Fitness financials: Town Sports subject of formal SEC investigation over accounting, plus Hanesbrands

Town Sports International reported that it's the target of a Securities and Exchange Commission investigation of its accounting practices, and Hanesbrands sold its yarn manufacturing operations and closed a North Carolina facility.

Town Sports subject of formal SEC investigation over accounting

Town Sports International (Nasdaq: CLUB) reported in a regulatory filing that it is the target of a Securities and Exchange Commission investigation of its accounting practices.

The company said the SEC was looking into how long the company took to amortize certain payroll costs as an expense and some initiation fees as revenue.

An informal investigation has been ongoing since May 2008, but the SEC made it official on Sept. 14.

Stifel Nicolaus & Co. analyst Thomas Shaw told investors in a research report that the company had changed the estimated term of its average club membership to 28 months from 30 months. As a result, it affected the accounting results. He added that commissions that staffers earn for signing up new members are amortized over the same period as the initiation fees they collect, so as initiation fees fell with recession-driven discounts, club owners saw expenses rise in recent quarters.

Town Sports International operates 166 sports clubs in New York, Boston, Philadelphia and Washington, D.C.

Hanesbrands sells yarn manufacturing operations, closes N.C. facility

Hanesbrands (NYSE: HBI), parent of Champion, said it is selling most of its yarn manufacturing operations to Parkdale, a yarn manufacturer based in North Carolina, in a deal expected to close in the fourth quarter. Financial terms of the transaction were not disclosed.

Hanesbrands plans to get all of its yarn from large-scale yarn suppliers. “Producing our own yarn, when more than adequate large-scale supplies exist, serves no strategic purpose,” CEO Richard Noll said in a statement.

Parkdale will operate three of the four production plants in Georgia, Tennessee and Virginia, which have 780 employees combined.

Hanesbrands will close the fourth facility, which has about 150 employees, in Sanford, N.C. Hanesbrands also plans to close a cotton warehouse in Advance and Clemmons, both in North Carolina and have 25 employees combined.

The company expects the sale to bolster its balance sheet by $100 million within six months from working capital improvements, lower raw material requirements, reduced inventory and sale proceeds.

–Compiled by Wendy Geister

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