Bally Restates Earnings Back to 2000
Company to Consider Sale As It Posts Quarterly Loss;
Crunch-Unit Deal in Doubt
By STEVEN GRAY
Staff Reporter of THE WALL STREET JOURNAL
December 1, 2005; Page A8
CHICAGO -- Bally Total Fitness Holding Corp., among the nation's largest operators of exercise centers, restated earnings going back to 2000 and said it retained J.P. Morgan Securities Inc. to explore "strategic alternatives," including a sale of the company.
Amid a blizzard of disclosures late yesterday, the company also raised doubts that it would complete a proposed sale of its Crunch fitness centers.
Bally has come under fire from a major institutional shareholder, Liberation Investment Group, which has called for the ouster of Chairman and Chief Executive Paul Toback. In the past year, several top Bally executives -- including its chief financial officer, controller and treasurer -- have been replaced, and the company hasn't conducted regular earnings conference calls or shareholder meetings. The company also is under investigation by the Securities and Exchange Commission and the Justice Department related to accounting issues.
Bally has accused former executives of improper accounting practices and delayed filing financial reports pending an investigation. It has scheduled a conference call for today to discuss its latest results.
In an interview, Mr. Toback dismissed calls for his departure. "This is a company that was in desperate need of a financial and operational turnaround," he said. "Revenues are up, costs are down. We've showed a positive trend line in operating income. Shareholders should be very pleased."
The company's stock has bounced around in the past year, from a high of $7.45 to a low of $2.84. Bally shares were up 14 cents to $7.01 yesterday in 4 p.m. New York Stock Exchange composite trading.
Yesterday Bally reported a third-quarter net loss of $1.6 million, or five cents a share, versus a gain of $6.8 million, or 21 cents a share, for the year-ago period. Bally said it had improved results overall, though, posting net income for this year's first nine months of $1.8 million, or five cents a share, up from losses of $13.3 million and $19.6 million for 2004 and 2003, respectively.
Results have been helped by a 2% increase in average monthly revenue per health-club member and a 4% increase in personal-training revenue this year, the company said. Total members, however, are down 1% this year.
The company, which hadn't previously reported full results for its 2005 second quarter, reported earnings of six cents a share for that period. It also reported a $30.3 million loss for 2004.
In September, the company announced it would sell its Crunch chain of fitness centers, which has outlets in New York, Chicago, Miami and other major cities. Yesterday Mr. Toback said there is now some "doubt" about a sale because of potential impediments, including lease obligations Bally has in connection with Crunch.
With nearly 440 outlets in 29 states, Mexico and Canada, Bally emerged in the past decade as one of the nation's fast-growing fitness chains, primarily targeting middle-income consumers.
Mr. Toback, 42 years old, is a former Clinton administration official who previously was director of administration for Chicago Mayor Richard Daley. He joined Bally in 1997 as vice president of corporate development and became CEO in January 2003.
In August, Emanuel Pearlman, chairman and chief executive of Liberation, which holds a 12% stake in Bally, wrote the first of several letters to the company's board urging that Mr. Toback be replaced with "a more seasoned professional manager who engenders...confidence from financial markets," according to an SEC filing submitted Nov. 21.
In an interview yesterday Mr. Pearlman said, "We feel that the company can earn substantially more money from its current assets, and is an extremely valuable franchise. We believe the capital markets have lost faith in the current management team, and there needs to be a change."
Another major shareholder, Pardus Capital Management, a New York hedge fund with a roughly 14% stake, has launched a proxy battle for five independent candidates to be named to Bally's board. It remains unclear if any of those recommended candidates have been accepted. |
