| [X] | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the period ended September 30, 2001 |
| [ ] | 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 October 31, 2001, 29,059,181 shares of the registrant’s common stock were outstanding.
| Page | |
| Number |
| Item 1. | Financial statements: |
| Condensed consolidated balance sheet (unaudited) |
| September 30, 2001 and December 31, 2000 | 1 |
| Consolidated statement of income (unaudited) |
| Three months ended September 30, 2001 and 2000 | 2 |
| Consolidated statement of income (unaudited) |
| Nine months ended September 30, 2001 and 2000 | 3 |
| Consolidated statement of stockholders' equity (unaudited) |
| Nine months ended September 30, 2001 | 4 |
| Consolidated statement of cash flows (unaudited) |
| Nine months ended September 30, 2001 and 2000 | 5 |
| Notes to condensed consolidated financial statements |
| (unaudited) | 7 |
| Item 2. | Management's discussion and analysis of financial |
| condition and results of operations | 12 |
| Item 6. | Exhibits and reports on Form 8-K | 16 |
| SIGNATURE PAGE | 17 |
September 30 December 31
2001 2000
------------ -----------
ASSETS
Current assets:
Cash and equivalents $ 13,860 $ 13,074
Installment contracts receivable, net 268,153 286,053
Other current assets 62,632 61,516
---------- ----------
Total current assets 344,645 360,643
Installment contracts receivable, net 265,868 273,421
Property and equipment, less accumulated
depreciation and amortization of
$474,734 and $435,860 597,171 558,277
Intangible assets, less accumulated
amortization of $78,201 and $72,071 149,201 153,113
Deferred income taxes 63,628 68,115
Deferred membership origination costs 115,925 114,129
Other assets 25,091 32,926
---------- ----------
$1,561,529 $1,560,624
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 53,593 $ 54,819
Income taxes payable 4,736 3,703
Deferred income taxes 23,985 49,217
Accrued liabilities 73,398 66,566
Current maturities of long-term debt 22,279 17,589
Deferred revenues 297,616 306,493
---------- ----------
Total current liabilities 475,607 498,387
Long-term debt, less current maturities 564,881 674,349
Other liabilities 6,635 7,299
Deferred revenues 80,261 82,747
Stockholders' equity 434,145 297,842
---------- ----------
$1,561,529 $1,560,624
========== ==========
Three months ended
September 30
------------------------
2001 2000
---------- ----------
Net revenues:
Membership revenues $ 168,665 $ 166,322
Products and services 37,105 29,142
Miscellaneous revenue 4,081 3,450
---------- ----------
209,851 198,914
Operating costs and expenses:
Fitness center operations 121,992 119,455
Products and services 23,241 18,686
Member processing and collection centers 10,718 10,517
Advertising 11,512 11,339
General and administrative 7,151 6,854
Special charges 6,700 --
Depreciation and amortization 19,155 16,954
---------- ----------
200,469 183,805
---------- ----------
Operating income 9,382 15,109
Finance charges earned 16,986 17,285
Interest expense (14,606) (16,680)
Other interest income 161 474
---------- ----------
2,541 1,079
---------- ----------
Income before income taxes 11,923 16,188
Income tax benefit 14,600 19,750
---------- ----------
Net income $ 26,523 $ 35,938
========== ==========
Basic earnings per common share $ .92 $ 1.50
========== ==========
Diluted earnings per common share $ .88 $ 1.30
========== ==========
Nine months ended
September 30
------------------------
2001 2000
---------- ----------
Net revenues:
Membership revenues $ 516,070 $ 491,550
Products and services 111,105 82,522
Miscellaneous revenue 13,088 10,224
---------- ----------
640,263 584,296
Operating costs and expenses:
Fitness center operations 368,549 346,522
Products and services 69,998 53,720
Member processing and collection centers 31,697 32,102
Advertising 43,929 40,249
General and administrative 21,350 20,673
Special charges 6,700 --
Depreciation and amortization 55,036 47,901
---------- ----------
597,259 541,167
---------- ----------
Operating income 43,004 43,129
Finance charges earned 52,140 50,762
Interest expense (45,239) (47,500)
Other interest income 645 1,409
---------- ----------
7,546 4,671
---------- ----------
Income before income taxes 50,550 47,800
Income tax benefit 13,850 19,275
---------- ----------
Net income $ 64,400 $ 67,075
========== ==========
Basic earnings per common share $ 2.35 $ 2.82
========== ==========
Diluted earnings per common share $ 2.17 $ 2.44
========== ==========
Common stock Unearned
------------------- compensation Common Total
Par Contributed Accumulated (restricted stock in stockholders'
Shares value capital deficit stock) treasury equity
---------- ------- ----------- ----------- ------------ ----------- -------------
Balance at December 31, 2000 24,352,946 $ 249 $ 508,639 $(188,514) $ (11,757) $ (10,775) $ 297,842
Net income 64,400 64,400
Issuance of common stock
through public offering 2,238,821 22 53,805 53,827
Exercise of warrants 2,207,104 22 11,587 11,609
Issuance of common stock
under stock purchase
and option plans 231,231 3 2,703 2,706
Other 23,639 5,126 (1,365) 3,761
---------- ------ --------- --------- --------- --------- ---------
Balance at September 30, 2001 29,053,741 $ 296 $ 581,860 $(124,114) $ (13,122) $ (10,775) $ 434,145
========== ====== ========= ========= ========= ========= =========
Nine months ended
September 30
------------------------
2001 2000
---------- ----------
Operating:
Net income $ 64,400 $ 67,075
Adjustments to reconcile to cash provided -
Depreciation and amortization, including
amortization included in interest expense 57,800 51,174
Change in operating assets and liabilities 5,259 (72,440)
---------- ----------
Cash provided by operating activities 127,459 45,809
Investing:
Purchases and construction of property and equipment (67,101) (77,851)
Acquisitions of businesses and other (2,570) (3,816)
---------- ----------
Cash used in investing activities (69,671) (81,667)
Financing:
Debt transactions -
Net borrowings (repayments) under revolving
credit agreement (55,000) 36,500
Net repayments of other long-term debt (70,144) (13,412)
---------- ----------
Cash provided by (used in) debt transactions (125,144) 23,088
Equity transactions -
Proceeds from issuance of common stock
through public offering 53,827
Proceeds from exercise of warrants 11,609
Proceeds from issuance of common stock under
stock purchase and option plans 2,706 1,721
---------- ----------
Cash provided by (used in) financing activities (57,002) 24,809
---------- ----------
Increase (decrease) in cash and equivalents 786 (11,049)
Cash and equivalents, beginning of period 13,074 23,450
---------- ----------
Cash and equivalents, end of period $ 13,860 $ 12,401
========== ==========
Nine months ended
September 30
------------------------
2001 2000
---------- ----------
Supplemental Cash Flows Information:
Changes in operating assets and liabilities,
were as follows--
(Increase) decrease in net installment
contracts receivable $ 25,321 $ (71,338)
(Increase) decrease in other current and
other assets 4,002 (14,089)
Increase in deferred membership origination costs (1,796) (8,337)
Increase (decrease) in accounts payable (1,226) 6,297
Decrease in income taxes payable (15,319) (20,403)
Increase in accrued and other liabilities 5,640 8,662
Increase (decrease) in deferred revenues (11,363) 26,768
---------- ----------
$ 5,259 $ (72,440)
========== ==========
Cash payments for interest and income taxes
were as follows--
Interest paid $ 38,577 $ 38,197
Interest capitalized (3,122) (1,569)
Income taxes paid, net 1,469 1,128
Investing and financing activities exclude
the following non-cash transactions--
Acquisitions of businesses with common stock $ 4,694
Acquisitions of property and equipment
through capital leases/borrowings $ 20,240 21,897
Common stock issued/(cancelled) under
long-term incentive plan (net) 1,470 3,779
Debt, including assumed debt, related to
acquisitions of businesses 7,577
Tax benefit from exercise of employee
stock options 4,000
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 nearly 400 facilities concentrated in 28 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2000.
All adjustments have been recorded which are, in the opinion of management, necessary for a fair presentation of the condensed consolidated balance sheet of the Company at September 30, 2001, its consolidated statements of income for the three and nine months ended September 30, 2001 and 2000, its consolidated statement of stockholders’ equity for the nine months ended September 30, 2001, and its consolidated statements of cash flows for the nine months ended September 30, 2001 and 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 2001 presentation (see “Reclassification of finance charges earned” and “Reclassification of membership revenue and related costs”).
The Company’s operations are subject to seasonal factors and, therefore, the results of operations for the nine months ended September 30, 2001 and 2000 are not necessarily indicative of the results of operations for the full year.
In conjunction with the Company’s recent bulk sales of portions of its member installment contracts receivable portfolio, the Company has reclassified for all periods presented, finance charges earned on member installment contracts as non-operating income in the consolidated statement of income. Previously, income from finance charges earned had been reported within operating revenue. The Company believes that the revised classification results in a more consistent presentation of its core operating margins without fluctuations in finance charges earned brought about solely as a result of the recent portfolio sales.
The Company has changed its presentation of membership revenue and related costs from a gross to net presentation for all periods presented and combined the sources of membership revenue in the accompanying consolidated statement of income. The change in presentation has no impact on the timing of revenue recognition and therefore has no impact on the Company’s operating income. The purpose for the change is to simplify and clarify the presentation of the Company’s membership revenue. Under the gross method, deferrable membership revenue from originations and dues collected were presented gross and adjusted to their realized amounts through a “change in deferred revenues” adjustment. Under the net presentation method, initial membership fees originated and dues are combined in the income statement and represent the amount realized for the period, net of the impact of deferral accounting. Under the net method, the Company includes the provision for doubtful receivables as an offset to financed membership revenue. Previously the
provision for doubtful receivables was reported as an element of operating expenses. The effect of including the provision as a component of revenue is to reduce both membership revenue and operating expenses by equal amounts.
The following table summarizes the effects of the reclassification of the provision for doubtful receivables into membership revenue:
Three months ended Nine months ended
September 30 September 30
------------------------ -------------------------
2001 2000 2001 2000
---------- ----------- ----------- -----------
Membership revenues:
As previously reported $ 212,759 $ 206,690 $ 656,216 $ 615,677
As reclassified 168,665 166,322 516,070 491,550
Deferrable membership origination costs have also been reclassified to a net presentation. Previously these deferrable costs have been presented on a gross basis as incurred, with an aggregate “change in deferred costs” which adjusted incurred costs to amounts recognized under deferral accounting. Under the net presentation, the impact of the deferral is combined with the related cost element to directly present recognized expenses under the deferral method.
Components of membership revenue for the three and nine months ended September 30, 2001 and 2000 are as follows:
Three months ended Nine months ended
September 30 September 30
------------------------ -------------------------
2001 2000 2001 2000
---------- ----------- ----------- -----------
Initial membership fees on
financed memberships $ 93,301 $ 88,529 $ 278,354 $ 261,026
Initial membership fees on
paid-in-full memberships 6,010 6,923 19,944 24,470
Dues 69,354 70,870 217,772 206,054
----------- ----------- ----------- -----------
$ 168,665 $ 166,322 $ 516,070 $ 491,550
=========== =========== =========== ===========
Components of the change in deferred revenues for the three and nine months ended September 30, 2001 and 2000 are as follows:
Three months ended Nine months ended
September 30 September 30
------------------------ -------------------------
2001 2000 2001 2000
---------- ----------- ----------- -----------
Financed initial membership fees:
Originating $ (130,403) $ (134,157) $ (413,985) $ (413,240)
Less provision for doubtful
receivables 44,094 40,368 140,146 124,127
----------- ----------- ----------- -----------
Originating, net (86,309) (93,789) (273,839) (289,113)
Recognized 93,301 88,529 278,354 261,026
----------- ----------- ----------- -----------
(Increase) decrease in deferral 6,992 (5,260) 4,515 (28,087)
Paid-in-full initial membership
fees:
Originating (5,254) (6,084) (18,609) (18,425)
Recognized 6,010 6,923 19,944 24,470
----------- ----------- ----------- -----------
Decrease in deferral 756 839 1,335 6,045
(Increase) decrease in prepaid dues 3,084 (164) 5,513 (4,726)
----------- ----------- ----------- -----------
Change in deferred revenues $ 10,832 $ (4,585) $ 11,363 $ (26,768)
=========== =========== =========== ===========
Components of the change in deferred membership origination costs for the three and nine months ended September 30, 2001 and 2000 are as follows:
Three months ended Nine months ended
September 30 September 30
------------------------ -------------------------
2001 2000 2001 2000
---------- ----------- ----------- -----------
Incurred $ (28,223) $ (30,906) $ (90,129) $ (91,535)
Amortized 30,045 28,481 88,333 83,198
----------- ----------- ----------- -----------
Change in deferred membership
origination costs $ 1,822 $ (2,425) $ (1,796) $ (8,337)
=========== =========== =========== ===========
Installment contracts receivable
September 30 December 31
2001 2000
------------ -----------
Current:
Installment contracts receivable $ 391,258 $ 403,777
Unearned finance charges (45,991) (49,601)
Allowance for doubtful receivables
and cancellations (77,114) (68,123)
---------- ----------
$ 268,153 $ 286,053
========== ==========
Long-term:
Installment contracts receivable $ 362,065 $ 361,812
Unearned finance charges (22,469) (24,237)
Allowance for doubtful receivables
and cancellations (73,728) (64,154)
---------- ----------
$ 265,868 $ 273,421
========== ==========
Three months ended Nine months ended
September 30 September 30
------------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Balance at beginning of period $ 144,912 $ 151,957 $ 132,277 $ 126,038
Contract cancellations and
write-offs of uncollectible
amounts, net of recoveries (78,307) (84,485) (246,817) (238,672)
Provision for cancellations 40,143 46,203 125,236 142,550
Provision for doubtful
receivables 44,094 40,368 140,146 124,127
----------- ----------- ----------- -----------
Balance at end of period $ 150,842 $ 154,043 $ 150,842 $ 154,043
=========== =========== =========== ===========
Basic earnings per common share for each period is computed based on the weighted average number of shares of common stock outstanding of 28,703,778 and 24,001,923 for the three months ended September 30, 2001 and 2000, respectively, and 27,394,485 and 23,797,183 for the nine months ended September 30, 2001 and 2000, respectively. Diluted earnings per common share for each period includes the addition of common stock equivalents of 1,568,790 and 3,674,307 for the three months ended September 30, 2001 and 2000, respectively, and 2,306,202 and 3,746,601 for the nine months ended September 30, 2001 and 2000, respectively. Common stock equivalents represent the dilutive effect of the assumed exercise of outstanding warrants and stock options.
The Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, which requires companies to recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. The Company has adopted SFAS 133, as amended, as of January 1, 2001. There has been no impact on the Company’s consolidated financial statements resulting from the adoption of SFAS 133, as amended.
In June 2001, the FASB issued SFAS No. 141, Business Combinations and No. 142, Goodwill and Other Intangible Assets. Under the new rules, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company will apply the new accounting standards beginning January 1, 2002. We are currently assessing the financial impact SFAS No. 141 and No. 142 will have on our consolidated financial statements.
In accordance with Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes, the Company reviewed the likelihood of realizing the future benefit of its tax loss carryforwards. Based on consistent and growing profitability over the past four years and reasonably expected continuation of these trends, the Company has now cumulatively reduced its valuation allowance against its loss carryforwards by $35 million. In the previous year quarter, the Company reduced its valuation allowance by $20 million and, based on continued improving results, a further benefit was recorded this period to reduce the valuation allowance by an additional $15 million. Valuation allowances totaling more than $75 million remain and may be reversed benefiting results in future periods.
Net revenue for the third quarter of 2001 was $209.9 million compared to $198.9 million in 2000, an increase of $11.0 million (6%). Net revenues from comparable fitness centers increased 4%. This increase in net revenues resulted from the following:
Membership revenues recognized grew $2.3 million or 1% over the prior year quarter. New membership units originated decreased 1% over the prior year period as a result of disruptions to sales activities brought about by the September 11th terrorist events. The weighted-average selling price of membership contracts sold decreased by 2% compared to last year as a result of the net addition of five clubs in areas that offer lower initiation fees due to statutory limits on initiation fees or length of finance terms, and the continued availability of a selection of shorter-term and seasonal membership programs designed to attract incremental members with lower average initiation fees than the Company’s full membership plans. As a result, membership fees originated decreased by $4.6 million or 3% versus the prior year quarter. The provision for doubtful receivables combined with the provision for cancellations, both of which are included as direct reductions of membership revenue, totaled 41% of the gross financed portion of originations for both periods. Total dues revenue decreased $1.5 million compared to the prior year, due in part to disruptions in mail service in September 2001.
Products and services revenue increased $8.0 million (27%) over the 2000 quarter, primarily reflecting the continued growth of personal training services and nutritional and other retail product sales.
Miscellaneous revenue increased $.6 million (18%) over the 2000 quarter, primarily reflecting additional revenue from co-marketing partnerships.
The weighted-average number of fitness centers increased to 384 in the third quarter of 2001 from 380 in the prior year quarter, an increase of 1%, including an increase in the weighted-average number of centers operating under the Company’s four upscale brands from 34 to 37.
Operating income for the third quarter of 2001, excluding special charges of $6.7 million, was $16.1 million compared to $15.1 million in 2000. The increase of $1.0 million (6%) was due to an $11.0 million (6%) increase in net revenue, offset, in part, by an increase in operating costs and expenses of $10.0 million (5%), including a $2.2 million increase in depreciation and amortization. The special charges related to cancelled or reformatted marketing events and other direct or indirect costs from disruptions and shutdowns of various club operations and programs resulting from the September 11th terrorist events and a one-time markdown of retail apparel in connection with management’s strategic repositioning of in-club retail stores, adding juice bars to replace slow moving, lower margin fashion apparel. Earnings before interest, taxes, depreciation and amortization, including finance charges earned (“EBITDA”), exclusive of the impact of the special charges, was $52.2 million versus $49.3 for the last year quarter, a 6% increase. The EBITDA margin, before special charges, was 25%, unchanged from the year ago quarter. Fitness center operating expenses increased $2.5 million (2%) due principally to incremental costs of operating new fitness centers and higher energy costs. Products and services expenses increased $4.6 million (24%) to support the revenue growth of product and service offerings. Operating income from products and services increased to $13.9 million from $10.5 million in the prior year quarter, with an EBITDA margin of 37% in 2001 compared to 36% in the 2000 quarter. Member processing and collection center expenses were relatively unchanged from the prior year quarter. Advertising expenses increased $.2 million (2%) compared to the prior year. General and administrative expenses increased $.3 million (4%) compared to the prior year quarter to support the Company’s overall growth. Depreciation and amortization expense increased $2.2 million (13%) as a result of increased expenditures for property and equipment and acquired fitness centers during the past two years.
Finance charges earned in excess of net interest costs totaled $2.5 million for the third quarter of 2001, an increase of $1.4 million over the 2000 period resulting from the reduction in the Company’s net borrowings.
The income tax provisions for the third quarters of 2001 and 2000 reflect state income taxes. The federal provisions were offset by the utilization of prior years’ net operating losses. In addition, as a result of the Company’s improved operating results and trends, the Company reduced its tax valuation allowance by $15 million and $20 million in the third quarters of 2001 and 2000, respectively. These adjustments were reflected as reductions to the tax provisions, increasing net income.
Net revenue for the first nine months of 2001 was $640.3 million compared to $584.3 million in 2000, an increase of $56 million (10%). Net revenues from comparable fitness centers increased 7%. This increase in revenues resulted from the following:
Membership revenues recognized grew $24.5 million or 5% over the prior year period. New membership units originated increased 1% over the prior year period, while the weighted-average selling price of membership contracts sold decreased 1% as a result of the net addition of five clubs in areas that offer lower initiation fees due to statutory limits on initiation fees or length of finance terms, and the continued availability of a selection of shorter-term and seasonal membership programs. As a result, membership fees originated were essentially unchanged from the prior year. The provision for doubtful receivables combined with the provision for cancellations, both of which are included as direct reductions of membership revenue, totaled 41% of the gross financed portion of originations for both periods. Total dues revenue increased $11.7 million (6%) during the first nine months of 2001 compared to 2000.
Products and services revenue increased $28.6 million (35%) from the 2000 period, primarily reflecting the continued growth of personal training services and nutritional and other retail product sales.
Miscellaneous revenue increased $2.9 million (28%) over the 2000 period, primarily reflecting additional revenue from co-marketing partnerships.
The weighted-average number of fitness centers increased to 385 in the first nine months of 2001 from 374 in 2000, an increase of 3%, including an increase in the weighted-average number of centers operating under the Company’s four upscale brands from 34 to 36.
Operating income for the first nine months of 2001, excluding special third quarter charges of $6.7 million, was $49.7 million compared to $43.1 million in 2000. This increase of $6.6 million (15%) was due to a $56 million (10%) increase in net revenue, offset, in part, by an increase in operating costs and expenses of $49.4 million (9%) including a $7.1 million increase in depreciation and amortization. EBITDA, exclusive of the special charges, was $156.9 million versus $141.8, an 11% increase over the prior year period. The EBITDA margin, before special charges, was 24% in both periods. Fitness center operating expenses increased $22 million (6%) due principally to incremental costs of operating new fitness centers and higher energy costs. Products and services expenses increased $16.3 million (30%) to support the revenue growth of product and service offerings. Operating income from products and services increased to $41.1 million from $28.8 million in the prior year period, with an EBITDA margin of 37% in 2001 compared to 35% in the 2000 period. Member processing and collection center expenses decreased $.4 million as a result of expense reimbursements from servicing fees associated with servicing the portions of the installment contracts receivable portfolio that were sold in March and September 2001 to a major financial institution. Advertising expenses increased $3.7 million (9%) compared to the prior year due to a change in advertising strategy to reach new segments of prospective customers and to support clubs in new markets. General and administrative expenses increased $.7 million (3%) compared to the prior year period to support the Company’s overall growth. Depreciation and amortization expense increased $7.1 million (15%) largely as a result of increased expenditures for property and equipment and acquired fitness centers during the past two years.
Finance charges earned in excess of net interest costs totaled $7.5 million for the first nine of 2001, an increase of $2.9 million over the 2000 period resulting from a reduction in the Company’s net borrowings.
The income tax provisions for the first nine months of 2001 and 2000 reflect state income taxes. The federal provisions were offset by the utilization of prior years’ net operating losses. In addition, as a result of the Company’s improved operating results and trends, the Company reduced its tax valuation allowance by $15 million and $20 million in the third quarters of 2001 and 2000, respectively. These adjustments were reflected as reductions to the tax provisions, increasing net income.
In March 2001, we sold 2,238,821 shares of our common stock to the public and the Estate of Arthur M. Goldberg, our former Chairman, exercised an outstanding warrant to purchase 2,207,104 shares of common stock. We received net proceeds from these transactions of approximately $65 million, which was used principally to reduce bank debt.
During the period, we sold to a major financial institution approximately 18% of our installment contracts receivable portfolio at net book value in two transactions. The first bulk sale completed in March 2001 yielded proceeds of $45 million. The second bulk sale completed in September 2001 yielded proceeds of $60 million. The combined proceeds of $105 million were used principally to reduce debt.
Cash flow from operating activities was $127.5 million for the first nine months of 2001 compared to $45.8 million in the 2000 period. The net effect of the bulk sales of receivables, after giving effect to collections which would have occurred, was to increase cash flow from operating activities during the first nine months of 2001 by $79.5 million. Exclusive of the receivables sale offset by the change in dues prepayments of $10.2 million during the period, cash flow from operating activities increased by 27%. Long-term debt outstanding has been reduced by $104.8 million since the start of 2001, a 15% reduction, while net debt (total debt, less net installment contracts receivable and cash), has been reduced by $80.1 million, a 67% reduction over the same period.
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 September 30, 2001, the Company had drawn $14.5 million on its $100 million revolving credit line and had outstanding letters of credit totaling $5.1 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. Our debt service requirements, including interest, through September 30, 2002 are approximately $76.3 million. The debt service requirements include principal payments on the securitization, which began in August 2001. The Company has reached agreement, subject to final documentation, to refinance its securitization facility with a major financial institution. Under the terms of this agreement, floating interest rates on the new facility would be, at current market rates, almost 400 basis points lower than the current securitization facility for borrowings up to $155 million, although there can be no assurance we will be able to complete this refinancing. We believe to the extent required, that we will be able to satisfy our requirements for debt service and capital expenditures 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 nine months of 2001, we invested approximately $67 million in property and equipment, including approximately $37 million related to new fitness centers and $10 million related to major upgrades and expansions.
In October 2001, we announced a merger agreement with Crunch Fitness, an operator of fitness centers in New York, Los Angeles, Chicago, Atlanta, Miami and San Francisco. The purchase, which will include cash of $20 million and three million shares of the Company’s common stock subject to adjustment, is expected to be completed in late 2001.
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.
| (b) | Reports on Form 8-K: |
| Financial | |||
| Date | Items | Statements | |
| August 7, 2001 | #5 and #7 | None | |
| September 6, 2001 | #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 and Chief Financial Officer | |
| (principal financial officer) |