Accounting & Tax

Bally Restates Four Years of Results

The more than two dozen restatement items included corrections related to the recognition of revenue; valuation adjustments of long-lived assets, g...
Stephen TaubDecember 1, 2005

Bally Total Fitness Corp. completed its restatements for the four years through 2003 to reflect “the correction of numerous errors” in its previous financial accounting and reporting.

It elaborated that the more than two dozen restatement items included corrections related to the recognition of revenue; valuation adjustments of long-lived assets, goodwill, and other intangible assets; lease accounting; and income taxes.

The company, which has been investigated by the Securities and Exchange Commission and the Department of Justice, said it is now current with its federal-securities-filing and bond-indenture requirements.

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In a separate statement, Bally announced that it retained J.P. Morgan Securities Inc. “to explore a range of strategic alternatives to enhance shareholder value.” These alternatives include a recapitalization, the sale of securities or assets, or the sale or merger of the company with another entity or strategic partner. J.P. Morgan will work in collaboration with The Blackstone Group, which has been advising Bally for the past 10 months.

In discussing the restatements, Bally said the adjustments resulted in an increase of about $96.4 million in its previously reported net loss for the year ended December 31, 2002 and a decrease of $540 million in net loss for the year ended December 31, 2003.

The decrease in the 2003 loss included the reversal of the cumulative effect of a change in accounting previously reported in 2003 of $581 million. The company also increased the January 1, 2002, opening accumulated stockholders’ deficit by $1.7 billion to recognize the effects of corrections in financial statements prior to 2002.

In April 2004, chief financial officer and director John Dwyer resigned from Bally after the SEC launched a probe into the company’s restatement of 2003 results to correct revenue errors amounting to about $43 million over seven years. According to the company at the time, the revenue errors accelerated dues recognition for certain prepaying members. The company’s auditor, Ernst & Young, resigned later that month.