Bally Total Fitness — Proxy Contest (December 2005)
46 slides from Bally Total Fitness's proxy contest presentation, Dec 15, 2005
Slide 1: Bally Total Fitness Corporation Investor Presentation December 2005
Bally Total Fitness Corporation Investor Presentation December 2005
Slide 2: Forward-looking statements
Forward-looking statements in this presentation, 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
Slide 3: Bally's Significant Progress
Bally's Significant Progress Transforming the business model and turning around operations Issued five years of financial information Addressing capital structure and enhancing Board Focused on delivering shareholder value
Slide 4: Transforming the Business Model and Turning Around Operations
Transforming the Business Model and Turning Around Operations
Slide 5: Bally Leads the Growing Health Club Industry with 9% of Members
Bally Continues to Lead the Growing Health Club Industry with 9% of the industry total 41.3MM members... (In millions) * Source: IHRSA Estimates 2005 Industry Report, 11/12/05
Slide 6: 7% of the Total Market Revenue of almost $15BB
....and 7% of the Total Market Revenue of almost $15BB (In billions) * Source: IHRSA Estimates 2005 Industry Report, 11/12/05
Slide 7: 2005 Action Plan
2005 Action Plan Improved Operating Fundamentals Increased member adds Improved member retention Eliminate low-priced renewals Improved Financial Fundamentals Revenue and operating income growth Operating margin expansion Increased returns on invested capital Operating Cost Savings Initiatives New C
Slide 8: Details of 2005 Action Plan: Build Your Own Membership
Details of 2005 Action Plan Build Your Own Membership Objectives Increased new member adds Higher short-term retention and member satisfaction More personal training (PT) sold at the point of membership sale Reduced staff training requirements due to simpler enrollment process Lower employee turnove
Slide 9: Prior to 2005, Bally was known for hard selling
Prior to 2005, Bally was known for hard selling Down selling from the most expensive membership Only long-term contracts Dramatically reduced "renewal dues" forced ever increasing new membership signups Build-Your-Own- Membership (BYOM)
Slide 10: BYOM is now in every market
BYOM is now in every market. This is the new membership presentation form. Build-Your-Own- Membership (BYOM)
Slide 11: Continued New Member Growth on Top of Record 2004
Continued New Member Growth on Top of Record 2004 21% Increase (In thousands) (In thousands)
Slide 12: Details of 2005 Action Plan: New Club Model
New Club Model General manager who is a single point of accountability for club P&L and service levels Focus on member retention Shift focus from only sales to include health and fitness knowledge Cross-trained employees reduces required staffing and improves customer service All gym employees align
Slide 13: Grow In-Club Services
Bally has an opportunity to leverage its existing member base to drive incremental revenue through in-club services Improve retail operations, driving profitability from this $50MM in annual revenue business Grow personal training (PT) revenue Point-of-sale PT under BYOM should drive improved result
Slide 14: Evolving into a fitness and nutrition leader
Evolving into a fitness and nutrition leader Fitness is a $12 billion industry with annual growth of 5-8% over the last 5 years Weight loss is a $40 billion industry and expected to grow 6% annually in the US alone. The global nutrition industry is estimated at $182 billion More visibility of the ne
Slide 15: New Integrated Marketing Strategy
Details of 2005 Action Plan Bally launched its "Making it Personal" marketing campaign in October 2005 New marketing efforts for January include an innovative advertising campaign showing real Bally members over the course of 30 days New Integrated Marketing Strategy Marketing Strategy Marketing Str
Slide 16: Operating Cost Savings Initiatives
Details of 2005 Action Plan Goal: Improve Profitability and Cash Flow Evaluated outsourcing options for service centers, payroll and accounts payable Implemented alternative advertising strategies to lower overall costs Streamlined management and cut costs New club model staffing creates more effici
Slide 17: Field Expenses as a Percent of Revenue
We Have Diligently Controlled Field Expenses as a Percent of Revenue
Slide 18: G&A and IT costs increased through 9/30/05
G&A and IT costs have increased through 9/30/05 due to restatement, Sarbanes Oxley and litigation costs. Membership services costs have decreased more than $16MM or 3% over the nine month period in 2004. (In $, thousands) (In $, thousands)
Slide 19: Footprint Optimization / Strategic CapEx
Details of 2005 Action Plan Goal: Improve Profitability and Cash Flow Turnaround underperforming clubs or pursue exit alternatives Analyze and pursue rent reduction opportunities Sale of Crunch Fitness Additional non-core asset sales possible Evaluate real estate sales and sale-leasebacks Franchisin
Slide 20: Capital Expenditures Have Decreased
Capital Expenditures Have Decreased as We Focus on Existing Clubs vs New Clubs (In thousands) (In thousands)
Slide 21: Focus on People
Details of 2005 Action Plan Customer service training Implement performance evaluation program and realign incentives and rewards Focus on attracting quality people for every position Recruit top talent in key positions CFO - Carl Landeck (Levitz) CMO - Jim McDonald (RadioShack) General Counsel - Ma
Slide 22: Where We Are Today
Bally is in the middle of the biggest turnaround in the health club industry: Fundamental shift in how we measure success; retention and service are key drivers Radical change to our membership presentation process Fundamental changes to focus on profitability Stopped discounting renewal dues Innova
Slide 23: Issued Financial Results
Bally Total Flinass December 2005 Issued Financial Results
Slide 24: Summary of Results
Summary of Results 2004 Operating Income Before Impairment Charges $53.4 Million vs $35.2 Million in 2003, Up $18.2 Million, 52% Nine Month 2005 Operating Income Before Impairment Charges $61.7 Million vs $36.4 Million in 2004, Up $25.3 Million, 70% Nine-Month $1.8 Million Profit vs 2004 and 2003 Lo
Slide 25: Operating Income Grew 70% in 2005
Operating Income Grew 70% in 2005 and 52% Before Impairment Charges in 2004 Over Prior Year (In thousands) (In thousands) *Operating income before impairment charges.
Slide 26: Bally Posted First Quarterly Profit in Years
Bally Posted First Quarterly Profit in 5 Years *After asset impairment changes of $74.1MM and $15.2MM in 2003 and 2004, respectively. (In thousands) (In thousands)
Slide 27: Net Revenues Have Been Increasing
Net Revenues Have Been Increasing (In thousands) (In thousands)
Slide 28: Membership Revenue Increased in 2004 and 2005
Membership Revenue Increased in 2004 and 2005 Membership revenue was driven by an increase in the average monthly revenue per member of 3% or $19.70 for the nine months 2005 vs $19.17 in 2004 and $19.11 in 2003. (In thousands) (In thousands)
Slide 29: Personal Training Revenue Increased in 2004 and 2005
Personal Training Revenue Increased in 2004 and 2005 (In thousands) (In thousands)
Slide 30: Retail Revenue Decreased in 2004 and 2005
Retail Revenue Decreased in 2004 and 2005, but Opportunity Exists for Meaningful Profit (In thousands) (In thousands)
Slide 31: Addressing Capital Structure and Enhancing the Board
Addressing Capital Structure and Enhancing the Board
Slide 32: Addressing Capital Structure
Addressing Capital Structure Bally requires additional capital to grow Company for the future Hired J.P. Morgan Securities Inc. to explore range of strategic alternatives, working in collaboration with The Blackstone Group May include recapitalization, sale of securities or assets, or sale or merger
Slide 33: Supporting An Independent, Highly Qualified Board of Directors
Supporting An Independent, Highly Qualified Board of Directors Recently Appointed Two New Independent Directors to Vacant Seats Steven Rogers, Professor of Finance & Management, Kellogg Graduate School of Management, Northwestern University, Evanston, IL; Director at AMCORE Financial, Inc. (NASD: AM
Slide 34: Looking Ahead to 2006
Bally Total Flinass December 2005 Looking Ahead to 2006
Slide 35: 2006 Objectives
2006 Objectives Become a true leader in the wellness, fitness and nutrition business Expand offering to include all aspects of fitness, nutrition, and wellness Continue employee training to improve fitness and nutrition knowledge Expand nutrition program Focus on member service and retention Create
Slide 36: 2006 Objectives (Cont'd)
2006 Objectives (Cont'd) Grow number of new members who join and expand the ways they can join Allow members to sign up online Encourage more relationships through corporate sales Initiate insurance company relationships Create a more efficient and loyal organization Continue rollout of New Club Mod
Slide 37: Bally's Significant Progress
Bally's Significant Progress Transforming the business model and turning around operations Issued five years of financial information Addressing capital structure and enhancing Board Focused on delivering shareholder value
Slide 38: Appendix: Summary of Major Accounting Changes
Appendix: Summary of Major Accounting Changes
Slide 39: Summary of Major Accounting Changes
Summary of Major Accounting Changes Revenue recognition Fixed assets Impairment of goodwill and other intangible assets Lease accounting Other significant changes
Slide 40: Revenue Recognition
Revenue Recognition Down payments/ enrollment fees Financed membership fee & monthly dues-initial term Monthly access fee - month-to-month Monthly dues - renewal term Paid-in-full Prepaid accelerations Membership Revenue Components:
Slide 41: Revenue Recognition
Revenue Recognition Down payments / enrollment fee Financed membership fee & monthly dues - initial term Paid-in-full Prepaid accelerations Personal training Recognized without deferral: Monthly access fee - month-to-month Monthly dues - renewal term Retail Miscellaneous Deferred Recognition:
Slide 42: Revenue Recognition
Revenue Recognition Deferred revenue recognized over terms developed through studying historical member behavior Methodology involves "pools" recognized over the various terms Required by accounting standards SAB 104 and EITF 00-21 (Bargain renewal and multiple deliverables)
Slide 43: Fixed Assets
Fixed Assets Reduced depreciable lives to the lesser of the asset's economic life, the remaining lease term or 15 years for most assets classes Evaluated impairment at the club level vs market level previously used
Slide 44: Impairment of Goodwill and Other Intangible Assets
Impairment of Goodwill and Other Intangible Assets Reduced estimated useful life of goodwill for 1980s and 1990s acquisitions from 40 years to 10 years for all acquisitions prior to FASB 121 Engaged valuation expert to value assets and liabilities acquired in all major acquisitions in 1998-2002 time
Slide 45: Lease Accounting
Lease Accounting Changed to straight line method of recording rent expense Reclassified tenant allowances to deferred rent liabilities from reduction of PPE
Slide 46: Other Accounting Changes
Other Accounting Changes Member bonds - recorded liability for reimbursement of cost of certain 1980's memberships sold Self insurance liabilities - hired actuary to estimate future claims obligations Member acquisition costs - expensed previously deferred costs from 2002 and prior Capitalized softw
Bally Total Fitness Holding — Proxy Contest (December 2005) on 6ix