# FORM 10-Q

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

|[   ] | Transition
Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of
1934
|----- | -----------------------------------------------------------------------------------------

---

|Delaware                                       | 36-3228107                          
|---------------------------------------------- | ------------------------------------
|                                               |                                     
|(State or other
jurisdiction of incorporation) | (I.R.S. Employer
Identification No.)
|                                               |                                     
|                                               |                                     
|8700 West
Bryn Mawr Avenue, Chicago, Illinois  | 60631                               
|                                               |                                     
|(Address of principal
executive offices)       | (Zip Code)                          

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.   Yes: X    No:

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

As of October 31, 2003,
34,023,088 shares of the registrants common stock were outstanding.



---

# BALLY TOTAL
FITNESS HOLDING CORPORATION

# INDEX

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

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

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

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

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

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

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

| | Nine months
ended September 30, 2003 and 2002 | 3 | 
| | --------------------------------------------- | - | 

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

| | Nine months ended
September 30, 2003 | 4 | 
| | ------------------------------------ | - | 

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

| | Nine months
ended September 30, 2003 and 2002 | 5 | 
| | --------------------------------------------- | - | 

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

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

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

| | condition
and results of operations | 22 | 
| | ----------------------------------- | -- | 

| | Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 29 | 
| | ------- | ---------------------------------------------------------- | -- | 

| | Item 4. | Evaluation of Disclosure Controls and Procedures | 29 | 
| | ------- | ------------------------------------------------ | -- | 

| | Item 4. | Submission of matters to a vote of security holders | 29 | 
| | ------- | --------------------------------------------------- | -- | 

| | Item 6. | Exhibits and reports on Form 8-K | 30 | 
| | ------- | -------------------------------- | -- | 

|SIGNATURE PAGE |  | 31 | 
|-------------- |  | -- | 



---

##### Index

# PART I.  
FINANCIAL INFORMATION

## Item 1.  
Financial Statements

|                                                      |              |           |             |   |          
|----------------------------------------------------- | ------------ | --------- | ----------- | - | ---------
|                                                      | September 30 |           | December 31
|                                                      |              | 2003      |             |   | 2002     
|                                                      |              |           |            
|ASSETS                                                |              |           |             |   |          
|Current assets:                                       |              |           |             |   |          
|Cash and equivalents                                  | $            | 21,401    |             | $ | 12,907   
|Installment contracts receivable, net                 |              | 289,099   |             |   | 271,531  
|Other current assets                                  |              | 71,374    |             |   | 92,764   
|                                                      |              |           |            
|Total current assets                                  |              | 381,874   |             |   | 377,202  
|                                                      |              |           |             |   |          
|Installment contracts receivable, net                 |              | 254,395   |             |   | 251,074  
|Property and equipment, less accumulated depreciation |              |           |             |   |          
|and amortization of $587,081 and $538,613             |              | 639,373   |             |   | 657,539  
|Goodwill                                              |              | 242,126   |             |   | 242,854  
|Trademarks                                            |              | 6,969     |             |   | 6,969    
|Intangible assets, less accumulated                   |              |           |             |   |          
|amortization of $9,870 and $9,453                     |              | 2,370     |             |   | 2,786    
|Deferred income taxes                                 |              | 75,178    |             |   | 81,314   
|Deferred membership origination costs                 |              | 119,011   |             |   | 119,484  
|Other assets                                          |              | 35,315    |             |   | 32,652   
|                                                      |              |           |            
|                                                      | $            | 1,756,611 |             | $ | 1,771,874
|                                                      |              |           |            
|LIABILITIES AND STOCKHOLDERS EQUITY                  |              |           |             |   |          
|                                                      |              |           |             |   |          
|Current liabilities:                                  |              |           |             |   |          
|Accounts payable                                      | $            | 55,315    |             | $ | 51,752   
|Income taxes payable                                  |              | 784       |             |   | 1,497    
|Deferred income taxes                                 |              | 24,848    |             |   | 29,303   
|Accrued liabilities                                   |              | 85,910    |             |   | 87,683   
|Current maturities of long-term debt                  |              | 25,538    |             |   | 28,904   
|Deferred revenues                                     |              | 243,078   |             |   | 271,031  
|                                                      |              |           |            
|Total current liabilities                             |              | 435,473   |             |   | 470,170  
|                                                      |              |           |             |   |          
|Long-term debt, less current maturities               |              | 719,138   |             |   | 697,850  
|Other liabilities                                     |              | 10,912    |             |   | 10,689   
|Deferred revenues                                     |              | 53,961    |             |   | 63,689   
|Stockholders equity                                  |              | 537,127   |             |   | 529,476  
|                                                      |              |           |            
|                                                      | $            | 1,756,611 |             | $ | 1,771,874
|                                                      |              |           |            



---

##### Index

|                                                                                   |                    |          |  |   |         
|---------------------------------------------------------------------------------- | ------------------ | -------- |  | - | --------
|                                                                                   | Three months ended
|                                                                                   | September 30      
|                                                                                   |                   
|                                                                                   |                    | 2003     |  |   | 2002    
|                                                                                   |                    |          | 
|Net revenues:                                                                      |                    |          |  |   |         
|Membership revenue                                                                 | $                  | 165,568  |  | $ | 180,480 
|Products and services                                                              |                    | 71,586   |  |   | 57,398  
|Miscellaneous revenue                                                              |                    | 4,349    |  |   | 5,200   
|                                                                                   |                    |          | 
|                                                                                   |                    | 241,503  |  |   | 243,078 
|Operating costs and expenses:                                                      |                    |          |  |   |         
|Fitness center operations                                                          |                    | 139,347  |  |   | 140,946 
|Products and services                                                              |                    | 44,791   |  |   | 36,681  
|Member processing and collection centers                                           |                    | 12,057   |  |   | 11,686  
|Advertising                                                                        |                    | 11,935   |  |   | 12,221  
|General and administrative                                                         |                    | 8,620    |  |   | 7,916   
|Special charges                                                                    |                    |          |  |   | 6,500   
|Depreciation and amortization                                                      |                    | 19,276   |  |   | 19,567  
|                                                                                   |                    |          | 
|                                                                                   |                    | 236,026  |  |   | 235,517 
|                                                                                   |                    |          | 
|Operating income                                                                   |                    | 5,477    |  |   | 7,561   
|                                                                                   |                    |          |  |   |         
|Finance charges earned                                                             |                    | 19,436   |  |   | 16,815  
|Interest expense                                                                   |                    | (15,651) |  |   | (13,796)
|Other, net                                                                         |                    | (2,858)  |  |   | (556)   
|                                                                                   |                    |          | 
|                                                                                   |                    | 927      |  |   | 2,463   
|                                                                                   |                    |          | 
|                                                                                   |                    |          |  |   |         
|Income from continuing operations before income taxes                              |                    | 6,404    |  |   | 10,024  
|Income tax provision                                                               |                    | (1,537)  |  |   | (2,406) 
|                                                                                   |                    |          | 
|Income from continuing operations                                                  |                    | 4,867    |  |   | 7,618   
|Loss from discontinued operations (net of tax benefit                              |                    |          |  |   |         
|of $40 and $125, in 2003 and 2002, respectively)                                   |                    | (126)    |  |   | (394)   
|                                                                                   |                    |          | 
|Net income                                                                         | $                  | 4,741    |  | $ | 7,224   
|                                                                                   |                    |          | 
|Basic earnings per common share:                                                   |                    |          |  |   |         
|Income from continuing operations                                                  | $                  | 0.15     |  | $ | 0.23    
|Loss from discontinued operations                                                  |                    |          |  |   | (0.01)  
|                                                                                   |                    |          | 
|Net income per common share                                                        | $                  | 0.15     |  | $ | 0.22    
|                                                                                   |                    |          | 
|Diluted earnings per common share:                                                 |                    |          |  |   |         
|Income from continuing operations                                                  | $                  | 0.14     |  | $ | 0.23    
|Loss from discontinued operations                                                  |                    |          |  |   | (0.01)  
|                                                                                   |                    |          | 
|Net income per common share                                                        | $                  | 0.14     |  | $ | 0.22    
|                                                                                   |                    |          | 
|Pro forma amounts, assuming the new accounting principle is applied retroactively: |                    |          |  |   |         
|Income from continuing operations                                                  | $                  | 4,867    |  | $ | 7,259   
|Net income                                                                         |                    | 4,741    |  |   | 6,865   
|Basic net income per common share                                                  |                    | 0.15     |  |   | 0.21    
|Diluted net income per common share                                                |                    | 0.14     |  |   | 0.21    



---

##### Index

|                                                                                   |                   |          |  |   |         
|---------------------------------------------------------------------------------- | ----------------- | -------- |  | - | --------
|                                                                                   | Nine months ended
|                                                                                   | September 30     
|                                                                                   |                  
|                                                                                   |                   | 2003     |  |   | 2002    
|                                                                                   |                   |          | 
|Net revenues:                                                                      |                   |          |  |   |         
|Membership revenue                                                                 | $                 | 511,990  |  | $ | 551,544 
|Products and services                                                              |                   | 221,016  |  |   | 163,133 
|Miscellaneous revenue                                                              |                   | 14,018   |  |   | 15,060  
|                                                                                   |                   |          | 
|                                                                                   |                   | 747,024  |  |   | 729,737 
|Operating costs and expenses:                                                      |                   |          |  |   |         
|Fitness center operations                                                          |                   | 420,922  |  |   | 418,848 
|Products and services                                                              |                   | 139,350  |  |   | 103,466 
|Member processing and collection centers                                           |                   | 35,668   |  |   | 33,679  
|Advertising                                                                        |                   | 43,999   |  |   | 45,143  
|General and administrative                                                         |                   | 25,303   |  |   | 23,758  
|Special charges                                                                    |                   |          |  |   | 6,500   
|Depreciation and amortization                                                      |                   | 57,918   |  |   | 55,937  
|                                                                                   |                   |          | 
|                                                                                   |                   | 723,160  |  |   | 687,331 
|                                                                                   |                   |          | 
|Operating income                                                                   |                   | 23,864   |  |   | 42,406  
|                                                                                   |                   |          |  |   |         
|Finance charges earned                                                             |                   | 56,798   |  |   | 51,937  
|Interest expense                                                                   |                   | (43,572) |  |   | (41,986)
|Other, net                                                                         |                   | (4,678)  |  |   | (393)   
|                                                                                   |                   |          | 
|                                                                                   |                   | 8,548    |  |   | 9,558   
|                                                                                   |                   |          | 
|                                                                                   |                   |          |  |   |         
|Income from continuing operations before income taxes                              |                   | 32,412   |  |   | 51,964  
|Income tax provision                                                               |                   | (7,779)  |  |   | (8,110) 
|                                                                                   |                   |          | 
|Income from continuing operations                                                  |                   | 24,633   |  |   | 43,854  
|Discontinued operations                                                            |                   |          |  |   |         
|Loss from discontinued operations (net of tax benefit                              |                   |          |  |   |         
|of $236 and $255, in 2003 and 2002, respectively)                                  |                   | (745)    |  |   | (1,153) 
|Loss on disposal                                                                   |                   | (1,699)  |  |   |         
|                                                                                   |                   |          | 
|Loss from discontinued operations                                                  |                   | (2,444)  |  |   | (1,153) 
|                                                                                   |                   |          | 
|Income before cumulative effect of changes in accounting principles                |                   | 22,189   |  |   | 42,701  
|Cumulative effect of changes in accounting principles, net of taxes                |                   | (15,579) |  |   |         
|                                                                                   |                   |          | 
|Net income                                                                         | $                 | 6,610    |  | $ | 42,701  
|                                                                                   |                   |          | 
|Basic earnings per common share:                                                   |                   |          |  |   |         
|Income from continuing operations                                                  | $                 | 0.75     |  | $ | 1.37    
|Loss from discontinued operations                                                  |                   | (0.07)   |  |   | (0.04)  
|Cumulative effect of changes in accounting principles                              |                   | (0.48)   |  |   |         
|                                                                                   |                   |          | 
|Net income per common share                                                        | $                 | 0.20     |  | $ | 1.33    
|                                                                                   |                   |          | 
|Diluted earnings per common share:                                                 |                   |          |  |   |         
|Income from continuing operations                                                  | $                 | 0.74     |  | $ | 1.32    
|Loss from discontinued operations                                                  |                   | (0.07)   |  |   | (0.03)  
|Cumulative effect of changes in accounting principles                              |                   | (0.47)   |  |   |         
|                                                                                   |                   |          | 
|Net income per common share                                                        | $                 | 0.20     |  | $ | 1.29    
|                                                                                   |                   |          | 
|Pro forma amounts, assuming the new accounting principle is applied retroactively: |                   |          |  |   |         
|Income from continuing operations                                                  | $                 | 24,633   |  | $ | 45,742  
|Net income                                                                         |                   | 22,189   |  |   | 44,589  
|Basic net income per common share                                                  |                   | 0.68     |  |   | 1.39    
|Diluted net income per common share                                                |                   | 0.67     |  |   | 1.35    



---

##### Index

|                                |              |  |       |     |             |   |             |  |              |           |          |   |               |  |   |          |  |   |        
|------------------------------- | ------------ |  | ----- | --- | ----------- | - | ----------- |  | ------------ | --------- | -------- | - | ------------- |  | - | -------- |  | - | -------
|                                | Common stock |  |       |     |             |   |             |  | Unearned     |           |          |   |               |  |  
|                                |              |  |       |     |             |   |             |  | compensation |           | Common   |   | Total        
|                                |              |  | Par   |     | Contributed |   | Accumulated |  | (restricted  |           | stock in |   | stockholders
|                                | Shares       |  | value |     | capital     |   | deficit     |  | stock)       |           | treasury |   | equity       
|                                |              |  |       |     |             |   |             |  |              |           |          |   |              
|                                |              |  |       |     |             |   |             |  |              |           |          |   |               |  |   |          |  |   |        
|Balance at December 31, 2002    | 33,193,425   |  | $     | 338 |             | $ | 670,561     |  | $            | (104,279) |          | $ | (25,509)      |  | $ | (11,635) |  | $ | 529,476
|                                |              |  |       |     |             |   |             |  |              |           |          |   |               |  |   |          |  |   |        
|Net income                      |              |  |       |     |             |   |             |  |              | 6,610     |          |   |               |  |   |          |  |   | 6,610  
|                                |              |  |       |     |             |   |             |  |              |           |          |   |               |  |   |          |  |   |        
|Restricted stock activity       | 695,000      |  |       | 7   |             |   | 4,191       |  |              |           |          |   | (3,854)       |  |   |          |  |   | 344    
|                                |              |  |       |     |             |   |             |  |              |           |          |   |               |  |   |          |  |   |        
|Issuance of common stock under  |              |  |       |     |             |   |             |  |              |           |          |   |               |  |   |          |  |   |        
|stock purchase and option plans | 131,330      |  |       | 2   |             |   | 695         |  |              |           |          |   |               |  |   |          |  |   | 697    
|                                |              |  |       |     |             |   |             |  |              |           |          |   |              
|Balance at September 30, 2003   | 34,019,755   |  | $     | 347 |             | $ | 675,447     |  | $            | (97,669)  |          | $ | (29,363)      |  | $ | (11,635) |  | $ | 537,127
|                                |              |  |       |     |             |   |             |  |              |           |          |   |              



---

##### Index

|                                                                        |                   |          |  |   |         
|----------------------------------------------------------------------- | ----------------- | -------- |  | - | --------
|                                                                        | Nine months ended
|                                                                        | September 30     
|                                                                        |                  
|                                                                        |                   | 2003     |  |   | 2002    
|                                                                        |                   |          | 
|OPERATING:                                                              |                   |          |  |   |         
|Net income before cumulative effect of changes in accounting principles | $                 | 22,189   |  | $ | 42,701  
|Adjustments to reconcile to cash provided                              |                   |          |  |   |         
|Depreciation and amortization, including amortization                   |                   |          |  |   |         
|included in interest expense                                            |                   | 60,650   |  |   | 58,895  
|Change in operating assets and liabilities                              |                   | (49,357) |  |   | (66,533)
|Write-off of debt issuance costs                                        |                   | 2,562    |  |   |         
|Loss on disposal of discontinued operations                             |                   | 1,699    |  |   |         
|Stock-based compensation                                                |                   | 344      |  |   |         
|                                                                        |                   |          | 
|Cash provided by operating activities                                   |                   | 38,087   |  |   | 35,063  
|                                                                        |                   |          |  |   |         
|INVESTING:                                                              |                   |          |  |   |         
|Purchases and construction of property and equipment                    |                   | (31,508) |  |   | (61,991)
|Purchases of real estate                                                |                   |          |  |   | (11,510)
|Acquisitions of businesses and other                                    |                   | (501)    |  |   | (6,217) 
|                                                                        |                   |          | 
|Cash used in investing activities                                       |                   | (32,009) |  |   | (79,718)
|                                                                        |                   |          |  |   |         
|FINANCING:                                                              |                   |          |  |   |         
|Debt transactions                                                      |                   |          |  |   |         
|Net borrowings (repayments) under revolving credit agreement            |                   | (49,500) |  |   | 35,900  
|Net borrowings of other long-term debt                                  |                   | 61,009   |  |   | 9,643   
|Debt issuance and refinancing costs                                     |                   | (9,790)  |  |   | (270)   
|                                                                        |                   |          | 
|Cash provided by debt transactions                                      |                   | 1,719    |  |   | 45,273  
|                                                                        |                   |          |  |   |         
|Equity transactions                                                    |                   |          |  |   |         
|Proceeds from exercise of warrants                                      |                   |          |  |   | 2,513   
|Proceeds from issuance of common stock under stock                      |                   |          |  |   |         
|purchase and option plans                                               |                   | 697      |  |   | 1,754   
|Purchases of common stock for treasury                                  |                   |          |  |   | (860)   
|                                                                        |                   |          | 
|Cash provided by financing transactions                                 |                   | 2,416    |  |   | 48,680  
|                                                                        |                   |          | 
|                                                                        |                   |          |  |   |         
|Increase in cash and equivalents                                        |                   | 8,494    |  |   | 4,025   
|Cash and equivalents, beginning of period                               |                   | 12,907   |  |   | 9,310   
|                                                                        |                   |          | 
|Cash and equivalents, end of period                                     | $                 | 21,401   |  | $ | 13,335  
|                                                                        |                   |          | 



---

##### Index

|                                                             |                   |          |  |   |         
|------------------------------------------------------------ | ----------------- | -------- |  | - | --------
|                                                             | Nine months ended
|                                                             | September 30     
|                                                             |                  
|                                                             |                   | 2003     |  |   | 2002    
|                                                             |                   |          | 
|SUPPLEMENTAL CASH FLOWS INFORMATION:                         |                   |          |  |   |         
|                                                             |                   |          |  |   |         
|Changes in operating assets and liabilites:                  |                   |          |  |   |         
|Increase in installment contracts receivable                 | $                 | (20,742) |  | $ | (67,488)
|Decrease (increase) in other current and other assets        |                   | 1,686    |  |   | (12,857)
|Decrease (increase) in deferred membership origination costs |                   | 473      |  |   | (6,805) 
|Increase in accounts payable                                 |                   | 3,582    |  |   | 13,264  
|Increase in income taxes payable and deferred income taxes   |                   | 5,847    |  |   | 7,043   
|Increase (decrease) in accrued and other liabilities         |                   | (1,987)  |  |   | 8,175   
|Decrease in deferred revenues                                |                   | (38,216) |  |   | (7,865) 
|                                                             |                   |          | 
|Change in operating assets and liabilities                   | $                 | (49,357) |  | $ | (66,533)
|                                                             |                   |          | 
|                                                             |                   |          |  |   |         
|Cash payments for interest and income taxes                  |                   |          |  |   |         
|were as follows                                             |                   |          |  |   |         
|Interest paid                                                | $                 | 30,477   |  | $ | 34,139  
|Interest capitalized                                         |                   | (844)    |  |   | (2,442) 
|Income taxes paid, net                                       |                   | 1,698    |  |   | 909     
|                                                             |                   |          |  |   |         
|Investing and financing activities exclude the following     |                   |          |  |   |         
|non-cash transactions                                       |                   |          |  |   |         
|Acquisitions of property and equipment                       |                   |          |  |   |         
|through capital leases/borrowings                            | $                 | 7,210    |  | $ | 11,231  
|Acquisitions of businesses with common stock                 |                   |          |  |   | 8,855   
|Restricted stock activity                                    |                   | 4,191    |  |   | 4,619   
|Debt, including assumed debt related to                      |                   |          |  |   |         
|acquisition of businesses                                    |                   |          |  |   | 2,846   



---

##### Index

## Basis of presentation

The accompanying condensed consolidated financial statements include the
accounts of Bally Total Fitness Holding Corporation (the Company)
and the subsidiaries that it controls. The Company, through its subsidiaries, is
a commercial operator of 415 fitness centers at September 30, 2003 concentrated
in 29 states and Canada. Additionally, the Company has twelve clubs operated
pursuant to franchise and joint venture agreements in the United States, Asia,
and the Caribbean. The Company operates in one industry segment, and all
significant revenues arise from the commercial operation of fitness centers,
primarily in major metropolitan markets in the United States and Canada. Unless
otherwise specified in the text, references to the Company include the Company
and its subsidiaries. These condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements included in
the Companys Annual Report on Form 10-K for the year ended December 31,
2002.

All adjustments have been recorded which are, in the opinion of management,
necessary for a fair presentation of the condensed consolidated balance sheet of
the Company at September 30, 2003, its consolidated statements of income for the
three and nine months ended September 30, 2003 and 2002, its consolidated
statement of stockholders equity for the nine months ended September 30,
2003, and its consolidated statement of cash flows for the nine months ended
September 30, 2003 and 2002. All such adjustments were of a normal recurring
nature.

The accompanying condensed consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
which require the Companys management to make estimates and assumptions
that affect the amounts reported therein. Actual results could vary from such
estimates. In addition, certain reclassifications have been made to prior period
financial statements to conform with the 2003 presentation.

As defined in the indenture to the Bally Total Fitness Holding Corporation
101⁄2% Senior Notes, due 2011, guarantor subsidiaries include:

59th Street Gym LLC; 708 Gym LLC; Ace LLC; Bally Fitness Franchising,
Inc.; Bally Franchise RSC, Inc.; Bally Franchising Holdings, Inc.; Bally Total
Fitness Clinics, Inc.; Bally Total Fitness Corporation; Bally Total Fitness
International, Inc.; Bally Total Fitness of Missouri, Inc.; Bally Total Fitness
of Toledo, Inc.; Ballys Fitness and Racquet Clubs, Inc.; BFIT
Rehabilitation Services, Inc.; BFIT Rehab of Boca Raton, Inc.; BFIT Rehab of
Kendall, Inc.; BFIT Rehab of West Palm Beach, Inc.; Connecticut Coast Fitness
Centers, Inc.; Connecticut Valley Fitness Centers, Inc.; Crunch LA LLC; Crunch
World LLC; Flambe LLC; Greater Philly No. 1 Holding Company; Greater Philly No.
2 Holding Company; Health & Tennis Corporation of New York; Holiday Health
Clubs of the East Coast, Inc.; Holiday Health & Fitness Centers of New York,
Inc.; Holiday Health Clubs and Fitness Centers, Inc.; Holiday Health Clubs of
the Southeast, Inc.; Holiday/Southeast Holding Corp.; Holiday Spa Health Clubs
of California; Holiday Universal, Inc.; Crunch Fitness International, Inc.; Jack
La Lanne Fitness Centers, Inc.; Jack La Lanne Holding Corp.; Manhattan Sports
Club, Inc.; Mission Impossible, LLC; New Fitness Holding Co., Inc.; Nycon
Holding Co., Inc.; Physical Fitness Centers of Philadelphia, Inc.; PowerFlex
Corporation; Providence Fitness Centers, Inc.; Rhode Island Holding Company;
Scandinavian Health Spa, Inc.; Scandinavian US Swim & Fitness, Inc., Soho Ho
LLC; Sportslife, Inc.; Sportslife Gwinnett, Inc.; Sportslife Roswell, Inc.;
Sportslife Stone Mountain, Inc.; Sportslife Town Center II, Inc.; Tidelands
Holiday Health Clubs, Inc.; U.S. Health, Inc.; and West Village Gym at the
Archives LLC.



---

##### Index

## Changes in accounting principles

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

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

## Seasonal factors

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

## Market risk

The Company is exposed to market risk from changes in the interest rates on
certain of its outstanding debt. The outstanding loan balance under its bank
credit facility and the Series 2001-1 accounts receivable-backed variable
funding certificates bear interest at variable rates based upon prevailing
short-term interest rates in the United States and Europe.

The Company has an 8.5% interest rate cap on the Series 2001-1 accounts
receivable-backed variable funding certificates which covers the outstanding
$130 million (as of September 30, 2003) of principal through its original
principal repayment schedule. Additionally, on $100 million of the variable
funding certificates which were refinanced, the Company has purchased a 7.75%
rate cap extending through the refinanced period. The Company has also entered
into interest rate swap agreements whereby the fixed interest commitment on $200
million of outstanding principal on the Companys 9.875% Senior
Subordinated Notes, due 2007, was swapped for a variable rate commitment based
on the six-month Euro rate, plus 6.01% (7.13% at September 30, 2003).



---

##### Index

|Installment contracts receivable                     |              |          |             |   |         
|---------------------------------------------------- | ------------ | -------- | ----------- | - | --------
|                                                     | September 30 |          | December 31
|                                                     |              | 2003     |             |   | 2002    
|                                                     |              |          |            
|Current:                                             |              |          |             |   |         
|Installment contracts receivable                     | $            | 415,483  |             | $ | 404,707 
|Unearned finance charges                             |              | (40,011) |             |   | (36,015)
|Allowance for doubtful receivables and cancellations |              | (86,373) |             |   | (97,161)
|                                                     |              |          |            
|                                                     | $            | 289,099  |             | $ | 271,531 
|                                                     |              |          |            
|Long-term:                                           |              |          |             |   |         
|Installment contracts receivable                     | $            | 342,311  |             | $ | 343,749 
|Unearned finance charges                             |              | (24,217) |             |   | (22,396)
|Allowance for doubtful receivables and cancellations |              | (63,699) |             |   | (70,279)
|                                                     |              |          |            
|                                                     | $            | 254,395  |             | $ | 251,074 
|                                                     |              |          |            

|                                |                    |          |                   |   |          |  |   |           |  |   |          
|------------------------------- | ------------------ | -------- | ----------------- | - | -------- |  | - | --------- |  | - | ---------
|                                | Three months ended |          | Nine months ended
|                                | September 30       |          | September 30     
|                                |                    |          |                  
|                                |                    | 2003     |                   |   | 2002     |  |   | 2003      |  |   | 2002     
|                                |                    |          |                   |   |          |  |  
|Balance at beginning of period  | $                  | 162,691  |                   | $ | 130,860  |  | $ | 167,440   |  | $ | 130,504  
|Contract cancellations and      |                    |          |                   |   |          |  |   |           |  |   |          
|write-offs of uncollectible     |                    |          |                   |   |          |  |   |           |  |   |          
|amounts, net of recoveries      |                    | (84,685) |                   |   | (81,268) |  |   | (258,589) |  |   | (258,448)
|Provision for cancellations and |                    |          |                   |   |          |  |   |           |  |   |          
|doubtful receivables            |                    | 72,066   |                   |   | 84,119   |  |   | 241,221   |  |   | 261,655  
|                                |                    |          |                   |   |          |  |  
|Balance at end of period        | $                  | 150,072  |                   | $ | 133,711  |  | $ | 150,072   |  | $ | 133,711  
|                                |                    |          |                   |   |          |  |  



---

##### Index

## Membership revenues

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

|                                        |                    |          |                   |   |          |  |   |           |  |   |          
|--------------------------------------- | ------------------ | -------- | ----------------- | - | -------- |  | - | --------- |  | - | ---------
|                                        | Three months ended |          | Nine months ended
|                                        | September 30       |          | September 30     
|                                        |                    |          |                  
|                                        |                    | 2003     |                   |   | 2002     |  |   | 2003      |  |   | 2002     
|                                        |                    |          |                   |   |          |  |  
|Gross committed membership fees         | $                  | 266,231  |                   | $ | 287,389  |  | $ | 857,333   |  | $ | 888,117  
|Less: Committed monthly dues            |                    | (66,592) |                   |   | (59,385) |  |   | (199,503) |  |   | (180,600)
|Provision for doubtful receivables      |                    |          |                   |   |          |  |   |           |  |   |          
|and cancellations                       |                    | (72,066) |                   |   | (84,119) |  |   | (241,221) |  |   | (261,655)
|Unearned finance charges and other      |                    | (40,663) |                   |   | (42,134) |  |   | (134,450) |  |   | (122,366)
|Products and services revenues          |                    |          |                   |   |          |  |   |           |  |   |          
|included in membership programs         |                    | (31,306) |                   |   | (20,349) |  |   | (96,626)  |  |   | (57,348) 
|                                        |                    |          |                   |   |          |  |  
|Initial membership fees originated, net | $                  | 55,604   |                   | $ | 81,402   |  | $ | 185,533   |  | $ | 266,148  
|                                        |                    |          |                   |   |          |  |  

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

|                                |                    |         |                   |   |         |  |   |         |  |   |        
|------------------------------- | ------------------ | ------- | ----------------- | - | ------- |  | - | ------- |  | - | -------
|                                | Three months ended |         | Nine months ended
|                                | September 30       |         | September 30     
|                                |                    |         |                  
|                                |                    | 2003    |                   |   | 2002    |  |   | 2003    |  |   | 2002   
|                                |                    |         |                   |   |         |  |  
|Initial membership fees:        |                    |         |                   |   |         |  |   |         |  |   |        
|Originated, net                 | $                  | 55,604  |                   | $ | 81,402  |  | $ | 185,533 |  | $ | 266,148
|Decrease in deferral            |                    | 13,963  |                   |   | 4,848   |  |   | 38,607  |  |   | 2,885  
|                                |                    |         |                   |   |         |  |  
|                                |                    | 69,567  |                   |   | 86,250  |  |   | 224,140 |  |   | 269,033
|Dues:                           |                    |         |                   |   |         |  |   |         |  |   |        
|Dues collected                  |                    | 98,237  |                   |   | 91,624  |  |   | 288,241 |  |   | 277,532
|Decrease (increase) in deferral |                    | (2,236) |                   |   | 2,606   |  |   | (391)   |  |   | 4,979  
|                                |                    |         |                   |   |         |  |  
|                                |                    | 96,001  |                   |   | 94,230  |  |   | 287,850 |  |   | 282,511
|                                |                    |         |                   |   |         |  |  
|Membership revenue              | $                  | 165,568 |                   | $ | 180,480 |  | $ | 511,990 |  | $ | 551,544
|                                |                    |         |                   |   |         |  |  



---

##### Index

|Products and services                |                    |        |                   |   |        |  |   |         |  |   |        
|------------------------------------ | ------------------ | ------ | ----------------- | - | ------ |  | - | ------- |  | - | -------
|                                     | Three months ended |        | Nine months ended
|                                     | September 30       |        | September 30     
|                                     |                    |        |                  
|                                     |                    | 2003   |                   |   | 2002   |  |   | 2003    |  |   | 2002   
|                                     |                    |        |                   |   |        |  |  
|Net revenues:                        |                    |        |                   |   |        |  |   |         |  |   |        
|Retail and nutritional supplements  |                    |        |                   |   |        |  |   |         |  |   |        
|Membership programs                  | $                  | 3,290  |                   | $ | 7,305  |  | $ | 14,667  |  | $ | 22,815 
|Other sales                          |                    | 14,138 |                   |   | 13,791 |  |   | 43,753  |  |   | 42,024 
|Personal training                   |                    |        |                   |   |        |  |   |         |  |   |        
|Membership programs                  |                    | 28,016 |                   |   | 13,044 |  |   | 81,959  |  |   | 34,533 
|Other sales                          |                    | 26,142 |                   |   | 21,389 |  |   | 79,397  |  |   | 58,785 
|Financial services                   |                    |        |                   |   | 1,869  |  |   | 1,240   |  |   | 4,976  
|                                     |                    |        |                   |   |        |  |  
|                                     |                    | 71,586 |                   |   | 57,398 |  |   | 221,016 |  |   | 163,133
|Direct operating costs and expenses: |                    |        |                   |   |        |  |   |         |  |   |        
|Retail and nutritional supplements   |                    | 15,081 |                   |   | 16,221 |  |   | 49,756  |  |   | 48,266 
|Personal training                    |                    | 29,710 |                   |   | 20,460 |  |   | 89,594  |  |   | 55,200 
|                                     |                    |        |                   |   |        |  |  
|                                     |                    | 44,791 |                   |   | 36,681 |  |   | 139,350 |  |   | 103,466
|                                     |                    |        |                   |   |        |  |  
|Direct operating margin              | $                  | 26,795 |                   | $ | 20,717 |  | $ | 81,666  |  | $ | 59,667 
|                                     |                    |        |                   |   |        |  |  
|Margin percentage                    |                    | 37%    |                   |   | 36%    |  |   | 37%     |  |   | 37%    

## Earnings per common share

Basic earnings per common share for each period is computed based on the
weighted average number of shares of common stock outstanding of 32,662,634 and
32,379,261 for the three months ended September 30, 2003 and 2002, respectively,
and 32,632,527 and 32,069,163 for the nine months ended September 30, 2003 and
2002, respectively. Diluted earnings per common share for each period includes
the addition of common stock equivalents of 1,008,041 and 625,467 for the three
months ended September 30, 2003 and 2002, respectively, and 582,601 and
1,021,453 for the nine months ended September 30, 2003 and 2002, respectively.
Common stock equivalents represent the dilutive effect of the assumed exercise
of outstanding warrants and stock options. Options outstanding to purchase
2,975,594 and 3,069,125 shares of common stock at September 30, 2003 and 2002,
respectively, were not included in the computation of diluted earnings per share
because the exercise prices of the options were greater than the average market
prices of the Companys common shares. The range of exercise prices per
share for these options was between $12.00 and $36.00 and $15.31 and $36.00 at
September 30, 2003 and 2002, respectively.

## Income taxes

At September 30, 2003, for accounting purposes, the Company had approximately
$103,000 of unrecognized federal net operating loss carryforwards. Separately,
the Companys alternative minimum tax (AMT) net operating loss
carryforwards have been substantially recognized. Therefore, having fully
recognized AMT net operating loss carryforwards for reporting purposes, the
Companys federal income tax rate increased to 20% during the second
quarter of 2002. The 20% federal rate will remain in effect until such time



---

##### Index

For federal income tax payment purposes, the Company has available net operating
loss carryforwards exceeding $343,000 and AMT net operating loss carryfowards in
excess of $203,000. Therefore, the Company currently does not expect to make any
significant federal tax payments earlier than 2006. At such time, the Company
will be required to pay taxes at the 20% AMT rate for periods currently
estimated to extend beyond 2006, including those periods benefited by AMT
credits.

## Stock Plans

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

|                                       |                    |         |                   |   |         |  |   |         |  |   |        
|-------------------------------------- | ------------------ | ------- | ----------------- | - | ------- |  | - | ------- |  | - | -------
|                                       | Three months ended |         | Nine months ended
|                                       | September 30       |         | September 30     
|                                       |                    |         |                  
|                                       |                    | 2003    |                   |   | 2002    |  |   | 2003    |  |   | 2002   
|                                       |                    |         |                   |   |         |  |  
|Net income, as reported                | $                  | 4,741   |                   | $ | 7,224   |  | $ | 6,610   |  | $ | 42,701 
|Plus: stock-based compensation expense |                    |         |                   |   |         |  |   |         |  |   |        
|included in net income, net of tax     |                    | 168     |                   |   |         |  |   | 261     |  |   |        
|Less: stock-based compensation expense |                    |         |                   |   |         |  |   |         |  |   |        
|determined under fair value based      |                    |         |                   |   |         |  |   |         |  |   |        
|method, net of tax                     |                    | (1,007) |                   |   | (1,113) |  |   | (2,613) |  |   | (3,828)
|                                       |                    |         |                   |   |         |  |  
|Pro forma net income                   | $                  | 3,902   |                   | $ | 6,111   |  | $ | 4,258   |  | $ | 38,873 
|                                       |                    |         |                   |   |         |  |  
|Basic earnings per common share        |                    |         |                   |   |        
|As reported                            | $                  | 0.15    |                   | $ | 0.22    |  | $ | 0.20    |  | $ | 1.33   
|Pro forma                              |                    | 0.12    |                   |   | 0.19    |  |   | 0.13    |  |   | 1.21   
|Diluted earnings per common share      |                    |         |                   |   |         | 
|As reported                            |                    | 0.14    |                   |   | 0.22    |  |   | 0.20    |  |   | 1.29   
|Pro forma                              |                    | 0.12    |                   |   | 0.19    |  |   | 0.13    |  |   | 0.17   

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Companys stock options have characteristics significantly different
from those of traded options, and because



---

##### Index

## Condensed Consolidating Financial Statements

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



---

##### Index

|                             |                    |           |              |           |              |               |              |         |       |   |              |  |   |          
|---------------------------- | ------------------ | --------- | ------------ | --------- | ------------ | ------------- | ------------ | ------- | ----- | - | ------------ |  | - | ---------
|                             | September 30, 2003
|                             |                   
|                             |                    |           |              | Guarantor |              | Non-Guarantor |              |         |       |   | Consolidated
|                             | Parent             |           | Subsidiaries |           | Subsidiaries |               | Eliminations |         | Total
|                             |                    |           |              |           |              |               |              |         |      
|ASSETS                       |                    |           |              |           |              |               |              |         |       |   |              |  |   |          
|Current assets:              |                    |           |              |           |              |               |              |         |       |   |              |  |   |          
|Cash and equivalents         | $                  | -         |              | $         | 18,097       |               | $            | 3,304   |       | $ | -            |  | $ | 21,401   
|Installment contracts        |                    |           |              |           |              |               |              |         |       |   |              |  |   |          
|receivable, net              |                    | -         |              |           | -            |               |              | 289,099 |       |   | -            |  |   | 289,099  
|Other current assets         |                    | -         |              |           | 69,827       |               |              | 1,547   |       |   | -            |  |   | 71,374   
|                             |                    |           |              |           |              |               |              |         |      
|Total current assets         |                    | -         |              |           | 87,924       |               |              | 293,950 |       |   | -            |  |   | 381,874  
|                             |                    |           |              |           |              |               |              |         |       |   |              |  |   |          
|Installment contracts        |                    |           |              |           |              |               |              |         |       |   |              |  |   |          
|receivable, net              |                    | -         |              |           | -            |               |              | 254,395 |       |   | -            |  |   | 254,395  
|Property and equipment, net  |                    | -         |              |           | 596,966      |               |              | 42,407  |       |   | -            |  |   | 639,373  
|Goodwill                     |                    | 31,390    |              |           | 188,164      |               |              | 22,572  |       |   | -            |  |   | 242,126  
|Trademarks                   |                    | 6,767     |              |           | 202          |               |              | -       |       |   | -            |  |   | 6,969    
|Intangible assets, net       |                    | -         |              |           | 2,370        |               |              | -       |       |   | -            |  |   | 2,370    
|Deferred income taxes        |                    | -         |              |           | 75,178       |               |              | -       |       |   | -            |  |   | 75,178   
|Deferred membership          |                    |           |              |           |              |               |              |         |       |   |              |  |   |          
|origination costs            |                    | -         |              |           | 117,013      |               |              | 1,998   |       |   | -            |  |   | 119,011  
|Investment in and advances   |                    |           |              |           |              |               |              |         |       |   |              |  |   |          
|to subsidiaries              |                    | 1,081,966 |              |           | 221,315      |               |              | -       |       |   | (1,303,281)  |  |   | -        
|Other assets                 |                    | 11,749    |              |           | 6,478        |               |              | 17,088  |       |   | -            |  |   | 35,315   
|                             |                    |           |              |           |              |               |              |         |      
|                             | $                  | 1,131,872 |              | $         | 1,295,610    |               | $            | 632,410 |       | $ | (1,303,281)  |  | $ | 1,756,611
|                             |                    |           |              |           |              |               |              |         |      
|LIABILITIES AND              |                    |           |              |           |              |               |              |         |       |   |              |  |   |          
|STOCKHOLDERS EQUITY         |                    |           |              |           |              |               |              |         |       |   |              |  |   |          
|Current liabilities:         |                    |           |              |           |              |               |              |         |       |   |              |  |   |          
|Accounts payable             | $                  | -         |              | $         | 55,148       |               | $            | 167     |       | $ | -            |  | $ | 55,315   
|Income taxes payable         |                    | -         |              |           | 590          |               |              | 194     |       |   | -            |  |   | 784      
|Deferred income taxes        |                    | -         |              |           | 23,804       |               |              | 1,044   |       |   | -            |  |   | 24,848   
|Accrued liabilities          |                    | 21,575    |              |           | 62,205       |               |              | 2,130   |       |   | -            |  |   | 85,910   
|Current maturities           |                    |           |              |           |              |               |              |         |       |   |              |  |   |          
|of long-term debt            |                    | 18,180    |              |           | 3,395        |               |              | 3,963   |       |   | -            |  |   | 25,538   
|Deferred revenues            |                    | -         |              |           | 238,981      |               |              | 4,097   |       |   | -            |  |   | 243,078  
|                             |                    |           |              |           |              |               |              |         |      
|Total current liabilities    |                    | 39,755    |              |           | 384,123      |               |              | 11,595  |       |   | -            |  |   | 435,473  
|                             |                    |           |              |           |              |               |              |         |       |   |              |  |   |          
|Long-term debt, less current |                    |           |              |           |              |               |              |         |       |   |              |  |   |          
|maturities                   |                    | 554,990   |              |           | 17,290       |               |              | 146,858 |       |   | -            |  |   | 719,138  
|Net affiliate payable        |                    | -         |              |           | 625,866      |               |              | 278,243 |       |   | (904,109)    |  |   | -        
|Other liabilities            |                    | -         |              |           | 10,407       |               |              | 505     |       |   | -            |  |   | 10,912   
|Deferred revenues            |                    | -         |              |           | 53,062       |               |              | 899     |       |   | -            |  |   | 53,961   
|Stockholders equity         |                    | 537,127   |              |           | 204,862      |               |              | 194,310 |       |   | (399,172)    |  |   | 537,127  
|                             |                    |           |              |           |              |               |              |         |      
|                             | $                  | 1,131,872 |              | $         | 1,295,610    |               | $            | 632,410 |       | $ | (1,303,281)  |  | $ | 1,756,611
|                             |                    |           |              |           |              |               |              |         |      



---

##### Index

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



---

##### Index

|                                     |                                       |          |              |           |              |               |              |         |       |   |              |  |   |         
|------------------------------------ | ------------------------------------- | -------- | ------------ | --------- | ------------ | ------------- | ------------ | ------- | ----- | - | ------------ |  | - | --------
|                                     | Three Months Ended September 30, 2003
|                                     |                                      
|                                     |                                       |          |              | Guarantor |              | Non-Guarantor |              |         |       |   | Consolidated
|                                     | Parent                                |          | Subsidiaries |           | Subsidiaries |               | Eliminations |         | Total
|                                     |                                       |          |              |           |              |               |              |         |      
|Net revenues:                        |                                       |          |              |           |              |               |              |         |       |   |              |  |   |         
|Membership revenue                   | $                                     | -        |              | $         | 158,860      |               | $            | 6,708   |       | $ | -            |  | $ | 165,568 
|Products and services                |                                       | -        |              |           | 69,679       |               |              | 1,907   |       |   | -            |  |   | 71,586  
|Miscellaneous revenue                |                                       | -        |              |           | 4,006        |               |              | 343     |       |   | -            |  |   | 4,349   
|                                     |                                       |          |              |           |              |               |              |         |      
|                                     |                                       | -        |              |           | 232,545      |               |              | 8,958   |       |   | -            |  |   | 241,503 
|Operating costs and expenses:        |                                       |          |              |           |              |               |              |         |       |   |              |  |   |         
|Fitness center operations            |                                       | -        |              |           | 133,987      |               |              | 5,360   |       |   | -            |  |   | 139,347 
|Products and services                |                                       | -        |              |           | 43,214       |               |              | 1,577   |       |   | -            |  |   | 44,791  
|Member processing and                |                                       |          |              |           |              |               |              |         |       |   |              |  |   |         
|collection centers                   |                                       | -        |              |           | 7,461        |               |              | 4,596   |       |   | -            |  |   | 12,057  
|Advertising                          |                                       | -        |              |           | 11,434       |               |              | 501     |       |   | -            |  |   | 11,935  
|General and administrative           |                                       | 911      |              |           | 7,388        |               |              | 321     |       |   | -            |  |   | 8,620   
|Depreciation and amortization        |                                       | -        |              |           | 18,544       |               |              | 732     |       |   | -            |  |   | 19,276  
|                                     |                                       |          |              |           |              |               |              |         |      
|                                     |                                       | 911      |              |           | 222,028      |               |              | 13,087  |       |   | -            |  |   | 236,026 
|                                     |                                       |          |              |           |              |               |              |         |      
|Operating income (loss)              |                                       | (911)    |              |           | 10,517       |               |              | (4,129) |       |   | -            |  |   | 5,477   
|                                     |                                       |          |              |           |              |               |              |         |       |   |              |  |   |         
|Equity in net income of subsidiaries |                                       | 14,970   |              |           | -            |               |              | -       |       |   | (14,970)     |  |   | -       
|Finance charges earned               |                                       | -        |              |           | -            |               |              | 19,436  |       |   | -            |  |   | 19,436  
|Interest expense                     |                                       | (12,548) |              |           | (374)        |               |              | (2,729) |       |   | -            |  |   | (15,651)
|Other, net                           |                                       | -        |              |           | (2,602)      |               |              | (256)   |       |   | -            |  |   | (2,858) 
|                                     |                                       |          |              |           |              |               |              |         |      
|                                     |                                       | 2,422    |              |           | (2,976)      |               |              | 16,451  |       |   | (14,970)     |  |   | 927     
|                                     |                                       |          |              |           |              |               |              |         |      
|Income from continuing operations    |                                       |          |              |           |              |               |              |         |       |   |              |  |   |         
|before income taxes                  |                                       | 1,511    |              |           | 7,541        |               |              | 12,322  |       |   | (14,970)     |  |   | 6,404   
|Income tax benefit (provision)       |                                       | 3,230    |              |           | (1,810)      |               |              | (2,957) |       |   | -            |  |   | (1,537) 
|                                     |                                       |          |              |           |              |               |              |         |      
|Income from continuing operations    |                                       | 4,741    |              |           | 5,731        |               |              | 9,365   |       |   | (14,970)     |  |   | 4,867   
|Loss from discontinued operations    |                                       |          |              |           |              |               |              |         |       |   |              |  |   |         
|(net of tax benefit of $40)          |                                       | -        |              |           | -            |               |              | (126)   |       |   | -            |  |   | (126)   
|                                     |                                       |          |              |           |              |               |              |         |      
|Net income                           | $                                     | 4,741    |              | $         | 5,731        |               | $            | 9,239   |       | $ | (14,970)     |  | $ | 4,741   
|                                     |                                       |          |              |           |              |               |              |         |      



---

##### Index

|                                     |                                       |          |              |           |              |               |              |         |       |   |              |  |   |         
|------------------------------------ | ------------------------------------- | -------- | ------------ | --------- | ------------ | ------------- | ------------ | ------- | ----- | - | ------------ |  | - | --------
|                                     | Three Months Ended September 30, 2002
|                                     |                                      
|                                     |                                       |          |              | Guarantor |              | Non-Guarantor |              |         |       |   | Consolidated
|                                     | Parent                                |          | Subsidiaries |           | Subsidiaries |               | Eliminations |         | Total
|                                     |                                       |          |              |           |              |               |              |         |      
|Net revenues:                        |                                       |          |              |           |              |               |              |         |       |   |              |  |   |         
|Membership revenue                   | $                                     | -        |              | $         | 173,663      |               | $            | 6,817   |       | $ | -            |  | $ | 180,480 
|Products and services                |                                       | -        |              |           | 55,949       |               |              | 1,449   |       |   | -            |  |   | 57,398  
|Miscellaneous revenue                |                                       | -        |              |           | 4,862        |               |              | 338     |       |   | -            |  |   | 5,200   
|                                     |                                       |          |              |           |              |               |              |         |      
|                                     |                                       | -        |              |           | 234,474      |               |              | 8,604   |       |   | -            |  |   | 243,078 
|Operating costs and expenses:        |                                       |          |              |           |              |               |              |         |       |   |              |  |   |         
|Fitness center operations            |                                       | -        |              |           | 135,986      |               |              | 4,960   |       |   | -            |  |   | 140,946 
|Products and services                |                                       | -        |              |           | 35,576       |               |              | 1,105   |       |   | -            |  |   | 36,681  
|Member processing and                |                                       |          |              |           |              |               |              |         |       |   |              |  |   |         
|collection centers                   |                                       | -        |              |           | 6,612        |               |              | 5,074   |       |   | -            |  |   | 11,686  
|Advertising                          |                                       | -        |              |           | 11,885       |               |              | 336     |       |   | -            |  |   | 12,221  
|General and administrative           |                                       | 1,025    |              |           | 6,494        |               |              | 397     |       |   | -            |  |   | 7,916   
|Special charges                      |                                       | -        |              |           | 6,500        |               |              | -       |       |   | -            |  |   | 6,500   
|Depreciation and amortization        |                                       | -        |              |           | 18,975       |               |              | 592     |       |   | -            |  |   | 19,567  
|                                     |                                       |          |              |           |              |               |              |         |      
|                                     |                                       | 1,025    |              |           | 222,028      |               |              | 12,464  |       |   | -            |  |   | 235,517 
|                                     |                                       |          |              |           |              |               |              |         |      
|Operating income (loss)              |                                       | (1,025)  |              |           | 12,446       |               |              | (3,860) |       |   | -            |  |   | 7,561   
|                                     |                                       |          |              |           |              |               |              |         |       |   |              |  |   |         
|Equity in net income of subsidiaries |                                       | 16,226   |              |           | -            |               |              | -       |       |   | (16,226)     |  |   | -       
|Finance charges earned               |                                       | -        |              |           | 168          |               |              | 16,647  |       |   | -            |  |   | 16,815  
|Interest expense                     |                                       | (10,820) |              |           | (333)        |               |              | (2,643) |       |   | -            |  |   | (13,796)
|Other, net                           |                                       | -        |              |           | 6            |               |              | (562)   |       |   | -            |  |   | (556)   
|                                     |                                       |          |              |           |              |               |              |         |      
|                                     |                                       | 5,406    |              |           | (159)        |               |              | 13,442  |       |   | (16,226)     |  |   | 2,463   
|                                     |                                       |          |              |           |              |               |              |         |      
|Income from continuing operations    |                                       |          |              |           |              |               |              |         |       |   |              |  |   |         
|before income taxes                  |                                       | 4,381    |              |           | 12,287       |               |              | 9,582   |       |   | (16,226)     |  |   | 10,024  
|Income tax benefit (provision)       |                                       | 2,843    |              |           | (2,694)      |               |              | (2,555) |       |   | -            |  |   | (2,406) 
|                                     |                                       |          |              |           |              |               |              |         |      
|Income from continuing operations    |                                       | 7,224    |              |           | 9,593        |               |              | 7,027   |       |   | (16,226)     |  |   | 7,618   
|Loss from discontinued operations    |                                       |          |              |           |              |               |              |         |       |   |              |  |   |         
|(net of tax benefit of $125)         |                                       | -        |              |           | -            |               |              | (394)   |       |   | -            |  |   | (394)   
|                                     |                                       |          |              |           |              |               |              |         |      
|Net income                           | $                                     | 7,224    |              | $         | 9,593        |               | $            | 6,633   |       | $ | (16,226)     |  | $ | 7,224   
|                                     |                                       |          |              |           |              |               |              |         |      



---

##### Index

|                                     |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|------------------------------------ | ------------------------------------ | -------- | ------------ | --------- | ------------ | ------------- | ------------ | -------- | ----- | - | ------------ |  | - | --------
|                                     | Nine Months Ended September 30, 2003
|                                     |                                     
|                                     |                                      |          |              | Guarantor |              | Non-Guarantor |              |          |       |   | Consolidated
|                                     | Parent                               |          | Subsidiaries |           | Subsidiaries |               | Eliminations |          | Total
|                                     |                                      |          |              |           |              |               |              |          |      
|Net revenues:                        |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Membership revenue                   | $                                    | -        |              | $         | 492,201      |               | $            | 19,789   |       | $ | -            |  | $ | 511,990 
|Products and services                |                                      | -        |              |           | 215,005      |               |              | 6,011    |       |   | -            |  |   | 221,016 
|Miscellaneous revenue                |                                      | -        |              |           | 12,954       |               |              | 1,064    |       |   | -            |  |   | 14,018  
|                                     |                                      |          |              |           |              |               |              |          |      
|                                     |                                      | -        |              |           | 720,160      |               |              | 26,864   |       |   | -            |  |   | 747,024 
|Operating costs and expenses:        |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Fitness center operations            |                                      | -        |              |           | 405,059      |               |              | 15,863   |       |   | -            |  |   | 420,922 
|Products and services                |                                      | -        |              |           | 134,562      |               |              | 4,788    |       |   | -            |  |   | 139,350 
|Member processing and                |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|collection centers                   |                                      | -        |              |           | 20,864       |               |              | 14,804   |       |   | -            |  |   | 35,668  
|Advertising                          |                                      | -        |              |           | 42,773       |               |              | 1,226    |       |   | -            |  |   | 43,999  
|General and administrative           |                                      | 2,883    |              |           | 21,452       |               |              | 968      |       |   | -            |  |   | 25,303  
|Depreciation and amortization        |                                      | -        |              |           | 55,750       |               |              | 2,168    |       |   | -            |  |   | 57,918  
|                                     |                                      |          |              |           |              |               |              |          |      
|                                     |                                      | 2,883    |              |           | 680,460      |               |              | 39,817   |       |   | -            |  |   | 723,160 
|                                     |                                      |          |              |           |              |               |              |          |      
|Operating income (loss)              |                                      | (2,883)  |              |           | 39,700       |               |              | (12,953) |       |   | -            |  |   | 23,864  
|                                     |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Equity in net income of subsidiaries |                                      | 34,660   |              |           | -            |               |              | -        |       |   | (34,660)     |  |   | -       
|Finance charges earned               |                                      | -        |              |           | -            |               |              | 56,798   |       |   | -            |  |   | 56,798  
|Interest expense                     |                                      | (34,025) |              |           | (1,894)      |               |              | (7,653)  |       |   | -            |  |   | (43,572)
|Other, net                           |                                      | -        |              |           | (4,420)      |               |              | (258)    |       |   | -            |  |   | (4,678) 
|                                     |                                      |          |              |           |              |               |              |          |      
|                                     |                                      | 635      |              |           | (6,314)      |               |              | 48,887   |       |   | (34,660)     |  |   | 8,548   
|                                     |                                      |          |              |           |              |               |              |          |      
|Income (loss) from continuing        |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|operations before income taxes       |                                      | (2,248)  |              |           | 33,386       |               |              | 35,934   |       |   | (34,660)     |  |   | 32,412  
|Income tax benefit (provision)       |                                      | 8,858    |              |           | (8,013)      |               |              | (8,624)  |       |   | -            |  |   | (7,779) 
|                                     |                                      |          |              |           |              |               |              |          |      
|Income from continuing operations    |                                      | 6,610    |              |           | 25,373       |               |              | 27,310   |       |   | (34,660)     |  |   | 24,633  
|Discontinued operations              |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Loss from discontinued operations    |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|(net of tax benefit of $236)         |                                      | -        |              |           | -            |               |              | (745)    |       |   | -            |  |   | (745)   
|Loss on disposal                     |                                      | -        |              |           | -            |               |              | (1,699)  |       |   | -            |  |   | (1,699) 
|                                     |                                      |          |              |           |              |               |              |          |      
|Loss from discontinued operations    |                                      | -        |              |           | -            |               |              | (2,444)  |       |   | -            |  |   | (2,444) 
|                                     |                                      |          |              |           |              |               |              |          |      
|Income before cumulative effect of   |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|changes in accounting principles     |                                      | 6,610    |              |           | 25,373       |               |              | 24,866   |       |   | (34,660)     |  |   | 22,189  
|Cumulative effect of changes in      |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|accounting principles, net of taxes  |                                      | -        |              |           | (15,579)     |               |              | -        |       |   | -            |  |   | (15,579)
|                                     |                                      |          |              |           |              |               |              |          |      
|Net income                           | $                                    | 6,610    |              | $         | 9,794        |               | $            | 24,866   |       | $ | (34,660)     |  | $ | 6,610   
|                                     |                                      |          |              |           |              |               |              |          |      



---

##### Index

|                                     |                                      |          |              |           |              |               |              |         |       |   |              |  |   |         
|------------------------------------ | ------------------------------------ | -------- | ------------ | --------- | ------------ | ------------- | ------------ | ------- | ----- | - | ------------ |  | - | --------
|                                     | Nine Months Ended September 30, 2002
|                                     |                                     
|                                     |                                      |          |              | Guarantor |              | Non-Guarantor |              |         |       |   | Consolidated
|                                     | Parent                               |          | Subsidiaries |           | Subsidiaries |               | Eliminations |         | Total
|                                     |                                      |          |              |           |              |               |              |         |      
|Net revenues:                        |                                      |          |              |           |              |               |              |         |       |   |              |  |   |         
|Membership revenue                   | $                                    | -        |              | $         | 531,710      |               | $            | 19,834  |       | $ | -            |  | $ | 551,544 
|Products and services                |                                      | -        |              |           | 158,515      |               |              | 4,618   |       |   | -            |  |   | 163,133 
|Miscellaneous revenue                |                                      | -        |              |           | 13,942       |               |              | 1,118   |       |   | -            |  |   | 15,060  
|                                     |                                      |          |              |           |              |               |              |         |      
|                                     |                                      | -        |              |           | 704,167      |               |              | 25,570  |       |   | -            |  |   | 729,737 
|Operating costs and expenses:        |                                      |          |              |           |              |               |              |         |       |   |              |  |   |         
|Fitness center operations            |                                      | -        |              |           | 404,160      |               |              | 14,688  |       |   | -            |  |   | 418,848 
|Products and services                |                                      | -        |              |           | 100,081      |               |              | 3,385   |       |   | -            |  |   | 103,466 
|Member processing and                |                                      |          |              |           |              |               |              |         |       |   |              |  |   |         
|collection centers                   |                                      | -        |              |           | 20,804       |               |              | 12,875  |       |   | -            |  |   | 33,679  
|Advertising                          |                                      | -        |              |           | 44,053       |               |              | 1,090   |       |   | -            |  |   | 45,143  
|General and administrative           |                                      | 3,086    |              |           | 19,516       |               |              | 1,156   |       |   | -            |  |   | 23,758  
|Special charges                      |                                      | -        |              |           | 6,500        |               |              | -       |       |   | -            |  |   | 6,500   
|Depreciation and amortization        |                                      | -        |              |           | 54,160       |               |              | 1,777   |       |   | -            |  |   | 55,937  
|                                     |                                      |          |              |           |              |               |              |         |      
|                                     |                                      | 3,086    |              |           | 649,274      |               |              | 34,971  |       |   | -            |  |   | 687,331 
|                                     |                                      |          |              |           |              |               |              |         |      
|Operating income (loss)              |                                      | (3,086)  |              |           | 54,893       |               |              | (9,401) |       |   | -            |  |   | 42,406  
|                                     |                                      |          |              |           |              |               |              |         |       |   |              |  |   |         
|Equity in net income of subsidiaries |                                      | 72,250   |              |           | -            |               |              | -       |       |   | (72,250)     |  |   | -       
|Finance charges earned               |                                      | -        |              |           | 519          |               |              | 51,418  |       |   | -            |  |   | 51,937  
|Interest expense                     |                                      | (32,104) |              |           | (949)        |               |              | (8,933) |       |   | -            |  |   | (41,986)
|Other, net                           |                                      | -        |              |           | 31           |               |              | (424)   |       |   | -            |  |   | (393)   
|                                     |                                      |          |              |           |              |               |              |         |      
|                                     |                                      | 40,146   |              |           | (399)        |               |              | 42,061  |       |   | (72,250)     |  |   | 9,558   
|                                     |                                      |          |              |           |              |               |              |         |      
|Income from continuing operations    |                                      |          |              |           |              |               |              |         |       |   |              |  |   |         
|before income taxes                  |                                      | 37,060   |              |           | 54,494       |               |              | 32,660  |       |   | (72,250)     |  |   | 51,964  
|Income tax benefit (provision)       |                                      | 5,641    |              |           | (8,262)      |               |              | (5,489) |       |   | -            |  |   | (8,110) 
|                                     |                                      |          |              |           |              |               |              |         |      
|Income from continuing operations    |                                      | 42,701   |              |           | 46,232       |               |              | 27,171  |       |   | (72,250)     |  |   | 43,854  
|Loss from discontinued operations    |                                      |          |              |           |              |               |              |         |       |   |              |  |   |         
|(net of tax benefit of $255)         |                                      | -        |              |           | -            |               |              | (1,153) |       |   | -            |  |   | (1,153) 
|                                     |                                      |          |              |           |              |               |              |         |      
|Net income                           | $                                    | 42,701   |              | $         | 46,232       |               | $            | 26,018  |       | $ | (72,250)     |  | $ | 42,701  
|                                     |                                      |          |              |           |              |               |              |         |      



---

##### Index

|                                            |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|------------------------------------------- | ------------------------------------ | -------- | ------------ | --------- | ------------ | ------------- | ------------ | -------- | ----- | - | ------------ |  | - | --------
|                                            | Nine Months Ended September 30, 2003
|                                            |                                     
|                                            |                                      |          |              | Guarantor |              | Non-Guarantor |              |          |       |   | Consolidated
|                                            | Parent                               |          | Subsidiaries |           | Subsidiaries |               | Eliminations |          | Total
|                                            |                                      |          |              |           |              |               |              |          |      
|OPERATING:                                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Net income before cumulative effect of      |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|changes in accounting principles            | $                                    | 6,610    |              | $         | 25,373       |               | $            | 24,866   |       | $ | (34,660)     |  | $ | 22,189  
|Adjustments to reconcile to                 |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|cash provided                              |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Depreciation and amortization,              |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|including amortization                      |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|included in interest expense                |                                      | 1,503    |              |           | 56,006       |               |              | 3,141    |       |   | -            |  |   | 60,650  
|Change in operating assets                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|and liabilities                             |                                      | 8,130    |              |           | (32,591)     |               |              | (24,896) |       |   | -            |  |   | (49,357)
|Write-off of debt issuance costs            |                                      | 2,232    |              |           | -            |               |              | 330      |       |   | -            |  |   | 2,562   
|Loss on disposal of                         |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|discontinued operation                      |                                      | -        |              |           | -            |               |              | 1,699    |       |   | -            |  |   | 1,699   
|Stock-based compensation                    |                                      | 344      |              |           | -            |               |              | -        |       |   | -            |  |   | 344     
|                                            |                                      |          |              |           |              |               |              |          |      
|Cash provided by                            |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|operating activities                        |                                      | 18,819   |              |           | 48,788       |               |              | 5,140    |       |   | (34,660)     |  |   | 38,087  
|                                            |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|INVESTING:                                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Purchases and construction                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|of property and equipment                   |                                      | -        |              |           | (30,838)     |               |              | (670)    |       |   | -            |  |   | (31,508)
|Acquisitions of businesses and other        |                                      | -        |              |           | -            |               |              | (501)    |       |   | -            |  |   | (501)   
|                                            |                                      |          |              |           |              |               |              |          |      
|Cash used in investing activities           |                                      | -        |              |           | (30,838)     |               |              | (1,171)  |       |   | -            |  |   | (32,009)
|                                            |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|FINANCING:                                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Debt transactions                          |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Net repayments under revolving              |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|credit agreement                            |                                      | (49,500) |              |           | -            |               |              | -        |       |   | -            |  |   | (49,500)
|Net borrowings (repayments) of              |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|other long-term debt                        |                                      | 94,786   |              |           | (10,724)     |               |              | (23,053) |       |   | -            |  |   | 61,009  
|Debt issuance and refinancing               |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|costs                                       |                                      | (7,847)  |              |           | -            |               |              | (1,943)  |       |   | -            |  |   | (9,790) 
|Change in net affiliate balances            |                                      | (56,955) |              |           | 1,673        |               |              | 20,622   |       |   | 34,660       |  |   | -       
|                                            |                                      |          |              |           |              |               |              |          |      
|Cash provided by (used in)                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|debt transactions                           |                                      | (19,516) |              |           | (9,051)      |               |              | (4,374)  |       |   | 34,660       |  |   | 1,719   
|                                            |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Equity transactions                        |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Proceeds from issuance of                   |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|common stock under stock                    |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|purchase and option plans                   |                                      | 697      |              |           | -            |               |              | -        |       |   | -            |  |   | 697     
|                                            |                                      |          |              |           |              |               |              |          |      
|Cash provided by (used in)                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|financing transactions                      |                                      | (18,819) |              |           | (9,051)      |               |              | (4,374)  |       |   | 34,660       |  |   | 2,416   
|                                            |                                      |          |              |           |              |               |              |          |      
|                                            |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Increase (decrease) in cash and equivalents |                                      | -        |              |           | 8,899        |               |              | (405)    |       |   | -            |  |   | 8,494   
|Cash and equivalents, beginning of period   |                                      | -        |              |           | 9,198        |               |              | 3,709    |       |   | -            |  |   | 12,907  
|                                            |                                      |          |              |           |              |               |              |          |      
|Cash and equivalents, end of period         | $                                    | -        |              | $         | 18,097       |               | $            | 3,304    |       | $ | -            |  | $ | 21,401  
|                                            |                                      |          |              |           |              |               |              |          |      



---

##### Index

|                                            |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|------------------------------------------- | ------------------------------------ | -------- | ------------ | --------- | ------------ | ------------- | ------------ | -------- | ----- | - | ------------ |  | - | --------
|                                            | Nine Months Ended September 30, 2002
|                                            |                                     
|                                            |                                      |          |              | Guarantor |              | Non-Guarantor |              |          |       |   | Consolidated
|                                            | Parent                               |          | Subsidiaries |           | Subsidiaries |               | Eliminations |          | Total
|                                            |                                      |          |              |           |              |               |              |          |      
|OPERATING:                                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Net income                                  | $                                    | 42,701   |              | $         | 46,232       |               | $            | 26,018   |       | $ | (72,250)     |  | $ | 42,701  
|Adjustments to reconcile to                 |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|cash provided                              |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Depreciation and amortization,              |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|including amortization                      |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|included in interest expense                |                                      | 1,612    |              |           | 54,400       |               |              | 2,883    |       |   | -            |  |   | 58,895  
|Change in operating assets                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|and liabilities                             |                                      | 7,391    |              |           | 8,714        |               |              | (82,638) |       |   | -            |  |   | (66,533)
|                                            |                                      |          |              |           |              |               |              |          |      
|Cash provided by (used in)                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|operating activities                        |                                      | 51,704   |              |           | 109,346      |               |              | (53,737) |       |   | (72,250)     |  |   | 35,063  
|                                            |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|INVESTING:                                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Purchases and construction                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|of property and equipment                   |                                      | -        |              |           | (56,540)     |               |              | (5,451)  |       |   | -            |  |   | (61,991)
|Purchases of real estate                    |                                      | -        |              |           | (11,510)     |               |              | -        |       |   | -            |  |   | (11,510)
|Acquisitions of businesses and other        |                                      | -        |              |           | (4,212)      |               |              | (2,005)  |       |   | -            |  |   | (6,217) 
|                                            |                                      |          |              |           |              |               |              |          |      
|Cash used in investing activities           |                                      | -        |              |           | (72,262)     |               |              | (7,456)  |       |   | -            |  |   | (79,718)
|                                            |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|FINANCING:                                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Debt transactions                          |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Net borrowings under revolving              |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|credit agreement                            |                                      | 35,900   |              |           | -            |               |              | -        |       |   | -            |  |   | 35,900  
|Net borrowings (repayments) of              |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|other long-term debt                        |                                      | (2,712)  |              |           | (9,359)      |               |              | 21,714   |       |   | -            |  |   | 9,643   
|Debt issuance and refinancing               |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|costs                                       |                                      | (270)    |              |           | -            |               |              | -        |       |   | -            |  |   | (270)   
|Change in net affiliate balances            |                                      | (88,029) |              |           | (22,963)     |               |              | 38,742   |       |   | 72,250       |  |   | -       
|                                            |                                      |          |              |           |              |               |              |          |      
|Cash provided by (used in)                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|debt transactions                           |                                      | (55,111) |              |           | (32,322)     |               |              | 60,456   |       |   | 72,250       |  |   | 45,273  
|                                            |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Equity transactions                        |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Proceeds from exercise of warrants          |                                      | 2,513    |              |           | -            |               |              | -        |       |   | -            |  |   | 2,513   
|Proceeds from issuance of                   |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|common stock under stock                    |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|purchase and option plans                   |                                      | 1,754    |              |           | -            |               |              | -        |       |   | -            |  |   | 1,754   
|Purchases of common stock                   |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|for treasury                                |                                      | (860)    |              |           | -            |               |              | -        |       |   | -            |  |   | (860)   
|                                            |                                      |          |              |           |              |               |              |          |      
|Cash provided by (used in)                  |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|financing transactions                      |                                      | (51,704) |              |           | (32,322)     |               |              | 60,456   |       |   | 72,250       |  |   | 48,680  
|                                            |                                      |          |              |           |              |               |              |          |      
|                                            |                                      |          |              |           |              |               |              |          |       |   |              |  |   |         
|Increase (decrease) in cash and equivalents |                                      | -        |              |           | 4,762        |               |              | (737)    |       |   | -            |  |   | 4,025   
|Cash and equivalents, beginning of period   |                                      | -        |              |           | 8,435        |               |              | 875      |       |   | -            |  |   | 9,310   
|                                            |                                      |          |              |           |              |               |              |          |      
|Cash and equivalents, end of period         | $                                    | -        |              | $         | 13,197       |               | $            | 138      |       | $ | -            |  | $ | 13,335  
|                                            |                                      |          |              |           |              |               |              |          |      



---

##### Index

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

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

Net revenues for the third quarter of 2003 were $241.5 million compared to
$243.1 million in the 2002 quarter, a decrease of $1.6 million (1%). Net
revenues from comparable fitness centers decreased 2%. The $1.6 million decrease
in net revenues resulted from the following:

| |  | Total membership
revenue decreased $14.9 million or 8% (8% decline at same clubs), resulting from
a $16.7 million or 19% decline in initial membership fees recognized during the
period (18% related to same clubs) offset by a $1.8 million or 2% increase in
dues revenue recognized (2% increase at same clubs).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                     
| |  | Products and services
revenue increased $14.2 million (25%) from the 2002 quarter, primarily
reflecting the continued growth of personal training services, nutritional
product sales and the introduction of our Weight Management Program.                                                                        
| |   |                                                                                                                                                                                                                                                                                                                     
| |  | Miscellaneous revenue
totaled $4.3 million, a decrease of $.9 million (16%) from the prior year
quarter.                                                                                                                                                                                                            

The weighted-average number of fitness centers was 416 in the third quarter of
2003 and 2002.

Gross committed membership fees originated during the third quarter decreased 7%
compared to the 2002 quarter, with a 10% decrease at same clubs. The number of
new members joining decreased 2% during the third quarter of 2003 compared with
the same quarter a year ago, with a 5% decrease at same clubs. The average
committed duration of memberships originated during the third quarter of 2003
was 30.9 months versus 30.6 months in the prior year quarter, a 1% increase. The
gross committed monthly membership fees originated during the third quarter of
2003 averaged $38.24 versus $41.04 in the year ago quarter, a 7% decrease. The
decrease in the monthly average resulted from a decrease in average membership
price during the quarter.

Operating income for the third quarter of 2003 was $5.5 million compared to $7.6
million in 2002. Net revenues decreased $1.6 million (1%) and operating costs
and expenses increased $.8 million for the third quarter of 2003 offset by a
decrease in depreciation and amortization of $.3 million. Earnings before
interest, taxes, depreciation and amortization, loss from discontinued
operations, including finance charges earned (EBITDA) as adjusted,
was $44.4 million, a decrease of $6 million from the prior year period. The
EBITDA margin (as adjusted) was 17% in the third quarter of 2003, compared to
19% in the 2002 period. These decreases are due, in part, to the continuing
trend of lower initial membership fees originated. The following table is a
reconciliation of net income to EBITDA and EBITDA as adjusted (in thousands):



---

##### Index

|                                  |                    |        |  |   |       
|--------------------------------- | ------------------ | ------ |  | - | ------
|                                  | Three months ended
|                                  | September 30      
|                                  |                   
|                                  |                    | 2003   |  |   | 2002  
|                                  |                    |        | 
|Net income                        | $                  | 4,741  |  | $ | 7,224 
|Add:                              |                    |        |  |   |       
|Depreciation and amortization     |                    | 19,276 |  |   | 19,567
|Interest expense                  |                    | 15,651 |  |   | 13,796
|Income tax provision              |                    | 1,537  |  |   | 2,406 
|Loss from discontinued operations |                    | 126    |  |   | 394   
|                                  |                    |        | 
|EBITDA                            |                    | 41,331 |  |   | 43,387
|Add:                              |                    |        |  |   |       
|Special charges                   |                    |        |  |   | 6,500 
|Stock-based compensation          |                    | 222    |  |   |       
|Other, net                        |                    | 2,858  |  |   | 556   
|                                  |                    |        | 
|EBITDA as adjusted                | $                  | 44,411 |  | $ | 50,443
|                                  |                    |        | 

Fitness center operating expenses decreased by $1.6 million (1%) as a result of
the implementation of cost reduction initiatives which were offset by planned
increases in rent, utilities, insurance and other fixed costs. Products and
services expenses increased $8.1 million (22%) to support the revenue growth of
product and service offerings. Direct operating margin from products and
services increased to $26.8 million from $20.7 million in the 2002 period, a 29%
increase (22% related to same clubs), with a margin of 37% in the 2003 period
compared to 36% in the prior year. Member processing and collection center
expenses increased $.4 million (3%) compared to the prior year quarter,
reflecting costs related to the consolidation of member processing functions
into our Norwalk, California facility. Advertising expenses decreased $.3
million (2%) compared to the prior year quarter reflecting strategic reductions
in discretionary marketing spending. General and administrative expenses
increased $.7 million (9%) compared to the prior year quarter. Depreciation and
amortization expense decreased $.3 million (1%) compared to the prior year
quarter.

Finance charges earned in excess of interest expense totaled $3.8 million in the
third quarter of 2003, an increase of $.8 million over the prior year period
resulting principally from higher finance charges earned, offset in part, by
higher interest rates on the Companys refinanced debt.

Other, net expense was $2.8 million for the three months ended September 30,
2003, which includes the write off of $2.6 million of unamortized issuance costs
from extinguished debt.

The Company has reported as discontinued operations an internet-based start-up
company which was liquidated in the second quarter of 2003. As a result, a loss
from discontinued operations of $.1 million and $.4 million, net of taxes, was
recorded during the third quarter of 2003 and 2002, respectively, related to the
liquidation of this company.



---

##### Index

## Comparison of the Nine Months Ended September 30, 2003 and 2002

Net revenues for the first nine months of 2003 were $747 million compared to
$729.7 million in 2002, an increase of $17.3 million (2%). Net revenues from
comparable fitness centers were unchanged. The $17.3 million increase in net
revenues resulted from the following:

| |  | Total
membership revenue decreased $39.6 million or 7% (8% decline at same clubs),
resulting from a $44.9 million or 17% decline in initial membership fees
recognized during the period (16% related to same clubs) offset by a $5.3
million or 2% increase in dues revenue recognized (1% increase at same
clubs).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                     
| |  | Products and services
revenue increased $57.9 million (35%) over the prior year period, primarily
reflecting the continued growth of personal training services, nutritional
product sales and the introduction of our Weight Management Program.                                                                   
| |   |                                                                                                                                                                                                                                                                                                                     
| |  | Miscellaneous revenue
totaled $14 million, a decrease of $1 million (7%) from the prior year period.                                                                                                                                                                                                                

The weighted-average number of fitness centers increased to 413 from 412 in the
first nine months of 2002.

Gross committed membership fees originated during the first nine months
decreased 4% compared to the 2002 period, with a 6% decrease at same clubs. The
number of new members joining increased 3% during the first nine months of 2003
compared with the same period a year ago, with no change at same clubs. The
average committed duration of memberships originated during the first nine
months of 2003 was 30.6 months versus 30.5 months in the prior year period. The
gross committed monthly membership fees originated during the first nine months
of 2003 averaged $39.95 versus $43.12 in the year ago period, a 7% decrease. The
decrease in the monthly average resulted from a decrease in average membership
price during the period including a slight decrease in the proportion of
multiple-club memberships sold due to apparent price sensitivity of new members.

Operating income for the first nine months of 2003 was $23.9 million compared to
$42.4 million in 2002. Net revenues increased $17.3 million (2%) for the first
nine months of 2003, offset by a $33.8 million (5%) increase in operating costs
and expenses ($35.9 million of which is related to the growth in products and
services revenues), and an increase in depreciation and amortization of $2
million. EBITDA as adjusted, was $138.9 million, a decrease of $17.9 million
from the prior year period. The EBITDA margin (as adjusted) was 17% for the
first nine months of 2003, compared to 20% in the 2002 period. These decreases
are due, in part, to the continuing trend of lower initial membership fees
originated. The following table is a reconciliation of net income to EBITDA and
EBITDA as adjusted (in thousands):



---

##### Index

|                                        |                   |         |  |   |        
|--------------------------------------- | ----------------- | ------- |  | - | -------
|                                        | Nine months ended
|                                        | September 30     
|                                        |                  
|                                        |                   | 2003    |  |   | 2002   
|                                        |                   |         | 
|Net income                              | $                 | 6,610   |  | $ | 42,701 
|Add:                                    |                   |         |  |   |        
|Depreciation and amortization           |                   | 57,918  |  |   | 55,937 
|Interest expense                        |                   | 43,572  |  |   | 41,986 
|Income tax provision                    |                   | 7,779   |  |   | 8,110  
|Loss from discontinued operations       |                   | 2,444   |  |   | 1,153  
|Cumulative effect of accounting changes |                   | 15,579  |  |   |        
|                                        |                   |         | 
|EBITDA                                  |                   | 133,902 |  |   | 149,887
|Add:                                    |                   |         |  |   |        
|Special charges                         |                   |         |  |   | 6,500  
|Stock-based compensation                |                   | 344     |  |   |        
|Other, net                              |                   | 4,678   |  |   | 393    
|                                        |                   |         | 
|EBITDA as adjusted                      | $                 | 138,924 |  | $ | 156,780
|                                        |                   |         | 

Fitness center operating expenses increased $2.1 million in the first nine
months of 2003 compared to the prior year, due to planned increases in rent,
utilities, insurance and other fixed costs. Products and services expenses
increased $35.9 million (35%) to support the revenue growth of product and
service offerings. Direct operating margin from products and services increased
to $81.7 million from $59.7 million in the 2002 period, a 37% increase (28%
related to same clubs), with a margin of 37% in both periods. Member processing
and collection center expenses increased $2 million (6%) compared to the prior
year period, reflecting increased telecommunication and member mailing costs, in
addition to costs related to the consolidation of member processing functions
into our Norwalk, California facility. Advertising expenses decreased $1.1
million (3%) compared to the prior year period reflecting strategic reductions
in discretionary marketing spending. General and administrative expenses
increased $1.5 million (7%) compared to the prior year period. Depreciation and
amortization expense increased $2 million (4%), resulting from additional
fitness centers and other depreciable assets since the prior year period.

Finance charges earned in excess of interest expense totaled $13.2 million in
the first nine months of 2003, an increase of $3.3 million over the prior year
period resulting principally from lower interest rates on the Companys
borrowings and higher finance charges earned.

Other, net expense was $4.7 million for the nine months ended September 30,
2003, which includes the write off of $2.6 million of unamortized issuance costs
from extinguished debt and $1.7 million resulting from the second quarter sale
of a portion of the Company's non-performing previously written down installment
accounts receivable to a third party. Additionally, at September 30, 2003,
installment accounts receivable included $36.6 million related to the residual
value of other non-performing previously written down installment accounts
receivable. These accounts may be subject to further valuation adjustments as we
continue to evaluate their liquidation value.

The Company has reported as discontinued operations an internet-based start-up
company which was liquidated in the second quarter of 2003. As a result, a loss
from discontinued operations of $2.4 million and



---

##### Index

$1.2 million, net of taxes, was
recorded for the nine months ended September 30, 2003 and 2002, respectively,
related to the liquidation of this company. In the second quarter of 2003, the
Company changed its accounting method (effective January 1, 2003) related to the
recognition of recoveries of unpaid dues under inactive membership contracts
from accrual-based estimations to a cash basis of recognition, which is
considered a preferable method of accounting for such past due amounts since it
is less reliant on estimations. The effect of this change was a cumulative
non-cash charge of $15,414 (net of tax effect of $4,868) or $.47 per diluted
share. The Company also implemented the provisions of SFAS No. 143 as of January
1, 2003. As a result, a non-cash cumulative adjustment of $165 was recorded to
provide for estimated future restoration obligations on the Companys
leaseholds in the first quarter of 2003.

## Liquidity and Capital Resources

Cash flows from operating activities were $38.1 million in the first nine months
of 2003, compared to $35.1 million in the 2002 period. Over the past two years,
the Company sold a portion of its installment contracts receivable portfolio to
a major financial institution in three bulk sales at net book value, with
combined proceeds of approximately $128 million. Excluding the impact of the
sales of receivables and net of the change in dues prepayments during the
periods, cash flows from operating activities were $56 million in the first nine
months of 2003, compared to $73.9 million in 2002.

Capital expenditures totaled $32 million in the first nine months of 2003
compared to $79.7 million in the 2002 period. Capital expenditures for 2003 are
expected to be less than $50 million. The following table details cash used in
investing activities during the three and nine months ended September 30, 2003
and 2002 (in thousands):

|                                |                    |        |                   |   |        |  |   |        |  |   |       
|------------------------------- | ------------------ | ------ | ----------------- | - | ------ |  | - | ------ |  | - | ------
|                                | Three months ended |        | Nine months ended
|                                | September 30       |        | September 30     
|                                |                    |        |                  
|                                |                    | 2003   |                   |   | 2002   |  |   | 2003   |  |   | 2002  
|                                |                    |        |                   |   |        |  |  
|Club improvements               | $                  | 3,132  |                   | $ | 7,399  |  | $ | 10,077 |  | $ | 18,848
|New clubs                       |                    | 5,821  |                   |   | 9,531  |  |   | 13,771 |  |   | 29,874
|Club remodels and expansions    |                    | (20)   |                   |   | 1,264  |  |   | 3,336  |  |   | 10,287
|Administrative and systems      |                    | 2,376  |                   |   | 632    |  |   | 4,324  |  |   | 2,982 
|Real estate purchases and other |                    | 89     |                   |   | 125    |  |   | 501    |  |   | 17,727
|                                |                    |        |                   |   |        |  |  
|                                | $                  | 11,398 |                   | $ | 18,951 |  | $ | 32,009 |  | $ | 79,718
|                                |                    |        |                   |   |        |  |  

As a result of the decrease in capital expenditures, our free cash flow (cash
provided by operating activities, less cash used in investing activities) was
$6.1 million for the nine months ended September 30, 2003, compared to a deficit
of $44.7 million in the first nine months of 2002. We are disclosing free cash
flow because management believes that it is an important measure of liquidity
and investors are focused on our ability to reduce our overall debt. The
following table is a reconciliation of cash provided by operating activities to
free cash flow (deficit) for the three and nine months ended September 30, 2003
and 2002 (in thousands):



---

##### Index

|                                        |                    |          |                   |   |          |  |   |          |  |   |         
|--------------------------------------- | ------------------ | -------- | ----------------- | - | -------- |  | - | -------- |  | - | --------
|                                        | Three months ended |          | Nine months ended
|                                        | September 30       |          | September 30     
|                                        |                    |          |                  
|                                        |                    | 2003     |                   |   | 2002     |  |   | 2003     |  |   | 2002    
|                                        |                    |          |                   |   |          |  |  
|Cash provided by operating activities   | $                  | 6,710    |                   | $ | 8,146    |  | $ | 38,087   |  | $ | 35,063  
|Less: Cash used in investing activities |                    | (11,398) |                   |   | (18,951) |  |   | (32,009) |  |   | (79,718)
|                                        |                    |          |                   |   |          |  |  
|Free cash flow (deficit)                | $                  | (4,688)  |                   | $ | (10,805) |  | $ | 6,078    |  | $ | (44,655)
|                                        |                    |          |                   |   |          |  |  

At the end of the second quarter the Company announced the completion of the
refinancing of its existing $132 million term loan and $56 million outstanding
on its revolving credit agreement by issuing $235 million in aggregate principal
of 10 1⁄2% Senior Notes due 2011 in two offerings under Rule 144A and
Regulation S under the Securities Act of 1933, as amended. The Company also
entered into a new $100 million Senior Secured Revolving Credit Facility due
2008. These transactions were completed in July 2003. As a result, the Company
wrote off $2.6 million of unamortized issuance costs from the extinguished debt
in the third quarter of 2003. In addition, in July 2003 the Company paid down
$25 million on its $155 million Securitization Series 2001-1 and extended the
revolving period on $100 million of the balance through July 2005. The balance
of $30 million of principal on the securitization which was not extended will
amortize in the fourth quarter of 2003. The amount available under the revolving
credit facility is reduced by any outstanding letters of credit, which cannot
exceed $30 million. As of November 4, 2003, the Company had outstanding $6
million in letters of credit and availability of $76.5 million on its new $100
million revolving credit line. As of September 30, 2003, our debt service
requirements, including interest, through September 30, 2004 were approximately
$83.7 million, exclusive of the $30 million in principal payments on the
securitization. We believe that we will be able to satisfy these short-term
requirements for debt service and capital expenditures out of available cash
balances, cash flow from operations and borrowings on the revolving credit
facility.

On September 8, 2003, the Company entered into interest rate swap agreements
whereby the fixed interest commitment on $200 million of outstanding principal
of the Companys 9.875% Senior Subordinated Notes, due 2007, was swapped
for a variable rate commitment based on the six-month Euro rate, plus 6.01%. As
a result, interest expense for the 2003 quarter was reduced by approximately $.3
million.

We are authorized to repurchase up to 1,500,000 shares of our common stock on
the open market from time to time. We repurchased 625,100 shares between August
1998 and November 1999 at an average price of $18 per share, and 54,500 shares
in February 2002 at $16 per share.



---

##### Index

## Forward-Looking
Statements

Forward-looking statements in this Form 10-Q including, without limitation,
statements relating to the Companys plans, strategies, objectives,
expectations, intentions, and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties,
and other factors that may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. These
factors include, among others, the following: general economic and business
conditions; competition; success of operating initiatives, advertising and
promotional efforts; existence of adverse publicity or litigation; acceptance of
new product and service offerings; changes in business strategy or plans;
quality of management; availability, terms, and development of capital; business
abilities and judgment of personnel; changes in, or the failure to comply with,
government regulations; regional weather conditions and other factors described
in this Form 10-Q or in other filings of the Company with the Securities and
Exchange Commission. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.



---

##### Index

## Item 3.  
Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk from changes in the interest rates on
certain of its outstanding debt. The outstanding loan balance under its bank
credit facility and the Series 2001-1 accounts receivable-backed variable
funding certificates bear interest at variable rates based upon prevailing
short-term interest rates in the United States and Europe.

The Company has an 8.5% interest rate cap on the Series 2001-1 accounts
receivable-backed variable funding certificates which covers the outstanding
$130 million (as of September 30, 2003) of principal through its original
principal repayment schedule. Additionally, on $100 million of the variable
funding certificates which were refinanced, the Company has purchased a 7.75%
rate cap extending through the refinanced period. The Company has also entered
into interest rate swap agreements whereby the fixed interest commitment on $200
million of outstanding principal on the Companys 9.875% Senior
Subordinated Notes, due 2007, was swapped for a variable rate commitment based
on the six-month Euro rate, plus 6.01% (7.13% at September 30, 2003).

## Item 4.  
Evaluation of Disclosure Controls and Procedures

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

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

# PART II.  
OTHER INFORMATION

## Item 4.  
Submission of matters to a vote of security holders

At the Companys annual meeting of stockholders held on July 31, 2003, the
stockholders considered and voted on the following:

Two persons nominated by the Board of Directors for election as directors of
Class I for three-year terms expiring in 2006 or until their successors have
been duly elected, along with the voting results which resulted in each nominee
being elected as a director, were as follows:

| |                    | Votes      | Votes    | 
| | ------------------ | ---------- | -------- | 
| | Nominees           | cast for   | withheld | 
| |                    |            |          | 
| | Paul A. Toback     | 30,816,134 | 717,523  | 
| | Martin E. Franklin | 30,977,979 | 555,678  | 



---

##### Index

In addition to the two directors elected at the meeting, the following directors
term of office as directors continued after the meeting: John W. Dwyer, J.
Kenneth Looloian, James F. McAnally, M.D., John W. Rogers, Jr., and Stephen C.
Swid.

A shareholder proposal was made requiring the office of Chairman of the Board be
held by an independent outside Director. The proposal did not pass with the
result of said vote as follows:

| | For:      | 6,078,764  | 
| | --------- | ---------- | 
| | Against:  | 15,034,439 | 
| | Abstain:  | 156,983    | 
| | Non-vote: | 10,263,471 | 

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

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

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

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

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

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

| | 1. | On July 2,
2003 we filed a Current Report on Form 8-K attaching a press release announcing
the completion of our $200 million Senior Notes Offering and $90 million
Revolving Credit Facility. Also announced was the completed refinancing of $100
million of our $155 million securitization Series 2001-1.                                                                                                                                                                                                                                                                                                                                                   
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   
| | 2. | On July 16, 2003 we filed a
Current Report on Form 8-K attaching a press release announcing the sale of an
additional $35 million of Senior Notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   
| | 3. | On August 5, 2003 we filed
a Current Report on Form 8-K attaching a press release announcing our earnings
for the quarter ended June 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   
| | 4. | On September 30, 2003 we
filed a Current Report on Form 8-K containing financial statements for prior
periods, management's discussion and analysis of financial condition and results
of operations and selected historical consolidated financial data amended to
conform with the June 30, 2003 presentation filed on Form S-4 dated September
30, 2003, registering $235 million of 10 1⁄2% Senior Notes due 2011 (the
notes). Additionally, consolidating financial statements were
included to present the accounts of Bally Total Fitness Holding Corporation and
our Guarantor and Non-Guarantor subsidiaries, as defined in the indenture to the
Notes.



---

##### Index

# BALLY TOTAL
FITNESS HOLDING CORPORATION

# SIGNATURE
PAGE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

| | BALLY TOTAL FITNESS HOLDING CORPORATION
| | ---------------------------------------
| |                                        
| | Registrant                             
| |                                        
| |                                        

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

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