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. 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 BALLY TOTAL FITNESS HOLDING CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (In thousands) (Unaudited) June 30 December 31 1997 1996 ----------- ----------- 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> 1 BALLY TOTAL FITNESS HOLDING CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data) (Unaudited) Three months ended June 30 ---------------------- 1997 1996 ---------- ---------- (as restated) 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> 2 BALLY TOTAL FITNESS HOLDING CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data) (Unaudited) Six months ended June 30 ---------------------- 1997 1996 ---------- ---------- (as restated) 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> 3 BALLY TOTAL FITNESS HOLDING CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands, except share data) (Unaudited) Common stock Unearned ------------------ compensation Total Number Par Contributed Accumulated (restricted stockholders' of shares value capital deficit stock) equity ---------- ----- ----------- ----------- ------------ ------------- 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> 4 BALLY TOTAL FITNESS HOLDING CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (Unaudited) Six months ended June 30 ---------------------- 1997 1996 ---------- ---------- (as restated) 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) 5 BALLY TOTAL FITNESS HOLDING CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS - (CONTINUED) (In thousands) (Unaudited) Six months ended June 30 ---------------------- 1997 1996 ---------- ---------- (as restated) 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> 6 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: Three months Six months ended June 30, 1996 ended June 30, 1996 --------------------- --------------------- As As originally As originally As reported restated reported restated ---------- --------- ---------- --------- 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) In addition, certain reclassifications have been made to prior period financial statements to conform with the 1997 presentation. 7 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 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 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 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 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): Six months ended June 30 ---------------------- 1997 1996 ---------- ---------- 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 ========= ========= 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 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 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