Exhibit 99.1
For Release on November 2, 2004
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
REPORTS ON THE QUARTER ENDED
September 30, 2004
(New York, NY) November 2, 2004 – Town Sports International Holdings, Inc. (“TSI“or the Company), a leading owner and operator of health clubs in major cities from Washington, DC north through New England, today announced its results for the quarter ended September 30, 2004.
Revenues for the three months ended September 30, 2004 were $90.1 million, an increase of $3.3 million, or 3.8% over the same quarter of 2003. During the quarter, TSI’s mature clubs (those in operation for 24 months or longer) experienced an increase in revenue of 2.1% or $1.7 million when compared to the prior year’s third quarter. Revenue at clubs open over twelve months increased 3.6% when compared to the prior year’s third quarter.
“ We are encouraged by the improvement in our revenue for the quarter. In addition, our commit membership program continues to be well received by our new members with 70% of new members year to date September selecting this plan over the month to month alternative. For the twelve months ended September 30, 2004 our attrition rate of 3.5% is a significant improvement over the 4.5% attrition rate experienced in 2003”, said Bob Giardina, CEO of TSI.
Operating income for the third quarter of 2004 was $11.4 million compared to $10.9 million in the third quarter of 2003. Interest expense increased to $10.3 million from $6.8 million due to increased interest accruing on our Senior Discount Notes issued in February 2004.
The Company recorded net income for the quarter of $690,000 compared to $2.3 million for the comparable period in the prior year.
The Company’s adjusted EBITDA (as defined) increased slightly by 0.6% to $20.2 million this quarter from $20.1 million in last year’s quarter, although the prior periods results did include the benefit from the final settlement of business interruption insurance post the events of September 11th, of $1.5 million.
The consolidated results of Town Sports International Holdings, Inc., and subsidiaries will be reported on Form 10-Q on or before November 15, 2004. The consolidated results of Town Sports International, Inc. (the operating company) will no longer be reported in a separate Form 10-Q filing but rather these results will be included in the footnotes to the financial statements of TSI to the extent required.
About Town Sports International Holdings, Inc.:
New York-based Town Sports International Holdings (TSI) is a leading owner and operator of fitness clubs in the Northeast and mid-Atlantic region of the United States. In addition to New York Sports Clubs, TSI operates under the brand names of Boston Sports Clubs, Washington Sports Clubs and Philadelphia Sports Clubs with 133 clubs and more than 350,000 members. In addition, the Company operates three facilities in Switzerland. For more information on TSI visit www.mysportsclubs.com
Contact:
Town Sports International Holdings, Inc., New York
Investor Contact:
Richard Pyle (212)246-6700 or Richard.pyle@town-sports.com
or
Media Contact:
Susan Gerson, (212)246-6700 or susan.gerson@town-sports.com
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 2003 and September 30, 2003
All figures $’000
(Unaudited)
December 31, | September 30, | |||||||
2003 | 2004 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 40,802 | $ | 62,410 | ||||
Accounts receivable, (less allowance for doubtful accounts of $822 and $2,151 as of December 31, 2003 and September 30, 2004, respectively) | 1,469 | 2,545 | ||||||
Inventory | 750 | 707 | ||||||
Prepaid corporate income taxes | 4,062 | 8,710 | ||||||
Prepaid expenses and other current assets | 5,322 | 4,641 | ||||||
Total current assets | 52,405 | 79,013 | ||||||
Fixed assets, net | 223,599 | 219,806 | ||||||
Goodwill | 45,864 | 47,221 | ||||||
Intangible assets, net | 630 | 1,114 | ||||||
Deferred tax asset, net | 16,771 | 14,932 | ||||||
Deferred membership costs | 13,038 | 12,396 | ||||||
Other assets | 9,892 | 13,140 | ||||||
Total assets | $ | 362,199 | $ | 387,622 | ||||
Liabilities, Redeemable Preferred Stock and Stockholders’ Deficit | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt and capital lease obligations | $ | 3,486 | 1,805 | |||||
Accounts payable | 5,379 | 4,280 | ||||||
Accrued expenses | 20,849 | 22,551 | ||||||
Accrued interest | 5,157 | 11,321 | ||||||
Deferred revenue | 26,621 | 30,150 | ||||||
Total current liabilities | 61,492 | 70,107 | ||||||
Long-term debt and capital lease obligations | 258,391 | 391,891 | ||||||
Deferred lease liabilities | 25,856 | 26,750 | ||||||
Deferred revenue | 3,002 | 3,257 | ||||||
Other liabilities | 7,862 | 10,006 | ||||||
Total liabilities | 356,603 | 502,011 | ||||||
Commitments and contingencies | ||||||||
Redeemable preferred stock: | ||||||||
Series A redeemable preferred stock, $1.00 par value; at liquidation value; authorized 200,000 shares, 153,637 and no shares issued and outstanding at December 31, 2003 and September 30, 2004, respectively | 39,890 | — | ||||||
39,890 | — | |||||||
Stockholders’ deficit: | ||||||||
Series B preferred stock, $1.00 par value; at liquidation value; 109,540 and no shares issued and outstanding at December 31, 2003 and September 30, 2004, respectively | 9,961 | — | ||||||
Class A voting common stock, $.001 par value; issued and outstanding 1,176,043 and 1,312,289 shares at December 31, 2003 and September 30, 2004, respectively | 1 | 1 | ||||||
Paid-in capital | (45,627 | ) | (114,112 | ) | ||||
Unearned compensation | (172 | ) | (142 | ) | ||||
Accumulated other comprehensive income (currency translation adjustment) | 596 | 579 | ||||||
Retained earnings (accumulated deficit) | 947 | (715 | ) | |||||
Total stockholders’ deficit | (34,294 | ) | (114,389 | ) | ||||
Total liabilities, redeemable preferred stock and stockholders’ deficit | $ | 362,199 | $ | 387,622 | ||||
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 2003 and 2004
All figures $’000
(Unaudited)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2003 | 2004 | 2003 | 2004 | |||||||||||||
Revenues: | ||||||||||||||||
Club operations | $ | 84,436 | $ | 88,205 | $ | 254,219 | $ | 261,126 | ||||||||
Fees and other | 2,335 | 1,878 | 5,511 | 4,274 | ||||||||||||
86,771 | 90,083 | 259,730 | 265,400 | |||||||||||||
Operating Expenses: | ||||||||||||||||
Payroll and related | 32,647 | 33,813 | 98,623 | 104,256 | ||||||||||||
Club operating | 28,761 | 29,848 | 82,115 | 86,665 | ||||||||||||
General and administrative | 5,677 | 6,104 | 15,917 | 18,228 | ||||||||||||
Depreciation and amortization | 8,782 | 8,851 | 25,535 | 27,271 | ||||||||||||
Goodwill impairment | — | — | — | 2,002 | ||||||||||||
75,867 | 78,616 | 222,190 | 238,422 | |||||||||||||
Operating Income | 10,904 | 11,467 | 37,540 | 26,978 | ||||||||||||
Loss on extinguishment of debt | — | — | 7,773 | — | ||||||||||||
Interest expense | 6,760 | 10,311 | 17,106 | 29,174 | ||||||||||||
Interest income | (179 | ) | (221 | ) | (397 | ) | (510 | ) | ||||||||
Income (loss) before provision (benefit) for corporate income tax | 4,323 | 1,377 | 13,058 | (1,686 | ) | |||||||||||
Provision (benefit) for corporate income taxes | 1,989 | 687 | 6,004 | (808 | ) | |||||||||||
Net income (loss) | 2,334 | 690 | 7,054 | (878 | ) | |||||||||||
Accreted dividends on preferred stock | (1,631 | ) | — | (9,269 | ) | (783 | ) | |||||||||
Net income (loss) attributable to common stockholders | $ | 703 | $ | 690 | $ | (2,215 | ) | $ | (1,661 | ) | ||||||
Statement of Comprehensive Income (loss) | ||||||||||||||||
Net income (loss) | $ | 2,334 | $ | 690 | $ | 7,054 | $ | (878 | ) | |||||||
Foreign currency translation adjustments | 62 | 14 | 107 | (17 | ) | |||||||||||
Comprehensive income (loss) | $ | 2,396 | $ | 704 | $ | 7,161 | $ | (895 | ) | |||||||
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2003 and 2004
All figures $’000
(Unaudited)
Nine months ended | ||||||||
September 30, | ||||||||
2003 | 2004 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 7,054 | $ | (878 | ) | |||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 25,535 | 27,271 | ||||||
Noncash interest expense | — | 9,146 | ||||||
Goodwill impairment write-off | — | 2,002 | ||||||
Compensation expense in connection with stock options | 207 | 29 | ||||||
Noncash rental expense, net of noncash rental income | 1,311 | 363 | ||||||
Share of net income in affiliated companies | (592 | ) | (375 | ) | ||||
Loss on extinguishment of debt | 7,773 | — | ||||||
Amortization of debt issuance costs | 1,300 | 1,178 | ||||||
Change in certain operating assets and liabilities components | 12,215 | 6,617 | ||||||
Decrease in deferred tax asset | 2,079 | 1,839 | ||||||
Decrease in deferred membership costs | 48 | 643 | ||||||
Other | 542 | 559 | ||||||
Total adjustments | 50,418 | 49,272 | ||||||
Net cash provided by operating activities | 57,472 | 48,394 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (29,131 | ) | (23,754 | ) | ||||
Proceeds from sale of equipment | 153 | — | ||||||
Acquired business | — | (3,726 | ) | |||||
Landlord contributions | 617 | 2,112 | ||||||
Net cash used in investing activities | (28,361 | ) | (25,368 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from 9 5/8% Senior Note Offering | 255,000 | — | ||||||
Proceeds from 11.0% Senior Discount Notes | — | 120,756 | ||||||
Proceeds from stock option exercises | — | 512 | ||||||
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 | (9,597 | ) | — | |||||
Net line of credit repayment | (14,500 | ) | — | |||||
Net subordinated credit repayments | (9,000 | ) | — | |||||
Repurchase of preferred stock | (583 | ) | ||||||
Redemption of preferred stock | — | (50,634 | ) | |||||
Common stock distribution | — | (68,944 | ) | |||||
Repurchase of common stock | — | (53 | ) | |||||
Repayments of borrowings | (4,157 | ) | (3,055 | ) | ||||
Net cash (used in) provided by financing activities | 21,122 | (1,418 | ) | |||||
Net increase in cash and cash equivalents | 50,233 | 21,608 | ||||||
Cash and cash equivalents at beginning of period | 5,551 | 40,802 | ||||||
Cash and cash equivalents at end of period | $ | 55,784 | $ | 62,410 | ||||
Summary of change in certain operating assets and liabilities: | ||||||||
Decrease (increase) in accounts receivable | $ | 331 | $ | (1,111 | ) | |||
Decrease in inventory | 345 | 43 | ||||||
Decrease (increase) in prepaid expenses, prepaid income taxes, and other current assets | 647 | (3,590 | ) | |||||
Increase in accounts payable, accrued expenses and accrued interest | 9,200 | 8,448 | ||||||
Increase in deferred revenue | 1,692 | 2,827 | ||||||
Net changes in certain operating assets and liabilities | $ | 12,215 | $ | 6,617 | ||||
Town Sports International Holdings, Inc.: Reconciliation of Net Income (Loss) to Adjusted EBITDA
($ in thousands)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||
3Q 2003 | 3Q 2004 | % Chg. | 2003 | 2004 | % Chg. | |||||||||||||||||||
Net Income (loss) | $ | 2,334 | $ | 690 | $ | 7,054 | $ | (878 | ) | |||||||||||||||
Provision (benefit) for corporate income taxes | 1,989 | 687 | 6,004 | (808 | ) | |||||||||||||||||||
Loss on extinguishment of debt | — | — | 7,773 | — | ||||||||||||||||||||
Interest expense, net of interest income | 6,581 | 10,090 | 16,709 | 28,664 | ||||||||||||||||||||
Non-cash goodwill impairment | — | — | — | 2,002 | ||||||||||||||||||||
Depreciation and amortization | 8,782 | 8,851 | 25,535 | 27,271 | ||||||||||||||||||||
Non-cash rental expense, net of noncash rental income | 391 | (117 | ) | 1,311 | 363 | |||||||||||||||||||
Non-cash compensation expense incurred in connection with stock options | 10 | 10 | 207 | 29 | ||||||||||||||||||||
Distribution to option holders classified as payroll | — | — | — | 1,144 | ||||||||||||||||||||
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Adjusted EBITDA | $ | 20,087 | $ | 20,211 | 0.6 | % | $ | 64,593 | $ | 57,787 | (10.5 | )% | ||||||||||||
Margin | 23.1 | % | 22.4 | % | 24.9 | % | 21.8 | % |
Non GAAP Financial Measures:
EBITDA is defined as earnings before interest, taxes, depreciation, amortization, goodwill impairment and loss on extinguishment of debt. EBITDA 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 defined above), certain items of income and expense consisting of: (i) non-cash deferred lease expense, net of non-cash deferred lease income, (ii) non-cash compensation expense in connection with stock options, and (iii) Distribution to option holders classified as payroll. 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 is substantially similar to 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 (loss), 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. Additionally, investors should be aware that Adjusted EBITDA may not be comparable to similarly titled measures presented by other companies. Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of revenues.
Statements in this release that do not constitute historical facts, including without limitation, statements regarding future financial results and performance and potential sales revenue are “forward looking” statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. 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.