Bally Total Fitness Seeks Shareholder Support Based on Its Success in Improving Operating Results.CHICAGO -- Shareholder Letter Highlights Bally's Business Turnaround and Strategy for Creating Shareholder Value; Questions Motives of Liberation and Pardus In a letter to shareholders, Bally Total Fitness Bally Total Fitness is an American health club chain with 400 gyms in 70 cities, and claims 4 million customers [1]. The chain has recently opened gyms in South Korea, China & the Bahamas. (NYSE NYSE See: New York Stock Exchange :BFT (Binary File Transfer) An extension to the fax protocol that allows transmission of raw data. A page of text is transmitted faster than a bitmap of the page and is displayed at normal printer resolution at the receiving side. ), the nation's leader in health and fitness, asked investors to support the Company's current management team, its turnaround strategy, and its slate of directors for election at the January 26 shareholders meeting, which is being contested by two hedge funds hedge fund, in finance, a highly speculative, largely unregulated investment device. Originating in the 1950s, the funds "hedge" by offsetting "short" positions (borrowing a security and then selling it at a higher price before repaying the lender) against "long" . "The Company's results show that our turnaround is working and we are enhancing value for shareholders," said Paul Toback, Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Bally bally Adjective, adv Brit old-fashioned, slang extreme or extremely: a bally nuisance, he's too bally charming for his own good Adj. 1. . "After attempting for several months to reach a settlement with Pardus and Liberation, it has become clear to Bally's Board of Directors and management that the sole agenda of these two hedge funds is to disrupt the Board's strategic process in favor of their own narrow interests, rather than putting forth a plan that would deliver value for all shareholders," Toback said. Bally's Board of Directors has retained two highly qualified advisors -- J.P. Morgan Securities Inc. and The Blackstone Group Blackstone Group L.P. (NYSE: BX) is a prominent private equity and investment management firm founded in 1985 by Peter G. Peterson and Stephen A. Schwarzman. The company is based in New York City, in River House on Park Avenue at Fifty-first Street, with offices in Atlanta, -- to run a fair and transparent strategic process to address the Company's capital structure issues. In order to keep the process beyond reproach re·proach tr.v. re·proached, re·proach·ing, re·proach·es 1. To express disapproval of, criticism of, or disappointment in (someone). See Synonyms at admonish. 2. To bring shame upon; disgrace. n. , Bally's management has made it clear it has no intention of putting together a proposal to purchase the Company and has committed not to align itself with any bidder in the process until a winning bidder has been chosen. The letter is provided below in its entirety: -0- January 6, 2006 DEAR SHAREHOLDER: Bally Total Fitness recently mailed you its proxy statement Proxy Statement A document containing the information that a company is required by the SEC to provide to shareholders so they can make informed decisions about matters that will be brought up at an annual stockholder meeting. for the Company's January 26, 2006 shareholder meeting. We urge you to vote your proxy in support of Bally's Board of Directors and management team, which has made significant progress in turning around and transforming the Company's business. We also will provide some insights into what we believe are the questionable motives underlying other proxy proposals that we believe are designed to advance the interests of a narrow group of shareholders rather than benefiting the Company or the majority of shareholders. When new management began running Bally three years ago, we established three important goals: --Turn around the Company's sagging sag v. sagged, sag·ging, sags v.intr. 1. To sink, droop, or settle from pressure or weight. 2. operational performance, --Restore confidence in the integrity of the financial statements, and --Address the Company's debt-heavy capital structure we inherited. As our recent restatements clearly demonstrate, we have made significant progress on all three of these critical goals and have made Bally better operationally, stronger financially, and more credible with auditors, regulators and investors. In addition, with the recently announced strategic process being led by J.P. Morgan Securities Inc. and The Blackstone Group, we are also addressing the last major near-term issue facing Bally. We have structured this letter as a series of questions and answers to help frame the issues and inform your thinking about how to cast your vote with regard to your Bally shares. Q: What is the track record of Bally's current management team? A: Management has made tremendous progress in turning Bally around, significantly growing operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. and correcting an extraordinary number of past accounting issues. The Company's recently reported results clearly tell the story of this team's success. Almost all financial measures have dramatically improved in the last three years. Costs are down, revenues are up, and Bally is returning to profitability and is positioned for strong future performance. A comparison of Bally's performance across key metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. from the periods 2000 through the first nine months of 2005 shows compelling improvement across the board after the Company's management changed in December 2002. (Note: Data is presented in thousands, except per member data and fitness centers.)
A Dramatic Improvement in Results
PREVIOUS MANAGEMENT NEW MANAGEMENT
---------------------------------------------------------
Performance 2000 2001 2002 2003 2004 2005
Data (Re- (Re- (Re- (Re- 9 months
stated) stated) stated) stated) only
----------------------------------------------------------
Net
revenues $735,560 $810,088 $937,847 $1,002,871 $1,047,988 $807,489
Operating
income
(loss)
before
impairment
charges(1) (20,776) 1,824 (13,989) 35,231 53,393 61,697
New members 891 908 935 965 1,165 951
End of
period
members 3,556 3,541 3,542 3,616 3,645 3,676
Average
monthly
membership
revenue
recognized
per member 15.67 16.70 18.71 19.11 19.17 19.70
Fitness
centers 384 405 410 417 416 412
(1) The Company believes that this non-GAAP financial metric provides
a better understanding of the Company's current financial
performance and the Company's prospects for the future.
Specifically, the Company believes the non-GAAP results provide
useful information to both management and investors by excluding
non-cash impairment charges, which may not be indicative of core
operating results. A reconciliation of Operating Income (Loss)
Before Impairment Charges to Operating Income (Loss) is included
at the end of this letter.
Q: Why is the Company pursuing a strategic alternatives process with J.P. Morgan Securities Inc. and The Blackstone Group, and is this Board the best group to lead that process? A: In addition to executing our business plan, in order to strengthen operations, it is imperative that we address the challenge our current capital structure poses. To that end, the Board has retained two highly qualified advisors to run a fair, open and transparent process. --This Board is committed to an independent and value-creating strategic alternatives process led by our independent directors. --We have engaged J.P. Morgan Securities Inc. and The Blackstone Group to assist us in exploring a range of alternatives to enhance value for all of our shareholders. These alternatives may include a recapitalization Recapitalization Restructuring a company's debt and equity mixture often with the aim of making a company's capital structure more stable. Notes: Companies often want to diversify their debt-to-equity ratio to improve liquidity. , the sale of securities or assets of the Company, or the sale or merger of the Company with another entity or strategic partner. --Bally management has no intention of putting together a proposal to purchase the Company and has committed not to align itself with any bidder in the process until a winning bidder has been chosen. Q: Why did management recently sell some of its holdings in Bally stock and why now? A: Because the Company had been in a quiet period resulting from not filing financial statements since May 2004, some members of management decided to sell certain holdings of previously restricted Company stock in connection with personal tax planning Tax planning Devising strategies throughout the year in order to minimize tax liability, for example, by choosing a tax filing status that is most beneficial to the taxpayer. or diversification needs. --Management believes wholeheartedly whole·heart·ed adj. Marked by unconditional commitment, unstinting devotion, or unreserved enthusiasm: wholehearted approval. whole in Bally's future, and the Company's Directors and Officers as a group continue to collectively beneficially own approximately 4.7% of Bally stock. --In the middle of 2005, Liberation caused most senior management's restricted stock to vest when it acquired more than 10% of the Company's stock. --That action created a tax liability for all but two of Bally's executives for the 2005 tax year that in many cases was a six-figure liability. --In addition, due to the 18-month quiet period associated with restating Bally's financials, the two weeks between December 1 and December 16, 2005 was the only window since May 2004 and until May 2006 during which members of senior management could trade Bally stock. --Many of Bally's senior executives have most of their net worth in Bally stock and have needed to diversify their holdings for some time. Q: Who are Pardus and Liberation? How could two new hedge funds with no track record in turning around companies possibly create more value for Bally shareholders than the new Board and management team that are fixing Bally on behalf of shareholders? What are Pardus' and Liberation's plans for operating the business or conducting the strategic process? A: Pardus and Liberation are both hedge funds with no publicly announced plan of their own to manage Bally or sell or refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. the Company. Pardus and Liberation have agitated ag·i·tate v. ag·i·tat·ed, ag·i·tat·ing, ag·i·tates v.tr. 1. To cause to move with violence or sudden force. 2. and attempted to discredit TO DISCREDIT, practice, evidence. To deprive one of credit or confidence. 2. In general, a party may discredit a witness called by the opposite party, who testifies against him, by proving that his character is such as not to entitle him to credit or Bally's management and Board. We believe they want to control the Company and the strategic process without paying a control premium to all shareholders. --Pardus wants effective control without paying a fair premium to Bally shareholders and without a fair and transparent bidding process for such control. --Pardus asked the Company to waive To intentionally or voluntarily relinquish a known right or engage in conduct warranting an inference that a right has been surrendered. For example, an individual is said to waive the right to bring a tort action when he or she renounces the remedy provided by law for such certain legal requirements under Delaware law so that they could acquire as much as 30% of the Company's stock. --Liberation began acquiring shares in the Company after new Bally management terminated Emanuel Pearlman's longstanding consulting role with the Company, during which he was a well-paid advisor to the Company while Lee Hillman Hillman was a famous British automobile marque, manufactured by the Rootes Group. It was based in Ryton-on-Dunsmore, near Coventry, England, from 1907 to 1976. Before 1907 the company had built bicycles. , Bally's former CEO and Pearlman's close friend, was CEO. --From 1992 to 2003, Mr. Pearlman received at least $3.4 million from Bally, an average of $283,000 per year, in consulting and investment advisory fees for transactions he promoted for the Company and its affiliates, which often proved to be ill conceived. --Pardus, a new hedge fund formed in 2005 by Karim Samii, a vulture investor vulture investor An investor who attempts to profit by buying debt of bankrupt or credit-impaired companies. Vulture investors are generally interested in the debt of problem companies that hold substantial tangible assets. primarily in debt securities of bankrupt or troubled companies, began acquiring Bally stock in July 2005. In return for its newly purchased 14% stake in the Company, Pardus demanded 5 of Bally's 9 board seats -- not for truly independent representatives, but for a Pardus advisory committee representative, a former business associate of the Pardus principals and Don Kornstein, Mr. Pearlman's longtime associate. --Pardus has indicated that they would like to lead a private recapitalization of the Company, and we believe their efforts in this contest are intended to mostly benefit Pardus. --Principals of Pardus have met with management several times and each time threatened that if they didn't get what they "demanded" they would "go to war" with the Company and its Board and management. Q: Why won't the Company settle this dispute with Liberation and Pardus since it is distracting dis·tract tr.v. dis·tract·ed, dis·tract·ing, dis·tracts 1. To cause to turn away from the original focus of attention or interest; divert. 2. To pull in conflicting emotional directions; unsettle. and costly? A. The Company has been attempting to settle for months and already agreed to take two of the Pardus directors with no conditions. Pardus and Liberation have rejected every one of the Company's offers and continue to insist on settlement terms that we believe are designed to disrupt the strategic process. --The proposals made by Bally's directors and management, some of which have been made public, are more than fair and reasonable. We have already agreed to nominate two of the directors Pardus proposed without any conditions. That represents more than 20% of the Board, which seems more than appropriate given that Pardus owns just slightly more than 14% of the Company's stock. --Bally has offered Pardus and Liberation additional concessions privately to settle this costly dispute, but they have refused all overtures o·ver·ture n. 1. Music a. An instrumental composition intended especially as an introduction to an extended work, such as an opera or oratorio. b. , instead often increasing their demands or adding new ones. --Pardus publicly asked the Board to appoint a special committee to control the strategic process which the Pardus representatives would control while at the same time Pardus expressed an interest in participating in a strategic transaction that would need approval from that very committee. --Liberation, in particular, wants to immediately fire Bally's CEO despite the improvement in the Company's results and while it is in the midst Adv. 1. in the midst - the middle or central part or point; "in the midst of the forest"; "could he walk out in the midst of his piece?" midmost of a strategic process to refinance and possibly sell the Company, during which time uncertainties as to management stability could only hurt the process. Q: Are Pardus and Liberation working together in a concerted effort to disrupt our strategic alternatives process? A: You should consider the facts and reach your own conclusion: --Liberation made repeated threats to replace Bally's Board members with its own candidates but decided not to run any directors after Pardus announced it would nominate a slate. Liberation just put forth a proposal to fire Bally's CEO and solicit the authority to vote for the Pardus slate. --Pardus is promoting a slate with three directors, which includes one of Mr. Pearlman's old friends and colleagues, Don Kornstein. --Mr. Kornstein has known Mr. Pearlman for 17 years. In Mr. Kornstein's capacity as CEO, President and a Director of Jackpot Enterprises, Inc., Mr. Kornstein retained Mr. Pearlman to act as a financial advisor. --Mr. Pearlman nominated Mr. Kornstein, along with Mr. Hillman, to be on his insurgent INSURGENT. One who is concerned in an insurrection. He differs from a rebel in this, that rebel is always understood in a bad sense, or one who unjustly opposes the constituted authorities; insurgent may be one who justly opposes the tyranny of constituted authorities. board slate for InterTAN, Inc. in 2003. --When finally confronted with imminent depositions and other discovery ordered by the Delaware federal courts in litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. brought by Bally, Liberation amended its proxy materials Proxy Materials Documents regulated by the Securities & Exchange Commission in which a public company outlines its methods and procedures. These documents are used to inform shareholders and solicit votes for corporate decisions, such as the election of directors and other to admit that it had suggested Mr. Kornstein to Pardus for the Pardus slate. --In 2002, Bally's CEO Lee Hillman proposed to the Bally Board that the Company be sold to HealthSouth just months before HealthSouth's accounting fraud became public and its stock was delisted and its CEO fired. The transaction would have had management's stock options purchased by HealthSouth for cash, while other Bally shareholders were to receive HealthSouth stock. Interestingly, a key financial advisor to Hillman on that proposed transaction was Mr. Pearlman. --When the Bally Board refused Mr. Hillman's request to sell the Company to HealthSouth (two of Bally's current directors were directors at that time), Mr. Hillman attempted to put two of his friends on Bally's board of directors -- Mr. Pearlman and Mr. Kornstein. The Board refused to add either candidate to the Board. Q: Whom should Bally shareholders vote for and why? A: We believe shareholders should vote Bally's WHITE proxy card A proxy card is an easily-acquired or home-made substitute for a collectible card. A proxy is used when a collectible card game player does not own a card, and it would be impractical for such purposes to acquire the card. for Bally's nominees. Because we have made concessions without conditions and agreed to nominate two of Pardus' candidates in an attempt to avoid a contest, the current contest is really only about who is elected to the remaining spot: Eric Langshur, the independent director who led the Audit Committee effort to restate re·state tr.v. re·stat·ed, re·stat·ing, re·states To state again or in a new form. See Synonyms at repeat. re·state financials, or Don Kornstein, a loyalist loyalist American colonist loyal to Britain in the American Revolution. About one-third of American colonists were loyalists, including officeholders who served the British crown, large landholders, wealthy merchants, Anglican clergy and their parishioners, and Quakers. of Mr. Pearlman, the friend of Bally's former discredited dis·cred·it tr.v. dis·cred·it·ed, dis·cred·it·ing, dis·cred·its 1. To damage in reputation; disgrace. 2. To cause to be doubted or distrusted. 3. To refuse to believe. n. CEO. We also believe you should give us your support to reject the Liberation proposals, which, if enacted, could endanger en·dan·ger tr.v. en·dan·gered, en·dan·ger·ing, en·dan·gers 1. To expose to harm or danger; imperil. 2. To threaten with extinction. the positive momentum at Bally and also could disrupt or torpedo torpedo, in naval warfare torpedo, in naval warfare, a self-propelled submarine projectile loaded with explosives, used for the destruction of enemy ships. Although there were attempts at subsurface warfare in the 16th and 17th cent. the strategic process already under way. We think it all comes down to this--do you want your Company to continue implementing a well-conceived turnaround plan that is producing results and is based on deep knowledge of the Bally business and the health and fitness industry? Or do you want to support a dissident former employee who has been closely associated with a failed strategy that has since been repudiated, working with a group that has no knowledge of the Company's business and no clear plan to take Bally forward? We think the answer is clear: Vote FOR Bally's nominees to continue progress under a plan that is working. We strongly recommend that you vote FOR the Bally nominees by signing, dating and returning the WHITE proxy card. We strongly urge you not to sign any green proxy card that may be sent to you by Pardus Capital Management or a gold proxy card that may be sent to you by Liberation Investments. If you have previously returned a green or gold proxy card, you can automatically revoke To annul or make void by recalling or taking back; to cancel, rescind, repeal, or reverse. revoke v. to annul or cancel an act, particularly a statement, document, or promise, as if it no longer existed. it by signing, dating and returning the enclosed en·close also in·close tr.v. en·closed, en·clos·ing, en·clos·es 1. To surround on all sides; close in. 2. To fence in so as to prevent common use: enclosed the pasture. WHITE proxy card in the accompanying envelope. We appreciate your continued support, and if you need assistance or have any questions, please call MacKenzie Partners toll-free at 800-322-2885 or collect at 212-929-5500. Sincerely, PAUL A. TOBACK Chairman and CEO Bally Total Fitness Holding Corporation
Reconciliation of Operating Income (Loss) Before Impairment
Charges to Operating Income (Loss):
Performance 2000 2001 2002 2003 2004 2005
Data (Re- (Re- (Re- (Re- 9 months
stated) stated) stated) stated)
----------------------------------------------------------------------
Operating
income
(loss)
before
impairment
charges $(20,776) $1,824 $(13,989) $35,231 $53,393 $61,697
----------------------------------------------------------------------
Impairment of
goodwill and
other
intangibles 7,396 1,801 1,619 54,505 405 --
----------------------------------------------------------------------
Asset
Impairment
Charges 33,039 26,281 18,258 19,605 14,772 --
----------------------------------------------------------------------
Operating
income
(loss) (61,211) (26,258) (33,866) (38,879) 38,216 61,697
----------------------------------------------------------------------
About Bally Total Fitness Bally Total Fitness is the largest and only nationwide commercial operator of fitness centers in the U.S., with nearly 440 facilities located in 29 states, Mexico, Canada, Korea, China and the Caribbean under the Bally Total Fitness(R), Crunch Fitness(SM), Gorilla gorilla, an ape, Gorilla gorilla, native to the lowland and mountain forests of western and central equatorial Africa. It is the largest of the apes, the males reaching a height of 5 to 6 ft (150–190 cm) with a 9-ft (144–cm) arm spread. Sports(SM), Pinnacle Fitness(R), Bally Sports Clubs A sports club, athletics club or sports association is an eclectic institution oriented to multiple sports, which fields many teams and has varied sports departments in several sports, working under the same umbrella organization. (R) and Sports Clubs of Canada(R) brands. Bally offers a unique platform for distribution of a wide range of products and services targeted to active, fitness-conscious adult consumers. Forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. in this release including, without limitation, statements relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the Company's plans, strategies, objectives, expectations, intentions, and adequacy of resources, are made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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. |
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion