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

    NEW YORK, May 6 /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 quarter ended
 March 31, 2003.
     Revenues for the three months ended March 31, 2003 were $86.9 million, an
 increase of $10.0 million, or 13.0% over the same quarter of 2002.  During the
 quarter, TSI's mature clubs (those in operation for 24 months or longer)
 experienced revenue growth of $1.3 million an increase of 1.8%.  The
 twenty-three clubs opened or acquired within the last twenty-four months
 contributed to $7.4 million of the increase in revenue in the quarter ended
 March 31, 2003.  The Company received a $1.3 million on-account business
 interruption insurance payment in January 2003.  These insurance proceeds were
 received in connection with the Company's four clubs that were temporarily
 closed due to the events of September 11, 2001, and such proceeds have been
 recorded with fees and other revenue.
     The Company's EBITDA (earnings before interest, taxes, and depreciation)
 increased by 34.0% to $22.4 million this quarter from $16.7 million in last
 year's first quarter.
     Operating income for the quarter was $14.2 million compared to
 $8.9 million in the first quarter of 2002, while net interest expense
 increased to $4.2 million from $4.1 million.
     "Over the past year we have decreased the rate of new club openings,
 focusing instead on the operations of our existing clubs, as well as support
 functions," said Bob Giardina, CEO of TSI.  "Typically, opening new clubs
 initially has a negative effect on our financial results.  Therefore, the
 decline in the rate of new club openings has had a positive impact on EBITDA
 and EBITDA margins, when compared to the same quarter last year."
     The Company recorded net income for the quarter of $5.8 million compared
 to $1.7 million for the comparable period in the prior year.
     "I am pleased to report we completed a $255.0 million Senior Note offering
 on April 16, 2003 as part of an overall refinancing of the Company.  The
 coupon is 9-5/8% and the notes are rated B2/B- and mature April 15, 2011.  In
 addition, we entered into a new senior secured revolving credit facility
 providing for borrowings of up to $50.0 million," 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 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.
 
      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
 
                                                        Three months ended
                                                             March 31,
                                                      2002               2003
 
     Net cash provided by operating activities     $20,569            $23,606
     Compensation expense incurred in connection
       with stock options                             (281)              (187)
     Depreciation and amortization                  (7,857)            (8,299)
     Depreciation and amortization of discontinued
       clubs                                          (108)                --
     Goodwill impairment and club closure costs     (1,301)                --
     Noncash rental expense, net of noncash rental
       income                                         (713)              (522)
     Share of net income in affiliated companies       157                211
     Amortization of debt issuance costs              (471)              (597)
     Net change in certain working capital
       components                                  (10,573)            (5,564)
     Increase (decrease) in deferred tax asset       1,413             (2,903)
     Increase in deferred membership costs             856                160
     Other                                             (26)               (64)
     Net income                                      1,665              5,841
     Depreciation and amortization                   7,857              8,299
     Interest expense, net of interest income        4,085              4,210
     Provision for corporate income tax              2,387              4,099
     Loss from discontinued operations of closed
       clubs                                            66                 --
     Cumulative effect of a change in accounting
       principle                                       689                 --
 
     EBITDA                                        $16,749            $22,449
 
     EBITDA Margin                                   21.78%             25.58%
 
      EBITDA is defined as earnings before interest, taxes, depreciation,
      amortization, extraordinary charges, discontinued operations, 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.  We use EBITDA to
      determine our ability to incur and service additional debt and as a
      measure of operating performance.  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 March 31, 2003
 
                                                December 31,         March 31,
                                                       2002              2003
     ASSETS                                                        (Unaudited)
     Current assets:
       Cash and cash equivalents                     $5,551            $9,052
       Accounts receivable, net                       1,333               636
       Inventory                                      1,132             1,021
       Prepaid corporate income taxes                 3,012             2,404
       Prepaid expenses and other current assets      4,430             4,247
         Total current assets                        15,458            17,360
 
     Fixed assets, net                              210,823           210,606
     Goodwill, net                                   45,531            45,676
     Intangible assets, net                           1,675             1,315
     Deferred tax assets, net                        20,254            17,350
     Deferred membership costs                       14,408            14,569
     Other assets                                     6,101             5,641
         Total assets                              $314,250          $312,517
 
     LIABILITIES, REDEEMABLE PREFERRED STOCK,
       and STOCKHOLDERS' DEFICIT
 
     Current liabilities:
       Current portion of long-term debt and
         capital lease obligations                   $5,178            $4,991
       Accounts payable                               5,328             4,540
       Accrued expenses                              21,634            22,581
       Deferred revenue                              26,510            30,532
         Total current liabilities                   58,650            62,644
 
     Long-term debt and capital lease obligations   155,765           143,847
     Deferred lease liabilities                      23,644            24,295
     Deferred revenue                                 3,435             3,623
     Other liabilities                                7,530             7,395
         Total liabilities                          249,024           241,804
 
     REDEEMABLE PREFERRED STOCK
     Redeemable senior preferred stock               62,125            64,089
     Series A preferred stock                        34,841            36,061
                                                     96,966           100,150
     Stockholders' deficit
       Series B preferred stock                         303             9,005
       Class A voting common stock                        1                 1
       Paid-in capital                              (32,149)          (41,130)
       Unearned compensation                           (278)             (268)
       Accumulated other comprehensive income           293               338
       Retained earnings                                 90             2,617
         Total stockholders' deficit                (31,740)          (29,437)
 
         Total liabilities, redeemable preferred
           stock and stockholders' deficit:        $314,250          $312,517
 
 
                TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               For the three months ended March 31, 2002 and 2003
                               All figures $'000
                                  (Unaudited)
 
                                                         Three months ended
                                                             March 31,
                                                       2002              2003
 
     Revenues:
       Club operations                              $75,940           $84,690
       Fees and other                                   934             2,212
                                                     76,874            86,902
 
     Operating expenses:
       Payroll and related                           31,034            32,770
       Club operating                                24,150            26,662
       General and administrative                     4,941             5,021
       Depreciation and amortization                  7,857             8,299
                                                     67,982            72,752
       Operating income                               8,892            14,150
     Interest expense                                 4,124             4,232
     Interest income                                    (39)              (22)
       Income from continuing operations before
         provision for corporate income taxes         4,807             9,940
     Provision for corporate income taxes             2,387             4,099
       Income from continuing operations              2,420             5,841
     Loss on discontinued operations, net of
       income tax benefit of $48                        (66)               --
     Cumulative effect of a change in accounting
       principle, net of income tax benefit of $612    (689)               --
      Net income                                     $1,665            $5,841
 
 
                TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                  For the years ended March 31, 2002 and 2003
                               All figures $'000
                                  (Unaudited)
 
                                                         Three months ended
                                                              March 31,
                                                       2002               2003
 
     Cash flows from operating activities:
       Net income                                    $1,665             $5,841
 
     Adjustments to reconcile net income to net
       cash provided by operating activities:
       Depreciation and amortization                  7,965              8,299
       Goodwill impairment write-off                  1,301                 --
       Compensation expense in connection with
         stock options                                  281                187
       Noncash rental expense, net of noncash
         rental income                                  713                522
       Share of net income in affiliated companies     (157)              (211)
       Amortization of debt issuance costs              471                597
       Change in certain working capital components  10,573              5,564
       Decrease (increase) in deferred tax asset     (1,413)             2,903
       Increase in deferred membership costs           (856)              (160)
       Other                                             26                 64
 
         Total adjustments                           18,904             17,765
 
         Net cash provided by operating activities   20,569             23,606
 
     Cash flows from investing activities:
       Capital expenditures, net of effects of
         acquired businesses                        (20,101)            (7,418)
       Acquisition of businesses                       (275)                --
       Landlord contributions                         1,283                 --
 
         Net cash used in investing activities      (19,093)            (7,418)
 
     Cash flows from financing activities:
       Net line of credit repayment                      --            (10,500)
       Repurchase of preferred stock                     --               (583)
       Repayment of borrowings                       (1,105)            (1,604)
         Net cash used in financing activities       (1,105)           (12,687)
 
         Net decrease in cash and cash equivalents      371              3,501
     Cash and cash equivalents at beginning of
       period                                         5,458              5,551
 
       Cash and cash equivalents at end of period    $5,829             $9,052
 
 
 

SOURCE Town Sports International

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