##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
 for the quarterly period ended September 30, 2006
 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)
   þ o
  o þ o
 o þ




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##### 



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
    
    36-4154170BTF/CFI, 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




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##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Quarterly Report on Form 10-Q for the Period Ended September 30, 2006
TABLE OF CONTENTS
 PageNumberFORWARD-LOOKING STATEMENTS
    
    
    1PART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of September 30, 2006 (Unaudited) and December 31, 2005
    
    
    2Consolidated Statements of Operations (Unaudited) for the Three Months Ended September 30, 2006 and 2005
    
    
    3Consolidated Statements of Operations (Unaudited) for the Nine Months Ended September 30, 2006 and 2005
    
    
    4Consolidated Statement of Stockholders Deficit and Comprehensive Income (Unaudited) for the Nine
Months Ended September 30, 2006
    
    
    5Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2006 and 2005
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    31Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    44Item 4. Controls and Procedures
    
    
    44PART II. OTHER INFORMATION
    
    
    46Item 1. Legal Proceedings
    
    
    46Item 1A. Risk Factors
    
    
    49Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    51Item 3. Defaults Upon Senior Securities
    
    
    51Item 4. Submission of Matters to a Vote of Security Holders
    
    
    51Item 5. Other Information
    
    
    51Item 6. Exhibits
    
    
    51SIGNATURE PAGE
    
    
    54




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##### 



FORWARD-LOOKING STATEMENTS
  
    
    ability to maintain existing or obtain new sources of equity and debt financing, on
acceptable terms or at all, to satisfy the Companys cash needs and obligations;
    
    availability of adequate sources of liquidity and the Companys ability to meet its
obligations beyond the third quarter of 2007;
    
    ability to satisfy long-term obligations as they become due;
    
    ability to remain in compliance with, or obtain waivers under, the Companys loan agreements and indentures;
    
    availability, terms, and development of capital;
    
    success of operating initiatives, advertising and promotional efforts;
    
    ability to attract, retain and motivate highly skilled employees;
    
    the outcome of the Companys exploration of strategic alternatives, which is now focused
on restructuring and refinancing alternatives;
    
    business abilities and judgment of personnel;
    
    general economic and business conditions;
    
    competition;
    
    acceptance of the Companys product and service offerings;
    
    changes in business strategy or plans;
    
    the effect of material weaknesses in internal controls over financial reporting on the
Companys ability to prepare financial statements and file
reports with the Securities and Exchange Commission (the
SEC);
    
    the outcome of the SEC and Department of Justice investigations;
    
    existence of adverse publicity or litigation (including various stockholder litigations
and insurance rescission actions) and the outcome thereof and the costs and expenses
associated therewith;
    
    changes in, or the failure to comply with, government regulations; and
    
    other factors described in this Quarterly Report on Form 10-Q, including the risk factors
identified in Item 1A, and prior filings of the Company with the SEC, including the Annual
Report on Form 10-K for the year-ended December 31, 2005.
 1




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##### 



PART I. FINANCIAL INFORMATION
  BALLY TOTAL FITNESS HOLDING CORPORATION
Condensed Consolidated Balance Sheets
 September 30
    
    
    December 312006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash
    
    $
    30,223
    
    
    $
    17,454Deferred income taxes
    
    
    856
    
    
    
    151Prepaid expenses
    
    
    17,808
    
    
    
    20,846Other current assets
    
    
    12,172
    
    
    
    17,394Current assets held for sale
    
    
    
    
    
    
    342Total current assets
    
    
    61,059
    
    
    
    56,187Property and equipment, less accumulated depreciation and amortization of $783,886 and $749,860
    
    
    294,124
    
    
    
    314,670Goodwill, net
    
    
    19,734
    
    
    
    19,734Trademarks, net of accumulated amortization of $1,642 and $1,510
    
    
    6,844
    
    
    
    6,912Intangible assets, net of accumulated amortization of $14,238 and $13,463
    
    
    2,373
    
    
    
    2,879Deferred financing costs, net of accumulated amortization of $34,046 and $18,190
    
    
    34,902
    
    
    
    29,501Other assets
    
    
    10,215
    
    
    
    10,317Non-current assets held for sale
    
    
    
    
    
    
    39,894$
    429,251
    
    
    $
    480,094LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    48,242
    
    
    $
    57,832Income taxes payable
    
    
    1,832
    
    
    
    1,697Accrued liabilities
    
    
    99,759
    
    
    
    96,442Current maturities of long-term debt
    
    
    8,113
    
    
    
    13,018Deferred revenues
    
    
    279,835
    
    
    
    299,441Current liabilities associated with assets held for sale
    
    
    
    
    
    
    7,764Total current liabilities
    
    
    437,781
    
    
    
    476,194Long-term debt, less current maturities
    
    
    739,185
    
    
    
    756,304Deferred rent liability
    
    
    89,076
    
    
    
    87,290Deferred income taxes
    
    
    2,399
    
    
    
    1,435Other liabilities
    
    
    28,379
    
    
    
    28,112Deferred revenues
    
    
    550,749
    
    
    
    566,469Non-current liabilities associated with assets held for sale
    
    
    
    
    
    
    27,976Stockholders deficit
    
    
    (1,418,318
    )
    
    
    (1,463,686
    )$
    429,251
    
    
    $
    480,094
  2




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##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Consolidated Statements of Operations
 Three months endedSeptember 302006
    
    
    2005(As restated)Net revenues:Membership services
    
    $
    234,347
    
    
    $
    232,743Retail products
    
    
    10,165
    
    
    
    11,530Miscellaneous
    
    
    3,859
    
    
    
    3,666248,371
    
    
    
    247,939Operating costs and expenses:Membership services
    
    
    167,282
    
    
    
    165,943Retail products
    
    
    10,468
    
    
    
    12,649Marketing and advertising
    
    
    12,956
    
    
    
    12,946General and administrative
    
    
    23,608
    
    
    
    19,233Net gain on sale of land and building
    
    
    (2,211
    )
    
    
    Asset impairment charge
    
    
    2,993
    
    
    
    Depreciation and amortization
    
    
    13,389
    
    
    
    14,875228,485
    
    
    
    225,646Operating income
    
    
    19,886
    
    
    
    22,293Interest expense, net
    
    
    (26,000
    )
    
    
    (21,811
    )Foreign exchange gain
    
    
    566
    
    
    
    1,141Other, net
    
    
    167
    
    
    
    133(25,267
    )
    
    
    (20,537
    )Income (loss) from continuing operations before income taxes
    
    
    (5,381
    )
    
    
    1,756Income tax provision
    
    
    (351
    )
    
    
    (240
    )Income (loss) from continuing operations
    
    
    (5,732
    )
    
    
    1,516Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    (1,730
    )Net loss
    
    $
    (5,732
    )
    
    $
    (214
    )Basic income (loss) per common share:Income (loss) from continuing operations
    
    $
    (0.14
    )
    
    $
    0.04Loss from discontinued operations
    
    
    
    
    
    
    (0.05
    )Net loss
    
    $
    (0.14
    )
    
    $
    (0.01
    )Diluted income (loss) per common share:Income (loss) from continuing operations
    
    $
    (0.14
    )
    
    $
    0.04Loss from discontinued operations
    
    
    
    
    
    
    (0.05
    )Net loss
    
    $
    (0.14
    )
    
    $
    (0.01
    )
  3




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##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Consolidated Statements of Operations
 Nine months endedSeptember 302006
    
    
    2005(As restated)Net revenues:Membership services
    
    $
    713,551
    
    
    $
    712,247Retail products
    
    
    33,562
    
    
    
    37,517Miscellaneous
    
    
    11,055
    
    
    
    11,545758,168
    
    
    
    761,309Operating costs and expenses:Membership services
    
    
    509,770
    
    
    
    504,617Retail products
    
    
    32,146
    
    
    
    38,881Marketing and advertising
    
    
    48,031
    
    
    
    44,698General and administrative
    
    
    66,227
    
    
    
    58,686Net gain on sales of land and buildings
    
    
    (3,984
    )
    
    
    Asset impairment charge
    
    
    2,993
    
    
    
    Depreciation and amortization
    
    
    40,836
    
    
    
    44,837696,019
    
    
    
    691,719Operating income
    
    
    62,149
    
    
    
    69,590Interest expense, net
    
    
    (75,181
    )
    
    
    (61,052
    )Foreign exchange gain
    
    
    2,336
    
    
    
    1,185Other, net
    
    
    451
    
    
    
    272(72,394
    )
    
    
    (59,595
    )Income (loss) from continuing operations before income taxes
    
    
    (10,245
    )
    
    
    9,995Income tax provision
    
    
    (1,053
    )
    
    
    (719
    )Income (loss) from continuing operations
    
    
    (11,298
    )
    
    
    9,276Discontinued operations:Loss from discontinued operations, net of income taxes
    
    
    (872
    )
    
    
    (3,268
    )Gain on disposal
    
    
    38,375
    
    
    
    Gain (loss) from discontinued operations
    
    
    37,503
    
    
    
    (3,268
    )Net income
    
    $
    26,205
    
    
    $
    6,008Basic income (loss) per common share:Income (loss) from continuing operations
    
    $
    (0.29
    )
    
    $
    0.27Income (loss) from discontinued operations
    
    
    0.95
    
    
    
    (0.09
    )Net income
    
    $
    0.66
    
    
    $
    0.18Diluted income (loss) per common share:Income (loss) from continuing operations
    
    $
    (0.29
    )
    
    $
    0.26Income (loss) from discontinued operations
    
    
    0.95
    
    
    
    (0.09
    )Net income
    
    $
    0.66
    
    
    $
    0.17
  4




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##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Consolidated Statement of Stockholders Deficit and Comprehensive Income
 AccumulatedCommon stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common
    
    
    other
    
    
    TotalShares
    
    
    Par
    
    
    Contributed
    
    
    Accumulated
    
    
    Unearned
    
    
    stock in
    
    
    comprehensive
    
    
    stockholdersoutstanding
    
    
    value
    
    
    capital
    
    
    deficit
    
    
    compensation
    
    
    treasury
    
    
    loss
    
    
    deficitBalance at December 31, 2005
    
    
    38,503,551
    
    
    $
    392
    
    
    $
    669,089
    
    
    $
    (2,113,854
    )
    
    $
    (5,534
    )
    
    $
    (11,635
    )
    
    $
    (2,144
    )
    
    $
    (1,463,686
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,205Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,514
    )
    
    
    (8,514
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,691Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    4,214
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,214Sale of common stock
    
    
    800,000
    
    
    
    8
    
    
    
    5,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,600Shares issued to noteholders
    
    
    1,956,194
    
    
    
    19
    
    
    
    17,469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,488Shares issued to agent
    
    
    11,936
    
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98Reclassification of unearned
compensation balance to
contributed capital
    
    
    
    
    
    
    
    
    
    
    (5,534
    )
    
    
    
    
    
    
    5,534
    
    
    
    
    
    
    
    
    
    
    
    Forfeiture of restricted stock
    
    
    (9,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock under
stock option plans
    
    
    51,081
    
    
    
    1
    
    
    
    276
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    277Balance at September 30, 2006
    
    
    41,313,262
    
    
    $
    420
    
    
    $
    691,204
    
    
    $
    (2,087,649
    )
    
    $
    
    
    
    $
    (11,635
    )
    
    $
    (10,658
    )
    
    $
    (1,418,318
    )
  5




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##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Consolidated Statements of Cash Flows
 Nine months endedSeptember 302006
    
    
    2005(As restated)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    26,205
    
    
    $
    6,008Adjustments to reconcile to cash provided by operating activitiesDepreciation and amortization, including amortization included in interest expense
    
    
    56,807
    
    
    
    53,346Changes in operating assets and liabilities
    
    
    (36,749
    )
    
    
    (41,071
    )Deferred income taxes, net
    
    
    265
    
    
    
    315Gain on disposal of discontinued operations
    
    
    (38,375
    )
    
    
    Loss (gain) on sale of assets
    
    
    (4,419
    )
    
    
    78Impairment
of long-lived assets
    
    
    2,993
    
    
    
    Foreign currency translation gain
    
    
    (2,925
    )
    
    
    (1,185
    )Stock-based compensation
    
    
    4,214
    
    
    
    4,957Cash provided by operating activities
    
    
    8,016
    
    
    
    22,448CASH FLOWS FROM INVESTING ACTIVITIES:Purchases and construction of property and equipment
    
    
    (27,997
    )
    
    
    (24,648
    )Proceeds from sale of discontinued operations
    
    
    45,152
    
    
    
    Proceeds from sale of discontinued operations in escrow
    
    
    338
    
    
    
    Proceeds from sales of properties
    
    
    7,527
    
    
    
    1,455Cash provided by (used in) investing activities
    
    
    25,020
    
    
    
    (23,193
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net repayments under credit agreement
    
    
    (12,386
    )
    
    
    18,688Net repayments of other long-term debt
    
    
    (10,454
    )
    
    
    (13,867
    )Debt issuance and refinancing costs
    
    
    (3,791
    )
    
    
    (10,944
    )Proceeds from sale of common stock
    
    
    5,600
    
    
    
    Proceeds from issuance of common stock under stock option plans
    
    
    277
    
    
    
    93Cash used in financing activities
    
    
    (20,754
    )
    
    
    (6,030
    )Increase (decrease) in cash
    
    
    12,282
    
    
    
    (6,775
    )Effect of exchange rate changes on cash balance
    
    
    487
    
    
    
    361Cash, beginning of period
    
    
    17,454
    
    
    
    19,177Cash, end of period
    
    $
    30,223
    
    
    $
    12,763SUPPLEMENTAL CASH FLOWS INFORMATION:Changes in operating assets and liabilities:Decrease (increase) in other current and other assets
    
    $
    8,193
    
    
    $
    (7,407
    )Decrease in accounts payable
    
    
    (9,672
    )
    
    
    (3,989
    )Increase in income taxes payable
    
    
    135
    
    
    
    303Increase (decrease) in accrued liabilities
    
    
    (159
    )
    
    
    (17,696
    )Increase in other liabilities
    
    
    3,377
    
    
    
    8,947Decrease in deferred revenues
    
    
    (38,623
    )
    
    
    (21,229
    )Change in operating assets and liabilities
    
    $
    (36,749
    )
    
    $
    (41,071
    )Cash payments for interest and income taxes were as follows Interest paid
    
    $
    57,950
    
    
    $
    53,773Interest capitalized
    
    
    (483
    )
    
    
    (198
    )Income taxes paid, net
    
    
    660
    
    
    
    158Investing and financing activities exclude the following non-cash transactions Acquisitions of property and equipment through capital leases/borrowings
    
    $
    
    
    
    $
    390Reclassification of unearned compensation balance to contributed capital
    
    
    5,534
    
    
    
    Payments of consents with common stock
    
    
    17,488
    
    
    
    4,675Stock issued to agent
    
    
    98
    
    
    
    
  6




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##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements
 Note 1 Basis of Presentation
   Accounting
for the Impairment or Disposal of Long-Lived Assets
 Seasonal factors
  New accounting pronouncements
 Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 Accounting for
a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a
Leveraged Lease Transaction. Accounting for Leases.
 7




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##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 Fair
Value Measurements
  Market risk
   Fair value of financial instruments
  Note 2 Restatement of 2005 Quarterly Information
  Note 3 Commitments and Contingencies
 Operating leases:
 8




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##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 Litigation:
 Putative Securities Class Actions
 In re Bally Total Fitness Securities Litigation
  Stockholder Derivative Lawsuits in Illinois State Court
  Stockholder Derivative Lawsuit in Illinois Federal Court
  Individual Securities Action in Illinois
 Levine v. Bally Total Fitness Holding Corporation, et
al.
 9




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##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
  Lawsuit in Oregon
 Jack Garrison and Deane Garrison v. Bally Total
Fitness Holding Corporation, Lee S. Hillman and John W. Dwyer,
  Lawsuit in Massachusetts
 Fit Tech Inc., et al. v.
Bally Total Fitness Holding Corporation, et al.
  Securities and Exchange Commission Investigation
  Department of Justice Investigation
  10




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 Insurance Lawsuits
 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,
 RLI Insurance Company v. Bally Total Fitness Holding Corporation;
Holiday Universal, Inc.; George N. Aronoff; Paul Toback; John H. 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,
 Great American Insurance Company
v. Bally Total Fitness Holding Corporation, ab initio
   Other Litigation Related Matters:
   11




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
  Obligations Under Employment Agreements:
  Note 4 Debt
    12




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
      13




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
   Note 5 Deferred Revenue
  Nine months ended September 30, 2006Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    Cash
    
    
    Revenue
    
    
    September 30,2005
    
    
    Additions
    
    
    Recognized
    
    
    2006Deferral of receipts from financed members:Initial contract term payments
    
    $
    517,624
    
    
    $
    166,755
    
    
    $
    (201,743
    )
    
    $
    482,636Down payments
    
    
    100,009
    
    
    
    35,009
    
    
    
    (40,958
    )
    
    
    94,060Deferral of receipts representing advance payments:Paid-in-full membership fees collected upon origination
    
    
    109,819
    
    
    
    28,734
    
    
    
    (28,495
    )
    
    
    110,058Advance payments of periodic dues and membership fees
    
    
    120,696
    
    
    
    88,976
    
    
    
    (88,709
    )
    
    
    120,963Receipts collected and earned without deferral during period
    
    
    
    
    
    
    260,697
    
    
    
    (260,697
    )
    
    
    Deferral of receipts for personal training services
    
    
    17,762
    
    
    
    94,031
    
    
    
    (92,949
    )
    
    
    18,844$
    865,910
    
    
    $
    674,202
    
    
    $
    (713,551
    )
    
    
    826,561Impact of
foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,023$
    830,584
 Nine months ended September 30, 2005Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    Cash
    
    
    Revenue
    
    
    September 30,2004
    
    
    Additions
    
    
    Recognized
    
    
    2005(As restated)
    
    

    (As restated)


    
    
    (As restated)Deferral of receipts from financed members:Initial contract term payments
    
    $
    534,446
    
    
    $
    209,344
    
    
    $
    (219,424
    )
    
    $
    524,366Down payments
    
    
    105,614
    
    
    
    40,470
    
    
    
    (41,925
    )
    
    
    104,159Deferral of receipts representing advance payments:Paid-in-full membership fees collected upon origination
    
    
    115,735
    
    
    
    21,257
    
    
    
    (26,906
    )
    
    
    110,086Advance payments of periodic dues and membership fees
    
    
    132,164
    
    
    
    96,538
    
    
    
    (105,869
    )
    
    
    122,833Receipts collected and earned without deferral during period
    
    
    
    
    
    
    227,105
    
    
    
    (227,105
    )
    
    
    Deferral of receipts for personal training services
    
    
    17,697
    
    
    
    92,019
    
    
    
    (91,018
    )
    
    
    18,698$
    905,656
    
    
    $
    686,733
    
    
    $
    (712,247
    )
    
    $
    880,142
 14




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 Note 6 Income (loss) per Common Share
 Earnings per Share
 Three months ended September 30,
    
    Nine months ended September 30,2006
    
    2005
    
    2006
    
    2005(As
restated)
    
    
    
    
    

(As
restated)Weighted average number of common shares outstanding
    
    
    40,601,740
    
    
    
    34,824,522
    
    
    
    39,503,111
    
    
    
    33,891,804Effect of outstanding stock options and warrants
    
    
    147,606
    
    
    
    181,030
    
    
    
    1,043,660
    
    
    
    853,064Diluted weighted average number of shares outstanding
    
    
    40,749,346
    
    
    
    35,005,552
    
    
    
    40,546,771
    
    
    
    34,744,868Options 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
    
    
    4,269,043
    
    
    
    5,324,223
    
    
    
    2,254,340
    
    
    
    5,324,223Range of exercise prices per share:High
    
    $
    36.00
    
    
    $
    36.00
    
    
    $
    36.00
    
    
    $
    36.00Low
    
    $
    2.91
    
    
    $
    2.91
    
    
    $
    2.91
    
    
    $
    2.91
 Note 7 Income Taxes
  Accounting for Income Taxes,
 Note 8 Share-based Payments
 Share-Based Payment Accounting for Stock-based Compensation Accounting for Stock Issued to Employees
  15




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
    Three months ended
    
    
    Nine months endedSeptember 30, 2006
    
    
    September 30, 2006Under APB
    
    
    
    
    
    
    Under APBAs Reported
    
    
    No. 25
    
    
    As Reported
    
    
    No. 25Loss from continuing operations before income taxes
    
    $
    (5,381
    )
    
    $
    (4,524
    )
    
    $
    (10,245
    )
    
    $
    (8,337
    )Loss from continuing operations
    
    
    (5,732
    )
    
    
    (4,875
    )
    
    
    (11,298
    )
    
    
    (9,390
    )Net income (loss)
    
    
    (5,732
    )
    
    
    (4,875
    )
    
    
    26,205
    
    
    
    28,113Cash flow from operating activities
    
    
    (2,315
    )
    
    
    (2,315
    )
    
    
    8,016
    
    
    
    8,016Cash flow from financing activities
    
    
    22,136
    
    
    
    22,136
    
    
    
    (20,754
    )
    
    
    (20,754
    )Basic and diluted income (loss) per common share:Loss from continuing operations
    
    $
    (0.14
    )
    
    $
    (0.12
    )
    
    $
    (0.29
    )
    
    $
    (0.24
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.95
    
    
    
    0.95Net income (loss)
    
    $
    (0.14
    )
    
    $
    (0.12
    )
    
    $
    0.66
    
    
    $
    0.71
  Three months ended
    
    
    Nine months endedSeptember 30, 2005
    
    
    September 30, 2005Net income (loss), as reported
    
    $
    (214
    )
    
    $
    6,008Plus: stock-based compensation expense included in net income
    
    
    620
    
    
    
    4,957Less: stock-based compensation expense determined under fair value based method
    
    
    (1,108
    )
    
    
    (6,489
    )Pro forma net income (loss)
    
    $
    (702
    )
    
    $
    4,476Basic income (loss) per common share:As reported
    
    $
    (0.01
    )
    
    $
    0.18Pro forma
    
    
    (0.02
    )
    
    
    0.13Diluted income (loss) per common share:As reported
    
    $
    (0.01
    )
    
    $
    0.17Pro forma
    
    
    (0.02
    )
    
    
    0.13
 Stock-Based Compensation Plans
  16




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
     Stock Options
  WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateExercise
    
    
    Term
    
    
    IntrinsicNumber of Shares
    
    
    Price
    
    
    (Years)
    
    
    ValueOutstanding at December 31, 2005
    
    
    4,138,514
    
    
    $
    13.26Granted
    
    
    19,500
    
    
    
    8.02Exercised
    
    
    (51,081
    )
    
    
    5.41Forfeited
    
    
    (132,010
    )
    
    
    7.61Canceled
    
    
    (311,581
    )
    
    
    19.45Outstanding at September 30, 2006
    
    
    3,663,342
    
    
    $
    13.02
    
    
    
    5.8
    
    
    $
    Exercisable at September 30, 2006
    
    
    2,960,024
    
    
    $
    14.77
    
    
    
    5.1
    
    
    $
    
 17




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
  Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Weighted average grant-date fair value of stock options granted
    
    $
    
    
    
    $
    
    
    
    $
    4.42
    
    
    $
    1.72Total intrinsic value of stock options exercised
    
    $
    
    
    
    $
    
    
    
    $
    276
    
    
    $
    
   Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Expected option life in years
    
    
    N/A
    
    
    
    N/A
    
    
    
    6
    
    
    
    6Risk-free interest rate
    
    
    N/A
    
    
    
    N/A
    
    
    
    4.87
    %
    
    
    4.15
    %Dividend yield
    
    
    N/A
    
    
    
    N/A
    
    
    
    
    
    
    
    Expected volatility
    
    
    N/A
    
    
    
    N/A
    
    
    
    52
    %
    
    
    52
    %
  Restricted Stock
   WeightedAverageGrant Date FairNumber of Shares
    
    
    ValueOutstanding at December 31, 2005
    
    
    837,000
    
    
    $
    6.92Vested
    
    
    (232,500
    )
    
    
    7.01Forfeited
    
    
    (9,500
    )
    
    
    6.80Outstanding at September 30, 2006
    
    
    595,000
    
    
    $
    6.88
  18




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 Stock Issued for Services
  Note 9 Guarantees
     Note 10 Net Gain on Sales of Land and Buildings
  Note 11 Insurance Proceeds
  Note 12 Discontinued Operations
  19




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
  Three months ended September 30,
    
    
    Nine months ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue
    
    $
    
    
    
    $
    16,790
    
    
    $
    4,687
    
    
    $
    51,442Loss from discontinued operations before income taxes
    
    
    
    
    
    
    (1,711
    )
    
    
    (866
    )
    
    
    (3,211
    )Income tax provision
    
    
    
    
    
    
    (19
    )
    
    
    (6
    )
    
    
    (57
    )Loss from discontinued operations
    
    
    
    
    
    
    (1,730
    )
    
    
    (872
    )
    
    
    (3,268
    )Gain on disposal of discontinued operations
    
    
    
    
    
    
    
    
    
    
    38,375
    
    
    
    Net income (loss) from discontinued operations
    
    $
    
    
    
    $
    (1,730
    )
    
    $
    37,503
    
    
    $
    (3,268
    )
 Note 13 Employment Agreement and Separation Agreement
   Note
14 Asset Impairment Charge
  Note 15 Subsequent Events
 New Facility
  20




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
     Sale/Leaseback Transaction
  Note 16 Condensed Consolidating Financial Statements
    21




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
   22




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 CONDENSED CONSOLIDATING BALANCE SHEET
 September 30, 2006Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalASSETSCurrent assets:Cash
    
    $
    
    
    
    $
    26,890
    
    
    $
    3,333
    
    
    $
    
    
    
    $
    30,223Other current assets
    
    
    
    
    
    
    29,619
    
    
    
    1,217
    
    
    
    
    
    
    
    30,836Total current assets
    
    
    
    
    
    
    56,509
    
    
    
    4,550
    
    
    
    
    
    
    
    61,059Property and equipment, net
    
    
    
    
    
    
    279,113
    
    
    
    15,011
    
    
    
    
    
    
    
    294,124Goodwill, net
    
    
    
    
    
    
    19,734
    
    
    
    
    
    
    
    
    
    
    
    19,734Trademarks, net
    
    
    6,507
    
    
    
    
    
    
    
    337
    
    
    
    
    
    
    
    6,844Intangible assets, net
    
    
    
    
    
    
    1,950
    
    
    
    423
    
    
    
    
    
    
    
    2,373Investment in and advances to subsidiaries
    
    
    (700,977
    )
    
    
    221,315
    
    
    
    
    
    
    
    479,662
    
    
    
    Other assets
    
    
    34,777
    
    
    
    6,810
    
    
    
    3,530
    
    
    
    
    
    
    
    45,117$
    (659,693
    )
    
    $
    585,431
    
    
    $
    23,851
    
    
    $
    479,662
    
    
    $
    429,251LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    47,757
    
    
    $
    485
    
    
    $
    
    
    
    $
    48,242Income taxes payable
    
    
    
    
    
    
    1,776
    
    
    
    56
    
    
    
    
    
    
    
    1,832Accrued liabilities
    
    
    22,680
    
    
    
    66,196
    
    
    
    10,883
    
    
    
    
    
    
    
    99,759Current maturities of long-term debt
    
    
    3,326
    
    
    
    1,989
    
    
    
    2,798
    
    
    
    
    
    
    
    8,113Deferred revenues
    
    
    
    
    
    
    270,277
    
    
    
    9,558
    
    
    
    
    
    
    
    279,835Total current liabilities
    
    
    26,006
    
    
    
    387,995
    
    
    
    23,780
    
    
    
    
    
    
    
    437,781Long-term debt, less current maturities
    
    
    732,619
    
    
    
    2,253
    
    
    
    4,313
    
    
    
    
    
    
    
    739,185Net affiliate payable
    
    
    
    
    
    
    440,037
    
    
    
    61,975
    
    
    
    (502,012
    )
    
    
    Other liabilities
    
    
    
    
    
    
    114,069
    
    
    
    5,785
    
    
    
    
    
    
    
    119,854Deferred revenues
    
    
    
    
    
    
    540,057
    
    
    
    10,692
    
    
    
    
    
    
    
    550,749Stockholders deficit
    
    
    (1,418,318
    )
    
    
    (898,980
    )
    
    
    (82,694
    )
    
    
    981,674
    
    
    
    (1,418,318
    )$
    (659,693
    )
    
    $
    585,431
    
    
    $
    23,851
    
    
    $
    479,662
    
    
    $
    429,251
 23




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 CONDENSED CONSOLIDATING BALANCE SHEET
 December 31, 2005Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalASSETSCurrent assets:Cash
    
    $
    
    
    
    $
    16,238
    
    
    $
    1,216
    
    
    $
    
    
    
    $
    17,454Other current assets
    
    
    
    
    
    
    36,976
    
    
    
    1,415
    
    
    
    
    
    
    
    38,391Current assets held for sale
    
    
    
    
    
    
    342
    
    
    
    
    
    
    
    
    
    
    
    342Total current assets
    
    
    
    
    
    
    53,556
    
    
    
    2,631
    
    
    
    
    
    
    
    56,187Property and equipment, net
    
    
    
    
    
    
    294,888
    
    
    
    19,782
    
    
    
    
    
    
    
    314,670Goodwill, net
    
    
    
    
    
    
    19,734
    
    
    
    
    
    
    
    
    
    
    
    19,734Trademarks, net
    
    
    6,507
    
    
    
    
    
    
    
    405
    
    
    
    
    
    
    
    6,912Intangible assets, net
    
    
    
    
    
    
    2,333
    
    
    
    546
    
    
    
    
    
    
    
    2,879Investment in and advances to subsidiaries
    
    
    (724,893
    )
    
    
    221,315
    
    
    
    
    
    
    
    503,578
    
    
    
    Other assets
    
    
    29,265
    
    
    
    6,580
    
    
    
    3,973
    
    
    
    
    
    
    
    39,818Non-current assets held for sale
    
    
    
    
    
    
    39,894
    
    
    
    
    
    
    
    
    
    
    
    39,894$
    (689,121
    )
    
    $
    638,300
    
    
    $
    27,337
    
    
    $
    503,578
    
    
    $
    480,094LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    57,724
    
    
    $
    108
    
    
    $
    
    
    
    $
    57,832Income taxes payable
    
    
    
    
    
    
    1,641
    
    
    
    56
    
    
    
    
    
    
    
    1,697Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    22,407
    
    
    
    67,768
    
    
    
    6,267
    
    
    
    
    
    
    
    96,442Current maturities of long-term debt
    
    
    6,594
    
    
    
    485
    
    
    
    5,939
    
    
    
    
    
    
    
    13,018Deferred revenues
    
    
    
    
    
    
    293,116
    
    
    
    6,325
    
    
    
    
    
    
    
    299,441Current liabilities associated with
assets held for sale
    
    
    
    
    
    
    7,764
    
    
    
    
    
    
    
    
    
    
    
    7,764Total current liabilities
    
    
    29,001
    
    
    
    428,498
    
    
    
    18,695
    
    
    
    
    
    
    
    476,194Long-term debt, less current maturities
    
    
    745,564
    
    
    
    5,182
    
    
    
    5,558
    
    
    
    
    
    
    
    756,304Net affiliate payable
    
    
    
    
    
    
    517,799
    
    
    
    58,658
    
    
    
    (576,457
    )
    
    
    Other liabilities
    
    
    
    
    
    
    108,259
    
    
    
    8,578
    
    
    
    
    
    
    
    116,837Deferred revenues
    
    
    
    
    
    
    554,722
    
    
    
    11,747
    
    
    
    
    
    
    
    566,469Non-current liabilities associated with
assets held for sale
    
    
    
    
    
    
    27,976
    
    
    
    
    
    
    
    
    
    
    
    27,976Stockholders deficit
    
    
    (1,463,686
    )
    
    
    (1,004,136
    )
    
    
    (75,899
    )
    
    
    1,080,035
    
    
    
    (1,463,686
    )$
    (689,121
    )
    
    $
    638,300
    
    
    $
    27,337
    
    
    $
    503,578
    
    
    $
    480,094
 24




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 Three months ended September 30, 2006Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet revenues:Membership services
    
    $
    
    
    
    $
    225,093
    
    
    $
    9,254
    
    
    $
    
    
    
    $
    234,347Retail products
    
    
    
    
    
    
    9,908
    
    
    
    257
    
    
    
    
    
    
    
    10,165Miscellaneous
    
    
    
    
    
    
    3,509
    
    
    
    350
    
    
    
    
    
    
    
    3,859
    
    
    
    238,510
    
    
    
    9,861
    
    
    
    
    
    
    
    248,371Operating costs and expenses:Membership services
    
    
    
    
    
    
    160,218
    
    
    
    7,064
    
    
    
    
    
    
    
    167,282Retail products
    
    
    
    
    
    
    10,183
    
    
    
    285
    
    
    
    
    
    
    
    10,468Marketing and advertising
    
    
    
    
    
    
    12,690
    
    
    
    266
    
    
    
    
    
    
    
    12,956General and administrative
    
    
    6,079
    
    
    
    16,987
    
    
    
    542
    
    
    
    
    
    
    
    23,608Net gain on sale of land and building
    
    
    
    
    
    
    (2,211
    )
    
    
    
    
    
    
    
    
    
    
    (2,211
    )Asset
impairment charge
    
    
    
    
    
    
    2,993
    
    
    
    
    
    
    
    
    
    
    
    2,993Depreciation and amortization
    
    
    
    
    
    
    12,839
    
    
    
    550
    
    
    
    
    
    
    
    13,3896,079
    
    
    
    213,699
    
    
    
    8,707
    
    
    
    
    
    
    
    228,485Operating income (loss)
    
    
    (6,079
    )
    
    
    24,811
    
    
    
    1,154
    
    
    
    
    
    
    
    19,886Equity in net income from subsidiaries
    
    
    25,263
    
    
    
    
    
    
    
    
    
    
    
    (25,263
    )
    
    
    Interest expense
    
    
    (25,455
    )
    
    
    (367
    )
    
    
    (817
    )
    
    
    639
    
    
    
    (26,000
    )Foreign exchange gain (loss)
    
    
    
    
    
    
    185
    
    
    
    381
    
    
    
    
    
    
    
    566Other, net
    
    
    539
    
    
    
    76
    
    
    
    191
    
    
    
    (639
    )
    
    
    167347
    
    
    
    (106
    )
    
    
    (245
    )
    
    
    (25,263
    )
    
    
    (25,267
    )Income (loss) before income taxes
    
    
    (5,732
    )
    
    
    24,705
    
    
    
    909
    
    
    
    (25,263
    )
    
    
    (5,381
    )Income tax provision
    
    
    
    
    
    
    (351
    )
    
    
    
    
    
    
    
    
    
    
    (351
    )Net income (loss)
    
    $
    (5,732
    )
    
    $
    24,354
    
    
    $
    909
    
    
    $
    (25,263
    )
    
    $
    (5,732
    )
 25




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 Three months ended September 30, 2005(As restated)Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet revenues:Membership services
    
    $
    
    
    
    $
    223,330
    
    
    $
    9,413
    
    
    $
    
    
    
    $
    232,743Retail products
    
    
    
    
    
    
    11,183
    
    
    
    347
    
    
    
    
    
    
    
    11,530Miscellaneous
    
    
    
    
    
    
    3,260
    
    
    
    406
    
    
    
    
    
    
    
    3,666237,773
    
    
    
    10,166
    
    
    
    
    
    
    
    247,939Operating costs and expenses:Membership services
    
    
    
    
    
    
    158,506
    
    
    
    7,437
    
    
    
    
    
    
    
    165,943Retail products
    
    
    
    
    
    
    12,297
    
    
    
    352
    
    
    
    
    
    
    
    12,649Marketing and advertising
    
    
    
    
    
    
    12,654
    
    
    
    292
    
    
    
    
    
    
    
    12,946General and administrative
    
    
    1,215
    
    
    
    17,686
    
    
    
    332
    
    
    
    
    
    
    
    19,233Depreciation and amortization
    
    
    
    
    
    
    14,158
    
    
    
    717
    
    
    
    
    
    
    
    14,8751,215
    
    
    
    215,301
    
    
    
    9,130
    
    
    
    
    
    
    
    225,646Operating income (loss)
    
    
    (1,215
    )
    
    
    22,472
    
    
    
    1,036
    
    
    
    
    
    
    
    22,293Equity in income (loss) from continuing
operations of subsidiaries
    
    
    23,241
    
    
    
    
    
    
    
    
    
    
    
    (23,241
    )
    
    
    Interest expense
    
    
    (21,020
    )
    
    
    (403
    )
    
    
    (947
    )
    
    
    559
    
    
    
    (21,811
    )Foreign exchange gain (loss)
    
    
    
    
    
    
    1,604
    
    
    
    (463
    )
    
    
    
    
    
    
    1,141Other, net
    
    
    510
    
    
    
    115
    
    
    
    67
    
    
    
    (559
    )
    
    
    1332,731
    
    
    
    1,316
    
    
    
    (1,343
    )
    
    
    (23,241
    )
    
    
    (20,537
    )Income (loss) from continuing
operations before income taxes
    
    
    1,516
    
    
    
    23,788
    
    
    
    (307
    )
    
    
    (23,241
    )
    
    
    1,756Income tax provision
    
    
    
    
    
    
    (240
    )
    
    
    
    
    
    
    
    
    
    
    (240
    )Income (loss) from continuing operations
    
    
    1,516
    
    
    
    23,548
    
    
    
    (307
    )
    
    
    (23,241
    )
    
    
    1,516Loss from discontinued operations
    
    
    (1,730
    )
    
    
    (1,730
    )
    
    
    
    
    
    
    1,730
    
    
    
    (1,730
    )Net income (loss)
    
    $
    (214
    )
    
    $
    21,818
    
    
    $
    (307
    )
    
    $
    (21,511
    )
    
    $
    (214
    )
 26




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 Nine months ended September 30, 2006Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet revenues:Membership services
    
    $
    
    
    
    $
    685,414
    
    
    $
    28,137
    
    
    $
    
    
    
    $
    713,551Retail products
    
    
    
    
    
    
    32,688
    
    
    
    874
    
    
    
    
    
    
    
    33,562Miscellaneous
    
    
    
    
    
    
    9,966
    
    
    
    1,089
    
    
    
    
    
    
    
    11,055
    
    
    
    728,068
    
    
    
    30,100
    
    
    
    
    
    
    
    758,168Operating costs and expenses:Membership services
    
    
    
    
    
    
    488,583
    
    
    
    21,187
    
    
    
    
    
    
    
    509,770Retail products
    
    
    
    
    
    
    31,245
    
    
    
    901
    
    
    
    
    
    
    
    32,146Marketing and advertising
    
    
    
    
    
    
    47,235
    
    
    
    796
    
    
    
    
    
    
    
    48,031General and administrative
    
    
    9,068
    
    
    
    55,495
    
    
    
    1,664
    
    
    
    
    
    
    
    66,227Net gain on sales of land and buildings
    
    
    
    
    
    
    (3,083
    )
    
    
    (901
    )
    
    
    
    
    
    
    (3,984
    )Asset
impairment charge
    
    
    
    
    
    
    2,993
    
    
    
    
    
    
    
    
    
    
    
    2,993Depreciation and amortization
    
    
    
    
    
    
    38,736
    
    
    
    2,100
    
    
    
    
    
    
    
    40,8369,068
    
    
    
    661,204
    
    
    
    25,747
    
    
    
    
    
    
    
    696,019Operating income (loss)
    
    
    (9,068
    )
    
    
    66,864
    
    
    
    4,353
    
    
    
    
    
    
    
    62,149Equity in income from continuing operations of subsidiaries
    
    
    69,372
    
    
    
    
    
    
    
    
    
    
    
    (69,372
    )
    
    
    Interest expense
    
    
    (73,355
    )
    
    
    (1,060
    )
    
    
    (2,718
    )
    
    
    1,952
    
    
    
    (75,181
    )Foreign exchange gain (loss)
    
    
    
    
    
    
    2,014
    
    
    
    322
    
    
    
    
    
    
    
    2,336Other, net
    
    
    1,753
    
    
    
    299
    
    
    
    351
    
    
    
    (1,952
    )
    
    
    451(2,230
    )
    
    
    1,253
    
    
    
    (2,045
    )
    
    
    (69,372
    )
    
    
    (72,394
    )Income (loss) from continuing operations before income
taxes
    
    
    (11,298
    )
    
    
    68,117
    
    
    
    2,308
    
    
    
    (69,372
    )
    
    
    (10,245
    )Income tax provision
    
    
    
    
    
    
    (1,053
    )
    
    
    
    
    
    
    
    
    
    
    (1,053
    )Income (loss) from continuing operations
    
    
    (11,298
    )
    
    
    67,064
    
    
    
    2,308
    
    
    
    (69,372
    )
    
    
    (11,298
    )Gain from discontinued operations
    
    
    37,503
    
    
    
    37,503
    
    
    
    
    
    
    
    (37,503
    )
    
    
    37,503Net income
    
    $
    26,205
    
    
    $
    104,567
    
    
    $
    2,308
    
    
    $
    (106,875
    )
    
    $
    26,205
 27




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 Nine months ended September 30, 2005(As restated)Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet revenues:Membership services
    
    $
    
    
    
    $
    683,169
    
    
    $
    29,078
    
    
    $
    
    
    
    $
    712,247Retail products
    
    
    
    
    
    
    36,449
    
    
    
    1,068
    
    
    
    
    
    
    
    37,517Miscellaneous
    
    
    
    
    
    
    10,194
    
    
    
    1,351
    
    
    
    
    
    
    
    11,545
    
    
    
    729,812
    
    
    
    31,497
    
    
    
    
    
    
    
    761,309Operating costs and expenses:Membership services
    
    
    
    
    
    
    482,591
    
    
    
    22,026
    
    
    
    
    
    
    
    504,617Retail products
    
    
    
    
    
    
    37,847
    
    
    
    1,034
    
    
    
    
    
    
    
    38,881Marketing and advertising
    
    
    
    
    
    
    43,764
    
    
    
    934
    
    
    
    
    
    
    
    44,698General and administrative
    
    
    3,256
    
    
    
    54,490
    
    
    
    940
    
    
    
    
    
    
    
    58,686Depreciation and amortization
    
    
    
    
    
    
    42,641
    
    
    
    2,196
    
    
    
    
    
    
    
    44,8373,256
    
    
    
    661,333
    
    
    
    27,130
    
    
    
    
    
    
    
    691,719Operating income (loss)
    
    
    (3,256
    )
    
    
    68,479
    
    
    
    4,367
    
    
    
    
    
    
    
    69,590Equity in income from continuing operations of subsidiaries
    
    
    69,925
    
    
    
    
    
    
    
    
    
    
    
    (69,925
    )
    
    
    Interest expense
    
    
    (58,791
    )
    
    
    (1,086
    )
    
    
    (2,719
    )
    
    
    1,544
    
    
    
    (61,052
    )Foreign exchange gain (loss)
    
    
    
    
    
    
    1,772
    
    
    
    (587
    )
    
    
    
    
    
    
    1,185Other, net
    
    
    1,398
    
    
    
    229
    
    
    
    189
    
    
    
    (1,544
    )
    
    
    27212,532
    
    
    
    915
    
    
    
    (3,117
    )
    
    
    (69,925
    )
    
    
    (59,595
    )Income from continuing operations before income taxes
    
    
    9,276
    
    
    
    69,394
    
    
    
    1,250
    
    
    
    (69,925
    )
    
    
    9,995Income tax provision
    
    
    
    
    
    
    (719
    )
    
    
    
    
    
    
    
    
    
    
    (719
    )Income from continuing operations
    
    
    9,276
    
    
    
    68,675
    
    
    
    1,250
    
    
    
    (69,925
    )
    
    
    9,276Loss from discontinued operations
    
    
    (3,268
    )
    
    
    (3,268
    )
    
    
    
    
    
    
    3,268
    
    
    
    (3,268
    )Net income
    
    $
    6,008
    
    
    $
    65,407
    
    
    $
    1,250
    
    
    $
    (66,657
    )
    
    $
    6,008
 28




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
 Nine months ended September 30, 2006Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    26,205
    
    
    $
    104,567
    
    
    $
    2,308
    
    
    $
    (106,875
    )
    
    $
    26,205Adjustments to reconcile to cash provided Depreciation and amortization, including
amortization included in interest expense
    
    
    15,735
    
    
    
    38,907
    
    
    
    2,165
    
    
    
    
    
    
    
    56,807Changes in operating assets and liabilities
    
    
    403
    
    
    
    (37,041
    )
    
    
    (700
    )
    
    
    
    
    
    
    (37,338
    )Changes in net affiliate balances
    
    
    
    
    
    
    (79,513
    )
    
    
    3,860
    
    
    
    75,653
    
    
    
    Other, net
    
    
    4,214
    
    
    
    (38,635
    )
    
    
    (3,237
    )
    
    
    
    
    
    
    (37,658
    )Cash provided by (used in) operating activities
    
    
    46,557
    
    
    
    (11,715
    )
    
    
    4,396
    
    
    
    (31,222
    )
    
    
    8,016CASH FLOWS FROM INVESTING ACTIVITIES:Purchases and construction of property and equipment
    
    
    
    
    
    
    (27,770
    )
    
    
    (227
    )
    
    
    
    
    
    
    (27,997
    )Proceeds from sale of discontinued operations
    
    
    
    
    
    
    45,152
    
    
    
    
    
    
    
    
    
    
    
    45,152Proceeds from sale of discontinued operations in escrow
    
    
    
    
    
    
    338
    
    
    
    
    
    
    
    
    
    
    
    338Proceeds from sale of property
    
    
    
    
    
    
    6,199
    
    
    
    1,328
    
    
    
    
    
    
    
    7,527Investment in and advances to subsidiaries
    
    
    (31,222
    )
    
    
    
    
    
    
    
    
    
    
    31,222
    
    
    
    Cash provided by (used in) investing activities
    
    
    (31,222
    )
    
    
    23,919
    
    
    
    1,101
    
    
    
    31,222
    
    
    
    25,020CASH FLOWS FROM FINANCING ACTIVITIES:Net repayments under credit agreement
    
    
    (12,386
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,386
    )Net repayments of other long-term debt
    
    
    (5,035
    )
    
    
    (1,552
    )
    
    
    (3,867
    )
    
    
    
    
    
    
    (10,454
    )Debt issuance and refinancing costs
    
    
    (3,791
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,791
    )Proceeds from sale of common stock
    
    
    5,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,600Stock purchase and options plans
    
    
    277
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    277Cash used in financing activities
    
    
    (15,335
    )
    
    
    (1,552
    )
    
    
    (3,867
    )
    
    
    
    
    
    
    (20,754
    )Increase in cash
    
    
    
    
    
    
    10,652
    
    
    
    1,630
    
    
    
    
    
    
    
    12,282Effect of exchange rate changes on cash balances
    
    
    
    
    
    
    
    
    
    
    487
    
    
    
    
    
    
    
    487Cash, beginning of period
    
    
    
    
    
    
    16,238
    
    
    
    1,216
    
    
    
    
    
    
    
    17,454Cash, end of period
    
    $
    
    
    
    $
    26,890
    
    
    $
    3,333
    
    
    $
    
    
    
    $
    30,223
 29




---



##### 



BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements  (continued)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
 Nine months ended September 30, 2005(As restated)Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    6,008
    
    
    $
    65,407
    
    
    $
    1,250
    
    
    $
    (66,657
    )
    
    $
    6,008Adjustments to reconcile to cash provided Depreciation and amortization, including
amortization included in interest expense
    
    
    4,262
    
    
    
    46,888
    
    
    
    2,196
    
    
    
    
    
    
    
    53,346Changes in operating assets and liabilities
    
    
    (2,808
    )
    
    
    (40,068
    )
    
    
    1,805
    
    
    
    
    
    
    
    (41,071
    )Changes in net affiliate balances
    
    
    
    
    
    
    (56,041
    )
    
    
    304
    
    
    
    55,737
    
    
    
    Other net
    
    
    4,957
    
    
    
    393
    
    
    
    (1,185
    )
    
    
    
    
    
    
    4,165Cash provided by operating activities
    
    
    12,419
    
    
    
    16,579
    
    
    
    4,370
    
    
    
    (10,920
    )
    
    
    22,448CASH FLOWS FROM INVESTING ACTIVITIES:Purchases and construction of property and equipment
    
    
    
    
    
    
    (23,892
    )
    
    
    (756
    )
    
    
    
    
    
    
    (24,648
    )Proceeds from sale of land
    
    
    
    
    
    
    1,455
    
    
    
    
    
    
    
    
    
    
    
    1,455Investment in and advances to subsidiaries
    
    
    (10,920
    )
    
    
    
    
    
    
    
    
    
    
    10,920
    
    
    
    Cash used in investing activities
    
    
    (10,920
    )
    
    
    (22,437
    )
    
    
    (756
    )
    
    
    10,920
    
    
    
    (23,193
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net borrowings under revolving credit agreement
    
    
    18,688
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,688Net repayments of other long-term debt
    
    
    (9,336
    )
    
    
    (1,487
    )
    
    
    (3,044
    )
    
    
    
    
    
    
    (13,867
    )Debt issuance and refinancing costs
    
    
    (10,944
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,944
    )Proceeds from stock purchase and options plans
    
    
    93
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93Cash used in financing activities
    
    
    (1,499
    )
    
    
    (1,487
    )
    
    
    (3,044
    )
    
    
    
    
    
    
    (6,030
    )Increase (decrease) in cash
    
    
    
    
    
    
    (7,345
    )
    
    
    570
    
    
    
    
    
    
    
    (6,775
    )Effect of exchange rate changes on cash balances
    
    
    
    
    
    
    
    
    
    
    361
    
    
    
    
    
    
    
    361Cash, beginning of period
    
    
    
    
    
    
    18,726
    
    
    
    451
    
    
    
    
    
    
    
    19,177Cash, end of period
    
    $
    
    
    
    $
    11,381
    
    
    $
    1,382
    
    
    $
    
    
    
    $
    12,763
 30




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Executive Summary of Business
   ®
 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 membership fees and dues payments. It also includes revenue generated from provision of
personal training services.Currently, the majority of our members choose to purchase their membership under our multi-year
value plan by paying an enrollment fee (cash paid at time of enrollment for membership fees) and
by making monthly payments throughout the obligatory term of their membership. After the
obligatory period of membership, our members enter the non-obligatory renewal period of
membership and make monthly payments (renewal payments) to maintain membership privileges.
Under sales methods in effect prior to December 2005, renewal payments were substantially
discounted from the obligatory period monthly payment level. Following the nationwide
implementation of our new BYOM program, we anticipate that renewal
payments will likely carry a smaller discount from the obligatory
period monthly payment level in most BYOM markets.
Our members may also choose to purchase a prepaid membership for periods up to three years.
Members choosing our month-to-month memberships make month-to-month non-obligatory
payments after paying an 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 obligatory 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
 31




---



##### 



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 obligatory 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 has
resulted in a determination that approximately 37% 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 obligatory period of membership are recognized in a similar manner, except that the estimate
of the group expected to remain a member for only the obligatory period of membership is
amortized over the length of the contract, which is generally 36 months, but varies by state.
Based on the historical attrition patterns of members who pay their membership in full upon
origination, approximately 54% of such membership revenue relates to members who maintain their
membership beyond the obligatory 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 ending deferred revenue. 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.Personal training and other services are provided at most of the Companys fitness centers.
Personal training services contracts are either paid-in-full at the point of origination, or are
financed and collected generally over three months after an initial payment. Collections related
to paid-in-full personal training services contracts are deferred and recognized as personal
training services are rendered. Revenue related to personal training services contracts that have
been financed is recognized at the later of cash receipt or the rendering of personal training
services.Membership services revenue comprised approximately 94% of total revenue for the nine months
ended September 30, 2006 and 2005. 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 4% and 5% of total revenue for the nine months ended September 30, 2006 and
2005, respectively.3)
    
    The balance of our revenue (approximately 2% and 1% for the nine months ended September 30,
2006 and 2005, respectively), primarily consists of franchising revenue, guest fees and
specialty fitness programs. We also generate revenue through granting concessions in our
facilities to operators offering wellness-related services such as physical therapy and from
sales of Bally-branded products by third-parties. Revenue from sales of in-club advertising
and sponsorships is also included in this category, which we refer to as miscellaneous
revenue.Our operating costs and expenses are comprised of the following:1)
    
    Membership services expenses consist primarily of salaries, commissions, payroll taxes,
benefits, rent, real estate taxes and other occupancy costs, utilities, repairs and
maintenance and supplies to operate our fitness centers and provide personal training. Also
included are the costs to operate member processing and collection centers, which 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.
 32




---



##### 



3)
    
    Marketing and advertising expenses consist of our marketing department, media and production
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 various accounting investigations.5)
    
    Asset impairment charges include the write-down of the net
book value of our assets pursuant to SFAS No. 144. Pursuant to
SFAS No. 144, the carrying value of our assets, primarily
property and equipment, is evaluated when circumstances indicate the
carrying value may have been impaired. Asset impairment charges
represent the excess of the carrying value of the assets over their
fair value.6)
    
    Depreciation and amortization expenses represent primarily the depreciation on our fitness
centers, including amortization of leasehold improvements. Owned buildings and related
improvements are depreciated over 5 to 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. In addition, equipment and furnishings are
depreciated over 5 to 10 years.
      Industry Data Survey of the Health and Fitness Club Industry,
 Critical Accounting Policies
  33




---



##### 



Results of Operations
  Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    MonthsEnded
    
    
    % of
    
    
    Ended
    
    
    % of
    
    
    Change fromSeptember 30,
    
    
    Net
    
    
    September 30,
    
    
    Net
    
    
    Previous Period2006
    
    
    Revenue
    
    
    2005
    
    
    Revenue
    
    
    Dollars
    
    
    Percent(As restated)REVENUEMembership
    
    $
    204,509
    
    
    
    82
    %
    
    $
    202,630
    
    
    
    82
    %
    
    $
    1,879
    
    
    
    1
    %Personal training
    
    
    29,838
    
    
    
    12
    %
    
    
    30,113
    
    
    
    12
    %
    
    
    (275
    )
    
    
    (1
    %)Membership services revenue
    
    
    234,347
    
    
    
    94
    %
    
    
    232,743
    
    
    
    94
    %
    
    
    1,604
    
    
    
    1
    %Retail products
    
    
    10,165
    
    
    
    4
    %
    
    
    11,530
    
    
    
    5
    %
    
    
    (1,365
    )
    
    
    (12
    %)Miscellaneous
    
    
    3,859
    
    
    
    2
    %
    
    
    3,666
    
    
    
    1
    %
    
    
    193
    
    
    
    5
    %Net revenues
    
    
    248,371
    
    
    
    100
    %
    
    
    247,939
    
    
    
    100
    %
    
    
    432
    
    
    
    0
    %OPERATING COSTS AND EXPENSESMembership services
    
    
    167,282
    
    
    
    67
    %
    
    
    165,943
    
    
    
    67
    %
    
    
    1,339
    
    
    
    1
    %Retail products
    
    
    10,468
    
    
    
    4
    %
    
    
    12,649
    
    
    
    5
    %
    
    
    (2,181
    )
    
    
    (17
    %)Marketing and advertising
    
    
    12,956
    
    
    
    5
    %
    
    
    12,946
    
    
    
    5
    %
    
    
    10
    
    
    
    0
    %Information technology
    
    
    4,916
    
    
    
    2
    %
    
    
    5,245
    
    
    
    2
    %
    
    
    (329
    )
    
    
    (6
    %)Other general and administrative
    
    
    18,692
    
    
    
    8
    %
    
    
    13,988
    
    
    
    6
    %
    
    
    4,704
    
    
    
    34
    %Net gain on sale of land and building
    
    
    (2,211
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,211
    )
    
    
    Asset impairment charge
    
    
    2,993
    
    
    
    1
    %
    
    
    
    
    
    
    
    
    
    
    2,993
    
    
    
    Depreciation and amortization
    
    
    13,389
    
    
    
    5
    %
    
    
    14,875
    
    
    
    6
    %
    
    
    (1,486
    )
    
    
    (10
    %)228,485
    
    
    
    92
    %
    
    
    225,646
    
    
    
    91
    %
    
    
    2,839
    
    
    
    1
    %Operating income
    
    $
    19,886
    
    
    
    8
    %
    
    $
    22,293
    
    
    
    9
    %
    
    $
    (2,407
    )
    
    
    (11
    %)
 Nine Months
    
    
    
    
    
    
    Nine MonthsEnded
    
    
    % of
    
    
    Ended
    
    
    % of
    
    
    Change fromSeptember 30,
    
    
    Net
    
    
    September 30,
    
    
    Net
    
    
    Previous Period2006
    
    
    Revenue
    
    
    2005
    
    
    Revenue
    
    
    Dollars
    
    
    Percent(As restated)REVENUEMembership
    
    $
    620,602
    
    
    
    82
    %
    
    $
    621,229
    
    
    
    82
    %
    
    $
    (627
    )
    
    
    0
    %Personal training
    
    
    92,949
    
    
    
    12
    %
    
    
    91,018
    
    
    
    12
    %
    
    
    1,931
    
    
    
    2
    %Membership services revenue
    
    
    713,551
    
    
    
    94
    %
    
    
    712,247
    
    
    
    94
    %
    
    
    1,304
    
    
    
    0
    %Retail products
    
    
    33,562
    
    
    
    4
    %
    
    
    37,517
    
    
    
    5
    %
    
    
    (3,955
    )
    
    
    (11
    %)Miscellaneous
    
    
    11,055
    
    
    
    2
    %
    
    
    11,545
    
    
    
    1
    %
    
    
    (490
    )
    
    
    (4
    %)Net revenues
    
    
    758,168
    
    
    
    100
    %
    
    
    761,309
    
    
    
    100
    %
    
    
    (3,141
    )
    
    
    0
    %OPERATING COSTS AND EXPENSESMembership services
    
    
    509,770
    
    
    
    67
    %
    
    
    504,617
    
    
    
    66
    %
    
    
    5,153
    
    
    
    1
    %Retail products
    
    
    32,146
    
    
    
    4
    %
    
    
    38,881
    
    
    
    5
    %
    
    
    (6,735
    )
    
    
    (17
    %)Marketing and advertising
    
    
    48,031
    
    
    
    6
    %
    
    
    44,698
    
    
    
    6
    %
    
    
    3,333
    
    
    
    7
    %Information technology
    
    
    15,314
    
    
    
    2
    %
    
    
    16,027
    
    
    
    2
    %
    
    
    (713
    )
    
    
    (4
    %)Other general and administrative
    
    
    50,913
    
    
    
    7
    %
    
    
    42,659
    
    
    
    6
    %
    
    
    8,254
    
    
    
    19
    %Net gain on sales of land and buildings
    
    
    (3,984
    )
    
    
    (1
    %)
    
    
    
    
    
    
    
    
    
    
    (3,984
    )
    
    
    Asset impairment charge
    
    
    2,993
    
    
    
    1
    %
    
    
    
    
    
    
    
    
    
    
    2,993
    
    
    
    Depreciation and amortization
    
    
    40,836
    
    
    
    6
    %
    
    
    44,837
    
    
    
    6
    %
    
    
    (4,001
    )
    
    
    (9
    %)696,019
    
    
    
    92
    %
    
    
    691,719
    
    
    
    91
    %
    
    
    4,300
    
    
    
    1
    %Operating income
    
    $
    62,149
    
    
    
    8
    %
    
    $
    69,590
    
    
    
    9
    %
    
    $
    (7,441
    )
    
    
    (11
    %)
 34




---



##### 



Key Operating Data
 Membership rollforward and statistics (000s, except dollars):
 Three months ended September 30,2006
    
    
    2005
    
    
    change
    
    
    % change(As restated)Members at beginning of period
    
    
    3,600
    
    
    
    3,671
    
    
    
    (71
    )
    
    
    (2
    )%Number of new members joining during the period
    
    
    239
    
    
    
    228
    
    
    
    11
    
    
    
    5
    %Number of net member drops during the period
    
    
    (284
    )
    
    
    (288
    )
    
    
    4
    
    
    
    1
    %Members at end of period
    
    
    3,555
    
    
    
    3,611
    
    
    
    (56
    )
    
    
    (2
    )%Average number of members during the period (1)
    
    
    3,577
    
    
    
    3,641
    
    
    
    (64
    )
    
    
    (2
    )%Average monthly membership revenue recognized per member (2)
    
    $
    19.06
    
    
    $
    18.55
    
    
    $
    0.51
    
    
    
    3
    %Average monthly cash received per member (3)
    
    $
    17.43
    
    
    $
    17.55
    
    
    $
    (0.12
    )
    
    
    (1
    )%Fitness centers open at end of period
    
    
    379
    
    
    
    387
    
    
    
    (8
    )
    
    
    (2
    )%
 Nine months ended September 30,2006
    
    
    2005
    
    
    change
    
    
    % change(As restated)Members at beginning of period
    
    
    3,531
    
    
    
    3,593
    
    
    
    (62
    )
    
    
    (2
    )%Number of new members joining during the period
    
    
    820
    
    
    
    808
    
    
    
    12
    
    
    
    1
    %Number of net member drops during the period
    
    
    (796
    )
    
    
    (790
    )
    
    
    (6
    )
    
    
    (1
    )%Members at end of period
    
    
    3,555
    
    
    
    3,611
    
    
    
    (56
    )
    
    
    (2
    )%Average number of members during the period (1)
    
    
    3,580
    
    
    
    3,650
    
    
    
    (70
    )
    
    
    (2
    )%Average monthly membership revenue recognized per member (2)
    
    $
    19.26
    
    
    $
    18.91
    
    
    $
    0.35
    
    
    
    2
    %Average monthly cash received per member (3)
    
    $
    18.01
    
    
    $
    18.10
    
    
    $
    (0.09
    )
    
    
    0
    %Fitness centers open at end of period
    
    
    379
    
    
    
    387
    
    
    
    (8
    )
    
    
    (2
    )%
 
 (1)
    
    The average number of members for the period is derived by dividing the sum of the total
members outstanding at the beginning and end of each quarter in the period by two for the
three month period and by six for the nine month period.(2)
    
    Average monthly membership revenue recognized per member represents membership revenue
recognized for the period divided by the number of months in the period, divided by the
average number of members for the period.(3)
    
    Average monthly cash received per member represents cash collections of membership revenue
for the period divided by the number of months in the period, divided by the average number of
members for the period. Summary of revenue recognition method
     35




---



##### 



Comparison of the Three Months Ended September 30, 2006 and 2005
   
    
    Membership revenue recognized increased to $204.5 million from $202.6
million in 2005, an increase of $1.9 million (1%) from the prior year
period. In the current year, a 3% increase in average monthly
membership revenue per member to $19.06 from $18.55 was partially
offset by a 2% decrease in average number of members to 3.577 million
members.
    
    Cash collections of membership revenue during the three months ended
September 30, 2006 were $187.0 million, a decrease of $4.7 million
(2%) from 2005. This decrease is the result of a 2% decrease in
average number of members to 3.577 million
 36




---



##### 



members and a decrease in the average monthly cash received
per member to $17.43 for the 2006
period versus $17.55 in the prior year period. Cash collections of membership revenue include
payments from members who prepay the remaining portion of amounts outstanding under value plan
memberships (accelerations), voluntarily or in response to an offer to prepay at a discount
similar to that offered at point of sale. We received $6.8 million and $4.0 million of proceeds
from accelerations during the three months ended September 30, 2006 and 2005, respectively. We
also allow certain members to reactivate their expired membership at a discount in order to
incent these members to restart their workout routine (reactivations). We received $5.2 million
and $4.1 million of proceeds from reactivations during the three months ended September 30, 2006
and 2005, respectively. The average monthly cash received per member includes $1.11 and $0.74 of
accelerations and reactivations for the three months ended September 30, 2006 and 2005,
respectively. Increases in renewal dues have had a positive impact on average monthly cash
received per member. The mix of new member signups has changed under the BYOM program to include
a higher number of one-club memberships, along with an increase in family add-on member signups
at discounted monthly rates relative to primary member monthly rates, and a higher percentage of
nonobligatory month-to-month members, including members added under family add-on programs. In
the three months ended September 30, 2006, new member signups were approximately 68% value plan,
13% paid-in-full and 19% month-to-month. In the year earlier period, new member signups were
approximately 72% value plan, 13% paid-in-full and 15% month-to-month. As a result, membership
cash collections have been negatively affected due to the higher attrition tendency of
month-to-month members, and the lower average monthly rates of the increasing mix of one-club
memberships and discounted family member signups. Because of the Companys historical attrition
patterns whereby a high percentage of new members drop their membership during the first twelve
months subsequent to joining, a significant portion of cash collections have historically been
provided by new members early in their membership term. Accordingly, a decrease in new member
pricing (both obligatory and nonobligatory) coupled with the change in the mix of new membership
signups had a disproportionate impact on cash collections of membership revenue in 2006 as
compared to 2005 and will continue to have a negative impact for the remainder of 2006 and
beyond.
    
    Personal training revenue decreased to $29.8 million
from $30.1 million in 2005, a decrease of $0.3 million
(1%).
    
    Retail products revenue decreased to $10.2 million from $11.5 million in 2005, a decrease of $1.3 million (12%), due
primarily to the conversion of lower performing full size in-club retail stores to a more efficient, but lower sales model
integrated with the front desk operation and a 2% decrease in average number of members to 3.577 million members reducing
workout traffic in the clubs.
    
    Miscellaneous revenue of $3.9 million increased $0.2 million from the prior year.Operating costs and expenses for the three months ended
September 30, 2006 were $228.5 million,
an increase of $2.8 million from the prior year period. Operating costs and expenses included the
following:
    
    Membership services expenses for the three months ended September 30,
2006 increased $1.3 million (1%) from 2005, reflecting increases in
litigation, property tax and insurance costs.
    
    Retail products expenses, which included labor costs, for the three
months ended September 30, 2006 decreased $2.2 million (17%) from
2005, primarily as a result of a decrease in cost of goods sold from
lower sales and reduced labor costs as a result of the Companys front
desk retail model integration.
    
    Marketing and advertising expenses of $13.0 million for the three
months ended September 30, 2006 were unchanged from the 2005 period.
    
    Information technology expenses for the three months ended September
30, 2006 decreased $0.3 million (6%) from 2005 primarily as a result
of reduced use of outside consultants and lower telecommunication
costs partially offset by increased internal salaries.
    
    Other general and administrative expenses for the three months ended
September 30, 2006 increased $4.7 million (34%) from 2005.
Compensation costs of $5.4 million related to the separation agreement
with our former Chairman, President and CEO were partially offset by
lower professional and legal fees compared to the 2005 period.
    
    The Company recorded a gain of approximately $2.4 million on the sale
of the land and a building relating to a club in Georgia, partially
offset by a $0.2 million loss on the sale of assets of a club in
Knoxville, TN.
    
    The Company recorded an impairment charge of
$3.0 million, representing the amount by which the carrying value
of a property sold subject to a sale/leaseback exceeded
its fair value less the costs associated with selling the property.
 37




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##### 




    
    Depreciation and amortization expense for the three months ended
September 30, 2006 decreased $1.5 million from 2005, reflecting fewer
depreciable assets resulting from fixed asset write-offs and
impairment charges in 2005, along with a reduction in capital
expenditures in prior periods.
  Comparison of the Nine Months Ended September 30, 2006 and 2005
   
    
    Membership revenue recognized decreased to
$620.6 million from $621.2 million in 2005, a decrease of $0.6 million from the
prior year period. In the current year, a 2% decrease in average number of members to 3.580 million members was partially
offset by a 2% increase in the average monthly membership revenue per member to $19.26 from $18.91.
    
    Cash collections of membership revenue during the nine months
ended September 30, 2006 were $580.2 million, a decrease of
$14.5 million (2%) from 2005. This decrease is the result of a 2% decrease in average number of members to 3.580 million
members. The average monthly cash received per member was $18.01 in 2006 versus $18.10 in the prior year period. We
received $16.5 million and $12.3 million of proceeds from accelerations during the nine months ended September 30, 2006 and
2005, respectively. We also received $17.4 million and $16.0 million of proceeds from reactivations during the nine months
ended September 30, 2006 and 2005, respectively. The average monthly cash received per member includes $1.05 and $0.86 of
proceeds from accelerations and reactivations for the nine months ended September 30, 2006 and 2005, respectively.
Increases in renewal dues have had a positive impact on average monthly cash received per member. However, the mix of new
member signups has changed under the BYOM program to include a higher number of one-club memberships, along with an
increase in family add-on member signups at discounted monthly rates relative to primary member monthly rates, and a higher
percentage of nonobligatory month-to-month members, including members added under family add-on programs. In the nine
months ended September 30, 2006, new member signups were approximately 71% value plan, 12% paid-in-full and 17%
month-to-month. In the year earlier period, new member signups were approximately 75% value plan, 12% paid-in-full and 13%
month-to-month. As a result, membership cash collections have been negatively affected due to the higher attrition tendency
of month-to-month members, and the lower average monthly rates of the increasing mix of one-club memberships and discounted
family member signups. Because of the Companys historical attrition patterns whereby a high percentage of new members drop
their membership during the first twelve months subsequent to joining, a significant portion of cash collections have
historically been provided by new members early in their membership term. Accordingly, a decrease in new member pricing
(both obligatory and nonobligatory) coupled with the change in the mix of new membership signups had a disproportionate
impact on cash collections of membership revenue in 2006 as compared to 2005 and will continue to have a negative impact
for the remainder of 2006 and beyond.
    
    Personal training revenue increased to $92.9 million
from $91.0 million in 2005, an increase of $1.9 million (2%),
primarily reflecting the Companys emphasis on growth in personal training services and expansion of new programs such as
small group training.
    
    Retail products revenue decreased to $33.6 million from $37.5 million in 2005, a decrease of $3.9 million (11%), due
primarily to the conversion of lower performing full size in-club retail stores to a more efficient, but lower sales model
integrated with the front desk operation and a 2% decrease in average number of members to 3.580 million members reducing
workout traffic in the clubs.
    
    Miscellaneous revenue decreased to $11.1 million from $11.5 million in 2005.
 38




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##### 




    
    Membership services expenses for the nine months ended September 30,
2006 increased $5.2 million (1%) from 2005, reflecting increases in
occupancy (primarily utilities) and insurance costs offset by a
reduction in personnel costs as a result of the Companys cost
reduction initiatives.
    
    Retail products expenses, which included labor costs, for the nine
months ended September 30, 2006 decreased $6.7 million (17%) from
2005, primarily as a result of a decrease in cost of goods sold from
lower sales and reduced labor costs as a result of the Companys front
desk retail model integration.
    
    Marketing and advertising expenses for the nine months ended September
30, 2006 increased $3.3 million (7%) from 2005, primarily from planned
increases in media spending and television commercial production
costs.
    
    Information technology expenses for the nine months ended September
30, 2006 decreased $0.7 million (4%) from 2005 primarily as a result
of reduced use of outside consultants and lower telecommunication
costs partially offset by increased internal salaries.
    
    Other general and administrative expenses for the nine months ended
September 30, 2006 increased $8.3 million (19%) from 2005, primarily
as a result of separation costs associated with our former Chairman
and Chief Executive Officer and former Chief Financial Officer, and
costs incurred as a result of our proxy solicitation, restructuring
and ongoing investigations and litigation related to the restatement
of the Companys financial statements and an increase in Directors
fees and audit costs.
    
    Gain on sales of land and buildings includes a gain on the March 2006
sale of the land and a building relating to a club in Canada ($0.9
million), a gain on the June 2006 sale of a club in Ohio ($0.9
million) and a gain on the July 2006 sale of a club in Georgia ($2.4
million) partially offset by a loss on the sale of a club in Tennessee
($0.2 million).
    
    The Company recorded an impairment charge of
$3.0 million, representing the amount by which the carrying
value of a property sold subject to a sale/leaseback exceeded its fair value less the costs associated with selling the
property.
    
    Depreciation and amortization expense for the nine months ended
September 30, 2006 decreased $4.0 million from 2005, reflecting fewer
depreciable assets resulting from fixed asset write-offs and
impairment charges in 2005, along with a reduction in capital
expenditures in prior periods.
   Financial Condition
  
    
    a decrease in assets held for sale of $40.2 million resulting from the sale of Crunch Fitness (however, $31.8 million of
the proceeds of the sale of such assets was used to make a mandatory repayment under the term loan of the Credit
Agreement);
    
    a $20.5 million net decrease in property and equipment
(capital expenditures less disposals, impairment and depreciation). Capital
expenditures of $28.0 million included a scheduled replacement of exercise equipment. The Company will continue a
controlled capital spending program reflective of its limited capital resources;
    
    a $5.2 million decrease in other current assets primarily from a reduction in inventory and a return of cash held by our
credit card processor; and
    
    a decrease in prepaid expenses of $3.0 million primarily from a decrease in prepaid advertising; offset by
    
    an increase in cash of $12.8 million; and
 39




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
    
    an increase in deferred financing costs of $5.4 million primarily resulting from the fees paid to bondholders and lenders
to obtain waivers of financial reporting requirements.
 Liquidity and Capital Resources
  September 30, 2006
    
    
    December 31, 2005
    
    
    ChangeCash and equivalents
    
    $
    30.2
    
    
    $
    17.5
    
    
    $
    12.7Unutilized revolving credit facility
    
    
    24.7
    
    
    
    51.4
    
    
    
    (26.7
    )Total liquidity
    
    $
    54.9
    
    
    $
    68.9
    
    
    $
    (14.0
    )
       Interest Expense
  40




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Cash Flows
  Nine months ended September 30,
    
    
    Change from2006
    
    
    2005
    
    
    Previous Period(As restated)Cash provided by operating activities
    
    $
    8.0
    
    
    $
    22.4
    
    
    $
    (14.4
    )Cash provided by (used in) investing activities
    
    
    25.0
    
    
    
    (23.2
    )
    
    
    48.2Cash used in financing activities
    
    
    (20.7
    )
    
    
    (6.0
    )
    
    
    (14.7
    )Increase (decrease) in cash
    
    $
    12.3
    
    
    $
    (6.8
    )
    
    $
    19.1
 Operating Activities
  Investing Activities and Capital Expenditures
  Financing Activities
  Dividend and Other Commitments
  41




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##### 



Debt
 Credit Agreement
    Consent Solicitations
   42




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##### 



Other Secured Debt
  Off-Balance Sheet Arrangements
  Recently Issued Accounting Standards
 Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 Accounting for
a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a
Leveraged Lease Transaction. Accounting for Leases.
 Fair
Value Measurements
  43




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Item 3. Interest Rate Risk and Market Risk
   Foreign Exchange Risk
  Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
 Controls and Procedures
   44




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Changes in Internal Control over Financial Reporting (ICFR)
   Accounting for Leases
  Accounting for Accrued Liabilities
  Accounting for Computer Software
  Equity Compensation Monitoring and Review Procedures
  Financial Statement Preparation and Review Procedures
 
    
    Journal Entry Preparation and Review Procedures:The Company
is modifying the journal entry preparation process and is developing a checklist designed
to ensure that journal entries have the proper supporting documentation and are reviewed
timely by an independent reviewer. The Company is in the process of preparing a complete
list of all recurring journal entries.
 45




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##### 




    
    Account Reconciliation Preparation and Review Procedures:

 The Company is modifying
the account reconciliation process designed to help ensure that (i) accounts are reconciled
on a timely basis, (ii) the reconciliation is independently reviewed, (iii) any reconciling
items are cleared on a timely basis and (iv) the accuracy of the underlying supporting
detail, or sub ledger, has been substantiated and independently reviewed. The Company is
also developing a control checklist designed to ensure that accounting personnel are
complying with the account reconciliation standards.
   PART II. OTHER INFORMATION
 Item 1. Legal Proceedings
 Litigation
 Putative Securities Class Actions
 In re Bally Total Fitness Securities Litigation
  Stockholder Derivative Lawsuits in Illinois State Court
  46




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##### 



Stockholder Derivative Lawsuit in Illinois Federal Court
  Individual Securities Action in Illinois
 Levine v. Bally Total Fitness Holding Corporation, et
al.
 Lawsuit in Oregon
 Jack Garrison and Deane Garrison v. Bally Total
Fitness Holding Corporation, Lee S. Hillman and John W. Dwyer,
  Lawsuit in Massachusetts
 Fit Tech Inc., et al. v.
Bally Total Fitness Holding Corporation, et al.,
 47




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##### 



Securities and Exchange Commission Investigation
  Department of Justice Investigation
  Insurance Lawsuits
 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,
 RLI Insurance Company v. Bally Total Fitness Holding Corporation;
Holiday Universal, Inc.; George N. Aronoff; Paul Toback; John H. 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,
 Great American Insurance Company
v. Bally Total Fitness Holding Corporation, ab initio
 48




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##### 



Other
   Item 1A. Risk Factors
 Managements Discussion and Analysis
of Financial Condition and Results of Operations
 Our substantial leverage could adversely affect our financial health.
  
    
    limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions of
clubs and other general corporate requirements;
    
    continuing to require us to dedicate a substantial portion of any cash flows from operations to make interest payments on
our debt, which reduces funds available for operations and future business opportunities;
    
    increasing our vulnerability to adverse economic conditions;
    
    limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
    
    making us more highly leveraged than some of our competitors, which could potentially decrease our ability to compete in
our industry.
 49




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##### 



Our inability to comply with covenants under the New Facility and indentures governing our Senior
Notes and Senior Subordinated Notes could adversely impact our ability to operate our business.
    Recent declines in our liquidity and upcoming obligations on our debt instruments will require us
to obtain additional financing and/or restructure or refinance our debt. If we are unable to do so,
we will not be able to continue to operate our business.
   50




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##### 



Our success depends in significant part upon the continuing service of management and the Companys
ability to attract a sufficient number of qualified personnel to meet its business needs.
   Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Repurchases of Common Stock
  Item 3. Defaults Upon Senior Securities
  Item 4. Submission of Matters to a Vote of Security Holders
  Item 5. Other Information
  Item 6. Exhibits
  3.1
    
    Amendment to the Bylaws of Bally Total Fitness Holding Corporation
(incorporated by reference to Exhibit 3.2 to the Companys Current
Report on Form 8-K, file no. 001-13997, filed August 11, 2006).4.1
    
    Supplemental Indenture, dated as of April 7, 2006, among Bally
Total Fitness Holding Corporation and U.S. Bank National
Association, as trustee for the Registrants 9-7/8% Senior
Subordinated Notes due 2007 (incorporated by reference to Exhibit
4.2 to the Companys Current Report on Form 8-K, file no.
001-13997, dated April 12, 2006).4.2
    
    Supplemental Indenture, dated as of April 7, 2006, among Bally
Total Fitness Holding Corporation and U.S. Bank National
Association, as trustee for the Registrants 10-1/2% Senior Notes
due 2011 (incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K, file no. 001-13997, dated April 12,
2006).
 51




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##### 



4.3
    
    Amended and Restated Registration Rights Agreement, dated as of
April 13, 2006 by and between Bally Total Fitness Holding
Corporation and certain holders who are signatories thereto
(incorporated by reference as Exhibit 10.4 to the Companys Current
Report on Form 8-K, file no. 001-13997, dated April 18, 2006).4.4
    
    Registration Rights Agreement, dated as of April 11, 2006, among
Bally Total Fitness Holding Corporation and the purchasers listed
on the signature page thereto (incorporated by reference as Exhibit
4.3 to the Companys Current Report on Form 8-K, file no.
001-13997, dated April 12, 2006).+10.1
    
    Interim Executive Services Agreement, dated as of April 12, 2006
between Tatum, LLC and the Company (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K, file no.
001-13997, dated April 18, 2006).10.2
    
    Consent Agreement by and between Bally Total Fitness Holding
Corporation and Special Value Bond Fund II, LLC, Special Value
Absolute Return Fund, LLC, Special Value Opportunities Fund, LLC
and Special Value Expansion Fund, LLC, dated March 22, 2006 (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K, file no.
001-13997, dated April 18, 2006).10.3
    
    Consent Agreement by and between Bally Total Fitness Holding
Corporation and Everest Capital Limited as agent for HFR ED
Advantage Master Trust, Everest Capital Event Fund, LP, GMAM
Investment Funds Trust II and Everest Capital Senior Debt Fund,
L.P., dated March 22, 2006 (incorporated by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K, file no.
001-13997, dated April 18,
2006).10.4
    
    Consent Agreement by and between Bally Total Fitness Holding
Corporation and Pardus European Special Opportunities Master Fund
L.P., dated March 22, 2006 (incorporated by reference to Exhibit 10.3 to the Companys
Current Report on Form 8-K, file no. 001-13997, dated April 18,
2006).10.5
    
    Stock Purchase Agreement, dated as of April 11, 2006, among Bally
Total Fitness Holding Corporation and Wattles Capital Management,
LLC (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K, file no. 001-13997, dated April 12,
2006).10.6
    
    Stock Purchase Agreement, dated as of April 11, 2006, among Bally
Total Fitness Holding Corporation and investment funds affiliated
with Ramius Capital Group, L.L.C. (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K, file no.
001-13997, dated April 12, 2006).10.7
    
    Fourth Amendment, dated as of June 23, 2006, under the Credit
Agreement, dated as of November 18, 1997, as amended and restated
as of October 14, 2004, among Bally Total Fitness Holding
Corporation, a Delaware corporation, the lenders parties thereto,
JPMorgan Chase Bank, N.A., as agent for the lenders, Deutsche Bank
Securities, Inc., as syndication agent, and LaSalle Bank National
Association, as documentation agent (incorporated by reference to
Exhibit 10.39 to the Companys Annual Report on Form 10-K, file no.
001-13997, for the fiscal year ended December 31, 2005).+10.8
    
    Confidential Settlement and General Release, dated July 21, 2006,
between the Company and Carl J. Landeck. (incorporated by reference
to Exhibit 10.1 to the Companys Current Report on Form 8-K, file
no. 001-13997, filed August 7, 2006).+10.9
    
    Amendment to Employment Agreement between Bally Total Fitness
Holding Corporation and Paul Toback, dated August 6, 2006
(incorporated by reference to Exhibit 10.9 to the Companys
Quarterly Report on Form 10-Q, file no. 001-13997, for the three
months ended June 30, 2006).+10.10
    
    Confidential Settlement Agreement and General Release, dated August
10, 2006, between the Company and Paul A. Toback (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form
8-K, file no. 001-13997, filed August 11, 2006).+10.11
    
    Form of Indemnification Agreement between the Company members of
the Board of Directors (incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K, file no. 001-13997,
filed September 13, 2006).+10.12
    
    Amendment to Employment Agreement, dated September 14, 2006,
between the Company and Marc D. Bassewitz (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form
8-K, file no. 001-13997, filed September 15, 2006).+10.13
    
    Amendment to Employment Agreement, dated September 14, 2006,
between the Company and James A. McDonald (incorporated by
reference to Exhibit 10.2 to the Companys Current Report on Form
8-K, file no. 001-13997, filed September 15, 2006).
 52




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##### 



10.14
    
    Amended and Restated Credit Agreement, dated as of October 16,
2006, by and among, Bally Total Fitness Holding Corporation, as
Borrower, the several banks and other financial institutions
parties thereto, JPMorgan Chase Bank, N.A., as Agent, and Morgan
Stanley Senior Funding, Inc., as Syndication Agent (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form
8-K, file no. 001-13997, filed October 20, 2006).*10.15
    
    Reaffirmation of the Guarantee And Collateral Agreement And
Operating Bank Guaranty, dated October 16, 2006, made by the
Company in favor of JPMorgan Chase Bank, N.A., as Collateral Agent.* 31.1
    
    Certification of the Acting Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.* 31.2
    
    Certification of the Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.* 32.1
    
    Certification of the Acting Chief Executive Officer and Principal
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.99.1
    
    Managements Report on Internal Control Over Financial Reporting,
included in Item 9A Controls and Proceduresfrom the Companys
Annual Report on Form 10-K for the year ended December 31, 2005
(incorporated by reference to Exhibit 99.1 to the Companys
Quarterly Report on Form 10-Q for the three
months ended June 30, 2006, file no. 001-13997, filed
September 11, 2006).
 
 +
    
    Management contract or compensatory plan or arrangement.*
    
    Filed herewith. 53




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##### 



SIGNATURE PAGE
  BALLY TOTAL FITNESS HOLDING CORPORATIONRegistrantBy:
    
    /s/ Ronald G. EidellRonald G. EidellSenior Vice President and Chief Financial Officer(principal financial officer)
  54