Bally Revenue Restatement
BALLY TOTAL FITNESS HOLDING CORP
Consolidated Statements of Income
31-Dec-98
In Thousands Except Per Share Amounts For Period Ended Dec 31, 1998 12/31/98 Restated
Net revenues: — —
Membership revenues — —
Initial membership fees on financed memberships originated 414,190 217,200
Initial membership fees on paid–in–full memberships originated 30,318 30,318
Dues collected 205,104 205,104
Change in deferred revenues 3,122 0
$652,734 $452,622
Finance charges earned 50,160 50,160
Fees and other 39,631 39,631
$742,525 $542,413
Operating costs and expenses: — —
Fitness center operations 423,502 423,502
Member processing and collection centers 39,185 39,185
Advertising 45,244 45,244
General and administrative 26,097 26,097
Provision for doubtful receivables 118,604 0
Depreciation and amortization 48,255 48,255
Change in deferred membership origination costs (11,164) (11,164)
$689,723 $571,119
Operating income 52,802 (28,706)
Interest income 2,514 2,514
Interest expense (41,494) (41,494)
Income (loss) before income taxes and extraordinary items $13,822 $(67,686)
Income tax provision (benefit) 525 525
Income (loss) before extraordinary items $13,297 $(68,211)
Extraordinary gain (loss) on extinguishment of debt — —
Net income (loss) $13,297 $(68,211)
revenue, why are cash basis revenue and income so
much lower?
⚫Two main reasons:
⚫Bally is in the process of de-emphasizing paid–in-full
memberships. It is still recognizing deferred revenue on old paid-
Which Method of Accounting Best
Reflects Economic Performance?
⚫Cash basis is probably too conservative, as it ignores
the expected future benefits associated with financed
membership contracts.
financing operation, but the accounting reflects this.
Overall Evaluation of Bally
⚫Bally’s accounting provides a reasonable
representation of performance for the period.
⚫However, the sudden switch from paid-in-full to
reputation and compromise future sales.
What Can Management Do?
⚫Sell receivables (without recourse)
⚫Provide detailed information concerning receivable