Bally requests extension to waivers on filing financial statements to Oct. 31

By Caroline Salls

Pittsburgh, July 13 - Bally Total Fitness Holding Corp. will seek a 90-day extension of the waivers from its public noteholders on its delay in filing financial statements until Oct. 31, according to a company news release.

The original waivers under the indentures governing its outstanding notes expire on July 31.

"During the past nine months, we have made substantial progress toward completing this audit despite having to replace several key finance executives, hiring a new CFO, treasurer and controller and dealing with many complex accounting issues, several of which were unearthed during the process," said Paul Toback, chairman and chief executive officer, in the release.

"Now I believe that barring any unforeseen circumstances, we are close to completing this long process despite needing a little more time to do so."

According to the release, Bally will not be able to provide its audited financial statements for 2002 to 2004 by July 31 and will seek an extension of the waivers of reporting covenant defaults from holders of its 10½% senior notes due 2011 and 9 7/8% senior subordinated notes due 2007 under the notes indentures.

These defaults result from the company's previously announced failure to timely provide its financial statements for the second and third quarters and full year 2004 and the first quarter of 2005 with the Securities and Exchange Commission and deliver the financial statements to the trustee and holders of notes.

If the waivers are not extended, the company will be in default under its indentures after July 31.

After that, payment on the notes could be accelerated after notice and the passage of cure periods under the indentures.

Also, the company's credit facility provides for a cross-default 10 days after delivery of notice under either indenture, which would give the company's lenders the right to accelerate payment.

As a result of the investigation conducted by the company's audit committee, which found multiple errors in Bally's past accounting, the company decided to no longer rely on Ernst & Young LLP's reports on prior-year audits and hired KPMG LLP to audit the financial statements for 2002 to 2004.

In recent months, Bally has appointed a new chief financial officer, treasurer, controller and assistant controller.

Given these parties' limited tenure with Bally, the involvement of a new auditing firm and the complexity surrounding the accounting issues involved, including revenue recognition and the valuation of goodwill and other intangible assets related to prior acquisitions, Bally said in the release that it does not expect to complete its audits by July 31 but expects to complete them no later than Oct. 31.

Also, the company expects a delay in filing its 10-Q report for the quarter ended June 30, which would also be covered by the waiver extension.

Bally is a Chicago-based health club chain.

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