¡¡¡¡NEWPORT BEACH, Calif., Nov. 9 /PRNewswire/ -- Palace Entertainment Holdings, Inc. ("Company") and Festival Fun Parks, LLC ("FFP"), its wholly- owned subsidiary, one of the largest operators of water parks ("WPs") and family entertainment centers ("FECs") in the United States is filing its Quarterly Report on 10Q. The Company is including in this press release its unaudited Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2007 and 2006, Condensed Consolidated Statements of Cash Flows for the nine month period ended September 30, 2007 and 2006 and Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006 as well as related commentary.

    On April 12, 2006, the Company completed the acquisition of FFP ("Acquisition"). As a result, the Company''s unaudited Condensed Consolidated Statements of Operations for the period from January 1, 2006 through April 12, 2006 reflect the operations of the Company prior to the Acquisition. However, for the purpose of comparing the pre-Acquisition and post-Acquisition periods in 2006, we have combined the two periods in a separate column in the financial statements for the three and nine month periods presented below.

    The net revenue for the three-month period ended September 30, 2007 totaled $89.2 million compared to $82.2 million for the three-month period ended September 30, 2006, an increase of $6.9 million or 8.4%. FEC revenues increased $0.3 million or 1.4% over the same period in 2006. Good weather in the Texas, New York and Georgia locations in particular combined with pricing initiatives and last year''s initiatives to improve the park appearances and the quality of the guest service contributed to this revenue increase. WP revenue increased by $6.6 million or 11.4% over the same period in 2006. The WP revenue increase includes $2.0 million of revenue for Raging Waters Sacramento which is a new park that began operations in the second quarter of 2007. The additional revenue increase at the WPs is also attributed to pricing initiatives, heavier season pass revenue and increased attendance.

    Our park level operating expenses totaled $42.8 million for the three month period ended September 30, 2007 compared to $40.9 million for the same period in 2006, an increase of $1.9 million or 4.6%. Operating expenses as a percentage of revenue decreased to 48.0% in 2007 compared to 49.7% in 2006. The primary drivers in each expense category were as follows:

    -- Cost of products sold increased $0.3 million or 4.6% for the three month period ended September 30, 2007 compared to the same period in 2006 primarily due to revenue driven incremental food, beverage and merchandise costs. -- Salaries and benefits increased $0.7 million or 4.2% for the three month period ended September 30, 2007 compared to the same period in 2006. The primary cause of the increase was due to the newly acquired park, Raging Waters Sacramento. With revenue increasing 8.4%, the Company has controlled and leveraged labor during this period by reducing overall hours and improving productivity. This was accomplished despite minimum wage increases. -- Operating and maintenance costs were increased $0.4 million or 3.4% for the three month period ended September 30, 2007 compared to the same period in 2006. The primary cause of the increase was due to the newly acquired park, Raging Waters Sacramento. -- Rent and property taxes increased $0.4 million or 6.8% for the three month period ended September 30, 2007 compared to the same period in 2006 as a result of the addition of the new park, Raging Waters Sacramento. The increase is also due to an increase in revenue, as several of the rent agreements have rent expense based on a percentage of revenue.

    Selling, general and administrative expenses totaled $8.8 million for the three month period ended September 30, 2007 compared to $7.6 million for the same period in 2006, an increase of $1.2 million or 16.3%. The primary causes were a $0.7 million increase in M&A costs relating to the Transaction previously announced as of October 3, 2007, a $0.4 million increase in bonuses due to an expectation of a better year than 2006, and a $0.1 million increase in professional audit and legal fees attributable to being a public company.

    The net revenue for the nine month period ended September 30, 2007 totaled $155.7 million compared to $145.1 million for the nine month period ended September 30, 2006, an increase of $10.6 million or 7.3%. FEC revenues increased $2.0 million or 3.1% over the same period in 2006. This was achieved despite unfavorable weather in Texas that adversely effected four FEC locations. Good weather in California and the southeast locations combined with pricing initiatives, increased capital spending, and last year''s initiatives to improve the park appearances and the quality of the guest service contributed to this revenue increase. WP revenue increased by $8.6 million or 10.8% over the same period in 2006. WP revenue includes $3.0 million of revenue for Raging Waters Sacramento which is a newly acquired park that began operations in the second quarter of 2007. The additional revenue increase at the WPs is also attributed to pricing initiatives, heavier season pass revenue, and the increase in attendance.

    Our park level operating expenses totaled $100.2 million for the nine month period ended September 30, 2007 compared to $96.3 million for the same period in 2006, an increase of $3.9 million or 4.0%. Operating expenses as a percentage of revenue decreased to 64.3% in 2007 compared to 66.4% in 2006. The primary drivers in each expense category were as follows:

    -- Cost of products sold increased $0.7 million or 6.6% for the nine month period ended September 30, 2007 compared to the same period in 2006 primarily due to revenue driven incremental food, beverage and merchandise costs. -- Salaries and benefits increased $1.4 million or 3.3% for the nine month period ended September 30, 2007 compared to the same period in 2006. The primary cause of the increase was due to the newly acquired park, Raging Waters Sacramento. With revenue increasing 7.3%, the Company has controlled and leveraged labor during this period by reducing overall hours and improving productivity. This was accomplished despite minimum wage increases. -- Operating and maintenance costs increased $1.1 million or 3.8% for the nine month period ended September 30, 2007 compared to the same period in 2006. The primary factor driving this change was increased revenue and a $0.8 million increase in the general liability self insurance reserve. -- Rent and property taxes increased $0.6 million or 3.9% for the nine month period ended September 30, 2007 compared to the same period in 2006 as a result of the addition of the new park, Raging Waters Sacramento. The increase is also due to an increase in revenue, as several of the rent agreements have rent expense based on a percentage of revenue.

    Selling, general and administrative expenses totaled $21.0 million for the nine month period ended September 30, 2007 compared to $17.2 million for the same period in 2006, an increase of $3.7 million or 21.6%. The increase was primarily driven by a $1.0 million increase in severance related costs associated with the corporate reorganization at the beginning of 2007, an increase in bonuses due to an expectation of a better year in 2007 than 2006, an increase in professional audit and legal fees attributable to being a public company, and an increase in M&A costs relating to the Transaction previously announced as of October 3, 2007.

    "EBITDA" (1) for the three months ended September 30, 2007 was $37.4 million versus $33.8 million in the same prior year period. For the nine months ended September 30, 2007, EBITDA was $34.4 million versus $31.6 million in the same prior year period. EBITDA, which is defined as net income (loss) before interest, income taxes, depreciation and amortization, is not a presentation made in accordance with generally accepted accounting principals ("GAAP") and should not be considered an alternative to, or more meaningful than, amounts presented in accordance with GAAP, including net income (loss), or net cash from operating activities. However, the Company believes that EBITDA is a useful measure for assessing the performance of on-going activities, and that some investors may use such measures as supplemental information to evaluate the Company''s ability to generate cash. In connection with the Company''s senior secured credit facility the lender permits certain non-cash, non-recurring and other one-time add-backs to EBITDA.

    Depreciation and amortization expenses totaled $4.3 million for the three-month period ended September 30, 2007 as compared to $4.7 million during the same period in 2006, a decrease of $0.4 million or 9.4%. This decrease is due primarily to assets that have been fully depreciated. Depreciation and amortization expenses were comparable for the nine-month period ended September 30, 2007 to the same period in 2006.

    Interest expense, net was comparable for the three-month period ended September 30, 2007 to the same period in 2006. Interest expense, net totaled $13.4 million for the nine month period ended September 30, 2007 compared to $15.0 million during the same period in 2006, a decrease of $1.7 million or 11.0%. The decrease in interest expense was primarily due to the lower debt levels and lower interest rates that resulted from the new capital structure implemented at the time of the Acquisition. The debt extinguishment fees relating to the loans repaid as of the Acquisition date were recorded to goodwill.

    The Company recorded an income tax provision of $11.5 million for the three-month period ended September 30, 2007 compared to $9.5 million for the three month period ended September 30, 2006. The primary difference was a valuation allowance of $1.6 million that was included in the income tax provision in 2007. The valuation allowance was determined based on the excess of the projected 2007 fiscal year net operating losses that cannot be offset against the prior year''s taxable income recognized during the stub period April 13 to December 31, 2006. The Company recorded an income tax provision of $6.9 million for the nine month period ended September 30, 2007 compared to an income tax provision of $9.6 million for the same period in 2006. The income tax provision included $3.9 million in valuation allowance. The valuation allowance was determined based on the excess of the projected 2007 fiscal year net operating losses that cannot be offset against the prior year''s taxable income recognized during the stub period April 13 to December 31, 2006.

    The net income from operations for the three-month period ended September 30, 2007 was $17.4 million compared to $15.3 million for the three-month period ended September 30, 2006. The net income from operations for the nine month period ended September 30, 2007 was $0.6 million compared to the net loss from operations of ($6.5) million for the nine month period ended September 30, 2006.

    The Company''s Chief Financial Officer, Cynthia P. Kellogg, commented: "We are quite pleased with the fiscal performance of the Company in the critical third quarter of the year. The Water Park segment demonstrated strong growth in both attendance and per capita spending over the same quarter last year. We believe that our new Daycation advertising campaign effectively conveyed our exciting offering to potential guests as did our group sales focus. In addition, we are pleased with the increase in season pass sales for next year. The FECs continued their trend of revenue growth over the comparable quarter last year in spite of weather challenges at most of the California parks. The Company capitalized on these revenue increases by tightly controlling variable costs and increased operating income significantly for the quarter. We look forward to continuing to drive strong results for 2008 and beyond."

    CONFERENCE CALL

    In conjunction with this release, Palace Entertainment has scheduled a conference call, which will be held on Thursday, November 15, 2007 at 11:00 a.m. Eastern Time (8:00 a.m. Pacific).

    What: Palace Entertainment Earnings Conference Call When: Thursday, November 15, 2007- 11:00 a.m. Eastern Time How: Live via phone - By dialing: (888) 293-1201 for North American Callers 00 1 (415) 908-4753 for International Callers 44 (0) (870) 001-3123 for UK Callers

    Ten minutes prior to the start time. Participants will be asked to give their names and company affiliations. The conference ID number is 21354480.

    For those who cannot listen to the live call, a replay will be available through November 29, 2007, and may be accessed by calling (800) 633-8284 using Reservation #: 21354480.

    (1) Non-GAAP Financial Measures PALACE ENTERTAINMENT HOLDINGS, INC. NON-GAAP RECONCILIATION OF EBITDA ($ in thousands) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 COMBINED 2007 2006 2007 2006 Net income (loss) $17,420 $15,333 $560 $(6,535) Add back: Interest expense, net 4,230 4,216 13,392 15,044 Income tax provision 11,452 9,520 6,933 9,564 Depreciation and amortization 4,283 4,728 13,512 13,506 EBITDA $37,385 $33,797 $34,397 $31,579

    IMPORTANT CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

    Statements in this press release regarding the Company''s business that are not historical facts are forward-looking statements, including statements about our beliefs and expectations or any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. Forward-looking statements include, but are not limited to, statements generally preceded by, followed by or that include the words "believe," "expect," "anticipate," "plan," "estimate," "intend," "project," "targets," "likely," "would," "could" or similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, strategies, contingencies, financing plans, working capital needs, sources of liquidity, capital expenditures, amounts and timing of expenditures and contemplated transactions.

    Forward-looking statements reflect the Company''s current expectations, and are not guarantees of performance. These statements are based on management''s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to these forward-looking statements include, among others, assumptions regarding demand for our WPs and FECs, expected pricing levels, the timing and cost of planned capital expenditures, the estimated operational costs for each of our WPs and FECs, expected outcomes of pending litigation, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond management''s ability to control or predict.

    Investors should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them in light of new information or future events. These forward-looking statements reflect the Company''s current views with respect to future events, and are based on assumptions and subject to risks and uncertainties that may cause actual financial results to differ from expectations, which, as a result, may adversely affect the Company''s financial results and the Company''s ability to make payments on the 10 7/8% Senior Notes.

    PALACE ENTERTAINMENT HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited / in thousands) FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2007 AND 2006 Successor Successor For the three For the three month period ended month period ended September 30 September 30 2007 2006 REVENUES - net $89,158 $82,220 OPERATING COSTS AND EXPENSES Cost of revenue (exclusive of depreciation and amortization shown below) 42,761 40,865 Selling, general and administrative 8,791 7,558 Depreciation and amortization 4,283 4,728 Loss on disposal of assets 221 - Total operating costs and expenses 56,056 53,151 OPERATING INCOME 33,102 29,069 OTHER EXPENSE Interest expense - net 4,230 4,216 Total other expense - net 4,230 4,216 INCOME BEFORE INCOME TAXES 28,872 24,853 INCOME TAX PROVISION 11,452 9,520 NET INCOME $17,420 $15,333 See Notes to Condensed Consolidated Financial Statements PALACE ENTERTAINMENT HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited / in thousands) FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2007 AND 2006 Successor Combined Successor Predecessor For the For the nine nine For the month month period For the period period April 13 period ended ended to January 1 September September September to 30 30 30 April 12 2007 2006 2006 2006 REVENUES - net $155,695 $145,079 $121,682 $23,397 OPERATING COSTS AND EXPENSES Cost of revenue (exclusive of depreciation and amortization shown below) 100,154 96,262 70,072 26,190 Selling, general and administrative 20,958 17,238 13,030 4,208 Depreciation and amortization 13,512 13,506 9,028 4,478 Loss on disposal of assets 186 - - - Total operating costs and expenses 134,810 127,006 92,130 34,876 OPERATING INCOME (LOSS) 20,885 18,073 29,552 (11,479) OTHER EXPENSE Interest expense - net 13,392 15,044 8,370 6,674 Total other expense - net 13,392 15,044 8,370 6,674 INCOME (LOSS) BEFORE INCOME TAXES 7,493 3,029 21,182 (18,153) INCOME TAX PROVISION 6,933 9,564 9,564 - NET INCOME (LOSS) $560 $(6,535) $11,618 $(18,153) See Notes to Condensed Consolidated Financial Statements PALACE ENTERTAINMENT HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited / in thousands except for per share amounts) AS OF SEPTEMBER 30, 2007 AND DECEMBER 31, 2006 September 30, 2007 December 31, 2006 ASSETS CURRENT ASSETS Cash and cash equivalents $16,648 $2,090 Inventories 2,672 2,124 Prepaid expenses and other current assets 8,248 5,316 Deferred income taxes - 1,171 Total current assets 27,568 10,701 Property and equipment - net 114,092 114,150 Goodwill 86,504 86,504 Other intangible assets - net 18,359 19,032 Other assets - net 6,424 7,307 TOTAL $252,947 $237,694 LIABILITIES AND SHAREHOLDER''S EQUITY CURRENT LIABILITIES Accounts payable $3,256 $1,791 Accrued interest 7,596 3,518 Accrued wages and payroll taxes 3,267 2,513 Other accrued liabilities 11,688 10,170 Unearned revenue 2,673 1,323 Current portion of long-term debt 37 848 Total current liabilities 28,517 20,163 Long-Term Debt - Less current portion 150,073 150,008 Deferred income taxes 7,900 2,032 Other long term liabilities 7,297 7,296 Total liabilities 193,787 179,499 COMMITMENTS AND CONTINGENCIES SHAREHOLDER''S EQUITY Common Stock, $.01 stated value, 1000 shares authorized, 100 shares issued and outstanding Additional Paid-in Capital 55,038 54,633 Accumulated (deficit) earnings 4,122 3,562 Total Shareholder''s equity 59,160 58,195 TOTAL $252,947 $237,694 See Notes to Condensed Consolidated Financial Statements CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2007 AND 2006 (unaudited / in thousands) Successor Combined Successor Predecessor For the For the nine nine For the month month period For the period period April 13 period ended ended to January 1 September September September to 30, 30, 30 April 12 2007 2006 2006 2006 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $560 $(6,535) $11,618 $(18,153) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 13,512 13,506 9,028 4,478 Loss on disposal of assets 186 Amortization of deferred financing costs 578 1,160 364 796 Financed Interest Payments 3,515 3,515 Share based compensation 391 667 667 Deferred rent expense 177 254 218 36 Deferred income taxes 5,868 Changes in net operating assets and liabilities: Inventories (548) (279) (65) (214) Prepaid expenses and other current assets (1,760) (2,279) (3,384) 1,105 Other assets 306 9 1 8 Accounts payable 1,501 (961) (2,121) 1,160 Accrued interest 4,078 8,091 7,655 436 Accrued wages and payroll taxes 754 (226) (59) (167) Income taxes payable 9,504 9,504 Other accrued liabilities 1,498 1,502 2,849 (1,347) Unearned revenue 1,350 (386) (380) (6) Other long-term liabilities (3) (98) (120) 22 Net cash provided by (used in) operating activities 28,448 27,444 35,775 (8,331) CASH FLOWS FROM INVESTING ACTIVITIES: Payment for acquisition of Festival Fun Parks, LLC, net (37,599) (37,599) Purchases of property and equipment (12,906) (10,129) (6,178) (3,951) Payments for disposal of assets (149) Net cash used in investing activities (13,055) (47,728) (43,777) (3,951) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 54,260 54,260 Capital contribution 800 Return of capital (786) (500) (500) Proceeds from issuance of long- term debt 22,000 176,600 163,500 13,100 Payments on long-term debt (22,000) (189,862) (189,095) (767) Payments for cost of financing (5,575) (5,575) Payments on capital leases (849) (773) (655) (118) Distributions to member (57) (57) Net cash (used in) provided by financing activities (835) 34,093 21,935 12,158 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,558 13,809 13,933 (124) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,090 5,240 5,116 5,240 CASH AND CASH EQUIVALENTS, END OF PERIOD $16,648 $19,049 $19,049 $5,116 See Notes to Condensed Consolidated Financial Statements

    Source: Palace Entertainment Holdings, Inc.
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