Town Sports International Holdings, Inc. Announces Fourth Quarter and Full-Year 2012 Financial Results

  Town Sports International Holdings, Inc. Announces Fourth Quarter and
  Full-Year 2012 Financial Results

Business Wire

NEW YORK -- February 19, 2013

Town Sports International Holdings, Inc. (“TSI” or the “Company”) (NASDAQ:
CLUB), a leading owner and operator of health clubs located primarily in major
cities from Washington, DC north through New England, operating under the
brand names “New York Sports Clubs,” “Boston Sports Clubs,” “Washington Sports
Clubs” and “Philadelphia Sports Clubs,” announced its results for the fourth
quarter and full-year ended December 31, 2012.

Fourth Quarter Overview:

  *The Company paid a special cash dividend of $3.00 per share on December
    11, 2012. The aggregate amount of the dividends paid totaled $70.3 million
    with another $1.1 million payable as restricted shares vest.
  *Total member count decreased 12,000 to 510,000 in Q4 2012 and decreased by
    13,000 for the full-year 2012.
  *Membership monthly attrition averaged 3.5% per month in Q4 2012 compared
    to 3.4% per month in Q4 2011.
  *Revenue of $114.2 million in Q4 2012 decreased 1.4% compared to Q4 2011.
  *Comparable club revenue decreased 1.1% in Q4 2012.
  *Diluted loss per share was $0.02 in Q4 2012 compared to diluted earnings
    per share of $0.14 in Q4 2011.
  *Q4 2012 results reflected the following items amounting to an aggregate
    net charge of approximately $7.8 million before taxes (approximately $4.3
    million net of taxes) or approximately $0.18 per diluted share:

       *$3.2 million ($1.9 million net of taxes) of fixed asset write-offs
         related to four clubs that sustained damage as a result of Hurricane
         Sandy.
       *$1.6 million ($924,000 net of taxes) of incremental interest charges
         related to expenses incurred in connection with the Q4 2012
         additional borrowing under the Company’s credit facility.
       *$2.5 million ($1.5 million net of taxes) of an equivalent cash bonus
         paid to certain option holders in connection with the Company’s
         special dividend payment.
       *$577,000 ($340,000 net of taxes) of consulting and administration
         expenses and incremental compensation expense incurred in connection
         with the Company’s special dividend payment and related stock option
         modifications.
       *$340,000 of discrete tax benefits.

  *Adjusted EBITDA was $23.2 million in Q4 2012, an increase of $333,000, or
    1.5%, when compared to Adjusted EBITDA of $22.9 million in Q4 2011 (Refer
    to the reconciliation below).

Robert Giardina, Chief Executive Officer of TSI, commented:“We are pleased to
have delivered 2012 Adjusted EBITDA of $100 million, modestly exceeding the
goal we set for ourselves at the beginning of the year despite the impact of
Hurricane Sandy, which resulted in 131 temporary club closures and a decline
in member traffic. We are firmly focused on driving personal training and
other ancillary revenues and are very excited about the response to new
programs like our signature classes, small group training classes and UXF. We
also plan to expand our club base, and see opportunities for both acquisitions
and new locations in 2013.”

Mr. Giardina added, “We returned $70.3 million to our shareholders in 2012 in
the form of a $3.00 per share special dividend. As we look to 2013, we expect
that our cash flow generation will exceed the capital outlay to fund club
growth. With respect to club growth, we are excited to have announced the
acquisition of Fitcorp in Boston. In addition to the five clubs and four
managed sites that will join our family, Fitcorp has been a leader in
developing corporate programs and managing corporate centers for more than 30
years. We welcome the Fitcorp team and look forward to building upon their
success as well as expanding on their unique expertise with corporate
clients.”


Fourth Quarter Ended December 31, 2012 Financial Results:
                                                         
Revenue (in thousands):
                                                                             
                Quarter Ended December 31,
                2012                      2011
                Revenue       %           Revenue       %           %
                              Revenue                   Revenue     Variance
Membership      $ 89,176      78.1  %     $ 91,231      78.8  %     (2.3   ) %
dues
Joining          3,329       2.9   %      2,241       1.9   %     48.5     %
fees
Membership       92,505      81.0  %      93,472      80.7  %     (1.0   ) %
revenue
Personal
training          14,772      12.9  %       15,142      13.1  %     (2.4   ) %
revenue
Other
ancillary        5,997       5.3   %      5,778       5.0   %     3.8      %
club
revenue
Ancillary
club              20,769      18.2  %       20,920      18.1  %     (0.7   ) %
revenue
Fees and
other            942         0.8   %      1,421       1.2   %     (33.7  ) %
revenue
Total           $ 114,216     100.0 %     $ 115,813     100.0 %     (1.4   ) %
revenue
                                                                             

Total revenue for Q4 2012 decreased $1.6 million, or 1.4%, compared to Q4
2011. The decrease in revenue for Q4 2012 is primarily comprised of a $1.4
million decrease at our clubs opened or acquired prior to December 31, 2010
and a decrease of $514,000 due to a reduction in fees and other revenue
related to education and laundry services. These decreases were partially
offset by an increase of $530,000 at the two clubs opened or acquired
subsequent to December 31, 2010 (both opened in Q4 2011).

Q4 2012 revenues were negatively impacted as a result of lost operating days
due to Hurricane Sandy. At the height of the storm, 131 of our 160 clubs were
closed with 16 clubs that remained closed for over a week and two clubs which
still remain closed.

Operating expenses:                               
                              Quarter Ended
                              December 31,
                              2012        2011
                                                       Expense %
                                                      Increase
                              Expense % of Revenue     (Decrease)
Payroll and related           39.7  %       37.9 %     3.3      %
Club operating                37.6  %       37.5 %     (1.2   ) %
General and administrative    5.6   %       5.3  %     4.7      %
Depreciation and amortization 10.5  %       11.0 %     (5.8   ) %
Impairment of fixed assets    2.8   %       -    %     100.0    %
Operating expenses            96.2  %       91.7 %     3.4      %
                                                                

Total operating expenses increased 3.4% for Q4 2012 compared to Q4 2011.
Operating margin was 3.8% for Q4 2012 compared to 8.3% for Q4 2011.

Payroll and related. The increase in payroll and related expenses in Q4 2012
was primarily related to a $2.5 million bonus payment made in connection with
the special dividend paid during Q4 2012, which was partially offset by
reductions in club related payroll; including lower bonuses and lower revenue
based pay.

General and administrative. The increase in general and administrative
expenses in Q4 2012 was primarily related to legal fees and dividend
administration expenses incurred in connection with the payment and
administration of the special cash dividend payment paid during Q4 2012.

Depreciation and amortization. Depreciation and amortization expense for Q4
2012 decreased primarily due to a decline in our depreciable fixed asset base.
Contributing to this was our limited number of club openings over the past
five years.

Impairment of fixed assets. In Q4 2012, we recorded fixed asset impairment
charges of $3.2 million related to the write-off of fixed assets at four of
our clubs that sustained damages from Hurricane Sandy.

Net loss for Q4 2012 was $453,000 compared to net income of $3.3million for
Q4 2011.

Full-Year Ended December 31, 2012 Financial Results

For the full-year ended December 31, 2012, total revenue increased $12.0
million, or 2.6%, compared to full-year 2011. Operating margin was 8.7% for
2012 compared to 7.6% for 2011. In 2012, we recorded fixed asset impairment
charges and loss on extinguishment of debt of $3.4 million and $1.0 million,
respectively. In 2011, we recorded loss on extinguishment of debt of $4.9
million and no fixed asset impairments. Net income for 2012 was $12.0 million
compared to $6.3 million in 2011.

Cash flow from operating activities for full-year 2012 totaled $60.1 million,
a decrease of $14.8 million from full-year 2011. Cash flow related to income
taxes impacted the change in cash flows as 2011 cash flows benefitted from a
net tax refund of $6.6 million while in 2012 net taxes of $836,000 were paid.
This decrease was also driven by reductions in cash flows resulting from the
timing of payments and collections made associated with prepaid expenses,
accounts payable and accrued expenses and deferred revenues.

First Quarter 2013 Financial Outlook:

Based on the current business environment, recent performance and current
trends in the marketplace and subject to the risks and uncertainties inherent
in forward-looking statements, our outlook for the first quarter of 2013
includes the following:

  *Revenue for Q1 2013 is expected to be between $119.0 million and $120.0
    million versus $122.9 million for Q1 2012. As percentages of revenue, we
    expect Q1 2013 payroll and related expenses to approximate 37.5% and club
    operating expenses to approximate 37.0%. We expect general and
    administrative expenses to approximate $7.5 million, depreciation and
    amortization to approximate $12.1 million and net interest expense to
    approximate $5.4 million.
  *We expect net income for Q1 2013 to be between $3.5 million and $4.0
    million, and diluted earnings per share to be in the range of $0.15 per
    share to $0.17 per share, assuming a 39% effective tax rate and 24 million
    weighted average fully diluted shares outstanding.
  *We estimate that EBITDA will approximate $23.5 million in Q1 2013.

Investing Activities Outlook:

For the year ending December 31, 2013, we currently plan to invest $37.0
million to $42.0million in capital expenditures compared to $22.5 million of
capital expenditures in 2012. This amount includes approximately $11.5 million
to $17.0 million related to potential 2013 and 2014 club openings, inclusive
of amounts for our planned acquisition of the Fitcorp chain in Boston and
planned renovations at these clubs as well as a separate single club
acquisition in Manhattan. The total capital expenditures also includes
approximately $17.0million to $18.0 million to continue enhancing or
upgrading existing clubs and approximately $4.5 million to $5.0 million
principally related to major renovations at clubs with recent lease renewals
and to upgrade our in-club entertainment system network. We also expect to
invest approximately $2.5 million to $3.0 million to enhance our management
information and communication systems. We expect these capital expenditures to
be funded by cash flow provided by operations and available cash on hand.

Forward-Looking Statements:

Statements in this release that do not constitute historical facts, including,
without limitation, statements under the captions “First Quarter 2013
Financial Outlook” and “Investing Activities Outlook”, other statements
regarding future financial results and performance and potential sales revenue
and other statements that are predictive in nature or depend upon or refer to
events or conditions, or that include words such as “expects,” “anticipated,”
“intends,” “plans,” “believes,” “estimates” or “could”, are “forward-looking”
statements made pursuant to the safe harbor provision of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
subject to various risks and uncertainties, many of which are outside the
Company’s control, including, among others, the level of market demand for the
Company’s services, economic conditions affecting the Company’s business, the
geographic concentration of the Company’s clubs, competitive pressures, the
ability to achieve reductions in operating costs and to continue to integrate
acquisitions, environmental initiatives, any security and privacy breaches
involving customer data, the application of Federal and state tax laws and
regulations, the levels and terms of the Company’s indebtedness, and other
specific factors discussed herein and in other releases and public filings
made by the Company (including the Company’s reports on Forms 10-K and 10-Q
filed with the Securities and Exchange Commission). The Company believes that
all forward-looking statements are based on reasonable assumptions when made;
however, the Company cautions that it is impossible to predict actual results
or outcomes or the effects of risks, uncertainties or other factors on
anticipated results or outcomes and that, accordingly, one should not place
undue reliance on these statements. Forward-looking statements speak only as
of the date they were made, and the Company undertakes no obligation to update
these statements in light of subsequent events or developments. Actual results
may differ materially from anticipated results or outcomes discussed in any
forward-looking statement.

About Town Sports International Holdings, Inc.:

New York-based Town Sports International Holdings, Inc. is a leading owner and
operator of fitness clubs in the Northeast and mid-Atlantic regions of the
United States and, through its subsidiaries, operated 160 fitness clubs as of
December 31, 2012, comprising 108 New York Sports Clubs, 25 Boston Sports
Clubs, 18 Washington Sports Clubs (two of which are partly-owned), six
Philadelphia Sports Clubs, and three clubs located in Switzerland. These clubs
collectively served approximately 510,000 members. For more information on
TSI, visit http://www.mysportsclubs.com.

The Company will hold a conference call on Tuesday, February 19, 2013 at 4:30
PM (Eastern) to discuss the fourth quarter and full-year results. Robert
Giardina, Chief Executive Officer, and Dan Gallagher, Chief Financial Officer,
will host the conference call. The conference call will be Webcast and may be
accessed via the Company's Investor Relations section of its Web site at
www.mysportsclubs.com. A replay and transcript of the call will be available
via the Company's Web site beginning February 20, 2013.

From time to time we may use our Web site as a channel of distribution of
material company information. Financial and other material information
regarding the Company is routinely posted on and accessible at
http://www.mysportsclubs.com. In addition, you may automatically receive email
alerts and other information about us by enrolling your email by visiting the
“Email Alert” section at http://www.mysportsclubs.com.

                                                                             
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
                                                           
CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 31, 2012 and 2011
(All figures in thousands)
(Unaudited)
                                                                             
                                               December 31,     December 31,
                                               2012           2011         
                                                                             
ASSETS
Current assets:
Cash and cash equivalents                      $  37,758        $   47,880
Accounts receivable, net                          6,508             5,857
Inventory                                         438               290
Deferred tax assets, net                          24,897            20,218
Prepaid corporate income taxes                    550               73
Prepaid expenses and other current assets        9,866           10,599   
Total current assets                              80,017            84,917
Fixed assets, net                                 256,871           286,041
Goodwill                                          32,824            32,799
Deferred tax assets, net                          9,296             19,782
Deferred membership costs                         10,811            10,117
Other assets                                     14,091          15,886   
Total assets                                   $  403,910      $   449,542  
                                                                             
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
                                                                             
Current liabilities:
Current portion of long-term debt              $  15,787        $   25,507
Accounts payable                                  7,467             9,180
Accrued expenses                                  27,053            26,575
Accrued interest                                  89                950
Dividends payable                                 305               ―
Deferred revenue                                 37,138          40,822   
Total current liabilities                         87,839            103,034
Long-term debt                                    294,552           263,487
Dividends payable                                 799               ―
Deferred lease liabilities                        61,732            65,119
Deferred revenue                                  3,889             5,338
Other liabilities                                10,595          12,210   
Total liabilities                                 459,406           449,188
Stockholders’ (deficit) equity :
Common stock                                      24                23
Additional paid-in capital                        (16,326 )         (19,934  )
Accumulated other comprehensive income            1,226             1,251
Retained (deficit) earnings                      (40,420 )        19,014   
Total stockholders’ (deficit) equity             (55,496 )        354      
Total liabilities and stockholders’            $  403,910      $   449,542  
(deficit) equity
                                                                             

                                                                                         
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
                                                                   
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the quarters and years ended December 31, 2012 and 2011
(All figures in thousands except share and per share data)
(Unaudited)
                                                                                         
                   Quarter Ended December 31,            Year Ended December 31,
                    2012             2011             2012             2011       
Revenues:
Club               $ 113,274          $ 114,392          $ 473,177          $ 462,051
operations
Fees and other      942              1,421            5,804            4,890      
                    114,216          115,813          478,981          466,941    
Operating
Expenses
Payroll and          45,339             43,889             181,632            177,528
related
Club operating       42,938             43,480             178,950            176,463
General and          6,430              6,144              24,139             25,799
administrative
Depreciation
and                  11,964             12,707             49,391             51,536
amortization
Impairment of       3,197            ―                3,436            ―          
fixed assets
                    109,868          106,220          437,548          431,326    
Operating            4,348              9,593              41,433             35,615
income
Loss on
extinguishment       ―                  ―                  1,010              4,865
of debt
Interest             6,613              6,009              24,640             24,274
expense
Interest             ―                  (12        )       (43        )       (147       )
income
Equity in the
earnings of         (609       )      (558       )     (2,461     )      (2,391     )
investees and
rental income
(Loss) income
before
(benefit)            (1,656     )       4,154              18,287             9,014
provision for
corporate
income taxes
(Benefit)
provision for       (1,203     )      904              6,321            2,699      
corporate
income taxes
Net (loss)         $ (453       )     $ 3,250           $ 11,966          $ 6,315      
income
(Loss)
earnings per
share:
Basic              $ (0.02      )     $ 0.14             $ 0.51             $ 0.28
Diluted            $ (0.02      )     $ 0.14             $ 0.50             $ 0.27
Weighted
average number
of shares used
in calculating
(loss)
earnings per
share:
Basic                23,747,667         22,964,254         23,436,393         22,828,031
Diluted              23,747,667         23,578,768         24,114,540         23,423,797
Dividends
declared per       $ 3.00             $ ―                $ 3.00             $ ―
common share
                                                                                         


TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
                                                             
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2012 and 2011
(All figures in thousands)
(Unaudited)
                                                                    
                                                  Year Ended December 31,
                                                  2012            2011
Cash flows from operating activities:
Net income                                        $ 11,966        $ 6,315
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization                       49,391          51,536
Impairment of fixed assets                          3,436           —
Loss on extinguishment of debt                      1,010           4,865
Call premium on redemption of Senior Discount       —               (2,538   )
Notes
Amortization of debt discount                       517             244
Amortization of debt issuance costs                 1,135           1,127
Noncash rental expense, net of non-cash             (4,037  )       (3,663   )
rental income
Share-based compensation expense                    1,306           1,412
Decrease in deferred tax asset                      5,865           1,886
Net change in certain operating assets and          (8,864  )       19,129
liabilities
Increase in deferred membership costs               (694    )       (4,183   )
Landlord contributions to tenant improvements       1,345           711
Decrease in insurance reserves                      (2,071  )       (1,679   )
Other                                              (252    )      (277     )
Total adjustments                                  48,087        68,570   
Net cash provided by operating activities          60,053        74,885   
Cash flows from investing activities:
Capital expenditures                               (22,490 )      (30,907  )
Net cash used in investing activities              (22,490 )      (30,907  )
                                                                    
Cash flows from financing activities:
Cash dividends paid                                 (70,296 )       —
Proceeds from incremental term loan, net of         59,700          —
original issue discount
Proceeds from replacement 2011 Term Loan            13,796          —
Facility lenders
Principal payments to non-consenting 2011           (13,796 )       —
Term Loan Facility lenders
Principal payments on 2011 Term Loan Facility       (36,007 )       (8,250   )
Term loan amendment related financing costs         (3,346  )       —
Proceeds from stock option exercises                2,352           479
Proceeds from 2011 Senior Credit Facility,          —               297,000
net of original issue discount
Debt issuance costs                                 (125    )       (8,065   )
Repayment of 2007 Term Loan Facility                —               (178,063 )
Repayment of Senior Discount Notes                 —             (138,450 )
Net cash used in financing activities              (47,722 )      (35,349  )
Effect of exchange rate changes on cash            37            448      
Net (decrease) increase in cash and cash            (10,122 )       9,077
equivalents
Cash and cash equivalents beginning of period      47,880        38,803   
Cash and cash equivalents end of period           $ 37,758       $ 47,880   
                                                                    
Summary of the change in certain operating
assets and liabilities:
Increase in accounts receivable                   $ (645    )     $ (591     )
Increase in inventory                               (148    )       (74      )
(Increase) decrease in prepaid expenses and         (329    )       3,493
other current assets
(Decrease) increase in accounts payable,            (3,094  )       864
accrued expenses and accrued interest
Change in prepaid corporate income taxes and        (427    )       7,320
corporate income taxes payable
(Decrease) increase in deferred revenue            (4,221  )      8,117    
Net change in certain working capital             $ (8,864  )     $ 19,129   
components
                                                                    

                                                                             
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
                                                          
Reconciliation of Net Cash Provided by Operating Activities to EBITDA and
Adjusted EBITDA
For the Quarters and Full Years Ended December 31, 2012 and 2011
(All figures in thousands)
(Unaudited)
                                                                             
                      Quarter Ended                 Full-Year Ended
                      December 31,                  December 31,             
                      2012           2011           2012           2011      
Net cash provided
by operating          $ 16,105       $ 21,645       $ 60,053       $ 74,885
activities:
Interest expense,
net of interest         6,613          5,997          24,597         24,127
income
(Benefit)
provision for           (1,203 )       904            6,321          2,699
corporate income
taxes
Changes in
operating assets        (2,169 )       (7,587 )       8,864          (19,129 )
and liabilities
Impairment of           (3,197 )       -              (3,436 )       -
fixed assets
Loss on
extinguishment of       -              -              (1,010 )       (4,865  )
debt
Call premium on
the redemption of       -              -              -              2,538
Senior Discount
Notes
Amortization of         (206   )       (95    )       (517   )       (244    )
debt discount
Amortization of
debt issuance           (269   )       (287   )       (1,135 )       (1,127  )
costs
Share-based
compensation            (519   )       (487   )       (1,306 )       (1,412  )
expense
Landlord
contributions to        (25    )       -              (1,345 )       (711    )
tenant
improvements
Non-cash rental
expense, net of         1,087          646            4,037          3,663
non-cash rental
income
(Increase)
decrease in             (53    )       168            2,071          1,679
insurance
reserves
Increase
(decrease) in           1,171          1,375          (5,865 )       (1,886  )
deferred tax
asset
(Decrease)
increase in             (479   )       625            694            4,183
deferred
membership costs
Other                  65           (46    )      252          277     
EBITDA                  16,921         22,858         92,275         84,677
Impairment of           3,197          -              3,436          -
fixed assets
Dividend related        577            -              577            -
expenses (1)
Payroll bonus
payment in              2,496          -              2,496          -
connection with
dividend (2)
Loss on
extinguishment of      -            -            1,010        4,865   
debt
Adjusted EBITDA       $ 23,191      $ 22,858      $ 99,794      $ 89,542  
                                                                             

      In Q4 2012, the Company's board of directors declared a special cash
      dividend of $3.00 per share of common stock payable to shareholders of
(1)  record as of November 30, 2012 with a payment date of December 11, 2012.
      In connection with the special dividend, the Company incurred consulting
      and administration expenses plus incremental compensation expense
      related to stock option modifications totaling $577.
      In connection with the special dividend payment in Q4 2012, certain
(2)   option holders holding vested in-the-money options were paid a $3.00
      cash bonus equivalent on December 11, 2012 totaling approximately
      $2,496.
      


TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
                                                               
Reconciliation of Estimated and Actual Net Cash Provided by Operating
Activities to EBITDA
For the Quarter Ending March 31, 2013 and the Quarter Ended March 31, 2012
(All figures in thousands)
(Unaudited)
                                                  Estimated
                                                  Q1 2013           Q1 2012
Net cash provided by operating activities         $  16,710         $ 16,404
Interest expense, net of interest income             5,400            5,921
Provision for corporate income taxes                 2,350            2,446
Changes in operating assets and liabilities          650              1,451
Amortization of debt discount                        (240    )        (97    )
Amortization of debt issuance costs                  (270    )        (288   )
Share-based compensation expense                     (450    )        (329   )
Landlord contributions to tenant                     -                (663   )
improvements
Non-cash rental expense, net of non-cash             1,000            859
rental income
Decrease in insurance reserves                       200              589
Decrease in deferred tax asset                       (2,500  )        (2,413 )
Increase in deferred member costs                    450              750
Other                                               200            447    
EBITDA                                            $  23,500        $ 25,077 
                                                                      

Non-GAAP Financial Measures – EBITDA and Adjusted EBITDA

EBITDA consists of net income plus interest expense (net of interest income),
provision for corporate income taxes, and depreciation and amortization.
Adjusted EBITDA is the Company’s EBITDA excluding loss on extinguishment of
debt, any fixed asset or goodwill impairments and, in the case of Q4 2012 and
full year-2012, charges in connection with the Company’s special dividend
payment and incremental share-based compensation expense resulting from option
modifications. EBITDA is not a measure of liquidity or financial performance
presented in accordance with GAAP. EBITDA, as we define it, may not be
identical to similarly titled measures used by some other companies.

EBITDA has material limitations as an analytical tool and should not be
considered in isolation or as a substitute for cash flows from operating
activities, operating income or other cash flow or income data prepared in
accordance with GAAP. The items excluded from EBITDA, but included in the
calculation of reported net income, are significant components of the
consolidated statements of cash flows and income, and must be considered in
performing a comprehensive assessment of our liquidity.

EBITDA excludes, among other items, the effect of depreciation and
amortization, which is a significant component of our reported GAAP data.
Depreciation and amortization, which is a non-cash item, totaled $12.0 million
in the quarter ended December 31, 2012. Although a premise underlying
depreciation and amortization is that it will be reinvested in our business to
restore, replenish or purchase property, equipment and other related assets,
the funds represented by depreciation and amortization could, in the Company’s
discretion, be utilized for other purposes (e.g., debt service). Accordingly,
EBITDA may be useful as a supplemental measure to GAAP financial data for
demonstrating our ability to satisfy our liquidity and capital resource
requirements.

Investors or prospective investors in the Company regularly request EBITDA as
a supplemental analytical measure to, and in conjunction with, our GAAP
financial data. We understand that these investors use EBITDA, among other
things, to assess our ability to service our existing debt and to incur debt
in the future, to evaluate our executive compensation programs, to assess our
ability to fund our capital expenditure program, and to gain insight into the
manner in which the Company’s management and board of directors analyze our
liquidity. We believe that investors find the inclusion of EBITDA in our press
releases to be useful and helpful to them.

Our management and board of directors also use EBITDA as a supplemental
measure to our GAAP financial data for purposes broadly similar to those used
by investors.

The purposes to which EBITDA may be used by investors, and is used by our
management and board of directors, include the following:

      The Company is required to comply with financial covenants and borrowing
 •  limitations that are based on variations of EBITDA as defined in our
      2011 Senior Credit Facility, as amended.
      
      Our discussions with prospective lenders and investors in recent years,
  •   including in relation to our 2011 Senior Credit Facility, have confirmed
      the importance of EBITDA in their decision-making processes relating to
      the making of loans to us or investing in our debt securities.
      
  •   The Company uses EBITDA as a key factor in determining annual incentive
      bonuses for executive officers (as discussed in our proxy statement).
      
      The Company considers EBITDA to be a useful supplemental measure to GAAP
      financial data because it indicates our ability to generate funds
  •   sufficient to make capital expenditures (including for the opening of
      new clubs and the upgrading of existing clubs) as well as to undertake
      initiatives to enhance our business by offering new products and
      services in accordance with our strategy.
      
  •   Quarterly, equity analysts who follow our company often report on our
      EBITDA with respect to valuation commentary.

Adjusted EBITDA has similar uses and limitations as EBITDA. We do not, and
investors should not, place undue reliance on EBITDA or Adjusted EBITDA as a
measure of our liquidity.

Contact:

Town Sports International Holdings, Inc., New York
Investors:
212-246-6700 x 1650
Investor.relations@town-sports.com
or
ICR, Inc.
Joseph Teklits / Farah Soi, 203-682-8390
farah.soi@icrinc.com
 
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