[X] | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the period ended March 31, 2002 |
[ ] | 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 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 April 30, 2002, 32,866,147 shares of the registrants common stock were outstanding.
Page | |
Number |
Item 1. | Financial statements: |
Condensed consolidated balance sheet (unaudited) |
March 31, 2002 and December 31, 2001 | 1 |
Consolidated statement of income (unaudited) |
Three months ended March 31, 2002 and 2001 | 2 |
Consolidated statement of stockholders' equity (unaudited) |
Three months ended March 31, 2002 | 3 |
Consolidated statement of cash flows (unaudited) |
Three months ended March 31, 2002 and 2001 | 4 |
Notes to condensed consolidated financial statements |
(unaudited) | 6 |
Item 2. | Management's discussion and analysis of financial |
condition and results of operations | 10 |
Item 6. | Exhibits and reports on Form 8-K | 14 |
SIGNATURE PAGE | 15 |
March 31 December 31 2002 2001 ----------- ----------- ASSETS Current assets: Cash and equivalents $ 9,530 $ 9,310 Installment contracts receivable, net 310,048 284,611 Other current assets 68,680 68,899 ---------- ---------- Total current assets 388,258 362,820 Installment contracts receivable, net 286,281 273,607 Property and equipment, less accumulated depreciation and amortization of $501,131 and $490,116 648,790 628,634 Intangible assets, less accumulated amortization of $80,408 and $80,256 242,097 237,037 Deferred income taxes 74,967 76,104 Deferred membership origination costs 117,003 112,959 Other assets 30,058 25,729 ---------- ---------- $1,787,454 $1,716,890 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 65,721 $ 50,471 Income taxes payable 1,507 1,974 Deferred income taxes 26,733 32,346 Accrued liabilities 86,418 75,309 Current maturities of long-term debt 26,261 25,302 Deferred revenues 307,055 294,930 ---------- ---------- Total current liabilities 513,695 480,332 Long-term debt, less current maturities 653,557 639,869 Other liabilities 12,659 12,555 Deferred revenues 75,296 71,400 Stockholders' equity 532,247 512,734 ---------- ---------- $1,787,454 $1,716,890 ========== ==========
Three months ended March 31 ------------------------ 2002 2001 ---------- ---------- Net revenues: Membership revenues $ 182,694 $ 173,180 Products and services 52,417 36,436 Miscellaneous revenue 5,315 4,246 ---------- ---------- 240,426 213,862 Operating costs and expenses: Fitness center operations 137,804 122,375 Products and services 33,033 23,121 Member processing and collection centers 10,952 10,496 Advertising 16,509 15,859 General and administrative 7,900 7,243 Depreciation and amortization 17,439 17,912 ---------- ---------- 223,637 197,006 ---------- ---------- Operating income 16,789 16,856 Finance charges earned 17,680 17,831 Interest expense (14,643) (15,958) Other interest income 74 266 ---------- ---------- 3,111 2,139 ---------- ---------- Income before income taxes 19,900 18,995 Income tax provision (498) (350) ---------- ---------- Net income $ 19,402 $ 18,645 ========== ========== Basic earnings per common share $ .61 $ .75 ========== ========== Diluted earnings per common share $ .59 $ .65 ========== ==========
Common stock Unearned ------------------- compensation Common Total Par Contributed Accumulated (restricted stock in stockholders' Shares value capital deficit stock) treasury equity ---------- ------- ----------- ----------- ------------ ----------- ------------- Balance at December 31, 2001 32,380,557 $ 329 $ 657,546 $(107,807) $ (26,559) $ (10,775) $ 512,734 Net income 19,402 19,402 Issuance of common stock under long-term incentive plan 60,000 1 2,519 (2,520) Issuance of common stock under stock purchase and option plans 37,246 1 970 971 Purchases of common stock for treasury (54,500) (860) (860) ---------- ------ --------- --------- --------- --------- --------- Balance at March 31, 2002 32,423,303 $ 331 $ 661,035 $ (88,405) $ (29,079) $ (11,635) $ 532,247 ========== ====== ========= ========= ========= ========= =========
Three months ended March 31 ------------------------ 2002 2001 ---------- ---------- Operating: Net income $ 19,402 $ 18,645 Adjustments to reconcile-- Depreciation and amortization, including amortization included in interest expense 18,468 18,848 Change in operating assets and liabilities (12,425) 25,044 ---------- ---------- Cash provided by operating activities 25,445 62,537 Investing: Purchases and construction of property and equipment (23,032) (23,569) Purchases of real estate (11,510) Acquisitions of businesses and other (2,515) (1,055) ---------- ---------- Cash used in investing activities (37,057) (24,624) Financing: Debt transactions-- Net borrowings (repayments) under revolving credit agreement 17,500 (69,500) Net repayments of other long-term debt (5,779) (5,048) ---------- ---------- Cash provided (used) by debt transactions 11,721 (74,548) Equity transactions-- Proceeds from sale of common stock 53,827 Proceeds from exercise of warrants 11,609 Proceeds from issuance of common stock under stock purchase and option plans 971 1,448 Purchases of common stock for treasury (860) ---------- ---------- Cash provided (used) by financing transactions 11,832 (7,664) ---------- ---------- Increase in cash and equivalents 220 30,249 Cash and equivalents, beginning of period 9,310 13,074 ---------- ---------- Cash and equivalents, end of period $ 9,530 $ 43,323 ========== ==========
Three months ended March 31 ------------------------ 2002 2001 ---------- ---------- Supplemental Cash Flows Information: Changes in operating assets and liabilities, Decrease (increase) in installment contracts receivable $ (38,111) $ 17,594 Increase in other current and other assets (2,597) (3,189) Increase in deferred membership origination costs (4,044) (2,150) Increase in accounts payable 15,250 2,178 Decrease in income taxes payable and deferred income taxes (2,143) (117) Increase in accrued and other liabilities 11,210 5,607 Increase in deferred revenues 8,010 5,121 ---------- ---------- Change in operating assets and liabilities $ (12,425) $ 25,044 ========== ========== Cash payments for interest and income taxes were as follows-- Interest paid $ 6,879 $ 8,890 Interest capitalized (719) (1,031) Income taxes paid, net 2,636 467 Investing and financing activities exclude the following non-cash transactions-- Acquisitions of property and equipment through capital leases/borrowings $ 2,885 $ 5,977 Common stock issued under long-term incentive plan 2,519
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 over 400 facilities concentrated in 29 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 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 Companys Annual Report on Form 10-K for the year ended December 31, 2001.
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, 2002, its consolidated statements of income for the three months ended March 31, 2002 and 2001, its consolidated statement of stockholders equity for the three months ended March 31, 2002, and its consolidated statements of cash flows for the three months ended March 31, 2002 and 2001. 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 Companys 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 2002 presentation.
The Companys operations are subject to seasonal factors and, therefore, the results of operations for the three months ended March 31, 2002 and 2001 are not necessarily indicative of the results of operations for the full year.
March 31 December 31 2002 2001 ---------- ---------- Current: Installment contracts receivable $ 428,958 $ 397,180 Unearned finance charges (45,743) (44,898) Allowance for doubtful receivables and cancellations (73,167) (67,671) ---------- ---------- $ 310,048 $ 284,611 ========== ========== Long-term: Installment contracts receivable $ 368,234 $ 358,115 Unearned finance charges (21,088) (21,675) Allowance for doubtful receivables and cancellations (60,865) (62,833) ---------- ---------- $ 286,281 $ 273,607 ========== ==========
Three months ended March 31 ------------------------ 2002 2001 ---------- ---------- Balance at beginning of period $ 130,504 $ 132,277 Contract cancellations and write-offs of uncollectible amounts, net of recoveries (90,833) (87,636) Provision for cancellations and doubtful receivables 94,361 90,975 ---------- ---------- Balance at end of period $ 134,032 $ 135,616 ========== ==========
We are presenting gross committed membership fees to expand the presentation of originating membership data as the Company now operates under several brands, membership structures and an evolving menu of products and services accompanying certain membership programs. Gross committed membership fees represent the gross contracted value of memberships originated during the periods, inclusive of initial membership fees, monthly dues, finance charges, and products and services included in membership programs. The following is a reconciliation of gross committed membership fees to initial membership fees originated, net:
Three months ended March 31 ------------------------ 2002 2001 ---------- ---------- Gross committed membership fees $ 320,747 $ 292,458 Less: Committed monthly dues (64,340) (40,150) Provision for cancellations and doubtful receivables (94,361) (90,975) Unearned finance charges and other (42,516) (42,127) Products and services revenues included in membership programs (19,341) (14,086) ---------- ---------- Initial membership fees originated, net $ 100,189 $ 105,120 ========== ==========
The following presents the components of membership revenues as presented in the accompanying consolidated statement of income:
Three months ended March 31 ------------------------ 2002 2001 ---------- ---------- Initial membership fees: Originated, net $ 100,189 $ 105,120 Increase in deferral (8,470) (5,734) ---------- ---------- 91,719 99,386 Dues: Dues collected 90,515 73,181 Decrease in deferral 460 613 ---------- ---------- 90,975 73,794 ---------- ---------- Membership revenues $ 182,694 $ 173,180 ========== ==========
Three months ended March 31 ------------------------ 2002 2001 ---------- ---------- Net revenues: Retail and nutritional supplements-- Membership programs $ 8,785 $ 8,398 Direct sales 13,824 10,404 Personal training-- Membership programs 10,556 5,688 Direct sales 17,701 10,508 Financial services 1,551 1,438 ---------- ---------- 52,417 36,436 Operating costs and expenses: Retail and nutritional supplements 16,346 13,248 Personal training 16,687 9,873 ---------- ---------- 33,033 23,121 ---------- ---------- Contribution margin $ 19,384 $ 13,315 ========== ==========
Basic earnings per common share for each period is computed based on the weighted average number of shares of common stock outstanding of 31,741,422 and 24,816,783 for the three months ended March 31, 2002 and 2001, respectively. Diluted earnings per common share for each period includes the addition of common stock equivalents of 1,253,857 and 3,935,644 for the three months ended March 31, 2002 and 2001, respectively. Common stock equivalents represent the dilutive effect of the assumed exercise of outstanding warrants and stock options.
The Company has adopted in the first quarter of 2002 the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. As a result, the Company has ceased amortization of goodwill in the first quarter and, in accordance with the provisions of this new standard, has determined that recorded goodwill is not impaired . The following table presents prior year first quarter net income and earnings per share adjusted to add back goodwill amortization:
Earnings per share ------------------ Net income Basic Diluted ---------- ------- ------- As reported $ 18,645 $ 0.75 $ 0.65 Add back: goodwill amortization 1,868 0.08 0.06 ---------- ------- ------- As adjusted $ 20,513 $ 0.83 $ 0.71 ========== ======= =======
At March 31, 2002, for accounting purposes, the Company has approximately $100,000 of unrecognized federal net operating loss carryforwards. Separately, the alternative minimum tax ("AMT") net operating loss carryforwards have been substantially recognized. Therefore, having fully recognized AMT net operating loss carryforwards for reporting purposes, the Companys federal income tax rate on future earnings will increase to 20%. The 20% rate will remain in effect until such time as all of its AMT credits are fully utilized, which is not currently expected before 2004. In the first quarter of 2002, the Company reduced its valuation allowance against its net operating loss carryforwards by approximately $4,000 which offset charges related to its provision for alternative minimum taxes.
For federal income tax payment purposes, the Company has available net operating loss carryforwards exceeding $350,000 and AMT net operating loss carryforwards in excess of $230,000. Therefore, the Company currently does not expect to make any significant federal tax payments earlier than 2004. At such time, the Company will be required to pay taxes at the 20% AMT rate for periods currently estimated to extend beyond 2005, including those periods benefited by AMT credits. For accounting purposes, the 2002 federal tax provision will consist entirely of non-cash deferred income tax charges.
Net revenues for the first quarter of 2002 were $240.4 million compared to $213.8 million in 2001, an increase of $26.6 million (12%), inclusive of $17.5 million (8%) attributable to the recently acquired Crunch Fitness. Net revenues from comparable fitness centers increased 2%. This increase in net revenues resulted from the following:
Membership revenues increased $9.5 million (5%) over the prior year quarter, including a 23% increase in dues revenue recognized during the period. The provision for doubtful receivables and cancellations, included as a direct reduction of membership revenue, was 41% of the gross financed portion of membership fee originations for both periods.
Products and services revenue increased $16.0 million (44%) over the 2001 quarter, primarily reflecting the continued growth of personal training services, nutritional product sales and the addition of Crunch Fitness, which accounted for $5.2 million of the increase.
Miscellaneous revenue increased $1.1 million (25%) over the 2001 quarter, primarily reflecting additional revenue from co-marketing arrangements.
The weighted-average number of fitness centers increased to 406 from 385 in the first quarter of 2001, an increase of 5%, including a 57% increase in the weighted-average number of centers operating under the Companys upscale brands from 35 to 55, largely resulting from the December 31, 2001 acquisition of Crunch Fitness.
To further clarify the presentation of membership revenue data as the Company grows with several brands, membership structures and an evolving menu of products and services accompanying certain membership plans, we are providing additional metrics in our discussion and analysis of results of operations. The following data is intended to more clearly report membership origination trends and the committed membership fees from originations during the period notwithstanding the different membership structures. Monthly membership fee averages and gross committed membership fees presented below include the retail value of products and services contracted as part of originating memberships during the periods, which are presented as an element of "Products and Services" revenue in the accompanying consolidated statement of income. Data is presented on a gross basis inclusive of finance charges and before any reduction for the provision for doubtful receivables and cancellations.
The number of new members joining increased 7% during the first quarter of 2002 compared with the same quarter a year ago, with 3% growth at our flagship Bally Total Fitness clubs. The gross committed monthly membership fees originated during the first quarter of 2002 averaged $45 versus $41 in the year ago quarter, a 10% increase. This increase results primarily from higher monthly dues included in memberships originated at our Bally Total Fitness clubs and the addition of Crunch Fitness with its higher membership fee structure. The average committed duration of memberships originated during the first quarter of 2002 was 31.2 months versus 32.8 months in the prior year quarter, a 5% decrease. This decrease resulted primarily from the shorter initial commitment of memberships offered at Crunch Fitness and the addition of five new clubs in states and provinces that limit contract duration to twelve months. As a result, and despite the negative impact of the earlier Easter holiday and spring break in March 2002, gross committed membership fees during the first quarter rose 10% compared to the 2001 quarter.
Operating income for the first quarter of 2002 of $16.8 million was unchanged from the prior year period. Net revenues increased $26.6 million (12%) for the first quarter of 2002, offset by a $27.1 million (15%) increase in operating costs and expenses, and depreciation and amortization decreased by $.5 million. Earnings before interest, taxes, depreciation and amortization, including finance charges earned ("EBITDA") was $51.9 million versus $52.6 million for the last year quarter, a 1% decrease. The EBITDA margin was 22% in the 2002 quarter compared to 25% in the 2001 period. This decrease is attributable in part to the lower level of deferred revenue available for recognition at the start of 2002 as compared to that available at the beginning of the prior year, and the growing proportion of clubs open less than three years which, due to deferred revenue accounting and their immature membership dues base, yield below-average margins compared to mature clubs. Additionally, operating margins on the recently acquired Crunch Fitness were historically lower than our mature clubs and are expected to improve as its operations are fully integrated. Fitness center operating expenses increased $15.4 million (13%) due principally to incremental costs of operating new fitness centers, including the 19 additional centers added with the Crunch Fitness acquisition, which represented approximately $11 million of the increase. Products and services expenses increased $9.9 million (43%) to support the revenue growth of product and service offerings. Contribution margin from products and services increased to $19.4 million from $13.3 million in the prior year quarter, a 46% increase, with a contribution margin percentage of 37% in both periods. Member processing and collection center expenses increased $.5 million from the prior year quarter, reflecting increased costs to serve the higher number of clubs and members as compared to the prior year period. Advertising expenses increased $.7 million (4%) compared to the prior year. General and administrative expenses increased $.7 million (9%) compared to the prior year quarter to support the Companys overall growth. Depreciation and amortization expense decreased $.5 million, resulting from additional depreciation and amortization expense of $1.4 million due to increased expenditures for property and equipment and acquired fitness centers during the past two years, offset by the elimination of goodwill amortization of $1.9 million in the prior year quarter as a result of the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.
Finance charges earned in excess of interest expense totaled $3.1 million in the first quarter of 2002, an increase of $1.0 million over the prior year period resulting from lower interest rates on the Companys net borrowings.
Cash flows from operating activities were $25.4 million in the 2002 quarter compared to $62.5 million in the 2001 quarter. During the first and third quarters of 2001, we sold a portion of our installment contracts receivable portfolio to a major financial institution at net book value, with combined proceeds of $105 million. Excluding the impact of the sales of receivables in 2001, and net of the change in dues prepayments during the periods, cash flows from operating activities were $41.1 million in first quarter 2002, versus $22.3 million in 2001, an $18.8 million increase. The following table sets forth cash flows from operating activities on a comparable basis to exclude the impact of last years first quarter sale of receivables, to add back actual cash collections on the sold portfolio, and to reflect the impact of changes in dues prepayments during each of the periods (in thousands):
Three months ended March 31 ------------------------ 2002 2001 ---------- ---------- Cash flows from operating activities, as reported $ 25,445 $ 62,537 Acceleration of collections through bulk sale of installment contracts receivable (45,000) Collections on installment contracts receivable sold 16,957 3,598 Change in dues prepayments (1,325) 1,130 ---------- ---------- Cash flows from operating activities on a comparable basis $ 41,077 $ 22,265 ========== ==========
Our bank credit facility, dated November 10, 1999, as amended in December 2001, provides up to $225.0 million of availability consisting of a three-year $135.0 million term loan and a $90.0 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, 2002, the Company had drawn $35.5 million on its $90 million revolving credit line and had outstanding letters of credit totaling $5.9 million. The $135.0 million term loan is repayable in 13 installments. The first installment of $250,000 was paid in December 2001, 11 quarterly installments of $460,000 began March 31, 2002 and the final installment of $129,690,000 is due November 2004. We have no scheduled principal payments under our subordinated debt until October 2007. Our debt service requirements, including interest, through March 31, 2003 are approximately $76.3 million. During April 2002, the Company repaid the remaining balance outstanding on its 1996 securitization ($35.6 million at March 31, 2002) with proceeds from its 2001 securitization facility. We believe to the extent required, that we will be able to satisfy our short-term requirements for debt service and capital expenditures out of available cash balances, cash flows from operations and borrowings on the revolving credit facility. In addition to cash from operating activities, we believe our longer-term debt service requirements through 2004 can be satisfied by availability on our bank credit facility, including extensions, expansion of our securitization facility, other secured borrowings or through additional offerings of our common stock.
We are authorized to repurchase up to 1,500,000 shares of our common stock on the open market from time to time. We repurchased 625,100 shares between August 1998 and November 1999 at an average price of $18 per share, and 54,500 shares in February 2002 at $16 per share.
Capital expenditures totaled $23.0 million for property and equipment, and $11.5 million for purchases of real estate in the first quarter of 2002. Property and equipment expenditures are expected to total approximately $55 million for the remainder of 2002. The Company does not anticipate any additional real estate purchases in 2002.
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.
(a) | Reports on Form 8-K: |
Financial | |||
Date | Items | Statements | |
January 2, 2002 | #5 and #7 | None | |
February 13, 2002 | #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 Director | |
(principal financial officer) |