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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