provided by public schools

Local nursery schools, child care centers and in-home providers generally
charge less for their services than we do. Many church-affiliated and other
non-profit child care centers have lower operating expenses than we do and may
receive donations and/or other funding to subsidize operating expenses.
Consequently, operators of such centers often charge tuition rates that are less
than our rates. In addition, fees for home-based care are normally substantially
lower than fees for center-based care because providers of home care are not
always required to satisfy the same health, safety, insurance or operational
regulations as our centers.

In some markets we also face competition with respect to preschool services
and before and after school programs from public schools that offer such
services at little or no cost to parents. The number of school districts
offering these services is growing and we expect this form of competition to
increase in the future.

Our competition also includes other large, national, for-profit education
and child care companies, many of which offer child care at a substantially
lower price than we do. KinderCare competes by offering high quality education
and recreational programs, contemporary, well-equipped facilities, trained
teachers and supervisory personnel and a range of services, including infant and
toddler care, drop-in service and the transportation of older children enrolled
in our before and after-school program between our centers and schools.

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Our KinderCare At Work-Registered Trademark- centers compete with
center-based child care chains, some of which have divisions which compete for
employer-sponsorship opportunities, and with other organizations that focus
exclusively on the work-site segment of the child care market.

KINDERCARE'S INSURANCE

KinderCare's insurance program currently includes the following types of
policies: workers' compensation, comprehensive general liability, automobile
liability, property, excess "umbrella" liability and directors' and officers'
liability. The policies provide for a variety of coverages, are subject to
various limits, and include substantial deductibles or self-insured retention.
Special insurance is sometimes obtained with respect to specific hazards, if
deemed appropriate and available at reasonable cost. At March 5, 1999,
KinderCare had approximately $6.8 million of letters of credit available to
secure its obligations under retrospective and self-insurance programs. However,
claims in excess of, or not included within, KinderCare's coverage may be
asserted, the effect of which could have an adverse effect on KinderCare.

GOVERNMENTAL LAWS AND REGULATIONS AFFECTING KINDERCARE

CENTER LICENSING REQUIREMENTS. Our child care centers are subject to
numerous state and local regulations and licensing requirements and we have
policies and procedures in place in order to comply with such regulations and
requirements. Although these regulations vary from jurisdiction to jurisdiction,
government agencies generally review the fitness and adequacy of buildings and
equipment, the ratio of staff personnel to enrolled children, staff training,
record keeping, the dietary program, the daily curriculum and compliance with
health and safety standards. In most jurisdictions, these agencies conduct
scheduled and unscheduled inspections of the centers and licenses must be
renewed periodically. Most jurisdictions establish requirements for background
checks or other clearance procedures for new employees of child care centers.
Repeated failures of a center to comply with applicable regulations can subject
it to sanctions, which might include probation or, in more serious cases,
suspension or revocation of the center's license to operate and could also lead
to sanctions against our other centers located in the same jurisdiction. In
addition, this type of action could lead to negative publicity extending beyond
that jurisdiction.

We believe that our operations are in substantial compliance with all
material regulations applicable to our business. However, there can be no
assurance that a licensing authority will not determine a particular center to
be in violation of applicable regulations and take action against that center.
In addition, there may be unforeseen changes in regulations and licensing
requirements, such as changes in the required ratio of child center staff
personnel to enrolled children that could have a material adverse effect on our
operations.

CHILD CARE TAX INCENTIVES. Tax incentives for child care programs
potentially can benefit KinderCare. Section 21 of the Internal Revenue Code of
1986 provides a federal income tax credit ranging from 20% to 30% of specified
child care expenses for qualifying individuals with one child, or $4,800 for
taxpayers with two or more children. The fees paid to KinderCare for child care
services by eligible taxpayers qualify for the tax credit, subject to the
limitations of Section 21 of the Code. However, these tax incentives are subject
to change.

CHILD CARE ASSISTANCE PROGRAMS. During the forty weeks ended March 5, 1999,
approximately 17% of KinderCare's net revenues were generated from federal and
state child care assistance programs, primarily the Child Care and Development
Block Grant and At-Risk Programs. These programs are designed to assist
low-income families with child care expenses and are administered through
various state agencies. Although additional funding for child care may be
available for low income families as part of welfare reform, there is no
assurance that we will benefit from any such additional funding.

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<PAGE>
AMERICANS WITH DISABILITIES ACT. The federal Americans with Disabilities
Act, which became effective in 1992, and similar state laws prohibit
discrimination on the basis of disability in public accommodations and
employment. We have not experienced any material adverse impact as a result of
these laws.

FEDERAL TRANSPORTATION REGULATIONS. In August and September of 1998, the
National Highway Transportation Safety Administration issued interpretive
letters that appear to modify its interpretation of regulations governing the
sale by automobile dealers of vehicles intended to be used for the
transportation of children to and from school. These letters indicate that
dealers may no longer sell 15-passenger vans for this use, and that any vehicle
designed to transport eleven persons or more must meet federal school bus
standards if it is likely to be used significantly to transport children to and
from school or school-related events. These interpretations will affect the type
of vehicle that may be purchased by KinderCare in the future for use in
transporting children between schools and our centers. We anticipate that
NHTSA's recent interpretation and potential related changes in state and federal
transportation regulations will increase our costs to transport children because
school buses are more expensive to purchase and maintain and may require drivers
who have commercial licenses. We have ordered approximately 500 school buses,
200 of which are expected to be delivered during fiscal year 1999 and the
balance of which are expected to be delivered in fiscal year 2000.

KINDERCARE'S TRADEMARKS

We have various registered and unregistered trademarks and service marks
covering the name KinderCare, its schoolhouse logo, and a number of other names,
slogans and designs, including:

- Helping America's Busiest Families-Registered Trademark-

- KC Imagination Highway-Registered Trademark-

- Kid's Choice-TM-

- KinderCare At Work-Registered Trademark-

- Let Me Do It-Registered Trademark-

- Let's Move, Let's Play-Registered Trademark-

- Your Child's First Classroom-TM-

- Look At Me-Registered Trademark-

- My Window On The World-Registered Trademark-

- Small Talk-Registered Trademark-

- The Whole Child is the Whole Idea-Registered Trademark-

- Welcome To Learning-Registered Trademark-

A federally registered mark in the United States is effective for ten years
and may be renewed for ten-year periods perpetually, subject only to required
filings based on continued use of the mark by the registrant. A federally
registered mark provides the presumption of ownership of the mark by the
registrant in connection with its goods or services and constitutes constructive
notice throughout the United States of such ownership. In addition, KinderCare
has registered various trademarks and service marks in other countries,
including Canada, Germany, Japan, the Peoples' Republic of China and the United
Kingdom. However, many of these foreign countries require us to use the marks to
preserve our registration rights and, because we have not conducted business in
foreign countries other than the United Kingdom, we may not be able to maintain
our registration rights in all other foreign countries. KinderCare believes that
its name and logo are important to its operations and intends to maintain and
renew its trademark and service mark registrations in the United States and the
United Kingdom.

KINDERCARE PROPERTIES

CORPORATE HEADQUARTERS. KinderCare's corporate office is located in
Portland, Oregon. KinderCare entered into a 10-year lease of approximately
73,000 square feet of office space. The lease term commenced on the date of
occupancy on November 17, 1997. The lease calls for annual rental payments of
$22.50 per square foot for the first five years of the lease term and $26.50 for
the final five years, with one five-year extension option at market rent.

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CHILD CARE CENTERS. At March 5, 1999, we owned 747 of our operating child
care centers, leased or subleased 401 operating child care centers and operated
three child care centers under management contracts. KinderCare owns or leases
other child care centers which have not yet been opened or which are being held
for disposition. In addition, we own real property held for future development
of centers.

A typical KinderCare community center is a one-story, air-conditioned
building located on approximately one acre of land, with larger capacity centers
situated on parcels ranging from one to four acres of land, constructed in
accordance with model designs generally developed by KinderCare. The community
centers contain open classroom and play areas and complete kitchen and bathroom
facilities and can accommodate from 65 to 270 children, with most centers able
to accommodate 95 to 170 children. Over the past few years, KinderCare has
opened community centers that are larger in size with a capacity ranging from
120 to 230 children. New prototype community centers accommodate approximately
180 children, depending on site and location. Each center is equipped with a
variety of audio and visual aids, educational supplies, games, puzzles, toys and
outdoor play equipment. Centers also have vehicles used for field trips and
transporting children enrolled in KinderCare's after-school program. All
KinderCare community centers are equipped with computers for children's
educational programs.

KinderCare At Work-Registered Trademark- provides employer-sponsored child
care programs individualized for each such sponsor. Facilities are on or near
the employer's site and range in capacity from 80 to 225 children.

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The KinderCare community and KinderCare At Work-Registered Trademark-
centers operated by KinderCare at March 5, 1999 were located as follows:

<TABLE>
<CAPTION>
KINDERCARE
AT
COMMUNITY WORK-REGISTERED TRADEMARK- TOTAL
LOCATION CENTERS CENTERS CENTERS
- ------------------------------------------------------------------------------ ------------- --------------- -----------
<S> <C> <C> <C>
United States
Alabama..................................................................... 10 -- 10
Arizona..................................................................... 16 2 18
Arkansas.................................................................... 3 -- 3
California.................................................................. 97 -- 97
Colorado.................................................................... 27 -- 27
Connecticut................................................................. 12 2 14
Delaware.................................................................... 4 -- 4
Florida..................................................................... 69 6 75
Georgia..................................................................... 40 -- 40
Illinois.................................................................... 83 2 85
Indiana..................................................................... 28 1 29
Iowa........................................................................ 8 2 10
Kansas...................................................................... 16 -- 16
Kentucky.................................................................... 13 1 14
Louisiana................................................................... 12 2 14
Maryland.................................................................... 25 -- 25
Massachusetts............................................................... 18 -- 18
Michigan.................................................................... 32 2 34
Minnesota................................................................... 37 -- 37
Mississippi................................................................. 4 -- 4
Missouri.................................................................... 48 -- 48
Nebraska.................................................................... 10 1 11
Nevada...................................................................... 10 -- 10
New Hampshire............................................................... 2 -- 2
New Jersey.................................................................. 36 4 40
New Mexico.................................................................. 7 -- 7
New York.................................................................... 2 1 3
North Carolina.............................................................. 34 -- 34
Ohio........................................................................ 67 3 70
Oklahoma.................................................................... 10 -- 10
Oregon...................................................................... 13 4 17
Pennsylvania................................................................ 40 -- 40
Rhode Island................................................................ -- 1 1
Tennessee................................................................... 27 1 28
Texas....................................................................... 119 1 120
Utah........................................................................ 6 1 7
Virginia.................................................................... 52 -- 52
Washington.................................................................. 49 1 50
Wisconsin................................................................... 24 1 25
United Kingdom................................................................ 2 -- 2
--
----- -----
Totals...................................................................... 1,112 39 1,151
--
--
----- -----
----- -----
</TABLE>

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<PAGE>
CENTER MAINTENANCE PROGRAM. We use a centralized maintenance program to
ensure consistent high-quality maintenance of our facilities located across the
country. Each of our maintenance technicians in our facilities department has a
van stocked with spare parts and handles routine and preventative maintenance
functions through a central telephone dispatch and systematic checklist system.
During fiscal year 1999, we implemented a computerized maintenance system which
connects all centers, maintenance technicians and central dispatch. Each
technician is responsible for the support of approximately 17 centers. During
fiscal year 1999, we hired eleven additional maintenance technicians, which
reduced the number of centers per technician to approximately 15. Specific
geographic areas are supervised by two regional directors and twelve facility
managers, each of whom manages between four and seven technicians.

CENTER RENOVATION PROGRAM. We have undertaken a renovation program to
ensure that all of our centers meet specified standards that we establish. We
believe that our properties are in good condition and are adequate to meet our
current and reasonably anticipated future needs.

ENVIRONMENTAL COMPLIANCE. We have established an environmental assessment
process to reduce the likelihood of incurring liabilities under applicable
environmental laws, regulations and ordinances that could result from the
acquisition or leasing of prospective new centers or properties. Following the
acquisition or lease of a new center site, our area managers, facilities
personnel and center directors continue to review and report on activities at or
near our centers that could result in environmental problems. We have not
incurred material expenditures to address environmental conditions at our
centers or our owned or leased properties during the past three years, nor are
we aware of circumstances likely to cause us to incur any such material
expenditures in the future. See "Risk Factors--Because we own or lease a
substantial number of real properties, our results of operations could be
adversely affected if environmental contamination is discovered on our
properties" and "Site Selection of Child Care Centers."

LEGAL PROCEEDINGS INVOLVING KINDERCARE

We do not believe that there are any pending or threatened legal proceedings
that, if adversely determined, would have a material adverse effect on our
business and operations.

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<PAGE>
MANAGEMENT

KINDERCARE'S DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES

The bylaws of KinderCare provide that the directors will be elected
annually. All directors of KinderCare hold office until the election and
qualification of their successors. Pursuant to a stockholders' agreement among
parties including Oaktree Capital Management, LLC, which is an investment
advisor to affiliates of the TCW Group, Inc., KinderCare and affiliates of KKR,
for so long as affiliates of TCW hold a specified number of shares of
KinderCare's common stock and the stockholders' agreement has not been
terminated, Stephen A. Kaplan or another representative of Oaktree will be
nominated as a director by KinderCare and the shares of common stock
beneficially owned by affiliates of KKR will be voted in favor of the election
of such director. Executive officers of KinderCare are chosen by the board of
directors of KinderCare and serve at its discretion. The following sets forth
information regarding the executive officers, directors and other key employees
of KinderCare:

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- ----------- ----------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS
David J. Johnson....................... 52 Chief Executive Officer and Chairman of the Board
Beth A. Ugoretz........................ 43 Executive Vice President, Corporate Services
Bruce A. Walters....................... 42 Senior Vice President and Chief Development Officer
Dan R. Jackson......................... 45 Vice President, Financial Control and Planning

OTHER KEY EMPLOYEES
Trudy R. Anderson...................... 35 Region Vice President, Central
David A. Benedict...................... 45 Vice President, Tax
DeeAnn M. Besch........................ 41 Region Vice President, Southeast
Edward L. Brewington................... 55 Vice President, Human Resources
William F. Dougherty................... 40 Vice President, Business Development
Marcia P. Guddemi, Ph.D................ 45 Vice President, Education, Research and Training
S. Wray Hutchinson..................... 39 Vice President, Operations
Lauren A. Klein........................ 43 Region Vice President, Western
Eva M. Kripalani....................... 39 Vice President, General Counsel and Secretary
Miriam D. Liggett...................... 38 Region Vice President, Northeast
William O. Robards, Jr................. 46 Vice President, Real Estate
Bobby J. Willey........................ 59 Vice President, Information Services

DIRECTORS
Henry R. Kravis........................ 55 Director
George R. Roberts...................... 55 Director
Clifton S. Robbins..................... 40 Director
Nils P. Brous.......................... 34 Director
Stephen A. Kaplan...................... 40 Director
</TABLE>

EXECUTIVE OFFICERS

DAVID J. JOHNSON joined KinderCare as Chief Executive Officer and Chairman
of the Board in February 1997. Between September 1991 and November 1996, Mr.
Johnson served as President, Chief Executive Officer and Chairman of the Board
of Red Lion Hotels, Inc., which was formerly a KKR affiliate, or its
predecessor. From 1989 to September 1991, Mr. Johnson was a general partner of
Hellman & Friedman, a private equity investment firm based in San Francisco.
From 1986 to 1988, he served as President, Chief Operating Officer and director
of Dillingham Holdings, a diversified

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company headquartered in San Francisco. From 1984 to 1987, Mr. Johnson was
President and Chief Executive Officer of Cal Gas Corporation, a principal
subsidiary of Dillingham Holdings.

BETH A. UGORETZ joined KinderCare as Executive Vice President, Corporate
Services in March 1997. Ms. Ugoretz served as Senior Vice President, General
Counsel and Secretary of Red Lion Hotels, Inc. or its predecessor from June 1993
to December 1996. Prior to that time, Ms. Ugoretz was a partner with the law
firm of Stoel Rives LLP in Portland, Oregon, where she had worked since 1983.

BRUCE A. WALTERS joined KinderCare as Senior Vice President and Chief
Development Officer in July 1997. From June 1995 to February 1997, Mr. Walters
served as the Executive Vice President of Store Development for Hollywood
Entertainment Corporation in Portland, Oregon. Prior to that time, Mr. Walters
spent 14 years with McDonald's Corporation in various domestic and international
development positions.

DAN R. JACKSON joined KinderCare in February 1997 as Vice President of
Financial Control and Planning. Prior to that time, Mr. Jackson served as Vice
President Controller for Red Lion Hotels, Inc., or its predecessor, from
September 1985 to January 1997. From 1978 to 1985, Mr. Jackson held several
financial management positions with Harsch Investment Corporation, a real estate
holding company based in Portland, Oregon.

OTHER KEY EMPLOYEES

TRUDY R. ANDERSON was promoted in April 1996 to Vice President of the
Central Region. She joined KinderCare in February 1989 as a Center Director in
California and was promoted to District Manager in California. She later served
as a District Manager in Minnesota and was subsequently promoted to Region
Manager.

DAVID A. BENEDICT joined KinderCare in January 1998 as Vice President, Tax.
From May 1997 through December 1997, Mr. Benedict was a Director, Tax Services
in the Portland, Oregon office of Price Waterhouse, LLP. From May 1996 to March
1997, he was Vice President of Corporate Tax for Red Lion Hotels, Inc. Prior to
that, he spent 10 years with the Portland office of Deloitte & Touche LLP, where
he was a Senior Manager in the tax department.

DEEANN M. BESCH was promoted in April 1997 to Vice President of the
Southeast Region. She joined KinderCare in June 1984 as a Center Director in
Minnesota and was later promoted first to District Manager and then Area Manager
in Minneapolis, Minnesota.

EDWARD L. BREWINGTON joined KinderCare in April 1997 as Vice President of
Human Resources. From June 1993 to April 1997 Mr. Brewington was with Times
Mirror where his last position held was Vice President, Human Resources for the
Times Mirror Training Group. Prior to that time, Mr. Brewington spent 25 years
with IBM in various human resource, sales and marketing positions.

WILLIAM F. DOUGHERTY joined KinderCare in November 1998 as Vice President,
Business Development. From 1991 to 1998, Mr. Dougherty held senior management
positions at U.S. Bancorp in Portland, Oregon where his last position held was
Senior Vice President and Manager of Secondary Marketing and Finance for U.S.
Bank Home Loans.

MARCIA P. GUDDEMI, PH.D. joined KinderCare in August 1991 as Vice President
of Education and Research. For over five years prior to joining KinderCare, she
was an assistant professor of early childhood education at the University of
South Florida and at the University of South Carolina.

S. WRAY HUTCHINSON was promoted in April 1996 to Vice President of
Operations. He began his employment with KinderCare in 1992 as District Manager
in New Jersey and was later promoted to Region Manager for the Chicago, Illinois
area.

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<PAGE>
LAUREN A. KLEIN was promoted in April 1996 to Vice President of the Western
Region. She joined KinderCare in February 1989 as District Manager of the
Connecticut and Western Massachusetts area and was later promoted to Region
Manager in January 1990.

EVA M. KRIPALANI joined KinderCare in July 1997 as Vice President, General
Counsel and Secretary. Prior to joining KinderCare, Ms. Kripalani was a partner
in the law firm of Stoel Rives LLP in Portland, Oregon, where she had worked
since 1987.

MIRIAM D. LIGGETT was promoted in April 1996 to Vice President of the
Northeast Region. She joined KinderCare in October 1988 and held various
center-level management positions until she was promoted to District Manager for
Northern Virginia. Ms. Liggett was later promoted first to Northeast Account
Executive for KinderCare At Work and then Region Manager for the Mid-Atlantic
Area, including Maryland and Virginia.

WILLIAM O. ROBARDS joined KinderCare in August 1997 as Vice President of
Real Estate. Prior to joining KinderCare, Mr. Robards spent 19 years in various
real estate development positions with McDonald's Corporation, most recently as
Senior Real Estate Manager.

BOB J. WILLEY joined KinderCare in June 1995 as Vice President of
Information Services. From 1992 to 1995, Mr. Willey served as MIS Director for
PETSTUFF, Inc. and was Corporate Information Officer for ANCO Management
Service, Inc. from 1989 to 1992.

DIRECTORS

HENRY R. KRAVIS has served as a director of KinderCare since February 1997.
He is a managing member of KKR & Co. L.L.C., the limited liability company which
serves as the general partner of KKR. He is also a director of Accuride
Corporation, Amphenol Corporation, Borden, Inc., The Boyds Collection, Ltd., BRW
Acquisition, Inc., Evenflo Company, Inc., The Gillette Company, IDEX
Corporation, KSL Recreation Corporation, MedCath Incorporated, Newsquest plc,
Neway Anchorlok International Inc., Owens-Illinois, Inc., PRIMEDIA, Inc.,
Randalls Food Markets, Inc., Regal Cinemas, Inc., Safeway Inc., Sotheby's
Holdings Inc., Spalding Holdings Corporation, Trinity Acquisition plc, which is
the parent company of Willis Corroon Group Limited, and U.S. Natural Resources,
Inc.

GEORGE R. ROBERTS has been a director of KinderCare since February 1997. He
is a managing member of KKR & Co. L.L.C., the limited liability company which
serves as the general partner of KKR. He is also a director of Accuride
Corporation, Amphenol Corporation, Borden, Inc., The Boyds Collection, Ltd., BRW
Acquisition, Inc., Evenflo Company, Inc., IDEX Corporation, KSL Recreation
Corporation, MedCath Incorporated, Neway Anchorlok International Inc.,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., PRIMEDIA, Inc., Randalls Food
Markets, Inc., Regal Cinemas, Inc., Safeway Inc., Spalding Holdings Corporation,
Trinity Acquisition plc, which is the parent company of Willis Corroon Group
Limited, and U.S. Natural Resources Inc.

CLIFTON S. ROBBINS has been a director of KinderCare since February 1997.
Mr. Robbins was a General Partner of KKR from January 1, 1995 until January 1,
1996 when he became a member of the limited liability company which serves as
the general partner of KKR. Prior to that, he was an executive of that company.
Mr. Robbins is also a director of Borden Inc., Corning Consumer Products, IDEX
Corporation, Newsquest plc and Regal Cinemas, Inc.

NILS P. BROUS has been a director of KinderCare since February 1997. Mr.
Brous has been an executive of KKR since 1992. Prior to that time, he was an
associate at Goldman, Sachs & Co. Mr. Brous is also a director of Bruno's, Inc.
and Randall's Food Markets, Inc.

STEPHEN A. KAPLAN has been a director of KinderCare since January 1996. He
has been a Principal of Oaktree Capital Management, LLC since 1995. Oaktree
provides investment management services

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<PAGE>
pursuant to a sub-advisory agreement with TCW Asset Management Company, the
general partner of TCW Special Credits Fund V-The Principal Fund. Mr. Kaplan was
a Managing Director of Trust Company of the West from 1993 to 1995. Prior to
that time, Mr. Kaplan was a partner with the law firm of Gibson, Dunn &
Crutcher. Mr. Kaplan is also a director of Acorn Products, Inc., GeoLogistics
Corporation and Roller Bearing Holding Co.

Messrs. Kravis and Roberts are first cousins.

The Board of Directors intends to appoint two additional directors who are
not affiliated with KinderCare or KKR during the one year period after the
offering. The additional directors have not yet been identified.

COMMITTEES OF KINDERCARE'S BOARD OF DIRECTORS

The Board of Directors of KinderCare has three standing committees: (1) an
audit committee, (2) a compensation committee and (3) an executive committee.

EXECUTIVE COMMITTEE. Messrs. Johnson, Robbins and Brous comprise the
executive committee of the Board of Directors. The executive committee exercises
authority of the Board of Directors, to the extent permitted by law, and the
management of the business of KinderCare between meetings of the full Board of
Directors.

AUDIT COMMITTEE. Currently, the audit committee consists of Messrs. Robbins
and Brous. Within three months following the offering, KinderCare intends that
the audit committee will consist solely of one or more persons who qualify as
"independent" directors for purposes of the rules and regulations of the NYSE.
The Audit Committee will select and engage, on behalf of KinderCare, the
independent public accountants to audit KinderCare's annual financial
statements, will review and approve the planned scope of the annual audit and
will review KinderCare's internal accounting practices and policies.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Currently,
Messrs. Robbins, Brous and Kravis serve as members of the compensation
committee. The compensation committee will establish compensation levels for
officers of KinderCare and will perform such functions as provided under
KinderCare's employee benefit programs and executive compensation programs or as
delegated by the Board of Directors with respect to such programs. Messrs.
Kravis and Robbins are members of the general partner of KKR, an affiliate of
KKR-KLC L.L.C., and Mr. Brous is an executive of KKR. See "Principal and Selling
Stockholders."

COMPENSATION OF KINDERCARE'S DIRECTORS

During fiscal year 1998, non-employee directors of KinderCare received an
annual retainer of $30,000, paid in advance in quarterly installments. Directors
who are employees of KinderCare were not paid any additional compensation for
their service as directors. All directors were reimbursed for travel and other
expenses incurred in connection with the performance of their duties.

On May 27, 1998, the Board of Directors adopted the Directors' Deferred
Compensation Plan. Under this plan, non-employee members of the Board of
Directors may elect to defer receipt and income taxation of all or a portion of
their annual retainer. Any amounts deferred under the Directors' Plan are
credited to a phantom stock account. The number of shares of phantom stock
credited to the director's account will be determined based on the amount of
deferred compensation divided by the then fair value per share, as defined in
the Directors' Plan, of KinderCare's common stock.

Distributions from the Directors' Plan are made in cash and reflect the
value per share of the common stock at the time of distribution multiplied by
the number of phantom shares credited to the director's account. Distributions
from the Directors' Plan occur upon the earlier of (1) the first day of

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<PAGE>
the year following the director's retirement or separation from the Board or (2)
termination of the Directors' Plan.

1997 STOCK PURCHASE AND OPTION PLAN

KinderCare adopted the 1997 Stock Purchase and Option Plan at the closing of
the recapitalization of KinderCare. The 1997 Plan authorizes grants of stock or
options to purchase shares of authorized but unissued or reacquired shares of
KinderCare common stock, subject to adjustment to reflect events such as stock
dividends, stock splits, recapitalizations, mergers or reorganizations. Grants
or awards under the 1997 Plan may take the form of purchased stock, restricted
stock, incentive or nonqualified stock options or other types of rights
specified in the 1997 Plan. A total of 2,500,000 shares of common stock have
been authorized for issuance under the 1997 Plan, and the maximum number of
shares that may be granted to any one person is 1,000,000. The 1997 Plan is
intended to accomplish the following:

- promote the long term financial interests and growth of KinderCare and its
subsidiaries by attracting and retaining management personnel with the
training, experience and ability to enable them to make a substantial
contribution to the success of KinderCare's business

- motivate management personnel by means of growth-related incentives to
achieve long range goals

- further align the interests of participants with those of the other
stockholders of KinderCare through opportunities for increased stock or
stock-based ownership in KinderCare

The Compensation Committee of the Board of Directors administers the 1997
Plan and determines the employees to whom grants will be made, the number of
shares of common stock subject to each grant, and the various terms of such
grants, including the period for vesting. The Compensation Committee of the
Board of Directors may from time to time amend the terms of any grant, but such
action may not adversely affect the rights of any participant under the 1997
Plan with respect to the options without such participant's consent, except for
either of the following:

- Adjustments made upon a change in the outstanding common stock of
KinderCare by reason of a stock split, spin-off, stock dividend, stock
combination or reclassification, recapitalization or merger, change of
control or similar event

- In the event of a merger or consolidation of KinderCare into another
corporation, the exchange of all or substantially all of the assets of
KinderCare for another corporation's securities, the acquisition by
another corporation of 80% or more of KinderCare's voting stock or the
recapitalization, reclassification, liquidation or dissolution of
KinderCare, in the discretion of the Board of Directors option grants may
be made exercisable for some period of time prior to such event and then
terminable upon occurrence of such event

The Board of Directors retains the right to amend, suspend or terminate the 1997
Plan.

LIMITATIONS ON LIABILITY OF KINDERCARE'S DIRECTORS AND OFFICERS AND
INDEMNIFICATION BY KINDERCARE

KinderCare's certificate of incorporation provides that to the fullest
extent permitted by the Delaware General Corporation Law, a director of
KinderCare shall not be liable to KinderCare or its stockholders for monetary
damages for breach of fiduciary duty as a director. Under Delaware law, however,
these provisions do not eliminate or limit the personal liability of a director
or an officer in any of the following cases:

- any breach of the director's or officer's duty of loyalty to KinderCare or
its stockholders

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- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law

- unlawful dividend payments or stock redemptions or repurchases

- any transaction from which the director or officer derives an improper
personal benefit

The effect of the provisions of KinderCare's certificate of incorporation is
to eliminate the rights of KinderCare and its stockholders, through stockholder
derivative suits on behalf of KinderCare, to recover monetary damages against a
director for breach of the fiduciary duty of care as a director, including
breaches resulting from negligent or grossly negligent behavior, except in the
situations described above. In addition, KinderCare's certificate of
incorporation provides for an indemnity to officers and directors if they acted
in good faith and in a manner believed to be in, or not opposed to, the best
interests of KinderCare.

However, the certificate of incorporation does not limit or eliminate the
rights of any stockholder to seek nonmonetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care.

In addition, KinderCare's bylaws provide that it shall indemnify its
directors and officers against losses incurred by any such person by reason of
the fact that such person was acting in such capacity. Furthermore, from time to
time KinderCare enters into indemnification agreements with its officers and
directors that grant them further rights with respect to indemnification.

To the extent that indemnification for liabilities arising under the
Securities Act may be permitted for directors, officers or persons controlling
KinderCare pursuant to the provisions above, KinderCare has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

EXECUTIVE COMPENSATION

The following table sets forth the compensation awarded or paid to or earned
by the Chief Executive Officer and Chairman of the Board of Directors of
KinderCare and each of the other executive officers of KinderCare (the "Named
Executive Officers") during fiscal years ended May 29, 1998, May 30, 1997 and
May 31, 1996, which are referred to as fiscal years 1998, 1997 and 1996 in the
following table:

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS-SECURITIES
---------------------- UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS OPTIONS(A)
- ----------------------------------------------------------- ------------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
DAVID J. JOHNSON........................................... 1998 $ 606,138 $ 658,266 --
Chief Executive Officer and 1997 175,385 105,231 421,053
Chairman of the Board 1996 -- -- --

BETH A. UGORETZ............................................ 1998 $ 201,750 $ 164,325 33,183
Executive Vice President, 1997 50,000 22,500 --
Corporate Services 1996 -- -- --

BRUCE A. WALTERS........................................... 1998 $ 176,923 $ 127,739 32,895
Senior Vice President & 1997 -- -- --
Chief Development Officer 1996 -- -- --

DAN R. JACKSON............................................. 1998 $ 151,310 $ 105,855 24,887
Vice President, Financial 1997 37,500 13,125 --
Control and Planning 1996 -- -- --
</TABLE>

- ------------------------

(a) Stock options granted under the 1997 Stock Purchase and Option Plan for Key
Employees of KinderCare Learning Centers, Inc. and Subsidiaries.

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<PAGE>
STOCK OPTION GRANTS IN FISCAL 1998

The table below shows information regarding individual grants of stock
options made by KinderCare during fiscal year 1998 to the Named Executive
Officers. All of these options, which were granted pursuant to the 1997 Plan,
were non-qualified, were granted at exercise prices not less than fair value on
the date of grant and have a term of ten years. The options become exercisable
20% per year over a five year period, with the first 20% becoming exercisable on
the first anniversary of the vesting commencement date. Vesting ceases upon
termination of employment; however, options vest in full upon death or
disability. Exercisability of options will accelerate upon a change of control
of KinderCare. The options expire upon the earliest of the following:

- ten years following grant date

- the first anniversary of death, disability or retirement

- a specified period following any termination of employment other than for
cause, death, disability or retirement

- the exercise of specified put rights by the optionholder or call rights by
KinderCare

- termination for cause

- in the discretion of KinderCare's Board of Directors, the date of a
merger, consolidation, share exchange or sale of all or substantially all
of KinderCare's assets

We recommend caution in interpreting the financial significance of the
figures representing the grant date present value of the stock options. Although
KinderCare does not believe that it is possible to place a value on a stock
option, in accordance with the rules promulgated by the Securities and Exchange
Commission, KinderCare has used a modified Black-Scholes model of option
valuation to estimate grant date present value. The actual value realized, if
any, may vary significantly from the values estimated by this model. Any future
values realized will ultimately depend upon the excess of the stock price over
the exercise price on the date the option is exercised. The assumptions used to
estimate the grant date present value of these options are a volatility of
26.0%, a risk-free rate of return of 5.5%, a dividend yield of 0.0% and a time
to exercise of seven years.

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING PERCENT OF TOTAL EXERCISE
OPTIONS OPTIONS GRANTED PRICE PER EXPIRATION GRANT DATE
NAME GRANTED TO EMPLOYEES SHARE DATE PRESENT VALUE
- ---------------------------------------- ----------- ----------------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
David J. Johnson........................ -- --% $ -- -- $ --
Beth A Ugoretz.......................... 33,183 12.5 19.00 March 1, 2007 249,868
Bruce A. Walters........................ 32,895 12.4 19.00 July 15, 2007 247,699
Dan R. Jackson.......................... 24,887 9.4 19.00 March 1, 2007 187,399
</TABLE>

AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND 1998 FISCAL YEAR END OPTION
VALUES

The following table shows the unexercised options held at May 29, 1998 by
the Named Executive Officers:

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED "IN-THE-MONEY"
OPTIONS AT MAY 29, 1998 OPTIONS AT MAY 29, 1998(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David J. Johnson.......................................... 84,211 336,842 $ 78,316 $ 313,263
Beth A. Ugoretz........................................... 6,637 26,546 6,172 24,688
Bruce A. Walters.......................................... -- 32,895 -- 30,592
Dan R. Jackson............................................ 4,977 19,910 4,629 18,516
</TABLE>

- ------------------------

(1) The value of options represents the aggregate difference between the fair
value, as determined by KinderCare, at May 29, 1998 and the applicable
exercise price.

There were no shares acquired upon exercise of options during fiscal year
1998.

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<PAGE>
RELATIONSHIPS AND TRANSACTIONS RELATED TO KINDERCARE

RELATIONSHIP WITH KKR

At March 5, 1999, KKR-KLC L.L.C. and affiliated entities beneficially owned
approximately 80.4% of KinderCare's outstanding shares of common stock on a
fully diluted basis, and after giving effect to the offering will own
approximately % on a fully diluted basis. Accordingly, affiliates of KKR will
be able to (1) elect the entire board of directors of KinderCare, except for one
director that Oaktree Capital Management, LLC may appoint in its capacity as
investment manager to stockholders of KinderCare who are affiliates of The TCW
Group, Inc., provided affiliates of The TCW Group, Inc. own a specified number
of shares, pursuant to a stockholders' agreement among Oaktree, an affiliate of
The TCW Group, Inc., affiliates of KKR and us, (2) control the management and
policies of KinderCare and (3) in general, determine without the consent of
KinderCare's other stockholders the outcome of any corporate transaction or
other matter submitted to the stockholders for approval, including mergers,
consolidations and the sale of all or substantially all of KinderCare's assets.
Affiliates of KKR will also be able to prevent or cause a change in control of
KinderCare and will be able to amend KinderCare's certificate of incorporation
and bylaws at any time. The members of KKR-KLC L.L.C. are Messrs. Henry R.
Kravis, George R. Roberts, Robert I. MacDonnell, Paul E. Raether, Michael W.
Michelson, Michael T. Tokarz, James H. Greene, Jr., Perry Golkin, Clifton S.
Robbins, Scott M. Stuart and Edward A. Gilhuly. Messrs. Kravis, Roberts and
Robbins are also directors of KinderCare, as is Mr. Nils P. Brous, who is a
limited partner of KKR Associates (KLC) L.P., the general partner of KLC
Associates, L.P. with sole investment and voting powers. Each of the members of
KKR-KLC L.L.C. is also a member of the limited liability company that serves as
the general partner of KKR, and Mr. Brous is an executive of KKR.

KKR, an affiliate of KLC Associates, L.P. and KKR-KLC L.L.C., may receive
customary investment banking fees for services rendered to KinderCare in
connection with divestitures, acquisitions and other transactions, plus
reimbursement of its related expenses. The following table shows the type and
amount of fees and reimbursements paid to KKR since the beginning of fiscal year
1997:

<TABLE>
<CAPTION>
FORTY WEEKS
FISCAL YEAR FISCAL YEAR ENDED MARCH 5,
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Management, consulting and financial services.................. $ 214,500 $ 625,255 $ 446,587
Investment banking services.................................... -- 122,064 35,747
</TABLE>

In addition to the above amounts, KKR received a cash fee of $8.0 million
from KinderCare, during fiscal 1997, for negotiating the recapitalization and
arranging the related financing, plus the reimbursement of its associated
expenses of $250,680.

REGISTRATION RIGHTS

KLC Associates, L.P. has the right to require KinderCare to register under
the Securities Act of 1933 shares of common stock held by it pursuant to a
registration rights agreement entered into in connection with the
recapitalization. Such registration rights will generally be available to KLC
Associates until registration under the Securities Act is no longer required to
enable it to resell the common stock owned by it. The registration rights
agreement provides that KinderCare will pay all expenses in connection with the
first six registrations requested by KLC Associates and in connection with any
registration commenced by KinderCare as a primary offering. In addition,
pursuant to stockholders' agreements, Oaktree and members of KinderCare's
management may be allowed to participate in specified registration processes.
See "Shares Eligible for Future Sale."

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<PAGE>
MANAGEMENT INDEBTEDNESS TO KINDERCARE

During fiscal year 1998, the executive officers of KinderCare, excluding
David J. Johnson, purchased 36,386 shares of restricted stock in aggregate under
the terms of the 1997 Plan. In conjunction with such purchases, options to
acquire an aggregate of an additional 90,965 shares of common stock were granted
to KinderCare's executive officers. For executive officers with aggregate
indebtedness in excess of $60,000 during the forty weeks ended March 5, 1999 and
fiscal year 1998, the following table shows the amount of indebtedness due under
term notes executed by such executive officers with respect to their purchases
of restricted stock:

<TABLE>
<CAPTION>
LARGEST AGGREGATE LARGEST AGGREGATE AMOUNT OF
AMOUNT OF AMOUNT OF INDEBTEDNESS INDEBTEDNESS
INDEBTEDNESS DURING DURING THE FORTY WEEKS OUTSTANDING AT
NAME FISCAL YEAR 1998 ENDED MARCH 5, 1999 MARCH 5, 1999
- ----------------------------------------------------- ------------------- ---------------------- --------------
<S> <C> <C> <C>
Beth A. Ugoretz...................................... $ 242,187 $ 77,187 $ 77,187
Bruce A. Walters..................................... 150,002 150,002 50,002
Dan R. Jackson....................................... 94,145 94,145 84,145
</TABLE>

The term notes were issued on February 20, 1998, are due February 20, 2008
and bear interest at 5.84% per year, payable semi-annually on June 30 and
December 31. Some of the notes contain mandatory prepayment provisions.

68
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information with respect to the beneficial
ownership of KinderCare's common stock as of March 5, 1999 by each of the
following:

- each person who is known by KinderCare to beneficially own more than 5% of
KinderCare's common stock

- each of KinderCare's directors

- the Named Executive Officers of KinderCare

- all directors and executive officers of KinderCare as a group

- each selling stockholder

Unless otherwise indicated, the address of each person named in the table
below is KinderCare Learning Centers, Inc., 650 N.E. Holladay Street, Suite
1400, Portland, Oregon 97232. The amounts and percentage of common stock
beneficially owned are reported on the basis of regulations of the Securities
and Exchange Commission governing the determination of beneficial ownership of
securities. Under the rules of the Commission, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of such security, or
"investment power," which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which that person has a right to acquire beneficial
ownership within 60 days. Under these rules, more than one person may be deemed
a beneficial owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which such person has no economic interest.
The information set forth in the following table (1) assumes that the
over-allotment option by the underwriters has not been exercised and (2)
excludes any shares purchased in the offering by the respective beneficial
owner:

<TABLE>
<CAPTION>
PERCENT OF TOTAL
----------------------------
SHARES PERCENT
BENEFICIALLY SHARES TO BE BEFORE PERCENT AFTER
NAME AND ADDRESS OWNED SOLD IN OFFERING OFFERING OFFERING
- ----------------------------------------------------------------- ----------- ------------------- ----------- ---------------
<S> <C> <C> <C> <C>
KKR-KLC L.L.C. and affiliated entities (1)....................... 7,828,947 % %
c/o Kohlberg Kravis Roberts & Co. L.P.
9 West 57(th) Street
New York, New York 10019
The TCW Group, Inc. and affiliated entities (2).................. 949,244
865 South Figueroa Street
Los Angeles, California 90017
David J. Johnson (3)............................................. 326,316 --
Beth A. Ugoretz (3).............................................. 26,546 -- * *
Bruce A. Walters (3)............................................. 19,737 -- * *
Dan R. Jackson (3)............................................... 19,910 -- * *
Henry R. Kravis (1).............................................. -- -- -- --
George R. Roberts (1)............................................ -- -- -- --
Clifton S. Robbins (1)........................................... -- -- -- --
Nils P. Brous (1)................................................ -- -- -- --
Stephen A. Kaplan (2)............................................ -- -- -- --
All executive officers and directors as a group
(9 individuals) (3)............................................ 392,509 --
</TABLE>

(FOOTNOTES ON FOLLOWING PAGE)

69
<PAGE>
- ------------------------

* Percentage of shares of common stock beneficially owned does not exceed one
percent.

(1) Shares of common stock shown as beneficially owned by KKR-KLC L.L.C. are
directly held by KLC Associates, L.P. KKR-KLC L.L.C. is the sole general
partner of KKR Associates (KLC), L.P., which is the sole general partner of
KLC Associates, L.P., and possesses sole voting and investment power with
respect to such shares. KKR-KLC L.L.C. is a limited liability company, the
members of which are Messrs. Henry R. Kravis, George R. Roberts, Robert I.
MacDonnell, Paul E. Raether, Michael W. Michelson, James H.Greene, Jr.,
Michael T. Tokarz, Perry Golkin, Clifton S. Robbins, Scott M. Stuart and
Edward A. Gilhuly. Messrs. Kravis and Roberts are members of the Executive
Committee of KKR-KLC L.L.C. Messrs. Kravis, Roberts and Robbins are also
directors of KinderCare. Each of such individuals may be deemed to share
beneficial ownership of the shares shown as beneficially owned by KKR-KLC
L.L.C. Each of such individuals disclaims beneficial ownership of such
shares. Mr. Nils P. Brous is a limited partner of KKR Associates (KLC), L.P.
and is also a director of KinderCare. In addition, an affiliate of KKR-KLC
L.L.C., KKR Partners II, L.P., beneficially owns approximately 1.1% of the
common stock.

(2) TCW and its affiliates have voting and dispositive powers over such
beneficially owned shares as an investment manager on behalf of TCW Special
Credits Fund V--The Principal Fund. In addition, Oaktree Capital Management,
LLC is an investment sub-advisor with respect to The Principal Fund. Stephen
A. Kaplan, a Principal of Oaktree, is a director of KinderCare. To the
extent Mr. Kaplan, on behalf of Oaktree or affiliates of TCW, as applicable,
participates in the process of voting or disposing of any such shares, Mr.
Kaplan may be deemed under such circumstances for the purpose of Section 13
of the Exchange Act to be the beneficial owner of such shares. Mr. Kaplan
disclaims beneficial ownership of all shares beneficially held by Oaktree
and TCW.

(3) Shares owned by KinderCare's executive officers are subject to restrictions
on transfer. The shares beneficially owned by the Named Executive Officers
include shares subject to options that are currently exercisable or become
exercisable prior to June 30, 1999 as follows:

<TABLE>
<CAPTION>
NUMBER OF
NAME OPTIONS
- ----------------------------------------------------- ---------
<S> <C>
David J. Johnson..................................... 168,421
Beth A. Ugoretz...................................... 13,273
Bruce A. Walters..................................... 6,579
Dan R. Jackson....................................... 9,955
</TABLE>

70
<PAGE>
DESCRIPTION OF LONG-TERM INDEBTEDNESS

CREDIT FACILITIES

In February 1997, in connection with the recapitalization, KinderCare
entered into the credit facilities with a syndicate of banks and other financial
institutions led by The Chase Manhattan Bank, as administrative agent, Chase
Securities Inc., as arranger, Bankers Trust Company, as syndication agent, and
Wells Fargo Bank, N.A., as documentation agent. The credit facilities consist of
the $90.0 million term loan facility, of which $50.0 million was drawn at the
time of the recapitalization and $40.0 million has since expired, and the $300.0
million revolving credit facility. The revolving credit facility includes
borrowing capacity of up to $75.0 million for letters of credit and up to $25.0
million for selected short-term borrowings. The term loan facility will mature
on February 13, 2006 and provides for $0.5 million annual interim amortization.
The revolving credit facility commitment will mature on February 13, 2004.
KinderCare's obligations under the credit facilities are guaranteed by
subsidiaries of KinderCare and secured by a pledge of stock of KinderCare
subsidiaries.

The credit facilities bear interest, at KinderCare's option, at either of
the following rates, which may be adjusted in quarterly increments based on the
achievement of performance goals:

- an adjusted LIBOR rate plus

-- in the case of the term loan facility, a debt to EBITDA-dependent rate
ranging from 2.50% to 3.00%

-- in the case of revolving credit facility, a debt to EBITDA or EBITDA to
interest expense-dependent rate ranging from 1.25% to 2.50%

- an alternative base rate plus

-- in the case of the term loan facility, a debt to EBITDA-dependent rate
ranging from 1.25% to 1.75%

-- in the case of the revolving credit facility, a debt to EBITDA or
EBITDA to interest expense-dependent rate ranging from 0.00% to 1.25%

At March 5, 1999, the amount outstanding was $49.0 million and the interest
rate on the term loan facility was 7.44%, which was adjusted LIBOR plus 2.50%.
Under the revolving credit facility, $45.0 million was outstanding at an
interest rate of at 6.44%, which was adjusted LIBOR plus 1.50%, and $3.0 million
was outstanding at an interest rate of 8.00%, which was ABR plus 0.25%,
respectively. The weighted average interest rate on KinderCare's credit
facilities for the forty weeks ended March 5, 1999 was 7.29%.

KinderCare also pays a commitment fee calculated at a rate, which may be
adjusted quarterly in increments based on a debt to EBITDA or EBITDA to interest
expense-dependent ratio, ranging from 0.25% to 0.50% per year on the undrawn
portion of the commitments under the credit facilities. At March 5, 1999, the
commitment fee rate was 0.30%. This fee is payable quarterly in arrears.

In addition, KinderCare pays a letter of credit fee based on the face amount
of each letter of credit calculated at the rate per year then applicable to
loans under the revolving credit facility bearing interest based on adjusted
LIBOR, less a fronting fee calculated at a rate equal to 0.125% per year. At
March 5, 1999, the letter of credit fee rate was 1.50%, including the fronting
fee. These fees are payable quarterly in arrears. In addition, KinderCare will
pay customary transaction charges in connection with any letter of credit.

The term loan facility will be subject to mandatory prepayment with the
proceeds of specified asset sales, specified debt issuances and on an annual
basis with 50% of KinderCare's excess cash flow. The term loan facility is also
subject to mandatory prepayment with the proceeds of specified sale leaseback

71
<PAGE>
transactions, child care center mortgage financings and real estate
securitization transactions involving properties owned, operated or leased on
the date of the February 3, 1997 closing of the credit facilities, but only to
the extent that such proceeds exceed $50 million in the aggregate.

The credit facilities contain customary covenants and provisions that
restrict KinderCare's ability to:

- change its business

- declare dividends

- grant liens

- incur additional indebtedness

- make capital expenditures

In addition, the credit facilities provide that KinderCare must meet or
exceed defined interest coverage ratios and must not exceed leverage ratios.

SENIOR SUBORDINATED NOTES

On February 1997, KinderCare issued $300.0 million aggregate principal
amount of 9 1/2% senior subordinated notes. The 9 1/2% notes are due February
15, 2009 and are general unsecured obligations of KinderCare, ranked behind all
existing and future indebtedness of KinderCare that is not expressly ranked
behind, or made equal with, the notes. The 9 1/2% notes bear interest at a rate
of 9 1/2% per year, payable semi-annually on February 15 and August 15 of each
year.

The 9 1/2% notes may be redeemed at any time, in whole or in part, on or
after February 15, 2002 at a redemption price equal to 104.75% of the principal
amount of the notes in the first year and declining yearly to par at February
15, 2005, plus accrued and unpaid interest, if any, to the date of redemption.
In addition, on or prior to February 15, 2000, KinderCare may also redeem with
the proceeds of one or more equity offerings of KinderCare up to 40% of the
original aggregate principal amount of the notes originally issued at a
redemption price equal to 109.5% of the aggregate principal amount of the notes
plus accrued and unpaid interest, if any, to the date of redemption; provided
that at least 60% of the original aggregate principal amount of the notes remain
outstanding immediately after each such redemption. KinderCare will use a
portion of the proceeds from the offering to redeem $ million aggregate
principal amount of the notes. See "Use of Proceeds".

Upon the occurrence of a change of control, KinderCare will be required to
make an offer to repurchase all notes properly tendered at a price equal to 101%
of the principal amount plus accrued and unpaid interest to the date of
repurchase.

The indenture governing the notes contains covenants that limit the ability
of KinderCare and its subsidiaries to:

- incur additional indebtedness or liens

- incur or repay other indebtedness

- pay dividends or make other distributions

- repurchase equity interests

- consummate asset sales

- enter into transaction with affiliates

- merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the
assets of KinderCare or its subsidiaries

72
<PAGE>
- enter into guarantees of indebtedness

INDUSTRIAL REVENUE BONDS

SERIES A THROUGH E INDUSTRIAL REVENUE BONDS--KinderCare is obligated to
various issuers of industrial revenue bonds, which are referred to as "Refunded
IRBs." Such bonds mature from 1999 to 2009. The Refunded IRBs were issued to
provide funds for refunding an equal principal amount of
industrial revenue bonds which were used to finance the cost of acquiring,
constructing and equipping specific facilities of KinderCare. At March 5, 1999,
those Refunded IRBs totaled $33.0 million and bear interest at variable rates
from 2.85% to 5.03%, and each is secured by a letter of credit under the
revolving credit facility.

OTHER IRBS--KinderCare also is obligated to various issuers of other
industrial revenue bonds which mature to 2005. The principal amount of such IRBs
was used to finance the cost of acquiring, constructing and equipping specific
child care facilities and the IRBs are secured by these facilities. At March 5,
1999, the IRBs totaled $4.6 million and bear interest at rates of 5.43% to
9.75%, and each is secured by a letter of credit under the revolving credit
facility.

73
<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of KinderCare consists of 20,000,000 shares of
common stock, par value $.01 per share, of which 9,480,837 shares were
outstanding as of March 5, 1999, and 10,000,000 shares of preferred stock, $.01
par value, of which no shares are outstanding. The following summaries of
provisions of KinderCare's capital stock do not purport to be complete and are
subject to, and qualified in their entirety by, the provisions of the
certificate of incorporation and bylaws of KinderCare, which are included as
exhibits to the registration statement of which this prospectus forms a part,
and by applicable law.

COMMON STOCK OF KINDERCARE

- VOTING RIGHTS. The holders of the common stock are entitled to one vote
per share on all matters submitted for action by the stockholders. There
is no provision for cumulative voting with respect to the election of
directors. Accordingly, the holders of more than 50% of the shares of
common stock can elect all of the directors of KinderCare. In such event,
the holders of the remaining shares will not be able to elect any
directors.

- DIVIDEND RIGHTS. All shares of common stock are entitled to share equally
in the dividends that the board of directors may declare from sources
legally available for dividends. KinderCare's borrowing agreements impose
restrictions on its ability to declare dividends with respect to its
common stock.

- LIQUIDATION RIGHTS. Upon liquidation or dissolution of KinderCare, whether
voluntary or involuntary, all shares of common stock are entitled to share
equally in the assets available for distribution to stockholders after
payment of all prior obligations of KinderCare and any payments to any
outstanding shares of preferred stock.

- OTHER MATTERS. The holders of the common stock have no preemptive rights.
All outstanding shares of common stock are, and the common stock offered
by this offering will be, fully paid and non-assessable.

ADDITIONAL CLASSES OF KINDERCARE'S STOCK

- PREFERRED STOCK. The board of directors of KinderCare may, without further
action of the stockholders, issue preferred stock in one or more series
and fix or alter the rights, preferences, privileges and restrictions of
the preferred stock, including dividend rights, dividend rates, conversion
rights, voting rights, redemption terms and prices, liquidation terms and
preferences, and the number of shares constituting any series or the
designations of such series.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

KinderCare is a Delaware corporation subject to Section 203 of the General
Corporation Law of the State of Delaware. Section 203 provides in general that a
stockholder acquiring more than 15% of the outstanding voting stock of a
corporation subject to Section 203, which results in designation as an
"interested stockholder," but less than 85% of such stock may not engage in
Business Combinations with the corporation for a period of three years
subsequent to the date on which the stockholder became an interested stockholder
unless either of the following occurs:

- prior to such date the corporation's board of directors approved either
the Business Combination or the transaction in which the stockholder
became an interested stockholder

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<PAGE>
- the Business Combination is approved by the corporation's board of
directors and authorized by a vote of at least 66 2/3% of the outstanding
voting stock of the corporation not owned by the interested stockholder

A "Business Combination" includes a merger, asset sale and other transaction
resulting in financial benefit to a stockholder. Thus, Section 203 could
prohibit or delay mergers or other takeover or change of control attempts with
respect to KinderCare and, accordingly, may discourage attempts that might
result in a premium over the market price for the shares held by stockholders.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock will be Registrar and
Transfer Company of New Jersey, a New York corporation.

75
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

GENERAL

Upon the consummation of the offering, KinderCare will have shares of
common stock issued and outstanding. All of the shares of common stock to
be sold in the offering and any shares sold upon exercise of the underwriters'
over-allotment option will be freely tradeable without restrictions or further
registration under the Securities Act of 1933, except for any shares purchased
by an "affiliate" of KinderCare, as that term is defined in Rule 144 under the
Securities Act, which will be subject to the resale limitations of Rule 144.
After the consummation of the offering, up to shares of common stock
will be owned by affiliates of KinderCare, of which 157,895 shares are also
"restricted securities," as that term is defined in Rule 144. Restricted
securities or securities owned by affiliates may be sold in the public market
only if registered or if qualified for an exemption from registration under Rule
144 or Rule 701 under the Securities Act. Sales of restricted securities or
securities owned by affiliates in the public market, or the availability of such
shares for sale, could have an adverse effect on the price of the common stock.
Following the lock-up period discussed below, all of KinderCare's outstanding
shares of common stock that are not "restricted securities" or owned by
affiliates, including those owned by affiliates of The TCW Group, assuming they
are not affiliates of KinderCare after the offering, will be freely tradeable.
See "Risk Factors--The Price for our Common Stock May Decline After the Offering
or Fluctuate Widely," "--Sales by Our Existing Stockholders of Their Common
Stock Could Adversely Affect the Market Price of the Common Stock Sold in the
Offering" and "Dilution."

REGISTRATION RIGHTS

KLC Associates, L.P., KKR Partners II, L.P. and KinderCare have entered into
a registration rights agreement, pursuant to which KinderCare has granted to KLC
Associates and KKR Partners demand rights to cause KinderCare to file a
registration statement under the Securities Act covering resales of shares of
common stock held by them, and to cause such registration statement to become
effective. KinderCare is obligated to pay all expenses for the first six
registrations requested by KLC Associates or KKR Partners. The registration
rights agreement also grants "piggyback" registration rights permitting KLC
Associates and KKR Partners to include their registrable securities in
registrations of securities by KinderCare. KinderCare is obligated to pay the
expenses of such registrations.

In addition, pursuant to stockholders' agreements, KinderCare has granted
"piggyback" registration rights to (1) members of its management who have
purchased shares of common stock and/or that have been awarded options to
purchase shares of common stock and (2) affiliates of The TCW Group, Inc. With
respect to the registration rights held by management, such rights are
exercisable ratably with KLC Associates and KKR Partners only upon registration
by KinderCare in a public offering resulting in an active trading market of 30%
or more of the common stock. With respect to the registration rights held by the
affiliates of The TCW Group, Inc., such rights are exercisable only ratably with
KLC Associates and KKR Partners upon registration by KinderCare of shares held
by KLC Associates and KKR Partners after KLC Associates and KKR Partners have
sold in the aggregate shares equaling 10% or more of KinderCare's fully diluted
common stock. The holders of common stock entitled to such registration rights
are entitled to notice of any proposal to register shares held by KLC Associates
and KKR Partners and, subject to the applicable limitations previously
described, to include their shares in such registration. However, the managing
underwriter participating in an offering has the right to limit the number of
shares included in such registration. KinderCare is obligated to pay the
expenses of all such piggyback registrations. Members of management have waived
any piggy-back registration rights they may have with respect to this offering.

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<PAGE>
RULE 144

In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares of common stock for at least one year, including
affiliates, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of either of the following:

- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering

- the average weekly trading volume of the common stock on the New York
Stock Exchange during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale

Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the continued availability of current public
information about KinderCare.

RULE 144(K)

Under Rule 144(k), a person who is not deemed to have been one of
KinderCare's "affiliates" at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, including the holding period of any prior owner other than an
"affiliate," is entitled to sell such shares without complying with the manner
of sale, public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering. The sale of such shares, or the perception
that sales will be made, could adversely effect the price of KinderCare's common
stock after the offering because a greater supply of shares would be, or would
be perceived to be, available for sale in the public market.

OTHER TRANSFER RESTRICTIONS APPLICABLE TO EXISTING STOCKHOLDERS

The shares of common stock currently held by members of KinderCare's
management, as well as shares obtained through the exercise of stock options,
generally are not transferable by such holder for a period of five years after
the holder's initial employment by KinderCare, subject to the following
permitted transfers:

- Shares sold pursuant to the exercise of the "piggyback" registration
rights discussed above

- The right to participate in a sale of KinderCare common stock by KLC
Associates, L.P. and/or KKR Partners II, L.P. that does not involve a
public offering

- Permitted transfers for estate planning purposes

- The management member's right to sell such shares back to KinderCare in
the event of such members' death, disability or termination without cause

- The right of KinderCare to repurchase such shares in the event of the
termination of such member's employment by KinderCare for good reason or
with cause

Subject to the restrictions of Rule 144, a portion of the shares of common
stock currently held by, and subject to vested options held by, David J. Johnson
and other management stockholders may be transferred following the offering.

77
<PAGE>
In addition, KinderCare, its executive officers, other officers and
directors, the selling stockholders and affiliates of The TCW Group, Inc. have
agreed that, for a period of 180 days from the date of this prospectus, they
will not, without the prior written consent of Merrill Lynch, Pierce, Fenner &
Smith Incorporated, do either of the following:

- offer, pledge, sell, contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of common stock
or any securities convertible into or exercisable or exchangeable for
common stock

- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of the common
stock

Either of the transaction restrictions described above will apply regardless
of whether a covered transaction is to be settled by the delivery of common
stock or such other securities, in cash or otherwise. At , 1999
these stockholders owned in the aggregate shares of common stock. In
addition, during such period, KinderCare has agreed not to file any registration
statement with respect to, and each of its executive officers and directors and
the selling stockholders has agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of common stock or any
securities convertible into or exercisable for common stock without the prior
written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.

78
<PAGE>
UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS

GENERAL

The following is a general discussion of the United States federal income
and estate tax consequences of the ownership and disposition of KinderCare's
common stock by non-U.S. holders. As used in this discussion, the term "non-U.S.
holder" means a person that is not any of the following:

- a citizen or resident of the United States

- a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision of the United States

- an estate the income of which is subject to U.S. federal income taxation,
regardless of its source

- a trust that is either subject to the supervision of a court within the
United States and the control of one or more U.S. persons or has a valid
election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.

This summary is based on current law which is subject to change, perhaps
retroactively, is for general purposes only and should not be considered tax
advice. This summary does not represent a detailed description of the federal
income tax consequences to you in light of your particular circumstances. In
addition, it does not represent a detailed description of the U.S. federal
income tax consequences applicable to you if you are subject to special
treatment under the U.S. federal income tax laws, including if you are a
"controlled foreign corporation," "passive foreign investment company" or
"foreign personal holding company." YOU SHOULD CONSULT YOUR OWN TAX ADVISOR WITH
RESPECT TO CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF ACQUIRING, HOLDING
AND DISPOSING OF SUCH COMMON STOCK.

Dividends paid to a non-U.S. holder of KinderCare's common stock will be
subject to withholding of United States federal income tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty, unless the
dividends are effectively connected with the conduct of a trade or business by
the non-U.S. holder within the United States. If the dividends are effectively
connected with the conduct of a trade or business by the non-U.S. holder within
the United States and, if a tax treaty applies, are attributable to a United
States permanent establishment of the non-U.S. holder, the dividends will be
subject to United States federal income tax on a net income basis at applicable
graduated individual or corporate rates. Such dividends will be exempt from the
30% withholding tax described above, assuming the necessary certification and
disclosure requirements are met. Any such effectively connected dividends
received by a foreign corporation may be subject to an additional "branch
profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.

Currently, dividends paid to an address outside the United States are
presumed to be paid to a resident of such country unless the payor has knowledge
to the contrary for purposes of the withholding discussed above and, under
currently applicable U.S. Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. However, under recently issued U.S. Treasury
regulations, a non-U.S. holder of KinderCare's common stock who wishes to claim
the benefit of an applicable treaty rate for dividends paid after December 31,
1999, will be required to satisfy specified certification and other
requirements. These requirements will include filing a Form W-8 containing the
non-U.S. holder's name, address and a certification that such holder is eligible
for the benefits of the applicable tax treaty.

A non-U.S. holder of KinderCare's common stock who is eligible for a reduced
rate of United States withholding tax pursuant to a tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate and timely claim
for refund with the United States Internal Revenue Service.

79
<PAGE>
GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to United States federal
income tax on any gain recognized on a disposition of a share of KinderCare's
common stock unless any of the following apply:

1. the gain is effectively connected with a trade or business within the
United States of the non-U.S. holder and, where a tax treaty applies, is
attributable to a permanent establishment of the non-U.S. holder

2. the non-U.S. holder is an individual who holds the shares of KinderCare
common stock as a capital asset and is present in the United States for
183 days or more in the taxable year of the disposition and other
requirements are met

3. subject to the exception discussed below, KinderCare is or has been a
"United States real property holding corporation," or a "USRPHC," for
United States federal income tax purposes.

If an individual non-U.S. holder falls under clause (1) above, he or she
will be taxed on his or her net gain derived from the sale under regular United
States federal income tax rates. If the individual non-U.S. holder falls under
clause (2) above, he or she will be subject to a flat 30% tax on the gain
derived from the sale which may be offset by United States source capital
losses, notwithstanding the fact that he or she is not considered a resident of
the United States. If a non-U.S. holder that is a foreign corporation falls
under clause (1) above, it will be taxed on its gain under regular United States
federal income tax rates and, in addition, may be subject to the branch profits
tax equal to 30% of its effectively connected earnings and profits within the
meaning of the Code for the taxable year, as adjusted for various items, unless
it qualifies for a lower rate under an applicable income tax treaty.

A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50% of the fair market value of
its worldwide real property interests plus its other assets used or held for use
in a trade or business. We have not yet determined if we are a USRPHC. So long
as KinderCare's common stock is regularly traded on an established securities
market, only a non-U.S. holder who holds or held at any time during the shorter
of the five year period preceding the date of disposition or the holder's
holding period, more than 5% of the KinderCare common stock during any period in
which we are a USRPHC will be subject to U.S. federal income tax on the
disposition of KinderCare common stock.

FEDERAL ESTATE TAXES

KinderCare common stock held by an individual non-U.S. holder at the time of
his or her death will be included in the holder's gross estate for United States
federal income tax purposes, unless an applicable tax treaty provides otherwise.

UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

KinderCare must report annually to the IRS and to each non-U.S. holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends. These information reporting requirements apply regardless of
whether withholding was required. Copies of the information returns reporting
such dividends and withholding may also be made available to the tax authorities
in the country in which the non-U.S. holder resides under the provisions of an
applicable income tax treaty.

Currently, backup withholding at the rate of 31% generally will not apply to
dividends paid to a non-U.S. holder at an address outside the United States
unless the payor has knowledge that the payee is a U.S. person.

The payment of the proceeds of a sale of KinderCare common stock by or
through a United States office of a broker is subject to information reporting
and backup withholding unless the owner

80
<PAGE>
certifies under penalties of perjury that it is a non-U.S. holder or otherwise
establishes an exemption. In general, backup withholding and information
reporting will not apply to a payment of the proceeds of a sale of KinderCare
common stock by or through a foreign office of a broker. However, if the broker
is (1) a U.S. person, (2) a controlled foreign corporation, or (3) a foreign
person that derives 50% or more of its gross income for a specified period from
the conduct a trade or business in the United States, payments will be subject
to information reporting, but not backup withholding, unless the broker has
documentary evidence in its records that the owner is a non-U.S. holder and
other conditions are met or the owner otherwise establishes an exemption.

U.S. Treasury regulations were recently issued that generally modify the
information reporting and backup withholding rules applicable to payments made
after December 31, 1999. In general, the new U.S. Treasury regulations would not
significantly alter the present rules discussed above, except in special
situations.

Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be allowed as a refund or credit against such non-U.S.
holder's United States federal income tax liability, provided that the required
information is furnished to the IRS.

81
<PAGE>
UNDERWRITING

GENERAL

We intend to offer our common stock in the United States and Canada through
a number of U.S. underwriters as well as elsewhere through international
managers. Merrill Lynch Pierce, Fenner & Smith Incorporated, Credit Suisse First
Boston Corporation, Salomon Smith Barney Inc. and NationsBanc Montgomery
Securities LLC are acting as U.S. representatives of each of the U.S.
underwriters named below. Subject to the terms and conditions set forth in a
U.S. purchase agreement among our company, the selling stockholders and the U.S.
underwriters, and concurrently with the sale of shares of common stock to
the international managers, we and the selling stockholders have agreed to sell
to the U.S. underwriters, and each of the U.S. underwriters severally and not
jointly has agreed to purchase from our company and the selling stockholders,
the number of shares of common stock set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
- -------------------------------------------------------------------------------------------- -----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................................................
Credit Suisse First Boston Corporation......................................................
Salomon Smith Barney Inc....................................................................
NationsBanc Montgomery Securities LLC.......................................................
-----------
Total.............................................................................
-----------
-----------
</TABLE>

We and the selling stockholders have also entered into an international
purchase agreement with international managers outside the United States and
Canada for whom Merrill Lynch International, Credit Suisse First Boston (Europe)
Limited, Salomon Brothers International Limited and NationsBanc Montgomery
Securities LLC are acting as lead managers. Subject to the terms and conditions
set forth in the international purchase agreement, and concurrently with the
sale of shares of common stock to the U.S. underwriters pursuant to the
U.S. purchase agreement, we and the selling stockholders have agreed to sell to
the international managers, and the international managers severally have agreed
to purchase from us and the selling stockholders, an aggregate of shares
of common stock. The public offering price per share and the total underwriting
discount per share of common stock are identical under the U.S. purchase
agreement and the international purchase agreement.

In the U.S. purchase agreement and the international purchase agreement, the
several U.S. underwriters and the several international managers have agreed,
subject to the terms and conditions set forth in those agreements, to purchase
all of the shares of common stock being sold under the terms of each such
agreement if any of the shares of common stock being sold under the terms of
that agreement are purchased. In the event of a default by an underwriter, the
U.S. purchase agreement and the international purchase agreement provide that
the purchase commitments of the nondefaulting underwriters may be increased or
the purchase agreements may be terminated. The closings with respect to the sale
of shares of common stock to be purchased by the U.S. underwriters and the
international managers are conditioned upon one another.

We and the selling stockholders have agreed to indemnify the U.S.
underwriters and the international managers against liabilities, including
liabilities under the Securities Act, or to contribute

82
<PAGE>
to payments the U.S. underwriters and the international managers may be required
to make in respect of those liabilities.

The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of legal matters by counsel for the underwriters and the other
conditions contained in the U.S. purchase agreement and the international
purchase agreement. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.

COMMITMENTS AND DISCOUNTS

The U.S. representatives have advised us and the selling stockholders that
the U.S. underwriters propose initially to offer the shares of common stock to
the public at the public offering price set forth on the cover page of this
prospectus, and to dealers at such price less a concession not in excess of
$ per share of common stock. The U.S. underwriters may allow, and such
dealers may reallow, a discount not in excess of $ per share of common
stock to other dealers. After the public offering, the public offering price,
concession and discount may change.

The following table shows the per share and total public offering price,
underwriting discount to be paid by us and the selling stockholders to the U.S.
underwriters and the international managers and the proceeds before expenses to
us and the selling stockholders. This information assumes either no exercise or
full exercise by the U.S. underwriters and the international managers of their
over-allotment options.

<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------------- --------------------- -----------------
<S> <C> <C> <C>
Public offering price................................................... $ $ $
Underwriting discount................................................... $ $ $
Proceeds, before expenses, to KinderCare................................ $ $ $
Proceeds, before expenses, to the selling stockholders.................. $ $ $
</TABLE>

The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by KinderCare.

INTERSYNDICATE AGREEMENT

The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the terms of the intersyndicate agreement, the U.S. underwriters and the
international managers are permitted to sell shares of our common stock to each
other for purposes of resale at the public offering price, less an amount not
greater than the selling concession. Under the terms of the intersyndicate
agreement, the U.S. underwriters and any dealer to whom they sell shares of our
common stock will not offer to sell or sell shares of our common stock to
persons who are non-U.S. or non-Canadian persons or to persons they believe
intend to resell to persons who are non-U.S. or non-Canadian persons, and the
international managers and any dealer to whom they sell shares of common stock
will not offer to sell or sell shares of common stock to U.S. persons or to
Canadian persons or to persons they believe intend to resell to U.S. or Canadian
persons, except in the case of transactions under the terms of the
intersyndicate agreement.

OVER-ALLOTMENT OPTION

The selling stockholders have granted an option to the U.S. underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of additional shares of our common stock at the public offering
price set forth on the cover page of this prospectus, less the underwriting
discount. The U.S. underwriters may exercise this option solely to cover
over-allotments, if

83
<PAGE>
any, made on the sale of our common stock offered by this prospectus. To the
extent that the U.S. underwriters exercise this option, each U.S. underwriter
will be obligated to purchase a number of additional shares of our common stock
proportionate to such U.S. underwriter's initial amount reflected in the table
at the beginning of this section of the prospectus.

The selling stockholders also have granted an option to the international
managers, exercisable for 30 days after the date of this prospectus, to purchase
up to an aggregate of additional shares of common stock to cover
over-allotments, if any, on terms similar to those granted to the U.S.
underwriters.

RESERVED SHARES

At our request, the underwriters have reserved for sale, at the public
offering price, up to of the shares offered by this prospectus to be
sold to some of our directors, officers, employees, business associates and
related persons. The number of shares of our common stock available for sale to
the general public will be reduced to the extent that those persons purchase the
reserved shares. Any reserved shares which are not orally confirmed for purchase
within one day of the pricing of the offering will be offered by the
underwriters to the general public on the same terms as the other shares offered
by this prospectus.

NO SALES OF SIMILAR SECURITIES

We, our executive officers, other officers and directors, all of the selling
stockholders and affiliates of The TCW Group, Inc. have agreed without the prior
written consent of Merrill Lynch on behalf of the underwriters for a period of
180 days after the date of this prospectus, not to directly or indirectly do any
of the following:

- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant for the sale of, lend or otherwise dispose of or transfer any
shares of our common stock or securities convertible into or exchangeable
or exercisable for or repayable with our common stock, whether now owned
or later acquired by the person executing the agreement or with respect to
which the person executing the agreement later acquires the power of
disposition, or file a registration statement under the Securities Act
relating to any shares of our common stock or

- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise

NEW YORK STOCK EXCHANGE LISTING

The common stock is currently traded on the OTC Bulletin Board. We have
applied for the listing of our common stock on the New York Stock Exchange under
the symbol " ." In order to meet the requirements for listing of our common
stock on that exchange, the U.S. underwriters and the international managers
have undertaken to sell lots of 100 or more shares to a minimum of 2,000
beneficial owners.

PRICING OF THE OFFERING

Before this offering, there has been a limited public market for our common
stock. The public offering price will be determined through negotiations among
us, the selling stockholders and the U.S. representatives and the lead managers.
The factors to be considered in determining the public offering price include
the following:

- prevailing market conditions

84
<PAGE>
- the valuation multiples of publicly traded companies that the U.S.
representatives and the lead managers believe to be comparable to us

- our financial information

- the history of, and the prospects for, our company and the industry in
which we compete

- an assessment of our management, its past and present operations, the
prospects for, and timing of, future revenues of our company, the present
state of our development, and the above factors in relation to market
values and various valuation measures of other companies engaged in
activities similar to ours

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of our common stock is completed, the rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase our common stock. As an exception
to these rules, the U.S. representatives are permitted to engage in transactions
that stabilize the price of our common stock. Such transactions consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of our
common stock.

If the underwriters create a short position in our common stock in
connection with the offering, in other words, if they sell more shares of our
common stock than are indicated on the cover page of this prospectus, the U.S.
representatives may reduce that short position by purchasing our common stock in
the open market. The U.S. representatives may also elect to reduce any short
position by exercising all or part of the over-allotment options described
above.

The U.S. representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the U.S. representatives purchase
shares of our common stock in the open market to reduce the underwriters' short
position or to stabilize the price of our common stock, they may reclaim the
amount of the selling concession from the underwriters and selling group members
who sold those shares.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.

Neither our company nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
our company nor any of the underwriters makes any representation that the U.S.
representatives or the lead managers will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.

OTHER RELATIONSHIPS

Members of the underwriting group and their affiliates engage in
transactions with, and perform services for, our company in the ordinary course
of business and have engaged, and may in the future engage, in commercial
banking and investment banking transactions with our company, for which they
have received customary compensation.

85
<PAGE>
LEGAL MATTERS

The validity of the shares of common stock offered by this prospectus will
be passed upon for KinderCare by Simpson Thacher & Bartlett, New York, New York
and for the underwriters by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), New York, New York. Partners
of Simpson Thacher & Bartlett, members of their families, related persons and
others, have an indirect interest, through limited partnerships, who are
investors in an affiliate of KLC Associates, L.P., in less than 1% of the common
stock.

EXPERTS

The consolidated financial statements of KinderCare Learning Centers, Inc.
as of May 30, 1997 and May 29, 1998 and for the fiscal years ended May 29, 1998
and May 30, 1997 included in this prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and have been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.

The consolidated statements of operations, stockholders' equity and cash
flows of KinderCare Learning Centers, Inc. for the year ended May 31, 1996 have
been included in this prospectus in reliance upon the report of KPMG LLP,
independent certified public accountants appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.

AVAILABLE INFORMATION

KinderCare has filed, and continues to file, annual, quarterly and periodic
reports under the Securities Exchange Act of 1934 and the rules and regulations
under the Exchange Act with the Securities and Exchange Commission as a result
of covenants in the indenture governing KinderCare's 9 1/2% senior subordinated
notes. In addition, KinderCare has filed with the Commission a registration
statement on Form S-1, which includes amendments, exhibits, schedules and
supplements, under the Securities Act and the rules and regulations under the
Securities Act, for the registration of the common stock offered by this
prospectus. Although this prospectus, which forms a part of the registration
statement, contains all material information included in the registration
statement, parts of the registration statement have been omitted from this
prospectus as permitted by the rules and regulations of the Commission. For
further information with respect to KinderCare and the common stock offered by
this prospectus, please refer to the registration statement. Statements
contained in this prospectus as to the contents of any contracts or other
document referred to in this prospectus are not necessarily complete and, where
such contract or other document is an exhibit to the registration statement,
each such statement is qualified in all respects by the provisions of such
exhibit, to which reference is now made. The registration statement and
KinderCare's other public filings can be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices at Seven World Trade Center, 13(th) Floor, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The public may obtain information regarding the
Washington, D.C. Public Reference Room by calling the Commission at
1-800-SEC-0330. In addition, the registration statement and KinderCare's other
public filings are publicly available through the Commission's site on the
internet's world wide web, located at: http://www.sec.gov. Following the
offering, KinderCare's future public filings are expected to be available for
inspection at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005.

86
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
FINANCIAL STATEMENTS:

Consolidated Balance Sheets at May 29, 1998 and March 5, 1999 (unaudited)................................ F-2
Consolidated Statements of Operations for the Forty Weeks Ended March 6, 1998 and
March 5, 1999 (unaudited).............................................................................. F-3
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the Fiscal Year Ended May
29, 1998 and the Forty weeks Ended March 5, 1999 (unaudited)........................................... F-4
Consolidated Statements of Cash Flows for the Forty Weeks Ended March 6, 1998 and
March 5, 1999 (unaudited).............................................................................. F-5
Notes to Unaudited Consolidated Financial Statements..................................................... F-6
Consolidated Balance Sheets as of May 30, 1997 and May 29, 1998.......................................... F-8
Consolidated Statements of Operations for the Fiscal Years Ended May 31, 1996, May 30, 1997 and May 29,
1998................................................................................................... F-9
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended May 31, 1996, May 30, 1997 and
May 29, 1998........................................................................................... F-10
Consolidated Statements of Cash Flows for the Fiscal Years Ended May 31, 1996, May 30, 1997 and May 29,
1998................................................................................................... F-11
Notes to Consolidated Financial Statements............................................................... F-12

INDEPENDENT AUDITORS' REPORTS:

Deloitte & Touche LLP.................................................................................... F-27
KPMG LLP................................................................................................. F-28
</TABLE>

F-1
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

<TABLE>
<CAPTION>
MAY 29, 1998 MARCH 5, 1999
------------ -------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents......................................................... $ 11,820 $ 9,816
Receivables, net.................................................................. 14,987 20,520
Prepaid expenses and supplies..................................................... 4,939 6,005
Deferred income taxes............................................................. 12,412 12,412
------------ -------------
Total current assets............................................................ 44,158 48,753

Property and equipment, net......................................................... 508,113 549,557
Deferred income taxes............................................................... 12,030 12,030
Deferred financing costs and other assets........................................... 27,238 23,391
------------ -------------
$ 591,539 $ 633,731
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Bank overdrafts................................................................... $ 8,184 $ 7,180
Accounts payable.................................................................. 9,796 7,994
Current portion of long-term debt................................................. 1,839 5,140
Accrued expenses and other liabilities............................................ 76,221 72,385
------------ -------------
Total current liabilities....................................................... 96,040 92,699

Long-term debt...................................................................... 401,258 433,887
Self insurance liabilities.......................................................... 20,922 20,263
Deferred income taxes............................................................... 5,444 5,455
Other noncurrent liabilities........................................................ 35,975 38,872
------------ -------------
Total liabilities............................................................... 559,639 591,176
------------ -------------

Commitments and contingencies

Stockholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares; none outstanding... -- --
Common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding
9,474,197 shares at May 29, 1998 and 9,480,837 shares at March 5, 1999.......... 95 95
Additional paid-in capital........................................................ 2,009 2,144
Notes receivable from stockholders................................................ (1,325) (1,128)
Retained earnings................................................................. 31,179 41,567
Accumulated other comprehensive income............................................ (58) (123)
------------ -------------
Total stockholders' equity...................................................... 31,900 42,555
------------ -------------
$ 591,539 $ 633,731
------------ -------------
------------ -------------
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-2
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

<TABLE>
<CAPTION>
FORTY WEEKS ENDED
----------------------------
<S> <C> <C>
MARCH 6, 1998 MARCH 5, 1999
------------- -------------
Revenues, net...................................................................... $ 450,972 $ 477,550
------------- -------------
Operating expenses:
Salaries, wages and benefits..................................................... 247,638 263,740
Depreciation..................................................................... 26,898 27,061
Rent............................................................................. 21,099 22,629
Provision for doubtful accounts.................................................. 2,932 2,413
Other............................................................................ 112,369 113,954
Restructuring charges and other income, net...................................... 4,947 (521)
------------- -------------
Total operating expenses....................................................... 415,883 429,276
------------- -------------
Operating income................................................................. 35,089 48,274
Investment income, net............................................................. 518 390
Interest expense................................................................... (31,960) (32,026)
------------- -------------
Income before income taxes....................................................... 3,647 16,638
Income tax expense................................................................. 1,240 6,250
------------- -------------
Net income..................................................................... $ 2,407 $ 10,388
------------- -------------
------------- -------------

Basic net income per share......................................................... $ 0.26 $ 1.10
------------- -------------
------------- -------------
Diluted net income per share....................................................... $ 0.26 $ 1.08
------------- -------------
------------- -------------
Weighted average common shares outstanding......................................... 9,374,000 9,476,000
------------- -------------
------------- -------------
Weighted average common shares outstanding and potential common shares............. 9,382,000 9,591,000
------------- -------------
------------- -------------
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-3
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

(DOLLARS IN THOUSANDS)

(UNAUDITED)

<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL STOCKHOLDERS' OTHER
----------------------- PAID-IN NOTES RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL RECEIVABLE EARNINGS INCOME TOTAL
---------- ----------- ----------- ------------ --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 30, 1997.............. 9,368,421 $ 94 $ -- $ -- $ 27,753 $ (140) $ 27,707
---------- --- ----------- ------------ --------- ----- ---------
Comprehensive income:
Net income......................... -- -- -- -- 3,426 -- 3,426
Cumulative translation
adjustment....................... -- -- -- -- -- 82 82
---------- --- ----------- ------------ --------- ----- ---------
Total comprehensive income....... -- -- -- -- 3,426 82 3,508
Issuance of common stock............. 105,776 1 2,009 (1,490) -- -- 520
Proceeds from collection of notes
receivable......................... -- -- -- 165 -- -- 165
---------- --- ----------- ------------ --------- ----- ---------
Balance at May 29, 1998.............. 9,474,197 95 2,009 (1,325) 31,179 (58) 31,900
---------- --- ----------- ------------ --------- ----- ---------
Comprehensive income:
Net income......................... -- -- -- -- 10,388 -- 10,388
Cumulative translation
adjustment....................... -- -- -- -- -- (65) (65)
---------- --- ----------- ------------ --------- ----- ---------
Total comprehensive income....... -- -- -- -- 10,388 (65) 10,323
Issuance of common stock............. 6,640 -- 135 (110) -- -- 25
Proceeds from collection of notes
receivable......................... -- -- -- 307 -- -- 307
---------- --- ----------- ------------ --------- ----- ---------
Balance at March 5, 1999............. 9,480,837 $ 95 $ 2,144 $ (1,128) $ 41,567 $ (123) $ 42,555
---------- --- ----------- ------------ --------- ----- ---------
---------- --- ----------- ------------ --------- ----- ---------
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-4
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

(UNAUDITED)

<TABLE>
<CAPTION>
FORTY WEEKS ENDED
----------------------------
<S> <C> <C>
MARCH 6, 1998 MARCH 5, 1999
------------- -------------
Cash flows from operations:
Net income....................................................................... $ 2,407 $ 10,388
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation................................................................... 26,898 27,061
Provision for doubtful accounts................................................ 2,932 2,413
Amortization of deferred financing costs and other assets...................... 2,377 2,376
(Gain) loss on sales and disposals of property and equipment, net.............. 7 (402)
Changes in operating assets and liabilities:
Increase in receivables...................................................... (6,801) (8,708)
Increase in prepaid expenses and supplies.................................... (9) (1,066)
(Increase) decrease in other assets.......................................... (1,414) 1,058
Decrease in accounts payable, accrued expenses and other liabilities......... (5,221) (3,389)
Other, net..................................................................... 53 (65)
------------- -------------
Net cash provided by operating activities...................................... 21,229 29,666
------------- -------------

Cash flows from investing activities:
Purchases of property and equipment.............................................. (59,461) (69,427)
Proceeds from sales of property and equipment.................................... 840 1,324
Proceeds from collection of notes receivable..................................... 597 1,175
------------- -------------
Net cash used by investing activities.......................................... (58,024) (66,928)
------------- -------------

Cash flows from financing activities:
Proceeds from long-term borrowings............................................... 20,000 50,000
Proceeds from issuance of common stock........................................... 520 25
Proceeds from collection of stockholders' notes receivable....................... -- 307
Payments on long-term borrowings................................................. (1,589) (14,070)
Bank overdrafts.................................................................. 3,075 (1,004)
------------- -------------
Net cash provided by financing activities...................................... 22,006 35,258
------------- -------------
Decrease in cash and cash equivalents............................................ (14,789) (2,004)
Cash and cash equivalents at the beginning of the period........................... 24,150 11,820
------------- -------------
Cash and cash equivalents at the end of the period............................... $ 9,361 $ 9,816
------------- -------------
------------- -------------
Supplemental cash flow information:
Interest paid.................................................................... $ 34,628 $ 35,585
Income taxes paid (refunded), net................................................ (45) 834
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-5
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS AND BASIS OF PRESENTATION

KinderCare Learning Centers, Inc. ("KinderCare") is the leading for-profit
provider of early childhood care and educational services in the United States.
At March 5, 1999, KinderCare operated a total of 1,151 centers, with 1,149
centers in 39 states in the United States and two centers in the United Kingdom.
The consolidated financial statements include the financial statements of
KinderCare and its wholly owned subsidiaries: Mini-Skools Limited; KinderCare
Development Corp.; KinderCare Real Estate Corp.; KinderCare Learning Centres
Limited and KinderCare Properties Limited. All significant intercompany balances
and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements reflect, in the opinion of
management, all adjustments, all of which are of a normal recurring nature,
necessary to present fairly the financial position of KinderCare at March 5,
1999 and the results of operations and cash flows for the forty week periods
ended March 6, 1998 and March 5, 1999. Interim results are not necessarily
indicative of results to be expected for a full fiscal year. The unaudited
consolidated financial statements should be read in conjunction with the annual
consolidated financial statements and notes thereto for the fiscal year ended
May 29, 1998, included elsewhere in this document.

FISCAL YEAR

KinderCare's fiscal year ends on the Friday closest to May 31. The first
quarter is 16 weeks long and the second, third and fourth quarters are each
twelve weeks long. The 1998 and 1999 fiscal years are each 52 weeks long.
References to fiscal 1998 and fiscal 1999 are to the fiscal years ended May 29,
1998 and May 28, 1999, respectively.

COMPREHENSIVE INCOME

Effective May 30, 1998, KinderCare adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, REPORTING COMPREHENSIVE INCOME. Comprehensive income
is comprised of the following (dollars in thousands):

<TABLE>
<CAPTION>
FORTY WEEKS ENDED
----------------------------
<S> <C> <C>
MARCH 6, 1998 MARCH 5, 1999
------------- -------------
Net income..................................................... $ 2,407 $ 10,388
Cumulative translation adjustment.............................. 53 (65)
------ -------------
$ 2,460 $ 10,323
------ -------------
------ -------------
</TABLE>

NET INCOME PER SHARE

During fiscal year 1998, KinderCare adopted SFAS No. 128, EARNINGS PER
SHARE. This statement requires the presentation of basic and diluted earnings
per share. The difference between basic and diluted net income per share is a
result of the dilutive effect of options, which are considered potential common
shares.

F-6
<PAGE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
SFAS No. 131 establishes standards for disclosure about operating segments in
annual financial statements and requires disclosure of selected information
about operating segments in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The new standard becomes effective for KinderCare's fiscal
year end 1999 reporting and requires that comparative information from earlier
years be restated to conform to the requirements of this standard. KinderCare
does not believe any substantial changes to its disclosures will be made at the
time SFAS No. 131 is adopted.

In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement requires that an entity recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. The new standard
becomes effective for KinderCare's fiscal year 2001. KinderCare does not believe
the adoption of SFAS No. 133 will have a material impact on KinderCare's
financial position or results of operations.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the
current period's presentation.

2. RESTRUCTURING CHARGES AND OTHER INCOME, NET

During fiscal year 1997, KinderCare decided to relocate its corporate
offices from Montgomery, Alabama to Portland, Oregon in fiscal 1998. In
connection with the relocation, KinderCare recognized $5.4 million in
restructuring charges during the forty weeks ended March 6, 1998. Expenses
incurred were primarily for the retention, recruitment and relocation of
employees and travel costs related to the office relocation. During the forty
weeks ended March 5, 1999, the remaining restructuring reserve balance related
to employee termination benefits of $0.6 million was reversed following a
favorable determination in an arbitration proceeding.

During the twelve weeks ended March 6, 1998, KinderCare, as a member of the
Presidential Life Global Class Action, received a $0.5 million payment, net of
attorney's fees, as settlement of a claim in the United States District Court in
New York.

F-7
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
MAY 30, 1997 MAY 29, 1998
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.......................................................... $ 24,150 $ 11,820
Receivables, net................................................................... 13,649 14,987
Prepaid expenses and supplies...................................................... 6,114 4,939
Deferred income taxes.............................................................. 14,127 12,412
------------ ------------
Total current assets........................................................... 58,040 44,158

Property and equipment, net.......................................................... 471,558 508,113
Deferred income taxes................................................................ 11,621 12,030
Deferred financing costs and other assets............................................ 28,659 27,238
------------ ------------
$ 569,878 $ 591,539
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Bank overdrafts.................................................................... $ 5,357 $ 8,184
Accounts payable................................................................... 10,746 9,796
Current portion of long-term debt.................................................. 1,760 1,839
Accrued expenses and other liabilities............................................. 69,056 76,221
------------ ------------
Total current liabilities...................................................... 86,919 96,040

Long-term debt....................................................................... 393,129 401,258
Self insurance liabilities........................................................... 21,880 20,922
Deferred income taxes................................................................ 5,600 5,444
Other noncurrent liabilities......................................................... 34,643 35,975
------------ ------------
Total liabilities.............................................................. 542,171 559,639
------------ ------------
Commitments and contingencies (Notes 8 & 12)

Stockholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares; none outstanding.... -- --
Common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding
9,368,421 and 9,474,197 shares, respectively..................................... 94 95
Additional paid-in capital......................................................... -- 2,009
Notes receivable from stockholders................................................. -- (1,325)
Retained earnings.................................................................. 27,753 31,179
Cumulative translation adjustment.................................................. (140) (58)
------------ ------------
Total stockholders' equity..................................................... 27,707 31,900
------------ ------------
$ 569,878 $ 591,539
------------ ------------
------------ ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-8
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
MAY 31, 1996 MAY 30, 1997 MAY 29, 1998
------------ ------------- -------------
<S> <C> <C> <C>
Revenues, net........................................................ $ 541,264 $ 563,135 $ 597,070
------------ ------------- -------------
Operating expenses:
Salaries, wages and benefits....................................... 284,115 300,580 327,161
Depreciation....................................................... 33,972 34,253 42,553
Rent............................................................... 26,515 28,140 27,985
Provision for doubtful accounts.................................... 3,908 4,697 5,529
Other.............................................................. 139,561 147,811 143,148
Recapitalization expenses.......................................... -- 17,277 --
Restructuring and other charges (income), net...................... 1,484 10,275 5,201
------------ ------------- -------------
Total operating expenses....................................... 489,555 543,033 551,577
------------ ------------- -------------
Operating income................................................. 51,709 20,102 45,493
Investment income, net............................................... 250 232 612
Interest expense..................................................... (16,727) (22,394) (40,677)
------------ ------------- -------------
Income (loss) before income taxes and extraordinary items.......... 35,232 (2,060) 5,428
Income tax expense................................................... 13,549 3,375 2,002
------------ ------------- -------------
Income (loss) before extraordinary items............................. 21,683 (5,435) 3,426
Extraordinary items--loss on early retirement of debt, net of income
taxes of $4,815.................................................... -- (7,532) --
------------ ------------- -------------
Net income (loss).............................................. $ 21,683 $ (12,967) $ 3,426
------------ ------------- -------------
------------ ------------- -------------
Income (loss) per common share:
Basic--income (loss) before extraordinary items.................... $ 1.10 $ (0.33) $ 0.36
Extraordinary items--loss on early retirement of debt, net of
income taxes..................................................... -- (0.46) --
------------ ------------- -------------
Net income (loss).............................................. $ 1.10 $ (0.79) $ 0.36
------------ ------------- -------------
------------ ------------- -------------
Assuming dilution--income (loss) before extraordinary items........ $ 1.07 $ (0.33) $ 0.36
Extraordinary items--loss on early retirement of debt, net of
income tax....................................................... -- (0.46) --
------------ ------------- -------------
Net income (loss).............................................. $ 1.07 $ (0.79) $ 0.36
------------ ------------- -------------
------------ ------------- -------------
Weighted average common shares outstanding......................... 19,770,000 16,479,000 9,397,000
------------ ------------- -------------
------------ ------------- -------------
Weighted average common shares outstanding and potential common
shares........................................................... 20,192,000 16,479,000 9,398,000
------------ ------------- -------------
------------ ------------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-9
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCKHOLDERS' CUMULATIVE
----------------------- PAID-IN NOTES RETAINED TRANSLATION TREASURY
SHARES AMOUNT CAPITAL RECEIVABLES EARNING ADJUSTMENT STOCK
---------- ----------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 2, 1995........ 20,119,818 $ 201 $ 200,867 $ -- $ 40,116 $ 32 $ --
Net income................... -- -- -- -- 21,683 -- --
Tax benefits of the valuation
allowance for deferred tax
assets..................... -- -- 4,121 -- -- -- --
Cumulative translation
adjustment................. -- -- -- -- -- (52) --
Purchase and retirement of
stock and warrants......... (969,883) (10) (13,477) -- -- -- (523)
Exercise of stock options and
warrants................... 831,872 8 8,476 -- -- -- --
Tax benefit of option
exercises.................. -- -- 993 -- -- -- --
---------- ----- ----------- ------------- ----------- ----- -----
Balance at May 31, 1996...... 19,981,807 199 200,980 -- 61,799 (20) (523)
Net loss..................... -- -- -- -- (12,967) -- --
Cumulative translation
adjustment................. -- -- -- -- -- (120) --
Issuance of common stock..... 7,986,842 80 151,670 -- -- -- --
Purchase and retirement of
common stock............... (20,217,416) (201) (361,685) -- (21,079) -- 523
Purchase of outstanding
warrants................... -- -- (11,143) -- -- -- --
Exercise of stock options and
warrants................... 1,617,188 16 19,735 -- -- -- --
Tax benefit of option
exercises.................. -- -- 443 -- -- -- --
---------- ----- ----------- ------------- ----------- ----- -----
Balance at May 30, 1997...... 9,368,421 94 -- -- 27,753 (140) --
Net income................... -- -- -- -- 3,426 -- --
Cumulative translation
adjustment................. -- -- -- -- -- 82 --
Issuance of common stock..... 105,776 1 2,009 (1,490) -- -- --
Proceeds from collection of
notes receivable........... -- -- -- 165 -- -- --
---------- ----- ----------- ------------- ----------- ----- -----
Balance at May 29,
1998................... 9,474,197 $ 95 $ 2,009 $ (1,325) $ 31,179 $ (58) $ --
---------- ----- ----------- ------------- ----------- ----- -----
---------- ----- ----------- ------------- ----------- ----- -----

TOTAL
---------
<S> <C>
Balance at June 2, 1995........ $ 241,216
Net income................... 21,683
Tax benefits of the valuation
allowance for deferred tax
assets..................... 4,121
Cumulative translation
adjustment................. (52)
Purchase and retirement of
stock and warrants......... (14,010)
Exercise of stock options and
warrants................... 8,484
Tax benefit of option
exercises.................. 993
---------
Balance at May 31, 1996...... 262,435
Net loss..................... (12,967)
Cumulative translation
adjustment................. (120)
Issuance of common stock..... 151,750
Purchase and retirement of
common stock............... (382,442)
Purchase of outstanding
warrants................... (11,143)
Exercise of stock options and
warrants................... 19,751
Tax benefit of option
exercises.................. 443
---------
Balance at May 30, 1997...... 27,707
Net income................... 3,426
Cumulative translation
adjustment................. 82
Issuance of common stock..... 520
Proceeds from collection of
notes receivable........... 165
---------
Balance at May 29,
1998................... $ 31,900
---------
---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-10
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
MAY 31, MAY 30, MAY 29,
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss)............................................................. $ 21,683 $ (12,967) $ 3,426
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation................................................................ 33,972 34,253 42,553
Write-down of property and equipment........................................ 5,312 6,300 --
Amortization of deferred financing costs and other assets................... 1,533 1,822 3,111
Loss (gain) on sales and disposals of property and equipment, net........... (1,684) (12) 105
Deferred tax expense........................................................ 12,285 (1,982) 1,150
Extraordinary items--loss on early retirement of debt, net of income
taxes..................................................................... -- 7,532 --
Changes in operating assets and liabilities:
Decrease (increase) in receivables........................................ (2,473) 1,616 (2,305)
Decrease (increase) in prepaid expenses and supplies...................... (1,354) 3,002 1,175
Decrease (increase) in other assets....................................... 116 2,604 (1,640)
Increase in accounts payable, accrued expenses and other liabilities...... 7,735 8,382 9,348
Other, net.................................................................. (1,228) (313) 82
--------- --------- ---------
Net cash provided by operating activities....................................... 75,897 50,237 57,005
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment........................................... (67,304) (43,748) (84,954)
Proceeds from sales of property and equipment................................. 3,883 12,438 3,691
Proceeds from sales or redemption of investments.............................. 3,396 -- --
Proceeds from collection of notes receivable and other........................ 2,042 396 765
--------- --------- ---------
Net cash used by investing activities........................................... (57,983) (30,914) (80,498)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term borrowings............................................ -- 350,000 20,000
Deferred financing costs...................................................... -- (27,160) --
Proceeds from issuance of common stock........................................ -- 151,750 685
Exercise of stock options and warrants........................................ 8,484 20,194 --
Purchase and retirement of common stock....................................... -- (382,442) --
Payments on long-term borrowings.............................................. (13,777) (107,558) (11,792)
Payments on capital leases.................................................... -- -- (557)
Purchases of treasury stock and warrants...................................... (14,010) (11,143) --
Bank overdrafts............................................................... 2,753 (4,411) 2,827
--------- --------- ---------
Net cash provided (used) by financing activities................................ (16,550) (10,770) 11,163
--------- --------- ---------
Increase (decrease) in cash and cash equivalents................................ 1,364 8,553 (12,330)
Cash and cash equivalents at the beginning of the fiscal year................... 14,233 15,597 24,150
--------- --------- ---------
Cash and cash equivalents at the end of the fiscal year......................... $ 15,597 $ 24,150 $ 11,820
--------- --------- ---------
--------- --------- ---------
Supplemental cash flow information:
Interest paid................................................................. $ 8,944 $ 14,325 $ 36,744
Income taxes paid (refunded), net............................................. 3,795 3,160 561
</TABLE>

See accompanying notes to consolidated financial statements.

F-11
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS AND BASIS OF PRESENTATION

KinderCare Learning Centers, Inc. is the largest for-profit provider of
preschool educational and child care services in the United States. At May 29,
1998, KinderCare operated a total of 1,147 centers, with 1,145 centers in 38
states in the United States and two centers in the United Kingdom. The
consolidated financial statements include the financial statements of KinderCare
and its wholly owned subsidiaries: Mini-Skools Limited; KinderCare Development
Corp.; KinderCare Real Estate Corp.; KinderCare Learning Centres Limited and
KinderCare Properties Limited. All significant inter-company balances and
transactions have been eliminated in consolidation.

FISCAL YEAR

KinderCare's fiscal year ends on the Friday closest to May 31. The first
quarter is 16 weeks long and the second, third and fourth quarters are each
twelve weeks long. The fiscal years ended May 31, 1996 ("fiscal 1996"), May 30,
1997 ("fiscal 1997") and May 29, 1998 ("fiscal 1998") were 52-week fiscal years.

REVENUE RECOGNITION

KinderCare recognizes revenue for child care services as earned. Net
revenues include tuition, fees and non-tuition income, reduced by discounts.
KinderCare receives fees for reservation, registration, education and
transportation services. Non-tuition income is primarily comprised of field trip
revenue.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash held in banks and liquid
investments with original maturities not exceeding 90 days.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation on buildings and
equipment is provided on the straight-line basis over the estimated useful lives
of the assets. Leasehold improvements are amortized over the shorter of the
estimated useful life of the improvements or the lease term, including expected
lease renewal options where KinderCare has the unqualified right to exercise the
option.

KinderCare's property and equipment is depreciated using the following
estimated useful lives:

<TABLE>
<CAPTION>
LIFE
-------------
<S> <C>
Buildings...................................................................... 10-40 years
Building renovations........................................................... 5-10 years
Leasehold improvements......................................................... 5-10 years
Computer equipment............................................................. 3 years
All other equipment............................................................ 3-10 years
</TABLE>

During the fourth quarter of fiscal 1998, KinderCare changed the estimated
useful life of auxiliary equipment to three years. The change was made to better
align the estimated useful life of auxiliary equipment with actual experience.
Depreciation expense increased $9.4 million in fiscal 1998 as a result of the
change in estimate. The after-tax impact was reduced net income and basic and
diluted income

F-12
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
per share of $5.6 million and $0.60 per share, respectively. Auxiliary equipment
is comprised of educational supplies, such as toys, books, video games and
playground equipment, furniture, cots and kitchen and other equipment used in
the operation of the centers. Auxiliary equipment is depreciated to 50% of its
initial cost on a straight-line basis over three years. Subsequent replacements
are expensed when placed in service.

ASSET IMPAIRMENTS

Long-lived assets and certain identifiable intangibles to be held and used
by KinderCare are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. KinderCare regularly evaluates long-lived assets for impairment by
comparing projected undiscounted cash flows for each asset to the carrying value
of such asset. If the projected undiscounted cash flows are less than the
asset's carrying value, KinderCare records an impairment charge, if necessary,
to reduce the carrying value to estimated fair value.

DEFERRED FINANCING COSTS

Deferred financing costs are amortized on a straight-line basis over the
lives of the related debt facilities.

PRE-OPENING COSTS

Pre-opening costs include training salaries, grand opening and promotion
expenses and the initial purchase of forms and supplies needed to operate the
center. During fiscal 1997, KinderCare changed its method of accounting for
pre-opening costs to the direct write-off method, resulting in expense of
approximately $0.7 million (see Note 3). Prior to fiscal 1997, pre-opening costs
were deferred and amortized over one year.

SELF-INSURANCE PROGRAMS

KinderCare is self-insured for certain levels of general liability, workers'
compensation, property and employee medical coverage. Estimated costs of these
self-insurance programs are accrued at the undiscounted value of projected
settlements for known and anticipated claims.

INCOME TAXES

Deferred income taxes result primarily from temporary differences between
financial and tax reporting. If it is more likely than not that some portion or
all of a deferred tax asset will not be realized, a valuation allowance is
recognized.

STOCK-BASED COMPENSATION

Effective June 1, 1996, KinderCare adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. KinderCare
will continue to measure compensation expense for its stock-based employee
compensation plans using the method prescribed by APB Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES, and will, if material, provide pro forma
disclosures of net income and earnings per share as if the method prescribed by
SFAS No. 123 had been applied in measuring compensation expense.

F-13
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME (LOSS) PER SHARE

During the third quarter of fiscal 1998, KinderCare adopted SFAS No. 128,
EARNINGS PER SHARE. This statement requires the presentation of basic and
diluted earnings per share for all periods presented.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes requirements
for disclosure of comprehensive income. The new standard becomes effective for
KinderCare's fiscal year 1999 and requires reclassification of earlier financial
statements for comparative purposes.

In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for
disclosure about operating segments in annual financial statements and requires
disclosure of selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. This statement superceded
SFAS No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE. The new
standard becomes effective for KinderCare's fiscal year 1999 and requires that
comparative information from earlier years be restated to conform to the
requirements of this standard. KinderCare does not believe any substantial
changes to its disclosures will be made at the time SFAS No. 131 is adopted.

In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement requires that an entity recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. The new standard
becomes effective for KinderCare's fiscal year 2001. KinderCare has not yet
fully evaluated the impact of this statement.

USE OF ESTIMATES

RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the
current year's presentation.

2. RECAPITALIZATION

On October 3, 1996, KinderCare and KCLC Acquisition Corp. ("KCLC") entered
into an Agreement and Plan of Merger (the "Merger Agreement"). KCLC was a wholly
owned subsidiary of KLC Associates, L.P. (the "Partnership"), a partnership
formed at the direction of Kohlberg Kravis Roberts & Co., a private investment
firm ("KKR"). Pursuant to the Merger Agreement, on February 13, 1997, KCLC was
merged with and into KinderCare (the "Merger"), with KinderCare

F-14
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. RECAPITALIZATION (CONTINUED)
continuing as the surviving corporation. Upon completion of the Merger,
affiliates of KKR owned 7,828,947 shares, or approximately 83.6% of the
9,368,421 shares of common stock outstanding after the Merger. At May 29, 1998,
the Partnership owned 82.6% of the outstanding common stock of KinderCare.
Subject to certain provisions of the Merger Agreement, each issued and
outstanding share of common stock was converted, at the election of the holder,
into either the right to receive $19.00 in cash or the right to retain one share
of common stock, subject to proration.

In connection with the Merger, KinderCare repaid the then outstanding $91.6
million balance on KinderCare's previous $150.0 million credit facility and paid
$382.4 million to redeem common stock, warrants and options. In order to fund
the transactions contemplated by the Merger (the "Recapitalization"), KinderCare
issued $300.0 million 9 1/2% senior subordinated notes, executed a revolving
credit facility of $300.0 million, borrowed $50.0 million against a term loan
facility and issued 7,828,947 shares of common stock to KKR affiliates for
$148.8 million.

During the third and fourth quarters of fiscal 1997, non-recurring costs in
connection with the Recapitalization of approximately $17.3 million were
incurred and expensed. Additionally, financing costs of $27.2 million were
deferred, classified as other assets and are being amortized over the lives of
the new debt facilities.

3. RESTRUCTURING AND OTHER CHARGES (INCOME), NET

During the fourth quarter of fiscal 1997, KinderCare decided to relocate its
corporate offices from Montgomery, Alabama to Portland, Oregon in fiscal 1998.
In connection with the relocation, KinderCare recognized $5.7 million in
restructuring costs, primarily expenses incurred in the retention, recruitment
and relocation of employees and travel costs related to the office relocation,
in fiscal 1998. During the fourth quarter of fiscal 1997, restructuring costs,
primarily severance related, of $3.4 million and a $5.0 million charge to write
down KinderCare's then headquarters facility in Montgomery, Alabama to net
realizable value were recognized. During fiscal 1996, KinderCare made
substantial changes to its field operations, facilities management and support
functions. As a result of these changes, KinderCare provided $6.5 million for
restructuring costs, primarily to cover severance arrangements for the
approximately 100 positions which were eliminated.

During the fourth quarter of fiscal 1997, KinderCare recorded impairment
losses of $1.9 million, comprised of $1.3 million with respect to certain
long-lived assets and $0.6 million related to Kids Choice-TM-anticipated lease
termination costs. Additionally, charges of approximately $1.5 million were
incurred to write-off certain marketing materials and deferred pre-opening costs
on new centers. During fiscal 1996, KinderCare limited the development of its
Kid's Choice-TM- centers to contracts in process and recorded an impairment loss
of $6.3 million, consisting of a writedown of $5.3 million for the
recoverability of certain long lived assets, primarily leasehold improvements
(which were valued based on anticipated discounted cash flows), and $1.0 million
for anticipated lease termination costs.

During fiscal 1998, KinderCare, as a member of the Presidential Life Global
Class Action, received a $0.5 million payment, net of attorney's fees, as
settlement of KinderCare's claim in the United States District Court in New York
against Michael R. Milken, et al. During fiscal 1997, a $1.5 million interest
payment was received from Enstar Group Inc. ("Enstar"), KinderCare's former
parent, in connection with a settlement of KinderCare's claim against Enstar in
the U.S. Bankruptcy court in Montgomery, Alabama. During fiscal 1996, KinderCare
received a cash distribution of $11.3 million from Enstar in connection with
KinderCare's claim.

F-15
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. RECEIVABLES

Receivables consist of the following (dollars in thousands):

<TABLE>
<CAPTION>
MAY 30, 1997 MAY 29, 1998
------------ ------------
<S> <C> <C>
Tuition.............................................................................. $ 14,728 $ 17,817
Allowance for doubtful accounts...................................................... (2,192) (3,695)
------------ ------------
12,536 14,122
Other................................................................................ 1,113 865
------------ ------------
$ 13,649 $ 14,987
------------ ------------
------------ ------------
</TABLE>

5. PREPAID EXPENSES AND SUPPLIES

Prepaid expenses and supplies consist of the following (dollars in
thousands):

<TABLE>
<CAPTION>
MAY 30, 1997 MAY 29, 1998
------------- -------------
<S> <C> <C>
Prepaid rent......................................................................... $ 3,233 $ 3,279
Inventories.......................................................................... 1,862 1,224
Other................................................................................ 1,019 436
------ ------
$ 6,114 $ 4,939
------ ------
------ ------
</TABLE>

6. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (dollars in thousands):

<TABLE>
<CAPTION>
MAY 30, 1997 MAY 29, 1998
------------ ------------
<S> <C> <C>
Land................................................................................. $ 139,481 $ 147,535
Buildings and leasehold improvements................................................. 337,010 364,235
Equipment............................................................................ 91,354 107,472
Construction in progress............................................................. 7,947 18,097
------------ ------------
575,792 637,339
Accumulated depreciation and amortization............................................ (104,234) (129,226)
------------ ------------
$ 471,558 $ 508,113
------------ ------------
------------ ------------
</TABLE>

F-16
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following (dollars in
thousands):

<TABLE>
<CAPTION>
MAY 30, 1997 MAY 29, 1998
------------ ------------
<S> <C> <C>
Accrued compensation, benefits and related taxes..................................... $ 22,481 $ 29,475
Accrued interest..................................................................... 9,144 8,845
Deferred revenue..................................................................... 8,704 8,210
Accrued property taxes............................................................... 6,622 6,605
Accrued restructuring and other charges.............................................. 5,020 1,625
Self insurance....................................................................... 5,707 7,103
Accrued income taxes................................................................. 3,136 2,800
Other................................................................................ 8,242 11,558
------------ ------------
$ 69,056 $ 76,221
------------ ------------
------------ ------------
</TABLE>

8. LONG-TERM DEBT

Long-term debt consists of the following (dollars in thousands):

<TABLE>
<CAPTION>
MAY 30, 1997 MAY 29, 1998
------------ ------------
<S> <C> <C>
Secured:
Borrowings under revolving credit facility, interest at adjusted LIBOR plus 2.50%
(7.15% at May 29, 1998).......................................................... $ -- $ 10,000
Term loan facility, interest at adjusted LIBOR plus 3.00% (8.69% at May 30, 1997
and 8.14% at May 29, 1998)....................................................... 50,000 49,500
Industrial refunding revenue bonds at variable rates of interest from 4.15% to
5.79% at May 30, 1997 and 4.05% to 5.70% at May 29, 1998, supported by letters of
credit, maturing 1999 to 2009.................................................... 33,025 33,025
Real and personal property mortgages payable in monthly installments through 1999,
interest rate of 8.00%........................................................... 6,161 5,223
Industrial revenue bonds secured by real property with maturities to 2005 at
interest rates of 5.95% to 12.75%................................................ 5,492 5,190
Unsecured:
Senior subordinated notes due 2009, interest at 9 1/2%, payable semi-annually...... 300,000 300,000
Senior subordinated notes due 2001, interest at 10 3/8%, payable semi-annually..... 211 159
------------ ------------
394,889 403,097
Less current portion of long-term debt............................................... 1,760 1,839
------------ ------------
$ 393,129 $ 401,258
------------ ------------
------------ ------------
</TABLE>

CREDIT FACILITIES

KinderCare has credit facilities which are provided by a syndicate of
financial institutions and include a Term Loan Facility of $50.0 million and a
Revolving Credit Facility of $300.0 million (the "Credit Facilities").
KinderCare must pay an annual commitment fee equal to 1/2 of 1% per annum of

F-17
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. LONG-TERM DEBT (CONTINUED)
the undrawn portion of the commitments in respect of the Credit Facilities,
subject to reduction under a performance-based pricing grid, and a letter of
credit fee based on the aggregate face value of the outstanding letters of
credit under the Revolving Credit Facility.

The Term Loan Facility will mature on February 13, 2006 and provides for
$0.5 million annual interim amortization. The initial interest rate, at the
option of KinderCare, is adjusted LIBOR (as defined) plus 3.00% or ABR (as
defined) plus 1.75%, subject to reduction under a performance-based pricing
grid. KinderCare drew $50.0 million under the original $90.0 million of total
availability under the Term Loan Facility. The availability of the remaining
$40.0 million expired on August 13, 1997. The Term Loan Facility is subject to
mandatory prepayment from (i) 100% of the net cash proceeds on the sale of
certain non-ordinary-course assets, (ii) 100% of the net cash proceeds from
certain sale/ leaseback transactions, (iii) 50% of excess cash flow (as defined)
and (iv) 100% of the net proceeds from the issuance of certain debt obligations.

The Revolving Credit Facility commitment will mature February 13, 2004. The
initial interest rate, at the option of KinderCare, is adjusted LIBOR plus 2.50%
or ABR plus 1.25%, subject to reduction under a performance-based pricing grid.
At May 29,1998, of the $300.0 million available under the Revolving Credit
Facility, KinderCare had approximately $42.2 million committed under outstanding
letters of credit and $10.0 million drawn.

KinderCare's obligations under the Credit Facilities are secured by a
perfected first priority pledge of and security interest in the common stock of
each existing and subsequently acquired direct domestic subsidiary of KinderCare
and 65% of the common stock of each existing and subsequently acquired direct
foreign subsidiary and, in certain circumstances, non-cash consideration
received for certain sales of assets.

The Credit Facilities contain customary covenants and restrictions on
KinderCare's ability to engage in certain activities and include customary
events of default. In addition, the Credit Facilities provide that KinderCare
must meet or exceed defined interest coverage ratios and must not exceed defined
leverage ratios.

INDUSTRIAL REVENUE BONDS

SERIES A THROUGH E INDUSTRIAL REVENUE BONDS--KinderCare is obligated to
various issuers of industrial revenue bonds (the "Refunded IRBs") in an amount
totaling approximately $33.0 million outstanding at May 30, 1997 and May 29,
1998. The Refunded IRBs were issued to provide funds for refunding an equal
principal amount of industrial revenue bonds which were used to finance the cost
of acquiring, constructing and equipping certain facilities of KinderCare. The
Refunded IRBs bear interest at variable rates from 4.05% to 5.70% and each is
secured by a letter of credit under the Revolving Credit Facility.

OTHER IRBS--KinderCare also is obligated to various issuers of other
industrial revenue bonds (the "IRBs") in the aggregate principal amount of
approximately $5.5 and $5.2 million at May 30, 1997 and May 29, 1998,
respectively. The principal amount of such IRBs was used to finance the cost of
acquiring, constructing and equipping certain child care facilities and the IRBs
are secured by these facilities. The IRBs bear interest at rates of 5.95% to
12.75%.

F-18
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. LONG-TERM DEBT (CONTINUED)
SENIOR SUBORDINATED NOTES

In fiscal 1997, KinderCare issued $300.0 million in unsecured senior
subordinated notes due February 15, 2009 (the "9 1/2% Senior Subordinated
Notes") under an indenture (the "Indenture") between KinderCare and Marine
Midland Bank, as trustee. The 9 1/2% Senior Subordinated Notes bear interest at
the fixed rate of 9 1/2% per annum, payable semi-annually on February 15 and
August 15 of each year, and are effectively subordinated to the secured
indebtedness of KinderCare, including indebtedness under the Credit Facilities.

The 9 1/2% Senior Subordinated Notes are callable by KinderCare at 104.750%
of par from February 15, 2002 through February 15, 2003. The redemption price is
reduced to 103.167% of par on February 15, 2003, to 101.583% of par on February
15, 2004 and on February 15, 2005, until maturity, the notes may be redeemed at
par. Upon a change of control, as defined in the Indenture, each holder of the
9 1/2% Senior Subordinated Notes may require KinderCare to repurchase all or a
portion of such holder's notes for a cash purchase price equal to 101% of par,
together with accrued and unpaid interest to the date of repurchase.

The 9 1/2% Senior Subordinated Notes contain a number of covenants similar
to those of the Credit Facilities and include certain limitations with respect
to payment of dividends, incurrence of additional indebtedness, creation of
liens, asset or subsidiary sales, transactions with affiliates, investments and
guarantees, all of which are described in the Indenture.

In fiscal 1994, KinderCare issued $100.0 million in unsecured senior
subordinated notes due June 1, 2001, which bear interest at a fixed rate of
10 3/8% per annum, payable semi-annually on December 1 and June 1 of each year
("the 10 3/8% Senior Subordinated Notes"). The 10 3/8% Senior Subordinated Notes
are effectively subordinated to the secured indebtedness of KinderCare,
including indebtedness under the Credit Facilities. In a series of transactions
preceding and in contemplation of the Merger, KinderCare retired 99.7% of the
10 3/8% Senior Subordinated Notes.

PRINCIPAL PAYMENTS

The aggregate minimum annual maturities of long-term debt for the five
fiscal years subsequent to May 29, 1998 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR:
- ----------------------------------------------------------------------------------
<S> <C>
1999.............................................................................. $ 1,839
2000.............................................................................. 11,681
2001.............................................................................. 14,733
2002.............................................................................. 822
2003.............................................................................. 4,733
Thereafter........................................................................ 369,289
----------
Total........................................................................... $ 403,097
----------
----------
</TABLE>

F-19
<PAGE>
9. INCOME TAXES

The provision (benefit) for income taxes attributable to income (loss)
before income taxes and extraordinary items consists of the following (dollars
in thousands):

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------
<S> <C> <C> <C>
MAY 31, 1996 MAY 30, 1997 MAY 29, 1998
------------ ------------- ------------
Current:
Federal............................................................. $ 832 $ 3,980 $ 470
State............................................................... (132) 815 60
Foreign............................................................. 564 562 322
------------ ------ ------------
1,264 5,357 852
------------ ------ ------------
Deferred:
Federal............................................................. 10,292 (1,390) 3,224
State............................................................... 2,137 (530) 1,426
Foreign............................................................. (144) (62) (3,500)
------------ ------ ------------
12,285 (1,982) 1,150
------------ ------ ------------
$ 13,549 $ 3,375 $ 2,002
------------ ------ ------------
------------ ------ ------------
</TABLE>

A reconciliation between the statutory federal income tax rate and the
effective income tax rates on income (loss) before income taxes and
extraordinary items is as follows:

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------
MAY 31, 1996 MAY 30, 1997 MAY 29, 1998
------------ ------------- -------------
<S> <C> <C> <C>
Expected tax provision (benefit) on income (loss) before income taxes
and extraordinary items at federal rate--35%........................ $ 12,334 $ (721) $ 1,900
State income taxes, net of federal tax benefit........................ 1,303 (235) 265
Non-deductible recapitalization and other expenses.................... -- 4,594 101
Tax credits, net of valuation adjustment.............................. (465) (620) (332)
Other, net............................................................ 377 357 68
------------ ------ ------
$ 13,549 $ 3,375 $ 2,002
------------ ------ ------
------------ ------ ------
</TABLE>

F-20
<PAGE>
9. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at May 30, 1997
and May 29, 1998 are summarized as follows (dollars in thousands):

<TABLE>
<CAPTION>
MAY 30, 1997 MAY 29, 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Self-insurance reserves............................................................ $ 11,282 $ 11,232
Net operating loss carryforwards................................................... 4,760 9,461
Capital loss carryforwards......................................................... 4,818 361
Tax credits........................................................................ 6,547 9,466
Property and equipment, basis differences.......................................... 1,355 --
Other.............................................................................. 13,058 7,397
------------ ------------
Total gross deferred tax assets.................................................. 41,820 37,917
Less valuation allowance....................................................... (7,050) (3,000)
------------ ------------
Net deferred tax assets.......................................................... 34,770 34,917
Deferred tax liabilities:
Property and equipment, basis differences.......................................... -- (6,853)
Property and equipment, basis differences of foreign subsidiaries.................. (8,944) (5,444)
Stock basis of foreign subsidiary.................................................. (3,622) (3,622)
Other.............................................................................. (2,056) --
------------ ------------
Total gross deferred tax liabilities............................................. (14,622) (15,919)
------------ ------------
Financial statement net deferred tax assets...................................... $ 20,148 $ 18,998
------------ ------------
------------ ------------
</TABLE>

The valuation allowance decreased by $4.1 million during fiscal 1998.
Deferred tax assets have been recognized to the extent of existing deferred tax
liabilities and income taxes paid that are subject to recovery through
carryback. Future recognized tax benefits relating to the valuation allowance of
$3.0 million will reduce tax expense.

At May 29, 1998, KinderCare had $24.6 million of net operating losses
available for carryforward which expire in fiscal year 2013. Utilization of the
net operating losses is subject to an annual limitation of $9.8 million.
KinderCare also has capital losses of $0.9 million, which are available to
offset future capital gains, and expire in fiscal year 2000. Additionally,
KinderCare has tax credits available for carryforward for federal income tax
purposes of $9.5 million, which are available to offset future federal income
taxes through fiscal year 2013.

10. BENEFIT PLANS

STOCK PURCHASE AND OPTION PLANS

During 1993, KinderCare adopted the KinderCare Learning Centers, Inc. 1993
Stock Option and Incentive Plan (the "1993 Plan"). Prior to the Merger, this
plan authorized a committee of the Board of Directors of KinderCare to grant or
award to eligible employees of KinderCare and its subsidiaries and affiliates,
stock options and restricted stock and related warrants of KinderCare beginning
on March 31, 1993. In connection with the 1993 Plan, KinderCare reserved
approximately 1.9 million shares of common stock for issuance to employees of
KinderCare upon exercise of options available for grants made by the Board of
Directors of KinderCare.

At the effective time of the Merger, all stock options granted by KinderCare
under the 1993 Plan were cancelled and each option was exchanged for a payment
from KinderCare after the Merger

F-21
<PAGE>
10. BENEFIT PLANS (CONTINUED)
(subject to any applicable withholding taxes) equal to the product of (i) the
total number of shares of common stock previously subject to such stock option
and (ii) the excess of $19.00 over the exercise price per share of the common
stock previously subject to such stock option. The cancellation of the stock
options resulted in payments of approximately $3.8 million. The 1993 Plan was
terminated at the effective time of the Merger.

During fiscal 1997, the Board of Directors of KinderCare adopted and, during
fiscal 1998, the stockholders approved the 1997 Stock Purchase and Option Plan
for Key Employees of KinderCare Learning Centers, Inc. and Subsidiaries (the
"1997 Plan"). The 1997 Plan authorizes grants of stock or stock options covering
2,500,000 shares of KinderCare's common stock. Grants or awards under the 1997
Plan may take the form of purchased stock, restricted stock, incentive or
nonqualified stock options or other types of rights specified in the 1997 Plan.

During fiscal 1997 and fiscal 1998, the executive officers purchased 157,895
and 105,776 shares of restricted common stock in aggregate, respectively, under
the terms of the 1997 Plan. Certain executive officers executed term notes
("Stockholder Notes") with KinderCare in order to purchase the restricted stock.
The Stockholder Notes are due February 20, 2008 and bear interest at 5.84% per
annum, payable semi-annually on June 30 and December 31. Certain of the
Stockholder Notes contain mandatory prepayment provisions. At May 29, 1998,
Stockholder Notes totaled $1.3 million and are reflected as a component of
stockholders' equity.

In conjunction with the purchase of restricted stock, options to acquire an
aggregate of an additional 421,053 and 264,440 shares of common stock were
granted to the executive officers during fiscal 1997 and 1998, respectively.
Each of such options had a weighted average fair value, calculated using the
Black Scholes option pricing model, of approximately $8.35 and $7.53 on the date
of grant in fiscal 1997 and 1998, respectively. The assumptions used during
fiscal 1997 and 1998 to estimate the grant date present value were volatility of
28.0% in fiscal 1997 and 26.0% in fiscal 1998, risk-free rate of return of 5.8%
in fiscal 1997 and 5.5% in fiscal 1998, dividend yield of 0.0% and time to
exercise of seven years. All of the stock options granted were non-qualified
options which vest 20% per year over a five-year period. No other options were
outstanding at May 29, 1998.

Grants or awards under the 1997 Plan are made at prices determined by the
Board of Directors. All options granted under the 1997 Plan during fiscal 1997
and 1998 have an exercise price of $19.00 per share.

F-22
<PAGE>
10. BENEFIT PLANS (CONTINUED)
A summary of options outstanding is as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- -------------
<S> <C> <C>
Outstanding June 2, 1995.............................................................. 1,307,638 $ 10.11
Granted............................................................................. 256,700 13.03
Exercised........................................................................... (746,560) 9.60
Canceled............................................................................ (73,640) 11.62
---------- ------
Outstanding May 31, 1996.............................................................. 744,138 11.48
Granted............................................................................. 460,053 18.60
Exercised........................................................................... (596,058) 11.70
Canceled............................................................................ (187,080) 11.36
---------- ------
Outstanding May 30, 1997.............................................................. 421,053 19.00
Granted............................................................................. 264,440 19.00
---------- ------
Outstanding May 29, 1998.............................................................. 685,493 $ 19.00
---------- ------
---------- ------
</TABLE>

Options outstanding at May 29, 1998 have a remaining contractual life of 8.8
years. Exercisable options at May 29, 1998 totaled 120,388.

As discussed in Note 1, KinderCare has adopted the disclosure-only
provisions of SFAS No. 123. Accordingly, no compensation cost has been
recognized for stock options granted with an exercise price equal to the fair
value of the underlying stock on the date of grant. Had compensation cost for
KinderCare's stock option plans been determined based on the estimated weighted
average fair value of the options at the date of grant, KinderCare's net income
and basic and diluted income per share for fiscal 1998 would have been $2.8
million and $0.29 per share compared to the reported amounts of $3.4 million and
$0.36, respectively. During fiscal 1996 and 1997, the pro forma and reported
amounts did not materially differ.

SAVINGS AND INVESTMENT PLAN

The Board of Directors of KinderCare adopted the KinderCare Learning
Centers, Inc. Savings and Investment Plan (the "Savings Plan") effective January
1, 1990 and approved the restatement of the Savings Plan effective July 1, 1998.
All employees over the age of 21 of KinderCare and its subsidiaries are eligible
to participate in the Savings Plan on the quarterly entry date after the
employee has been employed a minimum of six months and completed 1,000 hours of
service. Participants may contribute, in increments of 1% up to 18% of their
compensation to the Savings Plan. The Board of Directors has elected, since
April 1, 1991, not to match employee contributions.

NONQUALIFIED DEFERRED COMPENSATION PLAN

The Board of Directors of KinderCare adopted the KinderCare Learning
Centers, Inc. Nonqualified Deferred Compensation Plan (the "DC Plan") effective
August 1, 1996 and approved the restatement of the DC Plan effective August 1,
1996. Under the DC Plan, certain highly compensated or key management employees
are provided the opportunity to defer receipt and income taxation of such
employees' compensation.

F-23
<PAGE>
10. BENEFIT PLANS (CONTINUED)
DIRECTORS' DEFERRED COMPENSATION PLAN

On May 27, 1998, the Board of Directors of KinderCare adopted the Directors'
Deferred Compensation Plan (the "Directors' DC Plan"). Under the Directors' DC
Plan, members of the Board of Directors may elect to defer receipt and income
taxation of all or a portion of such members' annual retainer. Any amounts
deferred under the Directors' DC Plan will be credited to a phantom stock
account. The number of shares of phantom stock credited to the director's
account will be determined based on the amount of deferred compensation divided
by the then fair value per share, as defined in Directors' DC Plan, of
KinderCare's common stock.

Distributions from the Directors' DC Plan are made in cash and reflect the
fair value per share of the common stock at the time of distribution multiplied
by the number of phantom shares credited to the director's account.
Distributions from the Directors' DC Plan occur upon the earlier of (i) the
first day of the year following the director's retirement or separation from the
Board, or (ii) termination of the Directors' DC Plan.

11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates, methods and assumptions are set forth below for
KinderCare's financial instruments at May 30, 1997 and May 29, 1998.

CASH AND CASH EQUIVALENTS, RECEIVABLES AND CURRENT LIABILITIES

Fair value approximates carrying value as reflected in the consolidated
balance sheets at May 30, 1997 and May 29, 1998 because of the short-term
maturity of these instruments.

LONG-TERM DEBT

The carrying value of KinderCare's 9 1/2% Senior Subordinated Notes, at May
29, 1998, approximated fair value based on current market activity, while the
fair value at May 30, 1997, approximated fair value due to the recent Merger and
refinancing. The carrying values for KinderCare's remaining long-term debt of
$94.9 and $103.1 million at May 30, 1997 and May 29, 1998, respectively,
approximated market value based on current rates that management believes could
be obtained for similar debt.

12. COMMITMENTS AND CONTINGENCIES

KinderCare conducts a portion of its operations from leased or subleased day
care centers. Subsequent to January 1, 1993, KinderCare re-negotiated certain
day care center leases to amend the terms to allow KinderCare the right to
terminate the lease at any time with minimal notice. In connection with the
termination option, KinderCare, in certain instances, prepaid up to 12 months
rent. Such amounts, totaling approximately $3.2 million, will be amortized over
the termination transition period or over the appropriate remaining months of
the lease period. At May 29, 1998, the remaining unamortized balance of the
prepaid amount was $2.3 million. In addition, several leases were re-negotiated
to decrease the monthly fixed rental payments.

KinderCare leases its fleet of vehicles. Each vehicle in KinderCare's fleet
is leased pursuant to the terms of a 12-month non-cancelable master lease which
may be renewed on a month-to-month basis after the initial 12 month lease
period. Payments under the vehicle leases vary with the number of vehicles
leased and changes in interest rates. The vehicle leases require that KinderCare
guarantee specified residual values upon cancellation. In most cases, management
expects that substantially all of the leases will be renewed or replaced by
other leases as part of the normal course of business. All

F-24
<PAGE>
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
such leases are classified as operating leases. Expenses incurred in connection
with the fleet vehicle leases were $10.3 million, $10.1 million and $10.9
million for fiscal 1996, 1997 and fiscal 1998, respectively.

Following is a schedule of future minimum lease payments under operating
leases, that have initial or remaining non-cancelable lease terms in excess of
one year at May 29, 1998 (dollars in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR:
- -----------------------------------------------------------------------------------
<S> <C>
1999............................................................................... $ 17,952
2000............................................................................... 15,253
2001............................................................................... 12,446
2002............................................................................... 10,217
2003............................................................................... 8,780
Subsequent years................................................................... 47,543
</TABLE>

At May 29, 1998, KinderCare had a Revolving Credit Facility of $300.0
million, of which $42.2 million was committed under outstanding letters of
credit.

KinderCare is presently, and is from time to time, subject to claims and
suits arising in the ordinary course of business, including suits alleging child
abuse. In certain of such actions, plaintiffs request damages that are covered
by insurance. KinderCare believes that none of the claims or suits of which it
is aware will materially affect its financial position, operating results or
cash flows, although absolute assurance cannot be given with respect to the
ultimate outcome of any such actions.

13. STOCK REPURCHASE PROGRAMS

On February 15, 1995 the Board of Directors of KinderCare authorized the
repurchase of up to $10 million of KinderCare's common stock. This repurchase
was completed and all shares retired during fiscal 1996. On May 2, 1996, the
Board of Directors authorized an additional repurchase of $10 million and
increased it to $23.0 million on June 3, 1996. During fiscal 1996, under the
additional stock buyback program, 259,000 shares and 120,000 warrants were
repurchased for $4.2 million. During fiscal 1997, under the additional stock
buyback program, 852,500 shares and 315,000 warrants were repurchased for $14.1
million. All shares repurchased were retired. Other than in connection with the
Merger, no additional shares or warrants were repurchased subsequent to July 22,
1996 and the stock buyback programs were terminated at the effective time of the
Merger.

14. EXTRAORDINARY LOSSES

During fiscal 1997, KinderCare purchased $99.4 million aggregate principal
amount of its 10 3/8% Senior Subordinated Notes for an aggregate price of $108.3
million. This transaction included the write-off of deferred financing costs of
$1.7 million and resulted in an extraordinary loss of $6.5 million, net of
income taxes of $4.1 million. In connection with the Merger and retirement of
existing debt, an extraordinary loss of $1.0 million, net of income taxes of
$0.7 million, was recognized for the write-off of deferred financing costs
related to KinderCare's previous credit facility.

15. INCOME (LOSS) PER SHARE

In 1997, the FASB issued SFAS No. 128, EARNINGS PER SHARE. SFAS No. 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants or
convertible securities. Diluted earnings per share is very similar to previously
reported fully diluted

F-25
<PAGE>
15. INCOME (LOSS) PER SHARE (CONTINUED)
earnings per share. All earnings per share amounts have been presented, and
where necessary restated, to conform to the requirements of SFAS No. 128.

Income (loss) before extraordinary items (numerator) was the same in the
calculation of basic and diluted income (loss) per share for fiscal 1996, 1997
and 1998. The following table shows the reconciliation of the weighted average
common shares (shares in thousands):

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------
MAY 31, 1996 MAY 30, 1997 MAY 29, 1998
------------- ------------- ---------------
<S> <C> <C> <C>
Weighted average common shares outstanding............................ 19,770 16,479 9,397
Dilutive effect of options............................................ 422 -- 1
------ ------ -----
Weighted average common shares outstanding and potential common
shares.............................................................. 20,192 16,479 9,398
------ ------ -----
------ ------ -----
</TABLE>

In accordance with SFAS No. 128, the potential common shares for fiscal 1997
were not included in the calculation of diluted income (loss) per share due to
their anti-dilutive effect when a loss before extraordinary items exists.

16. QUARTERLY RESULTS (UNAUDITED)

A summary of results of operations for fiscal 1997 and fiscal 1998 is as
follows (dollars in thousands, except per share data):

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER(A) QUARTER(B) QUARTER(B) QUARTER(B)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED MAY 30, 1997:
Revenues, net................................................. $ 171,427 $ 128,324 $ 126,657 $ 136,727
Operating income (loss)....................................... 9,751 14,366 (3,074) (941)
Income (loss) before extraordinary items...................... 2,978 6,820 (10,455) (4,778)
Basic income (loss) per share before extraordinary items...... 0.15 0.35 (0.61) (0.50)
Diluted income (loss) per share before extraordinary items.... 0.15 0.33 (0.61) (0.50)
Net income (loss)............................................. 1,749 1,569 (11,507) (4,778)
Basic and diluted income (loss) per share..................... 0.09 0.08 (0.67) (0.50)

FISCAL YEAR ENDED MAY 29, 1998:
Revenues, net................................................. $ 180,562 $ 135,587 $ 134,823 $ 146,098
Operating income.............................................. 12,649 9,807 12,633 10,404
Net income.................................................... 28 319 2,060 1,019
Basic and diluted income per share............................ 0.00 0.03 0.22 0.11
</TABLE>

- ------------------------

(a) Sixteen week quarter

(b) Twelve week quarters

F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
KinderCare Learning Centers, Inc.:

We have audited the accompanying consolidated balance sheets of KinderCare
Learning Centers, Inc. and subsidiaries (the "Company") as of May 29, 1998 and
May 30, 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of KinderCare Learning Centers,
Inc. and subsidiaries as of May 29, 1998 and May 30, 1997, and the results of
their operations and their cash flows for each of the years then ended, in
conformity with generally accepted accounting principles.

Deloitte & Touche LLP
Portland, Oregon
July 24, 1998

F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
KinderCare Learning Centers, Inc.:

We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of KinderCare Learning Centers, Inc. and
subsidiaries for the year ended May 31, 1996. These consolidated financial
statements are the responsibility of KinderCare's management. Our responsibility
is to express an opinion on these consolidated financial statements based on our
audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and the cash
flows of KinderCare Learning Centers, Inc. and subsidiaries for the year ended
May 31, 1996, in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP
Atlanta, Georgia
August 9, 1996

F-28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

KINDERCARE LEARNING CENTERS, INC.

COMMON STOCK

-------------------

P R O S P E C T U S

-------------------

MERRILL LYNCH & CO.

CREDIT SUISSE FIRST BOSTON

SALOMON SMITH BARNEY

NATIONSBANC MONTGOMERY SECURITIES LLC

, 1999

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED
<PAGE>
SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED APRIL 9, 1999

PROSPECTUS

[LOGO]
SHARES
KINDERCARE LEARNING CENTERS, INC.

COMMON STOCK

---------------------

We are is issuing and selling shares of common stock, and stockholders are
selling shares of common stock. The international managers will offer
shares outside the United States and Canada, and the U.S. underwriters
will offer shares in the United States and Canada.

INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 11 OF THIS PROSPECTUS.

---------------------

The international managers may also purchase up to an additional
shares from the selling stockholders at the public offering price,
less the underwriting discount, within 30 days from the date of this prospectus
to cover over-allotments. The U.S. underwriters may similarly purchase up to an
aggregate of an additional shares from the selling stockholders.

Merrill Lynch International is acting as sole book-running manager for the
offering. Merrill Lynch International and Credit Suisse First Boston (Europe)
Limited are acting as joint lead managers. The shares of common stock will be
ready for delivery in New York, New York on or about , 1999.

------------------------

JOINT LEAD MANAGERS

MERRILL LYNCH INTERNATIONAL CREDIT SUISSE FIRST BOSTON

------------------

SALOMON SMITH BARNEY INTERNATIONAL
<PAGE>
NATIONSBANC MONTGOMERY SECURITIES LLC

------------------

The date of this prospectus is , 1999.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

UNDERWRITING

GENERAL

We intend to offer our common stock outside the United States and Canada
through a number of international managers as well as elsewhere through U.S.
underwriters. Merrill Lynch International, Credit Suisse First Boston (Europe)
Limited, Salomon Brothers International Limited and NationsBanc Montgomery
Securities LLC are acting as lead managers of each of the international managers
named below. Subject to the terms and conditions set forth in an international
purchase agreement among our company, the selling stockholders and the
international managers, and concurrently with the sale of shares of common
stock to the U.S. underwriters, we and the selling stockholders have agreed to
sell to the international managers, and each of the international managers
severally and not jointly has agreed to purchase from our company and the
selling stockholders, the number of shares of common stock set forth opposite
its name below.

<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
- -------------------------------------------------------------------------------- ------------
<S> <C>
Merrill Lynch International.....................................................
Credit Suisse First Boston (Europe) Limited.....................................
Salomon Brothers International Limited .........................................
NationsBanc Montgomery Securities LLC...........................................
------------
Total.................................................................
------------
------------
</TABLE>

We and the selling stockholders have also entered into a U.S. purchase
agreement with underwriters in the United States and Canada for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston
Corporation, Salomon Smith Barney Inc. and NationsBanc Montgomery Securities LLC
are acting as U.S. representatives. Subject to the terms and conditions set
forth in the U.S. purchase agreement, and concurrently with the sale of
shares of common stock to the international managers pursuant to the
international purchase agreement, we and the selling stockholders have agreed to
sell to the U.S. underwriters, and the U.S. underwriters severally have agreed
to purchase from us and the selling stockholders, an aggregate of shares
of common stock. The public offering price per share and the total underwriting
discount per share of common stock are identical under the international
purchase agreement and the U.S. purchase agreement.

In the international purchase agreement and the U.S. purchase agreement, the
several international managers and the several U.S. underwriters have agreed,
subject to the terms and conditions set forth in those agreements, to purchase
all of the shares of common stock being sold under the terms of each such
agreement if any of the shares of common stock being sold under the terms of
that agreement are purchased. In the event of a default by an underwriter, the
international purchase agreement and the U.S. purchase agreement provide that
the purchase commitments of the nondefaulting underwriters may be increased or
the purchase agreements may be terminated. The closings with respect to the sale
of shares of common stock to be purchased by the international managers and the
U.S. underwriters are conditioned upon one another.

We and the selling stockholders have agreed to indemnify the international
managers and the U.S. underwriters against liabilities, including liabilities
under the Securities Act, or to contribute to payments the international
managers and the U.S. underwriters may be required to make in respect of those
liabilities.

82
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of legal matters by counsel for the underwriters and the other
conditions contained in the international purchase agreement and the U.S.
purchase agreement. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.

COMMITMENTS AND DISCOUNTS

The lead managers have advised us and the selling stockholders that the
international managers propose initially to offer the shares of common stock to
the public at the public offering price set forth on the cover page of this
prospectus, and to dealers at such price less a concession not in excess of $
per share of common stock. The international managers may allow, and such
dealers may reallow, a discount not in excess of $ per share of common
stock to other dealers. After the public offering, the public offering price,
concession and discount may change.

The following table shows the per share and total public offering price,
underwriting discount to be paid by us and the selling stockholders to the
international managers and the U.S. underwriters and the proceeds before
expenses to us and the selling stockholders. This information assumes either no
exercise or full exercise by the international managers and the U.S.
underwriters of their over-allotment options.

<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
----------- -------------- -----------
<S> <C> <C> <C>
Public offering price................................................... $ $ $
Underwriting discount................................................... $ $ $
Proceeds, before expenses, to KinderCare................................ $ $ $
Proceeds, before expenses, to the selling stockholders.................. $ $ $
</TABLE>

The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by Kindercare.

INTERSYNDICATE AGREEMENT

The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the terms of the intersyndicate agreement, the international managers and
the U.S. underwriters are permitted to sell shares of our common stock to each
other for purposes of resale at the public offering price, less an amount not
greater than the selling concession. Under the terms of the intersyndicate
agreement, the international managers and any dealer to whom they sell shares of
our common stock will not offer to sell or sell shares of our common stock to
persons who are U.S. or Canadian persons or to persons they believe intend to
resell to persons who are U.S. or Canadian persons, and the U.S. underwriters
and any dealer to whom they sell shares of common stock will not offer to sell
or sell shares of common stock to non-U.S. persons or to non-Canadian persons or
to persons they believe intend to resell to non-U.S. or non-Canadian persons,
except in the case of transactions under the terms of the intersyndicate
agreement.

OVER-ALLOTMENT OPTION

The selling stockholders have granted an option to the international
managers, exercisable for 30 days after the date of this prospectus, to purchase
up to an aggregate of additional shares of our common stock at the public
offering price set forth on the cover page of this prospectus, less the
underwriting discount. The international managers may exercise this option
solely to cover

83
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

over-allotments, if any, made on the sale of our common stock offered by this
prospectus. To the extent that the international managers exercise this option,
each international manager will be obligated to purchase a number of additional
shares of our common stock proportionate to such international manager's initial
amount reflected in the table at the beginning of this section of the
prospectus.

The selling stockholders also have granted an option to the U.S.
underwriters, exercisable for 30 days after the date of this prospectus, to
purchase up to an aggregate of additional shares of common stock to cover
over-allotments, if any, on terms similar to those granted to the international
managers.

RESERVED SHARES

NO SALES OF SIMILAR SECURITIES

NEW YORK STOCK EXCHANGE LISTING

PRICING OF THE OFFERING

Before this offering, there has been a limited public market for our common
stock. The public offering price will be determined through negotiations among
us, the selling stockholders and the U.S.

84
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

representatives and the lead managers. The factors to be considered in
determining the public offering price include the following:

- prevailing market conditions

- the valuation multiples of publicly traded companies that the U.S.
representatives and the lead managers believe to be comparable to us

- our financial information

- the history of, and the prospects for, our company and the industry in
which we compete

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

UK SELLING RESTRICTIONS

Each international manager has agreed to each of the following:

- it has not offered or sold and, prior to the expiration of the period of
six months from the closing date, will not offer or sell any shares of
common stock to persons in the United Kingdom, except to persons whose
ordinary activities involve them in acquiring, holding,

85
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

managing or disposing of investments, whether as principal or agent, for
the purposes of their businesses or otherwise in circumstances that do not
constitute an offer to the public in the United Kingdom within the meaning
of the Public Offers of Securities Regulations 1995

- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the KinderCare common stock in, from or otherwise involving
the United Kingdom

- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issuance
of KinderCare common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 as amended by the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1997 or
is a person to whom such document may otherwise lawfully be issued or
passed on

NO PUBLIC OFFERING OUTSIDE THE UNITED STATES

No action has been or will be taken in jurisdiction, except in the United
States, that would permit a public offering of the shares of common stock, or
the possession, circulation or distribution of this prospectus or any other
material relating to our company, the selling stockholders or shares of our
common stock in any jurisdiction where action for the purpose is required.
Accordingly, the shares of our common stock may not be offered or sold, directly
or indirectly, and neither this prospectus nor any other offering material or
advertisements in connection with the shares of common stock may be distributed
or published, in or from any country or jurisdiction except in compliance with
any applicable rules and regulations of any such country of jurisdiction.

Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in additional to the offering price set forth on the cover
page of this prospectus.

OTHER RELATIONSHIPS

86
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

KINDERCARE LEARNING CENTERS, INC.

COMMON STOCK

-------------------

P R O S P E C T U S

-------------------

MERRILL LYNCH INTERNATIONAL

CREDIT SUISSE FIRST BOSTON

SALOMON SMITH BARNEY INTERNATIONAL

NATIONSBANC MONTGOMERY SECURITIES LLC

, 1999

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the expenses expected to be incurred, and
borne by, KinderCare in connection with the issuance and distribution of common
stock registered hereby, all of which expenses, except for the Securities and
Exchange Commission registration fee, the National Association of Securities
Dealers, Inc. filing fee, and the New York Stock Exchange listing application
fee, are estimated.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................... $
National Association of Securities Dealers, Inc. filing fee.......................
New York Stock Exchange listing application fee...................................
Printing and engraving fees and expenses..........................................
Legal fees and expenses...........................................................
Accounting fees and expenses......................................................
Blue Sky fees and expenses........................................................
Transfer Agent and Registrar fees and expenses....................................
Miscellaneous expenses............................................................
---------
Total.............................................................................
---------
---------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

KinderCare is a Delaware corporation. Section 102(b)(7) of the Delaware
General Corporation Law enables a corporation in its original certificate of
incorporation or an amendment to such certificate to eliminate or limit the
personal liability of a director for violations of the director's fiduciary
duty, except (1) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) pursuant
to Section 174 of the DGCL, which provides for liability of directors for
unlawful payments of dividends or unlawful stock purchase or redemptions or (4)
for any transaction from which a director derives an improper personal benefit.

Section 145 of the DGCL provides that a corporation may indemnify any
person, including an officer or director, who is, or is threatened to be made,
party to any threatened, pending or completed legal action, suit or proceeding,
whether civil, criminal, administrative or investigative other than an action by
or in the right of such corporation, by reason of the fact that such person was
an officer, director, employee or agent of such corporation or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses including
attorney's fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such officer, director, employee or agent acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
corporation's best interest and, for criminal proceeding, had no reasonable
cause to believe that his conduct was unlawful. A Delaware corporation may
indemnify any officer or director in any action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses that such officer or
director actually and reasonably incurred.

KinderCare's certificate of incorporation provides for the indemnification
of any individual who is made a party to a proceeding because such individual is
or was a director or officer of KinderCare

II-1
<PAGE>
against liability incurred by such individual in the proceeding if such
individual acted in good faith and in a manner the individual reasonably
believed to be in or not opposed to the best interests of KinderCare and, in the
case of any criminal proceeding, the individual had no reason to believe his or
her conduct was unlawful. In addition, Article IV of the bylaws of KinderCare,
which is filed as Exhibit 3(b) to this registration statement, provides for
indemnification of the officers and directors to the full extent permitted by
applicable law.

The purchase agreements, which are Exhibits 1(a) and 1(b) to this
registration statement, provide for indemnification by the underwriters,
severally and not jointly, of KinderCare, its directors and officers and the
selling stockholders, and by KinderCare and the selling stockholders, severally
and not jointly, of the underwriters, for liabilities arising under the
Securities Act, and afford rights of contribution with respect thereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the three years preceding the filing of this registration statement,
KinderCare sold shares of its common stock in the amount, at the time, and for
the aggregate amount of consideration listed below without registration under
the Securities Act of 1933. Exemption from registration under the Securities Act
for the following sale is claimed under Section 4(2) of the Securities Act
because such transaction was by an issuer and did not involve a public offering:

On February 14, 1997, KinderCare issued 157,895 shares of common stock to
David J. Johnson for aggregate consideration of $3,000,005.

ITEM 16. EXHIBITS

The following exhibits are filed with this registration statement or
incorporated into this registration statement by reference:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1(a) Form of U.S. Purchase Agreement among KinderCare and the Underwriters named therein.*

1(b) Form of International Purchase Agreement among KinderCare and the Underwriters named therein.*

2(a) Agreement and Plan of Merger dated as of October 3, 1996, between KinderCare Learning Centers, Inc. and
KCLC Acquisition Corp. (incorporated by reference from Exhibit 2.1(a) to KinderCare's Form S-4, filed
January 7, 1997, File No. 333-19345).

2(b) Merger Agreement Amendment dated as of December 27, 1996 between KinderCare and KCLC Acquisition
(incorporated by reference from Exhibit 2.1(b) to KinderCare's Form S-4, filed January 7, 1997, File No.
333-19345).

2(c) Stockholders' Agreement between KinderCare and the stockholders parties thereto (incorporated by
reference from Exhibit 2.3 of KinderCare's Registration Statement on Form S-4 dated March 11, 1997, File
No. 333-23127).

3(a) Certificate of Incorporation of KinderCare.*

3(b) By-Laws of KinderCare*

4(a) Form of Common Stock certificate.*

4(b) Provisions of the Certificate of Incorporation and By-Laws of KinderCare defining the rights of security
holders, included in Exhibits 3(a) and 3(b).*
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
4(c) Indenture dated as of February 13, 1997 between KinderCare and Marine Midland Bank, as Trustee
(incorporated by reference from Exhibit 4.1 of Amendment No. 1 to KinderCare's Registration Statement on
Form S-4 dated April 9, 1997, File No. 333-23127).

4(d) Form of 9 1/2% Series B Senior Subordinated Note due 2009 (incorporated by reference from Exhibit 4.3 of
Amendment No. 1 to KinderCare's Registration statement on Form S-4 dated April 9, 1997, File No.
333-23127).

5 Opinion of Simpson Thacher & Bartlett.*

10(a) Credit Agreement, dated as of February 13, 1997, among KinderCare, the several lenders from time to time
parties thereto, and the Chase Manhattan Bank as administrative agent (incorporated by reference from
Exhibit 10.1 of KinderCare's Registration Statement on Form S-4 dated March 11, 1997, File No.
333-23127).

10(b) Registration Rights Agreement, dated as of February 13, 1997, among KCLC Acquisition, KLC Associated
L.P. and KKR Partners II, L.P. (incorporated by reference from Exhibit 10.2 of KinderCare's Registration
Statement on Form S-4 dated March 11, 1997, File No. 333-23127).

10(c) Letter Agreement relating to termination of employment of Sandra Scarr dated January 8, 1997
(incorporated by reference from Exhibit 10(d) of KinderCare's Annual Report on Form 10-K for the fiscal
year ended May 30, 1997, File No. 0-17098).

10(d) Lease between 600 Holladay Limited Partnership and KinderCare Learning Centers, Inc. dated June 2, 1997
(incorporated by reference from Exhibit 10(f) of KinderCare's Annual Report on form 10-K for the fiscal
year ended May 30, 1997, File No. 0-17098).

10(e) Restated KinderCare Learning Centers, Inc. Nonqualified Deferred Compensation Plan Effective August 1,
1996 (incorporated by reference from Exhibit 10(a) to KinderCare's Quarterly Report on Form 10-Q for the
Quarterly Period ended September 19, 1997, File No. 0-17098).

10(f) 1997 Stock Purchase and Option Plan for Key Employees of KinderCare Learning Centers, Inc. and
Subsidiaries (incorporated by reference from Exhibit 10(c) to KinderCare's Quarterly Report on Form 10-Q
for the Quarterly Period ended September 19, 1997, File No. 0-17098).

10(g) Form of Management Stockholder's Agreement (incorporated by reference from Exhibit 10(c) to KinderCare's
Quarterly Report on Form 10-Q for the Quarterly Period ended September 19, 1997, File No. 0-17098).

10(h) Form of Non-Qualified Stock Option Agreement (incorporated by reference from Exhibit 10(c) to
KinderCare's Quarterly Report on Form 10-Q for the Quarterly Period ended September 19, 1997, File No.
0-17098).

10(i) Form of Sale Participation Agreement (incorporated by reference from Exhibit 10(f) to KinderCare's
Quarterly Report on Form 10-Q for the Quarterly Period ended September 19, 1997, File No. 0-17098).

10(j) Form of Term Note (incorporated by reference from Exhibit 10(g) to KinderCare's Quarterly Report on Form
10-Q of the Quarterly Period ended September 19, 1997, File No. 0-17098).

10(k) Form of Pledge Agreement (incorporated by reference from Exhibit 10(h) to KinderCare's Quarterly Report
on Form 10-Q for the Quarterly Period ended September 19, 1997, File No. 0-17098).
</TABLE>

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10(l) Stockholders' Agreement dated as of February 14, 1997 between KinderCare Learning Centers, Inc. and
David J. Johnson (incorporated by reference from Exhibit 10(l) to KinderCare's Quarterly Report on Form
10-Q for the Quarterly Period ended September 19, 1997, File No. 0-17098).

10(m) Nonqualified Stock Option Agreement dated as of February 14, 1997 between KinderCare Learning Centers,
Inc. and David J. Johnson (incorporated by reference from Exhibit 10(j) to KinderCare's Quarterly Report
on Form 10-Q for the Quarterly Period ended September 19, 1997, File No. 0-17098).

10(n) Sale Participation Agreement dated as of February 14, 1997 among KKR Partners II, L.P., KLC Associates,
L.P. and David J. Johnson (incorporated by reference from Exhibit 10(k) to KinderCare's Quarterly Report
on Form 10-Q for the Quarterly Period ended September 19, 1997, File No. 0-17098).

10(o) Directors' Deferred Compensation Plan (incorporated by reference from Exhibit 10(q) to KinderCare's
Annual Report on Form 10-K for the fiscal year ended May 29, 1998, File No. 333-42137).

10(p) Form of Indemnification Agreement for Directors and Officers of KinderCare (incorporated by reference
from Exhibit 10(r) to KinderCare's Annual Report on Form 10-K for the fiscal year ended May 29, 1998,
File No. 333-42137).

10(r) Restated KinderCare Learning Centers, Inc. Nonqualified Deferred Compensation Plan effective January 1,
1999 (incorporated by reference from Exhibit 10(a) to KinderCare's Quarterly Report on Form 10-Q for the
Quarterly Period ended March 5, 1999, File No. 333-42137).

10(s) Form of Executive Split Dollar Life Insurance Agreement (incorporated by reference from Exhibit 10(a) to
KinderCare's Quarterly Report on Form 10-Q for the Quarterly Period ended March 5, 1999, File No.
333-42137).

16 Letter from KPMG LLP regarding Change in Certifying Accountant (incorporated by reference from Exhibit
16 of the Registrant's Current Report on Form 8-K dated April 7, 1997).

21 Subsidiaries of KinderCare.

23(a) Accountants' Consent--Deloitte & Touche LLP.

23(b) Accountants' Consent--KPMG LLP.

23(c) Consent of Simpson Thacher & Bartlett, included in the opinion filed as Exhibit 5.*

24 Powers of Attorney.
</TABLE>

- ------------------------

* To be filed by amendment.

ITEM 17. UNDERTAKINGS

(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act

II-4
<PAGE>
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by the director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on April 9, 1999.

KINDERCARE LEARNING CENTERS, INC.

By: /s/ DAVID J. JOHNSON
-----------------------------------------
Name: David J. Johnson
Title: Chief Executive Officer and
Chairman of the Board of Directors

Pursuant to the requirements of the Securities Act, this registration
statement has been signed on the 9th day of April, 1999 by the following persons
in the capacities indicated:

SIGNATURE TITLE
- ------------------------------ ---------------------------

1) Principal executive
officer:

/s/ DAVID J. JOHNSON Chief Executive Officer and
- ------------------------------ Chairman of the Board
David J. Johnson

2) Principal financial and
accounting officer:

* Vice President, Financial
- ------------------------------ Control and Planning
Dan Jackson

3) Directors:

*
- ------------------------------
Henry R. Kravis

*
- ------------------------------
George R. Roberts

*
- ------------------------------
Clifton S. Robbins

*
- ------------------------------
Nils P. Brous

*
- ------------------------------
Stephen Kaplan

/s/ DAVID J. JOHNSON
------------------------------
David J. Johnson
*By: Attorney-in-Fact

II-6

<PAGE>
EXHIBIT 21

LIST OF SUBSIDIARIES

<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
- ------------------------------------------------------------ ------------------------------
<S> <C>
KinderCare Real Estate Corp. Delaware
KC Development Corp. Delaware
KC Hedging Corp. Delaware
Mini-Skools Limited Alberta, Canada
Mini-Skools, Inc. Delaware
KinderCare Learning Centres Limited United Kingdom
KinderCare Properties Limited United Kingdom
</TABLE>

<PAGE>
EXHIBIT 23(A)

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of KinderCare Learning
Centers, Inc. on Form S-1 of our report dated July 24, 1998, appearing in the
Prospectus, which is part of this Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Prospectus.

/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP

Portland, Oregon
April 8, 1999

<PAGE>
EXHIBIT 23(B)

INDEPENDENT AUDITORS' CONSENT

The Board of Directors and Stockholders
KinderCare Learning Centers, Inc.:

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.

KPMG LLP

Atlanta, Georgia
April 8, 1999

<PAGE>
EXHIBIT 24

POWER OF ATTORNEY
(S-1)

The undersigned constitutes and appoints Beth A. Ugoretz, Eva M. Kripalani
and Dan R. Jackson or any one of them, the undersigned's true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for the undersigned and in the undersigned's name, place and
stead, in any and all capacities, to sign one or more Form S-1 Registration
Statements under the Securities Act of 1933, prepared in connection with the
offering of shares of Common Stock of Kindercare Learning Centers, Inc., and any
amendments (whether pre-effective or post-effective) to the Registration
Statement on Form S-1 and any registration statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, and to file the same with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
each of said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or their substitute or substitutes, may do or
cause to be done by virtue hereof.

Dated: April 5, 1999

/s/ David J. Johnson
--------------------------------------
David J. Johnson
<PAGE>
POWER OF ATTORNEY
(S-1)

The undersigned constitutes and appoints David J. Johnson, Beth A. Ugoretz,
Eva M. Kripalani and Dan R. Jackson or any one of them, the undersigned's true
and lawful attorneys-in-fact and agents, each with full power of substitution
and resubstitution, for the undersigned and in the undersigned's name, place and
stead, in any and all capacities, to sign one or more Form S-1 Registration
Statements under the Securities Act of 1933, prepared in connection with the
offering of shares of Common Stock of Kindercare Learning Centers, Inc., and any
amendments (whether pre-effective or post-effective) to the Registration
Statement on Form S-1 and any registration statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, and to file the same with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
each of said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or their substitute or substitutes, may do or
cause to be done by virtue hereof.

Dated: April 5, 1999

/s/ Dan R. Jackson
--------------------------------------
Dan R. Jackson
<PAGE>
POWER OF ATTORNEY
(S-1)

Dated: April 9, 1999

/s/ Henry R. Kravis
--------------------------------------
Henry R. Kravis
<PAGE>
POWER OF ATTORNEY
(S-1)

Dated: April 9, 1999

/s/ George R. Roberts
--------------------------------------
George R. Roberts
<PAGE>
POWER OF ATTORNEY
(S-1)

Dated: April 9, 1999

/s/ Clifton S. Robbins
--------------------------------------
Clifton S. Robbins
<PAGE>
POWER OF ATTORNEY
(S-1)

Dated: April 9, 1999

/s/ Nils P. Brous
--------------------------------------
Nils P. Brous
<PAGE>
POWER OF ATTORNEY
(S-1)

Dated: April 7, 1999

/s/ Stephen A. Kaplan
--------------------------------------
Stephen A. Kaplan