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ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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Delaware
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20-0640002
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if smaller reporting company)
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Smaller reporting company
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ý
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Page
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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Item 1.
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Item 1A.
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Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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June 30, 2016
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December 31, 2015
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||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
58,929
|
|
|
$
|
76,217
|
|
Accounts receivable (less allowance for doubtful accounts of $2,518 and $3,133 as of June 30, 2016 and December 31, 2015, respectively)
|
1,370
|
|
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1,923
|
|
||
Inventory
|
244
|
|
|
337
|
|
||
Deferred tax assets
|
—
|
|
|
1,549
|
|
||
Prepaid corporate income taxes
|
—
|
|
|
6,895
|
|
||
Prepaid expenses and other current assets
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8,655
|
|
|
13,170
|
|
||
Total current assets
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69,198
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|
|
100,091
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|
||
Fixed assets, net
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182,196
|
|
|
195,341
|
|
||
Goodwill
|
1,053
|
|
|
1,025
|
|
||
Intangible assets, net
|
153
|
|
|
171
|
|
||
Deferred tax assets
|
—
|
|
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219
|
|
||
Deferred membership costs
|
1,850
|
|
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3,029
|
|
||
Other assets
|
2,694
|
|
|
3,225
|
|
||
Total assets
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$
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257,144
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|
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$
|
303,101
|
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
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|
||||
Current liabilities:
|
|
|
|
||||
Current portion of long-term debt
|
$
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2,082
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$
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2,810
|
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Accounts payable
|
2,761
|
|
|
2,615
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|
||
Accrued expenses
|
26,155
|
|
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26,129
|
|
||
Accrued interest
|
116
|
|
|
129
|
|
||
Deferred revenue
|
41,818
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|
|
40,225
|
|
||
Corporate income taxes payable
|
8,779
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|
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—
|
|
||
Deferred tax liabilities
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—
|
|
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236
|
|
||
Total current liabilities
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81,711
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72,144
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|
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Long-term debt
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195,153
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263,930
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Deferred lease liabilities
|
51,119
|
|
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51,136
|
|
||
Deferred tax liabilities
|
61
|
|
|
1,593
|
|
||
Deferred revenue
|
357
|
|
|
319
|
|
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Other liabilities
|
10,101
|
|
|
10,224
|
|
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Total liabilities
|
338,502
|
|
|
399,346
|
|
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Commitments and Contingencies (Note 12)
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|
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|
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Stockholders’ deficit:
|
|
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|
||||
Preferred stock, $0.001 par value; no shares issued and outstanding at both June 30, 2016 and December 31, 2015
|
|
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Common stock, $0.001 par value; issued and outstanding 25,749,047 and 24,818,786 shares at June 30, 2016 and December 31, 2015, respectively
|
24
|
|
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24
|
|
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Additional paid-in capital
|
(6,953
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)
|
|
(8,386
|
)
|
||
Accumulated other comprehensive loss
|
(928
|
)
|
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(523
|
)
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Accumulated deficit
|
(73,501
|
)
|
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(87,360
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)
|
||
Total stockholders’ deficit
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(81,358
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)
|
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(96,245
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)
|
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Total liabilities and stockholders’ deficit
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$
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257,144
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$
|
303,101
|
|
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Three Months Ended June 30,
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Six Months Ended June 30,
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||||||||||||
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2016
|
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2015
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2016
|
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2015
|
||||||||
Revenues:
|
|
|
|
|
|
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||||||||
Club operations
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$
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99,406
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$
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106,741
|
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$
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199,212
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$
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216,629
|
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Fees and other
|
1,529
|
|
|
1,555
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|
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3,068
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|
|
3,091
|
|
||||
|
100,935
|
|
|
108,296
|
|
|
202,280
|
|
|
219,720
|
|
||||
Operating Expenses:
|
|
|
|
|
|
|
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||||||||
Payroll and related
|
38,173
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|
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46,137
|
|
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77,559
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|
|
92,997
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|
||||
Club operating
|
46,783
|
|
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50,821
|
|
|
94,413
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|
|
102,106
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|
||||
General and administrative
|
6,544
|
|
|
8,039
|
|
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13,410
|
|
|
16,448
|
|
||||
Depreciation and amortization
|
10,897
|
|
|
12,178
|
|
|
22,082
|
|
|
23,852
|
|
||||
Impairment of fixed assets
|
—
|
|
|
1,014
|
|
|
—
|
|
|
2,151
|
|
||||
Impairment of goodwill
|
—
|
|
|
31,558
|
|
|
—
|
|
|
31,558
|
|
||||
|
102,397
|
|
|
149,747
|
|
|
207,464
|
|
|
269,112
|
|
||||
Operating loss
|
(1,462
|
)
|
|
(41,451
|
)
|
|
(5,184
|
)
|
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(49,392
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)
|
||||
Gain on extinguishment of debt
|
(38,497
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)
|
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—
|
|
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(38,497
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)
|
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—
|
|
||||
Interest expense
|
3,492
|
|
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5,188
|
|
|
7,569
|
|
|
10,358
|
|
||||
Equity in the earnings of investees and rental income
|
(89
|
)
|
|
(579
|
)
|
|
(146
|
)
|
|
(1,190
|
)
|
||||
Income (loss) before provision (benefit) for corporate income taxes
|
33,632
|
|
|
(46,060
|
)
|
|
25,890
|
|
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(58,560
|
)
|
||||
Provision (benefit) for corporate income taxes
|
12,899
|
|
|
(14,992
|
)
|
|
12,082
|
|
|
(14,728
|
)
|
||||
Net income (loss)
|
$
|
20,733
|
|
|
$
|
(31,068
|
)
|
|
$
|
13,808
|
|
|
$
|
(43,832
|
)
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
0.81
|
|
|
$
|
(1.26
|
)
|
|
$
|
0.54
|
|
|
$
|
(1.79
|
)
|
Diluted
|
$
|
0.79
|
|
|
$
|
(1.26
|
)
|
|
$
|
0.54
|
|
|
$
|
(1.79
|
)
|
Weighted average number of shares used in calculating earnings (loss) per share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
25,638,070
|
|
|
24,590,759
|
|
|
25,355,393
|
|
|
24,503,624
|
|
||||
Diluted
|
26,165,827
|
|
|
24,590,759
|
|
|
25,735,612
|
|
|
24,503,624
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Statements of Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
||||||||
Net income (loss)
|
$
|
20,733
|
|
|
$
|
(31,068
|
)
|
|
$
|
13,808
|
|
|
$
|
(43,832
|
)
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustments, net of tax of $0 for each of the three and six months ended June 30, 2016 and 2015
|
(135
|
)
|
|
138
|
|
|
31
|
|
|
194
|
|
||||
Interest rate swap, net of tax of $0 for each of the three and six months ended June 30, 2016 and 2015
|
48
|
|
|
158
|
|
|
(436
|
)
|
|
(716
|
)
|
||||
Total other comprehensive (loss) income, net of tax
|
(87
|
)
|
|
296
|
|
|
(405
|
)
|
|
(522
|
)
|
||||
Total comprehensive income (loss)
|
$
|
20,646
|
|
|
$
|
(30,772
|
)
|
|
$
|
13,403
|
|
|
$
|
(44,354
|
)
|
|
Six Months Ended June 30,
|
||||||
|
2016
|
|
2015
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income (loss)
|
$
|
13,808
|
|
|
$
|
(43,832
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
22,082
|
|
|
23,852
|
|
||
Impairment of fixed assets
|
—
|
|
|
2,151
|
|
||
Impairment of goodwill
|
—
|
|
|
31,558
|
|
||
Gain on extinguishment of debt
|
(38,497
|
)
|
|
—
|
|
||
Amortization of debt discount
|
549
|
|
|
645
|
|
||
Amortization of debt issuance costs
|
342
|
|
|
393
|
|
||
Amortization of building financing costs
|
—
|
|
|
63
|
|
||
Non-cash rental income, net of non-cash rental expense
|
(2,336
|
)
|
|
(1,659
|
)
|
||
Share-based compensation expense
|
1,115
|
|
|
973
|
|
||
Net change in deferred taxes
|
—
|
|
|
(11,513
|
)
|
||
Net change in certain operating assets and liabilities
|
22,600
|
|
|
20,337
|
|
||
Decrease in deferred membership costs
|
1,179
|
|
|
589
|
|
||
Landlord contributions to tenant improvements
|
2,080
|
|
|
296
|
|
||
Increase in insurance reserves
|
779
|
|
|
115
|
|
||
Other
|
(138
|
)
|
|
340
|
|
||
Total adjustments
|
9,755
|
|
|
68,140
|
|
||
Net cash provided by operating activities
|
23,563
|
|
|
24,308
|
|
||
Cash flows from investing activities:
|
|
|
|
||||
Capital expenditures
|
(9,952
|
)
|
|
(16,793
|
)
|
||
Change in restricted cash
|
—
|
|
|
(1,100
|
)
|
||
Net cash used in investing activities
|
(9,952
|
)
|
|
(17,893
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Proceeds from building financing arrangement
|
—
|
|
|
500
|
|
||
Principal payments on 2013 Term Loan Facility
|
(1,224
|
)
|
|
(1,557
|
)
|
||
Repurchase of 2013 Term Loan Facility
|
(29,765
|
)
|
|
—
|
|
||
Debt issuance costs
|
—
|
|
|
(350
|
)
|
||
Cash dividends paid
|
(17
|
)
|
|
(82
|
)
|
||
Redemption paid pursuant to the Rights Plan
|
—
|
|
|
(246
|
)
|
||
Proceeds from stock option exercises
|
318
|
|
|
40
|
|
||
Net cash used in financing activities
|
(30,688
|
)
|
|
(1,695
|
)
|
||
Effect of exchange rate changes on cash
|
(211
|
)
|
|
187
|
|
||
Net (decrease) increase in cash and cash equivalents
|
(17,288
|
)
|
|
4,907
|
|
||
Cash and cash equivalents beginning of period
|
76,217
|
|
|
93,452
|
|
||
Cash and cash equivalents end of period
|
$
|
58,929
|
|
|
$
|
98,359
|
|
Summary of the change in certain operating assets and liabilities:
|
|
|
|
||||
Decrease in accounts receivable
|
$
|
657
|
|
|
$
|
125
|
|
Decrease in inventory
|
93
|
|
|
254
|
|
||
Decrease in prepaid expenses and other current assets
|
4,836
|
|
|
2,662
|
|
||
(Decrease) increase in accounts payable, accrued expenses and accrued interest
|
(332
|
)
|
|
9,726
|
|
||
Change in prepaid corporate income taxes and corporate income taxes payable
|
15,715
|
|
|
(3,341
|
)
|
||
Increase in deferred revenue
|
1,631
|
|
|
10,911
|
|
||
Net change in certain working capital components
|
$
|
22,600
|
|
|
$
|
20,337
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
||||
Cash payments for interest, net of capitalized interest
|
$
|
6,693
|
|
|
$
|
8,565
|
|
Cash payments for income taxes
|
$
|
52
|
|
|
$
|
64
|
|
|
June 30, 2016
|
|
December 31, 2015
|
||||
2013 Term Loan Facility outstanding principal balance
|
$
|
203,042
|
|
|
$
|
275,417
|
|
Less: Unamortized discount
|
(4,308
|
)
|
|
(6,418
|
)
|
||
Less: Deferred financing costs
|
(1,499
|
)
|
|
(2,259
|
)
|
||
Less: Current portion due within one year
|
(2,082
|
)
|
|
(2,810
|
)
|
||
Long-term portion
|
$
|
195,153
|
|
|
$
|
263,930
|
|
•
|
Level 1—Quoted prices for
identical
instruments in active markets.
|
•
|
Level 2—Quoted prices for
similar
instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
|
•
|
Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable
.
|
|
|
|
Fair Value Measurements Using:
|
||||||||||||
|
Total
Fair Value |
|
Quoted Prices in
Active Markets for Identical Assets (Level 1) |
|
Significant Other
Observable Inputs (Level 2) |
|
Significant
Unobservable Inputs (Level 3) |
||||||||
Interest rate swap liability as of June 30, 2016
|
$
|
2,478
|
|
|
$
|
—
|
|
|
$
|
2,478
|
|
|
$
|
—
|
|
Interest rate swap liability as of December 31, 2015
|
$
|
2,042
|
|
|
$
|
—
|
|
|
$
|
2,042
|
|
|
$
|
—
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Weighted average number of common shares outstanding — basic
|
25,638,070
|
|
|
24,590,759
|
|
|
25,355,393
|
|
|
24,503,624
|
|
||||
Effect of dilutive share based awards
|
527,757
|
|
|
—
|
|
|
380,219
|
|
|
—
|
|
||||
Weighted average number of common shares outstanding — diluted
|
26,165,827
|
|
|
24,590,759
|
|
|
25,735,612
|
|
|
24,503,624
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Earnings (loss) per share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
0.81
|
|
|
$
|
(1.26
|
)
|
|
$
|
0.54
|
|
|
$
|
(1.79
|
)
|
Diluted
|
$
|
0.79
|
|
|
$
|
(1.26
|
)
|
|
$
|
0.54
|
|
|
$
|
(1.79
|
)
|
|
NYSC
|
|
BSC
|
|
SSC
|
|
Outlier
Clubs |
|
Total
|
||||||||||
Goodwill
|
$
|
31,549
|
|
|
$
|
15,775
|
|
|
$
|
1,175
|
|
|
$
|
3,982
|
|
|
$
|
52,481
|
|
Changes due to foreign currency exchange rate fluctuations
|
—
|
|
|
—
|
|
|
(150
|
)
|
|
—
|
|
|
(150
|
)
|
|||||
Less: accumulated impairment of goodwill
|
(31,549
|
)
|
|
(15,775
|
)
|
|
—
|
|
|
(3,982
|
)
|
|
(51,306
|
)
|
|||||
Balance as of December 31, 2015
|
—
|
|
|
—
|
|
|
1,025
|
|
|
—
|
|
|
1,025
|
|
|||||
Changes due to foreign currency exchange rate fluctuations
|
—
|
|
|
—
|
|
|
28
|
|
|
—
|
|
|
28
|
|
|||||
Balance as of June 30, 2016
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,053
|
|
|
$
|
—
|
|
|
$
|
1,053
|
|
|
As of June 30, 2016
|
||||||||||
|
Gross Carrying
Amount |
|
Accumulated
Amortization |
|
Net Intangible
Assets |
||||||
Membership lists
|
11,344
|
|
|
(11,344
|
)
|
|
—
|
|
|||
Management contracts
|
250
|
|
|
(129
|
)
|
|
121
|
|
|||
Trade names
|
40
|
|
|
(8
|
)
|
|
32
|
|
|||
|
$
|
11,634
|
|
|
$
|
(11,481
|
)
|
|
$
|
153
|
|
|
As of December 31, 2015
|
||||||||||
|
Gross Carrying Amount
|
|
Accumulated
Amortization |
|
Net Intangible
Assets |
||||||
Membership lists
|
$
|
11,344
|
|
|
$
|
(11,344
|
)
|
|
$
|
—
|
|
Management contracts
|
250
|
|
|
(112
|
)
|
|
138
|
|
|||
Trade names
|
40
|
|
|
(7
|
)
|
|
33
|
|
|||
|
$
|
11,634
|
|
|
$
|
(11,463
|
)
|
|
$
|
171
|
|
•
|
Membership revenue:
Our largest sources of revenue are dues inclusive of monthly membership fees, annual maintenance fees, initiation and processing fees paid by our members. In addition, we collect usage fees on a per visit basis for non-passport members using non-home clubs. These dues and fees comprised
75.9%
of our total revenue for the
six months ended June 30, 2016
. We recognize revenue from membership dues in the month when the services are rendered. We recognize revenue from initiation and processing fees over the estimated average membership life and annual fees over a twelve month period.
|
•
|
Ancillary club revenue:
For the
six months ended June 30, 2016
, we generated
17.6%
of our revenue from personal training and
5.0%
of our revenue from other ancillary programs and services consisting of Sports Clubs for Kids, racquet sports, Small Group Training and studio classes, as well as sales of miscellaneous sports products. We continue to grow ancillary club revenue by building on ancillary programs such as our personal training membership product and our fee-based Small Group Training programs.
|
|
|
2015
|
|
2016
|
|||||||||||||||||
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Full Year
|
|
Q1
|
|
Q2
|
||||||||
Wholly owned clubs operated at beginning of period
|
|
156
|
|
|
156
|
|
|
152
|
|
|
151
|
|
|
156
|
|
|
151
|
|
|
150
|
|
New clubs opened
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Clubs closed
|
|
(1
|
)
|
|
(4
|
)
|
|
(1
|
)
|
|
—
|
|
|
(6
|
)
|
|
(1
|
)
|
|
(2
|
)
|
Wholly owned clubs operated at end of period
|
|
156
|
|
|
152
|
|
|
151
|
|
|
151
|
|
|
151
|
|
|
150
|
|
|
148
|
|
Partly-owned clubs operated at end of period(1)
|
|
2
|
|
|
2
|
|
|
2
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Total clubs operated at end of period (1)(2)(3)
|
|
158
|
|
|
154
|
|
|
153
|
|
|
152
|
|
|
152
|
|
|
151
|
|
|
149
|
|
(1)
|
Excludes one partly-owned club that operates under a different brand name in our Washington, D.C. region.
|
(2)
|
Excludes locations that are managed by us in which we do not have an equity interest. These managed sites include
three
fitness clubs located in colleges and universities and
eight
managed sites.
|
(3)
|
Excludes
two
BFX Studio locations.
|
|
2015
|
|
2016
|
||||||||||||||
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Q1
|
|
Q2
|
|||||||
Comparable club revenue
|
(3.5
|
)%
|
|
(5.4
|
)%
|
|
(7.1
|
)%
|
|
(6.7
|
)%
|
|
(7.6
|
)%
|
|
(4.5
|
)%
|
|
Three Months Ended June 30,
|
|
|
|||||||||||||
|
2016
|
|
2015
|
|
|
|||||||||||
|
Revenue
|
|
% Revenue
|
|
Revenue
|
|
% Revenue
|
|
% Variance
|
|||||||
Membership dues
|
$
|
74,932
|
|
|
74.3
|
%
|
|
$
|
77,912
|
|
|
71.9
|
%
|
|
(3.8
|
)%
|
Initiation and processing fees
|
2,030
|
|
|
2.0
|
|
|
3,883
|
|
|
3.6
|
|
|
(47.7
|
)
|
||
Membership revenue
|
76,962
|
|
|
76.3
|
|
|
81,795
|
|
|
75.5
|
|
|
(5.9
|
)
|
||
Personal training revenue
|
17,694
|
|
|
17.5
|
|
|
19,338
|
|
|
17.9
|
|
|
(8.5
|
)
|
||
Other ancillary club revenue (1)
|
4,750
|
|
|
4.7
|
|
|
5,608
|
|
|
5.2
|
|
|
(15.3
|
)
|
||
Ancillary club revenue
|
22,444
|
|
|
22.2
|
|
|
24,946
|
|
|
23.1
|
|
|
(10.0
|
)
|
||
Fees and other revenue (2)
|
1,529
|
|
|
1.5
|
|
|
1,555
|
|
|
1.4
|
|
|
(1.7
|
)
|
||
Total revenue
|
$
|
100,935
|
|
|
100.0
|
%
|
|
$
|
108,296
|
|
|
100.0
|
%
|
|
(6.8
|
)%
|
(1)
|
Other ancillary club revenue primarily consists of Sports Clubs for Kids, racquet sports, Small Group Training and studio classes, as well as sales of miscellaneous sports products.
|
(2)
|
Fees and other revenue primarily consist of rental income, marketing revenue and management fees.
|
|
Three Months Ended June 30,
|
|
|
|||||||
|
2016
|
|
2015
|
|
% Variance
|
|||||
Payroll and related
|
$
|
38,173
|
|
|
$
|
46,137
|
|
|
(17.3
|
)%
|
Club operating
|
46,783
|
|
|
50,821
|
|
|
(7.9
|
)
|
||
General and administrative
|
6,544
|
|
|
8,039
|
|
|
(18.6
|
)
|
||
Depreciation and amortization
|
10,897
|
|
|
12,178
|
|
|
(10.5
|
)
|
||
Impairment of fixed assets
|
—
|
|
|
1,014
|
|
|
(100.0
|
)
|
||
Impairment of goodwill
|
—
|
|
|
31,558
|
|
|
(100.0
|
)
|
||
Total operating expenses
|
$
|
102,397
|
|
|
$
|
149,747
|
|
|
(31.6
|
)%
|
•
|
Marketing expenses decreased $1.6 million mainly due to the increased advertising spend in the
three months ended June 30, 2015
associated with the roll-out of the lower pricing model.
|
•
|
Repair and maintenance expenses decreased $1.0 million primarily reflecting a decrease in vendor costs as well as other cost-savings initiatives. The decline also reflected club closures in 2015 and the first half of 2016.
|
•
|
Utilities expenses decreased $666,000 primarily reflecting lower electric rates, lower energy prices due to the mild weather experienced in our markets during the second quarter of 2016, as well as club closures in 2015 and the first half of 2016.
|
•
|
Rent and occupancy expenses decreased $425,000 in the
three months ended June 30, 2016
compared to the same prior year period. Penalties paid for early lease terminations decreased $692,000 and we realized savings of $931,000 related to closed clubs. Offsetting these decreases was an increase of $936,000 at mature clubs primarily due to rent escalations and an increase of $262,000 related to newly opened and future locations.
|
|
Six Months Ended June 30,
|
|
|
|||||||||||||
|
2016
|
|
2015
|
|
|
|||||||||||
|
Revenue
|
|
% Revenue
|
|
Revenue
|
|
% Revenue
|
|
% Variance
|
|||||||
Membership dues
|
$
|
149,440
|
|
|
73.9
|
%
|
|
$
|
160,379
|
|
|
73.0
|
%
|
|
(6.8
|
)%
|
Initiation and processing fees
|
4,071
|
|
|
2.0
|
|
|
7,277
|
|
|
3.3
|
|
|
(44.1
|
)
|
||
Membership revenue
|
153,511
|
|
|
75.9
|
|
|
167,656
|
|
|
76.3
|
|
|
(8.4
|
)
|
||
Personal training revenue
|
35,598
|
|
|
17.6
|
|
|
37,659
|
|
|
17.1
|
|
|
(5.5
|
)
|
||
Other ancillary club revenue (1)
|
10,103
|
|
|
5.0
|
|
|
11,314
|
|
|
5.2
|
|
|
(10.7
|
)
|
||
Ancillary club revenue
|
45,701
|
|
|
22.6
|
|
|
48,973
|
|
|
22.3
|
|
|
(6.7
|
)
|
||
Fees and other revenue (2)
|
3,068
|
|
|
1.5
|
|
|
3,091
|
|
|
1.4
|
|
|
(0.7
|
)
|
||
Total revenue
|
$
|
202,280
|
|
|
100.0
|
%
|
|
$
|
219,720
|
|
|
100.0
|
%
|
|
(7.9
|
)%
|
(1)
|
Other ancillary club revenue primarily consists of Sports Clubs for Kids, racquet sports, Small Group Training and studio classes, as well as sales of miscellaneous sports products.
|
(2)
|
Fees and other revenue primarily consist of rental income, marketing revenue and management fees.
|
|
Six Months Ended June 30,
|
|
|
|||||||
|
2016
|
|
2015
|
|
% Variance
|
|||||
Payroll and related
|
$
|
77,559
|
|
|
$
|
92,997
|
|
|
(16.6
|
)%
|
Club operating
|
94,413
|
|
|
102,106
|
|
|
(7.5
|
)
|
||
General and administrative
|
13,410
|
|
|
16,448
|
|
|
(18.5
|
)
|
||
Depreciation and amortization
|
22,082
|
|
|
23,852
|
|
|
(7.4
|
)
|
||
Impairment of fixed assets
|
—
|
|
|
2,151
|
|
|
(100.0
|
)
|
||
Impairment of goodwill
|
—
|
|
|
31,558
|
|
|
(100.0
|
)
|
||
Total operating expenses
|
$
|
207,464
|
|
|
$
|
269,112
|
|
|
(22.9
|
)%
|
•
|
Marketing expenses decreased $3.5 million mainly due to the increased advertising spend in the
six months ended June 30, 2015
associated with the roll-out of the lower pricing model.
|
•
|
Repair and maintenance expenses decreased $2.0 million primarily reflecting a decrease in vendor costs as well as other cost-savings initiatives. The decline also reflected club closures in 2015 and the first half of 2016.
|
•
|
Utilities expenses decreased $1.3 million primarily reflecting lower electric rates, lower energy prices due to the mild weather experienced in our markets during the first half of 2016, as well as club closures in 2015 and the first half of 2016.
|
•
|
Rent and occupancy expenses decreased $187,000 in the
six months ended June 30, 2016
compared to the same prior year period. Penalties paid for early lease terminations decreased $746,000 and we realized savings of $1.6 million related to closed clubs. Offsetting these decreases was an increase of $1.7 million at mature clubs primarily due to rent escalations and an increase of $476,000 related to newly opened and future clubs.
|
•
|
Cash collected for membership dues decreased $16.9 million.
|
•
|
Cash collected for member enrollment, including the initial annual fee paid upon joining, decreased $7.9 million related to the decrease in memberships sold, and recurring annual and rate lock fees collected decreased $865,000.
|
•
|
Cash collected for personal training memberships decreased $2.3 million.
|
•
|
These decreases were partially offset by a decrease in payments for payroll of $6.2 million, marketing of $3.7 million, utilities of $2.3 million, insurance of $1.7 million, repair and maintenance of $1.6 million, as well as other cost-savings initiatives.
|
•
|
The cash decrease was also partially offset by a decline in cash paid for interest of $1.9 million.
|
•
|
In the
six months ended June 30, 2016
, we received an income tax refund of $3.7 million and cash contribution from landlord of $1.8 million.
|
•
|
making it more difficult to satisfy our obligations, including with respect to our outstanding indebtedness;
|
•
|
increasing our vulnerability to general adverse economic and industry conditions;
|
•
|
limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions of new clubs and other general corporate requirements;
|
•
|
requiring a substantial portion of our cash flow from operations for the payment of interest on our debt, which is variable on our 2013 Revolving Loan Facility and partially variable on our 2013 Term Loan Facility, and/or principal pursuant to excess cash flow requirements and reducing our ability to use our cash flow to fund working capital, capital expenditures and acquisitions of new clubs and general corporate requirements;
|
•
|
increasing our vulnerability to interest rate fluctuations in connection with borrowings under our 2013 Senior Credit Facility, some of which are at variable interest rates;
|
•
|
limiting our ability to refinance our existing indebtedness on favorable terms, or at all; and
|
•
|
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.
|
|
Payments Due by Period (in thousands)
|
||||||||||||||||||
|
|
|
Less than
|
|
|
|
|
|
More than
|
||||||||||
Contractual Obligations (4)(5)
|
Total
|
|
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
5 Years
|
||||||||||
Long-term debt (1)
|
$
|
203,042
|
|
|
$
|
2,082
|
|
|
$
|
4,165
|
|
|
$
|
196,795
|
|
|
$
|
—
|
|
Interest payments on long-term debt (2)
|
42,374
|
|
|
10,656
|
|
|
19,419
|
|
|
12,299
|
|
|
—
|
|
|||||
Operating lease obligations (3)
|
602,033
|
|
|
90,283
|
|
|
166,451
|
|
|
138,832
|
|
|
206,467
|
|
|||||
Total contractual obligations
|
$
|
847,449
|
|
|
$
|
103,021
|
|
|
$
|
190,035
|
|
|
$
|
347,926
|
|
|
$
|
206,467
|
|
(1)
|
Principal amounts paid each year may increase if annual excess cash flow amounts are required (as described above). Excess cash flow was calculated as of
December 31, 2015
and no payments are currently required in
2016
or any future period.
|
(2)
|
Based on interest rates pursuant to the 2013 Term Loan Facility and the interest swap agreement as of
June 30, 2016
.
|
(3)
|
Operating lease obligations include base rent only. Certain leases provide for additional rent based on real estate taxes, common area maintenance and defined amounts based on our operating results.
|
(4)
|
The table above does not reflect payments related to planned club closures.
|
(5)
|
The table above does not reflect potential commitments in connection with our agreement with Cyc Fitness Partners, LLC. Refer to Note
13
- Other Commitments to our condensed consolidated financial statements.
|
|
|
|
|
TOWN SPORTS INTERNATIONAL
HOLDINGS, INC.
|
|
|
|
|
|
DATE:
|
July 28, 2016
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Carolyn Spatafora
|
|
|
|
|
Carolyn Spatafora
|
|
|
|
|
Chief Financial Officer
|
Exhibit
No.
|
|
Description of Exhibit
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of Town Sports International Holdings, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006).
|
|
|
|
3.2
|
|
Third Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K, filed on September 17, 2014).
|
|
|
|
10.1
|
|
Amendment No. 1 to the Town Sports International Holdings, Inc. 2006 Stock Incentive Plan (as amended and restated effective April 2, 2015) (incorporated herein by reference to Appendix A of the Company’s definitive Proxy Statement on Schedule 14A filed on March 29, 2016).
|
|
|
|
10.2
|
|
Form of Executive Officer Indemnification Agreement (Filed herewith).
|
|
|
|
31.1
|
|
Certification of Executive Chairman pursuant to Rule 13a – 14(a) and Rule 15d – 14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a – 14(a) and Rule 15d – 14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification of Executive Chairman pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
TOWN SPORTS INTERNATIONAL
|
|
HOLDINGS, INC.:
|
|
|
|
|
|
|
|
|
|
By:
|
|
Name:
|
|
Title:
|
|
|
|
INDEMNITEE:
|
|
|
|
|
|
|
|
Name:
|
|
Title:
|
|
|
|
Name:
|
|
Title:
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended
June 30, 2016
of Town Sports International Holdings, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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By:
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/s/ Patrick Walsh
|
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Patrick Walsh
|
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Executive Chairman
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1.
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I have reviewed this Quarterly Report on Form 10-Q for the quarter ended
June 30, 2016
of Town Sports International Holdings, Inc.;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
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By:
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/s/ Carolyn Spatafora
|
|
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Carolyn Spatafora
|
|
|
Chief Financial Officer
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(1)
|
The Quarterly Report on Form 10-Q of Town Sports International Holdings, Inc. (the “Company”) for the quarterly period ended
June 30, 2016
(the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m); and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
/s/ Patrick Walsh
|
Patrick Walsh
|
Town Sports International Holdings, Inc.
|
Executive Chairman
|
(1)
|
The Quarterly Report on Form 10-Q of Town Sports International Holdings, Inc. (the “Company”) for the quarterly period ended
June 30, 2016
(the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m); and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
/s/ Carolyn Spatafora
|
Carolyn Spatafora
|
Town Sports International Holdings, Inc.
|
Chief Financial Officer
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