Discovery Zone Reports Improved Operating Results And New Revolving Credit Facility.

ELMSFORD, N.Y.--(BUSINESS WIRE)--April 15, 1998--Discovery Zone, Inc. ("DZ") announced today its financial results for 1997, which represented a significant transition year for the company as it emerged from bankruptcy on July 29, 1997 and began implementation of an extensive store renovation program and brand repositioning strategy designed to increase attendance and in-store spending.

Despite a significant decline in revenues, operating cash flow as measured by EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) improved from negative $33.8 million in 1996 to negative $15.3 million in 1997. This improvement was primarily attributable to a broad cost reduction program which was put in place during the first half of 1997, as well as from the closure of unprofitable stores discussed below. Additionally, 1997 EBITDA was negatively impacted by the decline in revenues and increased expenses resulting from the store renovation program and employee training and start-up expenses for the new entertainment/product offerings which were introduced during the first quarter of 1998. Revenues for 1997 were $131.0 million compared to $181.7 million in 1996. As part of the company's chapter 11 reorganization and continuing through Dec. 31, 1997, the company closed 105 unprofitable stores, substantially all of which were closed during 1996. Accordingly, a substantial portion of the decline in revenue in 1997 is due to a decrease in the number of stores in operation. Additionally, the company experienced a decline in comparable store sales from 1996 to 1997 of approximately 15%. This decline was primarily due to continued disruptions in its operations associated with the bankruptcy, a lack of new attractions and the subsequent store renovation program which negatively impacted revenues in the fourth quarter as the company temporarily closed stores and discounted admission prices.

Scott W. Bernstein, Chief Executive Officer, said that "1997 represented a year of critical change and momentum building for DZ. During the year we made numerous management changes, significantly reduced our operating expenses, emerged from bankruptcy and began implementation of an extensive, company-wide renovation and repositioning plan. Since "re-opening" the stores that have been renovated and initiating some of our new marketing and advertising programs in the early part of our first quarter, we have experienced comparable store sales growth at both renovated and unrenovated stores, and will be reporting comparable store sales growth for the first quarter of 1998. This marks the first quarter of comparable store sales growth over the prior year quarter that the company has experienced in at least 3 years. While 1998 results will continue to be impacted by investment spending in capital and the various new marketing and entertainment programs we are putting in place, we believe that 1998 will show continued improvement relative to 1997 and set the stage for the company's long-term success."

Since emerging from bankruptcy, the company's strategy has been to reposition the DZ concept from that of an indoor playground to a fresh, exciting entertainment venue for kids and families. During the fourth quarter of 1997, DZ began an extensive store renovation program, which on a per store basis, was much broader in scope and costlier than originally planned, and included adding several new entertainment offerings, upgrading the facilities and giving them a "new look" consistent with the company's new brand repositioning campaign. These renovations included the addition of designated areas for laser tag, arts and crafts, stage events and promotional activities, while maintaining a significant amount of the ball bins and mazes that were a part of the original Discovery Zone concept. During the first phase of this program, through March 1998, the company has renovated approximately 60% of its stores. The company currently expects to complete a second phase of store renovations to another 15% of its stores by the end of 1998. In addition, through March 1998, approximately 80% of all stores have been converted to sell Pizza Hut menu items and approximately 25% have been converted to offer new weekday programs targeted at pre-schoolers under the "DZU" or "Discovery Zone University" brand name. The estimated cost of the first phase of the renovation program, including the Pizza Hut and DZU conversions, and of advanced purchases for future renovations, is approximately $21 million and $3 million, respectively. These costs exclude approximately $3 million of excess billings recently received from general contractors related to phase one of its renovation program which the company is disputing as material, unexpected cost overruns.

Separately, DZ announced that it had secured a new $10 million senior secured revolving credit facility from Foothill Capital Corp. which will be used to fund working capital needs and continue its renovation program.

Discovery Zone is the leading owner and operator of children's entertainment centers in North America with 205 locations across the United States, Canada and Puerto Rico. -0-

Any statements contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements which may involve known and unknown risks. Reference is made to the company's annual report on Form 10-K for the year ended Dec. 31, 1997 and the section entitled "Risk Factors Affecting Future Operating Performance" contained therein.

CONTACT: Ketchum Public Relations 

Seth Eisen

212/448-4349