<iframe src="//www.googletagmanager.com/ns.html?id=GTM-MVPSQB" height="0" width="0" style="display: none; visibility: hidden"></iframe>
8-K
Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): May 3, 2006

Town Sports International Holdings, Inc

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
         
Delaware   333-114210   20-0640002
(State or other jurisdiction of
incorporation)
  (Commission File Number)   (IRS Employer Identification No.)

888 Seventh Avenue (25th Floor), New York, New York 10106
(Address of Principal Executive Offices, including Zip code)

212-246-6700
(Registrant’s Telephone Number, Including Area Code)

Not applicable
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

     
o
  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
   
o
  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
   
o
  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
   
o
  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



 


TABLE OF CONTENTS

Item 2.02. Results of Operations and Financial Condition
Item 9.01 Financial Statements and Exhibits
SIGNATURES
INDEX TO EXHIBITS
EX-99.1: PRESS RELEASE


Table of Contents

Item 2.02. Results of Operations and Financial Condition

     On May 3, 2006, Town Sports International Holdings, Inc. issued a press release announcing its results of operations for the three months ended March 31, 2006. A copy of the press release is attached hereto as Exhibit 99.1.

     The information in this Current Report on form 8-K, including the attached exhibit, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits

     (d) Exhibits

     99.1 Press release dated May 3, 2006

 


Table of Contents

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

         
  Town Sports International Holdings, Inc.
 
 
  /s/  Richard Pyle    
  By:  Richard Pyle   
Date May 3, 2006 Its:   Chief Financial Officer   
 

2


Table of Contents

INDEX TO EXHIBITS

     
EXHIBIT
  DESCRIPTION
99.1
  Press release issued by Town Sports International Holdings, Inc. on May 3, 2006 announcing earnings for the three months ended March 31, 2006.

3

EX-99.1
 

Exhibit 99.1
For Release on May 3, 2006
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. ANNOUNCES FIRST QUARTER 2006 FINANCIAL RESULTS
New York, NY — May 3, 2006 - Town Sports International Holdings, Inc. (“TSI” or “the Company”), a leading owner of health clubs located primarily in major cities from Washington, DC north through New England, operating under the New York Sports Clubs, Boston Sports Clubs, Washington Sports Clubs and Philadelphia Sports Clubs brands, announced its results for the quarter ended March 31, 2006.
First quarter 2006 revenue grew 10.8% to $104.0 million from $93.8 million for the same period last year. Same club revenue increased 7.6% during the first quarter compared to the prior year.
“We’re very pleased with the Company’s performance during this first quarter of 2006,” said Bob Giardina, CEO of TSI. “Our quarterly revenue has exceeded $100 million for the first time in our history. Our improvements in membership retention have contributed nicely to our same club revenue growth. We opened five clubs, and closed one club during the quarter, increasing our club count by four to 145, representing 143 wholly owned clubs and two partly-owned clubs. Of these five openings, three new multi-rec clubs opened within our Boston Sports Clubs cluster, strengthening that region. All three were greenfields, with one location in downtown Boston replacing one of our older facilities and the other two locations being in the South End district of Boston and Watertown, MA. We added a location in Hawthorne in Westchester County, NY, and re-opened one of our locations in Stamford CT, which was completely remodeled and expanded. As of March 31, 2006 we served 438,000 members, an increase of 29,000 from our December 31, 2005 member count of 409,000.”
Three Months ended March 31, 2006, Financial Highlights:
Total revenue for the first quarter grew 10.8% to $104.0 million from $93.8 million for the same period last year. The increase in revenue was driven by growth in membership revenue and ancillary club revenue.
  Membership revenue for the first quarter grew 9.5% to $85.1 million from $77.7 million in Q1 2005.
 
  Ancillary revenue for the first quarter grew 17.3% to $19.0 million from $16.2 million in Q1 2005.
 
  Same club revenue increased 7.6% during the first quarter compared to the prior-year period. This increase in same club revenue is due to a 4.9% increase in membership, a 2.0% increase in price, and a 1.9% increase in ancillary revenue offset by a 1.2% decrease in initiation fee revenue recognized. As of the first quarter of 2006 the estimated average life of our memberships had increased from 24 months to 30 months. Therefore, we are now amortizing initiation fee revenue over this longer 30 month period, resulting in a $1.3 million decrease in initiation fee revenue recognized when compared to the same period in the prior year.
Total operating expenses increased by 11.1% to $93.6 million in Q1 2006 compared to $84.3 million in Q1 2005.
  Payroll and related expenses totaled $40.9 million in Q1 2006 compared to $36.4 million in Q1 2005. This increase was attributable to a 3.6% increase in the total months of club operation from 411 to 426 as well as the following:
  °   During the first quarter of 2006 our Chairman and certain employees agreed to severance packages totaling an estimated $1.6 million. The total costs of these severance packages were recorded in Q1 2006 while no such costs were incurred in Q1 2005.
 
  °   Payroll costs directly related to our personal training, Group Exclusives, and Sports Clubs for Kids programs increased $1.3 million or 18.4%, due to increased demand for these programs.
 
  °   Offsetting these aforementioned increases in Q1 2006 was a decrease in the amortization of deferred sales related payroll costs. The increase in the estimated average life of our memberships from 24 months to 30 months resulted in a $1.0 million reduction in amortization of deferred sales related payroll costs recognized in Q1 2006 compared to Q1 2005.
  Club operating expenses totaled $34.5 million for Q1 2006 compared to $31.5 million in Q1 2005.
  °   Rent and occupancy expenses increased $2.3 million. Rent and occupancy costs at clubs that have opened since January 1, 2005 or that are currently under construction increased $1.6 million. Also, during Q1 2006 we closed a club, and merged the membership base at this club into a nearby newly opened club. This resulted in a

 


 

      $225,000 lease termination expense. The remaining $378,000 increase in rent and occupancy expenses relates to the 135 clubs that were open prior to January 1, 2005.
 
  °   Utility costs increased $1.5 million. We saw a $350,000 increase in utilities at our clubs that we opened or acquired in 2005 and 2006. The balance of the increase is due to higher utility rates throughout the remainder of our club base.
 
  °   These increases in club operating expenses were partially offset by a $590,000 decrease in marketing and advertising costs. We ran a marketing program in Q1 2005 and did not schedule a similar program in Q1 2006.
  General and administrative expenses totaled $7.9 million for Q1 2006 compared to $6.7 million in Q1 2005. In the first quarter of 2006, we incurred $569,000 of costs related to the examination of strategic and financing alternatives.
 
  Depreciation and amortization expenses totaled $10.4 million during Q1 2006 compared to $9.7 million in Q1 2005.
 
  We have recorded an income tax provision of $1.0 million in the quarter ended March 31, 2006 compared to $126,000 in the quarter ended March 31, 2005. In the quarter ended March 31, 2006 a valuation allowance totaling $657,000 was recorded to reflect a reduction in state deferred tax assets that we believe are not more likely than not to be realized upon the completion of our planned initial public offering.
Cash flow from operations for the three months ended March 31, 2006 grew 39.8% to $34.7 million from $24.9 million from the prior year. Cash flows from operations have increased due to the increase in operating income excluding the effects of depreciation and amortization, net changes in operating assets and liabilities, including the increase in deferred revenue, and the decrease in prepaid taxes and other current assets.
EBITDA for Q1 2006 increased 7.3% to $21.2 million from $19.8 million in Q1 2005.
Adjusted EBITDA for Q1 2006 increased 18.4% to $23.7 million from $20.0 million in Q1 2005. As a percentage of total revenue, adjusted EBITDA margin was 22.8% in Q1 2006, compared to 21.3% in Q1 2005.
The Company will hold a conference call on Thursday, May 4, 2006 at 2:30 PM (Eastern) to discuss the first quarter results. Robert Giardina, chief executive officer, and Richard Pyle, chief financial officer, will host the conference call. The conference call will be Web cast and may be accessed via the Company’s Investor Relations section of its Website at www.mysportsclubs.com. A replay of the call will be available via the Company’s Website beginning at 5:00 PM (Eastern) on May 4, 2006.
About Town Sports International Holdings, Inc.:
New York-based Town Sports International Holdings, Inc. is a leading owner and operator of health clubs in the Northeast and mid-Atlantic regions 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 142 clubs and 432,000 members in the U.S. In addition, the Company operates three facilities in Switzerland with approximately 6,000 members. For more information on TSI visit www.mysportsclubs.com
Town Sports International Holdings, Inc., New York
Investor Contact:
Integrated Corporate Relations
Joseph.teklits@icrinc.com or
investor.relations@town-sports.com

 


 

TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2005 and March 31, 2006
(All figures $’000s except share data)
(Unaudited)
                 
    December 31,     March 31,  
    2005     2006  
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 51,304     $ 69,724  
Accounts receivable (net)
    7,103       7,575  
Inventory
    421       492  
Prepaid corporate income taxes
    4,518        
Prepaid expenses and other current assets
    13,907       12,616  
 
           
Total current assets
    77,253       90,407  
Fixed assets, net
    253,131       250,044  
Goodwill
    49,974       49,981  
Intangible assets, net
    741       569  
Deferred tax assets, net
    24,378       26,693  
Deferred membership costs
    11,522       13,743  
Other assets
    16,772       14,561  
 
           
Total assets
  $ 433,771     $ 445,998  
 
           
Liabilities and Stockholders’ Deficit
               
Current liabilities:
               
Current portion of long-term debt
  $ 1,267     $ 1,189  
Accounts payable
    8,333       5,054  
Accrued expenses and corporate income taxes payable
    31,620       29,040  
Accrued interest
    5,267       11,360  
Deferred revenue
    33,028       37,466  
 
           
Total current liabilities
    79,515       84,109  
Long-term debt and capital lease obligations
    409,895       413,788  
Deferred lease liabilities
    48,898       48,906  
Deferred revenue
    2,905       7,955  
Other liabilities
    8,241       7,008  
 
           
Total liabilities
    549,454       561,766  
 
               
Commitments and contingencies
               
 
               
Stockholders’ deficit:
               
Class A voting common stock
    1       1  
Paid-in capital
    (113,588 )     (114,053 )
Unearned compensation
    (509 )      
Accumulated other comprehensive income (currency translation adjustment)
    386       392  
Accumulated deficit
    (1,973 )     (2,108 )
 
           
Total stockholders’ deficit
    (115,683 )     (115,768 )
 
           
Total liabilities and stockholders’ deficit
  $ 433,771     $ 445,998  
 
           

 


 

TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2005 and 2006
(All figures $’000s)
(Unaudited)
                 
    Three months ended  
    March 31,  
    2005     2006  
 
               
Revenues:
               
Club Operations
  $ 92,830     $ 102,923  
Fees and other
    1,016       1,104  
 
           
 
    93,846       104,027  
 
           
 
               
Operating Expenses:
               
Payroll and related
    36,396       40,897  
Club operating
    31,449       34,470  
General and administrative
    6,677       7,861  
Depreciation and amortization
    9,739       10,386  
 
           
 
    84,261       93,614  
 
           
Operating Income
    9,585       10,413  
Interest expense
    10,119       10,687  
Interest income
    (369 )     (725 )
Equity in the earnings of investees and rental income
    (470 )     (433 )
 
           
Income before provision for corporate income taxes
    305       884  
Provision for corporate income taxes
    126       1,019  
 
           
Net income (loss)
  $ 179     $ (135 )
 
           

 


 

TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2005 and 2006
(All figures $’000s)
(Unaudited)
                 
    March 31,     March 31,  
    2005     2006  
 
               
Cash flows from operating activities:
               
Net income (loss)
  $ 179     $ (135 )
 
           
Adjustments to reconcile net income (loss) to net cash provided by operating activities
               
Depreciation and amortization
    9,739       10,386  
Noncash interest expense on Senior Discount Notes
    3,707       4,126  
Amortization of debt issuance costs
    408       417  
Noncash rental expense, net of noncash rental income
    190       (19 )
Compensation expense incurred in connection with stock options
    15       43  
Net change in operating assets and liabilities
    13,734       22,331  
Increase in deferred tax asset
    (3,500 )     (2,315 )
Increase in deferred membership costs
    (700 )     (2,221 )
Landlord contributions to tenant improvements
    786       1,610  
Increase in insurance reserves
    466       495  
Other
    (173 )     22  
 
           
Total adjustments
    24,672       34,875  
 
           
Net cash provided by operating activities
    24,851       34,740  
 
           
Cash flows from investing activities:
               
Capital expenditures
    (10,190 )     (15,023 )
 
           
Net cash used in investing activities
    (10,190 )     (15,023 )
 
           
Cash flows from financing activities:
               
Book overdraft
          (986 )
Repurchase of common stock
    (184 )      
Repayments of other borrowings
    (205 )     (311 )
 
           
Net cash used in financing activities
    (389 )     (1,297 )
 
           
Net increase in cash and cash equivalents
    14,272       18,420  
Cash and cash equivalents beginning of period
    57,506       51,304  
 
           
Cash and cash equivalents end of period
  $ 71,778     $ 69,724  
 
           
Summary of the change in certain working capital components:
               
Increase in accounts receivable
  $ (1,542 )   $ (2,083 )
(Increase) decrease in inventory
    81       (71 )
Decrease in prepaid expenses and other current assets
    975       4,887  
Increase in accounts payable and accrued expenses
    7,296       10,110  
Increase in deferred revenue
    6,924       9,488  
 
           
Net change in certain working capital components
  $ 13,734     $ 22,331  
 
           

 


 

TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of Net Income (loss) to EBITDA and Adjusted EBITDA
For the three months ended March 31, 2005 and 2006
(All figures $’000s)
(Unaudited)
                         
    Three months ended  
    March 31,  
    2005     2006     % Chg.  
 
                       
Net income (loss)
  $ 179     $ (135 )        
Provision for corporate income taxes
    126       1,019          
Interest expense, net of interest income
    9,750       9,962          
Depreciation and amortization
    9,739       10,386          
 
                 
EBITDA
  $ 19,794     $ 21,232       7.3 %
Noncash rental expense, net of noncash rental income
    190       (19 )        
Noncash compensation expense incurred in in connection with stock options
    15       43          
Costs incurred in connection with the examination of financing alternatives
          569          
Severance Costs
          1,630          
Lease termination expense
          225          
 
                 
Adjusted EBITDA
  $ 19,999     $ 23,680       18.4 %
 
                 
Adjusted EBITDA Margin
    21.3 %     22.8 %        
Non GAAP Financial Measures:
EBITDA is defined as earnings before interest, taxes, depreciation and amortization. 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) noncash deferred rental expense, net of noncash deferred rental income, (ii) noncash compensation expense incurred in connection with stock options, (iii) costs incurred in connection with potential financing and business combination transactions that have not been consummated, (iv) severance and related costs and (v) lease termination expenses. 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 consolidated revenue.
Forward-Looking Statements:
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 and public filings made 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 we disclaim any legal obligation to the contrary.