Bally 10-Q filing delay draws investor concern
On Aug. 26, Bally Total Fitness Holding Corp.’s CEO and board of directors received a letter from Liberation Investment Group LLC, which owns nearly 4.5 million shares of the company’s stock, reprimanding it for missing its 10-Q filing deadline. Bally (NYSE: BFT) had notified investors and the SEC on Aug. 10 that its 10-Q filing would be delayed, but said it would meet an Aug. 16 deadline. Nothing had yet been filed as of Aug. 30.
The letter was from Emanuel Pearlman, manager of Liberation Investment Group, to Bally CEO and Chairman Paul Toback. It stated, in part:
“As we discussed over the last week or so, I am gravely concerned that the Company missed its 10-Q filing deadline. I am further concerned that the Audit Committee had not sooner addressed the issues that delayed the filing. The financial implication of such a delay in filing a 10-Q can be devastating. At this point, I suggest that at the very least it would be essential to candidly update the capital markets on a regular basis as to the progress of the filing.
Furthermore, as we have discussed I strongly urge you to engage in good faith negotiations with the several investor groups who have expressed interest in either refinancing some of your current outstanding indebtedness and/or entering into value-enhancing transactions for your shareholders. I believe that the Company should be exploring all transactions in any form that would enhance shareholder value and, therefore, suggest that the Company form a special committee of independent directors with the appropriate background to review any and all expressions of interest in value-enhancing transactions.
Liberation believes in the value of your Company and its franchise but feels that the current inertia on the part of the Company in exploring value-enhancing transactions is detrimental to the Company and its constituencies including employees, creditors, and equity holders. Maintaining the status quo is simply not in the best interest of shareholders and, if necessary, we may attempt, alone or with other investors, to make board nominations or propose transactions.”
When Bally filed paperwork for its delay, it said it was in the process of examining accounting issues that would affect its Quarterly Report on Form 10-Q for the period ended June 30, 2004. As has been reported previously, Bally expects to restate prior periods to record a $5 million liability related to repayment obligations due in 2015 or later on membership contracts sold by a subsidiary before Bally acquired it in the late 1980s. The effect on prior income statements is the addition of non-cash annual charges of between $231,000 and $472,000 in each of the years 1996 through 2003. Among other accounting issues being examined, Bally is also considering changing the balance sheet presentation of its installment contract receivables which would also change an equal amount of deferred revenue so as not to report these amounts on the balance sheet. Ultimately, these changes could result in further restatement of prior period financial statements.
Liberation Investment Group owns 6.68 percent of Bally common stock.
Bally also raises Toback’s pay by $100,000
In other Bally news, the company on Aug. 24 entered into another employment agreement with Toback to continue as the company’s president and CEO through Dec. 31, 2007, unless the agreement is earlier terminated in accordance with its terms. The terms of the agreement include an annual base salary of $575,000 and an annual incentive payment of up to 70 percent of the base salary based on performance criteria established by Bally’s board of directors. Toback’s pay for 2003 was $475,000. You can see all of Bally’s filings with the Securities and Exchange Commission by clicking here.
The Sports Authority’s Q2 has its ups and downs
Second quarter results for The Sports Authority (NYSE: TSA) were a bit of rollercoaster ride for the company that also has Gart Sports, Sportmart and Oshman’s under its wing.
On the up side, revenue for the quarter ended July 31, 2004, more than doubled to $605 million from last year’s $268 million. But, on the down side, 2004 second-quarter earnings were $6.7 million, or 25 cents a share, compared to $5.3 million, or 42 cents a share (17 cents down). TSA was also hit with $8.4 million in one-time merger-related costs. The retailer said it is still seeing weak fitness equipment sales, which represents a significant part its business. CEO Doug Morton said, “We expect fitness sales to improve as we complete our new merchandise assortments in this category by the end of the third quarter.”
Excluding merger-integration-related charges, the company earned 45 cents a share, and analysts had expected a per-share profit of 44 cents. The Englewood, Colo.-based, retailer had expected to earn between 41 cents to 48 cents a share for the quarter, down from an earlier estimate of 70 cents a share.
Second-quarter comparable store sales for the combined company decreased 3.8 percent from last year’s combined company results. Same store sales are expected to fall “in the low single digits” during the third quarter, the company said. TSA will close 13 stores, but plans to open 22 new stores during the year.
Second-quarter results for the company were released after market close and TSA was up 49 cents, or 2.4 percent, on the NYSE that day to $20.74. However, in extended trading, the shares were down 74 cents, or 3.6 percent.
Nautilus names new board member
The Nautilus Group (NYSE: NLS) has elected Donald Keeble, a 29-year Kmart veteran, to its board of directors. Nautilus CEO Gregg Hammann said in a statement, “(Keeble’s) strong background in operational and retail management will be helpful as we broaden our retail presence and introduce additional product lines.” Since his retirement from Kmart in 2000, Keeble has served as president of AKK Consulting and also is executive vice president and COO of Spirit Entities, a contractor for water-purification systems for export.
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