# FORM 10-Q

|[X] | Quarterly
Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
for the period ended June 30, 2003
|--- | ---------------------------------------------------------------------------------------------------------------------------

|[   ] | 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:

Indicate by check mark
whether the registrant is an accelerated filer (as defined in Exchange Act Rule
12b-2).   Yes: X    No:

As of July 31, 2003,
33,979,827 shares of the registrants common stock were outstanding.



---

# BALLY TOTAL
FITNESS HOLDING CORPORATION

# INDEX

|Page   | 
|------ | 
|Number | 

| | Item 1. | Financial statements: | 
| | ------- | --------------------- | 

| | Condensed
consolidated balance sheet (unaudited) | 
| | ------------------------------------------------ | 

| | June 30, 2003
and December 31, 2002 | 1 | 
| | ----------------------------------- | - | 

| | Consolidated
statement of income (unaudited) | 
| | -------------------------------------------- | 

| | Three months
ended June 30, 2003 and 2002 | 2 | 
| | ----------------------------------------- | - | 

| | Consolidated
statement of income (unaudited) | 
| | -------------------------------------------- | 

| | Six months
ended June 30, 2003 and 2002 | 3 | 
| | --------------------------------------- | - | 

| | Consolidated
statement of stockholders equity (unaudited) | 
| | ---------------------------------------------------------- | 

| | Six months ended
June 30, 2003 | 4 | 
| | ------------------------------ | - | 

| | Consolidated
statement of cash flows (unaudited) | 
| | ------------------------------------------------ | 

| | Six months
ended June 30, 2003 and 2002 | 5 | 
| | --------------------------------------- | - | 

| | Notes to condensed
consolidated financial statements | 
| | ---------------------------------------------------- | 

| | (unaudited) | 7 | 
| | ----------- | - | 

| | Item 2. | Managements discussion and analysis of financial | 
| | ------- | ------------------------------------------------- | 

| | condition
and results of operations | 21 | 
| | ----------------------------------- | -- | 

| | Item 4. | Evaluation of Disclosure Controls and Procedures | 27 | 
| | ------- | ------------------------------------------------ | -- | 

| | Item 6. | Exhibits and reports on Form 8-K | 27 | 
| | ------- | -------------------------------- | -- | 

|SIGNATURE PAGE |  | 29 | 
|-------------- |  | -- | 



---

##### Index

# PART I.  
FINANCIAL INFORMATION

## Item 1.  
Financial Statements

|                                                      |         |           |             |   |          
|----------------------------------------------------- | ------- | --------- | ----------- | - | ---------
|                                                      | June 30 |           | December 31
|                                                      |         | 2003      |             |   | 2002     
|                                                      |         |           |            
|ASSETS                                                |         |           |             |   |          
|Current assets:                                       |         |           |             |   |          
|Cash and equivalents                                  | $       | 16,482    |             | $ | 12,907   
|Installment contracts receivable, net                 |         | 288,062   |             |   | 271,531  
|Other current assets                                  |         | 72,618    |             |   | 92,764   
|                                                      |         |           |            
|Total current assets                                  |         | 377,162   |             |   | 377,202  
|                                                      |         |           |             |   |          
|Installment contracts receivable, net                 |         | 249,813   |             |   | 251,074  
|Property and equipment, less accumulated depreciation |         |           |             |   |          
|and amortization of $570,768 and $538,613             |         | 643,054   |             |   | 657,539  
|Goodwill                                              |         | 242,126   |             |   | 242,854  
|Trademarks                                            |         | 6,969     |             |   | 6,969    
|Intangible assets, less accumulated                   |         |           |             |   |          
|amortization of $9,731 and $9,453                     |         | 2,508     |             |   | 2,786    
|Deferred income taxes                                 |         | 81,431    |             |   | 81,314   
|Deferred membership origination costs                 |         | 118,481   |             |   | 119,484  
|Other assets                                          |         | 31,036    |             |   | 32,652   
|                                                      |         |           |            
|                                                      | $       | 1,752,580 |             | $ | 1,771,874
|                                                      |         |           |            
|LIABILITIES AND STOCKHOLDERS EQUITY                  |         |           |             |   |          
|                                                      |         |           |             |   |          
|Current liabilities:                                  |         |           |             |   |          
|Accounts payable                                      | $       | 56,018    |             | $ | 51,752   
|Income taxes payable                                  |         | 2,349     |             |   | 1,497    
|Deferred income taxes                                 |         | 28,450    |             |   | 29,303   
|Accrued liabilities                                   |         | 90,562    |             |   | 87,683   
|Current maturities of long-term debt                  |         | 27,978    |             |   | 28,904   
|Deferred revenues                                     |         | 253,267   |             |   | 271,031  
|                                                      |         |           |            
|Total current liabilities                             |         | 458,624   |             |   | 470,170  
|                                                      |         |           |             |   |          
|Long-term debt, less current maturities               |         | 695,672   |             |   | 697,850  
|Other liabilities                                     |         | 10,923    |             |   | 10,689   
|Deferred revenues                                     |         | 55,499    |             |   | 63,689   
|Stockholders equity                                  |         | 531,862   |             |   | 529,476  
|                                                      |         |           |            
|                                                      | $       | 1,752,580 |             | $ | 1,771,874
|                                                      |         |           |            



---

##### Index

|                                                                                   |                    |          |  |   |         
|---------------------------------------------------------------------------------- | ------------------ | -------- |  | - | --------
|                                                                                   | Three months ended
|                                                                                   | June 30           
|                                                                                   |                   
|                                                                                   |                    | 2003     |  |   | 2002    
|                                                                                   |                    |          | 
|Net revenues:                                                                      |                    |          |  |   |         
|Membership revenue                                                                 | $                  | 172,194  |  | $ | 188,330 
|Products and services                                                              |                    | 74,292   |  |   | 53,318  
|Miscellaneous revenue                                                              |                    | 4,818    |  |   | 4,651   
|                                                                                   |                    |          | 
|                                                                                   |                    | 251,304  |  |   | 246,299 
|Operating costs and expenses:                                                      |                    |          |  |   |         
|Fitness center operations                                                          |                    | 140,786  |  |   | 140,098 
|Products and services                                                              |                    | 47,538   |  |   | 33,752  
|Member processing and collection centers                                           |                    | 12,611   |  |   | 11,041  
|Advertising                                                                        |                    | 14,131   |  |   | 16,413  
|General and administrative                                                         |                    | 8,630    |  |   | 8,460   
|Depreciation and amortization                                                      |                    | 19,086   |  |   | 18,950  
|                                                                                   |                    |          | 
|                                                                                   |                    | 242,782  |  |   | 228,714 
|                                                                                   |                    |          | 
|Operating income                                                                   |                    | 8,522    |  |   | 17,585  
|                                                                                   |                    |          |  |   |         
|Finance charges earned                                                             |                    | 18,479   |  |   | 17,442  
|Interest expense                                                                   |                    | (13,936) |  |   | (13,547)
|Other, net                                                                         |                    | (1,704)  |  |   | 89      
|                                                                                   |                    |          | 
|                                                                                   |                    | 2,839    |  |   | 3,984   
|                                                                                   |                    |          | 
|                                                                                   |                    |          |  |   |         
|Income from continuing operations before income taxes                              |                    | 11,361   |  |   | 21,569  
|Income tax provision                                                               |                    | (2,727)  |  |   | (5,176) 
|                                                                                   |                    |          | 
|Income from continuing operations                                                  |                    | 8,634    |  |   | 16,393  
|Discontinued operations                                                            |                    |          |  |   |         
|Loss from discontinued operations (net of tax benefit                              |                    |          |  |   |         
|of $74 and $100, in 2003 and 2002, respectively)                                   |                    | (236)    |  |   | (318)   
|Loss on disposal                                                                   |                    | (1,699)  |  |   |         
|                                                                                   |                    |          | 
|Loss from discontinued operations                                                  |                    | (1,935)  |  |   | (318)   
|                                                                                   |                    |          | 
|Net income                                                                         | $                  | 6,699    |  | $ | 16,075  
|                                                                                   |                    |          | 
|Basic earnings per common share:                                                   |                    |          |  |   |         
|Income from continuing operations                                                  | $                  | 0.27     |  | $ | 0.51    
|Discontinued operations                                                            |                    | (0.06)   |  |   | (0.01)  
|                                                                                   |                    |          | 
|Net income per common share                                                        | $                  | 0.21     |  | $ | 0.50    
|                                                                                   |                    |          | 
|Diluted earnings per common share:                                                 |                    |          |  |   |         
|Income from continuing operations                                                  | $                  | 0.26     |  | $ | 0.49    
|Discontinued operations                                                            |                    | (0.06)   |  |   | (0.01)  
|                                                                                   |                    |          | 
|Net income per common share                                                        | $                  | 0.20     |  | $ | 0.48    
|                                                                                   |                    |          | 
|Pro forma amounts, assuming the new accounting principle is applied retroactively: |                    |          |  |   |         
|Income from continuing operations                                                  | $                  | 8,634    |  | $ | 16,775  
|Net income                                                                         |                    | 6,699    |  |   | 16,365  
|Basic net income per common share                                                  |                    | 0.21     |  |   | 0.51    
|Diluted net income per common share                                                |                    | 0.20     |  |   | 0.49    



---

##### Index

|                                                                                   |                  |          |  |   |         
|---------------------------------------------------------------------------------- | ---------------- | -------- |  | - | --------
|                                                                                   | Six months ended
|                                                                                   | June 30         
|                                                                                   |                 
|                                                                                   |                  | 2003     |  |   | 2002    
|                                                                                   |                  |          | 
|Net revenues:                                                                      |                  |          |  |   |         
|Membership revenue                                                                 | $                | 346,422  |  | $ | 371,024 
|Products and services                                                              |                  | 149,430  |  |   | 105,735 
|Miscellaneous revenue                                                              |                  | 9,669    |  |   | 9,900   
|                                                                                   |                  |          | 
|                                                                                   |                  | 505,521  |  |   | 486,659 
|Operating costs and expenses:                                                      |                  |          |  |   |         
|Fitness center operations                                                          |                  | 281,575  |  |   | 277,902 
|Products and services                                                              |                  | 94,559   |  |   | 66,785  
|Member processing and collection centers                                           |                  | 23,611   |  |   | 21,993  
|Advertising                                                                        |                  | 32,064   |  |   | 32,922  
|General and administrative                                                         |                  | 16,683   |  |   | 15,842  
|Depreciation and amortization                                                      |                  | 38,642   |  |   | 36,370  
|                                                                                   |                  |          | 
|                                                                                   |                  | 487,134  |  |   | 451,814 
|                                                                                   |                  |          | 
|Operating income                                                                   |                  | 18,387   |  |   | 34,845  
|                                                                                   |                  |          |  |   |         
|Finance charges earned                                                             |                  | 37,362   |  |   | 35,122  
|Interest expense                                                                   |                  | (27,921) |  |   | (28,190)
|Other, net                                                                         |                  | (1,820)  |  |   | 163     
|                                                                                   |                  |          | 
|                                                                                   |                  | 7,621    |  |   | 7,095   
|                                                                                   |                  |          | 
|                                                                                   |                  |          |  |   |         
|Income from continuing operations before income taxes                              |                  | 26,008   |  |   | 41,940  
|Income tax provision                                                               |                  | (6,242)  |  |   | (5,704) 
|                                                                                   |                  |          | 
|Income from continuing operations                                                  |                  | 19,766   |  |   | 36,236  
|Discontinued operations                                                            |                  |          |  |   |         
|Loss from discontinued operations (net of tax benefit                              |                  |          |  |   |         
|of $196 and $130, in 2003 and 2002, respectively)                                  |                  | (619)    |  |   | (759)   
|Loss on disposal                                                                   |                  | (1,699)  |  |   |         
|                                                                                   |                  |          | 
|Loss from discontinued operations                                                  |                  | (2,318)  |  |   | (759)   
|                                                                                   |                  |          | 
|Income before cumulative effect of changes in accounting principles                |                  | 17,448   |  |   | 35,477  
|Cumulative effect of changes in accounting principles, net of taxes                |                  | (15,579) |  |   |         
|                                                                                   |                  |          | 
|Net income                                                                         | $                | 1,869    |  | $ | 35,477  
|                                                                                   |                  |          | 
|Basic earnings per common share:                                                   |                  |          |  |   |         
|Income from continuing operations                                                  | $                | 0.61     |  | $ | 1.13    
|Discontinued operations                                                            |                  | (0.07)   |  |   | (0.02)  
|Cumulative effect of changes in accounting principles                              |                  | (0.48)   |  |   |         
|                                                                                   |                  |          | 
|Net income per common share                                                        | $                | 0.06     |  | $ | 1.11    
|                                                                                   |                  |          | 
|Diluted earnings per common share:                                                 |                  |          |  |   |         
|Income from continuing operations                                                  | $                | 0.60     |  | $ | 1.08    
|Discontinued operations                                                            |                  | (0.07)   |  |   | (0.02)  
|Cumulative effect of changes in accounting principles                              |                  | (0.47)   |  |   |         
|                                                                                   |                  |          | 
|Net income per common share                                                        | $                | 0.06     |  | $ | 1.06    
|                                                                                   |                  |          | 
|Pro forma amounts, assuming the new accounting principle is applied retroactively: |                  |          |  |   |         
|Income from continuing operations                                                  | $                | 19,766   |  | $ | 38,625  
|Net income                                                                         |                  | 17,448   |  |   | 37,724  
|Basic net income per common share                                                  |                  | 0.53     |  |   | 1.18    
|Diluted net income per common share                                                |                  | 0.53     |  |   | 1.13    



---

##### Index

|                                |              |  |       |     |             |   |             |  |              |           |          |   |               |  |   |          |  |   |        
|------------------------------- | ------------ |  | ----- | --- | ----------- | - | ----------- |  | ------------ | --------- | -------- | - | ------------- |  | - | -------- |  | - | -------
|                                | Common stock |  |       |     |             |   |             |  | Unearned     |           |          |   |               |  |  
|                                |              |  |       |     |             |   |             |  | compensation |           | Common   |   | Total        
|                                |              |  | Par   |     | Contributed |   | Accumulated |  | (restricted  |           | stock in |   | stockholders
|                                | Shares       |  | value |     | capital     |   | deficit     |  | stock)       |           | treasury |   | equity       
|                                |              |  |       |     |             |   |             |  |              |           |          |   |              
|                                |              |  |       |     |             |   |             |  |              |           |          |   |               |  |   |          |  |   |        
|Balance at December 31, 2002    | 33,193,425   |  | $     | 338 |             | $ | 670,561     |  | $            | (104,279) |          | $ | (25,509)      |  | $ | (11,635) |  | $ | 529,476
|                                |              |  |       |     |             |   |             |  |              |           |          |   |               |  |   |          |  |   |        
|Net income                      |              |  |       |     |             |   |             |  |              | 1,869     |          |   |               |  |   |          |  |   | 1,869  
|                                |              |  |       |     |             |   |             |  |              |           |          |   |               |  |   |          |  |   |        
|Restricted stock activity       | 710,000      |  |       | 7   |             |   | 4,281       |  |              |           |          |   | (4,166)       |  |   |          |  |   | 122    
|                                |              |  |       |     |             |   |             |  |              |           |          |   |               |  |   |          |  |   |        
|Issuance of common stock under  |              |  |       |     |             |   |             |  |              |           |          |   |               |  |   |          |  |   |        
|stock purchase and option plans | 73,069       |  |       | 1   |             |   | 394         |  |              |           |          |   |               |  |   |          |  |   | 395    
|                                |              |  |       |     |             |   |             |  |              |           |          |   |              
|Balance at June 30, 2003        | 33,976,494   |  | $     | 346 |             | $ | 675,236     |  | $            | (102,410) |          | $ | (29,675)      |  | $ | (11,635) |  | $ | 531,862
|                                |              |  |       |     |             |   |             |  |              |           |          |   |              



---

##### Index

|                                                                        |                  |          |  |   |         
|----------------------------------------------------------------------- | ---------------- | -------- |  | - | --------
|                                                                        | Six months ended
|                                                                        | June 30         
|                                                                        |                 
|                                                                        |                  | 2003     |  |   | 2002    
|                                                                        |                  |          | 
|OPERATING:                                                              |                  |          |  |   |         
|Net income before cumulative effect of changes in accounting principles | $                | 17,448   |  | $ | 35,477  
|Adjustments to reconcile to cash provided                              |                  |          |  |   |         
|Depreciation and amortization, including amortization                   |                  |          |  |   |         
|included in interest expense                                            |                  | 40,667   |  |   | 38,440  
|Change in operating assets and liabilities                              |                  | (28,559) |  |   | (47,001)
|Loss on disposal of discontinued operation                              |                  | 1,699    |  |   |         
|Stock-based compensation                                                |                  | 122      |  |   |         
|                                                                        |                  |          | 
|Cash provided by operating activities                                   |                  | 31,377   |  |   | 26,916  
|                                                                        |                  |          |  |   |         
|INVESTING:                                                              |                  |          |  |   |         
|Purchases and construction of property and equipment                    |                  | (20,199) |  |   | (43,165)
|Purchases of real estate                                                |                  |          |  |   | (11,510)
|Acquisitions of businesses and other                                    |                  | (412)    |  |   | (6,092) 
|                                                                        |                  |          | 
|Cash used in investing activities                                       |                  | (20,611) |  |   | (60,767)
|                                                                        |                  |          |  |   |         
|FINANCING:                                                              |                  |          |  |   |         
|Debt transactions                                                      |                  |          |  |   |         
|Net borrowings under revolving credit agreement                         |                  | 5,000    |  |   | 25,000  
|Net borrowings (repayments) of other long-term debt                     |                  | (12,128) |  |   | 9,850   
|Debt issuance and refinancing costs                                     |                  | (458)    |  |   |         
|                                                                        |                  |          | 
|Cash provided by (used in) debt transactions                            |                  | (7,586)  |  |   | 34,850  
|                                                                        |                  |          |  |   |         
|Equity transactions                                                    |                  |          |  |   |         
|Proceeds from exercise of warrants                                      |                  |          |  |   | 2,513   
|Proceeds from issuance of common stock under                            |                  |          |  |   |         
|stock purchase and option plans                                         |                  | 395      |  |   | 1,324   
|Purchases of common stock for treasury                                  |                  |          |  |   | (860)   
|                                                                        |                  |          | 
|Cash provided by (used in) financing transactions                       |                  | (7,191)  |  |   | 37,827  
|                                                                        |                  |          | 
|                                                                        |                  |          |  |   |         
|Increase in cash and equivalents                                        |                  | 3,575    |  |   | 3,976   
|Cash and equivalents, beginning of period                               |                  | 12,907   |  |   | 9,310   
|                                                                        |                  |          | 
|Cash and equivalents, end of period                                     | $                | 16,482   |  | $ | 13,286  
|                                                                        |                  |          | 



---

##### Index

|                                                             |                  |          |  |   |         
|------------------------------------------------------------ | ---------------- | -------- |  | - | --------
|                                                             | Six months ended
|                                                             | June 30         
|                                                             |                 
|                                                             |                  | 2003     |  |   | 2002    
|                                                             |                  |          | 
|SUPPLEMENTAL CASH FLOWS INFORMATION:                         |                  |          |  |   |         
|                                                             |                  |          |  |   |         
|Changes in operating assets and liabilites:                  |                  |          |  |   |         
|Increase in installment contracts receivable                 | $                | (15,123) |  | $ | (63,912)
|Decrease in other current and other assets                   |                  | 327      |  |   | 857     
|Decrease (increase) in deferred membership origination costs |                  | 1,003    |  |   | (4,511) 
|Increase in accounts payable                                 |                  | 4,285    |  |   | 11,622  
|Increase in income taxes payable and deferred income taxes   |                  | 4,803    |  |   | 4,935   
|Increase in accrued and other liabilities                    |                  | 2,635    |  |   | 4,418   
|Decrease in deferred revenues                                |                  | (26,489) |  |   | (410)   
|                                                             |                  |          | 
|Change in operating assets and liabilities                   | $                | (28,559) |  | $ | (47,001)
|                                                             |                  |          | 
|                                                             |                  |          |  |   |         
|Cash payments for interest and income taxes                  |                  |          |  |   |         
|were as follows                                             |                  |          |  |   |         
|Interest paid                                                | $                | 26,112   |  | $ | 28,141  
|Interest capitalized                                         |                  | (453)    |  |   | (1,840) 
|Income taxes paid, net                                       |                  | 1,245    |  |   | 736     
|                                                             |                  |          |  |   |         
|Investing and financing activities exclude the following     |                  |          |  |   |         
|non-cash transactions                                       |                  |          |  |   |         
|Acquisitions of property and equipment                       |                  |          |  |   |         
|through capital leases/borrowings                            | $                | 4,144    |  | $ | 7,716   
|Acquisitions of businesses with common stock                 |                  |          |  |   | 8,855   
|Restricted stock activity                                    |                  | 4,281    |  |   | 4,619   
|Debt, including assumed debt related to                      |                  |          |  |   |         
|acquisition of businesses                                    |                  |          |  |   | 2,846   



---

##### Index

## Basis of presentation

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 415 fitness centers (at June 30, 2003) concentrated in
29 states and Canada. Additionally, the Company has eleven clubs operated
pursuant to franchise and joint venture agreements in the United States, Asia,
and the Caribbean. 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,
2002.

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, 2003, its consolidated statements of income for the
three and six months ended June 30, 2003 and 2002, its consolidated statement of
stockholders equity for the six months ended June 30, 2003, and its
consolidated statement of cash flows for the six months ended June 30, 2003 and
2002. 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 2003 presentation.

## Changes in accounting principles

In the second quarter of 2003, the Company changed its accounting method
(effective January 1, 2003) for the recognition of recoveries of unpaid dues on
inactive membership contracts from accrual-based estimations to a cash basis of
recognition, which is considered a preferable method of accounting for such past
due amounts since it is less reliant on estimations. The effect of this
change was a cumulative non-cash charge of $15,414 (net of tax effect of $4,868)
or $.47 per diluted share. As a result of recording the cumulative effect
adjustment as of the beginning of the year, membership revenue increased during
the first quarter of 2003 by $1,149. Net income for the first quarter of 2003
increased by $873 and basic and diluted earnings per share increased by $.03.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations(SFAS No. 143). SFAS No. 143 addresses the financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets. It requires that the Company recognize the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are then capitalized as part of the carrying
amount of the long-lived asset. The Company has implemented the provisions of
SFAS No. 143 as of January 1, 2003. As a result, a non-cash cumulative
adjustment of $165 was recorded to provide for estimated future restoration
obligations on the Companys leaseholds in the first quarter of 2003.

## Seasonal factors

The Companys operations are subject to seasonal factors and, therefore,
the results of operations for the six months ended June 30, 2003 and 2002 are
not necessarily indicative of the results of operations for the full year.



---

##### Index

|Installment contracts receivable                     |         |          |             |   |         
|---------------------------------------------------- | ------- | -------- | ----------- | - | --------
|                                                     | June 30 |          | December 31
|                                                     |         | 2003     |             |   | 2002    
|                                                     |         |          |            
|Current:                                             |         |          |             |   |         
|Installment contracts receivable                     | $       | 417,165  |             | $ | 404,707 
|Unearned finance charges                             |         | (36,642) |             |   | (36,015)
|Allowance for doubtful receivables and cancellations |         | (92,461) |             |   | (97,161)
|                                                     |         |          |            
|                                                     | $       | 288,062  |             | $ | 271,531 
|                                                     |         |          |            
|Long-term:                                           |         |          |             |   |         
|Installment contracts receivable                     | $       | 344,186  |             | $ | 343,749 
|Unearned finance charges                             |         | (24,143) |             |   | (22,396)
|Allowance for doubtful receivables and cancellations |         | (70,230) |             |   | (70,279)
|                                                     |         |          |            
|                                                     | $       | 249,813  |             | $ | 251,074 
|                                                     |         |          |            

|                                |                    |          |                  |   |          |  |   |           |  |   |          
|------------------------------- | ------------------ | -------- | ---------------- | - | -------- |  | - | --------- |  | - | ---------
|                                | Three months ended |          | Six months ended
|                                | June 30            |          | June 30         
|                                |                    |          |                 
|                                |                    | 2003     |                  |   | 2002     |  |   | 2003      |  |   | 2002     
|                                |                    |          |                  |   |          |  |  
|Balance at beginning of period  | $                  | 167,445  |                  | $ | 134,032  |  | $ | 167,440   |  | $ | 130,504  
|Contract cancellations and      |                    |          |                  |   |          |  |   |           |  |   |          
|write-offs of uncollectible     |                    |          |                  |   |          |  |   |           |  |   |          
|amounts, net of recoveries      |                    | (83,287) |                  |   | (86,387) |  |   | (173,904) |  |   | (177,220)
|Provision for cancellations and |                    |          |                  |   |          |  |   |           |  |   |          
|doubtful receivables            |                    | 78,533   |                  |   | 83,215   |  |   | 169,155   |  |   | 177,576  
|                                |                    |          |                  |   |          |  |  
|Balance at end of period        | $                  | 162,691  |                  | $ | 130,860  |  | $ | 162,691   |  | $ | 130,860  
|                                |                    |          |                  |   |          |  |  



---

##### Index

## Membership revenues

Gross committed membership fees is a measure which includes the total potential
future value of all initial membership fee revenue, dues revenue, earned finance
charges and membership-related products and services revenue from new membership
sales originated in a period. It is measured on a gross basis before
consideration of our provision for doubtful accounts and cancellations and
without deferral of initiation fee revenue, and includes the future potential
collection of dues revenue over the initial term of membership. We track gross
committed membership revenue as an indicator of current sales trends and believe
it to be a useful measure to allow investors to understand current trends in
membership sales which may not be apparent under deferral accounting for the
initiation fee component of membership revenue. The following is a
reconciliation of gross committed membership fees to initial membership fees
originated, net:

|                                        |                    |          |                  |   |          |  |   |           |  |   |          
|--------------------------------------- | ------------------ | -------- | ---------------- | - | -------- |  | - | --------- |  | - | ---------
|                                        | Three months ended |          | Six months ended
|                                        | June 30            |          | June 30         
|                                        |                    |          |                 
|                                        |                    | 2003     |                  |   | 2002     |  |   | 2003      |  |   | 2002     
|                                        |                    |          |                  |   |          |  |  
|Gross committed membership fees         | $                  | 279,737  |                  | $ | 279,981  |  | $ | 591,102   |  | $ | 600,728  
|Less: Committed monthly dues            |                    | (65,440) |                  |   | (56,875) |  |   | (132,911) |  |   | (121,215)
|Provision for doubtful receivables      |                    |          |                  |   |          |  |   |           |  |   |          
|and cancellations                       |                    | (78,533) |                  |   | (83,215) |  |   | (169,155) |  |   | (177,576)
|Unearned finance charges and other      |                    | (44,752) |                  |   | (37,716) |  |   | (93,787)  |  |   | (80,232) 
|Products and services revenues          |                    |          |                  |   |          |  |   |           |  |   |          
|included in membership programs         |                    | (32,859) |                  |   | (17,658) |  |   | (65,320)  |  |   | (36,999) 
|                                        |                    |          |                  |   |          |  |  
|Initial membership fees originated, net | $                  | 58,153   |                  | $ | 84,517   |  | $ | 129,929   |  | $ | 184,706  
|                                        |                    |          |                  |   |          |  |  

The following presents the components of membership revenue as presented in the
accompanying consolidated statements of income:

|                                |                    |         |                  |   |         |  |   |         |  |   |        
|------------------------------- | ------------------ | ------- | ---------------- | - | ------- |  | - | ------- |  | - | -------
|                                | Three months ended |         | Six months ended
|                                | June 30            |         | June 30         
|                                |                    |         |                 
|                                |                    | 2003    |                  |   | 2002    |  |   | 2003    |  |   | 2002   
|                                |                    |         |                  |   |         |  |  
|Initial membership fees:        |                    |         |                  |   |         |  |   |         |  |   |        
|Originated, net                 | $                  | 58,153  |                  | $ | 84,517  |  | $ | 129,929 |  | $ | 184,706
|Decrease (increase) in deferral |                    | 18,411  |                  |   | 6,507   |  |   | 24,644  |  |   | (1,963)
|                                |                    |         |                  |   |         |  |  
|                                |                    | 76,564  |                  |   | 91,024  |  |   | 154,573 |  |   | 182,743
|Dues:                           |                    |         |                  |   |         |  |   |         |  |   |        
|Dues collected                  |                    | 94,332  |                  |   | 95,393  |  |   | 190,004 |  |   | 185,908
|Decrease in deferral            |                    | 1,298   |                  |   | 1,913   |  |   | 1,845   |  |   | 2,373  
|                                |                    |         |                  |   |         |  |  
|                                |                    | 95,630  |                  |   | 97,306  |  |   | 191,849 |  |   | 188,281
|                                |                    |         |                  |   |         |  |  
|Membership revenue              | $                  | 172,194 |                  | $ | 188,330 |  | $ | 346,422 |  | $ | 371,024
|                                |                    |         |                  |   |         |  |  



---

##### Index

|Products and services                |                    |        |                  |   |        |  |   |         |  |   |        
|------------------------------------ | ------------------ | ------ | ---------------- | - | ------ |  | - | ------- |  | - | -------
|                                     | Three months ended |        | Six months ended
|                                     | June 30            |        | June 30         
|                                     |                    |        |                 
|                                     |                    | 2003   |                  |   | 2002   |  |   | 2003    |  |   | 2002   
|                                     |                    |        |                  |   |        |  |  
|Net revenues:                        |                    |        |                  |   |        |  |   |         |  |   |        
|Retail and nutritional supplements  |                    |        |                  |   |        |  |   |         |  |   |        
|Membership programs                  | $                  | 5,387  |                  | $ | 6,725  |  | $ | 11,377  |  | $ | 15,510 
|Other sales                          |                    | 14,550 |                  |   | 14,409 |  |   | 29,615  |  |   | 28,233 
|Personal training                   |                    |        |                  |   |        |  |   |         |  |   |        
|Membership programs                  |                    | 27,472 |                  |   | 10,933 |  |   | 53,943  |  |   | 21,489 
|Other sales                          |                    | 26,883 |                  |   | 19,695 |  |   | 53,255  |  |   | 37,396 
|Financial services                   |                    |        |                  |   | 1,556  |  |   | 1,240   |  |   | 3,107  
|                                     |                    |        |                  |   |        |  |  
|                                     |                    | 74,292 |                  |   | 53,318 |  |   | 149,430 |  |   | 105,735
|Direct operating costs and expenses: |                    |        |                  |   |        |  |   |         |  |   |        
|Retail and nutritional supplements   |                    | 17,129 |                  |   | 15,699 |  |   | 34,675  |  |   | 32,045 
|Personal training                    |                    | 30,409 |                  |   | 18,053 |  |   | 59,884  |  |   | 34,740 
|                                     |                    |        |                  |   |        |  |  
|                                     |                    | 47,538 |                  |   | 33,752 |  |   | 94,559  |  |   | 66,785 
|                                     |                    |        |                  |   |        |  |  
|Direct operating margin              | $                  | 26,754 |                  | $ | 19,566 |  | $ | 54,871  |  | $ | 38,950 
|                                     |                    |        |                  |   |        |  |  
|Margin percentage                    |                    | 36%    |                  |   | 37%    |  |   | 37%     |  |   | 37%    

## Earnings per common share

Basic earnings per common share for each period is computed based on the
weighted average number of shares of common stock outstanding of 32,658,994 and
32,079,795 for the three months ended June 30, 2003 and 2002, respectively, and
32,617,224 and 31,911,543 for the six months ended June 30, 2003 and 2002,
respectively. Diluted earnings per common share for each period includes the
addition of common stock equivalents of 434,724 and 1,484,481 for the three
months ended June 30, 2003 and 2002, respectively, and 380,648 and 1,436,788 for
the six months ended June 30, 2003 and 2002, respectively. Common stock
equivalents represent the dilutive effect of the assumed exercise of outstanding
warrants and stock options. Options outstanding to purchase 2,981,291 and
1,456,120 shares of common stock at June 30, 2003 and 2002, respectively, were
not included in the computation of diluted earnings per share because the
exercise prices of the options were greater than the average market prices of
the Companys common shares. The range of exercise prices per share for
these options was between $12.00 and $36.00 and $21.76 and $36.00 at June 30,
2003 and 2002, respectively.

## Income taxes

At June 30, 2003, for accounting purposes, the Company had approximately
$110,000 of unrecognized federal net operating loss carryforwards. Separately,
the Companys 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
Companys federal income tax rate increased to 20% during the second
quarter of 2002. The 20% federal rate will remain in effect until such time as
all of the Companys AMT credits are fully utilized, which is not currently
expected before 2005. The balance of the provision consists primarily of taxes
owed to states where local earnings are no longer offset by state net operating
loss carryforwards.



---

##### Index

For federal income tax payment purposes, the Company has available net operating
loss carryforwards exceeding $349,000 and AMT net operating loss carryfowards in
excess of $209,000. Therefore, the Company currently does not expect to make any
significant federal tax payments earlier than 2005. 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.

## Stock Plans

The Company accounts for its stock-based compensation plans, described in the
Companys 2002 Annual Report on Form 10-K, using the intrinsic value method
and in accordance with the recognition and measurement principles of APB Opinion
No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost related to option
plans was reflected in net income, as all options granted under those plans had
an exercise price equal to the fair market value of the underlying common stock
on the date of grant. The Company has recorded compensation expense related to
restricted stock grants. The following table illustrates, in accordance with the
provisions of Statement of Financial Accounting Standards No. 148, Accounting
for StockBased CompensationTransition and Disclosure, the effect
on net income and earnings per share if the Company had applied the fair value
recognition provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, to stock-based employee
compensation.

|                                                  |                    |       |                  |   |         |  |   |         |  |   |        
|------------------------------------------------- | ------------------ | ----- | ---------------- | - | ------- |  | - | ------- |  | - | -------
|                                                  | Three months ended |       | Six months ended
|                                                  | June 30            |       | June 30         
|                                                  |                    |       |                 
|                                                  |                    | 2003  |                  |   | 2002    |  |   | 2003    |  |   | 2002   
|                                                  |                    |       |                  |   |         |  |  
|Net income, as reported                           | $                  | 6,699 |                  | $ | 16,075  |  | $ | 1,869   |  | $ | 35,477 
|Plus: stock-based compensation expense            |                    |       |                  |   |         |  |   |         |  |   |        
|included in net income, net of tax                |                    | 93    |                  |   |         |  |   | 93      |  |   |        
|Less: stock-based compensation expense determined |                    |       |                  |   |         |  |   |         |  |   |        
|under fair value based method, net of tax         |                    | (882) |                  |   | (1,171) |  |   | (1,606) |  |   | (2,715)
|                                                  |                    |       |                  |   |         |  |  
|Pro forma net income                              | $                  | 5,910 |                  | $ | 14,904  |  | $ | 356     |  | $ | 32,762 
|                                                  |                    |       |                  |   |         |  |  
|Basic earnings per common share                   |                    |       |                  |   |        
|As reported                                       | $                  | 0.21  |                  | $ | 0.50    |  | $ | 0.06    |  | $ | 1.11   
|Pro forma                                         |                    | 0.18  |                  |   | 0.46    |  |   | 0.01    |  |   | 1.03   
|Diluted earnings per common share                 |                    |       |                  |   |         | 
|As reported                                       |                    | 0.20  |                  |   | 0.48    |  |   | 0.06    |  |   | 1.06   
|Pro forma                                         |                    | 0.18  |                  |   | 0.44    |  |   | 0.01    |  |   | 0.98   

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Companys stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in managements
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.



---

##### Index

## Condensed Consolidating Financial Statements

The following tables present the condensed consolidating balance sheet at June
30, 2003 and December 31, 2002, the condensed consolidating statements of income
for the three months and six months ended June 30, 2003 and 2002, and the
condensed consolidating statement of cash flows for the six months ended June
30, 2003 and 2002. The condensed consolidating financial statements present the
accounts of Bally Total Fitness Holding Corporation (Parent), and
its Guarantor and Non-Guarantor subsidiaries, as defined in the indenture to the
Bally Total Fitness Holding Corporation 10 1⁄2% Senior Notes due 2011
(the Notes) issued in July 2003. The Notes are unconditionally
guaranteed, on a joint and several basis, by the Guarantor subsidiaries
including substantially all domestic subsidiaries of Bally Total Fitness Holding
Corporation. Non-Guarantor subsidiaries include Canadian operations and special
purpose entites for accounts receivable and real estate finance programs.



---

##### Index

|                             |               |           |              |           |              |               |              |         |       |   |              |  |   |          
|---------------------------- | ------------- | --------- | ------------ | --------- | ------------ | ------------- | ------------ | ------- | ----- | - | ------------ |  | - | ---------
|                             | June 30, 2003
|                             |              
|                             |               |           |              | Guarantor |              | Non-Guarantor |              |         |       |   | Consolidated
|                             | Parent        |           | Subsidiaries |           | Subsidiaries |               | Eliminations |         | Total
|                             |               |           |              |           |              |               |              |         |      
|ASSETS                       |               |           |              |           |              |               |              |         |       |   |              |  |   |          
|Current assets:              |               |           |              |           |              |               |              |         |       |   |              |  |   |          
|Cash and equivalents         | $             | -         |              | $         | 15,776       |               | $            | 706     |       | $ | -            |  | $ | 16,482   
|Installment contracts        |               |           |              |           |              |               |              |         |       |   |              |  |   |          
|receivable, net              |               | -         |              |           | -            |               |              | 288,062 |       |   | -            |  |   | 288,062  
|Other current assets         |               | -         |              |           | 71,233       |               |              | 1,385   |       |   | -            |  |   | 72,618   
|                             |               |           |              |           |              |               |              |         |      
|Total current assets         |               | -         |              |           | 87,009       |               |              | 290,153 |       |   | -            |  |   | 377,162  
|                             |               |           |              |           |              |               |              |         |       |   |              |  |   |          
|Installment contracts        |               |           |              |           |              |               |              |         |       |   |              |  |   |          
|receivable, net              |               | -         |              |           | -            |               |              | 249,813 |       |   | -            |  |   | 249,813  
|Property and equipment, net  |               | -         |              |           | 600,427      |               |              | 42,627  |       |   | -            |  |   | 643,054  
|Goodwill                     |               | 31,390    |              |           | 188,164      |               |              | 22,572  |       |   | -            |  |   | 242,126  
|Trademarks                   |               | 6,767     |              |           | 202          |               |              | -       |       |   | -            |  |   | 6,969    
|Intangible assets, net       |               | -         |              |           | 2,508        |               |              | -       |       |   | -            |  |   | 2,508    
|Deferred income taxes        |               | -         |              |           | 81,431       |               |              | -       |       |   | -            |  |   | 81,431   
|Deferred membership          |               |           |              |           |              |               |              |         |       |   |              |  |   |          
|origination costs            |               | -         |              |           | 116,614      |               |              | 1,867   |       |   | -            |  |   | 118,481  
|Investment in and advances   |               |           |              |           |              |               |              |         |       |   |              |  |   |          
|to subsidiaries              |               | 1,024,637 |              |           | 221,315      |               |              | -       |       |   | (1,245,952)  |  |   | -        
|Other assets                 |               | 6,674     |              |           | 5,407        |               |              | 18,955  |       |   | -            |  |   | 31,036   
|                             |               |           |              |           |              |               |              |         |      
|                             | $             | 1,069,468 |              | $         | 1,303,077    |               | $            | 625,987 |       | $ | (1,245,952)  |  | $ | 1,752,580
|                             |               |           |              |           |              |               |              |         |      
|LIABILITIES AND              |               |           |              |           |              |               |              |         |       |   |              |  |   |          
|STOCKHOLDERS EQUITY         |               |           |              |           |              |               |              |         |       |   |              |  |   |          
|Current liabilities:         |               |           |              |           |              |               |              |         |       |   |              |  |   |          
|Accounts payable             | $             | -         |              | $         | 55,612       |               | $            | 406     |       | $ | -            |  | $ | 56,018   
|Income taxes payable         |               | -         |              |           | 2,155        |               |              | 194     |       |   | -            |  |   | 2,349    
|Deferred income taxes        |               | -         |              |           | 27,406       |               |              | 1,044   |       |   | -            |  |   | 28,450   
|Accrued liabilities          |               | 11,498    |              |           | 77,876       |               |              | 1,188   |       |   | -            |  |   | 90,562   
|Current maturities           |               |           |              |           |              |               |              |         |       |   |              |  |   |          
|of long-term debt            |               | 20,529    |              |           | 3,499        |               |              | 3,950   |       |   | -            |  |   | 27,978   
|Deferred revenues            |               | -         |              |           | 249,239      |               |              | 4,028   |       |   | -            |  |   | 253,267  
|                             |               |           |              |           |              |               |              |         |      
|Total current liabilities    |               | 32,027    |              |           | 415,787      |               |              | 10,810  |       |   | -            |  |   | 458,624  
|                             |               |           |              |           |              |               |              |         |       |   |              |  |   |          
|Long-term debt, less current |               |           |              |           |              |               |              |         |       |   |              |  |   |          
|maturities                   |               | 505,579   |              |           | 17,242       |               |              | 172,851 |       |   | -            |  |   | 695,672  
|Net affiliate payable        |               | -         |              |           | 605,883      |               |              | 255,867 |       |   | (861,750)    |  |   | -        
|Other liabilities            |               | -         |              |           | 10,419       |               |              | 504     |       |   | -            |  |   | 10,923   
|Deferred revenues            |               | -         |              |           | 54,615       |               |              | 884     |       |   | -            |  |   | 55,499   
|Stockholders equity         |               | 531,862   |              |           | 199,131      |               |              | 185,071 |       |   | (384,202)    |  |   | 531,862  
|                             |               |           |              |           |              |               |              |         |      
|                             | $             | 1,069,468 |              | $         | 1,303,077    |               | $            | 625,987 |       | $ | (1,245,952)  |  | $ | 1,752,580
|                             |               |           |              |           |              |               |              |         |      



---

##### Index

|                             |                   |           |              |           |              |               |              |         |       |   |              |  |   |          
|---------------------------- | ----------------- | --------- | ------------ | --------- | ------------ | ------------- | ------------ | ------- | ----- | - | ------------ |  | - | ---------
|                             | December 31, 2002
|                             |                  
|                             |                   |           |              | Guarantor |              | Non-Guarantor |              |         |       |   | Consolidated
|                             | Parent            |           | Subsidiaries |           | Subsidiaries |               | Eliminations |         | Total
|                             |                   |           |              |           |              |               |              |         |      
|ASSETS                       |                   |           |              |           |              |               |              |         |       |   |              |  |   |          
|Current assets:              |                   |           |              |           |              |               |              |         |       |   |              |  |   |          
|Cash and equivalents         | $                 | -         |              | $         | 9,198        |               | $            | 3,709   |       | $ | -            |  | $ | 12,907   
|Installment contracts        |                   |           |              |           |              |               |              |         |       |   |              |  |   |          
|receivable, net              |                   | -         |              |           | 2,416        |               |              | 269,115 |       |   | -            |  |   | 271,531  
|Other current assets         |                   | -         |              |           | 91,073       |               |              | 1,691   |       |   | -            |  |   | 92,764   
|                             |                   |           |              |           |              |               |              |         |      
|Total current assets         |                   | -         |              |           | 102,687      |               |              | 274,515 |       |   | -            |  |   | 377,202  
|                             |                   |           |              |           |              |               |              |         |       |   |              |  |   |          
|Installment contracts        |                   |           |              |           |              |               |              |         |       |   |              |  |   |          
|receivable, net              |                   | -         |              |           | 2,230        |               |              | 248,844 |       |   | -            |  |   | 251,074  
|Property and equipment, net  |                   | -         |              |           | 613,142      |               |              | 44,397  |       |   | -            |  |   | 657,539  
|Goodwill                     |                   | 31,390    |              |           | 187,762      |               |              | 23,702  |       |   | -            |  |   | 242,854  
|Trademarks                   |                   | 6,767     |              |           | 202          |               |              | -       |       |   | -            |  |   | 6,969    
|Intangible assets, net       |                   | -         |              |           | 2,786        |               |              | -       |       |   | -            |  |   | 2,786    
|Deferred income taxes        |                   | -         |              |           | 81,314       |               |              | -       |       |   | -            |  |   | 81,314   
|Deferred membership          |                   |           |              |           |              |               |              |         |       |   |              |  |   |          
|origination costs            |                   | -         |              |           | 117,832      |               |              | 1,652   |       |   | -            |  |   | 119,484  
|Investment in and advances   |                   |           |              |           |              |               |              |         |       |   |              |  |   |          
|to subsidiaries              |                   | 1,025,011 |              |           | 219,730      |               |              | -       |       |   | (1,244,741)  |  |   | -        
|Other assets                 |                   | 8,024     |              |           | 5,950        |               |              | 18,678  |       |   | -            |  |   | 32,652   
|                             |                   |           |              |           |              |               |              |         |      
|                             | $                 | 1,071,192 |              | $         | 1,333,635    |               | $            | 611,788 |       | $ | (1,244,741)  |  | $ | 1,771,874
|                             |                   |           |              |           |              |               |              |         |      
|LIABILITIES AND              |                   |           |              |           |              |               |              |         |       |   |              |  |   |          
|STOCKHOLDERS EQUITY         |                   |           |              |           |              |               |              |         |       |   |              |  |   |          
|Current liabilities:         |                   |           |              |           |              |               |              |         |       |   |              |  |   |          
|Accounts payable             | $                 | -         |              | $         | 51,264       |               | $            | 488     |       | $ | -            |  | $ | 51,752   
|Income taxes payable         |                   | -         |              |           | 1,493        |               |              | 4       |       |   | -            |  |   | 1,497    
|Deferred income taxes        |                   | -         |              |           | 28,252       |               |              | 1,051   |       |   | -            |  |   | 29,303   
|Accrued liabilities          |                   | 13,832    |              |           | 72,336       |               |              | 1,515   |       |   | -            |  |   | 87,683   
|Current maturities           |                   |           |              |           |              |               |              |         |       |   |              |  |   |          
|of long-term debt            |                   | 21,675    |              |           | 4,285        |               |              | 2,944   |       |   | -            |  |   | 28,904   
|Deferred revenues            |                   | -         |              |           | 267,317      |               |              | 3,714   |       |   | -            |  |   | 271,031  
|                             |                   |           |              |           |              |               |              |         |      
|Total current liabilities    |                   | 35,507    |              |           | 424,947      |               |              | 9,716   |       |   | -            |  |   | 470,170  
|                             |                   |           |              |           |              |               |              |         |       |   |              |  |   |          
|Long-term debt, less current |                   |           |              |           |              |               |              |         |       |   |              |  |   |          
|maturities                   |                   | 506,209   |              |           | 19,148       |               |              | 172,493 |       |   | -            |  |   | 697,850  
|Net affiliate payable        |                   | -         |              |           | 621,526      |               |              | 258,703 |       |   | (880,229)    |  |   | -        
|Other liabilities            |                   | -         |              |           | 10,185       |               |              | 504     |       |   | -            |  |   | 10,689   
|Deferred revenues            |                   | -         |              |           | 62,761       |               |              | 928     |       |   | -            |  |   | 63,689   
|Stockholders equity         |                   | 529,476   |              |           | 195,068      |               |              | 169,444 |       |   | (364,512)    |  |   | 529,476  
|                             |                   |           |              |           |              |               |              |         |      
|                             | $                 | 1,071,192 |              | $         | 1,333,635    |               | $            | 611,788 |       | $ | (1,244,741)  |  | $ | 1,771,874
|                             |                   |           |              |           |              |               |              |         |      



---

##### Index

|                                     |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|------------------------------------ | -------------------------------- | -------- | ------------ | --------- | ------------ | ------------- | ------------ | ------- | ----- | - | ------------ |  | - | --------
|                                     | Three Months Ended June 30, 2003
|                                     |                                 
|                                     |                                  |          |              | Guarantor |              | Non-Guarantor |              |         |       |   | Consolidated
|                                     | Parent                           |          | Subsidiaries |           | Subsidiaries |               | Eliminations |         | Total
|                                     |                                  |          |              |           |              |               |              |         |      
|Net revenues:                        |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|Membership revenue                   | $                                | -        |              | $         | 165,737      |               | $            | 6,457   |       | $ | -            |  | $ | 172,194 
|Products and services                |                                  | -        |              |           | 72,178       |               |              | 2,114   |       |   | -            |  |   | 74,292  
|Miscellaneous revenue                |                                  | -        |              |           | 4,438        |               |              | 380     |       |   | -            |  |   | 4,818   
|                                     |                                  |          |              |           |              |               |              |         |      
|                                     |                                  | -        |              |           | 242,353      |               |              | 8,951   |       |   | -            |  |   | 251,304 
|Operating costs and expenses:        |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|Fitness center operations            |                                  | -        |              |           | 135,774      |               |              | 5,012   |       |   | -            |  |   | 140,786 
|Products and services                |                                  | -        |              |           | 45,803       |               |              | 1,735   |       |   | -            |  |   | 47,538  
|Member processing and                |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|collection centers                   |                                  | -        |              |           | 7,502        |               |              | 5,109   |       |   | -            |  |   | 12,611  
|Advertising                          |                                  | -        |              |           | 13,758       |               |              | 373     |       |   | -            |  |   | 14,131  
|General and administrative           |                                  | 1,011    |              |           | 7,295        |               |              | 324     |       |   | -            |  |   | 8,630   
|Depreciation and amortization        |                                  | -        |              |           | 18,358       |               |              | 728     |       |   | -            |  |   | 19,086  
|                                     |                                  |          |              |           |              |               |              |         |      
|                                     |                                  | 1,011    |              |           | 228,490      |               |              | 13,281  |       |   | -            |  |   | 242,782 
|                                     |                                  |          |              |           |              |               |              |         |      
|Operating income (loss)              |                                  | (1,011)  |              |           | 13,863       |               |              | (4,330) |       |   | -            |  |   | 8,522   
|                                     |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|Equity in net income of subsidiaries |                                  | 15,443   |              |           | -            |               |              | -       |       |   | (15,443)     |  |   | -       
|Finance charges earned               |                                  | -        |              |           | -            |               |              | 18,479  |       |   | -            |  |   | 18,479  
|Interest expense                     |                                  | (10,495) |              |           | (1,019)      |               |              | (2,422) |       |   | -            |  |   | (13,936)
|Other, net                           |                                  | -        |              |           | (1,763)      |               |              | 59      |       |   | -            |  |   | (1,704) 
|                                     |                                  |          |              |           |              |               |              |         |      
|                                     |                                  | 4,948    |              |           | (2,782)      |               |              | 16,116  |       |   | (15,443)     |  |   | 2,839   
|                                     |                                  |          |              |           |              |               |              |         |      
|Income from continuing operations    |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|before income taxes                  |                                  | 3,937    |              |           | 11,081       |               |              | 11,786  |       |   | (15,443)     |  |   | 11,361  
|Income tax benefit (provision)       |                                  | 2,762    |              |           | (2,660)      |               |              | (2,829) |       |   | -            |  |   | (2,727) 
|                                     |                                  |          |              |           |              |               |              |         |      
|Income from continuing operations    |                                  | 6,699    |              |           | 8,421        |               |              | 8,957   |       |   | (15,443)     |  |   | 8,634   
|Discontinued operations              |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|Loss from discontinued operations    |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|(net of tax benefit of $74)          |                                  | -        |              |           | -            |               |              | (236)   |       |   | -            |  |   | (236)   
|Loss on disposal                     |                                  | -        |              |           | -            |               |              | (1,699) |       |   | -            |  |   | (1,699) 
|                                     |                                  |          |              |           |              |               |              |         |      
|Loss from discontinued operations    |                                  | -        |              |           | -            |               |              | (1,935) |       |   | -            |  |   | (1,935) 
|                                     |                                  |          |              |           |              |               |              |         |      
|Net income                           | $                                | 6,699    |              | $         | 8,421        |               | $            | 7,022   |       | $ | (15,443)     |  | $ | 6,699   
|                                     |                                  |          |              |           |              |               |              |         |      



---

##### Index

|                                     |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|------------------------------------ | -------------------------------- | -------- | ------------ | --------- | ------------ | ------------- | ------------ | ------- | ----- | - | ------------ |  | - | --------
|                                     | Three Months Ended June 30, 2002
|                                     |                                 
|                                     |                                  |          |              | Guarantor |              | Non-Guarantor |              |         |       |   | Consolidated
|                                     | Parent                           |          | Subsidiaries |           | Subsidiaries |               | Eliminations |         | Total
|                                     |                                  |          |              |           |              |               |              |         |      
|Net revenues:                        |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|Membership revenue                   | $                                | -        |              | $         | 181,829      |               | $            | 6,501   |       | $ | -            |  | $ | 188,330 
|Products and services                |                                  | -        |              |           | 51,689       |               |              | 1,629   |       |   | -            |  |   | 53,318  
|Miscellaneous revenue                |                                  | -        |              |           | 4,171        |               |              | 480     |       |   | -            |  |   | 4,651   
|                                     |                                  |          |              |           |              |               |              |         |      
|                                     |                                  | -        |              |           | 237,689      |               |              | 8,610   |       |   | -            |  |   | 246,299 
|Operating costs and expenses:        |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|Fitness center operations            |                                  | -        |              |           | 135,347      |               |              | 4,751   |       |   | -            |  |   | 140,098 
|Products and services                |                                  | -        |              |           | 32,589       |               |              | 1,163   |       |   | -            |  |   | 33,752  
|Member processing and                |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|collection centers                   |                                  | -        |              |           | 6,333        |               |              | 4,708   |       |   | -            |  |   | 11,041  
|Advertising                          |                                  | -        |              |           | 16,019       |               |              | 394     |       |   | -            |  |   | 16,413  
|General and administrative           |                                  | 1,025    |              |           | 7,036        |               |              | 399     |       |   | -            |  |   | 8,460   
|Depreciation and amortization        |                                  | -        |              |           | 18,350       |               |              | 600     |       |   | -            |  |   | 18,950  
|                                     |                                  |          |              |           |              |               |              |         |      
|                                     |                                  | 1,025    |              |           | 215,674      |               |              | 12,015  |       |   | -            |  |   | 228,714 
|                                     |                                  |          |              |           |              |               |              |         |      
|Operating income (loss)              |                                  | (1,025)  |              |           | 22,015       |               |              | (3,405) |       |   | -            |  |   | 17,585  
|                                     |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|Equity in net income of subsidiaries |                                  | 24,937   |              |           | -            |               |              | -       |       |   | (24,937)     |  |   | -       
|Finance charges earned               |                                  | -        |              |           | 174          |               |              | 17,268  |       |   | -            |  |   | 17,442  
|Interest expense                     |                                  | (10,635) |              |           | (191)        |               |              | (2,721) |       |   | -            |  |   | (13,547)
|Other, net                           |                                  | -        |              |           | 19           |               |              | 70      |       |   | -            |  |   | 89      
|                                     |                                  |          |              |           |              |               |              |         |      
|                                     |                                  | 14,302   |              |           | 2            |               |              | 14,617  |       |   | (24,937)     |  |   | 3,984   
|                                     |                                  |          |              |           |              |               |              |         |      
|Income from continuing operations    |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|before income taxes                  |                                  | 13,277   |              |           | 22,017       |               |              | 11,212  |       |   | (24,937)     |  |   | 21,569  
|Income tax benefit (provision)       |                                  | 2,798    |              |           | (5,544)      |               |              | (2,430) |       |   | -            |  |   | (5,176) 
|                                     |                                  |          |              |           |              |               |              |         |      
|Income from continuing operations    |                                  | 16,075   |              |           | 16,473       |               |              | 8,782   |       |   | (24,937)     |  |   | 16,393  
|Loss from discontinued operations    |                                  |          |              |           |              |               |              |         |       |   |              |  |   |         
|(net of tax benefit of $100)         |                                  | -        |              |           | -            |               |              | (318)   |       |   | -            |  |   | (318)   
|                                     |                                  |          |              |           |              |               |              |         |      
|Net income                           | $                                | 16,075   |              | $         | 16,473       |               | $            | 8,464   |       | $ | (24,937)     |  | $ | 16,075  
|                                     |                                  |          |              |           |              |               |              |         |      



---

##### Index

|                                     |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|------------------------------------ | ------------------------------ | -------- | ------------ | --------- | ------------ | ------------- | ------------ | ------- | ----- | - | ------------ |  | - | --------
|                                     | Six Months Ended June 30, 2003
|                                     |                               
|                                     |                                |          |              | Guarantor |              | Non-Guarantor |              |         |       |   | Consolidated
|                                     | Parent                         |          | Subsidiaries |           | Subsidiaries |               | Eliminations |         | Total
|                                     |                                |          |              |           |              |               |              |         |      
|Net revenues:                        |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|Membership revenue                   | $                              | -        |              | $         | 333,341      |               | $            | 13,081  |       | $ | -            |  | $ | 346,422 
|Products and services                |                                | -        |              |           | 145,326      |               |              | 4,104   |       |   | -            |  |   | 149,430 
|Miscellaneous revenue                |                                | -        |              |           | 8,948        |               |              | 721     |       |   | -            |  |   | 9,669   
|                                     |                                |          |              |           |              |               |              |         |      
|                                     |                                | -        |              |           | 487,615      |               |              | 17,906  |       |   | -            |  |   | 505,521 
|Operating costs and expenses:        |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|Fitness center operations            |                                | -        |              |           | 271,072      |               |              | 10,503  |       |   | -            |  |   | 281,575 
|Products and services                |                                | -        |              |           | 91,348       |               |              | 3,211   |       |   | -            |  |   | 94,559  
|Member processing and                |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|collection centers                   |                                | -        |              |           | 13,403       |               |              | 10,208  |       |   | -            |  |   | 23,611  
|Advertising                          |                                | -        |              |           | 31,339       |               |              | 725     |       |   | -            |  |   | 32,064  
|General and administrative           |                                | 1,972    |              |           | 14,064       |               |              | 647     |       |   | -            |  |   | 16,683  
|Depreciation and amortization        |                                | -        |              |           | 37,206       |               |              | 1,436   |       |   | -            |  |   | 38,642  
|                                     |                                |          |              |           |              |               |              |         |      
|                                     |                                | 1,972    |              |           | 458,432      |               |              | 26,730  |       |   | -            |  |   | 487,134 
|                                     |                                |          |              |           |              |               |              |         |      
|Operating income (loss)              |                                | (1,972)  |              |           | 29,183       |               |              | (8,824) |       |   | -            |  |   | 18,387  
|                                     |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|Equity in net income of subsidiaries |                                | 19,690   |              |           | -            |               |              | -       |       |   | (19,690)     |  |   | -       
|Finance charges earned               |                                | -        |              |           | -            |               |              | 37,362  |       |   | -            |  |   | 37,362  
|Interest expense                     |                                | (21,477) |              |           | (1,520)      |               |              | (4,924) |       |   | -            |  |   | (27,921)
|Other, net                           |                                | -        |              |           | (1,818)      |               |              | (2)     |       |   | -            |  |   | (1,820) 
|                                     |                                |          |              |           |              |               |              |         |      
|                                     |                                | (1,787)  |              |           | (3,338)      |               |              | 32,436  |       |   | (19,690)     |  |   | 7,621   
|                                     |                                |          |              |           |              |               |              |         |      
|Income (loss) from continuing        |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|operations before income taxes       |                                | (3,759)  |              |           | 25,845       |               |              | 23,612  |       |   | (19,690)     |  |   | 26,008  
|Income tax benefit (provision)       |                                | 5,628    |              |           | (6,203)      |               |              | (5,667) |       |   | -            |  |   | (6,242) 
|                                     |                                |          |              |           |              |               |              |         |      
|Income from continuing operations    |                                | 1,869    |              |           | 19,642       |               |              | 17,945  |       |   | (19,690)     |  |   | 19,766  
|Discontinued operations              |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|Loss from discontinued operations    |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|(net of tax benefit of $196)         |                                | -        |              |           | -            |               |              | (619)   |       |   | -            |  |   | (619)   
|Loss on disposal                     |                                | -        |              |           | -            |               |              | (1,699) |       |   | -            |  |   | (1,699) 
|                                     |                                |          |              |           |              |               |              |         |      
|Loss from discontinued operations    |                                | -        |              |           | -            |               |              | (2,318) |       |   | -            |  |   | (2,318) 
|                                     |                                |          |              |           |              |               |              |         |      
|Income before cumulative effect of   |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|changes in accounting principles     |                                | 1,869    |              |           | 19,642       |               |              | 15,627  |       |   | (19,690)     |  |   | 17,448  
|Cumulative effect of changes in      |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|accounting principles, net of taxes  |                                | -        |              |           | (15,579)     |               |              | -       |       |   | -            |  |   | (15,579)
|                                     |                                |          |              |           |              |               |              |         |      
|Net income                           | $                              | 1,869    |              | $         | 4,063        |               | $            | 15,627  |       | $ | (19,690)     |  | $ | 1,869   
|                                     |                                |          |              |           |              |               |              |         |      



---

##### Index

|                                     |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|------------------------------------ | ------------------------------ | -------- | ------------ | --------- | ------------ | ------------- | ------------ | ------- | ----- | - | ------------ |  | - | --------
|                                     | Six Months Ended June 30, 2002
|                                     |                               
|                                     |                                |          |              | Guarantor |              | Non-Guarantor |              |         |       |   | Consolidated
|                                     | Parent                         |          | Subsidiaries |           | Subsidiaries |               | Eliminations |         | Total
|                                     |                                |          |              |           |              |               |              |         |      
|Net revenues:                        |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|Membership revenue                   | $                              | -        |              | $         | 358,047      |               | $            | 12,977  |       | $ | -            |  | $ | 371,024 
|Products and services                |                                | -        |              |           | 102,566      |               |              | 3,169   |       |   | -            |  |   | 105,735 
|Miscellaneous revenue                |                                | -        |              |           | 9,080        |               |              | 820     |       |   | -            |  |   | 9,900   
|                                     |                                |          |              |           |              |               |              |         |      
|                                     |                                | -        |              |           | 469,693      |               |              | 16,966  |       |   | -            |  |   | 486,659 
|Operating costs and expenses:        |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|Fitness center operations            |                                | -        |              |           | 268,174      |               |              | 9,728   |       |   | -            |  |   | 277,902 
|Products and services                |                                | -        |              |           | 64,505       |               |              | 2,280   |       |   | -            |  |   | 66,785  
|Member processing and                |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|collection centers                   |                                | -        |              |           | 14,192       |               |              | 7,801   |       |   | -            |  |   | 21,993  
|Advertising                          |                                | -        |              |           | 32,168       |               |              | 754     |       |   | -            |  |   | 32,922  
|General and administrative           |                                | 2,061    |              |           | 13,022       |               |              | 759     |       |   | -            |  |   | 15,842  
|Depreciation and amortization        |                                | -        |              |           | 35,185       |               |              | 1,185   |       |   | -            |  |   | 36,370  
|                                     |                                |          |              |           |              |               |              |         |      
|                                     |                                | 2,061    |              |           | 427,246      |               |              | 22,507  |       |   | -            |  |   | 451,814 
|                                     |                                |          |              |           |              |               |              |         |      
|Operating income (loss)              |                                | (2,061)  |              |           | 42,447       |               |              | (5,541) |       |   | -            |  |   | 34,845  
|                                     |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|Equity in net income of subsidiaries |                                | 56,024   |              |           | -            |               |              | -       |       |   | (56,024)     |  |   | -       
|Finance charges earned               |                                | -        |              |           | 351          |               |              | 34,771  |       |   | -            |  |   | 35,122  
|Interest expense                     |                                | (21,284) |              |           | (616)        |               |              | (6,290) |       |   | -            |  |   | (28,190)
|Other, net                           |                                | -        |              |           | 25           |               |              | 138     |       |   | -            |  |   | 163     
|                                     |                                |          |              |           |              |               |              |         |      
|                                     |                                | 34,740   |              |           | (240)        |               |              | 28,619  |       |   | (56,024)     |  |   | 7,095   
|                                     |                                |          |              |           |              |               |              |         |      
|Income from continuing operations    |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|before income taxes                  |                                | 32,679   |              |           | 42,207       |               |              | 23,078  |       |   | (56,024)     |  |   | 41,940  
|Income tax benefit (provision)       |                                | 2,798    |              |           | (5,568)      |               |              | (2,934) |       |   | -            |  |   | (5,704) 
|                                     |                                |          |              |           |              |               |              |         |      
|Income from continuing operations    |                                | 35,477   |              |           | 36,639       |               |              | 20,144  |       |   | (56,024)     |  |   | 36,236  
|Loss from discontinued operations    |                                |          |              |           |              |               |              |         |       |   |              |  |   |         
|(net of tax benefit of $130)         |                                | -        |              |           | -            |               |              | (759)   |       |   | -            |  |   | (759)   
|                                     |                                |          |              |           |              |               |              |         |      
|Net income                           | $                              | 35,477   |              | $         | 36,639       |               | $            | 19,385  |       | $ | (56,024)     |  | $ | 35,477  
|                                     |                                |          |              |           |              |               |              |         |      



---

##### Index

|                                            |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|------------------------------------------- | ------------------------------ | ------- | ------------ | --------- | ------------ | ------------- | ------------ | -------- | ----- | - | ------------ |  | - | --------
|                                            | Six Months Ended June 30, 2003
|                                            |                               
|                                            |                                |         |              | Guarantor |              | Non-Guarantor |              |          |       |   | Consolidated
|                                            | Parent                         |         | Subsidiaries |           | Subsidiaries |               | Eliminations |          | Total
|                                            |                                |         |              |           |              |               |              |          |      
|OPERATING:                                  |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|Net income before cumulative effect of      |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|changes in accounting principles            | $                              | 1,869   |              | $         | 19,642       |               | $            | 15,627   |       | $ | (19,690)     |  | $ | 17,448  
|Adjustments to reconcile to                 |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|cash provided                              |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|Depreciation and amortization,              |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|including amortization                      |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|included in interest expense                |                                | 1,355   |              |           | 37,387       |               |              | 1,925    |       |   | -            |  |   | 40,667  
|Change in operating assets                  |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|and liabilities                             |                                | (2,338) |              |           | (6,465)      |               |              | (19,756) |       |   | -            |  |   | (28,559)
|Loss on disposal of                         |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|discontinued operation                      |                                | -       |              |           | -            |               |              | 1,699    |       |   | -            |  |   | 1,699   
|Stock-based compensation                    |                                | 122     |              |           | -            |               |              | -        |       |   | -            |  |   | 122     
|                                            |                                |         |              |           |              |               |              |          |      
|Cash provided by (used in)                  |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|operating activities                        |                                | 1,008   |              |           | 50,564       |               |              | (505)    |       |   | (19,690)     |  |   | 31,377  
|                                            |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|INVESTING:                                  |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|Purchases and construction                  |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|of property and equipment                   |                                | -       |              |           | (20,043)     |               |              | (156)    |       |   | -            |  |   | (20,199)
|Acquisitions of businesses and other        |                                | -       |              |           | -            |               |              | (412)    |       |   | -            |  |   | (412)   
|                                            |                                |         |              |           |              |               |              |          |      
|Cash used in investing activities           |                                | -       |              |           | (20,043)     |               |              | (568)    |       |   | -            |  |   | (20,611)
|                                            |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|FINANCING:                                  |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|Debt transactions                          |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|Net borrowings under revolving              |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|credit agreement                            |                                | 5,000   |              |           | -            |               |              | -        |       |   | -            |  |   | 5,000   
|Net borrowings (repayments) of              |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|other long-term debt                        |                                | (6,777) |              |           | (6,715)      |               |              | 1,364    |       |   | -            |  |   | (12,128)
|Debt issuance and refinancing costs         |                                | -       |              |           | -            |               |              | (458)    |       |   | -            |  |   | (458)   
|Change in net affiliate balances            |                                | 374     |              |           | (17,228)     |               |              | (2,836)  |       |   | 19,690       |  |   | -       
|                                            |                                |         |              |           |              |               |              |          |      
|Cash used in debt transactions              |                                | (1,403) |              |           | (23,943)     |               |              | (1,930)  |       |   | 19,690       |  |   | (7,586) 
|                                            |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|Equity transactions                        |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|Proceeds from issuance of                   |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|common stock under stock                    |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|purchase and option plans                   |                                | 395     |              |           | -            |               |              | -        |       |   | -            |  |   | 395     
|                                            |                                |         |              |           |              |               |              |          |      
|Cash used in financing                      |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|transactions                                |                                | (1,008) |              |           | (23,943)     |               |              | (1,930)  |       |   | 19,690       |  |   | (7,191) 
|                                            |                                |         |              |           |              |               |              |          |      
|                                            |                                |         |              |           |              |               |              |          |       |   |              |  |   |         
|Increase (decrease) in cash and equivalents |                                | -       |              |           | 6,578        |               |              | (3,003)  |       |   | -            |  |   | 3,575   
|Cash and equivalents, beginning of period   |                                | -       |              |           | 9,198        |               |              | 3,709    |       |   | -            |  |   | 12,907  
|                                            |                                |         |              |           |              |               |              |          |      
|Cash and equivalents, end of period         | $                              | -       |              | $         | 15,776       |               | $            | 706      |       | $ | -            |  | $ | 16,482  
|                                            |                                |         |              |           |              |               |              |          |      



---

##### Index

|                                            |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|------------------------------------------- | ------------------------------ | -------- | ------------ | --------- | ------------ | ------------- | ------------ | -------- | ----- | - | ------------ |  | - | --------
|                                            | Six Months Ended June 30, 2002
|                                            |                               
|                                            |                                |          |              | Guarantor |              | Non-Guarantor |              |          |       |   | Consolidated
|                                            | Parent                         |          | Subsidiaries |           | Subsidiaries |               | Eliminations |          | Total
|                                            |                                |          |              |           |              |               |              |          |      
|OPERATING:                                  |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|Net income                                  | $                              | 35,477   |              | $         | 36,639       |               | $            | 19,385   |       | $ | (56,024)     |  | $ | 35,477  
|Adjustments to reconcile to                 |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|cash provided                              |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|Depreciation and amortization,              |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|including amortization                      |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|included in interest expense                |                                | 1,073    |              |           | 35,343       |               |              | 2,024    |       |   | -            |  |   | 38,440  
|Change in operating assets                  |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|and liabilities                             |                                | (680)    |              |           | 19,429       |               |              | (65,750) |       |   | -            |  |   | (47,001)
|                                            |                                |          |              |           |              |               |              |          |      
|Cash provided by (used in)                  |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|operating activities                        |                                | 35,870   |              |           | 91,411       |               |              | (44,341) |       |   | (56,024)     |  |   | 26,916  
|                                            |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|INVESTING:                                  |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|Purchases and construction                  |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|of property and equipment                   |                                | -        |              |           | (39,971)     |               |              | (3,194)  |       |   | -            |  |   | (43,165)
|Purchases of real estate                    |                                | -        |              |           | (11,510)     |               |              | -        |       |   | -            |  |   | (11,510)
|Acquisitions of businesses and other        |                                | -        |              |           | (4,002)      |               |              | (2,090)  |       |   | -            |  |   | (6,092) 
|                                            |                                |          |              |           |              |               |              |          |      
|Cash used in investing activities           |                                | -        |              |           | (55,483)     |               |              | (5,284)  |       |   | -            |  |   | (60,767)
|                                            |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|FINANCING:                                  |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|Debt transactions                          |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|Net borrowings under revolving              |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|credit agreement                            |                                | 25,000   |              |           | -            |               |              | -        |       |   | -            |  |   | 25,000  
|Net borrowings (repayments) of              |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|other long-term debt                        |                                | (2,296)  |              |           | (10,308)     |               |              | 22,454   |       |   | -            |  |   | 9,850   
|Change in net affiliate balances            |                                | (61,551) |              |           | (21,263)     |               |              | 26,790   |       |   | 56,024       |  |   | -       
|                                            |                                |          |              |           |              |               |              |          |      
|Cash provided by (used in)                  |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|debt transactions                           |                                | (38,847) |              |           | (31,571)     |               |              | 49,244   |       |   | 56,024       |  |   | 34,850  
|                                            |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|Equity transactions                        |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|Proceeds from exercise of warrants          |                                | 2,513    |              |           | -            |               |              | -        |       |   | -            |  |   | 2,513   
|Proceeds from issuance of                   |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|common stock under stock                    |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|purchase and option plans                   |                                | 1,324    |              |           | -            |               |              | -        |       |   | -            |  |   | 1,324   
|Purchases of common stock                   |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|for treasury                                |                                | (860)    |              |           | -            |               |              | -        |       |   | -            |  |   | (860)   
|                                            |                                |          |              |           |              |               |              |          |      
|Cash provided by (used in)                  |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|financing transactions                      |                                | (35,870) |              |           | (31,571)     |               |              | 49,244   |       |   | 56,024       |  |   | 37,827  
|                                            |                                |          |              |           |              |               |              |          |      
|                                            |                                |          |              |           |              |               |              |          |       |   |              |  |   |         
|Increase (decrease) in cash and equivalents |                                | -        |              |           | 4,357        |               |              | (381)    |       |   | -            |  |   | 3,976   
|Cash and equivalents, beginning of period   |                                | -        |              |           | 8,435        |               |              | 875      |       |   | -            |  |   | 9,310   
|                                            |                                |          |              |           |              |               |              |          |      
|Cash and equivalents, end of period         | $                              | -        |              | $         | 12,792       |               | $            | 494      |       | $ | -            |  | $ | 13,286  
|                                            |                                |          |              |           |              |               |              |          |      



---

##### Index

## Item 2.  
Managements Discussion and Analysis of Financial Condition and Results of Operations

## Comparison of the Three Months Ended June 30, 2003 and 2002

Net revenues for the second quarter of 2003 were $251.3 million compared to
$246.3 million in the 2002 quarter, an increase of $5.0 million (2%). Net
revenues from comparable fitness centers were essentially unchanged. The $5.0
million increase in net revenues resulted from the following:

- Total membership revenue
decreased $16.1 million or 9% (a 10% decline at same clubs), resulting from a
$1.7 million or 2% decrease in dues revenue recognized (1% related to same
clubs), with a $14.4 million or 16% decline in initial membership fees
recognized during the period (19% related to same clubs).
- Products and services
revenue increased $21.0 million (39%) from the 2002 quarter, primarily
reflecting the continued growth of personal training services, nutritional
product sales and the introduction of our Weight Management Program.
- Miscellaneous revenue
totaled $4.8 million, an increase of $.2 million from the prior year quarter.

The weighted-average number of fitness centers increased to 414 from 412 in the
second quarter of 2002.

Gross committed membership fees originated during the second quarter were flat
compared to the 2002 quarter, with a 3% decrease at same clubs. The number of
new members joining increased 7% during the second quarter of 2003 compared with
the same quarter a year ago, with a 5% increase at same clubs. The average
committed duration of memberships originated during the second quarter of 2003
was 30.7 months versus 29.8 months in the prior year quarter, a 3% increase. The
gross committed monthly membership fees originated during the second quarter of
2003 averaged $38.76 versus $43.45 in the year ago quarter, an 11% decrease. The
decrease in the monthly average resulted from a decrease in average membership
price during the quarter including a slight decrease in the proportion of
multiple-club memberships sold due to apparent price sensitivity of new members.

Operating income for the second quarter of 2003 was $8.5 million compared to
$17.6 million in 2002. Net revenues increased $5.0 million (2%) for the second
quarter of 2003, offset by a $13.9 million (7%) increase in operating costs and
expenses ($13.8 million of which is related to the growth in products and
services revenues), and an increase in depreciation and amortization of $.1
million. Earnings before interest, taxes, depreciation and amortization,
including finance charges earned (EBITDA) as adjusted, was $46.2
million, a decrease of $7.8 million from the prior year period. The EBITDA
margin was 17% in the second quarter of 2003, compared to 20% in the 2002
period. These decreases are due, in part, to the continuing trend of lower
initial membership fees originated. The following table is a reconciliation of
net income to EBITDA from continuing operations and EBITDA as adjusted (in thousands):



---

##### Index

|                                  |                    |        |  |   |       
|--------------------------------- | ------------------ | ------ |  | - | ------
|                                  | Three months ended
|                                  | June 30           
|                                  |                   
|                                  |                    | 2003   |  |   | 2002  
|                                  |                    |        | 
|Net income                        | $                  | 6,699  |  | $ | 16,075
|Add:                              |                    |        |  |   |       
|Depreciation and amortization     |                    | 19,086 |  |   | 18,950
|Interest expense                  |                    | 13,936 |  |   | 13,547
|Income tax provision              |                    | 2,727  |  |   | 5,176 
|Loss from discontinued operations |                    | 1,935  |  |   | 318   
|                                  |                    |        | 
|EBITDA from continuing operations |                    | 44,383 |  |   | 54,066
|Add (deduct):                     |                    |        |  |   |       
|Stock-based compensation          |                    | 122    |  |   |       
|Other, net                        |                    | 1,704  |  |   | (89)  
|                                  |                    |        | 
|EBITDA as adjusted                | $                  | 46,209 |  | $ | 53,977
|                                  |                    |        | 

Fitness center operating expenses
were essentially unchanged as a result of the implementation of cost reduction
initiatives which were offset by planned increases in rent, utilities, insurance
and other fixed costs. Products and services expenses increased $13.8 million
(41%) to support the revenue growth of product and service offerings. Direct
operating margin from products and services increased to $26.8 million from
$19.6 million in the 2002 period, a 37% increase (29% related to same clubs),
with a margin of 36% in the 2003 period compared to 37% in the prior year.
Member processing and collection center expenses increased $1.6 million (14%)
compared to the prior year quarter, reflecting increased telecommunication and
member mailing costs. Advertising expenses decreased $2.3 million (14%) compared
to the prior year quarter reflecting savings through reductions in discretionary
spending. General and administrative expenses increased $.2 million (2%)
compared to the prior year quarter. Depreciation and amortization expense
increased $.1 million (1%) compared to the prior year quarter.

Finance charges earned in excess of interest expense totaled $4.5 million in the
second quarter of 2003, an increase of $.6 million over the prior year period
resulting principally from lower interest rates on the Companys borrowings
and higher finance charges earned.

Other, net expense was $1.7 million for the three months ended June 30, 2003.
During the quarter the Company sold a portion of its non-performing, previously
written down installment accounts receivable to a third party for $2.2 million.
Based on the carrying value of these accounts determined using estimates of
recoveries expected through routine collection processes, a non-cash charge of
$1.7 million ($1.3 million net of taxes) was recorded in the quarter.

The Company is reporting as discontinued operations an internet-based start-up
company which was liquidated. As a result, a loss from discontinued operations
of $1.9 million, net of taxes, was recorded during the second quarter of 2003.



---

##### Index

## Comparison of the Six Months Ended June 30, 2003 and 2002

Net revenues for the first six months of 2003 were $505.5 million compared to
$486.7 million in 2002, an increase of $18.9 million (4%). Net revenues from
comparable fitness centers increased 2%. The $18.9 million increase in net
revenues resulted from the following:

- Total membership
revenue decreased $24.6 million or 7% (an 8% decline at same clubs), resulting
from a $3.6 million or 2% increase in dues revenue recognized (1% related to
same clubs), offset by a $28.2 million or 15% decline in initial membership fees
recognized during the period (16% related to same clubs).
- Products and services
revenue increased $43.7 million (41%) over the prior year period, primarily
reflecting the continued growth of personal training services, nutritional
product sales and the introduction of our Weight Management Program.
- Miscellaneous revenue
totaled $9.7 million, a decrease of $.2 million from the prior year period.

The weighted-average number of fitness centers increased to 412 from 409 in the
first six months of 2002.

Gross committed membership fees originated during the first six months decreased
2% compared to the 2002 period, with a 4% decrease at same clubs. The number of
new members joining increased 6% during the first six months of 2003 compared
with the same period a year ago, with a 3% increase at same clubs. The average
committed duration of memberships originated during the first six months of 2003
was 30.6 months versus 30.5 months in the prior year period. The gross committed
monthly membership fees originated during the first six months of 2003 averaged
$40.76 versus $44.19 in the year ago period, an 8% decrease. The decrease in the
monthly average resulted from a decrease in average membership price during the
period including a slight decrease in the proportion of multiple-club
memberships sold due to apparent price sensitivity of new members.

Operating income for the first six months of 2003 was $18.4 million compared to
$34.8 million in 2002. Net revenues increased $18.9 million (4%) for the first
six months of 2003, offset by a $33.0 million (8%) increase in operating costs
and expenses ($27.8 million of which is related to the growth in products and
services revenues), and an increase in depreciation and amortization of $2.3
million. Earnings before interest, taxes, depreciation and amortization,
including finance charges earned (EBITDA) as adjusted, was $94.5
million, a decrease of $11.8 million from the prior year period. The EBITDA
margin was 17% for the first six months of 2003, compared to 20% in the 2002
period. These decreases are due, in part, to the continuing trend of lower
initial membership fees originated. The following table is a reconciliation of
net income to EBITDA from continuing operations and EBITDA as adjusted (in thousands):



---

##### Index

|                                        |                  |        |  |   |        
|--------------------------------------- | ---------------- | ------ |  | - | -------
|                                        | Six months ended
|                                        | June 30         
|                                        |                 
|                                        |                  | 2003   |  |   | 2002   
|                                        |                  |        | 
|Net income                              | $                | 1,869  |  | $ | 35,477 
|Add:                                    |                  |        |  |   |        
|Depreciation and amortization           |                  | 38,642 |  |   | 36,370 
|Interest expense                        |                  | 27,921 |  |   | 28,190 
|Income tax provision                    |                  | 6,242  |  |   | 5,704  
|Loss from discontinued operations       |                  | 2,318  |  |   | 759    
|Cumulative effect of accounting changes |                  | 15,579 |  |   |        
|                                        |                  |        | 
|EBITDA from continuing operations       |                  | 92,571 |  |   | 106,500
|Add (deduct):                           |                  |        |  |   |        
|Stock-based compensation                |                  | 122    |  |   |        
|Other, net                              |                  | 1,820  |  |   | (163)  
|                                        |                  |        | 
|EBITDA as adjusted                      | $                | 94,513 |  | $ | 106,337
|                                        |                  |        | 

Fitness center operating
expenses increased $3.7 million (1%) in the first six months of 2003 compared to
the prior year, due to incremental costs of operating new fitness centers and
planned increases in rent, utilities, insurance and other fixed costs. Products
and services expenses increased $27.8 million (42%) to support the revenue
growth of product and service offerings. Direct operating margin from products
and services increased to $54.9 million from $39.0 million in the 2002 period, a
41% increase (33% related to same clubs), with a margin of 37% in both periods.
Member processing and collection center expenses increased $1.6 million (7%)
compared to the prior year period, reflecting increased telecommunication and
member mailing costs. Advertising expenses decreased $.9 million (3%) compared
to the prior year period. General and administrative expenses increased $.8
million (5%) compared to the prior year period. Depreciation and amortization
expense increased $2.3 million (6%), resulting from additional fitness centers
and other depreciable assets since the prior year period.

Finance charges earned in excess of interest expense totaled $9.4 million in the
first six months of 2003, an increase of $2.5 million over the prior year period
resulting principally from lower interest rates on the Companys borrowings
and higher finance charges earned.

The income tax provision was $6.2 million for the six months ended June 30,
2003, compared to $5.7 million in the 2002 period. This increase of $.5 million
is attributable to lower income from continuing operations in the 2003 period
offset by the increase in the Companys federal income tax rate for
reporting purposes to 20%, which became effective April 1, 2002.

## Liquidity and Capital Resources

Cash flows from operating activities were $31.4 million in the first six months
of 2003, compared to $26.9 million in the 2002 period. Over the past two years,
the Company sold a portion of its installment contracts receivable portfolio to
a major financial institution in three bulk sales at net book value, with
combined proceeds of approximately $128 million. Excluding the impact of the
sales of receivables and net of the change in dues prepayments during the
periods, cash flows from operating activities were $50.3 million in the first
six months of 2003, compared to $55.3 million in 2002.

The following table sets forth cash flows from operating activities on a
comparable basis to add back actual cash collections on the sold portfolios and
to reflect the impact of changes in dues prepayments during each of the periods
(in thousands):



---

##### Index

|                                                             |                    |        |                  |   |         |  |   |        |  |   |        
|------------------------------------------------------------ | ------------------ | ------ | ---------------- | - | ------- |  | - | ------ |  | - | -------
|                                                             | Three months ended |        | Six months ended
|                                                             | June 30            |        | June 30         
|                                                             |                    |        |                 
|                                                             |                    | 2003   |                  |   | 2002    |  |   | 2003   |  |   | 2002   
|                                                             |                    |        |                  |   |         |  |  
|Cash provided by (used in) operating activities, as reported | $                  | 12,076 |                  | $ | (1,029) |  | $ | 31,377 |  | $ | 26,916 
|Collections on installment contracts receivable sold         |                    | 6,415  |                  |   | 14,143  |  |   | 19,553 |  |   | 31,100 
|Changes in dues prepayments                                  |                    | (773)  |                  |   | (1,437) |  |   | (634)  |  |   | (2,762)
|                                                             |                    |        |                  |   |         |  |  
|Cash flows from operating activities                         |                    |        |                  |   |         |  |   |        |  |   |        
|on a comparable basis                                        | $                  | 17,718 |                  | $ | 11,677  |  | $ | 50,296 |  | $ | 55,254 
|                                                             |                    |        |                  |   |         |  |  

Capital expenditures totaled $20.6 million in the first six months of 2003
compared to $60.8 million in the 2002 period. Capital expenditures for 2003 are
not expected to exceed $50 million. The following table details cash used in
investing activities during the three and six months ended June 30, 2003 and
2002 (in thousands):

|                                |                    |        |                  |   |        |  |   |        |  |   |       
|------------------------------- | ------------------ | ------ | ---------------- | - | ------ |  | - | ------ |  | - | ------
|                                | Three months ended |        | Six months ended
|                                | June 30            |        | June 30         
|                                |                    |        |                 
|                                |                    | 2003   |                  |   | 2002   |  |   | 2003   |  |   | 2002  
|                                |                    |        |                  |   |        |  |  
|Club improvements               | $                  | 1,935  |                  | $ | 4,981  |  | $ | 6,945  |  | $ | 11,449
|New clubs                       |                    | 5,098  |                  |   | 9,437  |  |   | 7,950  |  |   | 20,343
|Club remodels and expansions    |                    | 1,913  |                  |   | 4,767  |  |   | 3,356  |  |   | 9,023 
|Administrative and systems      |                    | 1,826  |                  |   | 948    |  |   | 1,948  |  |   | 2,350 
|Real estate purchases and other |                    | 9      |                  |   | 3,577  |  |   | 412    |  |   | 17,602
|                                |                    |        |                  |   |        |  |  
|                                | $                  | 10,781 |                  | $ | 23,710 |  | $ | 20,611 |  | $ | 60,767
|                                |                    |        |                  |   |        |  |  

As a result of the decrease in second quarter capital expenditures, our free
cash flow (cash provided by operating activities, less cash used in investing
activities) was $1.3 million, compared to a deficit of $24.7 million in the 2002
quarter. We are disclosing free cash flow because management believes that it is
an important measure of liquidity and investors are focused on our ability to
reduce our overall debt. The following table is a reconciliation of cash
provided by operating activities to free cash flow (deficit) for the three and
six months ended June 30, 2003 and 2002 (in thousands):

|                                                |                    |          |                  |   |          |  |   |          |  |   |         
|----------------------------------------------- | ------------------ | -------- | ---------------- | - | -------- |  | - | -------- |  | - | --------
|                                                | Three months ended |          | Six months ended
|                                                | June 30            |          | June 30         
|                                                |                    |          |                 
|                                                |                    | 2003     |                  |   | 2002     |  |   | 2003     |  |   | 2002    
|                                                |                    |          |                  |   |          |  |  
|Cash provided by (used in) operating activities | $                  | 12,076   |                  | $ | (1,029)  |  | $ | 31,377   |  | $ | 26,916  
|Less: Cash used in investing activities         |                    | (10,781) |                  |   | (23,710) |  |   | (20,611) |  |   | (60,767)
|                                                |                    |          |                  |   |          |  |  
|Free cash flow (deficit)                        | $                  | 1,295    |                  | $ | (24,739) |  | $ | 10,766   |  | $ | (33,851)
|                                                |                    |          |                  |   |          |  |  



---

##### Index

At the end of the second quarter the Company announced the completion of the
refinancing of its existing $132.5 million term loan and $63.5 million
outstanding on its revolving credit agreement by issuing $235 million in
aggregate principal of 10 1⁄2% Senior Notes due 2011 in an offering under
Rule 144A and Regulation S under the Securities Act of 1933, as amended, and had
entered into a new $90 million Senior Secured Revolving Credit Facility due
2008. These transactions were funded in July 2003. The amount available under
the revolving credit facility is reduced by any outstanding letters of credit,
which cannot exceed $30.0 million. As of July 31, 2003, the Company had
outstanding $6 million in letters of credit and availability of $84 million on
its new $90 million revolving credit line (subsequently increased to $100
million revolving credit line during August 2003). The Company will write off
unamortized issuance costs from extinguished debt in the third quarter of 2003.
In addition, in July 2003 the Company paid down $25 million on its $155 million
Securitization Series 2001-1 and extended the revolving period on $100 million
of the balance through July 2005. The balance of $30 million of principal on the
securitization which was not extended will begin amortizing in November 2003. As
of June 30, 2003, our debt service requirements, including interest, through
June 30, 2004 were approximately $77.6 million, exclusive of principal payments
on the securitization. We believe that we will be able to satisfy these
short-term 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 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.

## 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 that 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 and service 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 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.



---

##### Index

## Item 4.  
Evaluation of Disclosure Controls and Procedures

The Companys Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Companys disclosure controls and
procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)) as
of a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date). Based on such evaluation, such officers have
concluded that, as of the Evaluation Date, the Companys disclosure
controls and procedures are effective in alerting them on a timely basis to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Companys reports filed or
submitted under the Exchange Act.

Since the Evaluation Date, there have not been any significant changes in the
Companys internal controls or in other factors that could significantly
affect such controls.

# PART II.  
OTHER INFORMATION

## Item 6.  
Exhibits and reports on Form 8-K

| | (a) | Exhibits:
| | --- | ---------

| | Exhibit 4.1    Indenture dated as of July 2, 2003, between
the Company and U.S. Bank National Association, as trustee, including the form
of the Note.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | Exhibit 4.2     First Supplemental Indenture dated as of
July 22, 2003, between the Company and U.S. Bank National Association, as
trustee.
| | -------------------------------------------------------------------------------------------------------------------------------------------

| | Exhibit 10.1     Amendment No. 2 to Series 2001-1 Supplement
dated as of July 2, 2003 to the Amended and Restated Pooling and Servicing
Agreement dated as of December 16, 1996 among H & T Receivable Funding
Corporation, as Transferor, Bally Total Fitness Corporation, as Servicer and JP
Morgan Chase Bank, as Trustee.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Exhibit 10.2     Amended and Restated Credit Agreement dated
as of July 2, 2003, among the Company, several banks and financial institutions
which are parties thereto and JP Morgan Chase Bank, as agent.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Exhibit 10.3     Amendment No. 3 to Series 2001-1 Supplement
dated as of July 23, 2003 to the Amended and Restated Pooling and Servicing
Agreement dated as of December 16, 1996 among H & T Receivable Funding
Corporation, as Transferor, Bally Total Fitness Corporation, as Servicer and JP
Morgan Chase Bank, as Trustee.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Exhibit 10.4     Consent and Amendment, dated as of August
11, 2003, under the Credit Agreement, dated as of November 18, 1997, as amended
and restated as of July 2, 2003, among the Company, several banks and financial
institutions which are parties thereto and JP Morgan Chase Bank, as
agent.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Exhibit 18.1     Preferability letter from independent
accountants regarding change in accounting principle.
| | ------------------------------------------------------------------------------------------------------------

| | Exhibit 31.1     Certification of the Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.
| | ----------------------------------------------------------------------------------------------------------------------------------------

| | Exhibit 31.2     Certification of the Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.
| | ----------------------------------------------------------------------------------------------------------------------------------------

| | Exhibit 32.1     Certification of the Chief Executive
Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

##### Index

| | (b) | Reports on Form 8-K:
| | --- | --------------------

| | 1. | On April 11,
2003 we filed a Current Report on Form 8-K announcing the appointment of a new
member to our Board of Directors.                                                                                                                                                                                                                                    
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   
| | 2. | On May 7, 2003 we filed a
Current Report on Form 8-K attaching a press release announcing our earnings for
the quarter ended March 31, 2003.                                                                                                                                                                                                                     
| |   
| | 3. | On May 21, 2003 we filed a
Current Report on Form 8-K attaching a press release announcing the appointment
of the Chairman of the Board of Directors.                                                                                                                                                                                                            
| |   
| | 4. | On June 18, 2003 we filed
a Current Report on Form 8-K attaching a press release announcing our intention
to issue $200 million aggregate principle amount of unsecured Senior Notes due
in an offering under Rule 144A and Regulation S under the Securities Act of
1933, as amended, and enter into a new $90 million senior secured revolving
credit facility.
| |   
| | 5. | On June 27, 2003 we filed
a Current Report on Form 8-K attaching a press release announcing the pricing of
the $200 million in aggregate principal amount of Senior Notes due 2011 at 10.5%
in a private offering to qualified institutional buyers.                                                                                                             



---

##### Index

# BALLY TOTAL
FITNESS HOLDING CORPORATION

# 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                             
| |                                        
| |                                        

| | By: | /s/ John W. Dwyer
| | --- | -----------------

| |                                                               
| | --------------------------------------------------------------
| | John W. Dwyer                                                 
| | Executive
Vice President, Chief Financial Officer and Director
| | (principal financial officer)