Fitness financials: Bally seeks another extension on financial statements

The dark cloud hanging over Bally Total Fitness (NYSE: BFT) is still looking like a slow-moving storm front. While its memberships rose slightly, according to operating highlights of its first quarter 2005 and five months ended May 31, 2005, the company is also seeking a 90-day extension on its still unrevealed audited financial statements for 2002 to 2004.
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The dark cloud hanging over Bally Total Fitness (NYSE: BFT) is still looking like a slow-moving storm front. While its memberships rose slightly, according to operating highlights of its first quarter 2005 and five months ended May 31, 2005, the company is also seeking a 90-day extension on its still unrevealed audited financial statements for 2002 to 2004.

The company had been slated to provide the financial statements by July 31, as ordered by a previous waver, but Bally has requested an extended deadline of Oct. 31 (trick or treat?).

"During the past nine months, we have made substantial progress toward completing this audit despite having to replace several key finance executives, hiring a new CFO, treasurer and controller and dealing with many complex accounting issues, several of which were unearthed during the process," said Paul Toback, chairman and CEO, in a statement. "Now I believe that barring any unforeseen circumstances, we are close to completing this long process despite needing a little more time to do so."

If not granted the additional waiver, the company's public notes could be accelerated after notice and the passage of cure periods under the indentures. Additionally, its credit facility provides for a cross-default 10 days after delivery of such notice, which would give the company's lenders the right to accelerate the company's obligations. Neither situation would be easy to deal with for a company with approximately $9.8 million of letters of credit under the $100 million revolving credit portion of its $275 million credit facility, net debts of $723.6 million and free cash flow of about $15 million after a jump of $17.2 million for the five months ended May 31.

Bally is counting on some of its new membership packages to boost those numbers and its bottom line, and that has had a slight impact.

According to the company's statement, in the first quarter of 2005 new joining members increased 11 percent compared to the prior year period. For the five months ending May 31, 2005, new joining members rose 8 percent over the same period in the prior year. For the corresponding periods, new memberships (contracts which represent one or more members) increased 4 percent and 2 percent, respectively, over 2004. The total number of members at May 31, 2005 was up 1 percent over the same period in 2004

"On the issue of the performance of the business, our business redesign through our 'Build Your Own Membership' program, is in the early stages of implementation and we are introducing it into our major markets during the second half of this year," said Toback. "The preliminary indications are positive, including early demonstrations of an improvement in the retention of members during their first 30 days. Similarly, it appears as though, we are experiencing an increase in our average down payment in markets that have rolled out the Build Your Own Membership program, which is an indication of our customers' ability and willingness to stay and pay."

SNEW® View: Considering a still-pending class-action lawsuit, investors and stockholders likely getting antsy, and the revolving personnel door in the last half a year, Bally better get its act together soon. We're not sure how long those who hold the money or have a stake in the action will wait to hear what exactly is going on.

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