do not expect to make distributions for the foreseeable future. Any determination to make distributions in the future will be at the discretion of the General Partner and will depend upon our results of operations, financial condition and other factors, as the General Partner, in its discretion, deems relevant. Limitations in the credit facility and indenture of KLC restrict distributions by KLC that could, in turn, be made available for future distributions by KUE to its partners. 60 8. INDUSTRY OVERVIEW 8.1. Human Capital Historically, the world economy has been viewed as being driven by an asset base of natural resources. This has shifted to an economy driven by industrial and financial resources. This perception is reinforced through the statistics and measurements used by governments, as seen in the Federal Reserve's representation of the U.S. balance sheet. However, it is KUE's view that the real assets of a city, state, region or country are its people (human capital) and their productive capacity. KUE believes that national economies that fail to embrace this concept will be left behind. Nobel Prize winning economist Gary Becker estimates that in today's service based economy, human capital accounts for 76% of the assets in the U.S. 2005 Human Capital - $238 Trillion Market Human and Social Capital 74% Source: Gary Becker Source: U.S. Federal Reserve US Financial Assets 26% 2005 U.S. Balance Sheet - $62 Trillion Market Other Financ 5% Other Tangible 6% Bonds at 4% Importantly in today's economy, the value of a company is increasingly driven by creativity, innovation and education. Companies are recognizing that human capital is their defining asset. With the value of education becoming apparent to government and businesses alike, the Principals believe that a significant opportunity exists to create an education company that will promote and cultivate human capital. Today, not a single education company ranks in the top 100 worldwide as measured by market capitalization. Within 20 years, KUE believes that the education space will contain some of the largest companies in the world. 8.1.1 Enhancing Human Capital through Education Education is a primary factor in improving an individual's life-long productivity. Studies have shown that a higher level of education leads to increased lifetime earnings, and that this is increasingly true in the new, knowledge economy. 61 As shown below, an individual with a professional degree earns approximately 100% more than a college graduate and an individual with a bachelor's degree earns approximately 70% more than a high school graduate in their lifetime. Education and Wage Disparity: Lifetime Earnings (Ages 18-64) $6.0 $5.0 $4.0 g. $3.0 $2.0 $1.0 $0.0 $4.2 $2.3 $1.4 $5.3 $2.7 $1.6 1991 1995 1999 2003 Professional Degree - Source: U.S. Census Bureau. - Bachelor's Degree ______High School Diploma Despite the results of the study shown above, 35% of Americans over the age of 18 have not graduated high school. Only one-third of the 25% of Americans who have received a bachelor's degree, or 8%, have received a graduate degree.16 Studies by Nobel Prize winning economist James Heckman suggest that the highest rate of return within education is generated through an investment in early childhood programs. Heckman's study asserts, "The rate of return to a dollar investment made while a person is young is higher than the rate of return to the same dollar made at a later age," as illustrated below: Return Preschool School Opportunity Cost of Funds Job Training School Post School Age Source: August 2002 study, James Heckman, University of Chicago. Due to the high rate of return of investments in ECE and the principles underlying the theory of human capital, KUE has made its largest initial investment in KLC, the largest company serving the ECE market in the world. 16 Source: U.S. Census Bureau. 62 8.2. The Education Market Education is one of the largest sectors in the world, representing approximately 5% of global gross national income of $48 trillion.17 In 2005 in the U.S. alone, education was a $1.0 trillion market with for- profit education accounting for $81 billion or 7.8% of this amount.18 The for-profit component of this industry (pre-K-12, post secondary and corporate training) is projected to grow faster than the overall historical industry growth rate, at a 7.4% annual rate, reflecting the increasing importance of for-profit operations in the sector, to reach a market size of $116 billion by 2010.19 Education is still predominantly provided by public / governmental entities in most countries including the U.S. KUE believes that the industry will converge towards a more balanced public / private system, similar to the evolution observed in the 20th century in other major industries such as healthcare, infrastructure and telecommunications. US Education Industry: Revenues Generated by For-Profit Companies (1999-2010E) $150 - 10.0% $120 9.0% 8.0% $60 - 7.0% $30 - 6.0% $0 5.0% 1999 2000 2001 2002 2003 2004 2005E 2006E 2007E 2008E 2009E 2010E For-Profit Spending - _ For-Profit % 6upueds ieloi io % Source: Harris Nesbitt estimates, U.S. Department of Education National Center for Education Statistics, Training Magazine and Eduventures. 8.3. The U.S. Early Childcare or "pre-K" Market The highly fragmented early childcare or "pre-K" market includes care based in homes and housed by community organizations (e.g., churches, synagogues, YMCAs) and center based facilities. Center- based childcare includes preschools (nurseries), workplace centers (located on-site at the company), lease-model centers (located in a real estate developer's office building), back-up centers (a variety of on- site and off-site back-up care programs) and family day-care facilities (located in someone's home or center). Although childcare may evoke thoughts of a babysitting service, education has become an increasingly important element in services to pre-K children. However, the education-focused portion of the childcare market remains relatively small. Since the early 1980s, center-based ECE has become the care provider of choice for families. The U.S. ECE unit generated an estimated $54 billion in total spending in 2005, representing a 10% compound annual growth rate since 1982.19 Approximately five million or 60% of 3 to 5-year-olds with working mothers are enrolled in ECE centers. 9 The following growth drivers are expected to continue to fuel growth in the early childcare market: growing importance of ECE, demographics (e.g., more children aged five and younger), increase in families with two working parents, more educated parents, corporations recognizing the benefits of childcare services and tax incentives and other positive legislation. The perception of ECE as a fundamental component of child development has contributed to average annual fee increases of roughly 7% amongst center-based facilities, reflecting the stable, relatively inelastic nature of the demand for higher quality care.21 The number of children receiving childcare 1' Source: UNESCO Institute for Statistics Database. 18 Source: US Department of Education National Center for Education Statistics and Training Magazine and Harris Nesbitt research. 19 Source: Harris Nesbitt, Education and Training, September 2005. 2° Source: "Early Care and Education: Work Support for Families and Developmental Opportunity for Young Children," Urban Institute, September 2001. 21 Source: The National Economic Impacts of the Child Care Sector, 2002. 63 outside the home grew from 10.6 million in 1999 to an estimated 12 million in 2003, an increase of 3.1% annually.22 8.3.1 Early Childhood Education's Role in the Economy ECE enables people to pursue income-generating activities by allowing parents to participate in the workforce and contribute to the economy. A recent study found that every dollar spent on the formal ECE sector generates approximately 15 dollars worth of additional earnings by parents. 23 Furthermore, evidence suggests that regardless of family income, children who have participated in ECE programs do better in school than their peers who did not. ECE also reduces social and economic costs by lowering school dropout rates, and leads to decreased levels of criminal activity. These social and demographic forces have established ECE as a fundamental component of today's economic 'infrastructure' and a source of economic growth. Given these and other supporting facts, education is an industry that is of growing importance to the economy. This growth is driven by the following factors: M Growing public awareness of the importance of early childhood education. ECE has received increased media and government attention as scientific research highlights the importance of education during a child's early developmental years. Children who attend high quality ECE centers demonstrate greater mathematical ability, thinking and attention skills, and fewer behavioral problems throughout their educational lives, when compared with children receiving no or lower quality care. These differences hold true for children from a range of family backgrounds.24 • Favorable demographic trends. According to the National Center for Health Statistics, the annual number of live births in the U.S. was approximately 4.1 million in 2003, compared to approximately 3.6 million in 1980, and the U.S. Census Bureau projects the annual number of live births to increase to approximately 4.5 million in 2015.25 The number of children aged five years or under grew from approximately 22.5 million in 1990 to approximately 23.4 million in 2002, according to the U.S. Census Bureau, and is projected to reach 26.8 million in 2015.22 Number of Live Births in the U.S. (in thousands) 4,500 - 4,250 - 4,000 - 3,750 - 3,500 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007E 2009E 2011E 2013E 2015E Source: U.S. Census Bureau. • Changing workforce composition. A rising percentage of women participate in the workforce due to an increasingly higher cost of living, a desire for financial independence and an elevated standard of living preference, which necessitates two full-time wage earners for most families. Of the nearly 65 million jobs created nationally between 1964 and 1997, 40 million were occupied by women. Today, more than 62% of mothers with children under the age of six work full-time compared to 19% in 1960. 22 Source: Harris Nesbitt, Education and Training, September 2005. 23 Source: The National Economic Impacts of the Child Care Sector, 2002. 24 Source: The Children of the Cost, Quality, and Outcomes Study Go To School, 1999. 25 Source: Population Projections Branch, U.S. Census Bureau, "U.S. Interim Projections by Age, Sex, Race and Hispanic Origin," May 2004. 64 • Highly educated parents spend more on childcare. The increasing number of college graduates in the U.S. and abroad will support continued expenditures on ECE. In 2001, 70% of children with college- educated mothers attended childcare programs, while only 38% of children whose mothers had less than a high school degree attended childcare programs. A recent report by the U.S. Department of Commerce reveals that families with college degrees spent an average of $92.67 per week (per child) on childcare in 2000, whereas parents without a high school degree only spent an average of $59.70 per week per child.26 • Increasing demand for Employer-Sponsored Centers. With increased levels of employment, corporations are witnessing growing demand for ECE services. Companies benefit from offering childcare services to their employees as (i) it often reduces employee absenteeism; (ii) serves as a perquisite, which differentiates the employer's compensation package; and (iii) tends to lower turnover rates. ECE services contribute to a stable and consistent workforce. • Favorable tax incentives. Certain tax incentives are available to parents utilizing childcare programs. Specifically, Section 21 of the Internal Revenue Code provides a federal income tax credit (Child and Dependent Care Credit) ranging from 20% to 35% (increased in 2003) of certain childcare expenses for "qualifying individuals." The Economic Growth and Tax Relief Reconciliation Act of 2001 created a Federal Employer Tax Credit for certain childcare expenses beginning in 2002. Employers can receive a credit of 25% of their spending on the construction or rehabilitation of a child care facility or on contracts with a third party child care facility to provide child care services to employees. Corporations also benefit from tax incentives of up to $150,000 per year. 8.3.2 Industry Characteristics The ECE sector has a number of favorable operating characteristics. First, well-run school operators enjoy high returns on capital, predictable revenue streams and strong free cash flows, with students generally paying in advance of services delivered. Second, industry data shows that tuition rates have increased by approximately 7%, a rate which has exceeded inflation.27 The current outlook suggests no change in this dynamic. Third, government regulation and licensing standards represent notable barriers to entry. Given that education is a universally accepted product, management believes that our business model is highly scalable. The basic center model is expected to be essentially repeatable and transferable to new markets and locations. With labor representing approximately 50% of the total operating cost structure, companies within this sector tend to benefit from a variable cost structure, which allows them to reduce costs as economic and market conditions change. Often the demanding requirements for the selection of school directors and teachers can limit the pool of qualified employees for the industry. Low pay also tends to result in high turnover rates of approximately 50% annually within the industry. 8.3.3 Competitive Landscape: Early Childhood Education The ECE sector is highly fragmented with the top six providers representing approximately 5% of all organized ECE centers. The Company's primary competitors are (i) local nursery schools and child care centers, some of which are non-profit (including religious-affiliated centers), (H) providers of services that operate out of their homes and (Hi) other for-profit companies which may operate a number of centers. Local nursery schools and ECE centers generally charge less for their services. Many religious-affiliated and other non-profit child care centers have no or lower rental costs than for-profit chains, may receive donations or other funding to cover operating expenses and may utilize volunteers for staffing. Consequently, tuition rates at these centers are commonly lower than the Company's rates. 20 Source: Harris Nesbitt Research, Education and Training, September 2005. 27 Source: The National Economic Impacts of the Child Care Sector, 2002. 65 There are also several national chains, such as Bright Horizons Family Solutions, La Petite Academy, Learning Care Group (ABC Learning) and Nobel Learning Communities, or regional for-profit companies with sizeable numbers of centers and similar economies of scale in curriculum development, marketing and site development. Competitive Landscape within Early Childhood Education Churches Other 1% 5 % For-Profit Chid Education 5% Public Sector Agencies 11% Non Profit Child Education 18% Family Day Caro Providors 60% Source: Harris Nesbitt Research, Education and Training, September 2005 and The National Childcare Association. KLC OpCo successfully competes against these companies, with the following differentiating factors: (i) strong brand equity; (ii) a strong management team; (iii) grass roots level marketing; and (iv) a larger network of community centers. KLC also has a number of employer-sponsored centers that gives the Company greater breadth and depth. Finally, KLC is the only large competitor in the sector owned by an education company. Following is a brief description of each of several of the national competitors. I ABC Learning (Public, traded on the ASX) The Learning Care Group, ABC Learning's U.S. operating segment, has over 30,000 children enrolled (full and part-time) nationwide. Under the Childtime and Tutor Time segments, Learning Care operates child care centers and under the Franchise segment it licenses and provides developmental and administrative support to franchises operating under the Tutor Time brand. As of October 14, 2005, Childtime generated LTM sales of $220.7 million across 460 childcare centers in the U.S. (328 of which are company owned and 132 of which are franchised locations). On January 11, ABC announced it had successfully completed the acquisition of the Learning Care Group, Inc. for $159 million in cash. In addition to the 460 centers located in the U.S., ABC operates 707 centers in Australia and New Zealand. • Bright Horizons (Public) Founded in 1986, Bright Horizons Family Solutions is a leading provider of employer-sponsored child care services. Bright Horizons operates 616 childcare and early education centers for over 600 clients. The company serves more than 66,300 children in 39 states, the District of Columbia, Canada, Guam, Ireland and the United Kingdom. In September of 2005, the company acquired ChildrensFirst Inc. As of December 31, 2005, the company reported LTM sales and EBITDA of $625 million and $75 million, respectively. • La Petite Academy (Private) La Petite is the third largest operator of for-profit pre-school centers in the U.S., currently serving more than 65,000 children in 649 centers located in 36 states and the District of Columbia. The company also 66 owns 68 (included in the 649 centers) Montessori schools which cater to K-12 students. LPA's residential Academies are typically located in residential, middle-income neighborhoods. As of February 28, 2006, the company reported LTM sales and EBITDA of $411 million and $33 million, respectively. The company has been owned by JP Morgan Capital since 1998. Nobel Learning Communities (Public) Nobel is a for-profit provider of private pay education and services for education entities for the preschool through 12th grade market. The company's programs are offered through a network of general education preschools, elementary and middle schools, programs for learning challenged students and special purpose high schools. Nobel operates 150 schools in 13 states across the U.S. As of December 31, 2005, the company reported LTM sales and EBITDA of $166 million and $15 million, respectively. Affiliates of the Principals are currently significant shareholders of the company. 8.3.4 Government's Role in Early Childhood Education Approximately 83% of the estimated $54 billion spent on ECE is generated by private and independent non-profit services. The government provides the remaining 17% of services through Head Start and public schools. The government pays for public school and Head Start programs, but also subsidizes payments of low-income families to providers of their choice through the Child Care Development Block Grant and Temporary Assistance for Needy Families, which are blended with state dollars. About 25% of for-profit early childhood care revenue comes from these subsidy programs. The government is, at both the federal and state level, actively involved in expanding the availability of early childhood care services. Federal support is delivered at the state level through government- operated educational and financial assistance programs. Early childhood care services offered directly by states include training, licensing and regulation for early childhood care providers and resource and referral systems for parents seeking ECE. The increasing importance of education is further demonstrated by the "No Child Left Behind Act of 2001," signed into law in January 2002. This Act is the most sweeping reform of the Elementary and Secondary Education Act, or ESEA, since ESEA was enacted in 1965. To support this commitment, President Bush requested a $54.4 billion budget for the Department of Education for fiscal 2007, a 28.9% increase from the 2001 budget of $42.2 billion. Certain tax incentives exist for early childhood care programs. Section 21 of the Internal Revenue Code provides federal income tax credits ranging from 20% to 35% of certain early childhood care expenses for qualified individuals. 8.4. The U.S. K-12 Education Market A fundamental change has occurred in the K-12 sector in recent years, as the desire to improve school quality has overtaken demographics as a key growth driver. Companies providing supplemental educational services (e.g., KLC) and several school alternatives, such as charter and contract schools (e.g., k12), are expected to be instrumental in improving K-12 student performance. The K-12 education market in the U.S. is comprised of over 15,000 school districts including more than 90,000 K-12 public schools, approximately 3.5 million teachers, and about 54 million students according to the National Center for Education Statistics. Total K-12 expenditures, federal, state and local, are approximately $500 billion. Despite the growth in spending on public education over the last decade, student achievement has shown little progress. According to the 2005 National Assessment of Educational Progress, 32% of eighth- graders performed below the Basic level in mathematics, and only 29% performed at or above the Proficient level. One-third of American fourth graders are functionally illiterate. KUE believes the following factors will present significant market opportunities in the coming years for for-profit K-12 67 education providers. According to Harris Nesbitt Research, industry experts estimate that the $21.8 billion in revenues generated by for-profit education providers in 2004 will increase to over $29.7 billion in 2010, 5.3% annual growth. 2° However, these estimates reflect only spending by institutions on educational material and do not reflect the growing segment of direct to consumer educational materials, which represented roughly an additional $20 billion in 2004.28 For-Profit K-12 Education 2004— 2010E $30 $25 $20 $15 :a $21.8 _ $23.0 $24.2 $25.5 minammsfammis $26.8 ISSINEMEEMSIEN $28.2 $29.7 2004 2005 2006E 2007E 2008E 2009E 2010E - Professional Development n Print Publishing Supplemental Services Technology Assessment o School Management Source: Harris Nesbitt estimates based on Eduventures' The Education Industry: Learning Markets and Opportunities 2004" report (December 2004). Standards and Accountability. Due to the unsatisfactory performance of American students in grades K- 12, parents and lawmakers are demanding increased standards and accountability in schools. This demand has focused on establishing guidelines for every school and every subgroup of students and then holding the school (and its staff) accountable to students' performance relative to those standards. The Company expects continued focus on academic standards, assessments, and accountability in the near future. Despite this increased attention on standards and accountability, many parents continue to remain concerned with the overall effectiveness of the public school system and are increasingly relying on for-profit education providers. Charter Schools and Virtual Academies. There has also been a significant rise in the number of charter schools in the U.S. in the past decade. Since Minnesota first enacted legislation in 1991, 40 states and the District of Columbia have passed charter school legislation. Under the typical charter school statute, an identified entity, such as the state, a state university or local school district board of education, is authorized to grant a specified number of charters to community groups or non-profit entities to create a public charter school. A growing number of charter boards, in turn, contract with private sector organizations to manage the schools. In return for a large measure of autonomy from normal public school regulation, the charter school is accountable for student academic performance. Currently, the Company estimates that there were nearly 2,700 charter schools in operation nationwide, as of January 2003, with an estimated enrollment of over 685,000 students. Moreover, the federal No Child Left Behind Act ("NCLB") recognizes charter schools as a viable alternative for students who want to transfer from neighborhood schools that are failing. To capitalize upon the increasing number of parents who are willing to educate their children at home and still want to be part of the public system, there are a growing number of virtual schools, where much of the learning is home-based. Most current charter school legislation either explicitly authorizes virtual public schools or does not directly prohibit them. Because virtual schools usually offer a comprehensive curriculum, easy-to-use learning and performance evaluation technology assistance and instructional materials, the Company believes that a growing number of families will pursue virtual public schools as an attractive alternative to traditional schools and a more cost-effective, better organized approach to home schooling. The large and scalable platform that exists at k12 is designed to capitalize on this trend as the number of charter schools has grown on average nearly 13% annually, while charter school enrollment 28 Source: Harris Nesbitt, Education and Training, September 2005. 68 has increased 20% annually, outpacing the less than 1% average K-12 enrollment growth over the same period 29 K-12 Charter Schools and Enrollment (1995 to 2004 Charter Schools 4,000 1,000,000 3,000 - 750,000 Cl) 2,000 - 500,000 C. 7 1,000 - - 250,000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Schools Students Note: Number of students in 1999-2000 school year was estimated. Source: Harris Nesbitt, Education and Training, September 2005 and Charter School Leadership Council and Center for Education Reform. Supplementary Education Market. For parents who continue to enroll their children in traditional public and private schools, there is a growing demand for supplemental education services. According to the U.S. Department of Education, 31% of elementary school children, or more than 10 million students nationwide, are enrolled in after-school programs. According to Eduventures, the U.S. supplementary education market was estimated to be approximately $8.1 billion in 2003. Additionally, under the No Child Left Behind (NCLB) Act, some children in poorly performing schools will be eligible for taxpayer- financed supplemental educational services. These supplemental educational services can be provided by state-approved non-profit or for-profit entities as well as private schools and public schools (including public charter schools). More parents want to spend educational time with their children, but lack access to high quality supplemental material that is effective and integrated into a comprehensive plan that is easy for a parent to deliver and manage. The virtual school market is a relatively new area within the broader K-12 education market. As a result, there is a growing need for a high quality, trusted, national education offering for this demographic. Furthermore, parents are seeking much more robust and comprehensive ongoing assessments than is currently offered in the public schools, in order to assess their children's progress both on a relative and an absolute basis. 8.5. The International Education Industry The leading authority on the worldwide education industry, the United Nations Educational Scientific and Cultural Organization ("UNESCO"), estimates that average public expenditures on education across the world increased from 4.1% of GNP in 1990 to 4.5% in 2000. In developing countries the increased government focus on education is more pronounced as public education expenditures rose to 4.1% in 2000 from 3.5% in 1990. Based on global gross national income of $48 trillion, KUE estimates that the global education market opportunity is greater than $2.4 trillion driven by the following factors: • Large population of school-aqed children in parts of the world. The opportunity for pre-K-12 education is particularly strong in certain countries with high fertility rates. Examples of such opportunities include India, where mothers give birth to an average of 2.78 children. Increases in the population of children coupled with an increased awareness of the economic and social benefits of education are expected to lead to significant growth in the global ECE market. 29 Source: Harris Nesbitt, Education and Training, September 2005 and Charter School Leadership Council and Center for Education Reform. 69 • Increased government focus on education. In many countries, per student public spending on education represents a larger portion of per capita GDP than in the U.S. For example, in Australia and the United Kingdom, the government has subsidized a large portion of ECE. Now, countries such as Saudi Arabia are developing similar programs. The opportunity for increased government spending on pre-K-12 education is particularly apparent in growing economies such as China and South Korea as those countries increase their share of world GDP. • Potential opportunities in countries with declining populations. In countries that have had low fertility rates for several generations, such as Japan and Italy, there often exists a large family structure supporting a single child. KUE believes that this leads to several family members (e.g., both parents and grandparents) contributing to a single child's schooling, resulting in higher education expenditures per child. In addition, the high cost and limited availability of quality ECE in countries such as Japan has been identified as a contributing factor to declining birth rates in the country. The following paragraphs provide a brief overview of some of the key markets around the world, which KUE views as attractive. These include China, Saudi Arabia and the United Kingdom. 8.5.1 China: Market Overview With a population of 274 million children under a9e 15, and a fertility rate of 1.73, China represents an attractive market for early education providers.3u In China, mandatory education starts with primary schools, at which most children enroll by age six. Currently, 24 million Chinese children are attending kindergarten as a growing middle class and the one-child policy are driving multiple incomes to one child and increasing the amount of capital that can be dedicated to education. These socioeconomic factors are reflected in the increasing numbers of private kindergartens, which have grown at a rate of 13% over the past eight years.31 Public versus Private Pre-School Education 13.7% 17.7% 0.7% 25.1% 20.1% 19.7% 180 187 183 181 181 176 I juiLimma_m_ELJ . • 8.7% 14.7% I112 112 116 III III III 1995 1996 1997 1998___ 1999 2000 2001 2002 2003 Private Schools Total Schools Private Growth 150 150 142 I NA I NA JNA I NA 138 181 182 172 132 155160164177 183 187 111 I I I I 128 128 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 All Kindergartens - Private Kindergartens Note: Private kindergarten enrollment data unavailable before 1998. Source: Ministry of Education, China Education Industry Development Statistics Report, China Education and Research Network. Schools tend to be concentrated in larger cities with Beijing, Shanghai, Nanjing, Qingdao and Guangzhou being the largest pre-school markets. Kindergartens are divided into three categories: Bilingual, Foreign language and Mandarin. Bilingual kindergartens are typically joint ventures between Chinese and foreign entities or owned wholly by Chinese private or public entities. Tuitions for bilingual programs can reach $15,000 per year. Foreign language kindergartens are wholly owned foreign schools that recruit only foreign students and are typically backed by their embassies. These schools adhere to foreign educational standards with Mandarin being taught as a second language. The tuitions of foreign language schools range from $10,000 to $22,000 per year. Mandarin kindergartens are typically owned by Chinese public entities. 3° Source: Central Intelligence Agency, World Factbook 2006. 31 Source: Ministry of Education, China Education Industry Development Statistics Report, China Education and Research Network. 70 Kindergartens can be set up by the Ministry of Education, private enterprises, universities, communities and individuals. While local governments establish the minimum and maximum fees allowed to be charged by public kindergartens, private schools are allowed to dictate "reasonable" tuition levels. Overview of the Major Themes in Education Market in China Tuition No. of Schools Source: Enspiren. International "Elite- Public "Regular" Public 8.5.2 Saudi Arabia: Market Overview • Only accept non•PRC citizens • Very high tuition (›US$10,000 per year) • Free to use any curriculum • Usually affiliated with overseas schools • Examples: Shanghai American School, Yew Chung Shanghai International School, British International School • Public schools with premium facilities and teaching resources • Very difficult to enter (usually requires "guanxi") • Tuition itself not necessarily high, but "sponsorship fee" can be substantial • Examples Song Qing Lin Kindergarten, Dong Pang Kindergarten • Increasing in numbers over the past few years • Mostly run by locals, but foreign participation is on the rise • Quality and tuition vary considerably • Examples- Elizabeth Kindergarten (local), Victoria Wah Kwong Kindergarten (Hong Kong), Kid's Castle (Taiwan) • Essentially a public service provided by the government • Typically low tuition (