FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the period ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission file number: 33-99844
BALLY TOTAL FITNESS HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3228107
(State or other jurisdiction of (I.R.S. Employer
incorporation) Identification No.)
8700 West Bryn Mawr Avenue, Chicago, Illinois 60631
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (773) 380-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:
As of October 31, 1996, 12,495,161 shares of the registrant's common stock were
outstanding.
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Condensed consolidated balance sheet (unaudited)
September 30, 1996 and December 31, 1995...................... 1
Consolidated statement of operations (unaudited)
Nine months ended September 30, 1996 and 1995................. 2
Consolidated statement of operations (unaudited)
Three months ended September 30, 1996 and 1995................ 3
Consolidated statement of stockholders' equity (unaudited)
Nine months ended September 30, 1996.......................... 4
Consolidated statement of cash flows (unaudited)
Nine months ended September 30, 1996 and 1995................. 5
Notes to condensed consolidated financial statements
(unaudited)................................................... 7
Item 2. Management's discussion and analysis of financial
condition and results of operations.................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.......................... 13
SIGNATURE PAGE....................................................... 14
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
<CAPTION>
September 30 December 31
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents......................... $ 11,909 $ 21,263
Installment contracts receivable, net........ 159,201 155,504
Other current assets......................... 25,130 20,216
------------ ------------
Total current assets....................... 196,240 196,983
Installment contracts receivable, net.......... 156,556 147,856
Property and equipment, less accumulated
depreciation and amortization of $299,007
and $293,698................................. 328,565 348,468
Intangible assets, less accumulated
amortization of $48,485 and $45,117.......... 106,859 110,227
Deferred income taxes.......................... 9,750 2,989
Other assets................................... 36,891 39,771
------------ ------------
$ 834,861 $ 846,294
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 35,855 $ 43,740
Income taxes payable......................... 25 2,241
Deferred income taxes........................ 18,462 11,112
Deferred revenues............................ 56,234 61,881
Accrued liabilities.......................... 59,522 64,978
Current maturities of long-term debt......... 61,622 1,481
------------ ------------
Total current liabilities.................. 231,720 185,433
Long-term debt, less current maturities........ 323,187 368,032
Tax obligation to Bally Entertainment
Corporation.................................. 15,200 15,200
Other liabilities and deferred credits......... 33,286 37,282
Stockholders' equity........................... 231,468 240,347
------------ ------------
$ 834,861 $ 846,294
============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION CONSOLIDATED
STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Nine months
ended September 30
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Net revenues:
Membership revenues -
New............................................. $ 309,968 $ 331,311
Dues............................................ 140,521 135,232
Finance charges earned............................ 27,698 28,536
Fees and other.................................... 10,256 13,990
---------- ----------
488,443 509,069
Operating costs and expenses:
Fitness center operations......................... 284,330 301,730
Member processing and collection centers.......... 33,527 39,570
Advertising....................................... 36,789 36,231
General and administrative........................ 15,110 15,779
Provision for doubtful receivables................ 57,486 58,494
Depreciation and amortization..................... 41,119 43,061
---------- ----------
468,361 494,865
---------- ----------
Operating income.................................... 20,082 14,204
Interest expense.................................... 36,042 32,335
---------- ----------
Loss before income taxes............................ (15,960) (18,131)
Income tax provision (benefit)...................... 265 (5,621)
---------- ----------
Net loss............................................ $ (16,225) $ (12,510)
========== ==========
Per common share:
Net loss - proforma for 1995...................... $ (1.33) $ (1.52)
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION CONSOLIDATED
STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three months
ended September 30
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Net revenues:
Membership revenues -
New............................................. $ 98,011 $ 110,194
Dues............................................ 48,689 44,410
Finance charges earned............................ 9,142 10,462
Fees and other.................................... 2,960 4,761
---------- ----------
158,802 169,827
Operating costs and expenses:
Fitness center operations......................... 94,324 100,554
Member processing and collection centers.......... 10,984 14,042
Advertising....................................... 10,979 13,589
General and administrative........................ 5,607 5,248
Provision for doubtful receivables................ 18,127 20,139
Depreciation and amortization..................... 13,447 14,393
---------- ----------
153,468 167,965
---------- ----------
Operating income.................................... 5,334 1,862
Interest expense.................................... 12,142 11,563
---------- ----------
Loss before income taxes............................ (6,808) (9,701)
Income tax benefit.................................. (35) (3,176)
---------- ----------
Net loss............................................ $ (6,773) $ (6,525)
========== ==========
Per common share:
Net loss - proforma for 1995...................... $ (.56) $ (.81)
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
<CAPTION>
Common stock Unearned
------------------- compensation Total
Number Stated Contributed Accumulated (restricted stockholders'
of shares value capital deficit stock) equity
---------- ------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........... 11,845,161 $ 118 $ 293,062 $ (52,833) $ $ 240,347
Net loss............................... (16,225) (16,225)
Stock awards under
long-term incentive plan.............. 650,000 7 4,389 (4,396) -
Capital contribution by
Bally Entertainment Corporation....... 6,760 6,760
Amortization of unearned
compensation.......................... 586 586
---------- ------ ---------- ---------- ---------- ----------
Balance at September 30, 1996.......... 12,495,161 $ 125 $ 304,211 $ (69,058) $ (3,810) $ 231,468
========== ====== ========== ========== ========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine months
ended September 30
----------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATING:
Net loss........................................... $ (16,225) $ (12,510)
Adjustments to reconcile to cash used -
Depreciation and amortization, including
amortization included in interest expense........ 43,546 45,635
Provision for doubtful receivables................ 57,486 58,494
Deferred income taxes............................. 589 555
Change in operating assets and
liabilities..................................... (99,849) (125,285)
---------- ----------
Cash used in operating activities.............. (14,453) (33,111)
INVESTING:
Purchases of property and equipment................ (13,346) (16,055)
Reserve fund deposits pursuant to securitization
facility.......................................... (10,020)
Other, net......................................... 564 (99)
---------- ----------
Cash used in investing activities.............. (12,782) (26,174)
FINANCING:
Debt transactions -
Proceeds from securitization facility............. 150,000
Net borrowings (repayments) under revolving
credit agreement................................. 11,500 (77,000)
Net repayments of other long-term debt............ (77) (5,230)
Debt issuance costs............................... (302) (6,152)
---------- ----------
Cash provided by debt transactions............. 11,121 61,618
Equity transaction -
Capital contribution by Bally
Entertainment Corporation........................ 6,760
---------- ----------
Cash provided by financing activities.......... 17,881 61,618
---------- ----------
Increase (decrease) in cash and equivalents......... (9,354) 2,333
Cash and equivalents, beginning of period........... 21,263 12,804
---------- ----------
Cash and equivalents, end of period................. $ 11,909 $ 15,137
========== ==========
<FN>
(continued)
</FN>
</TABLE>
5
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS-(CONTINUED)
(In thousands)
(Unaudited)
<CAPTION>
Nine months
ended September 30
----------------------
1996 1995
---------- ----------
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and
liabilities were as follows -
Increase in installment contracts
receivable................................... $ (69,883) $ (84,302)
Increase in other current and other assets.... (4,645) (2,121)
Decrease in accounts payable.................. (8,189) (11,732)
Decrease in income taxes payable.............. (2,216) (1,778)
Decrease in accrued and other liabilities..... (5,876) (7,854)
Decrease in deferred revenues................. (9,040) (17,498)
---------- ----------
$ (99,849) $ (125,285)
========== ==========
Cash payments for interest and income taxes
were as follows -
Interest paid................................. $ 39,271 $ 38,066
Interest capitalized.......................... (173) (215)
Income taxes paid (refunded), net............. 1,892 (4,398)
Investing and financing activities exclude the
following non-cash transaction -
Acquisition of equipment through
capital leases.............................. $ 3,873 $
<FN>
See accompanying notes.
</FN>
</TABLE>
6
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
(Unaudited)
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Bally Total Fitness Holding Corporation ("the Company") and the
subsidiaries which it controls. The Company, through its subsidiaries, is a
nationwide commercial operator of fitness centers with approximately 320
facilities concentrated in 27 states and Canada. The Company operates in one
industry segment, and all significant revenues arise from the commercial
operation of fitness centers, primarily in major metropolitan markets in the
United States. Unless otherwise specified in the text, references to the Company
include the Company and its subsidiaries. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
The Company was a wholly owned subsidiary of Bally Entertainment Corporation
("Bally") until the consummation of Bally's spin-off (the "Spin-off") of the
Company on January 9, 1996. On that date, 11,845,161 shares of Company common
stock were distributed to holders of record of Bally's common stock as of
November 15, 1996. For financial accounting purposes, the Company has reflected
the effect of the Spin-off as of December 31, 1995.
All adjustments have been recorded which are, in the opinion of management,
necessary for a fair presentation of the condensed consolidated balance sheet of
the Company at September 30, 1996, its consolidated statements of operations for
the three and nine months ended September 30, 1996 and 1995, its consolidated
statement of stockholders' equity for the nine months ended September 30, 1996
and its consolidated statement of cash flows for the nine months ended September
30, 1996 and 1995. All such adjustments were of a normal recurring nature.
The accompanying condensed consolidated financial statements have been prepared
in conformity with generally accepted accounting principles which require the
Company's management to make estimates and assumptions that affect the amounts
reported therein. Actual results could vary from such estimates. In addition,
certain reclassifications have been made to prior period financial statements to
conform with the 1996 presentation.
SEASONAL FACTORS
The Company's operations are subject to seasonal factors and, therefore, the
results of operations for the three and nine months ended September 30, 1996 and
1995 are not necessarily indicative of the results of operations for the full
year.
LOSS PER COMMON SHARE
Loss per common share was computed by dividing net loss by the weighted average
number of shares of common stock outstanding during each period, which totalled
12,170,161 shares for both the three and nine months ended September 30, 1996.
Restricted stock (325,000 shares) was issued subject to forfeiture unless
certain conditions are met. These contingent shares are considered common stock
equivalents and are excluded from the loss per share computation because their
effect would be anti-dilutive. Proforma loss per common share for the three and
nine months ended September 30, 1995 was calculated giving effect to (i)
adjustments made to reflect the income tax provision/benefit as if the Company
had filed its own separate consolidated income tax returns for each period and
(ii) the distribution of 11,845,161 shares of Company common stock to Bally
shareholders as if such distribution had taken place as of the beginning of each
period.
7
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(All dollar amounts in thousands, except share data)
(Unaudited)
<TABLE>
INSTALLMENT CONTRACTS RECEIVABLE
<CAPTION>
September 30 December 31
1996 1995
------------ ------------
<S> <C> <C>
Current:
Installment contracts receivable........... $ 235,361 $ 244,522
Less --
Unearned finance charges................ 26,624 27,128
Allowance for doubtful receivables
and cancellations..................... 49,536 61,890
------------ ------------
$ 159,201 $ 155,504
============ ============
Long-term:
Installment contracts receivable........... $ 210,477 $ 211,549
Less --
Unearned finance charges................. 13,227 13,055
Allowance for doubtful receivables
and cancellations...................... 40,694 50,638
------------ ------------
$ 156,556 $ 147,856
============ ============
</TABLE>
INCOME TAXES
Taxable income or loss of the Company was included in the consolidated federal
income tax return of Bally through January 9, 1996. The Company is required to
file its own separate consolidated federal income tax return for periods after
January 9, 1996. The income tax provision/benefit for the three and nine months
ended September 30, 1996 reflects state income taxes only, as no federal benefit
has been provided due to the uncertainty of its realization.
The Tax Allocation and Indemnity Agreement between the Company and Bally was
amended in the second quarter of 1996 to include a portion of the Company's
losses in Bally's consolidated federal income tax return. A contribution was
received by the Company representing an advance on a portion of the estimated
benefit that Bally will receive from the utilization of the Company's loss
carrybacks.
LONG-TERM DEBT
The Company is restricted from paying cash dividends by the terms of its 13%
Senior Subordinated Notes due 2003 and its revolving credit agreement. The
covenants also limit amounts available for capital expenditures and additional
borrowings, and require maintenance of certain financial ratios. The Company's
revolving credit agreement provides for a $15,000 line of credit, which is
reduced by the amount of any outstanding letters of credit in excess of $15,000
(which excess may not exceed $5,000). The maximum amount available under this
revolving credit agreement, including letters of credit, is $30,000. At
September 30, 1996, outstanding letters of credit totaled approximately $13,600
and borrowings on the credit line totaled $11,500.
8
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NINE MONTHS VERSUS NINE MONTHS
Net revenues for the first nine months of 1996 were $488.4 million compared to
$509.1 million in the 1995 period. Net revenues for the same fitness centers
selling memberships throughout both periods decreased $14.6 million (3%), with
the remaining decrease resulting from the closure of older, less profitable
facilities that were not replaced and the sale of the Vertical Club in New York
City to Bally. The number of fitness centers selling memberships decreased from
331 at September 30, 1995 to 319 at September 30, 1996, representing the closure
of 15 older, typically smaller facilities and the sale of the Vertical Club
offset, in part, by the opening of 4 new, larger facilities. New membership
revenue decreased $21.3 million (6%) primarily due to a 7% decline in the number
of contracts sold offset, in part, by a 3% increase in the average selling
price. Dues revenue increased $5.3 million (4%) over 1995 despite the 4%
reduction in the number of facilities operated. Finance charges earned decreased
$.8 million (3%) in the 1996 period compared to 1995. Fees and other revenues
decreased $3.7 million (27%) primarily due to a reduction of personal trainer
revenue in 1996 as a result of temporarily outsourcing the service and
non-recurring income in the 1995 period pertaining to insurance recoveries.
Operating income for the first nine months of 1996 was $20.1 million compared to
$14.2 million in 1995. The increase of $5.9 million (42%) is due to a $26.5
million (5%) decrease in operating costs and expenses offset, in part, by the
aforementioned decrease in revenues. The decrease in operating costs and
expenses was primarily due to (i) continuing reductions in payroll and other
variable costs (including the consolidation of member processing and collection
centers and reductions in personal trainer salaries), (ii) lower commissions as
a result of the aforementioned decline in new membership sales and (iii) the 4%
reduction in the number of facilities operated.
Fitness center operating expenses for the first nine months of 1996 decreased
$17.4 million (6%) from 1995 primarily due to a reduction in payroll and related
costs ($12.0 million) and other variable costs as a result of continuing cost
reduction programs including club closures. As a percentage of net revenues,
fitness center operating expenses decreased from 59% in the 1995 period to 58%
in 1996.
Member processing and collection center expenses decreased $6.0 million (15%)
primarily due to the completion in late 1995 of the consolidation of three
regional service centers ("RSCs") into two and the completion of a computer
conversion project. With the addition of new hardware and software, the Company
has streamlined its processing procedures and developed efficiencies that enable
the RSCs to better service membership accounts while reducing costs. Member
processing and collection center expenses as a percentage of net revenues
decreased from 8% in the 1995 period to 7% in 1996.
Advertising costs for the first nine months of 1996 increased $.6 million (2%)
over 1995 primarily due to increased media and local club marketing costs.
Advertising expenses as a percentage of net revenues increased from 7% in the
1995 period to 8% in 1996.
General and administrative expenses decreased $.7 million (4%) and, as a
percentage of net revenues, were 3% for each period.
The provision for doubtful receivables for the first nine months of 1996 was
$57.5 million compared to $58.5 million for 1995, a decrease of $1.0 million
(2%). The provision for doubtful receivables as a percentage of net financed
sales increased from 26% in the 1995 period to 27% in 1996.
Depreciation and amortization expense decreased $1.9 million (5%) from 1995.
Interest expense, net of capitalized interest, was $36.0 million for the first
nine months of 1996 compared to $32.3 million in 1995, an increase of $3.7
million (11%) principally reflecting a higher average level of debt offset, in
part, by lower average interest rates.
9
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-(CONTINUED)
For periods commencing after the Spin-off, the Company is required to file its
own separate consolidated federal income tax return. The income tax provision
for the first nine months of 1996 reflects state income taxes only, as no
federal benefit has been provided due to the uncertainty of its realization.
QUARTER VERSUS QUARTER
Net revenues for the third quarter of 1996 were $158.8 million compared to
$169.8 million in the 1995 period. Net revenues for the same fitness centers
selling memberships throughout both quarters decreased $9.0 million (5%), with
the remaining decrease resulting from the closure of older, less profitable
facilities that were not replaced and the sale of the Vertical Club. New
membership revenue decreased $12.2 million (11%) primarily due to a 9% decline
in the number of contracts sold. Dues revenue increased $4.3 million (10%) over
1995 despite the aforementioned reduction in the number of facilities operated.
Finance charges earned decreased $1.3 million (13%) in the 1996 quarter compared
to 1995. Fees and other revenues decreased $1.8 million (38%) primarily due to
non-recurring income in the 1995 quarter pertaining to insurance recoveries and
a reduction of personal trainer revenue in 1996 as a result of temporarily
outsourcing the service.
Operating income for the third quarter of 1996 was $5.3 million compared to $1.9
million in 1995. The increase of $3.4 million (179%) is due to a $14.5 million
(9%) decrease in operating costs and expenses offset, in part, by the
aforementioned decrease in revenues. Excluding the provision for doubtful
receivables, operating costs and expenses decreased $12.5 million (8%) in the
third quarter of 1996 compared to 1995. The decrease was primarily due to (i)
reductions in payroll and other variable costs (including the consolidation of
member processing and collection centers and reductions in personal trainer
salaries), (ii) lower commissions as a result of the aforementioned decline in
new membership sales and (iii) the reduction in the number of facilities
operated.
Fitness center operating expenses for the third quarter of 1996 decreased $6.2
million (6%) from 1995 primarily due to a reduction in payroll and related costs
($4.5 million) and other variable costs as a result of continuing cost reduction
programs including club closures. As a percentage of net revenues, fitness
center operating expenses were 59% for each quarter.
Member processing and collection center expenses decreased $3.1 million (22%)
primarily due to the previously discussed RSC consolidation and computer
conversion project. Member processing and collection center expenses as a
percentage of net revenues decreased from 8% in the 1995 quarter to 7% in 1996.
Advertising costs for the third quarter of 1996 decreased $2.6 million (19%)
from 1995 primarily due to a concentrated effort by management to reduce total
costs in this area for the quarter by narrowing the mix of media to those
vehicles expected to reach a greater number of potential members at a lower
effective cost per member. Advertising expenses as a percentage of net revenues
decreased from 8% in the 1995 quarter to 7% in 1996.
General and administrative expenses increased $.4 million (7%) and, as a
percentage of net revenues, increased from 3% in the 1995 quarter to 4% in 1996.
The provision for doubtful receivables for the third quarter of 1996 was $18.1
million compared to $20.1 million for 1995, a decrease of $2.0 million (10%).
The provision for doubtful receivables as a percentage of net financed sales
increased from 26% in the 1995 period to 27% in 1996.
Depreciation and amortization expense decreased $.9 million (7%) from 1995.
10
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-(CONTINUED)
Interest expense, net of capitalized interest, was $12.1 million for the third
quarter of 1996 compared to $11.6 million in 1995, an increase of $.5 million
(4%) principally reflecting a higher average level of debt.
For periods commencing after the Spin-off, the Company is required to file its
own separate consolidated federal income tax return. The income tax benefit for
the third quarter of 1996 reflects state income taxes only, as no federal
benefit has been provided due to the uncertainty of its realization.
LIQUIDITY AND CAPITAL RESOURCES
The Company has no scheduled principal payments under its subordinated
indebtedness until 2003; however approximately $46 million principal amount of
the $150 million securitization facility will be amortized over the next twelve
months (commencing in January 1997) unless the financing is renewed or replaced.
The Company plans to issue a new series of securitization certificates in the
near future to replace the current series. In addition, the Company's revolving
credit agreement ($11.5 million outstanding on the credit line at September 30,
1996) expires in June 1997. The Company plans to replace the existing credit
agreement with a new credit agreement as soon as reasonably practicable.
However, there can be no assurance that such refinancings will actually occur or
that the terms of such new indebtedness will be as favorable as the existing
indebtedness. Other debt service requirements for the next twelve months,
principally for interest, are expected to be approximately $46 million.
The Company's recent losses and the terms of its revolving credit agreement have
limited the Company's ability to borrow significant amounts of additional funds.
Consequently, the Company has been dependent on availability under its revolving
credit agreement ($3.5 million at September 30, 1996) and its operations for its
cash needs. The Company has managed in recent years and expects to continue to
manage near-term liquidity requirements utilizing, in addition to the occasional
sale of non-strategic assets, a variety of techniques to increase its cash sales
and down payments and to accelerate collections and dues payments to increase
available cash reserves. For example, during late 1995 the Company initiated a
program which allowed members to transfer the balance of their installment
contracts to a credit card sponsored by a third party bank which results in the
payment of the full principal amount of the installment contract without the
need for a discount to the member. For the nine months ended September 30, 1996,
approximately $17 million of such payment accelerations were generated.
Management plans to make capital expenditures of approximately $8 million to $12
million over the next twelve months to maintain, and in many cases upgrade, its
existing facilities as funds are available. In recent years, the Company has
also spent $10 million to $15 million annually, as funds were available, to
build new or replacement facilities. The Company expects to continue those
expenditures if operations generate sufficient cash flow. The Company believes
it will be able to satisfy its cash needs over the next twelve months.
CASH EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
("CASH EBITDA")
The indenture governing the Company's 13% Senior Subordinated Notes due 2003
(the "13% Notes") requires the disclosure of information with respect to Cash
EBITDA (as calculated using accounting principles in effect in January 1993,
when the 13% Notes were issued). Cash EBITDA should not be considered as an
alternative to any measure of performance or liquidity as promulgated under
generally accepted accounting principles (such as net income/loss or cash
provided by/used in operating, investing and financing activities) nor should it
be considered as an indicator of the Company's overall financial performance.
11
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-(CONTINUED)
<TABLE>
Cash EBITDA is calculated as follows (in millions):
<CAPTION>
Nine months
ended September 30
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Loss before income taxes................................ $ (16.0) $ (18.1)
Adjustments to reconcile to Cash EBITDA:
Interest expense (excluding $11.2
million and $3.7 million of interest
on the securitization certificates)................. 24.8 28.6
Depreciation and amortization......................... 41.1 43.1
Provision for doubtful receivables.................... 57.5 58.5
Increase in installment contracts
receivable.......................................... (69.9) (84.3)
Decrease in deferred revenues......................... (9.0) (17.5)
Proforma decrease in installments contracts
receivable.......................................... 150.0
Other non-cash expenses............................... .9 1.8
--------- ---------
Cash EBITDA............................................. $ 29.4 $ 162.1
========= =========
</TABLE>
Cash EBITDA was $29.4 million for the first nine months of 1996 compared to
$162.1 million for 1995, a decrease of $132.7 million, primarily attributed to
the effect of the securitization facility. Accounting principles in January 1993
treated this type of financing as a sale, and therefore a $150.0 million
reduction in receivables, rather than as indebtedness with related interest
expense. Excluding the $150.0 million reduction in receivables in the 1995
period and adding back the related interest expense in the 1996 and 1995
periods, Cash EBITDA increased $24.8 million, from $15.8 million during the
first nine months of 1995 to $40.6 million for 1996. This increase is
principally due to a $22.4 million decrease in cash expenses and a $2.7 million
increase in cash revenue (primarily collections on contracts receivable). The
decrease in cash expenses (primarily payroll and commissions) was principally
due to the aforementioned cost reduction programs.
12
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (filed electronically only).
(b) Reports on Form 8-K:
None.
13
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALLY TOTAL FITNESS HOLDING CORPORATION
-------------------------------------------------
Registrant
/s/ John W. Dwyer
-------------------------------------------------
John W. Dwyer
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Dated: November 13, 1996
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996, THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS AND THE CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,909
<SECURITIES> 0
<RECEIVABLES> 445,838 <F1>
<ALLOWANCES> 90,230 <F1>
<INVENTORY> 0
<CURRENT-ASSETS> 196,240
<PP&E> 627,572
<DEPRECIATION> 299,007
<TOTAL-ASSETS> 834,861
<CURRENT-LIABILITIES> 231,720
<BONDS> 323,187
0
0
<COMMON> 125
<OTHER-SE> 231,343
<TOTAL-LIABILITY-AND-EQUITY> 834,861
<SALES> 0
<TOTAL-REVENUES> 488,443
<CGS> 0
<TOTAL-COSTS> 316,201 <F2>
<OTHER-EXPENSES> 33,527 <F3>
<LOSS-PROVISION> 57,486
<INTEREST-EXPENSE> 36,042
<INCOME-PRETAX> (15,960)
<INCOME-TAX> 265
<INCOME-CONTINUING> (16,225)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,225)
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 0
<FN>
<F1>THESE AMOUNTS REFLECT SHORT-TERM AND LONG-TERM BALANCES AS DISCLOSED IN
THE NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F2>THIS AMOUNT IS INCLUDED IN THE FITNESS CENTER OPERATIONS LINE AND THE
ADVERTISING LINE IN THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996.
<F3>THIS AMOUNT IS INCLUDED IN THE MEMBER PROCESSING AND COLLECTION CENTERS
LINE ON THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996.
</FN>
</TABLE>
