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Previous: TRUMPS CASTLE FUNDING INC, 10-Q, 2000-05-15 |
Next: REEBOK INTERNATIONAL LTD, 10-Q, 2000-05-15 |
| [X] | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the period ended March 31, 2000 |
| [ ] | Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
| Delaware | 36-3228107 |
| ---------------------------------------------------------------- | -------------------------------------- |
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) |
| 8700 West Bryn Mawr Avenue, Chicago, Illinois | 60631 |
| ---------------------------------------------------------------- | -------------------------------------- |
| (Address of principal executive offices) | (Zip Code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of he 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 April 30, 2000, 23,837,276 shares of the registrant's common stock were outstanding.
BALLY TOTAL FITNESS HOLDING CORPORATION
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Condensed consolidated balance sheet (unaudited)
March 31, 2000 and December 31, 1999 1
Consolidated statement of operations (unaudited)
Three months ended March 31, 2000 and 1999 2
Consolidated statement of stockholders' equity (unaudited)
Three months ended March 31, 2000 3
Consolidated statement of cash flows (unaudited)
Three months ended March 31, 2000 and 1999 4
Notes to condensed consolidated financial statements
(unaudited) 6
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 12
SIGNATURE PAGE 13
BALLY TOTAL FITNESS HOLDING CORPORATION
Condensed Consolidated Balance Sheet
(Unaudited)
MARCH 31 DECEMBER 31
2000 1999
------------ ------------
(In thousands)
ASSETS
Current assets:
Cash and equivalents $ 9,511 $ 23,450
Installment contracts receivable, net 255,890 241,450
Other current assets 47,201 46,185
------------ ------------
Total current assets 312,602 311,085
Installment contracts receivable, net 261,289 244,693
Property and equipment, less accumulated
depreciation and amortization of $395,300
and $382,897 499,114 473,111
Intangible assets, less accumulated
amortization of $66,237 and $64,554 135,823 137,156
Deferred income taxes 39,401 39,444
Deferred membership origination costs 109,828 106,195
Other assets 38,542 36,873
------------ ------------
$ 1,396,599 $ 1,348,557
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 50,003 $ 49,629
Income taxes payable 3,127 3,063
Deferred income taxes 40,802 40,933
Accrued liabilities 67,454 59,197
Current maturities of long-term debt 12,406 9,505
Deferred revenues 299,613 290,123
------------ ------------
Total current liabilities 473,405 452,450
Long-term debt, less current maturities 598,005 593,903
Other liabilities 6,515 6,531
Deferred revenues 90,112 83,214
Stockholders' equity 228,562 212,459
------------ ------------
$ 1,396,599 $ 1,348,557
============ ============
See accompanying notes.
1
BALLY TOTAL FITNESS HOLDING CORPORATION
Consolidated Statement of Operations
(Unaudited)
THREE MONTHS ENDED
MARCH 31
---------------------------
2000 1999
------------ ------------
(In thousands, except per share data)
Net revenues:
Membership revenues--
Initial membership fees on financed
memberships originated $ 144,462 $ 126,730
Initial membership fees on paid-in-full
memberships originated 6,717 6,670
Dues collected 67,361 59,968
Change in deferred revenues (16,301) (13,437)
------------ ------------
202,239 179,931
Finance charges earned 16,374 13,983
Products and services 26,613 11,990
Miscellaneous revenue 4,026 2,532
------------ ------------
249,252 208,436
Operating costs and expenses:
Fitness center operations 114,205 104,891
Products and services 17,369 7,900
Member processing and collection centers 10,828 10,638
Advertising 14,833 13,701
General and administrative 7,145 6,688
Provision for doubtful receivables 43,407 36,815
Depreciation and amortization 15,285 12,395
Change in deferred membership origination costs (3,633) (2,889)
------------ ------------
219,439 190,139
------------ ------------
Operating income 29,813 18,297
Interest income 490 861
Interest expense (14,811) (12,297)
------------ ------------
Income before income taxes and cumulative effect
of a change in accounting principle 15,492 6,861
Income tax provision (225) (150)
------------ ------------
Income before cumulative effect of a change in
accounting principle 15,267 6,711
Cumulative effect of a change in accounting
principle, net of income tax (262)
------------ ------------
Net income $ 15,267 $ 6,449
============ ============
Basic earnings per common share:
Income before cumulative effect of a change in
accounting principle $ 0.65 $ 0.29
Cumulative effect of a change in accounting
principle (0.01)
------------ ------------
Net income per common share $ 0.65 $ 0.28
============ ============
Diluted earnings per common share:
Income before cumulative effect of a change in
accounting principle $ 0.56 $ 0.25
Cumulative effect of a change in accounting
principle (0.01)
------------ ------------
Net income per common share $ 0.56 $ 0.24
============ ============
See accompanying notes.
2
BALLY TOTAL FITNESS HOLDING CORPORATION
Consolidated Statement of Stockholders’ Equity
(Unaudited)
Common stock Unearned
----------------- compensation Common Total
Par Contributed Accumulated (restricted stock in stockholders'
Shares value capital deficit stock) treasury equity
---------- ----- ----------- ----------- ------------ ---------- -------------
(In thousands, except share data)
Balance at December 31, 1999 23,755,394 $ 243 $ 498,093 $(267,124) $ (7,978) $ (10,775) $ 212,459
Net income 15,267 15,267
Issuance of common stock under
stock purchase and option plans 60,475 1 835 836
---------- ----- --------- --------- --------- --------- ---------
Balance at March 31, 2000 23,815,869 $ 244 $ 498,928 $(251,857) $ (7,978) $ (10,775) $ 228,562
========== ===== ========= ========= ========= ========= =========
See accompanying notes.
3
BALLY TOTAL FITNESS HOLDIND CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
THREE MONTHS ENDED
MARCH 31
---------------------------
2000 1999
------------ ------------
(In thousands)
OPERATING:
Income before cumulative effect of a change in
accounting principle $ 15,267 $ 6,711
Adjustments to reconcile to cash provided--
Depreciation and amortization, including
amortization included in interest expense 16,372 13,122
Provision for doubtful receivables 43,407 36,815
Change in operating assets and liabilities (57,078) (40,340)
------------ ------------
Cash provided by operating activities 17,968 16,308
INVESTING:
Purchases and construction of property
and equipment (32,071) (24,964)
Acquisitions of businesses (1,900) (819)
Other, net (3,000)
------------ ------------
Cash used in investing activities (33,971) (28,783)
FINANCING:
Debt transactions--
Net borrowings under revolving credit agreement 4,500
Repayments of other long-term debt (3,272) (1,856)
------------ ------------
Cash provided by (used in) debt transactions 1,228 (1,856)
Equity transactions--
Proceeds from issuance of common stock under
stock purchase and option plans 836 637
------------ ------------
Cash provided by (used in) financing activities 2,064 (1,219)
------------ ------------
Decrease in cash and equivalents (13,939) (13,694)
Cash and equivalents, beginning of period 23,450 64,382
------------ ------------
Cash and equivalents, end of period $ 9,511 $ 50,688
============ ============
See accompanying notes.
4
BALLY TOTAL FITNESS HOLDIND CORPORATION
Consolidated Statement of Cash Flows--(continued)
(Unaudited)
THREE MONTHS ENDED
MARCH 31
---------------------------
2000 1999
------------ ------------
(In thousands)
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and liabilities,
were as follows--
Increase in installment contracts receivable $ (74,875) $ (61,761)
(Increase) decrease in other current and other
assets (3,462) 877
Increase in deferred membership origination
costs (3,633) (2,889)
Increase (decrease) in accounts payable 374 (2,194)
Increase (decrease) in income taxes payable (25) 144
Increase in accrued and other liabilities 8,242 12,046
Increase in deferred revenues 16,301 13,437
------------ ------------
$ (57,078) $ (40,340)
============ ============
Cash payments for interest and income taxes
were as follows--
Interest paid $ 7,120 $ 4,540
Interest capitalized (695) (276)
Income taxes paid, net 248 6
Investing and financing activities exclude the
following non-cash transactions--
Acquisition of property and equipment
through capital leases/borrowings $ 5,734 $ 2,882
Debt, including assumed debt, related to
acquisitions of businesses 3,417
See accompanying notes.
5
The accompanying condensed consolidated financial statements include the accounts of Bally Total Fitness Holding Corporation (the "Company") and the subsidiaries that it controls. The Company, through its subsidiaries, is a commercial operator of fitness centers in North America with approximately 370 facilities concentrated in 27 states and Canada. The Company operated 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 and Canada. 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, 1999.
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 March 31, 2000, its consolidated statements of operations and cash flows for the three months ended March 31, 2000 and 1999, and its consolidated statement of stockholders' equity for the three months ended March 31, 2000. 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 2000 presentation.
The Company's operations are subject to seasonal factors and, therefore, the results of operations for the three months ended March 31, 2000 and 1999 are not necessarily indicative of the results of operations for the full year.
During the first quarter of 2000, the Company acquired three fitness centers located in the San Diego area. The total purchase price of the three centers was $1,900.
MARCH 31 DECEMBER 31
2000 1999
------------ ------------
Current:
Installment contracts receivable $ 384,337 $ 355,029
Unearned finance charges (46,832) (41,515)
Allowance for doubtful receivables and
cancellations (81,615) (72,064)
------------ ------------
$ 255,890 $ 241,450
============ ============
Long-term:
Installment contracts receivable $ 345,942 $ 319,034
Unearned finance charges (23,032) (20,367)
Allowance for doubtful receivables and
cancellations (61,621) (53,974)
------------ ------------
$ 261,289 $ 244,693
============ ============
A summary of the allowance for doubtful receivables and cancellations activity is as follows:
THREE MONTHS ENDED
MARCH 31
---------------------------
2000 1999
------------ ------------
Balance at beginning of period $ 126,038 $ 106,301
Contract cancellations and write-offs of
uncollectible amounts, net of recoveries (76,204) (63,807)
Provision for cancellations
(classified as a direct reduction of revenues) 49,995 41,800
Provision for doubtful receivables 43,407 36,815
------------ ------------
Balance at end of period $ 143,236 $ 121,109
============ ============
Basic earnings per common share for each period is computed based on the weighted average number of shares of common stock outstanding of 23,570,467 in 2000 and 23,202,709 in 1999. Diluted earnings per common share for each period includes the addition of common stock equivalents of 3,794,965 and 3,589,750 in 2000 and 1999, respectively. Common stock equivalents represent the dilutive effect of the assumed exercise of outstanding warrants and stock options.
In April 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-5, Reporting the Costs of Start-up Activities. The SOP was effective beginning on January 1, 1999, and required that start-up costs including organization costs capitalized prior to January 1, 1999 be written-off and any future start-up costs be expensed as incurred. The Company's unamortized start-up costs at January 1, 1999 were written off and reported as a cumulative effect of a change in accounting principle, net of tax, in accordance with APB Opinion No. 20.
As a result of the Company's improved operating results and trends, the Company is currently evaluating the continuing need for its approximate $160 million valuation allowance offsetting the deferred tax assets that otherwise arise from its approximate $500 million of tax loss carryforwards. As required by Financial Accounting Standard No. 109, Accounting for Income Taxes, management expects, during the current year, to complete its re-valuation of the tax valuation allowance and determine an appropriate amount to be reversed. Any reversal of the tax valuation allowance will be reflected as a reduction of the income tax provision, therefore increasing net income
Net revenue for the first quarter of 2000 was $249.3 million compared to $208.5 million in 1999, an increase of $40.8 million (20%). Net revenues from comparable fitness centers increased 12%. This significant increase in net revenues resulted from the following:
Total new membership units sold increased 4% and the weighted average selling price of membership contracts sold increased 9% over the prior year quarter. As a result, initial membership fees originated increased $17.8 million (13%). The increase in new membership units sold was almost entirely attributable to the sale of higher margin multi-club membership plans.
Dues collected increased $7.4 million (12%) from the 1999 quarter, reflecting both continued improvements in member retention and pricing strategies and an increase attributable to fitness centers operating under our four upscale brands, which generally charge higher dues.
Finance charges earned during the first quarter of 2000 increased $2.4 million (17%) compared to the 1999 quarter, due to the growth in size and quality of the receivables portfolio. Membership receivables written off in the current period, as a percent of average membership receivables, was consistent with prior periods. The percentage of accounts current with all contractual payments continues to exceed 85%. The average interest rate for finance charges to members was substantially unchanged between the periods.
Products and services revenue increased $14.6 million (122%) over the 1999 quarter, primarily reflecting the continued growth of personal training services and nutritional and other retail products.
Fees and other revenues increased $1.5 million (59%) over the 1999 quarter, primarily reflecting the continuing growth of licensing revenue.
The weighted average number of fitness centers increased to 366 in the first quarter of 2000 from 329 in the first quarter of 1999, including an increase in the weighted-average number of centers operating under our four upscale brands, which have smaller membership volume strategies, from 15 to 34.
Operating income for the first quarter of 2000 was $29.8 million compared to $18.3 million in 1999. The increase of $11.5 million (63%) was due to a $40.8 million (20%) increase in net revenue, offset, in part, by an increase in operating costs and expenses of $26.4 million (15%) and a $2.9 million increase in depreciation and amortization. The operating margin before depreciation and amortization increased to 18% from 15% for the 1999 quarter. Excluding the provision for doubtful receivables, depreciation and amortization and the effect of deferral accounting, operating costs and expenses increased $20.6 million (14%) from 1999. Fitness center operating expenses increased $9.3 million (9%) due principally to incremental costs of operating new fitness centers and additional commissions from the growth in initial membership fees originated. A substantial portion of commission expense is deferred through deferral accounting. Products and services expenses increased $9.5 million (120%) to support the revenue growth of product and service offerings. Operating income from products and services, net of related development, pre-opening and start-up costs, increased to $9.2 million from $4.1 million in the prior year quarter, with an operating margin of 35% in 2000 compared to 34% in the 1999 quarter. Member processing and collection center expenses were substantially unchanged from the prior year quarter. Advertising expenses increased 8% compared to the prior year due to increased market research, new club marketing, and direct mail programs used to grow initial membership fees. General and administrative expenses increased 7% compared to the prior year quarter to support acquisition strategies. Depreciation and amortization expense increased $2.9 million (23%) largely as a result of the significant increase in purchases and construction of property and equipment during the past two years.
The provision for doubtful receivables, including the provision for cancellations which is reported in the financial statements as a direct reduction of initial membership fees on financed memberships originated, totaled 41% of the gross financed portion of new membership fees originated in both periods.
Deferral accounting reduced earnings by $2.1 million for 2000 compared to 1999. This decrease reflects the combined impact of incremental decreases of $2.9 million in revenues and $.8 million in the expense offset.
Interest expense was $14.8 million for the first quarter of 2000 compared to $12.3 million in 1999. The $2.5 million increase was due to higher levels of debt incurred.
The income tax provisions for the first quarter of 2000 and 1999 reflect state income taxes only. The federal provisions were offset by the utilization of prior years' net operating losses.
Cash flow from operating activities was $18.0 million in the 2000 quarter compared to $16.3 million in the 1999 quarter. Net contracts receivable grew $31.5 million compared to $25.0 million in the 1999 quarter and interest paid totaled $7.1 million compared to $4.5 million in the 1999 quarter resulting in a combined increase in the use of working capital of $9.1 million. Cash provided by operating activities, excluding the growth in net contracts receivable and interest paid, increased $10.8 million (24%) quarter over quarter. The improvement principally reflects the continued growth in overall collections from installment contracts receivable and monthly dues and the continued improvement in operating margins.
Our bank credit facility, dated November 10, 1999, provides up to $175.0 million of availability consisting of a five-year $75.0 million term loan and a $100.0 million three-year revolving credit facility. The amount available under the revolving credit facility is reduced by any outstanding letters of credit, which cannot exceed $30.0 million. As of March 31, 2000, the Company had drawn $4.5 million on its $100 million revolving credit line and had outstanding letters of credit totaling $6.9 million. The $75.0 million term loan is repayable in 19 quarterly installments, commencing March 31, 2000, of $250,000, with a final installment of $70.3 million due in November 2004. We have no scheduled principal payments under our subordinated debt until October 2007, and the principal amount of the certificates under our securitization facility remains fixed at $160.0 million through July 2001. Our debt service requirements, including interest, for the next 12 months are approximately $69.4 million. We believe that we will be able to satisfy our 2000 requirements for debt service, capital expenditures and any stock repurchases, out of available cash balances, cash flow from operations and borrowings on the revolving credit facility.
We are authorized to repurchase up to 1,500,000 shares of our common stock on the open market from time to time. We have repurchased 625,100 shares at an average price of $18 per share. No purchases have been made since November 1999.
During the first three months of 2000, we invested approximately $32.1 million in property and equipment, including approximately $26.0 million related to new fitness centers and major upgrades and expansions, including new equipment, of existing fitness centers, and $1.0 million to purchase existing leaseholds. We opened three new facilities during the first three months of 2000 and acquired three fitness centers in the San Diego area.
We completed an assessment of whether our systems and those of third parties, which could have a material impact on our business, will function properly with respect to dates in 2000 and thereafter. All critical system modifications were completed and implemented prior to December 31, 1999 and, as such, we did not experience any material effects as a result of a year 2000 problem. Additionally, we did not experience any significant year 2000 problems with our non-information technology systems, such as embedded microcontrollers, or with the financial institutions that process our collections of installment receivables and monthly dues by electronic payment methods.
Forward-looking statements in this Form 10-Q including, without limitation, statements relating to our 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 that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the 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 this Form 10-Q or in other of our filings with the Securities and Exchange Commission. We are under no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
| Item 6. | Exhibits and reports on Form 8-K |
| (a) | Exhibits: |
| 27.1 | Financial Data Schedule for March 31, 2000 (filed electronically only). | |
| 27.2 | Restated Financial Data Schedule for March 31, 1999 (filed electronically only) |
| (b) | Reports on Form 8-K: |
| Financial | |||
| Date | Items | Statements | |
| --------------------- | --------------------- | --------------------- | |
| February 9, 2000 | #5 and #7 | None |
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 Executive Vice President, Chief Financial Officer and Treasurer (principal financial officer) |
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