2014

Town Sports International Reports on the Quarter Ended December 31, 2003

    NEW YORK, Feb. 24 /PRNewswire/ -- Town Sports International (TSI), a
 leading owner and operator of 129 health clubs in major cities from
 Washington, DC north through New England, today announced its results for the
 year ended December 31, 2003.
     Revenues for the three months were $82.8 million, an increase of
 $1.6 million, or 1.9% over the same quarter of 2002.  During the quarter,
 TSI's mature clubs (those in operation for 24 months or longer) experienced a
 decrease in revenue of 0.8% over the prior year's quarter.  This slight
 decrease was driven by our Manhattan mature clubs, which decreased 3.2% and
 was offset by a 0.9% revenue increase at our mature clubs outside of
 Manhattan.  The fifteen clubs opened or acquired within the last twenty-four
 months contributed to $3.5 million of the increase in revenue in the quarter
 ended December 31, 2003 over the prior year.
     "The fourth quarter of 2003 was a transitional quarter for us.  This
 fourth quarter marked the completion of our company-wide rollout of our new
 club management enterprise system with over 50% of our clubs converting from
 our old systems in this quarter.  Also, in this quarter we introduced a new
 membership structure, adding one and two year commit memberships to our
 popular month-to-month membership plan.  Although these events were somewhat
 distracting to our employees in the short term, we are confident they will
 both improve our business in the long term," said Bob Giardina, CEO of TSI.
     The Company's EBITDA (earnings before interest, taxes, and depreciation)
 decreased by 8.3% to $15.8 million this quarter from $17.2 million in last
 year's quarter.
     Operating income for the quarter was $6.4 million compared to $9.0 million
 in the fourth quarter of 2002, while net interest expense increased to
 $6.5 million from $4.1 million.
     The decrease in operating income and EBITDA in the fourth quarter of 2003
 when compared to the same period of 2002 was due to: revenue shortfalls at
 mature clubs, increased advertising costs associated with weak membership
 sign-ups, and increases in utility and real estate occupancy costs.
 Furthermore our business interruption claim related to the September 11, 2001
 events was settled in the third quarter of 2003 and as such no revenues were
 recorded in this fourth quarter of 2003, while $0.6 million were received in
 the comparable quarter of 2002.
     The Company recorded net income for the quarter of $0.4 million compared
 to $3.3 million for the comparable period in the prior year.
     For the year ended December 31, 2003, consolidated revenues were
 $342.5 million compared to $319.4 million last year.  Operating income for the
 year ended December 31, 2003 was $44.0 million compared to $38.1 million in
 the prior year. EBITDA for the year was $78.9 million versus $69.8 million, a
 growth of 13.0% during the last year.   The Company recorded net income for
 the year of $7.4 million compared to $10.5 million for the comparable period
 in the prior year.  In the last twelve months the Company relocated three
 clubs and opened three new Greenfield clubs keeping the club count at
 127 owned and two part-owned clubs.
 
 
          Town Sports: Reconciliation of the quarters and years ending
             December 31, 2002 and 2003 EBITDA and Adjusted EBITDA
                                ($ in thousands)
 
                            4Q 2002  4Q 2003  % Chg.    2002     2003   % Chg.
 
     Net Income              $3,253     $375 (88.5)%  $10,507   $7,429 (29.3)%
        Provision (benefit)
         for corporate
         income taxes         1,649     (467)           9,709    5,537
        Loss on extinguishment
         of debt                 --       --               --    7,773
        Interest expense, net
         of interest income   4,139    6,517           16,421   23,226
        Cumulative effect of
         a change in accounting
         principle, net of
         income tax benefit
         of $612                 --       --              689       --
        Loss (earnings) on
         discontinued
         operations             (59)      --              767       --
        Depreciation and
         amortization         8,262    9,392           31,748   34,927
 
     EBITDA                 $17,244  $15,817  (8.3)%  $69,841  $78,892   13.0%
        Non-cash rental
         expense, net of
         non-cash rental income  391      339            1,670    1,650
        Non-cash compensation
         expense incurred in
         connection with
         stock options          306      (10)           1,207      197
 
           Adjusted EBITDA  $17,941  $16,146 (10.0)%  $72,718  $80,739   11.0%
           Margin             22.1%    19.5%            22.8%    23.6%
 
     Certain statements in this release are forward-looking statements,
 including without limitation, statements regarding future financial results
 and performance and potential sales revenue.  These statements are subject to
 various risks and uncertainties, many of which are outside our control,
 including the level of market demand for our services, competitive pressures,
 the ability to achieve reductions in operating costs and to continue to
 integrate acquisitions, the application of Federal and State tax laws and
 regulations, and other specific factors discussed herein and in other releases
 by the Company.  The information contained herein represents management's best
 judgment as of the date hereof based on information currently available.
 However, we do not intend to update this information to reflect development or
 information obtained after the date hereof and disclaim any legal obligation
 to the contrary.
 
     EBITDA is defined as earnings before interest, taxes, depreciation,
 amortization, loss on extinguishment of debt and a cumulative effect of a
 change in accounting principle.  EBITDA is presented because we believe it
 provides useful information regarding our operating performance and financial
 condition.  EBITDA should not be considered in isolation or as a substitute
 for net income, cash flows, or other consolidated income (loss) or cash flow
 data prepared in accordance with Generally Accepted Accounting Principles in
 the United States of America ("GAAP") or as a measure of our profitability or
 liquidity.  Additionally, investors should be aware that EBITDA may not be
 comparable to similarly titled measures presented by other companies.
 
     Adjusted EBITDA is calculated by adding to or deducting from EBITDA (as
 described above), certain items of income and expense consisting of:
 (i) non-cash deferred lease expense, net of non-cash deferred lease income,
 and (ii) non-cash compensation expense in connection with stock options.  We
 believe that the adjustment for these items is appropriate for such periods in
 order to provide an appropriate analysis of recent historical results.
 Adjusted EBITDA is presented because we believe it provides useful information
 regarding our operating performance and financial condition.  Adjusted EBITDA
 closely reflects a metric used by our lenders when assessing our compliance
 with debt covenants.  Adjusted EBITDA should not be considered in isolation or
 as a substitute for net income, cash flows or other consolidated income (loss)
 or cash flow data prepared in accordance with GAAP or as a measure of our
 profitability or liquidity.  Adjusted EBITDA Margin is defined as Adjusted
 EBITDA as a percentage of revenues.  Additionally, investors should be aware
 that Adjusted EBITDA may not be comparable to similarly titled measures
 presented by other companies.
 
      Contact:
      Richard Pyle
      Office of the President/CFO
      Town Sports International
      1-212-246-6700
 
 
                TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                               All figures $'000
                           December 31, 2002 and 2003
                                  (Unaudited)
 
                                                  December 31,     December 31,
                                                      2002             2003
     ASSETS
     Current assets:
      Cash and cash equivalents                      $5,551           $40,802
      Accounts receivable, net                        1,333             1,469
      Inventory                                       1,132               750
      Prepaid corporate income taxes                  3,012             4,062
      Prepaid expenses and other current assets       4,430             5,322
        Total current assets                         15,458            52,405
 
     Fixed assets, net                              210,823           223,599
     Goodwill, net                                   45,531            45,864
     Intangible assets, net                           1,675               630
     Deferred tax assets, net                        20,254            16,771
     Deferred membership costs                       14,408            13,038
     Other assets                                     6,101             9,892
        Total assets                               $314,250          $362,199
 
     LIABILITIES and STOCKHOLDERS' DEFICIT
 
     Current liabilities:
      Current portion of long-term debt
       and capital lease obligations                 $5,178            $3,486
      Accounts payable                                5,328             5,379
      Accrued expenses                               21,634            26,006
      Deferred revenue                               26,510            26,621
        Total current liabilities                    58,650            61,492
 
     Long-term debt and capital lease obligations   155,765           258,391
     Deferred lease liabilities                      23,644            25,856
     Deferred revenue                                 3,435             3,002
     Other liabilities                                7,530             7,862
        Total liabilities                           249,024           356,603
 
     Redeemable preferred stock:
      Redeemable senior preferred stock              62,125                --
      Series A redeemable preferred stock            34,841            39,890
                                                     96,966            39,890
 
     Stockholders' deficit:
      Series B preferred stock                          303             9,961
      Class A voting common stock                         1                 1
      Paid-in capital                               (32,149)          (45,627)
      Unearned compensation                            (278)             (172)
      Accumulated other comprehensive income            293               596
      Retained earnings                                  90               947
 
        Total stockholders' deficit                 (31,740)          (34,294)
 
        Total liabilities, redeemable preferred
         stock and stockholders' deficit:          $314,250          $362,199
 
 
                TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
        For the three months and years ended December 31, 2002 and 2003
                               All figures $'000
                                  (Unaudited)
 
                                          Three months ended     Year ended
                                             December 31,       December 31,
                                            2002     2003      2002      2003
 
     Revenues:
       Club operations                    $79,737  $81,921  $314,995  $336,140
       Fees and other                       1,497      890     4,432     6,401
                                           81,234   82,811   319,427   342,541
 
     Operating expenses:
       Payroll and related                 32,526   31,962   129,105   130,585
       Club operating                      24,895   28,954    99,113   111,069
       General and administrative           6,569    6,078    21,368    21,995
       Depreciation and amortization        8,262    9,392    31,748    34,927
                                           72,252   76,386   281,334   298,576
       Operating income                     8,982    6,425    38,093    43,965
     Loss on extinguishment of debt            --       --        --     7,773
     Interest expense                       4,161    6,564    16,559    23,670
     Interest income                          (22)     (47)     (138)     (444)
       Income (loss) before provision for
        corporate income taxes and
        cumulative effect of a change in
        accounting principle                4,843      (92)   21,672    12,966
     Provision (benefit) for corporate
      income taxes                          1,649     (467)    9,709     5,537
       Income before cumulative effect of
        a change in accounting principle    3,194      375    11,963     7,429
       Cumulative effect of a change in
        accounting principle,
        net of income tax                      --       --      (689)       --
       (Loss) gain on discontinued
        operations, net of income tax          59       --      (767)       --
       Net income                          $3,253     $375   $10,507    $7,429
 
 
                TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 For the years ended December 31, 2002 and 2003
                               All figures $'000
                                  (Unaudited)
                                                           Years ended
                                                           December 31,
                                                      2002              2003
 
     Cash flows from operating activities:
      Net Income                                   $10,507             $7,429
 
     Adjustments to reconcile net income to net
      cash provided by operating activities:
       Depreciation and amortization                32,025             34,927
       Goodwill impairment write-off                 1,301                 --
       Club closure costs                              996                 --
       Compensation expense in connection
        with stock options                           1,207                197
       Non-cash rental expense, net of
        non-cash rental income                       1,670              1,650
       Amortization of debt issuance costs           1,928              1,627
       Change in certain working capital components  2,413               (227)
       Decrease (increase) in deferred tax asset    (1,162)             3,483
       Decrease in deferred membership costs           340              1,370
       Loss on extinguishment of debt                   --              7,773
       Other                                          (420)                24
 
        Total adjustments                           40,298             50,824
 
        Net cash provided by operating activities   50,805             58,253
 
     Cash flows from investing activities:
      Capital expenditures, net of
       effects of acquired businesses              (41,393)           (43,397)
      Proceeds from sale of equipment                   --                176
      Acquisition of businesses                     (2,322)              (130)
      Landlord contributions                         3,533                617
 
       Net cash used in investing activities       (40,182)           (42,734)
 
     Cash flows from financing activities:
      Proceeds from 9-5/8% Senior Note Offering         --            255,000
      Repayment of 9 3/4% Senior Notes                  --           (125,000)
      Premium paid on extinguishment of
       debt and other costs                             --             (4,064)
      Redemption of redeemable senior
       preferred stock                                  --            (66,977)
      Transaction costs related to
       9 5/8% Senior Notes                              --             (9,578)
      Net line of credit repayments                 (8,245)           (14,500)
      Net subordinated credit
       (repayment) borrowings                        2,810             (9,000)
      Repurchase of Series B preferred stock            --               (583)
      Repayments of other borrowings                (5,095)            (5,566)
 
       Net cash provided by (used in)
        financing activities                       (10,530)            19,732
 
       Net increase in cash and cash equivalents        93             35,251
 
     Cash and cash equivalents at
      beginning of period                            5,458              5,551
 
       Cash and cash equivalent at end of period    $5,551            $40,802
 
     Summary of change in certain working capital
      components, net of effects
      of acquired businesses:
       Increase in accounts receivable               $(443)             $(136)
       Decrease in inventory                           194                382
       Increase in prepaid expenses and
        other current assets                          (527)              (137)
       Increase in accounts payable and
        accrued expenses                             3,751              1,036
       Increase in prepaid corporate income taxes   (3,012)            (1,050)
       (Decrease) increase in deferred revenue       2,450               (322)
 
       Net changes in working capital components    $2,413              $(227)
 
 

SOURCE Town Sports International

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