Town Sports International Holdings, Inc. Announces Third Quarter 2013 Financial Results

  Town Sports International Holdings, Inc. Announces Third Quarter 2013
  Financial Results

Business Wire

NEW YORK -- October 23, 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
third quarter ended September 30, 2013.

Third Quarter Overview:

  *Total member count decreased 5,000 members, to 507,000 members at the end
    of Q3 2013 versus a decrease of 7,000 members in Q3 2012.
  *Membership attrition averaged 3.7% per month in both Q3 2013 and Q3 2012.
  *Revenue decreased 2.1% in Q3 2013 compared to Q3 2012.
  *Comparable club revenue decreased 1.7% in Q3 2013 compared to an increase
    of 1.0% in Q3 2012.
  *Ancillary club revenue decreased 4.0% in Q3 2013 compared to Q3 2012.
  *Personal training revenue increased 5.0% in Q3 2013 compared to Q3 2012
    and represented 14.0% of total revenue in Q3 2013 as compared to 13.1% in
    Q3 2012.
  *Net income decreased 17.8% in Q3 2013 to $2.6 million compared to $3.2
    million in Q3 2012. Diluted earnings per share were $0.10 in Q3 2013
    compared to diluted earnings per share of $0.13 in Q3 2012. Q3 2013 and Q3
    2012 results included the following items:

       *Q3 2013 results were favorably impacted by a $0.01 per diluted share
         net gain comprised of a $694,000 insurance recovery related to our
         property damage claims primarily in connection with Hurricane Sandy
         partially offset by a fixed asset impairment charge of $439,000
         related to one underperforming club.
       *Q3 2012 results included a net loss of $(0.02) per diluted share
         comprised of $(0.06) per share refinancing related charges, partially
         offset by a $0.03 per share benefit from additional fees and other
         revenue realized in connection with a termination of a long-term
         marketing arrangement with a third party advertiser and a $0.01 per
         share discrete tax benefit.

  *Adjusted EBITDA was $21.7 million in Q3 2013, a decrease of $3.0 million,
    or 12.2%, when compared to Adjusted EBITDA of $24.7 million in Q3 2012
    (Refer to the reconciliation below).

Robert Giardina, Chief Executive Officer of TSI, commented:“Our third quarter
bottom-line results were in line with our expectations. We were disappointed
we did not meet our revenue expectations for the quarter and we believe the
steps we are taking on the pricing and personal training membership fronts
will begin to benefit us as we head into 2014. Strategically, we are focused
on leveraging the investments we have made in our clubs into pricing power for
the core business while adding offerings for current and new members to
continue to improve the overall fitness experience. We are excited about the
possibility of refinancing our debt at lower borrowing costs while extending
our term and expanding on our ability to return value to shareholders.”


Third Quarter Ended September 30, 2013 Financial Results:
                                                          
Revenue (in thousands):
                                                                             
               Quarter Ended September 30,
               2013                        2012
               Revenue         %           Revenue       %           %
                                Revenue                   Revenue     Variance
Membership        $ 89,251      76.3  %     $ 90,661      75.8  %     (1.6)  %
dues
Joining           3,636       3.1   %      3,014       2.5   %     20.6   %
fees
Membership       92,887        79.4  %     93,675        78.3  %     (0.8)  %
revenue
Personal
training            16,402      14.0  %       15,623      13.1  %     5.0    %
revenue
Other
ancillary         6,350       5.4   %      8,067       6.7   %     (21.3) %
club
revenue
Ancillary
club              22,752        19.4  %     23,690        19.8  %     (4.0)  %
revenue
Fees and
other             1,403       1.2   %      2,247       1.9   %     (37.6) %
revenue
Total            $ 117,042     100.0 %     $ 119,612     100.0 %     (2.1)  %
revenue
                                                                             

Total revenue for Q3 2013 decreased $2.6 million, or 2.1% compared to Q3 2012,
which included a benefit from an acceleration of in-club advertising revenue
which added approximately $1.2 million to Q3 2012 revenue. Revenue at clubs
operated for over 12 months (“comparable club revenue”) decreased 1.7% in Q3
2013. Memberships at our comparable clubs were down 3.0% which was partially
offset by a 1.1% increase in the price of our dues and fees and a 0.2%
increase in the combined effect of ancillary club revenue, initiation fees and
other revenue.


Operating expenses:
                                    Quarter Ended September 30,  
                                     2013             2012
                                                                     Expense %
                                     Expense % of Revenue            Variance
Payroll and related                  37.1    %        36.5  %      (0.5)  %
Club operating                       38.7    %          38.7  %      (2.1)  %
General and administrative           6.2     %          4.7   %      28.4   %
Depreciation and amortization        10.7    %          10.2  %      3.3    %
Insurance recovery related to        (0.6)   %          -     %      N/A    %
damaged property
Impairment of fixed assets           0.4     %          0.2   %      83.7   %
        Operating expenses           92.5    %          90.3  %      0.3    %
                                                                            

Total operating expenses increased $320,000, or 0.3%, in Q3 2013 compared to
Q3 2012. Operating margin was 7.5% for Q3 2013 compared to 9.7% in Q3 2012,
primarily as a result of the increase in general and administrative expenses
and lower revenues. The total months of club operation was relatively flat in
Q3 2013 at 479 months compared to 480 months in Q3 2012. The increase in
operating expense was offset, in part, by the receipt of $694,000 of insurance
proceeds in Q3 2013 received primarily in connection with property damaged by
Hurricane Sandy and was impacted by the following factors:

Payroll and related. Payroll and related expenses in Q3 2013 was relatively
flat to Q3 2012.

Club operating. Club operating expenses decreased $970,000, or 2.1%, to $45.3
million in Q3 2013 compared to $46.3 million in Q3 2012, primarily due to
declines in electric utilities expense and repairs and maintenance expense.

General and administrative. The increase of $1.6 million in general and
administrative expenses in Q3 2013 was primarily due to increases in insurance
expense, due in part to favorable loss reserve adjustments in the prior year,
as well as increases in consulting and computer maintenance expenses related
to the implementation of a new club operating system.

Depreciation and amortization. The increase in depreciation and amortization
expense in Q3 2013 was primarily due to the increase in the fixed and
intangible asset base from club acquisitions completed earlier in the year.

Impairment of fixed assets. In Q3 2013, we recorded fixed asset impairment
charges of $439,000, representing the write-off of fixed assets of one
underperforming club. In Q3 2012, we recorded a fixed asset impairment charge
of $239,000 related to one underperforming club.

Net income for Q3 2013 was $2.6 million compared to net income of $3.2 million
for Q3 2012.

Cash flow from operating activities for the nine months ended September 30,
2013 totaled $50.5 million, an increase of $6.5 million from the corresponding
period in 2012. This increase was primarily driven by a decrease in cash paid
for interest of $2.9 million and cash flows resulting from the timing of
certain payments and collections made associated with our accounts payable,
accrued expenses, accounts receivable and deferred membership costs.

Fourth 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 fourth quarter of 2013 includes the following:

  *Revenue for Q4 2013 is expected to be between $115.0 million and $116.0
    million versus $114.2 million for Q4 2012. As percentages of revenue, we
    expect Q4 2013 payroll and related expenses to be approximately 37.0% and
    club operating expenses to approximate 39.0%. We expect general and
    administrative expenses to approximate $7.0 million, depreciation and
    amortization to approximate $12.5 million and net interest expense to
    approximate $5.5 million.
  *We expect net income for Q4 2013 to be between $2.0 million and $2.5
    million, and diluted earnings per share to be in the range of $0.08 per
    share to $0.10 per share, assuming a 39% effective tax rate and
    approximately 24.7 million weighted average fully diluted shares
    outstanding.
  *We estimate that EBITDA will approximate $21.5 million in Q4 2013.

As previously announced, the Company is seeking to refinance its existing
senior secured credit facility, and the outlook for the fourth quarter of 2013
above does not reflect any increases or decreases to fees and expenses
associated with such refinancing.

Investing Activities Outlook:For the year ending December 31, 2013, we
currently plan to invest $34.0 million to $37.0 million in capital
expenditures compared to $22.5 million of capital expenditures in 2012. This
amount includes approximately $10.0 million to $12.0 million related to
potential 2013 and 2014 club openings, inclusive of amounts for our recently
acquired Fitcorp chain in Boston and planned renovations at these clubs as
well as the separate single club acquired in Manhattan. The total capital
expenditures also includes approximately $17.0 million 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 $3.5 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
“Fourth 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 LitigationReform 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
ability of the Company to successfully renegotiate a refinancing of its
existing senior secured credit facility on acceptable terms, the actual
declaration, amount, timing and payment of any dividend, 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 162 fitness clubs as of
September 30, 2013, comprising 108 New York Sports Clubs, 29 Boston Sports
Clubs, 16 Washington Sports Clubs (two of which are partly-owned), six
Philadelphia Sports Clubs, and three clubs located in Switzerland. These clubs
collectively served approximately 507,000 members. For more information on
TSI, visit http://www.mysportsclubs.com.

The Company will hold a conference call on Wednesday, October 23, 2013 at 4:30
PM (Eastern) to discuss the third quarter results. Robert Giardina, Chief
Executive Officer, and Dan Gallagher, 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 Web site at
www.mysportsclubs.com. A replay and transcript of the call will be available
via the Company's Web site beginning October 24, 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 Alerts” section at http://www.mysportsclubs.com.


TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
                                                            
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2013 and December 31, 2012
(All figures in thousands)
(Unaudited)
                                                                  
                                              September 30,       December 31,
                                              2013                2012
                                                                  
ASSETS
Current assets:
Cash and cash equivalents                   $ 67,961            $ 37,758
Accounts receivable, net                      3,429               6,508
Inventory                                     417                 438
Deferred tax assets, net                      22,493              24,897
Prepaid corporate income taxes                226                 550
Prepaid expenses and other current assets    11,067            9,866     
Total current assets                          105,593             80,017
Fixed assets, net                             244,831             256,871
Goodwill                                      32,850              32,824
Intangible assets, net                        1,037               -
Deferred tax assets, net                      4,217               9,296
Deferred membership costs                     9,194               10,811
Other assets                                 11,150            14,091    
Total assets                                $ 408,872          $ 403,910   
                                                                  
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current portion of long-term debt           $ 40,500            $ 15,787
Accounts payable                              5,711               7,467
Accrued expenses                              26,460              27,053
Accrued interest                              87                  89
Dividends payable                             297                 305
Deferred revenue                             36,454            37,138    
Total current liabilities                     109,509             87,839
Long-term debt                                270,556             294,552
Dividends payable                             677                 799
Deferred lease liabilities                    58,455              61,732
Deferred revenue                              2,535               3,889
Other liabilities                            7,537             10,595    
Total liabilities                             449,269             459,406
Stockholders’ deficit:
Common stock                                  24                  24
Additional paid-in capital                    (14,631   )         (16,326   )
Accumulated other comprehensive income        1,582               1,226
Accumulated deficit                          (27,372   )        (40,420   )
Total stockholders’ deficit                  (40,397   )        (55,496   )
Total liabilities and stockholders’         $ 408,872          $ 403,910   
deficit
                                                                            


TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
                                                                   
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 2013 and 2012
(All figures in thousands except share and per share data)
(Unaudited)
                                                                              
                   Three Months Ended                    Nine Months Ended
                   September 30,                         September 30,
                   2013               2012               2013               2012
                                                                              
Revenues:
Club               $ 115,639          $ 117,365          $ 352,568          $ 359,903
operations
Fees and other      1,403            2,247            3,750            4,862      
                    117,042          119,612          356,318          364,765    
Operating
Expenses:
Payroll and          43,433             43,654             131,986            136,293
related
Club operating       45,300             46,270             133,616            136,012
General and          7,245              5,641              20,985             17,709
administrative
Depreciation
and                  12,549             12,148             37,108             37,427
amortization
Insurance
recovery
related to           (694       )       ―                  (3,194     )       ―
damaged
property
Impairment of       439              239              567              239        
fixed assets
                    108,272          107,952          321,068          327,680    
Operating            8,770              11,660             35,250             37,085
income
Loss on
extinguishment       ―                  1,010              ―                  1,010
of debt
Interest             5,523              6,542              16,308             18,027
expense
Interest             ―                  (25        )       (1         )       (43        )
income
Equity in the
earnings of         (594       )      (632       )      (1,843     )      (1,852     )
investees and
rental income
Income before
provision for        3,841              4,765              20,786             19,943
corporate
income taxes
Provision for
corporate           1,250            1,613            7,767            7,524      
income taxes
Net income         $ 2,591           $ 3,152           $ 13,019          $ 12,419     
                                                                              
Earnings per
share:
Basic              $ 0.11             $ 0.13             $ 0.54             $ 0.53
Diluted            $ 0.10             $ 0.13             $ 0.53             $ 0.52
Weighted
average number
of shares used
in calculating
earnings per
share:
Basic                24,101,239         23,581,631         24,007,310         23,331,877
Diluted              24,720,511         24,186,498         24,613,236         24,015,747
                                                                                         


TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2013 and 2012
(All figures in thousands)
(Unaudited)
                                             Nine Months Ended September 30,
                                               2013              2012
Cash flows from operating activities:
Net income                                     $  13,019           $ 12,419
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization                     37,108             37,427
Impairment of fixed assets                        567                239
Loss on extinguishment of debt                    -                  1,010
Insurance recovery related to damaged             (3,194   )         -
property
Amortization of debt discount                     717                311
Amortization of debt issuance costs               818                866
Non-cash rental expense, net of non-cash          (4,285   )         (2,950  )
rental income
Share-based compensation expense                  1,592              787
Decrease in deferred tax asset                    7,287              7,036
Net change in certain operating assets and        (4,604   )         (11,033 )
liabilities
Decrease (increase) in deferred membership        1,617              (1,173  )
costs
Landlord contributions to tenant                  934                1,320
improvements
Decrease in insurance reserves                    (1,036   )         (2,124  )
Other                                            (59      )        (187    )
Total adjustments                                37,462           31,529  
Net cash provided by operating activities        50,481           43,948  
Cash flows from investing activities:
Capital expenditures                              (20,658  )         (13,278 )
Acquisition of businesses                         (2,939   )         -
Insurance recovery related to damaged            3,194            -       
property
Net cash used in investing activities            (20,403  )        (13,278 )
Cash flows from financing activities:
Principal payments on 2011 Term Loan              -                  (36,007 )
Facility
Proceeds from replacement 2011 Term Loan          -                  13,796
Facility lenders
Principal payments to non-consenting 2011         -                  (13,796 )
Term Loan Facility lenders
Term loan repricing related financing             -                  (2,707  )
costs
Cash dividends paid                               (101     )         -
Proceeds from stock option exercises              403                2,279
Tax shortfall from stock option exercise         (220     )        -       
and restricted stock vesting
Net cash provided by (used in) financing          82                 (36,435 )
activities
Effect of exchange rate changes on cash          43               (7      )
Net increase (decrease) in cash and cash          30,203             (5,772  )
equivalents
Cash and cash equivalents beginning of         $  37,758          $ 47,880  
period
Cash and cash equivalents end of period        $  67,961          $ 42,108  
Summary of the change in certain operating
assets and liabilities:
Decrease (increase) in accounts receivable     $  3,130            $ (1,306  )
Decrease (increase) in inventory                  20                 (34     )
Increase in prepaid expenses and other            (1,742   )         (1,705  )
current assets
Decrease in accounts payable, accrued             (4,177   )         (7,152  )
expenses and accrued interest
Change in prepaid corporate income taxes          889                166
and corporate income taxes payable
Decrease in deferred revenue                     (2,724   )        (1,002  )
Net change in certain working capital          $  (4,604   )       $ (11,033 )
components
                                                                             


TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
                                                               
Reconciliation of Net Cash Provided by Operating Activities to EBITDA and
Adjusted EBITDA
For the Three Months Ended September 30, 2013 and 2012
(All figures in thousands)
(Unaudited)
                                                   Three Months Ended
                                                   September 30
                                                   2013             2012
Net cash provided by operating activities          $  5,934         $ 8,920
Interest expense, net of interest income              5,523           6,517
Provision for corporate income taxes                  1,250           1,613
Changes in operating assets and liabilities           9,742           8,738
Insurance recovery related to damaged                 694             -
property
Impairment of fixed assets                            (439    )       (239   )
Loss on extinguishment of debt                        -               (1,010 )
Amortization of debt discount                         (239    )       (119   )
Amortization of debt issuance costs                   (273    )       (291   )
Share-based compensation expense                      (469    )       (217   )
Landlord contributions to tenant                      (150    )       (325   )
improvements
Non-cash rental expense, net of non-cash              1,479           573
rental income
Decrease in insurance reserves                        378             792
Decrease in deferred tax asset                        (1,309  )       (2,121 )
(Decrease) increase in deferred membership            (492    )       146
costs
Other                                                284           453    
EBITDA                                             $  21,913       $ 23,430 
Insurance recovery related to damaged                 (694    )       -
property
Impairment of fixed assets                            439             239
Loss on extinguishment of debt                       -             1,010  
Adjusted EBITDA                                    $  21,658       $ 24,679 
                                                                      

Note: EBITDA consists of net income plus interest expense (net of interest
income), provision for corporate income taxes, and depreciation and
amortization. We define Adjusted EBITDA as EBITDA excluding loss on
extinguishment of debt, any fixed asset or goodwill impairments and insurance
recovery gains. For the quarter ended September 30, 2013, we recorded $694,000
of insurance recoveries related to damaged property and incurred a fixed asset
impairment charge of $439,000 related to the impairment of one underperforming
club. For the quarter ended September 30, 2012, we incurred $1.0 million of
loss on extinguishment of debt resulting from the debt repricing in August
2012 and a $15.0 million voluntary prepayment on our term loan facility and
$239,000 of fixed asset impairments related to the impairment of one
underperforming club.


TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
                                                               
Reconciliation of Estimated and Actual Net Cash Provided by Operating
Activities to EBITDA
For the Quarter Ending December 31, 2013 and the Quarter Ended December 31,
2012
(All figures in thousands)
(Unaudited)
                                                  Estimated
                                                  Q4 2013 ^(1)      Q4 2012
Net cash provided by operating activities         $   19,500        $ 16,105
Interest expense, net of interest income              5,500           6,613
Provision for corporate income taxes                  1,500           (1,203 )
Changes in operating assets and liabilities           (3,500  )       (2,169 )
Impairment of fixed assets                            -               (3,197 )
Amortization of debt discount                         (240    )       (206   )
Amortization of debt issuance costs                   (270    )       (269   )
Share-based compensation expense                      (475    )       (519   )
Landlord contribution to tenant                       (540    )       (25    )
improvements
Non-cash rental expense, net of non-cash              1,700           1,087
rental income
Increase in insurance reserves                        -               (53    )
(Decrease) increase in deferred tax asset             (1,500  )       1,171
Decrease in deferred member costs                     (200    )       (479   )
Other                                                25            65     
EBITDA                                            $   21,500        $ 16,921
Impairment of fixed assets                            -               3,197
Dividend related expenses ^ (2)                       -               577
Payroll bonus payment in connection with             -             2,496  
dividend ^(3)
Adjusted EBITDA                                   $   21,500       $ 23,191 
                                                                             

      As previously announced, the Company is seeking to refinance its
(1)  existing senior secured credit facility, and the estimate for Q4 2013
      presented above does not reflect the impact of such refinancing.
      
      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
(2)   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
(3)   option holders holding vested in-the-money options were paid a $3.00
      cash bonus equivalent on December 11, 2012 totaling approximately
      $2,496.
      

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, insurance recoveries 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 $12.5million
in the quarter ended September 30, 2013. 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 extension 1650
Investor.relations@town-sports.com
or
ICR, Inc.
Joseph Teklits / Farah Soi
203-682-8390
farah.soi@icrinc.com
 
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