United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended February 28, 1998
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition period from ________________ to
____________________.
Commission file number 333-40907
TOWN SPORTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 13-2749906
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
888 SEVENTH AVENUE
NEW YORK, NEW YORK 10106
TELEPHONE: (212) 246-6700
(Address, zip code, and telephone number, including
area code, of registrants principal executive office.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. 1,015,714.
<PAGE>
TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) PAGE
a) Condensed Consolidated Statements of Operations for the
three and nine months ended February 28, 1997 and 1998. 1
b) Condensed Consolidated Balance Sheets as of May 31,
1997 and February 28, 1998 2
c) Condensed Consolidated Statements of Cash Flow for the
nine months ended February 28, 1997 and 1998 3
d) Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
Exhibit Index 14
<PAGE>
TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS of OPERATIONS
For the three and nine months ended February 28,
1997 and 1998 All figures $'000
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
1997 1998 1997 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Club operations $ 14,251 $ 20,920 $ 38,919 $ 55,975
Management fees 168 445 806 1,168
Rental Income 255 258 682 715
Share of net income (loss) in affiliated
companies (30) (12) 135 70
-------- -------- -------- --------
14,644 21,611 40,542 57,928
-------- -------- -------- --------
Operating expenses
Payroll and related 6,446 8,621 16,892 23,421
Compensation expense incurred in connection
with stock options 5,333 180 5,933 519
Club operating 4,577 6,580 12,761 17,847
General and administrative 948 1,619 2,853 3,858
Depreciation and amortization 1,173 2,000 3,120 5,361
-------- -------- -------- --------
18,477 19,000 41,559 51,006
-------- -------- -------- --------
Operating income (loss) (3,833) 2,611 (1,017) 6,922
Interest expense 1,001 2,316 1,420 5,284
Interest income (40) (540) (85) (871)
-------- -------- -------- --------
Income (loss) before provision for
corporate income taxes (4,794) 835 (2,352) 2,509
Provision (benefit) for corporate income taxes (2,237) 384 (1,066) 1,229
-------- -------- -------- --------
Income (loss) before extraordinary item (2,557) 451 (1,286) 1,280
Extraordinary item, net of related
income tax of $647 -- -- -- (730)
-------- -------- -------- --------
Net income (loss) (2,557) 451 (1,286) 550
Accreted dividends on preferred stock (480) (613) (480) (1,763)
-------- -------- -------- --------
Net loss to common
stockholders ($ 3,037) ($ 162) ($ 1,766) ($ 1,213)
======== ======== ======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements
1
<PAGE>
TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
May 31, 1997 and February 28, 1998
All figures $'000, except share data
<TABLE>
<CAPTION>
MAY 31, February 28,
ASSETS: 1997 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,468 $ 38,291
Accounts receivable 228 302
Inventory 327 556
Prepaid expenses 448 538
Prepaid corporate income taxes 202 --
Advances to, and amounts due from, affiliated companies 129 227
--------- ---------
Total current assets 3,802 39,914
Fixed assets, net of accumulated depreciation of $13,112 and
$16,486 at May 31, 1997 and February 28, 1998 34,214 44,602
Investments in, and amounts due from, affiliated companies 420 28
Intangible assets, net of accumulated amortization of $857 and
$1,671 at May 31, 1997 and February 28, 1998 4,425 12,125
Deferred tax asset 5,972 7,325
Deferred membership costs 3,530 4,576
Other assets 456 567
--------- ---------
Total assets $ 52,819 $ 109,137
========= =========
LIABILITIES and STOCKHOLDERS' DEFICIT:
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 1,924 $ 2,289
Accounts payable and accrued expenses 5,715 9,498
Deferred revenue 4,599 5,714
--------- ---------
Total current liabilities 12,238 17,501
Long-term debt and capital lease obligations 39,147 86,446
Deferred lease liabilities 6,625 8,437
Deferred revenue 1,036 1,815
Other liabilities 724 696
--------- ---------
Total liabilities 59,770 114,895
--------- ---------
Stockholders' deficit:
Series A preferred stock, $1.00 par value; at liquidation value; authorized
200,000 shares, 152,455 and 153,637 shares
issued and outstanding at May 31, 1997 and February 28,1998 16,250 18,116
Series B preferred stock, $1.00 par value; at liquidation value;
authorized 200,000 shares, 3,857 shares issued and
outstanding at May 31, 1997 and February 28, 1998 144 159
Class A voting common stock, $0.001 par value; authorized
1,150,000 shares, 1,010,000 and 1,015,714 issued and
outstanding at May 31, 1997 and February 28, 1998 1 1
Class B non-voting common stock, $0.01 par value; authorized
500,000 shares, none issued and outstanding
Paid-in capital -- 525
Accumulated deficit (23,346) (24,559)
--------- ---------
Total stockholders' deficit (6,951) (5,758)
--------- ---------
Total liabilities and stockholders' deficit $ 52,819 $ 109,137
========= =========
</TABLE>
See accompanying notes to the condensed consolidated financial statements
2
<PAGE>
TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS of CASH FLOW
For the nine months ended
February 28, 1997 and 1998
All figures $'000
Increase in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine months ended
February 28
1997 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) ($ 1,286) $ 550
-------- --------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 3,120 5,361
Compensation expense incurred in connection with stock options 5,933 519
Noncash rental expense, net of noncash rental income 1,084 1,809
Share of net income in affiliated companies (135) (70)
Amortization of debt issuance costs 69 351
Change in certain working capital components 979 5,368
Increase in deferred tax asset (1,561) (1,353)
Increase in deferred membership costs (665) (1,046)
Write-off of deferred financing costs - extraordinary item -- 1,377
Other (20) 8
-------- --------
Total adjustments 8,804 12,324
-------- --------
Net cash provided by operating activities 7,518 12,874
-------- --------
Cash flows from investing activities:
Capital expenditures, net of effects of acquired businesses (8,521) (8,363)
Acquisition of businesses (1,688) (10,033)
Intangible and other assets (280) (382)
-------- --------
Net cash used in investing activities (10,489) (18,778)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings, net of expenses of issuance 37,393 85,642
Repayments of borrowings 9,795 (44,039)
Redemption of stock, including expenses (38,820) --
Issuance of stock net of expenses 15,155 124
-------- --------
Net cash provided by financing activities 3,933 41,727
-------- --------
Net increase in cash and cash equivalents 962 35,823
Cash and cash equivalents at beginning of period 928 2,468
======== ========
Cash and cash equivalents at end of period $ 1,890 $ 38,291
======== ========
Summary of the change in certain working capital components, net of effects of
acquired businesses:
Decrease (increase) in accounts receivable 317 (74)
Increase in inventory (68) (229)
Decrease in prepaid expenses (600) (90)
Decrease in prepaid corporate income taxes -- 202
Increase in amounts due from affiliated companies 497 364
Increase (decrease) in accounts payable and accrued expenses (908) 3,301
Increase in deferred revenue 1,741 1,894
======== ========
Net changes in working capital 979 5,368
======== ========
Supplemental disclosures of cash flow information
Fixed assets included in accounts payable $ 69 $ 482
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements
3
<PAGE>
TOWN SPORTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997 AND FEBRUARY 28, 1998
All figures $'000
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"). The condensed consolidated financial statements
should be read in conjunction with the Company's May 31, 1997 consolidated
financial statements and notes thereto, included on Form S-4 (SEC File Number
333-40907). The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. Certain information and footnote disclosures
which are normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to SEC rules and regulations. The Company believes that the disclosures made are
adequate to make the information presented not misleading. The information
reflects all adjustments which, in the opinion of Management, are necessary for
a fair presentation of the financial position and results of operations for the
interim periods set forth herein. All such adjustments are of a normal and
recurring nature. The results for the three- and nine-month periods ended
February 28, 1998, are not necessarily indicative of the results for the entire
fiscal year ending May 31, 1998.
2. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
MAY 31, 1997 FEBRUARY 28, 1998
9 3/4% Senior Notes payable -- $85,000
Term loan - Bank $30,000 --
Subordinated Note payable 7,384 --
Capital lease obligations 2,317 1,560
Notes payable -Seller finance 1,370 2,176
------- -------
41,071 88,735
------- -------
Less, current portion due within
one year 1,924 2,289
------- -------
Long-term portion $39,147 $86,446
======= =======
4
<PAGE>
As of February 28, 1998, the Company has a line of credit with its principal
bank for direct borrowings and letters of credit of up to $15.0 million. The
line of credit carries interest at the Company's option based upon the
Eurodollar borrowing rate plus 2.50% or the bank's prime rate plus 1.50%, as
defined. There were no outstanding borrowings against this line of credit as of
February 28, 1998; however, there were outstanding letters of credit of $1.4
million. The unutilized portion of the line of credit as of November 30, 1997,
was $13.6 million. This line of credit expires on October 15, 2002.
On October 16, 1997, the Company issued $85.0 million of senior notes. The
senior notes bear interest at an annual rate of 9 3/4%, payable semi-annually,
due October 2004. The senior notes are uncollateralized. Approximately $41.5
million of the proceeds from the issuance of the senior notes were used to repay
existing indebtedness.
Certain credit facilities contain various covenants including interest coverage
(as defined) and a leverage ratio as well as restrictions on the payment of
dividends.
3. ASSET ACQUISITIONS AND COMMITMENTS
During the quarter ended February 28, 1998, the Company executed five purchase
agreements thereby acquiring five fitness clubs. The aggregate purchase price
totaled $6.1 million which included $5.8 million payable at closing and the
issuance of notes payable totaling $0.3 million. In connection with these
fitness clubs as well as certain future facilities, the Company entered into
noncancelable operating leases expiring on or before May 31, 2014. Future
minimum rental payments required under these leases total approximately $16.1
million.
During the quarter ended November 30, 1997, the Company executed two purchase
agreements thereby acquiring two fitness clubs. The aggregate purchase price
totaled $2.4 million which included $2.1 million payable at closing and the
issuance of notes payable totaling $0.3 million. In connection with these
fitness clubs as well as certain expansions in preexisting facilities, the
Company entered into noncancelable operating leases expiring on or before May
31, 2018. Future minimum rental payments required under these leases total
approximately $15.4 million.
4. SUBSEQUENT EVENTS
In March 1998, the Company acquired the assets of a fitness club. The purchase
price totaled $2.4 million which included $2.1 million payable at closing and
the assumption of certain equipment lease obligations totaling $0.3 million. In
connection with this club and future club facilities, the Company entered into
noncancelable operating leases expiring on or before May 31, 2013. Future
minimum rental payments required under these leases total approximately $7.4
million.
5. EXTRAORDINARY ITEM
During the nine months ended February 28, 1998, the Company completed an $85.0
million Senior Note financing. As part of this financing, the existing term
loan, line of credit and subordinated note were repaid. Accordingly, previously
capitalized fees and expenses relating to the repaid debt of $1.4 million were
written off net of taxes of $0.7 million.
5
<PAGE>
6. IMPACT OF THE ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
For the three- and nine-months ended February 28, 1998, the Company adopted the
provision of statement of Financial Accounting Standards No. 128, "Earnings per
share" ("SFAS 128"). SFAS 128 requires companies who have outstanding publicly
traded equity securities to disclose basic and diluted per share data. The
Company has no publicly traded equity securities and, accordingly, per share
data has been omitted.
The Financial Accounting Standard Board ("FASB") issued Financial Accounting
Standard No. 130, Reporting Comprehensive Income ("SFAS 130") in June 1997.
Comprehensive Income represents the change in net assets of a business
enterprise as a result of nonowner transactions. Management does not believe
that the future adoption of SFAS 130 will have a material effect on the
Company's financial position and results of operations. The Company will adopt
SFAS 130 for the year ending May 31, 1999.
Also in June 1997, the FASB issued Financial Accounting Standard No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 requires that a business enterprise report certain information
about operating segments, products and services, geographic areas of operation,
and major customers. Management does not believe that the future adoption of
SFAS 131 will have a material effect on the Company's financial statements. The
Company is required to adopt this standard for the year ending May 31, 1999.
In February 1998, the FASB issued Financial Accounting Standard No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits. This
statement modifies financial statement disclosures related to pension and other
postretirement plans, and will not have an effect on the Company's financial
position or results of operations. The Company is required to adopt this
standard for the year ending May 31, 1999.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto appearing elsewhere in this
Form 10-Q.
In December 1996, the Company consummated a merger (the "Merger") pursuant to
which, among other things, Bruckmann, Rosser, Sherrill & Co., L.P. and certain
of its employees and affiliates (collectively "BRS") and certain institutional
investors and certain members of the Company management acquired the Company's
newly authorized Common Stock, Series A Preferred Stock and Series B Preferred
Stock. In addition, pursuant to the Merger, the Company instituted a new option
plan granting certain members of management options to acquire newly authorized
Series B Preferred Stock and Common Stock.
RESULTS OF OPERATION
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THREE MONTHS ENDED FEBRUARY 28,
1997
REVENUES. Revenues increased $7.0 million, or 48% to $21.6 million for the
quarter ended February 28, 1998 from $14.6 million in the quarter ended February
28, 1997. This increase resulted primarily from the continued maturation of the
three clubs opened or acquired in fiscal 1996 (approximately $0.7 million, all
due to membership growth), the six clubs opened or acquired in fiscal 1997
(approximately $1.9 million, of which $1.6 million is due to membership growth),
and the ten clubs acquired in fiscal 1998 (approximately $2.9 million, of which
$2.5 million is due to membership growth). In addition, revenues increased by
$1.3 million during the quarter ended February 28, 1998 at the Company's mature
clubs primarily resulting from membership growth.
OPERATING EXPENSES. Operating expenses increased $0.5 million, or 3% to $19.0
million for the quarter ended February 28, 1998 from $18.5 million in the
quarter ended February 28, 1997. The increase in total operating expenses
resulted primarily from increases in: payroll related expenses ($2.2 million);
club operating expenses ($2.0 million); and depreciation and amortization ($0.8
million), offset by a substantial reduction in compensation expense incurred in
connection with stock options of $5.2 million which was caused by the Merger in
December 1996. The increases were primarily attributable to the six clubs opened
or acquired in fiscal 1997 (approximately $1.0 million) and the ten clubs
acquired in fiscal 1998 (approximately $3.5 million). General and administrative
expenses increased $0.7 million to support the increased number of clubs in
operation during the quarter.
OPERATING INCOME. Operating income increased $6.4 million to $2.6 million for
the quarter ended February 28, 1998 from a loss of $3.8 million in the quarter
ended February 28, 1997. The increase in operating income during the quarter
ended February 28, 1998 is primarily attributable to revenue growth at the 19
clubs opened or acquired since the end of fiscal 1995 and the substantial
reduction in compensation expense incurred in connection with the stock options
caused by the Merger in December 1996.
7
<PAGE>
EARNINGS BEFORE DEPRECIATION, INTEREST, TAXES, NONCASH RENTAL EXPENSE AND
NONCASH COMPENSATION EXPENSE IN CONNECTION WITH STOCK OPTIONS ("Adjusted
Ebitda") Adjusted Ebitda increased $2.4 million, or 76% to $5.5 million for the
quarter ended February 28, 1998 from $3.1 million for the quarter ended February
28, 1997. Adjusted Ebitda as a percentage of revenues increased to 25% from 21%
in the comparable period of the previous fiscal year. The improvement in
adjusted ebitda margin is principally attributable to the mix of mature and
immature clubs operated by the Company. Because there is relatively little
incremental cost associated with increasing revenues, there is a greater
proportionate increase in profitability as clubs mature. Since the Company has
acquired ten relatively more mature operations during this fiscal year, this mix
has changed.
INTEREST EXPENSE. Interest expense increased $1.3 million to $2.3 million for
the quarter ended February 28, 1998 from $1.0 million in the quarter ended
February 28, 1997. This is primarily as a result of the new debt financing
structure put in place due to the Merger during the 1997 fiscal year and the
refinancing of that debt by the $85.0 million Senior Note placement in October
1997.
INTEREST INCOME. Interest income increased $0.5 million to $0.5 million for the
quarter ended February 28, 1998 primarily because of increased interest income
from the investment of surplus cash subsequent to the October 1997 refinancing.
INCOME TAX PROVISION. The income tax provision for the quarter ended February
28, 1998 was $0.4 million compared to a tax benefit of $2.2 million for the
quarter ended February 28, 1997, primarily as a result of increased operating
income and the substantial reduction in compensation expense incurred in
connection with stock options caused by the Merger in December 1996.
NINE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO NINE MONTHS ENDED FEBRUARY 28,
1997
REVENUES. Revenues increased $17.4 million, or 43% to $57.9 million for the nine
months ended February 28, 1998 from $40.5 million in the nine months ended
February 28, 1997. These increases resulted primarily from the continued
maturation of the three clubs opened or acquired in fiscal 1996 (approximately
$2.4 million, of which $2.1 was related to membership growth), the six clubs
opened or acquired in fiscal 1997 (approximately $7.0 million, of which $6.0 was
related to membership growth and $1.0 million was related to increases in
ancillary revenue), and the ten clubs acquired in fiscal 1998 (approximately
$4.9 million of which $4.2 was related to membership growth and $0.7 million was
related to increases in ancillary revenue). In addition, revenues increased by
$3.1 million during the nine months ended February 28, 1998 at the Company's
mature clubs, of which $2.5 million was due to membership growth.
OPERATING EXPENSES. Operating expenses increased $9.4 million, or 23% to $51.0
million for the nine months ended February 28, 1997 from $41.6 million in the
nine months ended February 28, 1997. The increase in total operating expenses
resulted primarily from increases in: payroll related expenses ($6.5 million);
8
<PAGE>
club operating expenses ($5.1 million); and depreciation and amortization ($2.2
million), offset by a substantial reduction in compensation expense incurred in
connection with stock options of $5.4 million which was caused by the Merger in
December 1996. The increases were primarily attributable to the six clubs opened
or acquired in fiscal 1997 (approximately $4.8 million) and the ten acquired in
fiscal 1998 (approximately $7.0 million). General and administrative expenses
increased $1.0 million to support the increased number of clubs in operation
during the period.
OPERATING INCOME. Operating income increased $7.9 million to $6.9 million for
the nine months ended February 28, 1998 from a loss of $1.0 million in the nine
months ended February 28, 1997. The increase in operating income during the nine
months ended February 28, 1998 is primarily attributable to revenue growth at
the 19 clubs opened or acquired since 1995 and the absence of compensation
expenses incurred in connection with stock options of $5.4 million.
EARNINGS BEFORE DEPRECIATION, INTEREST, TAXES, NONCASH RENTAL EXPENSE AND
NONCASH COMPENSATION EXPENSE IN CONNECTION WITH STOCK OPTIONS ("Adjusted
Ebitda") Adjusted Ebitda increased $5.5 million, or 60% to $14.6 million for the
nine months ended February 28, 1998 from $9.1 million in the nine months ended
February 28, 1997. Adjusted Ebitda as a percentage of revenues increased to 25%
from 22% in the comparable period of the previous fiscal year. The improvement
in adjusted ebitda margin is principally attributable to the mix of mature and
immature clubs operated by the Company. Because there is relatively little
incremental cost associated with increasing revenues, there is a greater
proportionate increase in profitability as clubs mature. Since the Company has
acquired ten relatively more mature operations during this fiscal year, this mix
has changed.
INTEREST EXPENSE. Interest expense increased $3.9 million to $5.3 million for
the nine months ended February 28, 1998 from $1.4 million in the nine months
ended February 28, 1997. This is primarily as a result of the new debt financing
structure put in place due to the Merger during the 1997 fiscal year and the
refinancing of that debt by the $85.0 million Senior Note placement in October
1997.
INTEREST INCOME. Interest income increased $0.8 million to $0.9 million for the
nine months ended February 28, 1998, primarily because of increased interest
income from the investment of surplus cash subsequent to the October 1997
refinancing.
INCOME TAX PROVISION. The income tax provision for the nine months ended
February 28, 1998 was $1.2 million compared to a tax benefit of $1.1 million for
the nine months ended February 28, 1998, primarily as a result of increased
operating income and the substantial reduction in compensation expense incurred
in connection with stock options caused by the Merger in December 1996.
EXTRAORDINARY ITEM. During the nine months ended February 28, 1998 the Company
undertook an $85.0 million Senior Note financing. As part of this financing the
existing term loan, line of credit and subordinated note were repaid.
Accordingly previously capitalized fees and expenses relating to the repaid debt
of $1.4 million were written off net of tax effect of $0.7 million.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On October 16, 1997, the Company completed an $85.0 million 9 3/4% Senior Note
placement, the "Offering," and put in place a $15.0 million credit facility, the
"New Credit Facility". After repayment of existing indebtedness of $41.5 million
and payment of fees and expenses of $3.3 million, $40.2 million net proceeds
were received by the Company.
The Company believes that cash generated from operations, together with the net
proceeds of the Offering and amounts available under the New Credit Facility,
will be adequate to meet its currently envisaged capital expenditures, debt
service requirements, and working capital needs for the medium term. The Company
has approximately $13.6 million in availability under the New Credit Facility.
The New Credit Facility will mature on October 15, 2002 and has no scheduled
interim amortization requirements.
The Company's future operating performance and ability to service or refinance
the Notes and to extend or refinance the New Credit Facility will be subject to
future economic conditions generally and to financial, business and other
factors, many of which are beyond the Company's control.
Net cash provided by operating activities in the nine month period ended
February 28, 1998 was $12.9 million as compared with $7.6 million provided by
operating activities in the nine month period ended February 28, 1997. The
increase reflects the continued maturation of recently opened facilities as well
as improved performance at its mature clubs.
The Company invested $19.3 million in capital expenditures and asset
acquisitions during the nine months ended February 28, 1998. The Company
estimates that it will invest a total of approximately $45.0 million in capital
expenditures during the balance of fiscal 1998 and during fiscal 1999 to open or
acquire additional clubs. It is estimated that a further $0.8 million will be
expended during the balance of fiscal 1998 and $3.5 million during fiscal 1999
to maintain, upgrade and expand certain existing clubs.
The Company is in the process of assessing whether its computer systems will
function properly with respect to dates in 2000 and thereafter, and has
determined that certain software applications will require upgrading. The
estimated cost of such upgrades is approximately $0.2 million.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this Form 10-Q including, without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties,
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. These factors include, among others, the following: general economic
and business conditions; competition; success of operating initiatives,
10
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advertising and promotional efforts; existence of adverse publicity or
litigation; acceptance of new service offerings; changes in business strategy or
plans; quality of management; availability and terms of capital; business
abilities and judgment of personnel; changes in, or the failure to comply with,
government regulations; and other factors described in filings of the Company
with the Securities and Exchange Commission. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
11
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
(27) Financial Data Schedule (to be filed electronically).
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the third quarter of fiscal
1998.
12
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SIGNATURE
Pursuant to requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TOWN SPORTS INTERNATIONAL, INC.
(Registrant)
DATE: APRIL 1, 1998 BY: /S/ RICHARD PYLE
---------------------------------------
Richard Pyle
Chief Financial Officer
(principal financial and accounting officer)
DATE: APRIL 1, 1998 BY: /S/ MARK SMITH
---------------------------------------
Mark Smith
Chief Executive Officer
(principal executive officer)
13
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
(27) Financial Data Schedule (to be filed electronically).
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE CONSOLIDATED BALANCE SHEET AT MAY 31, 1997 AND FEBRUARY 28, 1998, THE
CONSOLIDATED STATEMENT OF OPERATIONS AND THE CONSOLIDATED STATEMENT OF
STOCKHOLDERS' DEFICIT FOR THE YEAR ENDED MAY 31, 1997 AND FOR THE NINE
MONTHS ENDED FEBRUARY 28, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 38,291
<SECURITIES> 0
<RECEIVABLES> 302
<ALLOWANCES> 0
<INVENTORY> 556
<CURRENT-ASSETS> 39,914
<PP&E> 61,088
<DEPRECIATION> 16,486
<TOTAL-ASSETS> 109,137
<CURRENT-LIABILITIES> 17,501
<BONDS> 86,446
0
18,275
<COMMON> 1
<OTHER-SE> (24,034)
<TOTAL-LIABILITY-AND-EQUITY> 109,137
<SALES> 0
<TOTAL-REVENUES> 55,975
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 51,006
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,284
<INCOME-PRETAX> 2,509
<INCOME-TAX> 1,229
<INCOME-CONTINUING> 1,280
<DISCONTINUED> 0
<EXTRAORDINARY> (730)
<CHANGES> 0
<NET-INCOME> 550
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
