Town Sports International Reports on the Quarter Ended June 30, 2003

    NEW YORK, August 5 /PRNewswire/ -- Town Sports International ("TSI" or the
 "Company"), 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 quarter ended June 30, 2003.
     Revenues for the three months ended June 30, 2003 were $86.1 million, an
 increase of $6.1 million, or 7.6% over the same quarter of 2002.  During the
 quarter, revenue at TSI's mature clubs (those in operation for 24 months or
 longer) was flat, decreasing by just $146,000 or 0.2%.  The twenty-one clubs
 opened or acquired within the last twenty-four months contributed $6.1 million
 of the increase in revenue in the quarter ended June 30, 2003.  During the
 quarter, revenue at clubs opened over 12 months increased 3.6%.
     Operating income for the quarter was $12.5 million compared to
 $10.5 million in the second quarter of 2002, while net interest expense
 increased to $5.9 million from $4.1 million.
     The Company's EBITDA (earnings before interest, taxes, depreciation and
 amortization) increased by 14.2% to $20.9 million this quarter from
 $18.3 million in last year's quarter. EBITDA margin improved to 24.3% in the
 quarter ended June 30, 2003 from 22.9% in 2002.
     "The growth in our private training revenue has continued to meet
 expectations," said Bob Giardina, CEO of TSI.  Private training revenue for
 the quarter was $8.5 million or 9.2% ahead of the prior year quarter.
     For the last twelve months ended June 30, 2003, consolidated revenues were
 $335.5 million compared to $300.7 million during the same period in 2002.
     The Company recorded a net loss for the quarter of $1.1 million compared
 to net income of $3.5 million for the comparable period in the prior year.  In
 connection with our April 2003 refinancing transactions the Company incurred
 $7.8 million of debt extinguishment costs.
     "I am pleased to report that net cash flows provided by operating
 activities have improved $11.3 million or 40.0% to $39.8 million for the six
 months ended June 30, 2003 compared to $28.4 million over the same period in
 2002," said Richard Pyle, CFO of TSI.
 
     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 maintain current operating margins 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.
 
      Contact:  Richard Pyle, Office of the President/CFO of Town Sports
 International, 1-212-246-6700
 
 
                     Reconciliation of Net Cash Provided by
                      Operations and Net Income to EBITDA
                                  (Unaudited)
 
                                                        Three months ended
                                                              June 30,
                                                      2002               2003
 
     Net cash provided by operating activities      $7,850            $16,154
     Compensation expense incurred in
      connection with stock options                   (320)               (10)
     Depreciation and amortization                  (7,979)            (8,454)
     Noncash rental expense, net of
      noncash rental income                           (191)              (398)
     Share of net income in affiliated companies       167                220
     Loss on extinguishment of debt                    --              (7,773)
     Amortization of debt issuance costs              (475)              (365)
     Net change in certain working
      capital components                             4,217               (416)
     Increase in deferred tax asset                    662                588
     Decrease in deferred membership costs            (367)              (545)
     Other                                            (104)              (122)
     Net (loss) income                               3,460             (1,121)
     Depreciation and amortization                   7,877              8,454
     Interest expense, net of interest income        4,122              5,919
     Provision (benefit) for corporate income tax    2,827                (84)
     Loss on extinguishment of debt                    --               7,773
     Loss from discontinued operations
      of closed clubs                                   50                --
 
     EBITDA                                        $18,336            $20,941
 
     EBITDA Margin                                  22.90%             24.30%
 
 
      EBITDA is defined as earnings before interest, taxes, depreciation,
      amortization, and loss on extinguishment of debt.  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.
 
 
                TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                      All figures $'000, except share data
                      December 31, 2002 and June 30, 2003
 
 
                                                        December 31,  June 30,
                                                            2002       2003
                                                                    (Unaudited)
     Assets
     Current assets:
       Cash and cash equivalents                          $5,551     $49,556
       Accounts receivable, net of allowance for
        doubtful accounts of $120 and $337 at
        December 31, 2002 and June 30, 2003,
        respectively                                       1,333         905
       Inventory                                           1,132         927
       Prepaid corporate income taxes                      3,012       2,318
       Prepaid expenses and other current assets           4,430       4,369
               Total current assets                       15,458      58,075
     Fixed assets, net of accumulated depreciation
      of $104,488 and $120,532 at December 31, 2002
      and June 30, 2003, respectively                    210,823     213,273
     Goodwill                                             45,531      45,671
     Intangible assets, net of accumulated amortization
      of $10,478 and $10,956 at December 31, 2002
      and June 30, 2003, respectively                      1,675       1,061
     Deferred tax asset, net                              20,254      17,939
     Deferred membership costs                            14,408      14,023
     Other assets                                          6,101      10,547
               Total assets                             $314,250    $360,589
     Liabilities, Redeemable Preferred Stock
      and Stockholders' Deficit
     Current liabilities:
       Current portion of long-term debt
        and capital lease obligations                     $5,178      $4,607
       Accounts payable                                    5,328       3,626
       Accrued expenses                                   21,634      22,177
       Deferred revenue                                   26,510      31,638
               Total current liabilities                  58,650      62,048
     Long-term debt and capital lease obligations        155,765     259,914
     Deferred lease liabilities                           23,644      24,828
     Deferred revenue                                      3,435       3,575
     Other liabilities                                     7,530       7,597
               Total liabilities                         249,024     357,962
     Redeemable preferred stock:
     Redeemable senior preferred stock, $1.00 par value;
      liquidation value $64,512 at December 31, 2002;
      authorized 100,000 shares; 40,000 shares issued
      and outstanding at December 31, 2002                62,125          --
 
     Series A preferred stock, at liquidation
      value 153,637 shares issued and outstanding at
      December 31, 2002 and June 30, 2003                 34,841      37,280
                                                          96,966      37,280
     Stockholders' deficit:
       Series B preferred stock, at liquidation value
        issued and outstanding 3,822 and 109,541 at
        December 31, 2002 and June 30, 2003, respectively    303       9,310
       Class A voting common stock, $.001 par value;
        issued and outstanding 1,176,043 shares                1           1
       Paid-in capital                                   (32,149)    (41,130)
       Unearned compensation                                (278)       (258)
       Accumulated other comprehensive income (currency
        translation adjustment)                              293         338
       Retained earnings (Accumulated deficit)                90      (2,914)
               Total stockholders' deficit               (31,740)    (34,653)
               Total liabilities, redeemable preferred
                stock and stockholders' deficit         $314,250    $360,589
 
 
                TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
 
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
           For the three and six months ended June 30, 2002 and 2003
                               All figures $'000
                                  (Unaudited)
 
 
                                          Three Months Ended   Six Months Ended
                                                June 30,           June 30,
                                             2002      2003     2002    2003
     Revenues:
       Club operations                     $79,098   $85,093 $155,039 $169,783
       Fees and other                          908       964    1,842    3,177
                                            80,006    86,057  156,881  172,960
     Operating expenses:
       Payroll and related                  32,928    33,206   63,962   65,976
       Club operating                       23,881    26,691   48,030   53,354
       General and administrative            4,862     5,219    9,804   10,240
       Depreciation and amortization         7,877     8,454   15,734   16,753
                                            69,548    73,570  137,530  146,323
       Operating income                     10,458    12,487   19,351   26,637
     Loss on extinguishment of debt             --     7,773       --    7,773
     Interest expense                        4,160     6,114    8,284   10,347
     Interest income                           (38)     (195)     (77)    (218)
       Income (loss) from continuing
        operations before provision
        (benefit) for corporate
        income taxes                         6,336    (1,205)  11,144    8,735
     Provision (benefit) for corporate
      income taxes                           2,826       (84)   5,214    4,015
       Income (loss) from continuing
        operations                           3,510    (1,121)   5,930    4,720
     Loss on discontinued operations, net of
      income tax benefit of $36 and $84 for
      the three months and six months ended
      June 30, 2002 respectively               (50)       --     (116)      --
     Cumulative effect of a change in
      accounting principle, net of income tax
      benefit of $612                           --        --     (689)      --
       Net income (loss)                    $3,460   $(1,121)  $5,125   $4,720
 
 
                TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
 
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                For the six months ended June 30, 2002 and 2003
                               All figures $'000
                                  (Unaudited)
 
 
                                                               Six Months Ended
                                                                   June 30,
                                                                  2002   2003
 
     Cash flows from operating activities:
       Net income                                              $5,125   $4,720
     Adjustments to reconcile net income to net cash provided
      by operating activities:
       Depreciation and amortization                           15,944   16,753
       Goodwill impairment write-off                            1,301       --
       Compensation expense in connection with stock options      601      197
       Noncash rental expense, net of noncash rental income       904      920
       Share of net income in affiliated companies               (324)    (431)
       Loss on extinguishment of debt                              --    7,773
       Amortization of debt issuance costs                        946      962
       Change in certain working capital components             6,356    5,981
       Decrease (increase) in deferred tax asset               (2,075)   2,315
       Decrease (increase) in deferred membership costs          (489)     385
       Other                                                      130      186
         Total adjustments                                     23,294   35,041
         Net cash provided by operating activities             28,419   39,761
     Cash flows from investing activities:
       Capital expenditures, net of effects of acquired
         businesses in 2002                                   (27,533) (18,549)
       Acquisition of business                                   (348)      --
       Intangible and other assets                                220       --
       Landlord contributions                                   3,452      103
         Net cash used in investing activities                (24,209) (18,446)
     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            --   (9,264)
       Net line of credit repayment                            (5,000) (14,500)
       Net subordinated credit (repayments) borrowings          2,810   (9,000)
       Repurchase of preferred stock                               --     (583)
       Repayments of borrowings                                (2,647)  (2,922)
         Net cash provided by (used in) financing activities   (4,837)  22,690
         Net increase (decrease) in cash and cash equivalents    (627)  44,005
     Cash and cash equivalents at beginning of period           5,458    5,551
         Cash and cash equivalents at end of period            $4,831   49,556
     Summary of change in certain working capital components,
      net of effects of acquired businesses:
       Decrease in accounts receivable                            201      628
       Decrease (increase) in inventory                           (94)     205
       Decrease (increase) in prepaid expenses, prepaid income
        taxes, and other current assets                          (289)   1,186
       (Decrease) increase in accounts payable and accrued
         expenses                                                 547   (1,306)
       Increase in deferred revenue                             5,991    5,268
         Net changes in working capital                        $6,356   $5,981
 
 

SOURCE Town Sports International

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