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 June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission file number: 0-27478
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 August 13, 1997, 20,522,930 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)
June 30, 1997 and December 31, 1996........................... 1
Consolidated statement of operations (unaudited)
Three months ended June 30, 1997 and 1996..................... 2
Consolidated statement of operations (unaudited)
Six months ended June 30, 1997 and 1996....................... 3
Consolidated statement of stockholders' equity (unaudited)
Six months ended June 30, 1997................................ 4
Consolidated statement of cash flows (unaudited)
Six months ended June 30, 1997 and 1996....................... 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>
June 30 December 31
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................... $ 9,565 $ 16,534
Installment contracts receivable, less
unearned finance charges of $26,406
and $24,467 and allowance for doubtful
receivables and cancellations of $49,832
and $48,471...................................... 161,499 153,235
Other current assets............................... 32,648 24,075
----------- -----------
Total current assets............................. 203,712 193,844
Installment contracts receivable, less unearned
finance charges of $12,339 and $11,382 and
allowance for doubtful receivables and
cancellations of $38,798 and $37,624............... 155,652 146,972
Property and equipment, less accumulated
depreciation and amortization of $308,841
and $304,865....................................... 317,720 325,459
Intangible assets, less accumulated
amortization of $51,871 and $49,619................ 103,473 105,725
Deferred income taxes................................ 24,761 13,656
Deferred membership origination costs................ 80,658 82,140
Other assets......................................... 24,237 25,506
----------- -----------
$ 910,213 $ 893,302
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 48,161 $ 41,565
Income taxes payable............................... 2,325 2,258
Deferred income taxes.............................. 26,250 15,145
Accrued liabilities................................ 52,155 55,063
Current maturities of long-term debt............... 20,837 8,401
Deferred revenues.................................. 265,208 265,465
----------- -----------
Total current liabilities........................ 414,936 387,897
Long-term debt, less current maturities.............. 376,977 376,397
Other liabilities.................................... 6,483 6,824
Deferred revenues.................................... 98,540 98,032
Stockholders' equity................................. 13,277 24,152
----------- -----------
$ 910,213 $ 893,302
=========== ===========
<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>
Three months
ended June 30
----------------------
1997 1996
---------- ----------
(as restated)
<S> <C> <C>
Net revenues:
Membership revenues -
Initial membership fees on paid-in-full
memberships originated........................ $ 14,548 $ 22,128
Initial membership fees on financed
memberships originated........................ 79,993 70,728
Dues collected.................................. 49,069 42,226
Change in deferred revenues..................... 4,720 10,907
---------- ---------
148,330 145,989
Finance charges earned............................ 9,764 8,961
Fees and other.................................... 3,860 4,002
---------- ---------
161,954 158,952
Operating costs and expenses:
Fitness center operations......................... 93,444 92,186
Member processing and collection centers.......... 8,791 9,729
Advertising....................................... 11,250 13,199
General and administrative........................ 6,306 4,300
Provision for doubtful receivables................ 22,028 19,942
Depreciation and amortization..................... 15,007 13,996
Change in deferred membership origination costs... 1,784 1,388
---------- ---------
158,610 154,740
---------- ---------
Operating income.................................... 3,344 4,212
Interest expense.................................... 10,544 12,051
---------- ---------
Loss before income taxes............................ (7,200) (7,839)
Income tax provision ............................... 100 99
---------- ---------
Net loss............................................ $ (7,300) $ (7,938)
========== =========
Net loss per common share........................... $ (.59) $ (.65)
========== =========
<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>
Six months
ended June 30
----------------------
1997 1996
---------- ----------
(as restated)
<S> <C> <C>
Net revenues:
Membership revenues -
Initial membership fees on paid-in-full
memberships originated........................ $ 32,023 $ 43,285
Initial membership fees on financed
memberships originated........................ 175,561 157,906
Dues collected.................................. 96,857 85,642
Change in deferred revenues..................... (945) 10,159
---------- ---------
303,496 296,992
Finance charges earned............................ 19,533 18,556
Fees and other.................................... 7,458 7,296
---------- ---------
330,487 322,844
Operating costs and expenses:
Fitness center operations......................... 189,368 187,400
Member processing and collection centers.......... 18,194 21,318
Advertising....................................... 23,936 25,810
General and administrative........................ 12,227 10,089
Provision for doubtful receivables................ 47,565 44,420
Depreciation and amortization..................... 28,072 27,672
Change in deferred membership origination costs... 1,482 1,880
---------- ---------
320,844 318,589
---------- ---------
Operating income.................................... 9,643 4,255
Interest expense.................................... 22,423 23,900
---------- ---------
Loss before income taxes............................ (12,780) (19,645)
Income tax provision ............................... 200 249
---------- ---------
Net loss............................................ $ (12,980) $ (19,894)
========== =========
Net loss per common share........................... $ (1.06) $ (1.63)
========== =========
<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 Par Contributed Accumulated (restricted stockholders'
of shares value capital deficit stock) equity
---------- ----- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996....... 12,495,161 $ 125 $ 303,811 $ (277,733) $ (2,051) $ 24,152
Net loss........................... (12,980) (12,980)
Issuance of common stock upon
exercise of stock options......... 15,219 54 54
Amortization of unearned
compensation...................... 2,051 2,051
---------- ----- ---------- ---------- -------- ---------
Balance at June 30, 1997........... 12,510,380 $ 125 $ 303,865 $ (290,713) $ -- $ 13,277
========== ===== ========== ========== ======== =========
<FN>
See accompanying notes.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six months
ended June 30
----------------------
1997 1996
---------- ----------
(as restated)
<S> <C> <C>
OPERATING:
Net loss........................................... $ (12,980) $ (19,894)
Adjustments to reconcile to cash used -
Depreciation and amortization, including
amortization included in interest expense........ 29,236 29,274
Provision for doubtful receivables................ 47,565 44,420
Change in operating assets and
liabilities..................................... (67,886) (59,642)
---------- ----------
Cash used in operating activities.............. (4,065) (5,842)
INVESTING:
Purchases and construction of property
and equipment..................................... (13,060) (11,450)
Other, net......................................... (93) 472
---------- ----------
Cash used in investing activities ............. (13,153) (10,978)
FINANCING:
Debt transactions -
Net borrowings under revolving credit
agreement........................................ 12,000
Proceeds from other long-term borrowings.......... 1,500
Repayments of other long-term debt................ (1,798) (897)
Debt issuance costs............................... (7) (144)
---------- ----------
Cash provided by debt transactions............. 10,195 459
Equity transactions -
Proceeds from issuance of common stock upon
exercise of stock options........................ 54
Capital contribution by Bally Entertainment
Corporation...................................... 6,760
---------- ----------
Cash provided by financing activities.......... 10,249 7,219
---------- ----------
Decrease in cash and equivalents.................... (6,969) (9,601)
Cash and equivalents, beginning of period........... 16,534 21,263
---------- ----------
Cash and equivalents, end of period................. $ 9,565 $ 11,662
========== ==========
(continued)
</TABLE>
5
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS - (CONTINUED)
(In thousands)
(Unaudited)
<CAPTION>
Six months
ended June 30
----------------------
1997 1996
---------- ----------
(as restated)
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and liabilities,
net of effects from the sale of a
fitness center, were as follows -
Increase in installment contracts receivable.. $ (65,148) $ (41,746)
Increase in other current and other assets.... (8,783) (3,471)
Decrease in deferred membership
origination costs............................ 1,482 1,880
Increase (decrease) in accounts payable....... 6,596 (10,706)
Increase (decrease) in income taxes payable... 67 (1,655)
Increase (decrease) in accrued and other
liabilities.................................. (3,045) 6,215
Increase (decrease) in deferred revenues...... 945 (10,159)
---------- ----------
$ (67,886) $ (59,642)
========== ==========
Cash payments for interest and income taxes
were as follows -
Interest paid................................. $ 22,149 $ 21,818
Interest capitalized.......................... (892) (163)
Income taxes paid, net........................ 133 1,904
Investing and financing activities exclude the
following non-cash transactions -
Acquisition of property and equipment
through capital leases/borrowings............ $ 2,814 $ 2,853
<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/A for the year
ended December 31, 1996.
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 June 30, 1997, its consolidated statements of operations for the
three and six months ended June 30, 1997 and 1996, its consolidated statement of
stockholders' equity for the six months ended June 30, 1997 and its consolidated
statement of cash flows for the six months ended June 30, 1997 and 1996. 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.
RESTATEMENT
As more fully described in the "Summary of significant accounting policies
Restatement and Membership revenue recognition" notes to the consolidated
financial statements included in the Company's Annual Report on Form 10-K/A for
the year ended December 31, 1996, following a series of extensive discussions
with the Staff of the Securities and Exchange Commission, the Company restated
its condensed consolidated financial statements for periods prior to the
issuance of its June 30, 1997 financial statements to reflect a change in the
method of recognizing membership revenue. Summarized financial information
illustrating the effect of the restatement on the Company's consolidated
statements of operations for the three and six months ended June 30, 1996 is as
follows:
<TABLE>
<CAPTION>
Three months Six months
ended June 30, 1996 ended June 30, 1996
--------------------- ---------------------
As As
originally As originally As
reported restated reported restated
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues............................. $158,560 $158,952 $329,641 $322,844
Operating income..................... 5,156 4,212 14,748 4,255
Net loss............................. (6,995) (7,938) (9,452) (19,894)
Net loss per common share............ (.57) (.65) (.78) (1.63)
</TABLE>
In addition, certain reclassifications have been made to prior period financial
statements to conform with the 1997 presentation.
7
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All dollar amounts in thousands, except share data)
(Unaudited)
SEASONAL FACTORS
The Company's operations are subject to seasonal factors and, therefore, the
results of operations for the three and six months ended June 30, 1997 and 1996
are not necessarily indicative of the results of operations for the full year.
LOSS PER COMMON SHARE
Loss per common share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during each period, which totaled
12,314,465 shares and 12,170,161 shares for the three months ended June 30, 1997
and 1996, respectively, and 12,296,896 shares and 12,170,161 shares for the six
months ended June 30, 1997 and 1996, respectively. Certain restricted stock was
issued subject to forfeiture unless certain conditions were met. These
contingent shares were considered common stock equivalents and were excluded
from the loss per share computation until the conditions were met because their
effect was anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which
establishes new standards for computing and presenting earnings per share. SFAS
No. 128 requires a dual presentation of basic earnings per share (computed by
dividing income (loss) available to common stockholders by the weighted-average
number of common shares outstanding for the period) and diluted earnings per
share (computed similarly to fully diluted earnings per share pursuant to APB
Opinion No. 15) on the face of the Company's statement of operations. The
Company will adopt SFAS No. 128 in the fourth quarter of 1997; earlier
application is not permitted. As computed under SFAS No. 128, basic and diluted
loss per share for the three and six months ended June 30, 1997 each would have
been $.59 per share and $1.06 per share, respectively.
SUBSEQUENT EVENT
In August 1997, the Company issued 8,000,000 shares of its common stock through
an underwritten public offering. The offering provided proceeds of approximately
$90,000 after deducting the underwriting discount, which the Company intends to
use for capital expenditures to develop new facilities and more extensively
refurbish and upgrade existing facilities, to repay certain indebtedness, to
support the introduction of new initiatives and for general corporate and
working capital purposes.
8
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Net revenues for the second quarter of 1997 were $162.0 million compared to
$159.0 million in 1996, an increase of $3.0 million (2%). The average number of
fitness centers selling memberships decreased from 323 in the second quarter of
1996 to 318 in the second quarter of 1997, reflecting the closure of 10 older,
typically smaller and less profitable facilities and the sale of a fitness
center to a franchisee offset, in part, by the opening of 5 new, larger
facilities between April 1996 and June 1997. Initial membership fees originated
increased $1.7 million (2%) in the 1997 quarter, consisting of a $9.3 million
(13%) increase in financed memberships originated offset, in part, by a $7.6
million (34%) decrease in paid-in-full memberships originated. These results
generally reflect management's current strategy of selling more financed
membership plans and fewer discounted paid-in-full membership plans, which
resulted in a 19% increase in the average selling price of contracts sold and a
14% decline in the number of contracts sold. Dues collected increased $6.8
million (16%) over 1996, reflecting the Company's continuing strategy of
increasing renewal dues. Finance charges earned increased $.8 million (9%) in
the 1997 quarter due primarily to the increase in the size of the receivables
portfolio.
Operating income for the second quarter of 1997 was $3.3 million compared to
$4.2 million in 1996. The decrease of $.9 million is due primarily to a $3.4
million charge, principally non-recurring amortization, relating to restricted
stock awards issued in conjunction with the spin-off of the Company (for which
the remaining restrictions lapsed in June 1997 and vesting did not occur until
August 1997) offset, in part, by the aforementioned increase in revenues.
Excluding the charge related to restricted stock awards and the provision for
doubtful receivables, operating costs and expenses decreased $1.6 million (1%)
from 1996 primarily due to a $1.9 million decrease in advertising expenses due
to reduced television spending and the elimination of certain agency fees in
1997. In addition, member processing and collection center expenses decreased
$.9 million (10%), which includes decreases in telephone expenses (as a result
of renegotiated rates and fewer member service calls), printing costs and
equipment rental. Operating costs and expenses for the third quarter of 1997 are
anticipated to include a final $2.9 million charge in connection with the August
1997 vesting of the restricted stock awards described above, and results from an
increase in the market price of the Company's common stock through the vesting
date.
The provision for doubtful receivables for the second quarter of 1997 was $22.0
million compared to $19.9 million in 1996, an increase of $2.1 million (11%)
primarily due to the increase in initial membership fees originated on financed
memberships.
Interest expense was $10.5 million for the second quarter of 1997 compared to
$12.1 million in 1996, a decrease of $1.6 million (13%) primarily due to lower
average interest rates and an increase in the amount of capitalized interest.
The income tax provision for the second quarter of 1997 and 1996 has been
determined using the estimated annual effective tax rate for each year and
reflects state income taxes only, as no federal benefit has been provided due to
the uncertainty of tax loss realization.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net revenues for the first six months of 1997 were $330.5 million compared to
$322.8 million in 1996, an increase of $7.7 million (2%). The average number of
fitness centers selling memberships decreased from 323 in the first six months
of 1996 to 318 in the first six months of 1997, reflecting the closure of 13
older, typically smaller and less profitable facilities and the sale of a
fitness center to a franchisee offset, in part, by the opening of 6 new, larger
facilities between January 1996 and June 1997. Initial membership fees
originated increased $6.4 million (3%) in the 1997 period, consisting of a $17.7
million (11%) increase in financed memberships originated offset, in part, by an
$11.3 million (26%) decrease in paid-in-full memberships originated. These
results generally reflect management's current strategy of selling more financed
9
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
membership plans and fewer discounted paid-in-full membership plans, which
resulted in a 21% increase in the average selling price of contracts sold and a
14% decline in the number of contracts sold. Dues collected increased $11.2
million (13%) over 1996, reflecting the Company's continuing strategy of
increasing renewal dues. Finance charges earned increased $1.0 million (5%) in
the 1997 period due primarily to the increase in the size of the receivables
portfolio.
Operating income for the first six months of 1997 was $9.6 million compared to
$4.3 million in 1996. The increase of $5.3 million is due to the aforementioned
increase in revenues offset, in part, by a $2.3 million (1%) increase in
operating costs and expenses, which includes a $3.4 million charge, principally
non-recurring amortization, relating to restricted stock awards issued in
conjunction with the spin-off of the Company (for which the remaining
restrictions lapsed in June 1997 and vesting did not occur until August 1997).
Excluding the charge related to restricted stock awards and the provision for
doubtful receivables, operating costs and expenses decreased $4.2 million (2%)
from 1996 primarily due to a $3.1 million (15%) decrease in member processing
and collection center expenses, which includes decreases in telephone expenses
(as a result of renegotiated rates and fewer member service calls), equipment
rental and printing costs. In addition, advertising expenses decreased $1.9
million (7%) due to reduced television spending and the elimination of certain
agency fees in 1997.
The provision for doubtful receivables for the first six months of 1997 was
$47.6 million compared to $44.4 million in 1996, an increase of $3.2 million
(7%) primarily due to the increase in initial membership fees originated on
financed memberships.
Interest expense was $22.4 million for the first six months of 1997 compared to
$23.9 million in 1996, a decrease of $1.5 million (6%) primarily due to lower
average interest rates and an increase in the amount of capitalized interest.
The income tax provision for the first six months of 1997 and 1996 has been
determined using the estimated annual effective tax rate for each year and
reflects state income taxes only, as no federal benefit has been provided due to
the uncertainty of tax loss realization.
LIQUIDITY AND CAPITAL RESOURCES
The Company has no scheduled principal payments under its $200 million principal
amount of 13% Senior Subordinated Notes due 2003 (the "13% Notes") until January
2003. The principal amount of the certificates under the Company's
securitization facility remains fixed at $160 million through July 1999. The
Company's revolving credit agreement, under which borrowings on the credit line
totaled $12 million at June 30, 1997, expires in June 1998. Accordingly, debt
service requirements (including interest) of the Company for the twelve months
ending June 30, 1998 are approximately $64 million.
The Company intends to expand and upgrade its facilities in order to increase
its membership base and more effectively capitalize on its streamlined marketing
and administrative functions. Using cash generated by operations and through
leasing arrangements, management plans to make capital expenditures of
approximately $10 million to $12 million over the next twelve months to maintain
and make minor upgrades to the Company's existing facilities, which include
exercise equipment upgrades, HVAC and other operating equipment upgrades and
replacements, and locker room and workout area refurbishments, among others.
In addition, the Company issued 8,000,000 shares of its common stock in August
1997 through an underwritten public offering (the "Offering"). The Offering
provided proceeds of approximately $90 million, after deducting the underwriting
discount. The Company intends to use the proceeds of the Offering as follows:
(i) approximately $15 million to $25 million over the next three years for
capital expenditures to open 15 to 25 new facilities, (ii) approximately $5
million to $10 million over the next two
10
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
years to extensively refurbish and make major upgrades to approximately 25% of
its clubs, which include converting low-usage pools and racquet areas into
expanded exercise areas and to a lesser extent retail and outpatient
rehabilitation service areas, adding and upgrading exercise equipment, and
refreshing interior and exterior finishes to improve club ambience, among
others, (iii) $7.5 million to repay a loan from an affiliate of an underwriter
of the Offering, (iv) as much as $3 million to support the introduction of new
initiatives and (v) the balance for general corporate and working capital
purposes. Pending such uses, the Company may temporarily invest available funds
from the Offering in short-term securities and/or reduce indebtedness under its
revolving credit agreement.
Prior to the Offering, the Company was dependent on availability under its
revolving credit agreement and its operations to provide for cash needs. The
Company has managed liquidity requirements in recent years by utilizing
membership plan discounting techniques designed to increase its cash sales and
down-payments and to accelerate collections and dues payments to increase
available cash reserves and, to a lesser extent, sales of non-strategic assets
and sale/leaseback arrangements. Management believes use of these discounting
techniques has had a negative impact on both current and long term results, and
that the proceeds provided by the Offering alleviate the need to continue the
discounting techniques. Management also believes that the Company will be able
to satisfy its debt service and capital expenditure requirements over the next
twelve months.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this Form 10-Q including, without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties,
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward- looking
statements. These factors include, among others, the following: general economic
and business conditions; competition; success of operating initiatives,
advertising and promotional efforts; existence of adverse publicity or
litigation; acceptance of new product offerings; changes in business strategy or
plans; quality of management; availability, terms, and development of capital;
business abilities and judgment of personnel; changes in, or the failure to
comply with, government regulations; regional weather conditions; and other
factors described in filings of the Company with the Securities and Exchange
Commission. The Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
CASH EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
("CASH EBITDA")
The indenture governing 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) in this Form 10-Q. 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)
Cash EBITDA is calculated as follows (in millions):
<TABLE>
<CAPTION>
Six months
ended June 30
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Loss before income taxes................................. $ (12.8) $ (19.6)
Adjustments to reconcile to Cash EBITDA:
Interest expense (excluding $6.7
million and $7.4 million of interest
on the securitization facilities).................... 15.7 16.5
Depreciation and amortization.......................... 28.1 27.7
Provision for doubtful receivables..................... 47.6 44.4
Increase in installment contracts
receivable........................................... (65.1) (41.7)
Increase (decrease) in deferred revenues............... .9 (10.2)
Decrease in deferred membership
origination costs.................................... 1.5 1.9
Other non-cash items................................... .3 .8
--------- ---------
Cash EBITDA.............................................. $ 16.2 $ 19.8
========= =========
</TABLE>
Cash EBITDA was $16.2 million for the first six months of 1997 compared to $19.8
million for 1996, a decrease of $3.6 million primarily attributed to decreased
cash sales and accelerations on installment contracts receivable offset, in
part, by an increase in renewal dues and a decrease in cash expenses.
12
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule for June 30, 1997
(filed electronically only).
27.2 Restated Financial Data Schedule for June 30, 1996
(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, Chief Financial Officer and Treasurer
(principal financial officer)
Dated: August 14, 1997
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1997, THE CONSOLIDATED
STATEMENT OF OPERATIONS AND THE CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,565
<SECURITIES> 0
<RECEIVABLES> 405,781<F1>
<ALLOWANCES> 88,630
<INVENTORY> 0
<CURRENT-ASSETS> 203,712
<PP&E> 626,561
<DEPRECIATION> 308,841
<TOTAL-ASSETS> 910,213
<CURRENT-LIABILITIES> 414,936
<BONDS> 376,977
0
0
<COMMON> 125
<OTHER-SE> 13,152
<TOTAL-LIABILITY-AND-EQUITY> 910,213
<SALES> 0
<TOTAL-REVENUES> 330,487
<CGS> 0
<TOTAL-COSTS> 214,786<F2>
<OTHER-EXPENSES> 18,194<F3>
<LOSS-PROVISION> 47,565
<INTEREST-EXPENSE> 22,423
<INCOME-PRETAX> (12,780)
<INCOME-TAX> 200
<INCOME-CONTINUING> (12,980)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,980)
<EPS-PRIMARY> (1.06)
<EPS-DILUTED> 0
<FN>
<F1>THIS AMOUNT IS THE SUM OF THE SHORT-TERM AND LONG-TERM INSTALLMENT
CONTRACTS RECEIVABLE LINES ON THE CONDENSED CONSOLIDATED BALANCE SHEET AT
JUNE 30, 1997 AND IS NET OF UNEARNED FINANCE CHARGES.
<F2>THIS AMOUNT IS THE SUM OF THE FITNESS CENTER OPERATIONS LINE, THE
ADVERTISING LINE AND THE CHANGE IN DEFERRED MEMBERSHIP ORIGINATION COSTS
LINE ON THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1997.
<F3>THIS AMOUNT IS THE MEMBER PROCESSING AND COLLECTION CENTERS LINE ON THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996, THE CONSOLIDATED
STATEMENT OF OPERATIONS AND THE CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,662
<SECURITIES> 0
<RECEIVABLES> 406,160<F1>
<ALLOWANCES> 105,474
<INVENTORY> 0
<CURRENT-ASSETS> 191,129
<PP&E> 637,874
<DEPRECIATION> 300,574
<TOTAL-ASSETS> 909,982
<CURRENT-LIABILITIES> 419,048
<BONDS> 337,920
0
0
<COMMON> 125
<OTHER-SE> 18,796
<TOTAL-LIABILITY-AND-EQUITY> 909,982
<SALES> 0
<TOTAL-REVENUES> 322,844
<CGS> 0
<TOTAL-COSTS> 215,090<F2>
<OTHER-EXPENSES> 21,318<F3>
<LOSS-PROVISION> 44,420
<INTEREST-EXPENSE> 23,900
<INCOME-PRETAX> (19,645)
<INCOME-TAX> 249
<INCOME-CONTINUING> (19,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,894)
<EPS-PRIMARY> (1.63)
<EPS-DILUTED> 0
<FN>
<F1>THIS AMOUNT IS THE SUM OF THE SHORT-TERM AND LONG-TERM INSTALLMENT
CONTRACTS RECEIVABLE LINES ON THE CONDENSED CONSOLIDATED BALANCE SHEET AT
JUNE 30, 1996 AND IS NET OF UNEARNED FINANCE CHARGES.
<F2>THIS AMOUNT IS THE SUM OF THE FITNESS CENTER OPERATIONS LINE, THE
ADVERTISING LINE AND THE CHANGE IN DEFERRED MEMBERSHIP ORIGINATION COSTS
LINE ON THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1996.
<F3>THIS AMOUNT IS THE MEMBER PROCESSING AND COLLECTION CENTERS LINE ON THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996.
</FN>
</TABLE>
