Attached files
file | filename |
---|---|
8-K - FORM 8-K - TOWN SPORTS INTERNATIONAL HOLDINGS INC | y90968e8vk.htm |
Exhibit 99.1
For Release on April 26, 2011
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. ANNOUNCES FIRST QUARTER 2011
FINANCIAL RESULTS
FINANCIAL RESULTS
New York, NY April 26, 2011 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 first quarter ended March 31, 2011.
First Quarter Overview:
| Revenue decreased 0.9% in Q1 2011 compared to Q1 2010. | |
| Comparable club revenue decreased 0.5% in Q1 2011 compared to Q1 2010. | |
| Total member count increased 17,000 to 510,000 in Q1 2011 compared to a 9,000 increase to 495,000 in Q1 2010. | |
| Membership attrition averaged 3.2% per month in Q1 2011 compared to 3.5% per month in Q1 2010. | |
| Earnings per share were $0.07 in Q1 2011 compared to loss per share of ($0.03) in Q1 2010. Q1 2010 results included fixed asset impairment and severance charges, net of taxes, of ($0.02) per share. | |
| EBITDA was $20.6 million in Q1 2011, an increase of $3.2 million, or 18.4% when compared to Adjusted EBITDA of $17.4 million in Q1 2010. |
Robert Giardina, Chief Executive Officer of TSI, commented: We were pleased to see our business
continue to gain momentum in the first quarter and exceed our expectations. We added 17,000 net
new members in the quarter, which is our biggest increase since the first quarter of 2008. We
believe that the initiatives we have put in place over the past year to drive more member signups,
continue to reduce attrition, and streamline the sales process to make it more productive and also
more profitable, are now being reflected solidly in our results. We expect that these and other
initiatives, combined with an improving economy, will continue to benefit our bottom line.
Quarter Ended March 31, 2011 Financial Results:
Revenue (in thousands):
Quarter Ended March 31, | ||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||
Revenue | % Revenue | Revenue | % Revenue | % Variance | ||||||||||||||||
Membership dues |
$ | 90,599 | 77.6 | % | $ | 92,809 | 78.8 | % | (2.4 | )% | ||||||||||
Joining fees |
1,447 | 1.3 | % | 2,024 | 1.7 | % | (28.5 | )% | ||||||||||||
Membership revenue |
92,046 | 78.9 | % | 94,833 | 80.5 | % | (2.9 | )% | ||||||||||||
Personal training revenue |
15,692 | 13.4 | % | 14,799 | 12.6 | % | 6.0 | % | ||||||||||||
Other ancillary club revenue |
7,854 | 6.7 | % | 6,963 | 5.9 | % | 12.8 | % | ||||||||||||
Ancillary club revenue |
23,546 | 20.1 | % | 21,762 | 18.5 | % | 8.2 | % | ||||||||||||
Fees and other revenue |
1,113 | 1.0 | % | 1,164 | 1.0 | % | (4.4 | )% | ||||||||||||
Total revenue |
$ | 116,705 | 100.0 | % | $ | 117,759 | 100.0 | % | (0.9 | )% | ||||||||||
Total revenue for Q1 2011 decreased $1.1 million, or 0.9%, compared to Q1 2010. This decrease in
revenue was driven primarily by the decline in membership dues, reflecting price decreases. The
price decline is, in large part, due to the introduction of restricted memberships; including the
new student membership in April 2010, as well as the effect of promotions.
Revenue at clubs operated for over 12 months (comparable club revenue) decreased 0.5% in Q1 2011
compared to Q1 2010.
Operating expenses:
Quarter Ended March 31, | ||||||||||||
2011 | 2010 | Expense % | ||||||||||
Expense % of Revenue | Variance | |||||||||||
Payroll and related |
38.8 | % | 41.2 | % | (6.7) | % | ||||||
Club operating |
37.8 | % | 36.9 | % | 1.5 | % | ||||||
General and administrative |
6.4 | % | 7.6 | % | (17.0) | % | ||||||
Depreciation and amortization |
11.1 | % | 11.6 | % | (4.8) | % | ||||||
Impairment of fixed assets |
| % | 0.3 | % | (100.0) | % | ||||||
Operating expenses |
94.1 | % | 97.6 | % | (4.5) | % | ||||||
Total operating expenses decreased $5.2 million, or 4.5%, for Q1 2011 compared to Q1 2010.
Operating margin was 5.9% for Q1 2011 compared to 2.4% for Q1 2010.
Payroll and related. The decreases in payroll and related expenses in Q1 2011 compared to Q1
2010 were principally driven by payroll related to membership consultants. The amount of
membership consultant payroll deferred over the past two years has been declining with our decline
in joining fees collected. Our payroll costs that we defer are limited to the amount of these
fees. Additionally, payroll related to club staffing, excluding membership consultants, decreased
as we realized efficiencies from programs put in place in the second half of 2010.
Club operating. In Q1 2011, occupancy expenses increased, which was partially offset by
decreases related to marketing costs due to our efforts in 2010 to spend more productively in this
area and adjusting our focus toward media advertising.
General and administrative. Decreases in Q1 2011 general and administrative expenses compared
to Q1 2010 were principally attributable to decreases in legal costs and continued decreases in
general liability insurance expense due to a further reduction in claims activity and therefore a
reduction in claims reserves.
Depreciation and amortization. Depreciation and amortization decreased in Q1 2011 due to the
closing of two clubs subsequent to March 31, 2010 and the effect of previous fixed asset impairment
charges, decreasing the balance of fixed assets to be depreciated.
Impairment of fixed assets. In Q1 2010, we recorded fixed asset impairment charges of
$389,000, representing the write-off of fixed assets of two underperforming clubs. There were no
fixed asset impairment charges in Q1 2011.
Net income for Q1 2011 was $1.5 million compared to net loss of $732,000 for Q1 2010.
Cash flow from operating activities for Q1 2011 totaled $25.4 million, an increase of $7.8 million
from the Q1 2010, which was partially related to the increase in overall earnings. Also in Q1 2011,
due to the timing of payments, prepaid rent decreased $5.0 million, while in Q1 2010 there was no
cash flow effect from prepaid rent. The effect of the change in deferred revenue and deferred
membership costs increased cash by $1.5 million in the aggregate. In addition, income tax refunds,
net of cash paid for income taxes increased $1.4 million in Q1 2011, compared to Q1 2010.
Second Quarter 2011 Business 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 second quarter of 2011 includes the following:
| Revenue for Q2 2011 is expected to be between $117.0 million and $118.0 million versus $117.4 million for Q2 2010. | ||
| In Q2 2011, as a percentage of revenue, payroll and related expenses and club operating expenses are expected to be approximately 50 basis points below Q1 2011 levels. General and administrative expenses and depreciation and amortization expenses are expected to be similar to Q1 2011 amounts in total dollars. |
| EBITDA is expected to be $21.3 million in Q2 2011. | ||
| We expect net income for Q2 2011 of between $2.0 million and $2.5 million, and earnings per share to be in the range of $0.09 per share to $0.11 per share, assuming a 26% effective tax rate and 23.2 million weighted average fully diluted shares outstanding. See Refinancing Activities below for the estimated effects of a refinancing on our Q2 2011 net income. |
Investing Activities Outlook:
For the year ending December 31, 2011, we currently plan to invest $29.0 million to $32.0 million
in capital expenditure, which represents an increase from $22.0 million of capital expenditures in
2010. This amount includes approximately $7.5 million to $8.5 million related to the two planned
club openings in the second half of 2011, approximately $15.5 million for the upgrade of existing
clubs and $4.3 million principally related to major renovations at clubs with recent lease renewals
and upgrading our in-club entertainment system network. We also expect to invest $2.0 million to
$3.0 million to enhance our management information and communication systems.
Refinancing Activities:
On April 7, 2011, we commenced soliciting lenders to participate in a new $350.0 million senior
secured credit facility consisting of a term loan facility and a revolving credit facility using
commercially reasonable efforts. We expect the facility to be arranged by Deutsche Bank Securities
Inc. and KeyBanc Capital Markets Inc. We will use the proceeds from the credit facility principally
to repay the 2007 Senior Credit Facility and to redeem in full all of our outstanding Senior
Discount Notes in accordance with their terms. We are seeking to complete the transaction during
the second quarter, subject to, among other factors, receipt of satisfactory pricing and market
conditions.
| If a refinancing is consummated in Q2 2011, we expect that we would incur early pre-payment penalties on our existing 11% Senior Discount Notes of approximately $2.5 million, existing deferred financing costs of approximately $1.8 million would be written off and we would likely incur at least 30 days, or $1.3 million of interest, on these notes during the redemption period. These charges total $5.6 million, or $4.1, million net of taxes, at a tax rate of 26%. |
Forward-Looking Statements:
Statements in this release that do not constitute historical facts, including, without limitation,
statements under the captions Second Quarter 2011 Business Outlook, Investing Activities
Outlook, and Refinancing Activities, 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 Companys control, including, among others, the level of market demand for
the Companys services, economic conditions affecting the Companys business, the geographic
concentration of the Companys 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 Companys indebtedness, and other specific factors
discussed herein and in other releases and public filings made by the Company (including the
Companys 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 159 fitness clubs as of March 31, 2011, comprising 107 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, April 26, 2011 at 4:30 PM (Eastern) to discuss
the first 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 Companys Investor Relations section of its Web site at www.mysportsclubs.com. A
replay and transcript of the call will be available via the Companys Web site beginning
April 27, 2011.
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., New York
Contact Information:
Contact Information:
Investor Contact:
(212) 246-6700 extension 1650
Investor.relations@town-sports.com
(212) 246-6700 extension 1650
Investor.relations@town-sports.com
or
ICR, Inc.
Joseph Teklits
(203) 682-8390
joseph.teklits@icrinc.com
Joseph Teklits
(203) 682-8390
joseph.teklits@icrinc.com
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2011 and December 31, 2010
(All figures in thousands)
(Unaudited)
March 31, 2011 and December 31, 2010
(All figures in thousands)
(Unaudited)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 45,233 | $ | 38,803 | ||||
Accounts receivable, net |
6,932 | 5,258 | ||||||
Inventory |
337 | 217 | ||||||
Prepaid corporate income taxes |
5,905 | 7,342 | ||||||
Prepaid expenses and other current assets |
8,323 | 13,213 | ||||||
Total current assets |
66,730 | 64,833 | ||||||
Fixed assets, net |
303,039 | 309,371 | ||||||
Goodwill |
32,820 | 32,794 | ||||||
Intangible assets, net |
28 | 44 | ||||||
Deferred tax assets, net |
41,365 | 41,883 | ||||||
Deferred membership costs |
7,134 | 5,934 | ||||||
Other assets |
8,909 | 9,307 | ||||||
Total assets |
$ | 460,025 | $ | 464,166 | ||||
LIABILITIES AND STOCKHOLDERS DEFICIT |
||||||||
Current liabilities: |
||||||||
Current portion of long-term debt |
$ | 1,850 | 14,550 | |||||
Accounts payable |
8,268 | 4,008 | ||||||
Accrued expenses |
28,525 | 27,477 | ||||||
Accrued interest |
3,153 | 6,579 | ||||||
Deferred revenue |
40,318 | 35,106 | ||||||
Total current liabilities |
82,114 | 87,720 | ||||||
Long-term debt |
300,601 | 301,963 | ||||||
Deferred lease liabilities |
66,186 | 67,180 | ||||||
Deferred revenue |
5,455 | 3,166 | ||||||
Other liabilities |
10,374 | 11,082 | ||||||
Total liabilities |
464,730 | 471,111 | ||||||
Stockholders deficit: |
||||||||
Common stock |
23 | 23 | ||||||
Paid-in capital |
(21,303 | ) | (21,788 | ) | ||||
Accumulated other comprehensive income (currency
translation adjustment) |
2,343 | 2,121 | ||||||
Retained earnings |
14,232 | 12,699 | ||||||
Total stockholders deficit |
(4,705 | ) | (6,945 | ) | ||||
Total liabilities and stockholders deficit |
$ | 460,025 | $ | 464,166 | ||||
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2011 and 2010
(All figures in thousands except share and per share data)
(Unaudited)
For the Three Months Ended March 31, 2011 and 2010
(All figures in thousands except share and per share data)
(Unaudited)
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Revenues: |
||||||||
Club operations |
$ | 115,592 | $ | 116,595 | ||||
Fees and other |
1,113 | 1,164 | ||||||
116,705 | 117,759 | |||||||
Operating Expenses: |
||||||||
Payroll and related |
45,252 | 48,511 | ||||||
Club operating |
44,102 | 43,468 | ||||||
General and administrative |
7,420 | 8,939 | ||||||
Depreciation and amortization |
13,002 | 13,654 | ||||||
Impairment of fixed assets |
| 389 | ||||||
109,776 | 114,961 | |||||||
Operating income |
6,929 | 2,798 | ||||||
Interest expense |
5,582 | 5,184 | ||||||
Interest income |
(71 | ) | (18 | ) | ||||
Equity in the earnings of investees and rental income |
(644 | ) | (536 | ) | ||||
Income (loss) before benefit for corporate income taxes |
2,062 | (1,832 | ) | |||||
Provision (benefit) for corporate income taxes |
529 | (1,100 | ) | |||||
Net income (loss) |
$ | 1,533 | $ | (732 | ) | |||
Earnings (loss) per share: |
||||||||
Basic |
$ | 0.07 | $ | (0.03 | ) | |||
Diluted |
$ | 0.07 | $ | (0.03 | ) | |||
Weighted average number of shares used in calculating earnings (loss)
per share: |
||||||||
Basic |
22,710,996 | 22,605,236 | ||||||
Diluted |
23,073,147 | 22,605,236 |
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2011 and 2010
(All figures in thousands)
(Unaudited)
For the Three Months Ended March 31, 2011 and 2010
(All figures in thousands)
(Unaudited)
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 1,533 | $ | (732 | ) | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
13,002 | 13,654 | ||||||
Impairment of fixed assets |
| 389 | ||||||
Amortization of debt issuance costs |
282 | 253 | ||||||
Non-cash rental expense, net of non-cash rental income |
(1,120 | ) | (934 | ) | ||||
Compensation expense incurred in connection with stock options and common
stock grants |
348 | 369 | ||||||
Decrease (increase) in deferred tax asset |
518 | (1,899 | ) | |||||
Net change in certain operating assets and liabilities |
12,594 | 5,485 | ||||||
(Increase) decrease in deferred membership costs |
(1,200 | ) | 990 | |||||
Landlord contributions to tenant improvements |
149 | 100 | ||||||
Decrease in insurance reserves |
(330 | ) | (229 | ) | ||||
Other |
(368 | ) | 172 | |||||
Total adjustments |
23,875 | 18,350 | ||||||
Net cash provided by operating activities |
25,408 | 17,618 | ||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(5,335 | ) | (2,809 | ) | ||||
Net cash used in investing activities |
(5,335 | ) | (2,809 | ) | ||||
Cash flows from financing activities: |
||||||||
Repayment of long term borrowings |
(14,062 | ) | (463 | ) | ||||
Proceeds from exercise of stock options |
117 | | ||||||
Tax benefit from stock option exercises |
20 | 18 | ||||||
Net cash used in financing activities |
(13,925 | ) | (445 | ) | ||||
Effect of exchange rate changes on cash |
282 | (76 | ) | |||||
Net increase in cash and cash equivalents |
6,430 | 14,288 | ||||||
Cash and cash equivalents beginning of period |
38,803 | 10,758 | ||||||
Cash and cash equivalents end of period |
$ | 45,233 | $ | 25,046 | ||||
Summary of the change in certain operating assets and liabilities: |
||||||||
Increase in accounts receivable |
(1,729 | ) | (752 | ) | ||||
Increase in inventory |
(120 | ) | (74 | ) | ||||
Decrease in prepaid expenses and other current assets |
4,589 | 2,740 | ||||||
Increase in accounts payable, accrued expenses and accrued interest |
4,494 | 2,527 | ||||||
Decrease in accrued interest on Senior Discount Notes |
(3,807 | ) | (3,807 | ) | ||||
Decrease in prepaid corporate income taxes |
1,437 | 831 | ||||||
Increase in deferred revenue |
7,730 | 4,020 | ||||||
Net change in certain working capital components |
$ | 12,594 | $ | 5,485 | ||||
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA and EBITDA
For the Three Months Ended March 31, 2011 and 2010
(All figures in thousands)
(Unaudited)
For the Three Months Ended March 31, 2011 and 2010
(All figures in thousands)
(Unaudited)
Three Months Ended March 31, | ||||||||||||
2011 | 2010 | %Chg. | ||||||||||
Net cash provided by operating activities |
$ | 25,408 | $ | 17,618 | ||||||||
Interest expense, net of interest income |
5,511 | 5,166 | ||||||||||
Provision (benefit) for corporate income taxes |
529 | (1,100 | ) | |||||||||
Changes in operating assets and liabilities |
(12,594 | ) | (5,485 | ) | ||||||||
Amortization of debt issuance costs |
(282 | ) | (253 | ) | ||||||||
Compensation expense incurred in connection with stock options
and common stock grants |
(348 | ) | (369 | ) | ||||||||
Landlord contributions to tenant improvements |
(149 | ) | (100 | ) | ||||||||
Non-cash rental expense, net of non-cash rental income |
1,120 | 934 | ||||||||||
Decrease in insurance reserves |
330 | 229 | ||||||||||
(Decrease) increase in deferred tax asset |
(518 | ) | 1,899 | |||||||||
Increase (decrease) in deferred membership costs |
1,200 | (990 | ) | |||||||||
Other |
368 | (172 | ) | |||||||||
Adjusted EBITDA |
20,575 | 17,377 | 18.4 | % | ||||||||
Impairment of fixed assets |
| (389 | ) | |||||||||
EBITDA |
$ | 20,575 | $ | 16,988 | 21.1 | % | ||||||
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of Net Cash Provided by Operating Activities (estimated) to EBITDA (estimated)
For the Three Months Ending June 30, 2011
(All figures in thousands)
(Estimated)
For the Three Months Ending June 30, 2011
(All figures in thousands)
(Estimated)
Q2 2011 | ||||
Net cash provided by operating activities (estimated) |
$ | 22,150 | ||
Interest expense, net of interest income |
5,450 | |||
Provision for corporate income taxes |
800 | |||
Changes in operating assets and liabilities |
(8,248 | ) | ||
Amortization of debt issuance costs |
(252 | ) | ||
Compensation expense incurred in connection with stock options and common stock grants |
(350 | ) | ||
Non-cash rental expense, net of non-cash rental income |
900 | |||
Decrease in deferred tax asset |
(270 | ) | ||
Increase in deferred member costs |
1,070 | |||
Other |
50 | |||
EBITDA (estimated) |
$ | 21,300 | ||
Note: The calculation of EBITDA (estimated) above excludes any effects of a refinancing of our debt.
Non-GAAP Financial Measures EBITDA and Adjusted EBITDA
EBITDA consists of net income (loss) plus interest expense (net of interest income), provision
for corporate income taxes, and depreciation and amortization. Adjusted EBITDA is the Companys
EBITDA excluding any fixed asset or goodwill impairments. 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 $13.0 million in the quarter ended March 31, 2011. 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 Companys 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 Companys
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 debt agreements, including our 2007 Senior Credit Facility and our Senior Discount Notes. | ||
| Our discussions with prospective lenders and investors in recent years, including in relation to our 2007 Senior Credit Facility and our Senior Discount Notes, 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, our equity analysts often report on our EBITDA with respect to valuation commentary. |
We do not, and investors should not, place undue reliance on EBITDA or Adjusted EBITDA as a
measure of our liquidity.