##### Table of Contents



FORM 10-Q
 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
  þ
    
    Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for
the period ended June 30, 2005
 or
 o
    
    Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
 Commission file number: 001-13997
 BALLY TOTAL FITNESS HOLDING CORPORATION
  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)
 (773) 380-3000
  o þ
 þ o
 o þ




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##### Table of Contents



TABLE OF ADDITIONAL REGISTRANTS
 Jurisdiction of
    
    I.R.S. EmployerExact name of Additional Registrants
    
    Incorporation
    
    Identification Number59th Street Gym LLC
    
    New York
    
    36-4474644708 Gym LLC
    
    New York
    
    36-4474644Ace, LLC
    
    New York
    
    36-4474644Bally Fitness Franchising, Inc.
    
    Illinois
    
    36-4029332Bally Franchise RSC, Inc.
    
    Illinois
    
    36-4028744Bally Franchising Holdings, Inc.
    
    Illinois
    
    36-4024133Bally Sports Clubs, Inc.
    
    New York
    
    36-3407784Bally Total Fitness Corporation
    
    Delaware
    
    36-2762953Bally Total Fitness International, Inc.
    
    Michigan
    
    36-1692238Bally Total Fitness of California, Inc.
    
    California
    
    36-2763344Bally Total Fitness of Colorado, Inc.
    
    Colorado
    
    84-0856432Bally Total Fitness of Connecticut Coast, Inc.
    
    Connecticut
    
    36-3209546Bally Total Fitness of Connecticut Valley, Inc.
    
    Connecticut
    
    36-3209543Bally Total Fitness of Greater New York, Inc.
    
    New York
    
    95-3445399Bally Total Fitness of the Mid-Atlantic, Inc.
    
    Delaware
    
    52-0820531Bally Total Fitness of the Midwest, Inc.
    
    Ohio
    
    34-1114683Bally Total Fitness of Minnesota, Inc.
    
    Ohio
    
    84-1035840Bally Total Fitness of Missouri, Inc.
    
    Missouri
    
    36-2779045Bally
Total Fitness of Upstate New York, Inc.
    
    New York
    
    36-3209544Bally Total Fitness of Philadelphia, Inc.
    
    Pennsylvania
    
    36-3209542Bally Total Fitness of Rhode Island, Inc.
    
    Rhode Island
    
    36-3209549Bally Total Fitness of the Southeast, Inc.
    
    South Carolina
    
    52-1230906Bally Total Fitness of Toledo, Inc.
    
    Ohio
    
    38-1803897Ballys Fitness and Racquet Clubs, Inc.
    
    Florida
    
    36-3496461BFIT Rehab of West Palm Beach, Inc.
    
    Florida
    
    36-4154170Crunch Fitness International, Inc.
    
    Delaware
    
    36-4474644Crunch LA LLC
    
    New York
    
    36-4474644Crunch World LLC
    
    New York
    
    36-4474644Flambe LLC
    
    New York
    
    36-4474644Greater Philly No. 1 Holding Company
    
    Pennsylvania
    
    36-3209566Greater Philly No. 2 Holding Company
    
    Pennsylvania
    
    36-3209557Health & Tennis Corporation of New York
    
    Delaware
    
    36-3628768Holiday Health Clubs of the East Coast, Inc.
    
    Delaware
    
    52-1271028Holiday/Southeast Holding Corp.
    
    Delaware
    
    52-1289694Jack La Lanne Holding Corp.
    
    New York
    
    95-3445400Mission Impossible, LLC
    
    California
    
    36-4474644New Fitness Holding Co., Inc.
    
    New York
    
    36-3209555Nycon Holding Co., Inc.
    
    New York
    
    36-3209533Rhode Island Holding Company
    
    Rhode Island
    
    36-3261314Soho Ho LLC
    
    New York
    
    36-4474644Tidelands Holiday Health Clubs, Inc.
    
    Virginia
    
    52-1229398U.S. Health, Inc.
    
    Delaware
    
    52-1137373West Village Gym at the Archives LLC
    
    New York
    
    36-4474644
 nd




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INDEX
 PageNumberFORWARD LOOKING STATEMENTSPART I. FINANCIAL INFORMATIONItem 1. Financial statements:Condensed consolidated balance sheets (unaudited)
June 30, 2005 and December 31, 2004
    
    
    1Consolidated statements of operations (unaudited)
Three months ended June 30, 2005 and 2004
    
    
    2Consolidated statements of operations (unaudited)
Six months ended June 30, 2005 and 2004
    
    
    3Consolidated
statement of stockholders equity (deficit) and comprehensive
income (loss) (unaudited)
Six months ended June 30, 2005
    
    
    4Consolidated statements of cash flows (unaudited)
Six months ended June 30, 2005 and 2004
    
    
    5Notes to condensed consolidated financial statements
(unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults Upon Senior Securities
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 5. Other information
    
    
    29Item 6. Exhibits
    
    
    30SIGNATURE PAGE
    
    
    31Certification of the Chief Executive OfficerCertification of the Chief Financial OfficerCertification of the CEO and CFO




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##### Table of Contents



FORWARD-LOOKING
STATEMENTS
  
    
    the outcome of the SEC and Department of Justice investigations;
    
    the disclosure by the Companys management and independent auditors of the existence of
material weaknesses in internal controls over financial reporting;
    
    general economic and business conditions;
    
    competition;
    
    success of operating initiatives, advertising and promotional efforts;
    
    existence of adverse publicity or litigation (including various stockholder litigations)
and the outcome thereof and the costs and expenses associated therewith;
    
    acceptance of new product and service offerings;
    
    changes in business strategy or plans;
    
    availability, terms, and development of capital;
    
    ability to satisfy long-term obligations as they become due;
    
    business abilities and judgment of personnel;
    
    changes in, or the failure to comply with, government regulations;
    
    ability to remain in compliance with, or obtain waivers under, the Companys loan agreements and indentures;
    
    ability to maintain existing or obtain new sources of financing, on acceptable terms or
at all, to satisfy the Companys cash needs and obligations; and
    
    other factors described in this Quarterly Report on Form 10-Q and prior filings of the Company with the SEC.
  PART I: FINANCIAL INFORMATION
 Item 1. Financial Statements




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BALLY TOTAL FITNESS HOLDING CORPORATION
 
 Condensed
Consolidated Balance Sheets
  June 30
    
    
    December 312005
    
    
    2004(unaudited)ASSETSCurrent assets:Cash
    
    $
    29,459
    
    
    $
    19,177Deferred income taxes
    
    
    
    
    
    
    471Other current assets
    
    
    30,748
    
    
    
    30,239Total current assets
    
    
    60,207
    
    
    
    49,887Property and equipment, less accumulated depreciation
and amortization of $742,314 and $713,222
    
    
    340,875
    
    
    
    361,863Goodwill, net
    
    
    41,732
    
    
    
    41,698Trademarks, net
    
    
    9,669
    
    
    
    9,933Intangible assets, less accumulated
amortization of $22,361 and $21,565
    
    
    7,047
    
    
    
    7,909Other assets
    
    
    27,673
    
    
    
    28,279$
    487,203
    
    
    $
    499,569LIABILITIES
AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    43,323
    
    
    $
    51,373Income taxes payable
    
    
    1,636
    
    
    
    1,399Deferred income taxes
    
    
    583
    
    
    
    Accrued liabilities
    
    
    111,405
    
    
    
    111,226Current maturities of long-term debt
    
    
    18,049
    
    
    
    22,127Deferred revenues
    
    
    327,430
    
    
    
    323,271Total current liabilities
    
    
    502,426
    
    
    
    509,396Long-term debt, less current maturities
    
    
    727,446
    
    
    
    737,432Deferred rent liability
    
    
    105,888
    
    
    
    101,911Deferred income taxes
    
    
    793
    
    
    
    1,637Other liabilities
    
    
    28,136
    
    
    
    21,580Deferred revenues
    
    
    588,639
    
    
    
    601,889Total
liabilities
    
    
    1,953,328
    
    
    
    1,973,845Stockholders
equity (deficit)
    
    
    (1,466,125
    )
    
    
    (1,474,276
    )$
    487,203
    
    
    $
    499,569
  1




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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
 
 Consolidated Statements of Operations
   Three months endedJune 302005
    
    
    2004Net revenues:Membership services
    
    $
    259,252
    
    
    $
    246,498Retail products
    
    
    13,577
    
    
    
    14,428Miscellaneous
    
    
    3,911
    
    
    
    4,547276,740
    
    
    
    265,473Operating costs and expenses:Membership services
    
    
    185,791
    
    
    
    189,260Retail products
    
    
    14,047
    
    
    
    13,813Advertising
    
    
    14,886
    
    
    
    16,124General and administrative
    
    
    21,930
    
    
    
    15,953Depreciation and amortization
    
    
    16,861
    
    
    
    17,286253,515
    
    
    
    252,436Operating income
    
    
    23,225
    
    
    
    13,037Interest expense
    
    
    (20,832
    )
    
    
    (16,624
    )Foreign exchange loss
    
    
    (161
    )
    
    
    (459
    )Other, net
    
    
    64
    
    
    
    (56
    )(20,929
    )
    
    
    (17,139
    )Income (loss) before income taxes
    
    
    2,296
    
    
    
    (4,102
    )Income tax provision
    
    
    (258
    )
    
    
    (212
    )Net income (loss)
    
    $
    2,038
    
    
    $
    (4,314
    )Basic
income (loss) per common share
    
    $
    0.06
    
    
    $
    (0.13
    )Diluted
income (loss) per common share
    
    $
    0.06
    
    
    $
    (0.13
    )
  2




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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
 
 Consolidated Statements of Operations
   Six months endedJune 302005
    
    
    2004Net revenues:Membership services
    
    $
    509,199
    
    
    $
    485,485Retail products
    
    
    27,885
    
    
    
    29,454Miscellaneous
    
    
    8,652
    
    
    
    9,580545,736
    
    
    
    524,519Operating costs and expenses:Membership services
    
    
    368,642
    
    
    
    380,750Retail products
    
    
    27,428
    
    
    
    28,231Advertising
    
    
    32,554
    
    
    
    35,755General and administrative
    
    
    40,265
    
    
    
    31,833Depreciation and amortization
    
    
    33,909
    
    
    
    34,519502,798
    
    
    
    511,088Operating income
    
    
    42,938
    
    
    
    13,431Interest expense
    
    
    (39,167
    )
    
    
    (32,536
    )Foreign exchange gain (loss)
    
    
    46
    
    
    
    (406
    )Other, net
    
    
    139
    
    
    
    (170
    )(38,982
    )
    
    
    (33,112
    )Income (loss) before income taxes
    
    
    3,956
    
    
    
    (19,681
    )Income tax provision
    
    
    (517
    )
    
    
    (425
    )Net income (loss)
    
    $
    3,439
    
    
    $
    (20,106
    )Basic income (loss) per common share
    
    $
    0.10
    
    
    $
    (0.61
    )Diluted
income (loss) per common share
    
    $
    0.10
    
    
    $
    (0.61
    )
  3




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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
 
 Consolidated Statement
of Stockholders Equity (Deficit) and Comprehensive Income (Loss)
   Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common
    
    
    Accumulated other
    
    
    TotalPar
    
    
    Contributed
    
    
    Accumulated
    
    
    Unearned
    
    
    stock in
    
    
    comprehensive
    
    
    stockholdersShares
    
    
    value
    
    
    capital
    
    
    deficit
    
    
    compensation
    
    

treasury
    
    

income
    
    

(deficit)Balance at December 31, 2004
    
    
    34,013,805
    
    
    $
    347
    
    
    $
    647,367
    
    
    $
    (2,106,391
    )
    
    $
    (1,567
    )
    
    $
    (11,635
    )
    
    $
    (2,397
    )
    
    $
    (1,474,276
    )Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,439
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,439Cumulative translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212
    
    
    
    212Restricted stock activity
    
    
    583,000
    
    
    
    4
    
    
    
    3,385
    
    
    
    
    
    
    
    949
    
    
    
    
    
    
    
    
    
    
    
    4,338Issuance of common
stock under stock
purchase and option plans
    
    
    28,328
    
    
    
    
    
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162Balance at June 30, 2005
    
    
    34,625,133
    
    
    $
    351
    
    
    $
    650,914
    
    
    $
    (2,102,952
    )
    
    $
    (618
    )
    
    $
    (11,635
    )
    
    $
    (2,185
    )
    
    $
    (1,466,125
    )
  4




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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
 
 Consolidated Statements of Cash Flows
   Six months endedJune2005
    
    
    2004CASH FLOWS
FROM OPERATING ACTIVITIES:Net income
(loss)
    
    $
    3,439
    
    
    $
    (20,106
    )Adjustments
to reconcile to cash provided (used) by operating activitiesDepreciation and amortization, including amortization
included in interest expense
    
    
    36,138
    
    
    
    36,258Deferred
income taxes, net
    
    
    210
    
    
    
    212Change in operating assets and liabilities
    
    
    (10,745
    )
    
    
    16,275Loss on write-off of assets
    
    
    67
    
    
    
    Foreign currency translation (gain)/loss
    
    
    (46
    )
    
    
    406Stock-based compensation
    

4,338
    
    

896Cash provided by operating activities
    
    
    33,401
    
    
    
    33,941CASH FLOWS
FROM INVESTING ACTIVITIES:Purchases and construction of property and equipment
    
    
    (14,476
    )
    
    
    (26,918
    )Proceeds from sale of land
    
    
    1,455
    
    
    
    Acquisitions
of businesses, net of cash acquired
    
    
    



    (109
    )Cash used in investing activities
    
    
    (13,021
    )
    
    
    (27,027
    )CASH FLOWS
FROM FINANCING ACTIVITIES:Net borrowings (repayments) under revolving credit
agreement
    
    
    (875
    )
    
    
    8,000Repayments of other long-term debt
    
    
    (9,610
    )
    
    
    (16,906
    )Debt issuance costs
    
    
    
    
    
    
    (251
    )Proceeds from stock purchase and option plans
    


162
    
    

353Cash used in financing activities
    


(10,323
    )
    

    (8,804
    )Increase (decrease) in cash
    
    
    10,057
    
    
    
    (1,890
    )Effect of exchange rate changes on cash balance
    
    
    225
    
    
    
    574Cash, beginning of period
    


    19,177
    
    
    13,640Cash, end of period
    

$
29,459
    
    

$
12,324
  5




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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
Consolidated Statements of Cash Flows  (continued)
 Six months endedJune 302005
    
    
    2004SUPPLEMENTAL CASH FLOWS INFORMATION:Changes in
operating assets and liabilities, net of effects from acquisitions on
salesDecrease (increase) in other current and other assets
    
    $
    (1,141
    )
    
    $
    5,688Increase (decrease) in accounts payable
    
    
    (8,060
    )
    
    
    51Increase in income taxes payable
    
    
    237
    
    
    
    708Increase in accrued and other liabilities
    
    
    7,310
    
    
    
    8,310Decrease
(increase) in deferred revenues
    
    
    (9,091
    )
    
    
    1,518$
    (10,745
    )
    
    $
    16,275Cash payments for interest and income taxesInterest paid
    
    $
    35,737
    
    
    $
    32,023Interest capitalized
    
    
    (140
    )
    
    
    (692
    )Income taxes refund, net
    
    
    70
    
    
    
    (695
    )Investing and financing activities exclude the
following non-cash transactionsAcquisition of property and equipment through
capital leases/borrowings
    
    
    302
    
    
    
    3,341
  6




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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
 
 Notes to Condensed Consolidated Financial Statements  (continued)
   Note 1 Basis of Presentation
    Seasonal factors
  Market risk
   7




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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 Note 2 Debt
   Note 3 Deferred Revenue
 For the six months ended
June 30, 2005Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    
    
    
    
    Revenue
    
    
    June 30,2004
    
    
    Additions
    
    
    Recognized
    
    
    2005Deferral of receipts from financed members:Initial term payments
    
    $
    542,886
    
    
    $
    171,781
    
    
    $
    (179,579
    )
    
    $
    535,088Down payments
    
    
    105,482
    
    
    
    29,275
    
    
    
    (28,023
    )
    
    
    106,734Deferral of receipts representing advance payments:Paid-in-full membership fees collected upon
origination
    
    
    124,884
    
    
    
    20,918
    
    
    
    (22,667
    )
    
    
    123,135Advance payments of periodic dues and
membership fees
    
    
    130,399
    
    
    
    210,168
    
    
    
    (215,087
    )
    
    
    125,480Deferral of
receipts for personal training services
    
    
    21,509
    
    
    
    67,966
    
    
    
    (63,843
    )
    
    
    25,632$
    925,160
    
    
    $
    500,108
    
    
    $
    (509,199
    )
    
    $
    916,069
 For the six months ended
June 30, 2004Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    
    
    
    
    Revenue
    
    
    June 30,2003
    
    
    Additions
    
    
    Recognized
    
    
    2004Deferral of receipts from financed members:Initial term  payments
    
    $
    535,392
    
    
    $
    171,933
    
    
    $
    (165,408
    )
    
    $
    541,917Down payments
    
    
    111,656
    
    
    
    30,401
    
    
    
    (29,274
    )
    
    
    112,783Deferral of receipts representing advance payments:Paid-in-full membership fees collected upon
origination
    
    
    135,082
    
    
    
    14,331
    
    
    
    (20,627
    )
    
    
    128,786Advance payments of periodic dues and
membership fees
    
    
    145,938
    
    
    
    203,408
    
    
    
    (208,025
    )
    
    
    141,321Deferral of
receipts for personal training services
    
    
    19,818
    
    
    
    66,930
    
    
    
    (62,151
    )
    
    
    24,597$
    947,886
    
    
    $
    487,003
    
    
    $
    (485,485
    )
    
    $
    949,404
 Note 4
Membership Services Revenue
 Three months ended
    
    
    Six months endedJune 30
    
    
    June 302005
    
    
    2004
    
    
    2005
    
    
    2004Membership
    
    $
    224,007
    
    
    $
    213,280
    
    
    $
    445,356
    
    
    $
    423,334Personal training
    
    
    35,245
    
    
    
    33,218
    
    
    
    63,843
    
    
    
    62,151$
    259,252
    
    
    $
    246,498
    
    
    $
    509,199
    
    
    $
    485,485
 Note 5
Income (Loss) Per Common Share
 Earnings per Share.
 8




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BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 Three months ended
    
    
    Six months endedJune 30
    
    
    June 302005
    
    
    2004
    
    
    2005
    
    
    2004Weighted average number of common shares
outstanding
    
    
    32,974,633
    
    
    
    32,832,526
    
    
    
    32,959,323
    
    
    
    32,775,361Effect of outstanding stock options and warrants
    
    
    395,925
    
    
    
    295,230
    
    
    
    379,102
    
    
    
    465,870Diluted
weighted average number of common shares outstanding
    
    
    33,370,558
    
    
    
    33,127,756
    
    
    
    33,338,425
    
    
    
    33,241,231Options and warrants excluded from the computation
of diluted weighted average number of common
shares because the exercise prices were greater
than the average market prices of the common
stock
    
    
    5,417,152
    
    
    
    4,427,772
    
    
    
    5,417,152
    
    
    
    4,262,772Range of exercise price per share:High
    
    $
    36.00
    
    
    $
    36.00
    
    
    $
    36.00
    
    
    $
    36.00Low
    
    $
    3.51
    
    
    $
    4.97
    
    
    $
    3.51
    
    
    $
    4.97
 Note 6 Income Taxes
 Accounting for Income
Taxes
 Note 7 Stock Plans
 Accounting for Stock Issued to
Employees Accounting for StockBased CompensationTransition and
Disclosure Accounting for
Stock-Based Compensation,
 9




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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 Three months ended
    
    
    Six months endedJune 30
    
    
    June 302005
    
    
    2004
    
    
    2005
    
    
    2004Net income
(loss), as reported
    
    $
    2,038
    
    
    $
    (4,314
    )
    
    $
    3,439
    
    
    $
    (20,106
    )Plus: stock-based compensation expense
included in net loss
    
    
    4,207
    
    
    
    684
    
    
    
    4,334
    
    
    
    940Less: stock-based compensation expense
determined under fair value based method
    
    
    (4,860
    )
    
    
    (2,060
    )
    
    
    (5,682
    )
    
    
    (3,777
    )Pro forma
net income/(loss)
    
    $
    1,385
    
    
    $
    (5,690
    )
    
    $
    2,091
    
    
    $
    (22,943
    )Basic
income/(loss) per common share:As reported basic
    
    $
    0.06
    
    
    $
    (0.13
    )
    
    $
    0.10
    
    
    $
    (0.61
    )As reported
diluted
    
    $
    0.06
    
    
    $
    (0.17
    )
    
    $
    0.10
    
    
    $
    (0.70
    )Pro forma
income/(loss) per common sharePro forma
basic
    
    $
    0.06
    
    
    $
    (0.13
    )
    
    $
    0.10
    
    
    $
    (0.61
    )Pro forma
diluted
    
    $
    0.04
    
    
    $
    (0.17
    )
    
    $
    0.06
    
    
    $
    (0.70
    )
  Equity Inducement Plan
  Vesting
of Restricted Stock under the 1996 Long-Term Incentive Plan
  Note 8 Guarantees
  Note 9 Investigations, Disputes and Legal Proceedings
  10




---



##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
      Note
10 Subsequent Events
 Consent Solicitation
 Vesting
of Restricted Stock under the Inducement Plan
 Crunch Purchase Agreement  sm sm
 Adoption of Rights Plan
   Net Operating Loss Carryforwards
 Insurance Lawsuit  Travelers Indemnity Company and ACE American Insurance
Company v. Bally Total Fitness Holding Corporation; Holiday Universal, Inc, n/k/a Bally Total
Fitness of the Mid-Atlantic, Inc; George N. Aronoff; Paul Toback; John W. Dwyer; Lee S. Hillman;
Stephen C. Swid; James McAnally; J. Kenneth Looloian; Liza M. Walsh; Annie P. Lewis, as Executor of
the Estate of Aubrey C. Lewis, Deceased; Theodore Noncek; Geoff Scheitlin; John H. Wildman; John W.
Rogers, Jr.; and Martin E. Franklin,
 Amendments to Employment Agreements
 Director Compensation
 Engagement of J.P. Morgan Securities Inc.
 Note 11 Condensed Consolidating Financial Statements
 1 2
  th
  11




---



##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 CONDENSED CONSOLIDATING BALANCE SHEET
 June 30, 2005Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalASSETSCurrent assets:Cash
    
    $
    
    
    
    $
    28,815
    
    
    $
    644
    
    
    $
    
    
    
    $
    29,459Other current assets
    
    
    
    
    
    
    29,415
    
    
    
    1,333
    
    
    
    
    
    
    
    30,748Total current assets
    
    
    
    
    
    
    58,230
    
    
    
    1,977
    
    
    
    
    
    
    
    60,207Property and equipment, net
    
    
    
    
    
    
    323,290
    
    
    
    17,585
    
    
    
    
    
    
    
    340,875Goodwill, net
    
    
    
    
    
    
    40,256
    
    
    
    1,476
    
    
    
    
    
    
    
    41,732Trademarks, net
    
    
    6,507
    
    
    
    2,670
    
    
    
    492
    
    
    
    
    
    
    
    9,669Intangible assets, net
    
    
    
    
    
    
    6,217
    
    
    
    830
    
    
    
    
    
    
    
    7,047Investment in and advances to subsidiaries
    
    
    (741,631
    )
    
    
    221,315
    
    
    
    
    
    
    
    520,316
    
    
    
    Other assets
    
    
    13,686
    
    
    
    10,707
    
    
    
    3,280
    
    
    
    
    
    
    
    27,673$
    (721,438
    )
    
    $
    662,685
    
    
    $
    25,640
    
    
    $
    520,316
    
    
    $
    487,203LIABILITIES
AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    
    
    
    $
    43,139
    
    
    $
    184
    
    
    $
    
    
    
    $
    43,323Income taxes payable
    
    
    
    
    
    
    1,636
    
    
    
    
    
    
    
    
    
    
    
    1,636Deferred income taxes
    
    
    
    
    
    
    583
    
    
    
    
    
    
    
    
    
    
    
    583Accrued liabilities
    
    
    20,817
    
    
    
    83,662
    
    
    
    6,926
    
    
    
    
    
    
    
    111,405Current maturities of long-term debt
    
    
    9,419
    
    
    
    2,948
    
    
    
    5,682
    
    
    
    
    
    
    
    18,049Deferred revenues
    
    
    
    
    
    
    321,355
    
    
    
    6,075
    
    
    
    
    
    
    
    327,430Total current liabilities
    
    
    30,236
    
    
    
    453,323
    
    
    
    18,867
    
    
    
    
    
    
    
    502,426Long-term debt, less current maturities
    
    
    714,451
    
    
    
    5,215
    
    
    
    7,780
    
    
    
    
    
    
    
    727,446Net affiliate payable
    
    
    
    
    
    
    536,697
    
    
    
    57,990
    
    
    
    (594,687
    )
    
    
    Other liabilities
    
    
    
    
    
    
    132,458
    
    
    
    2,359
    
    
    
    
    
    
    
    134,817Deferred revenues
    
    
    
    
    
    
    577,356
    
    
    
    11,283
    
    
    
    
    
    
    
    588,639Stockholders equity (deficit)
    
    
    (1,466,125
    )
    
    
    (1,042,364
    )
    
    
    (72,639
    )
    
    
    1,115,003
    
    
    
    (1,466,125
    )$
    (721,438
    )
    
    $
    662,685
    
    
    $
    25,640
    
    
    $
    520,316
    
    
    $
    487,203
 12




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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
 CONDENSED CONSOLIDATING BALANCE SHEET
 December 31, 2004Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalASSETSCurrent assets:Cash
    
    $
    
    
    
    $
    18,726
    
    
    $
    451
    
    
    $
    
    
    
    $
    19,177Other current assets
    
    
    
    
    
    
    29,365
    
    
    
    1,345
    
    
    
    
    
    
    
    30,710Total current assets
    
    
    
    
    
    
    48,091
    
    
    
    1,796
    
    
    
    
    
    
    
    49,887Property and equipment, net
    
    
    
    
    
    
    342,946
    
    
    
    18,917
    
    
    
    
    
    
    
    361,863Goodwill, net
    
    
    
    
    
    
    40,157
    
    
    
    1,541
    
    
    
    
    
    
    
    41,698Trademarks, net
    
    
    6,507
    
    
    
    2,875
    
    
    
    551
    
    
    
    
    
    
    
    9,933Intangible assets, net
    
    
    
    
    
    
    6,953
    
    
    
    956
    
    
    
    
    
    
    
    7,909Investment in and advances to subsidiaries
    
    
    (743,351
    )
    
    
    221,315
    
    
    
    
    
    
    
    522,036
    
    
    
    Other assets
    
    
    14,248
    
    
    
    10,859
    
    
    
    3,172
    
    
    
    
    
    
    
    28,279$
    (722,596
    )
    
    $
    673,196
    
    
    $
    26,933
    
    
    $
    522,036
    
    
    $
    499,569LIABILITIES
AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    
    
    
    $
    49,965
    
    
    $
    1,408
    
    
    $
    
    
    
    $
    51,373Income taxes payable
    
    
    
    
    
    
    1,399
    
    
    
    
    
    
    
    
    
    
    
    1,399Accrued liabilities
    
    
    21,403
    
    
    
    83,247
    
    
    
    6,576
    
    
    
    
    
    
    
    111,226Current maturities of long-term debt
    
    
    11,899
    
    
    
    3,382
    
    
    
    6,846
    
    
    
    
    
    
    
    22,127Deferred revenues
    
    
    
    
    
    
    317,197
    
    
    
    6,074
    
    
    
    
    
    
    
    323,271Total current liabilities
    
    
    33,302
    
    
    
    455,190
    
    
    
    20,904
    
    
    
    
    
    
    
    509,396Long-term debt, less current maturities
    
    
    718,378
    
    
    
    10,097
    
    
    
    8,957
    
    
    
    
    
    
    
    737,432Net affiliate payable
    
    
    
    
    
    
    577,456
    
    
    
    58,012
    
    
    
    (635,468
    )
    
    
    Other liabilities
    
    
    
    
    
    
    122,769
    
    
    
    2,359
    
    
    
    
    
    
    
    125,128Deferred revenues
    
    
    
    
    
    
    590,610
    
    
    
    11,279
    
    
    
    
    
    
    
    601,889Stockholders equity (deficit)
    
    
    (1,474,276
    )
    
    
    (1,082,926
    )
    
    
    (74,578
    )
    
    
    1,157,504
    
    
    
    (1,474,276
    )$
    (722,596
    )
    
    $
    673,196
    
    
    $
    26,933
    
    
    $
    522,036
    
    
    $
    499,569
 13




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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 Three Months Ended June 30, 2005Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet revenues:Membership services
    
    $
    
    
    
    $
    249,326
    
    
    $
    9,926
    
    
    $
    
    
    
    $
    259,252Retail products
    
    
    
    
    
    
    13,218
    
    
    
    359
    
    
    
    
    
    
    
    13,577Miscellaneous
    
    
    
    
    
    
    3,384
    
    
    
    527
    
    
    
    
    
    
    
    3,911
    
    
    
    265,928
    
    
    
    10,812
    
    
    
    
    
    
    
    276,740Operating costs and expenses:Membership services
    
    
    
    
    
    
    178,454
    
    
    
    7,337
    
    
    
    
    
    
    
    185,791Retail products
    
    
    
    
    
    
    13,711
    
    
    
    336
    
    
    
    
    
    
    
    14,047Advertising
    
    
    
    
    
    
    14,605
    
    
    
    281
    
    
    
    
    
    
    
    14,886General and administrative
    
    
    1,163
    
    
    
    20,448
    
    
    
    319
    
    
    
    
    
    
    
    21,930Depreciation and amortization
    
    
    
    
    
    
    16,183
    
    
    
    678
    
    
    
    
    
    
    
    16,8611,163
    
    
    
    243,401
    
    
    
    8,951
    
    
    
    
    
    
    
    253,515Operating income (loss)
    
    
    (1,163
    )
    
    
    22,527
    
    
    
    1,861
    
    
    
    
    
    
    
    23,225Equity in
net income (loss) of subsidiaries
    
    
    22,784
    
    
    
    
    
    
    
    
    
    
    
    (22,784
    )
    
    
    Interest expense
    
    
    (20,049
    )
    
    
    (390
    )
    
    
    (908
    )
    
    
    515
    
    
    
    (20,832
    )Foreign exchange loss
    
    
    
    
    
    
    
    
    
    
    (161
    )
    
    
    
    
    
    
    (161
    )Other, net
    
    
    466
    
    
    
    49
    
    
    
    64
    
    
    
    (515
    )
    
    
    643,201
    
    
    
    (341
    )
    
    
    (1,005
    )
    
    
    (22,784
    )
    
    
    (20,929
    )Income (loss) before income taxes
    
    
    2,038
    
    
    
    22,186
    
    
    
    856
    
    
    
    (22,784
    )
    
    
    2,296Income tax provision
    
    
    
    
    
    
    (258
    )
    
    
    
    
    
    
    
    
    
    
    (258
    )Net income (loss)
    
    $
    2,038
    
    
    $
    21,928
    
    
    $
    856
    
    
    $
    (22,784
    )
    
    $
    2,038
 14




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##### Table of Contents





BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


Six Months Ended June 30, 2005Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet revenues:Membership services
    
    $
    
    
    
    $
    489,534
    
    
    $
    19,665
    
    
    $
    
    
    
    $
    509,199Retail products
    
    
    
    
    
    
    27,164
    
    
    
    721
    
    
    
    
    
    
    
    27,885Miscellaneous
    
    
    
    
    
    
    7,707
    
    
    
    945
    
    
    
    
    
    
    
    8,652
    
    
    
    524,405
    
    
    
    21,331
    
    
    
    
    
    
    
    545,736Operating costs and expenses:Membership services
    
    
    
    
    
    
    354,053
    
    
    
    14,589
    
    
    
    
    
    
    
    368,642Retail products
    
    
    
    
    
    
    26,746
    
    
    
    682
    
    
    
    
    
    
    
    27,428Advertising
    
    
    
    
    
    
    31,912
    
    
    
    642
    
    
    
    
    
    
    
    32,554General and administrative
    
    
    2,041
    
    
    
    37,616
    
    
    
    608
    
    
    
    
    
    
    
    40,265Depreciation and amortization
    
    
    
    
    
    
    32,430
    
    
    
    1,479
    
    
    
    
    
    
    
    33,9092,041
    
    
    
    482,757
    
    
    
    18,000
    
    
    
    
    
    
    
    502,798Operating income (loss)
    
    
    (2,041
    )
    
    
    41,648
    
    
    
    3,331
    
    
    
    
    
    
    
    42,938Equity in net income (loss) of
subsidiaries
    
    
    42,289
    
    
    
    
    
    
    
    
    
    
    
    (42,289
    )
    
    
    Interest expense
    
    
    (37,697
    )
    
    
    (683
    )
    
    
    (1,772
    )
    
    
    985
    
    
    
    (39,167
    )Foreign exchange gain
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    46Other, net
    
    
    888
    
    
    
    114
    
    
    
    122
    
    
    
    (985
    )
    
    
    1395,480
    
    
    
    (569
    )
    
    
    (1,604
    )
    
    
    (42,289
    )
    
    
    (38,982
    )Income (loss) before income taxes
    
    
    3,439
    
    
    
    41,079
    
    
    
    1,727
    
    
    
    (42,289
    )
    
    
    3,956Income tax provision
    
    
    
    
    
    
    (517
    )
    
    
    
    
    
    
    
    
    
    
    (517
    )Net income (loss)
    
    $
    3,439
    
    
    $
    40,562
    
    
    $
    1,727
    
    
    $
    (42,289
    )
    
    $
    3,439
 15




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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 Three months ended June 30, 2004Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet revenues:Membership services
    
    $
    
    
    
    $
    237,044
    
    
    $
    9,454
    
    
    $
    
    
    
    $
    246,498Retail products
    
    
    
    
    
    
    14,025
    
    
    
    403
    
    
    
    
    
    
    
    14,428Miscellaneous
    
    
    
    
    
    
    4,047
    
    
    
    500
    
    
    
    
    
    
    
    4,547
    
    
    
    255,116
    
    
    
    10,357
    
    
    
    
    
    
    
    265,473Operating costs and expenses:Membership services
    
    
    
    
    
    
    182,838
    
    
    
    6,422
    
    
    
    
    
    
    
    189,260Retail products
    
    
    
    
    
    
    13,465
    
    
    
    348
    
    
    
    
    
    
    
    13,813Advertising
    
    
    
    
    
    
    15,753
    
    
    
    371
    
    
    
    
    
    
    
    16,124General and administrative
    
    
    957
    
    
    
    14,467
    
    
    
    529
    
    
    
    
    
    
    
    15,953Depreciation and amortization
    
    
    
    
    
    
    16,737
    
    
    
    549
    
    
    
    
    
    
    
    17,286957
    
    
    
    243,260
    
    
    
    8,219
    
    
    
    
    
    
    
    252,436Operating income (loss)
    
    
    (957
    )
    
    
    11,856
    
    
    
    2,138
    
    
    
    
    
    
    
    13,037Equity in net income (loss) of subsidiaries
    
    
    10,278
    
    
    
    
    
    
    
    
    
    
    
    (10,278
    )
    
    
    Interest expense
    
    
    (14,299
    )
    
    
    (1,809
    )
    
    
    (2,606
    )
    
    
    2,090
    
    
    
    (16,624
    )Foreign exchange loss
    
    
    
    
    
    
    
    
    
    
    (459
    )
    
    
    
    
    
    
    (459
    )Other, net
    
    
    664
    
    
    
    17
    
    
    
    1,353
    
    
    
    (2,090
    )
    
    
    (56
    )(3,357
    )
    
    
    (1,792
    )
    
    
    (1,712
    )
    
    
    (10,278
    )
    
    
    (17,139
    )Income (loss) before income taxes
    
    
    (4,314
    )
    
    
    10,064
    
    
    
    426
    
    
    
    (10,278
    )
    
    
    (4,102
    )Income tax provision
    
    
    
    
    
    
    (212
    )
    
    
    
    
    
    
    
    
    
    
    (212
    )Net income (loss)
    
    $
    (4,314
    )
    
    $
    9,852
    
    
    $
    426
    
    
    $
    (10,278
    )
    
    $
    (4,314
    )
 16




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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements 3⁄4 (continued)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 Six months ended June 30, 2004Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet revenues:Membership services
    
    $
    
    
    
    $
    466,803
    
    
    $
    18,682
    
    
    $
    
    
    
    $
    485,485Retail products
    
    
    
    
    
    
    28,643
    
    
    
    811
    
    
    
    
    
    
    
    29,454Miscellaneous
    
    
    
    
    
    
    8,656
    
    
    
    924
    
    
    
    
    
    
    
    9,580
    
    
    
    504,102
    
    
    
    20,417
    
    
    
    
    
    
    
    524,519Operating costs and expenses:Membership services
    
    
    
    
    
    
    367,015
    
    
    
    13,735
    
    
    
    
    
    
    
    380,750Retail products
    
    
    
    
    
    
    27,532
    
    
    
    699
    
    
    
    
    
    
    
    28,231Advertising
    
    
    
    
    
    
    35,063
    
    
    
    692
    
    
    
    
    
    
    
    35,755General and administrative
    
    
    1,914
    
    
    
    28,967
    
    
    
    952
    
    
    
    
    
    
    
    31,833Depreciation and amortization
    
    
    
    
    
    
    33,439
    
    
    
    1,080
    
    
    
    
    
    
    
    34,5191,914
    
    
    
    492,016
    
    
    
    17,158
    
    
    
    
    
    
    
    511,088Operating income (loss)
    
    
    (1,914
    )
    
    
    12,086
    
    
    
    3,259
    
    
    
    
    
    
    
    13,431Equity in net income (loss) of subsidiaries
    
    
    8,343
    
    
    
    
    
    
    
    
    
    
    
    (8,343
    )
    
    
    Interest expense
    
    
    (27,824
    )
    
    
    (3,655
    )
    
    
    (5,169
    )
    
    
    4,112
    
    
    
    (32,536
    )Foreign exchange loss
    
    
    
    
    
    
    
    
    
    
    (406
    )
    
    
    
    
    
    
    (406
    )Other, net
    
    
    1,289
    
    
    
    31
    
    
    
    2,622
    
    
    
    (4,112
    )
    
    
    (170
    )(18,192
    )
    
    
    (3,624
    )
    
    
    (2,953
    )
    
    
    (8,343
    )
    
    
    (33,112
    )Income (loss) before income taxes
    
    
    (20,106
    )
    
    
    8,462
    
    
    
    306
    
    
    
    (8,343
    )
    
    
    (19,681
    )Income tax provision
    
    
    
    
    
    
    (425
    )
    
    
    
    
    
    
    
    
    
    
    (425
    )Net income (loss)
    
    $
    (20,106
    )
    
    $
    8,037
    
    
    $
    306
    
    
    $
    (8,343
    )
    
    $
    (20,106
    )
 17




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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements 3⁄4 (continued)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
 Six
        months        ended
        June 30, 2005Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCASH FLOWS FROM OPERATING
        ACTIVITIES:Net income
    
    $
    3,439
    
    
    $
    40,562
    
    
    $
    1,727
    
    
    $
    (42,289
    )
    
    $
    3,439Adjustments to reconcile to
cash provided Depreciation and amortization,
including amortization
included in interest expense
    
    
    1,657
    
    
    
    33,002
    
    
    
    1,479
    
    
    
    
    
    
    
    36,138Changes in operating assets
and liabilities
    
    
    (1,681
    )
    
    
    (8,435
    )
    
    
    (629
    )
    
    
    
    
    
    
    (10,745
    )Changes in net affiliate balances
    
    
    
    
    
    
    (40,822
    )
    
    
    41
    
    
    
    40,781
    
    
    
    Other, net
    
    
    4,338
    
    
    
    277
    
    
    
    (46
    )
    
    
    
    
    
    
    4,569Cash provided by operating
        activities
    
    
    7,753
    
    
    
    24,584
    
    
    
    2,572
    
    
    
    (1,508
    )
    
    
    33,401CASH FLOWS FROM INVESTING
        ACTIVITIES:Purchases and construction of
property and equipment
    
    
    
    
    
    
    (13,900
    )
    
    
    (576
    )
    
    
    
    
    
    
    (14,476
    )Proceeds from sale of
        land
    
    
    
    
    
    
    1,455
    
    
    
    
    
    
    
    
    
    
    
    1,455Investment in and advances
to subsidiaries
    
    
    (1,508
    )
    
    
    
    
    
    
    
    
    
    
    1,508
    
    
    
    Cash used in investing activities
    
    
    (1,508
    )
    
    
    (12,445
    )
    
    
    (576
    )
    
    
    1,508
    
    
    
    (13,021
    )CASH FLOWS FROM FINANCING
        ACTIVITIES:Net repayments under revolving
credit agreement
    
    
    (875
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (875
    )Net
borrowings (repayments) of
other long-term debt
    
    
    (5,532
    )
    
    
    (2,050
    )
    
    
    (2,028
    )
    
    
    
    
    
    
    (9,610
    )Stock
purchase and options plans
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162Cash used in
financing activities
    
    
    (6,245
    )
    
    
    (2,050
    )
    
    
    (2,028
    )
    
    
    
    
    
    
    (10,323
    )Increase (decrease) in cash
    
    
    
    
    
    
    10,089
    
    
    
    (32
    )
    
    
    
    
    
    
    10,057Effect of exchange rate
        changes on cash balances
    
    
    
    
    
    
    
    
    
    
    225
    
    
    
    
    
    
    
    225Cash, beginning of year
    
    
    
    
    
    
    18,726
    
    
    
    451
    
    
    
    
    
    
    
    19,177Cash, end of year
    
    $
    
    
    
    $
    28,815
    
    
    $
    644
    
    
    $
    
    
    
    $
    29,459
 18




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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements 3⁄4 (continued)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
 Six
months ended June 30, 2004Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCASH FLOWS FROM OPERATING
        ACTIVITIES:Net income (loss)
    
    $
    (20,106
    )
    
    $
    8,037
    
    
    $
    306
    
    
    $

    (8,343
    )
    
    $
    (20,106
    )Adjustments to reconcile to
cash provided Depreciation and amortization,
including amortization
included in interest expense
    
    
    1,149
    
    
    
    33,568
    
    
    
    1,541
    
    
    
    
    
    
    
    36,258Changes in operating assets
and liabilities
    
    
    (1,615
    )
    
    
    16,932
    
    
    
    958
    
    
    
    
    
    
    
    16,275Changes in net affiliate balances
    
    
    
    
    
    
    (28,695
    )
    
    
    (111
    )
    
    
    28,806
    
    
    
    Other, net
    
    
    902
    
    
    
    206
    
    
    
    406
    
    
    
    
    
    
    
    1,514Cash
provided by (used in) operating
        activities
    
    
    (19,670
    )
    
    
    30,048
    
    
    
    3,100
    
    
    
    20,463
    
    
    
    33,941CASH FLOWS FROM INVESTING
        ACTIVITIES:Purchases and construction of
property and equipment
    
    
    
    
    
    
    (26,918
    )
    
    
    
    
    
    
    
    
    
    
    (26,918
    )Acquisitions
of businesses, net of cash acquired and other
    
    
    
    
    
    
    
    
    
    
    (109
    )
    
    
    
    
    
    
    (109
    )Investment in and advances
to subsidiaries
    
    
    20,463
    
    
    
    
    
    
    
    
    
    
    
    (20,463
    )
    
    
    Cash
provided by (used in) investing activities
    
    
    20,463
    
    
    
    (26,918
    )
    
    
    (109
    )
    
    
    (20,463
    )
    
    
    (27,027
    )CASH FLOWS FROM FINANCING
        ACTIVITIES:Net borrowings under revolving
credit agreement
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000Net repayments of
other long-term debt
    
    
    (8,895
    )
    
    
    (5,035
    )
    
    
    (2,976
    )
    
    
    
    
    
    
    (16,906
    )Debt
issuance and refinancing costs
    
    
    (251
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (251
    )Stock purchase and options
        plans
    
    
    353
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    353Cash used in
financing activities
    
    
    (793
    )
    
    
    (5,035
    )
    
    
    (2,976
    )
    
    
    
    
    
    
    (8,804
    )Increase (decrease) in cash
    
    
    
    
    
    
    (1,905
    )
    
    
    15
    
    
    
    
    
    
    
    (1,890
    )Effect of exchange rate
        changes on cash balances
    
    
    
    
    
    
    
    
    
    
    574
    
    
    
    
    
    
    
    574Cash, beginning of year
    
    
    
    
    
    
    13,394
    
    
    
    246
    
    
    
    
    
    
    
    13,640Cash, end of year
    
    $
    
    
    
    $
    11,489
    
    
    $
    835
    
    
    $
    
    
    
    $
    12,324
 19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Executive Summary of Business
    SM SM
  1)
    
    Our primary revenue source is membership services revenue derived from the operation of our fitness centers.
Membership services revenue includes amounts paid by our members
in the form of enrollment fees and monthly membership and dues payments.  It also includes revenue generated from
sales of personal training services provided.Currently, most of our members choose to purchase their memberships
under our multi-year value plan by paying an initial enrollment fee and by making monthly payments throughout the
term of their membership.  Monthly payments under our value plan are generally fixed during an initial obligatory
payment period, up to three years pursuant to retail installment contracts.  After the initial obligatory
period of membership, our members enter the non-obligatory renewal period of membership and continue to make monthly
payments to maintain membership privileges. Under sales methods in effect during 2004, non-obligatory term membership
monthly payments were substantially discounted from the initial obligatory term monthly payment levels.
Following the nationwide 2005 implementation of our new BYOMSM
 pricing plan, monthly payments in the renewal phase of membership
carry a smaller or no discount to the initial period monthly payment
level.  Our members may also choose to purchase prepaid membership
for periods up to three years.
Members choosing our pay-as-you-go
 membership payment option make month-to-month non-obligatory payments after paying an initial enrollment fee.
 Ongoing membership dues for members in renewal periods may be paid monthly or annually or may be
 prepaid for multiple future periods.Our membership services revenue is generally collected as cash
    on a basis that does not conform to its basis of revenue
    recognition, resulting in the deferral of significant amounts
    received early in the membership period that will be recognized
    in later periods. This recognition methodology is a consequence
    of our long history of offering membership programs with higher
    levels of monthly or total payments during the initial period of
    membership, generally for periods of up to three years, followed
    by discounted payments in the subsequent renewal phase of
    membership. Our revenue recognition objective is to recognize an even amount of
    membership revenue from our members throughout their entire term
    of membership, regardless of the payment pattern. As a result,
    we make estimates of membership term length on a composite group
    basis of all members joining in a period, and set up separate
    amortization pools based on estimated total group membership
    term length averages. Estimated term lengths used to create the
    separate amortization term groups for revenue recognition are
    based on historical average membership terms experienced by our
    members.Membership services revenue related to members who maintain
    their membership for periods beyond the initial term of
    membership is deferred as collected and recognized on a
    straight-line basis over the estimated term of total membership.
    Our historical evaluation of members who have joined since 1996
    resulted in a determination that approximately 35% of originated
    monthly payment revenue from our members is subject to deferral
    to be recognized over their entire term of membership. As a
    result, we defer all collections received from members in this
    group, and recognize as membership service revenue these amounts
    based on five amortization pools with amortization periods of 39
    months to 245 months, representing composite average membership
    terms of membership of between 37 months and 360 months.
    Membership services revenues that have been prepaid in their
    entirety for the initial term of membership are recognized in a
    similar manner, except that the estimate of the group expected
    to remain a member for only the initial period of membership is
    amortized over 36 months. Based on the historical attrition
    patterns of members who pay their membership in full upon
    origination, approximately 69% of such membership revenue
    relates to members who maintain their membership beyond the
    initial three-year period of membership, which is amortized
    using the same five amortization pools as described for monthly
    collections.We evaluate the actual attrition patterns of all of our deferred
    revenue pools on a quarterly basis and make adjustments from our
    historical experience to take into account actual attrition by
    origination month groups. As we determine that our new estimated
    attrition is different than the initial estimate based on
    historical patterns, we recognize as a change in accounting
    estimate a charge or credit to membership services revenue in
    the period of evaluation to cumulatively adjust past recognition
    and future deferred revenue amounts. Under our deferred revenue
    methodology, an increase in membership attrition rates will
    result in an increase in revenue in the period of adjustment as
    it is determined that amounts previously deferred to future
    periods of membership no longer need to be deferred.
    Alternatively, a decrease in membership attrition rates can
    reduce membership services revenue as it is determined that
    amounts previously considered earned are required to be deferred
    for recognition in future periods.Membership services revenue comprised approximately 93% of
total revenue for the six months ending June 30, 2005 and June 30, 2004. Membership services revenue is recognized
at the later of when membership services fees are collected or earned.
Membership services fees collected but not yet earned are included as
a deferred revenue liability on the balance sheet.2)
    
    We generate revenue from the sales of products at our in-fitness center
retail stores including Bally-branded and third-party nutritional products, juice bar
nutritional drinks and fitness-related convenience products such as clothing. Revenue from product sales
represented approximately 5 percent of total revenue
for the six
months ended June 30, 2005 and June 30, 2004, respectively.
 20




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##### Table of Contents



3)
    
    The balance of our revenue (approximately 2 percent for each
of the six
months ended June 30, 2005 and 2004) primarily
consists of franchising revenue, guest fees and specialty programs such as martial
arts programs. We also generate revenue through granting concessions in our facilities
to operators offering wellness-related services such as physical therapy, from sales
of Bally-branded products by third-parties, and from weight management programs.
Revenue from sales of in-club advertising and sponsorships is also included in this
category, which we refer to as miscellaneous revenue.
  1)
    
    Membership services expenses consist primarily of salary, commissions, payroll
taxes, benefits, rent, real estate taxes and other occupancy costs, utilities, repairs
and maintenance, supplies, administrative support and communications to operate our
fitness centers as well as the costs to operate member processing and collection
centers. The centers provide contract processing, member relations, billing and
collection services.2)
    
    Retail products expenses consist primarily of the cost of products sold as well
as the payroll and related costs of dedicated retail associates.3)
    
    Advertising expenses consist of our marketing department, media and
advertising costs to support fitness center membership growth as well as the growth of
our brand.4)
    
    General and administrative expenses include costs relating to our centralized
support functions, such as information technology, accounting, treasury, human
resources, procurement, real estate and development and senior management. General and
administrative also includes professional services costs such as legal, consulting and
auditing as well as expenses related to the various accounting investigations.5)
    
    Depreciation and amortization represent primarily the
depreciation on our fitness centers, including amortization of
leasehold improvements. Owned buildings are depreciated
35 years and leasehold improvements are amortized on the
straight-line method over the lesser of the estimated useful lives of
the improvements, or the remaining non-cancelable lease terms.
 th
    21




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##### Table of Contents



Industry Data Survey of the Health and Fitness Club Industry,
 22




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##### Table of Contents



Critical Accounting Policies
  Results of Operations
  23




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##### Table of Contents



Three months ended
    
    
    Six months endedJune 30
    
    
    June 302005
    
    
    2004
    
    
    2005
    
    
    2004Net revenuesMembership
    
    $
    224,007
    
    
    $
    213,280
    
    
    $
    445,356
    
    
    $
    423,334Personal training
    
    
    35,245
    
    
    
    33,218
    
    
    
    63,843
    
    
    
    62,151Membership services revenue
    
    
    259,252
    
    
    
    246,498
    
    
    
    509,199
    
    
    
    485,485Retail products
    
    
    13,577
    
    
    
    14,428
    
    
    
    27,885
    
    
    
    29,454Miscellaneous
    
    
    3,911
    
    
    
    4,547
    
    
    
    8,652
    
    
    
    9,580Net revenues
    
    
    276,740
    
    
    
    265,473
    
    
    
    545,736
    
    
    
    524,519Operating costs and expensesMembership services
    
    
    185,791
    
    
    
    189,260
    
    
    
    368,642
    
    
    
    380,750Retail products
    
    
    14,047
    
    
    
    13,813
    
    
    
    27,428
    
    
    
    28,231Advertising
    
    
    14,886
    
    
    
    16,124
    
    
    
    32,554
    
    
    
    35,755Information technology
    
    
    5,877
    
    
    
    4,524
    
    
    
    11,692
    
    
    
    8,841Other general and administrative
    
    
    16,053
    
    
    
    11,429
    
    
    
    28,573
    
    
    
    22,992Depreciation and amortization
    
    
    16,861
    
    
    
    17,286
    
    
    
    33,909
    
    
    
    34,519253,515
    
    
    
    252,436
    
    
    
    502,798
    
    
    
    511,088Operating income
    
    $
    23,225
    
    
    $
    13,037
    
    
    $
    42,938
    
    
    $
    13,431Operating dataAverage monthly membership revenue per member
    
    $
    20.01
    
    
    $
    19.08
    
    
    $
    19.87
    
    
    $
    19.10Average number of members during the period
    
    
    3,732
    
    
    
    3,725
    
    
    
    3,710
    
    
    
    3,695Number of members at end of period
    
    
    3,732
    
    
    
    3,738
    
    
    
    3,732
    
    
    
    3,738Number of members joined during period
    
    
    304
    
    
    
    298
    
    
    
    681
    
    
    
    640Fitness centers operating at end of period
    
    
    416
    
    
    
    418
    
    
    
    416
    
    
    
    418
 Summary
of Revenue Recognition Method
     Comparison of the Three Months Ended June 30, 2005 and 2004
   
    
    Membership revenue increased to $224.0 million from
$213.3 million in 2004, an increase of $10.7 million (5%)
from the prior year. The increase in membership revenue in
the current year is the result of a 5% increase in the average monthly membership
revenue per member to $20.01 for 2005 as well as an increase in the
number of new member joins to 304,000 for 2005, an increase of 6,000 (2%).
 24




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##### Table of Contents




    
    Cash collections of membership revenue during the three
months ended June 30, 2005, was $256 million,  an increase of $14
million from $242 million.
    
    Personal training revenue increased to $35.2 million
from $33.2 million in 2004, an
increase of $2 million (6%), primarily reflecting the Companys emphasis on and
continued growth in personal training services.
    
    Retail products revenue decreased to $13.6 million from
$14.4 million in 2004, a
decrease of $.8 million (6%), primarily reflecting lower retail sales in the Companys
fitness centers
    
    Miscellaneous revenue decreased to $3.9 million in 2005
from $4.5 million (13%) in 2004
primarily due to lower revenue from initial franchising fees.
  
    
    Membership services expenses for the three months ended
June 30, 2005 decreased $3.5 million from 2004, reflecting increases in occupancy and insurance costs offset by a
reduction in personnel costs as a result of the Companys cost reduction intitiatives.
    
    Retail products costs and expenses for the three months ended June 30, 2005 increased
$.2 million (2%) from 2004.
    
    Advertising expenses for the three months ended June 30,
2005 decreased $1.2 million (8%)
from 2004.
    
    Information technology expenses for the three months ended
June 30, 2005 increased $1.4 million (30%) from 2004 as a result of costs associated with improved controls, compliance
and security enhancements.
    
    Other general and administrative expenses for the three months ended June 30, 2005
increased $4.7 million (41%) from 2004, primarily as a result of costs incurred in
connection with the investigations and litigation related to the restatement of the
Companys financial statements as well as an increase in insurance costs.
    
    Depreciation expense for the three months ended June 30,
2005 decreased $.4 million
(2%) from 2004 reflecting the relatively high proportion of the Companys facilities that
are in excess of 15 years old, which is the longest period over which the Company
depreciates its leasehold improvements.
    Comparison of the Six Months Ended June 30, 2005 and 2004
  25




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##### Table of Contents








    
    Membership revenue increased to $445.4 million from
$423.3 million in 2004, an increase
of $22.1 million (5%) from the prior year. The increase in membership revenue in the
current year is the result of a 4% increase in the average monthly membership revenue per
member to $19.87 for 2005.
    
    Cash collections of membership revenue during the six months
ended June 30, 2005 was $500 million an increase from $487 million.
    
    Personal training revenue increased to $63.8 million
from $62.2 million in 2004, an
increase of $1.6 million (3%), primarily reflecting the Companys emphasis on and continued
growth in personal training services.
    
    Retail products revenue decreased to $27.9 million from
$29.5 million in 2004, a
decrease of $1.6 million (5%), primarily reflecting lower retail sales in the Companys
fitness centers
    
    Miscellaneous revenue decreased to $8.7 million in 2005
from $9.6 million (10%) in 2004
primarily due to lower revenue from initial franchising fees.





    
    Membership services expenses for the six months ended
June 30, 2005 decreased $12.1 million (3%) from 2004 due to a reduction in personnel costs as a result of the Companys
cost reduction intitiatives, partially offset by increases in occupancy and insurance
costs.
    
    Retail products costs and expenses for the six months ended
June 30, 2005 decreased $.8
million from 2004.
    
    Advertising expenses for the six months ended June 30,
2005 decreased $3.2 million (9%)
from 2004 as a result of planned reductions in media spending.
    
    Information technology expenses for the six months ended
June 30, 2005 increased $2.9 million (33%) from 2004 as a result of costs associated with improved controls, compliance
and security enhancements.
    
    Other general and administrative expenses for the six months ended June 30, 2005
increased $5.6 million (24%) from 2004, primarily as a result of costs incurred in
connection with the investigations and litigation related to the restatement of the
Companys financial statements as well as an increase in insurance costs.
    
    Depreciation expense for the six months ended June 30,
2005 decreased $.5 million (1%)
from 2004 reflecting the relatively high proportion of the Companys facilities that are in
excess of 15 years old, which is the longest period over which the Company depreciates its
leasehold improvements.








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##### Table of Contents



Liquidity and Capital Resources
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    

June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Cash
provided by operating activities
    
    $
    9,672
    
    
    $
    20,372
    
    
    $
    33,401
    
    
    $
    33,941Cash
used in investing activities
    
    
    (4,591
    )
    
    
    (14,094
    )
    
    
    (13,021
    )
    
    
    (27,027
    )Cash
used in financing activities
    
    
    (8,920
    )
    
    
    (6,871
    )
    
    
    (10,323
    )
    
    
    (8,804
    )Increase
(decrease) in cash
    
    $
    (3,839
    )
    
    $
    (593
    )
    
    $
    10,057
    
    
    $
    (1,890
    )
  Debt
   Risk Factors
  
 Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 Interest
Rate Risk and Market Risk
   Foreign Exchange Risk
  
 Item 4.
Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
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##### Table of Contents



Changes in Internal Controls over Financial Reporting (ICFR)
  28




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Stockholder Derivative Lawsuits in Illinois Federal Court
  Other
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
     
 Item 3 Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  29




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##### Table of Contents



Item 6. Exhibits
           
 +
    
    Management contract or compensatory plan or arrangement. 30




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##### Table of Contents



SIGNATURE PAGE
  BALLY TOTAL FITNESS HOLDING CORPORATIONRegistrantBy:
    
    /s/ CARL J. LANDECKCarl J. LandeckSenior Vice President, Chief Financial Officer(principal financial officer)
  31