##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the quarterly period ended June 30, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the Transition period from            to             .
 Commission File Number 000-52013
 TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
  Delaware
    
    20-0640002(State or other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)
 5 Penn Plaza (4th Floor)
New York, New York 10001
Telephone: (212) 246-6700
 (Address, zip code, and telephone number, including
area code, of registrants principal executive office.)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o(Do not check if a smaller reporting
company)
    
    Smaller reporting company o
 o þ




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##### 



TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 FORM 10-Q
For the Quarter Ended June 30, 2009
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations and Statements of Comprehensive Income for the
three and six months ended June 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3. Defaults upon Senior Securities
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    27EX-10.4EX-31.1EX-31.2EX-32.1EX-32.2
  2




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TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2009 and December 31, 2008
(In $000s, except share data)
(Unaudited)
 June 30,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,759
    
    
    $
    10,399Accounts receivable (less allowance for doubtful accounts of $3,246 and
$3,001 as of June 30, 2009 and December 31, 2008, respectively)
    
    
    5,537
    
    
    
    4,508Inventory
    
    
    246
    
    
    
    143Prepaid income taxes
    
    
    2,453
    
    
    
    8,116Prepaid expenses and other current assets
    
    
    13,028
    
    
    
    14,154Total current assets
    
    
    34,023
    
    
    
    37,320Fixed assets, net
    
    
    368,452
    
    
    
    373,120Goodwill
    
    
    32,593
    
    
    
    32,610Intangible assets, net
    
    
    257
    
    
    
    281Deferred tax asset, net
    
    
    44,740
    
    
    
    42,266Deferred membership costs
    
    
    9,802
    
    
    
    14,462Other assets
    
    
    9,897
    
    
    
    11,579Total assets
    
    $
    499,764
    
    
    $
    511,638LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    6,850
    
    
    $
    20,850Accounts payable
    
    
    7,697
    
    
    
    7,267Accrued expenses
    
    
    32,983
    
    
    
    35,565Accrued interest
    
    
    6,674
    
    
    
    523Deferred revenue
    
    
    40,341
    
    
    
    40,326Total current liabilities
    
    
    94,545
    
    
    
    104,531Long-term debt
    
    
    317,438
    
    
    
    317,160Deferred lease liabilities
    
    
    72,878
    
    
    
    69,719Deferred revenue
    
    
    2,593
    
    
    
    4,554Other liabilities
    
    
    12,910
    
    
    
    14,902Total liabilities
    
    
    500,364
    
    
    
    510,866Commitments and contingencies (Note 9)Stockholders (deficit) equity:Common stock, $.001 par value; issued and outstanding 22,596,084 and
24,627,779 shares at June 30, 2009 and December 31, 2008, respectively
    
    
    23
    
    
    
    25Paid-in capital
    
    
    (23,436
    )
    
    
    (18,980
    )Accumulated other comprehensive income (currency translation adjustment)
    
    
    993
    
    
    
    1,070Retained earnings
    
    
    21,820
    
    
    
    18,657Total
stockholders (deficit) equity
    
    
    (600
    )
    
    
    772Total liabilities and stockholders (deficit) equity
    
    $
    499,764
    
    
    $
    511,638
  3




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TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 2009 and 2008
(In $000s except share and per share data)
(Unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Club operations
    
    $
    122,620
    
    
    $
    127,729
    
    
    $
    248,088
    
    
    $
    252,636Fees and other
    
    
    1,292
    
    
    
    1,664
    
    
    
    2,533
    
    
    
    3,077123,912
    
    
    
    129,393
    
    
    
    250,621
    
    
    
    255,713Operating Expenses:Payroll and related
    
    
    48,246
    
    
    
    48,653
    
    
    
    98,993
    
    
    
    97,057Club operating
    
    
    45,054
    
    
    
    41,521
    
    
    
    91,664
    
    
    
    84,401General and administrative
    
    
    7,488
    
    
    
    8,895
    
    
    
    15,835
    
    
    
    17,201Depreciation and amortization
    
    
    14,346
    
    
    
    12,716
    
    
    
    28,642
    
    
    
    25,365Impairment of fixed assets
    
    
    
    
    
    
    1,142
    
    
    
    1,131
    
    
    
    1,142115,134
    
    
    
    112,927
    
    
    
    236,265
    
    
    
    225,166Operating income
    
    
    8,778
    
    
    
    16,466
    
    
    
    14,356
    
    
    
    30,547Interest expense
    
    
    5,289
    
    
    
    5,633
    
    
    
    10,566
    
    
    
    12,147Interest income
    
    
    
    
    
    
    (74
    )
    
    
    (1
    )
    
    
    (215
    )Equity in the earnings of investees and rental income
    
    
    (398
    )
    
    
    (620
    )
    
    
    (1,009
    )
    
    
    (1,067
    )Income before provision for corporate income taxes
    
    
    3,887
    
    
    
    11,527
    
    
    
    4,800
    
    
    
    19,682Provision for corporate income taxes
    
    
    1,363
    
    
    
    4,726
    
    
    
    1,637
    
    
    
    8,070Net income
    
    $
    2,524
    
    
    $
    6,801
    
    
    $
    3,163
    
    
    $
    11,612Earnings per share:Basic
    
    $
    0.11
    
    
    $
    0.26
    
    
    $
    0.14
    
    
    $
    0.44Diluted
    
    $
    0.11
    
    
    $
    0.26
    
    
    $
    0.14
    
    
    $
    0.44Weighted average number of shares used in
calculating earnings per share:Basic
    
    
    22,546,449
    
    
    
    26,417,859
    
    
    
    22,875,107
    
    
    
    26,361,758Diluted
    
    
    22,592,436
    
    
    
    26,488,634
    
    
    
    22,924,421
    
    
    
    26,422,359Statements of Comprehensive IncomeNet income
    
    $
    2,524
    
    
    $
    6,801
    
    
    $
    3,163
    
    
    $
    11,612Foreign currency translation adjustments
    
    
    243
    
    
    
    (245
    )
    
    
    (77
    )
    
    
    457Comprehensive income
    
    $
    2,767
    
    
    $
    6,556
    
    
    $
    3,086
    
    
    $
    12,069
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TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2009 and 2008
(In $000s)
(Unaudited)
 Six MonthsEnded June 30,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    3,163
    
    
    $
    11,612Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    28,642
    
    
    
    25,365Impairment of fixed assets
    
    
    1,131
    
    
    
    1,142Non-cash interest expense on Senior Discount Notes
    
    
    1,203
    
    
    
    6,782Amortization of debt issuance costs
    
    
    406
    
    
    
    387Noncash rental expense, net of noncash rental income
    
    
    (667
    )
    
    
    741Compensation expense incurred in connection with stock options and common stock grants
    
    
    841
    
    
    
    500Net changes in certain operating assets and liabilities
    
    
    10,945
    
    
    
    9,363Increase in deferred tax asset
    
    
    (2,474
    )
    
    
    (3,600
    )Landlord contributions to tenant improvements
    
    
    2,993
    
    
    
    3,338Change in reserve for self-insured liability claims
    
    
    301
    
    
    
    1,056Decrease in deferred membership costs
    
    
    4,660
    
    
    
    724Other
    
    
    (134
    )
    
    
    (97
    )Total adjustments
    
    
    47,847
    
    
    
    45,701Net cash provided by operating activities
    
    
    51,010
    
    
    
    57,313Cash flows from investing activities:Capital expenditures
    
    
    (28,485
    )
    
    
    (44,542
    )Insurance Proceeds
    
    
    
    
    
    
    1,074Net cash used in investing activities
    
    
    (28,485
    )
    
    
    (43,468
    )Cash flows from financing activities:Proceeds from borrowings on Revolving Loan Facility
    
    
    5,000
    
    
    
    Repayment of borrowings on Revolving Loan Facility
    
    
    (19,000
    )
    
    
    (9,000
    )Repayment of long-term borrowings
    
    
    (925
    )
    
    
    (973
    )Change in book overdraft
    
    
    126
    
    
    
    (583
    )Repurchase of common stock
    
    
    (5,355
    )
    
    
    Proceeds from exercise of stock options
    
    
    36
    
    
    
    1,187Tax benefit from stock option exercises
    
    
    21
    
    
    
    173Net cash used in financing activities
    
    
    (20,097
    )
    
    
    (9,196
    )Effect of exchange rate changes on cash
    
    
    (68
    )
    
    
    394Net increase in cash and cash equivalents
    
    
    2,360
    
    
    
    5,043Cash and cash equivalents at beginning of period
    
    
    10,399
    
    
    
    5,463Cash and cash equivalents at end of period
    
    $
    12,759
    
    
    $
    10,506Summary of change in certain operating assets and liabilities:(Increase) decrease in accounts receivable
    
    $
    (1,035
    )
    
    $
    1,394Increase in inventory
    
    
    (103
    )
    
    
    (68
    )Decrease (increase) in prepaid expenses and other current assets
    
    
    1,581
    
    
    
    (840
    )Increase in accounts payable, accrued expenses and accrued interest
    
    
    452
    
    
    
    4,026Increase in accrued interest on Senior Discount Notes
    
    
    6,346
    
    
    
    Change in corporate income taxes
    
    
    5,648
    
    
    
    699(Decrease) increase in deferred revenue
    
    
    (1,944
    )
    
    
    4,152Net changes in certain operating assets and liabilities
    
    $
    10,945
    
    
    $
    9,363Supplemental disclosures of cash flow information:Cash payments for interest
    
    $
    3,046
    
    
    $
    5,587Cash payments for income taxes
    
    $
    880
    
    
    $
    10,809
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TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (In $000s except share and per share data)
(Unaudited)
 1. Basis of Presentation
     2. Recent Accounting Changes
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB No. 162
 Subsequent Events
 Interim Disclosures about Fair Value of Financial Instruments
 6




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##### Table of Contents



Fair Value Measurements
 3. Long-Term Debt
 June 30,
    
    
    December 31,2009
    
    
    2008Term Loan Facility
    
    $
    180,838
    
    
    $
    181,763Revolving Loan Facility borrowings
    
    
    5,000
    
    
    
    19,00011% Senior Discount Notes
    
    
    138,450
    
    
    
    137,247324,288
    
    
    
    338,010Less current portion to be paid within one year
    
    
    6,850
    
    
    
    20,850Long-term portion
    
    $
    317,438
    
    
    $
    317,160
     7




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##### Table of Contents



Fair Market Value
  4. Earnings Per Share
    Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008Weighted average number of shares of Common Stock
outstanding  basic
    
    
    22,546,449
    
    
    
    26,417,859
    
    
    
    22,875,106
    
    
    
    26,361,758Effect of diluted stock options and restricted Common Stock
    
    
    45,987
    
    
    
    70,775
    
    
    
    49,315
    
    
    
    60,601Weighted average number of shares of Common Stock
outstanding  diluted
    
    
    22,592,436
    
    
    
    26,488,634
    
    
    
    22,924,421
    
    
    
    26,422,359
 5. Common Stock and Stock-Based Compensation
   8




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##### Table of Contents



Option Grants
  Number of
    
    Exercise
    
    Black-Scholes
    
    
    
    
    
    Dividend
    
    Risk Free
    
    ExpectedDate
    
    Options
    
    Price
    
    Valuation
    
    Volatility
    
    Yield
    
    Interest Rate
    
    Term (Years)January 2, 2009
    
    
    7,000
    
    
    $
    3.21
    
    
    $
    1.94
    
    
    
    69.2
    %
    
    
    0.0
    %
    
    
    1,81
    %
    
    
    5.50January 20, 2009
    
    
    12,750
    
    
    $
    2.51
    
    
    $
    1.63
    
    
    
    71.8
    %
    
    
    0.0
    %
    
    
    1.71
    %
    
    
    6.25Total
    
    
    19,750
    Restricted Stock Grants
   6. Fixed Asset Impairment and Club Closures
 Accounting for the Impairment or Disposal of Long-Lived
Assets
  7. Goodwill and Other Intangibles
   9




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##### Table of Contents



Balance as of December 31, 2008
    
    $
    32,610Changes due to foreign currency exchange rate fluctuations
    
    
    (17
    )Balance as of June 30, 2009
    
    $
    32,593
 As of June 30, 2009Gross Carrying
    
    
    AccumulatedAcquired Intangible Assets
    
    Amount
    
    
    Amortization
    
    
    Net IntangiblesCovenants-not-to-compete
    
    $
    1,508
    
    
    $
    (1,251
    )
    
    $
    257As of December 31, 2008Gross Carrying
    
    
    AccumulatedAcquired Intangible Assets
    
    Amount
    
    
    Amortization
    
    
    Net IntangiblesMembership lists
    
    $
    10,890
    
    
    $
    (10,836
    )
    
    $
    54Covenants-not-to-compete
    
    
    1,687
    
    
    
    (1,460
    )
    
    
    227$
    12,577
    
    
    $
    (12,296
    )
    
    $
    281The amortization expense of the above acquired intangible assets for each of the three years
ending June 30, 2012 is as follows:Aggregate Amortization Expense for the twelve months ending June 30,2010
    
    
    
    
    
    
    
    
    
    $
    1792011
    
    
    
    
    
    
    
    
    
    
    672012
    
    
    
    
    
    
    
    
    
    
    11$
    257
  8. Income Taxes
 Accounting for Uncertainty in Income Taxes
 10




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##### Table of Contents



Accounting for
Income Taxes in Interim Periods
   9. Commitments and Contingencies
 Sarah Cruz, et al v. Town Sports International,
dba New York Sports Club
   11




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##### Table of Contents



10. Investments in Affiliated Companies
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008Revenue
    
    $
    729
    
    
    $
    874
    
    
    $
    1,480
    
    
    $
    1,774Income from operations
    
    
    (6
    )
    
    
    353
    
    
    
    92
    
    
    
    732Net income
    
    
    (87
    )
    
    
    315
    
    
    
    (9
    )
    
    
    661
 11. Subsequent Event
  New York City Tax Legislation
  Amendment to the 2007 Senior Credit Facility
  12




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
 Introduction
      
    
    Membership revenue:Our largest sources of revenue are dues and initiation fees paid by
our members. These dues and initiation fees comprised 82.0% of our total revenue for the six
months ended June 30, 2009. We recognize revenue from membership dues in the month when the
services are rendered. Approximately 93% of our members pay their monthly dues by Electronic
Funds Transfer, or EFT, while the balance is paid annually in advance. We recognize revenue
from initiation fees over the estimated life of the membership. Prior to April 1,
2009, the estimated life of a membership was 30 months. Effective April 1, 2009, we
changed our estimated  membership life to 28 months. See Note 1  Basis of
Presentation to the consolidated financial statements in this Form 10-Q.
 
    
    Ancillary club revenue:For the six months ended June 30, 2009, we generated 12.1% of
our revenue from personal training and 4.9% of our revenue from other ancillary programs and
services consisting of programming for children, group fitness training and other member
activities, as well as sales of miscellaneous sports products.
  13




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14




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Historical Club Growth
  2008
    
    2009Q1
    
    Q2
    
    Q3
    
    Q4
    
    Total
    
    Q1
    
    Q2Wholly owned clubs operated at beginning of period
    
    
    159
    
    
    
    160
    
    
    
    161
    
    
    
    162
    
    
    
    159
    
    
    
    164
    
    
    
    165New clubs opened
    
    
    2
    
    
    
    3
    
    
    
    1
    
    
    
    3
    
    
    
    9
    
    
    
    4
    
    
    
    Clubs acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Clubs closed, relocated or merged
    
    
    (1
    )
    
    
    (2
    )
    
    
    
    
    
    
    (1
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    (1
    )Wholly owned clubs at end of period
    
    
    160
    
    
    
    161
    
    
    
    162
    
    
    
    164
    
    
    
    164
    
    
    
    165
    
    
    
    164Total clubs operated at end of period (1)
    
    
    162
    
    
    
    163
    
    
    
    164
    
    
    
    166
    
    
    
    166
    
    
    
    167
    
    
    
    166
 
 (1)
    
    Includes wholly-owned and partly-owned clubs. In addition to the
above, as of June 30, 2009 and December 31, 2008, we managed four
university fitness clubs in which we did not have an equity
interest. Comparable Club Revenue
  2008:Three months ended March 31, 2008
    
    
    4.5
    %Three months ended June 30, 2008
    
    
    3.2
    %Three months ended September 30, 2008
    
    
    2.2
    %Three months ended December 31, 2008
    
    
    (1.4
    )%2009:Three months ended March 31, 2009
    
    
    (2.1
    )%Three months ended June 30, 2009
    
    
    (6.3
    )%
   15




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Results of Operations
  Three Months
    
    Six MonthsEnded June 30
    
    Ended June 302009
    
    2008
    
    2009
    
    2008Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Payroll and related
    
    
    38.9
    
    
    
    37.6
    
    
    
    39.5
    
    
    
    38.0Club operating
    
    
    36.4
    
    
    
    32.1
    
    
    
    36.6
    
    
    
    33.0General and administrative
    
    
    6.0
    
    
    
    6.9
    
    
    
    6.3
    
    
    
    6.7Depreciation and amortization
    
    
    11.6
    
    
    
    9.8
    
    
    
    11.4
    
    
    
    9.9Impairment of fixed assets
    
    
    
    
    
    
    0.9
    
    
    
    0.5
    
    
    
    0.592.9
    
    
    
    87.3
    
    
    
    94.3
    
    
    
    88.1Operating income
    
    
    7.1
    
    
    
    12.7
    
    
    
    5.7
    
    
    
    11.9Interest expense
    
    
    4.3
    
    
    
    4.4
    
    
    
    4.2
    
    
    
    4.8Interest income
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Equity in the earnings of investees and rental income
    
    
    (0.3
    )
    
    
    (0.5
    )
    
    
    (0.4
    )
    
    
    (0.4
    )Income before provision for corporate income taxes
    
    
    3.1
    
    
    
    8.9
    
    
    
    1.9
    
    
    
    7.7Provision for corporate income taxes
    
    
    1.1
    
    
    
    3.7
    
    
    
    0.7
    
    
    
    3.2Net income
    
    
    2.0
    %
    
    
    5.2
    %
    
    
    1.2
    %
    
    
    4.5
    %
  Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
 Revenue  was comprised of the following for the periods indicated:
 Three Months Ended June 30,2009
    
    
    2008Revenue
    
    
    % Revenue
    
    
    Revenue
    
    
    % Revenue
    
    
    %VarianceMembership dues
    
    $
    98,357
    
    
    
    79.4
    %
    
    $
    101,489
    
    
    
    78.4
    %
    
    
    (3.1
    )%Initiation fees
    
    
    3,343
    
    
    
    2.7
    %
    
    
    3,486
    
    
    
    2.7
    %
    
    
    (4.1
    )%Membership revenue
    
    
    101,700
    
    
    
    82.1
    %
    
    
    104,975
    
    
    
    81.1
    %
    
    
    (3.1
    )%Personal training revenue
    
    
    15,169
    
    
    
    12.2
    %
    
    
    16,700
    
    
    
    12.9
    %
    
    
    (9.2
    )%Other ancillary club revenue
    
    
    5,750
    
    
    
    4.7
    %
    
    
    6,054
    
    
    
    4.7
    %
    
    
    (5.0
    )%Ancillary club revenue
    
    
    20,919
    
    
    
    16.9
    %
    
    
    22,754
    
    
    
    17.6
    %
    
    
    (8.1
    )%Fees and other revenue
    
    
    1,293
    
    
    
    1.0
    %
    
    
    1,664
    
    
    
    1.3
    %
    
    
    (22.3
    )%Total revenue
    
    $
    123,912
    
    
    
    100.0
    %
    
    $
    129,393
    
    
    
    100.0
    %
    
    
    (4.2
    )%
    16




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##### Table of Contents



Operating expenses were comprised of the following for the periods indicated:
 Three months ended June 30,2009
    
    
    2008
    
    
    %VariancePayroll and related
    
    $
    48,246
    
    
    
    48,653
    
    
    
    (0.8
    )%Club operating
    
    
    45,054
    
    
    
    41,521
    
    
    
    8.5
    %General and administrative
    
    
    7,488
    
    
    
    8,895
    
    
    
    (15.8
    )%Depreciation and amortization
    
    
    14,346
    
    
    
    12,716
    
    
    
    12.8
    %Impairment of fixed assets
    
    
    
    
    
    
    1,142
    
    
    
    100.0
    %Operating expenses
    
    $
    115,134
    
    
    $
    112,927
    
    
    
    2.0
    %
  Payroll
and related
  Club operating
 
    
    Rent and occupancy expenses increased $2.9 million. Rent and occupancy
costs increased $1.6 million at clubs that opened after April 1, 2008
and increased $930,000 at our clubs that opened prior to April 1,
2008. In addition, we recorded early lease termination costs of
$411,000 in the three months ended June 30, 2009, at a club that was
closed prior to the lease expiration date. Adding to this was $700,000 of
damages recorded in June 2009 granted to a landlord of one of TSI
LLCs former health clubs, resulting from a lawsuit in state court
against it and two of its health club subsidiaries alleging, among
other things, breach of lease in connection with the decision to close
the club and taking space in another facility nearby. See Note 9 Commitments and
Contingencies to the consolidated financial statements in this Form
10-Q. Rent and occupancy
expenses decreased $607,000, before rent penalties, at our clubs that
were closed after January 1, 2008.
    
    Electric, gas and oil expenses increased $558,000 primarily due to the
11 clubs opened after April 1, 2008 as well as the new laundry
facility in Elmsford, NY.
    
    Advertising and marketing expense increased $669,000 to $1.5
million in the three months ended June 30, 2009 compared to the
same period in 2008 as a result in the change in timing and strategy
of advertising campaigns. For the six months ended June 30, 2009,
advertising and marketing expenses are in line with the six months
ended June 30, 2008.
 General and administrative
 Depreciation and amortization
 Impairment of fixed assets.
 17




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##### Table of Contents



Interest Expense
  Provision for Corporate Income Taxes
 Accounting for
Income Taxes in Interim Periods
  Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
 Revenue  was comprised of the following:
 Six Months Ended June 30,2009
    
    
    2008Revenue
    
    
    % Revenue
    
    
    Revenue
    
    
    % Revenue
    
    
    % VarianceMembership dues
    
    $
    199,065
    
    
    
    79.4
    %
    
    $
    200,672
    
    
    
    78.5
    %
    
    
    (0.8
    )%Initiation fees
    
    
    6,507
    
    
    
    2.6
    %
    
    
    6,888
    
    
    
    2.7
    %
    
    
    (5.5
    )%Membership revenue
    
    
    205,572
    
    
    
    82.0
    %
    
    
    207,560
    
    
    
    81.2
    %
    
    
    (1.0
    )%Personal training revenue
    
    
    30,170
    
    
    
    12.1
    %
    
    
    32,841
    
    
    
    12.8
    %
    
    
    (8.1
    )%Other ancillary club revenue
    
    
    12,344
    
    
    
    4.9
    %
    
    
    12,236
    
    
    
    4.8
    %
    
    
    0.9
    %Ancillary club revenue
    
    
    42,514
    
    
    
    17.0
    %
    
    
    45,077
    
    
    
    17.6
    %
    
    
    (5.7
    )%Fees and other revenue
    
    
    2,533
    
    
    
    1.0
    %
    
    
    3,076
    
    
    
    1.2
    %
    
    
    (17.7
    )%Total revenue
    
    $
    250,621
    
    
    
    100.0
    %
    
    $
    255,713
    
    
    
    100.0
    %
    
    
    (2.0
    )%
    18




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##### Table of Contents



Operating expenses (in $000s) were comprised of the following:
 Six Months Ended June 30,2009
    
    2008
    
    %VariancePayroll and related
    
    
    98,993
    
    
    
    97,057
    
    
    
    2.0
    %Club operating
    
    
    91,664
    
    
    
    84,401
    
    
    
    8.6
    %General and administrative
    
    
    15,835
    
    
    
    17,201
    
    
    
    (7.9
    )%Depreciation and amortization
    
    
    28,642
    
    
    
    25,365
    
    
    
    12.9
    %Impairment of fixed assets
    
    
    1,131
    
    
    
    1,142
    
    
    
    (1.0
    )%Operating expenses
    
    
    236,265
    
    
    
    225,166
    
    
    
    4.9
    %
  Payroll and related
  Club operating
 
    
    Rent and occupancy expenses increased $4.5 million. Rent and occupancy
costs increased $3.3 million at clubs that opened after April 1, 2008
and increased $1.5 million at our clubs that opened prior to April 1,
2008. In addition, we recorded early lease termination costs of
$811,000 in the six months ended June 30, 2009, at three clubs that
were closed prior to their lease expiration dates. Adding to this was $700,000 of
damages recorded in June 2009 granted to a landlord of one of TSI
LLCs former health clubs, resulting from a lawsuit in state court
against it and two of its health club subsidiaries alleging, among
other things, breach of lease in connection with the decision to close
the club and taking additional space in another facility nearby. See Note 9 Commitments and
Contingencies to the consolidated financial statements in this Form
10-Q. Rent and occupancy
expenses decreased $1.1 million, before rent penalties, at our clubs
that were closed after January 1, 2008.
    
    Electric, gas and oil expenses increased $779,000 primarily due to the
11 clubs that opened after April 1, 2008 as well as the new laundry
facility in Elmsford, NY.
 General and administrative
 Depreciation and amortization
 19




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##### Table of Contents



Impairment of fixed assets
 Interest Expense
  Provision for Corporate Income Taxes
   Liquidity and Capital Resources
  Operating Activities.
  Investing Activities.
 20




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##### Table of Contents



Financing Activities.
  
    
    making it more difficult to satisfy our obligations;
    
    increasing our vulnerability to general adverse economic 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 cash flow from operations for the payment of interest on our credit facility
and reducing our ability to use our cash flow to fund working capital, capital expenditures,
acquisitions of new clubs and general corporate requirements; and
    
    limiting our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate.
       21




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##### Table of Contents



Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    AfterContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsLong-Term Debt
    
    $
    324,288
    
    
    $
    6,850
    
    
    $
    3,700
    
    
    $
    313,738
    
    
    $
    Operating Lease Obligations(1)
    
    
    861,999
    
    
    
    81,932
    
    
    
    161,670
    
    
    
    145,805
    
    
    
    472,592Total Contractual Cash Obligations
    
    $
    1,186,287
    
    
    $
    88,782
    
    
    $
    165,370
    
    
    $
    459,543
    
    
    $
    472,592
 Notes:(1)
    
    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 the operating results of the lessee.     22




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##### Table of Contents



Recent Changes in or Recently Issued Accounting Pronouncements
  Forward-Looking Statements
  23




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##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
   
 ITEM 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures:
  Changes in Internal Control Over Financial Reporting:
 24




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings.
 Sarah Cruz, et al v. Town Sports International,
d/b/a New York Sports Club
  
 Item 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 3. Defaults Upon Senior Securities.
  25




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##### Table of Contents



ITEM 4. Submission of Matters to a Vote of Security Holders
 (a)
    
    The Company held its 2009 Annual Meeting of Stockholders on May 14, 2009.(b)
    
    The following matters were voted upon at the annual meeting:
 (i)
    
    The first item considered was the election of eight directors of the Company to serve
until the 2010 annual meeting of stockholders, and the results of such voting were as follows:
 Nominee
    
    For
    
    WithheldAlexander A. Alimanestianu
    
    
    15,257,788
    
    
    
    174,133Keith E. Alessi
    
    
    13,912,003
    
    
    
    1,519,918Paul N. Arnold
    
    
    14,869,989
    
    
    
    561,932Bruce C. Bruckmann
    
    
    14,814,182
    
    
    
    617,739J. Rice Edmonds
    
    
    15,228,441
    
    
    
    203,480Jason M. Fish
    
    
    15,289,729
    
    
    
    142,192Thomas J. Galligan III
    
    
    15,284,348
    
    
    
    147,573Kevin McCall
    
    
    15,289,729
    
    
    
    142,192
 (ii)
    
    The second item was a proposal to ratify PricewaterhouseCoopers LLP as the Companys
independent auditor for the year ending December 31, 2009, which was approved with 15,402,554
shares voted in favor of such proposal and 7,277 shares voted against and 22,090 shares abstained
from voting on, such proposal.
 
 ITEM 5. Other Information.
  
 Item 6. Exhibits
  http://corporate.mysportsclubs.com http://corporate.mysportsclubs.com/
 26




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##### Table of Contents



SIGNATURES
  TOWN SPORTS INTERNATIONAL HOLDINGS, INC.DATE: July 30, 2009
    By:
    /s/ Dan GallagherDan GallagherChief Financial Officer
(principal financial and accounting officer) 27




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##### Table of Contents



INDEX TO EXHIBITS
  Exhibit No.
    
    Description of Exhibit3.1
    
    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
    
    Second Amended and Restated By-laws of the Company
(incorporated by reference to Exhibit 3.1 of the Companys
Current Report on Form 8-K, filed on May 19, 2008).10.3
    
    First Amendment to Credit Agreement, dated as of July 15,
2009, among Town Sports International Holdings, Inc., Town
Sports International, LLC, as the borrower, the lenders from
time to time party to the Credit Agreement, dated as of
February 27, 2007, and Deutsche Bank Trust Company Americas,
as administrative agent for the lenders (incorporated by
reference to Exhibit 10.1 of the Companys Current Report on
Form 8-K filed with the SEC on July 17, 2009).10.4
    
    Amended Non-Employee Director
Compensation Plan Summary (filed herewith).31.1
    
    Certification of Chief Executive 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 2002.31.2
    
    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 Chief Executive Officer 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.
 28