##### 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 September 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.
 (Exact name of Registrant as specified in its charter)
 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
  o Large accelerated filer
    
    þ Accelerated filer
    
    o Non-accelerated filer
    
    o Smaller reporting company(Do not check if a smaller reporting company)
 o þ




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##### 



TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 FORM 10-Q
For the Quarter Ended September 30, 2009
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008
    
    3Condensed Consolidated Statements of Operations and Statements of Comprehensive Income for the three
and nine months ended September 30, 2009 and 2008
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended September 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
    
    26Item 3. Defaults upon Senior Securities
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    26Item 5. Other Information
    
    26Item 6. Exhibits
    
    26SIGNATURES
    
    27EX-31.1EX-31.2EX-32.1EX-32.2
  2




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TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2009 and December 31, 2008
(In $000s, except share data)
(Unaudited)
 September 30,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,021
    
    
    $
    10,399Accounts receivable (less allowance for doubtful accounts of $3,037 and
$3,001 as of September 30, 2009 and December 31, 2008, respectively)
    
    
    6,130
    
    
    
    4,508Inventory
    
    
    138
    
    
    
    143Prepaid income taxes
    
    
    3,571
    
    
    
    8,116Prepaid expenses and other current assets
    
    
    11,779
    
    
    
    14,154Total current assets
    
    
    33,639
    
    
    
    37,320Fixed assets, net
    
    
    360,678
    
    
    
    373,120Goodwill
    
    
    32,636
    
    
    
    32,610Intangible assets, net
    
    
    198
    
    
    
    281Deferred tax asset, net
    
    
    45,740
    
    
    
    42,266Deferred membership costs
    
    
    10,117
    
    
    
    14,462Other assets
    
    
    9,682
    
    
    
    11,579Total assets
    
    $
    492,690
    
    
    $
    511,638LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    10,650
    
    
    $
    20,850Accounts payable
    
    
    7,223
    
    
    
    7,267Accrued expenses
    
    
    31,693
    
    
    
    35,565Accrued interest
    
    
    2,917
    
    
    
    523Deferred revenue
    
    
    38,298
    
    
    
    40,326Total current liabilities
    
    
    90,781
    
    
    
    104,531Long-term debt
    
    
    316,975
    
    
    
    317,160Deferred lease liabilities
    
    
    72,088
    
    
    
    69,719Deferred revenue
    
    
    1,602
    
    
    
    4,554Other liabilities
    
    
    12,654
    
    
    
    14,902Total liabilities
    
    
    494,100
    
    
    
    510,866Commitments and contingencies (Note 9)Stockholders (deficit) equity:Common stock, $.001 par value; issued and outstanding 22,603,437 and
24,627,779 shares at September 30, 2009 and December 31, 2008,
respectively
    
    
    23
    
    
    
    25Paid-in capital
    
    
    (23,020
    )
    
    
    (18,980
    )Accumulated other comprehensive income (currency translation adjustment)
    
    
    1,252
    
    
    
    1,070Retained earnings
    
    
    20,335
    
    
    
    18,657Total stockholders (deficit) equity
    
    
    (1,410
    )
    
    
    772Total liabilities and stockholders (deficit) equity
    
    $
    492,690
    
    
    $
    511,638
  3




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TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three and nine months ended September 30, 2009 and 2008
(In $000s except share and per share data)
(Unaudited)
 Three Months Ended 
September 30,
    
    
    Nine Months Ended 
September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Club operations
    
    $
    119,282
    
    
    $
    126,682
    
    
    $
    367,370
    
    
    $
    379,318Fees and other
    
    
    1,167
    
    
    
    1,427
    
    
    
    3,700
    
    
    
    4,504120,449
    
    
    
    128,109
    
    
    
    371,070
    
    
    
    383,822Operating Expenses:Payroll and related
    
    
    47,487
    
    
    
    49,171
    
    
    
    146,480
    
    
    
    146,228Club operating
    
    
    45,589
    
    
    
    44,398
    
    
    
    137,499
    
    
    
    128,799General and administrative
    
    
    8,103
    
    
    
    8,697
    
    
    
    23,938
    
    
    
    25,898Depreciation and amortization
    
    
    14,353
    
    
    
    13,423
    
    
    
    42,995
    
    
    
    38,788Impairment of fixed assets
    
    
    3,473
    
    
    
    839
    
    
    
    4,604
    
    
    
    1,981119,005
    
    
    
    116,528
    
    
    
    355,516
    
    
    
    341,694Operating income
    
    
    1,444
    
    
    
    11,581
    
    
    
    15,554
    
    
    
    42,128Interest expense
    
    
    5,378
    
    
    
    5,783
    
    
    
    15,944
    
    
    
    17,930Interest income
    
    
    (1
    )
    
    
    (76
    )
    
    
    (2
    )
    
    
    (291
    )Equity in the earnings of investees and rental income
    
    
    (444
    )
    
    
    (634
    )
    
    
    (1,452
    )
    
    
    (1,701
    )Income (loss) before provision (benefit) for corporate income taxes
    
    
    (3,489
    )
    
    
    6,508
    
    
    
    1,064
    
    
    
    26,190Provision (benefit) for corporate income taxes
    
    
    (2,004
    )
    
    
    2,668
    
    
    
    (614
    )
    
    
    10,738Net income (loss)
    
    $
    (1,485
    )
    
    $
    3,840
    
    
    $
    1,678
    
    
    $
    15,452Earnings per share:Basic
    
    $
    (0.07
    )
    
    $
    0.15
    
    
    $
    0.07
    
    
    $
    0.59Diluted
    
    $
    (0.07
    )
    
    $
    0.14
    
    
    $
    0.07
    
    
    $
    0.58Weighted average number of shares used in calculating earnings per
share:Basic
    
    
    22,565,564
    
    
    
    26,445,288
    
    
    
    22,770,792
    
    
    
    26,389,804Diluted
    
    
    22,565,564
    
    
    
    26,547,121
    
    
    
    22,790,102
    
    
    
    26,464,915Statements of Comprehensive Income (Loss)Net income (loss)
    
    $
    (1,485
    )
    
    $
    3,840
    
    
    $
    1,678
    
    
    $
    15,452Foreign currency translation adjustments
    
    
    259
    
    
    
    (441
    )
    
    
    182
    
    
    
    16Comprehensive income (loss)
    
    $
    (1,226
    )
    
    $
    3,399
    
    
    $
    1,860
    
    
    $
    15,468
  4




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TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2009 and 2008
(In $000s)
(Unaudited)
 Nine Months EndedSeptember 30,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    1,678
    
    
    $
    15,452Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    42,995
    
    
    
    38,788Impairment of fixed assets
    
    
    4,604
    
    
    
    1,981Write-off of deferred financing costs
    
    
    100
    
    
    
    Non-cash interest expense on Senior Discount Notes
    
    
    1,203
    
    
    
    10,328Amortization of debt issuance costs
    
    
    643
    
    
    
    583Noncash rental expense, net of noncash rental income
    
    
    (1,686
    )
    
    
    (242
    )Compensation expense incurred in connection with stock options and common stock grants
    
    
    1,257
    
    
    
    876Net changes in certain operating assets and liabilities
    
    
    2,156
    
    
    
    3,187Increase in deferred tax asset
    
    
    (3,474
    )
    
    
    (2,400
    )Landlord contributions to tenant improvements
    
    
    4,664
    
    
    
    4,282Change in reserve for self-insured liability claims
    
    
    430
    
    
    
    1,738Decrease in deferred membership costs
    
    
    4,345
    
    
    
    1,940Other
    
    
    (133
    )
    
    
    (190
    )Total adjustments
    
    
    57,104
    
    
    
    60,871Net cash provided by operating activities
    
    
    58,782
    
    
    
    76,323Cash flows from investing activities:Capital expenditures
    
    
    (39,805
    )
    
    
    (63,162
    )Insurance Proceeds
    
    
    
    
    
    
    1,074Net cash used in investing activities
    
    
    (39,805
    )
    
    
    (62,088
    )Cash flows from financing activities:Proceeds from borrowings on Revolving Loan Facility
    
    
    82,800
    
    
    
    Repayment of borrowings on Revolving Loan Facility
    
    
    (93,000
    )
    
    
    (9,000
    )Repayment of long-term borrowings
    
    
    (1,388
    )
    
    
    (1,435
    )Costs related to deferred financing
    
    
    (615
    )
    
    
    Repurchase of common stock
    
    
    (5,355
    )
    
    
    Proceeds from exercise of stock options
    
    
    36
    
    
    
    1,194Tax benefit from stock option exercises
    
    
    21
    
    
    
    174Net cash used in financing activities
    
    
    (17,501
    )
    
    
    (9,067
    )Effect of exchange rate changes on cash
    
    
    146
    
    
    
    31Net increase in cash and cash equivalents
    
    
    1,622
    
    
    
    5,199Cash and cash equivalents at beginning of period
    
    
    10,399
    
    
    
    5,463Cash and cash equivalents at end of period
    
    $
    12,021
    
    
    $
    10,662Summary of change in certain operating assets and liabilities:Increase in accounts receivable
    
    $
    (1,618
    )
    
    $
    (3,611
    )Decrease (increase)in inventory
    
    
    6
    
    
    
    (4
    )Decrease in prepaid expenses and other current assets
    
    
    1,018
    
    
    
    3,478Increase in accounts payable, accrued expenses and accrued interest
    
    
    651
    
    
    
    4,301Increase in accrued interest on Senior Discount Notes
    
    
    2,538
    
    
    
    Change in prepaid corporate income taxes
    
    
    4,545
    
    
    
    (2,120
    )(Decrease) increase in deferred revenue
    
    
    (4,984
    )
    
    
    1,143Net changes in certain operating assets and liabilities
    
    $
    2,156
    
    
    $
    3,187
  5




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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
    6




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3. Long-Term Debt
 September 30,
    
    
    December 31,2009
    
    
    2008Term Loan Facility
    
    $
    180,375
    
    
    $
    181,763Revolving Loan Facility borrowings
    
    
    8,800
    
    
    
    19,00011% Senior Discount Notes
    
    
    138,450
    
    
    
    137,247327,625
    
    
    
    338,010Less current portion to be paid within one year
    
    
    10,650
    
    
    
    20,850Long-term portion
    
    $
    316,975
    
    
    $
    317,160
     Fair Market Value
  7




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##### Table of Contents



4. Earnings (Loss) Per Share
     Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Weighted average number of shares of Common Stock
outstanding  basic
    
    
    22,565,564
    
    
    
    26,445,288
    
    
    
    22,770,792
    
    
    
    26,389,804Effect of dilutive stock options and restricted Common Stock
    
    
    
    
    
    
    101,833
    
    
    
    19,310
    
    
    
    75,111Weighted average number of shares of Common Stock
outstanding  diluted
    
    
    22,565,564
    
    
    
    26,547,121
    
    
    
    22,790,102
    
    
    
    26,464,915
 5. Common Stock and Stock-Based Compensation
   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
 8




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##### Table of Contents



Restricted Stock Grants
   6. Fixed Asset Impairment and Club Closures
    Basis of Fair Value MeasurementsFair Value of
    
    
    Quoted Prices in Active
    
    
    Significant OtherAssets
    
    
    markets for Identical
    
    
    Observable Inputs
    
    
    Significant UnobservableDate
    
    (Liabilities)
    
    
    Items (Level 1)
    
    
    (Level 2)
    
    
    Inputs (Level 3)Fixed assets
    
    $
    1,642
    
    
    $
    
    
    
    $
    
    
    
    $
    1,642
   9




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##### Table of Contents



7. Goodwill and Other Intangibles
     Balance as of December 31, 2008
    
    $
    32,610Changes due to foreign currency exchange rate fluctuations
    
    
    26Balance as of September 30, 2009
    
    $
    32,636
 As of September 30, 2009Gross Carrying
    
    
    AccumulatedAcquired Intangible Assets
    
    Amount
    
    
    Amortization
    
    
    Net IntangiblesCovenants-not-to-compete
    
    $
    1,508
    
    
    $
    (1,310
    )
    
    $
    198
 As 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
    )
    
    $
    281
 10




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Aggregate Amortization Expense for the twelve months ending September 30,2010
    
    $
    1372011
    
    
    61$
    198
  8. Income Taxes
       9. Commitments and Contingencies
 Sarah Cruz, et al v. Town Sports International,
dba New York Sports Club
  11




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Town Sports International, LLC v. Ajilon Solutions,
a division of Ajilon Professional Staffing LLC (Supreme Court of the State of New York, New York
County, 602911-09)
  10. Investments in Affiliated Companies
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Revenue
    
    $
    739
    
    
    $
    813
    
    
    $
    2,219
    
    
    $
    2,587Income from operations
    
    
    (61
    )
    
    
    229
    
    
    
    30
    
    
    
    961Net income
    
    
    (82
    )
    
    
    190
    
    
    
    (91
    )
    
    
    851
 11. Subsequent Event
  12




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##### Table of Contents



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
nine months ended September 30, 2009. We recognize revenue from membership dues in the month
when the services are rendered. Approximately 96% 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 expected life of the membership. Prior to
April 1, 2009, the expected 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 nine months ended September 30, 2009, we generated 11.7%
of our revenue from personal training and 5.1% 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 Count
  2008
    
    
    2009Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    Total
    
    
    Q1
    
    
    Q2
    
    
    Q3Wholly owned clubs operated at beginning of period
    
    
    159
    
    
    
    160
    
    
    
    161
    
    
    
    162
    
    
    
    159
    
    
    
    164
    
    
    
    165
    
    
    
    164New clubs opened
    
    
    2
    
    
    
    3
    
    
    
    1
    
    
    
    3
    
    
    
    9
    
    
    
    4
    
    
    
    
    
    
    
    Clubs acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Clubs closed, relocated or merged
    
    
    (1
    )
    
    
    (2
    )
    
    
    
    
    
    
    (1
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    (1
    )
    
    
    (1
    )Wholly owned clubs at end of period
    
    
    160
    
    
    
    161
    
    
    
    162
    
    
    
    164
    
    
    
    164
    
    
    
    165
    
    
    
    164
    
    
    
    163Total clubs operated at end of period (1)
    
    
    162
    
    
    
    163
    
    
    
    164
    
    
    
    166
    
    
    
    166
    
    
    
    167
    
    
    
    166
    
    
    
    165
 
 (1)
    
    Includes wholly-owned and partly-owned clubs. In addition to the
above, as of September 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
    )%Three months ended September 30, 2009
    
    
    (7.0
    )%
   15




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Results of Operations
  Three Months
    
    Nine MonthsEnded September 30 ,
    
    Ended September 30 ,2009
    
    2008
    
    2009
    
    2008Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Payroll and related
    
    
    39.4
    
    
    
    38.3
    
    
    
    39.5
    
    
    
    38.1Club operating
    
    
    37.9
    
    
    
    34.7
    
    
    
    37.1
    
    
    
    33.5General and administrative
    
    
    6.7
    
    
    
    6.8
    
    
    
    6.4
    
    
    
    6.8Depreciation and amortization
    
    
    11.9
    
    
    
    10.5
    
    
    
    11.6
    
    
    
    10.1Impairment of fixed assets
    
    
    2.9
    
    
    
    0.7
    
    
    
    1.2
    
    
    
    0.598.8
    
    
    
    91.0
    
    
    
    95.8
    
    
    
    89.0Operating income
    
    
    1.2
    
    
    
    9.0
    
    
    
    4.2
    
    
    
    11.0Interest expense
    
    
    4.5
    
    
    
    4.5
    
    
    
    4.3
    
    
    
    4.7Interest income
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Equity in the earnings of investees and rental income
    
    
    (0.4
    )
    
    
    (0.5
    )
    
    
    (0.4
    )
    
    
    (0.4
    )Income (loss) before provision (benefit) for corporate income taxes
    
    
    (2.9
    )
    
    
    5.1
    
    
    
    0.3
    
    
    
    6.8Provision (benefit) for corporate income taxes
    
    
    (1.7
    )
    
    
    2.1
    
    
    
    (0.2
    )
    
    
    2.8Net income (loss)
    
    
    (1.2
    )%
    
    
    3.0
    %
    
    
    0.5
    %
    
    
    4.0
    %
  Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
 Revenue was comprised of the following for the periods indicated (in 000s):
 Three Months Ended September 30,2009
    
    
    2008Revenue
    
    
    % Revenue
    
    
    Revenue
    
    
    % Revenue
    
    
    % VarianceMembership dues
    
    $
    95,400
    
    
    
    79.2
    %
    
    $
    101,025
    
    
    
    78.9
    %
    
    
    (5.6
    )%Initiation fees
    
    
    3,113
    
    
    
    2.6
    %
    
    
    3,505
    
    
    
    2.7
    %
    
    
    (11.2
    )%Membership revenue
    
    
    98,513
    
    
    
    81.8
    %
    
    
    104,530
    
    
    
    81.6
    %
    
    
    (5.8
    )%Personal training revenue
    
    
    13,526
    
    
    
    11.2
    %
    
    
    14,871
    
    
    
    11.6
    %
    
    
    (9.0
    )%Other ancillary club revenue
    
    
    7,243
    
    
    
    6.0
    %
    
    
    7,281
    
    
    
    5.7
    %
    
    
    (0.5
    )%Ancillary club revenue
    
    
    20,769
    
    
    
    17.2
    %
    
    
    22,152
    
    
    
    17.3
    %
    
    
    (6.2
    )%Fees and other revenue
    
    
    1,167
    
    
    
    1.0
    %
    
    
    1,427
    
    
    
    1.1
    %
    
    
    (18.3
    )%Total revenue
    
    $
    120,449
    
    
    
    100.0
    %
    
    $
    128,109
    
    
    
    100.0
    %
    
    
    (6.0
    )%
   16




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##### Table of Contents



Operating expenses were comprised of the following for the periods indicated (in 000s):
 Three Months EndedSeptember 30,2009
    
    
    2008
    
    

% VariancePayroll and related
    
    $
    47,487
    
    
    $
    49,171
    
    
    
    (3.4
    )%Club operating
    
    
    45,589
    
    
    
    44,398
    
    
    
    2.7
    %General and administrative
    
    
    8,103
    
    
    
    8,697
    
    
    
    (6.8
    )%Depreciation and amortization
    
    
    14,353
    
    
    
    13,423
    
    
    
    6.9
    %Impairment of fixed assets
    
    
    3,473
    
    
    
    839
    
    
    
    313.9
    %Operating expenses
    
    $
    119,005
    
    
    $
    116,528
    
    
    
    2.1
    %
  Payroll and related
  Club operating
 
    
    Rent and occupancy expenses increased $1.6 million for the three
months ended September 30, 2009 compared to the same period in the
prior year. Rent and occupancy costs increased $718,000 at clubs that
opened after July 1, 2008 and increased $1.5 million at our clubs that
opened prior to July 1, 2008. Rent and occupancy expenses decreased $661,000 at our clubs that were closed after July 1, 2008.
    
    Expenses relating to laundry and towels decreased $695,000 for the
three months ended September 30, 2009 compared to the same period in
the prior year primarily related to the opening of our laundry
facility in Elmsford, NY in January 2009.
 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
   Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
 Revenue was comprised of the following for the periods indicated (in 000s):
 Nine Months Ended September 30,2009
    
    
    2008Revenue
    
    
    % Revenue
    
    
    Revenue
    
    
    % Revenue
    
    
    % VarianceMembership dues
    
    $
    294,465
    
    
    
    79.4
    %
    
    $
    301,696
    
    
    
    78.6
    %
    
    
    (2.4
    )%Initiation fees
    
    
    9,622
    
    
    
    2.6
    %
    
    
    10,393
    
    
    
    2.7
    %
    
    
    (7.4
    )%Membership revenue
    
    
    304,087
    
    
    
    82.0
    %
    
    
    312,089
    
    
    
    81.3
    %
    
    
    (2.6
    )%Personal training revenue
    
    
    43,696
    
    
    
    11.7
    %
    
    
    47,712
    
    
    
    12.4
    %
    
    
    (8.4
    )%Other ancillary club revenue
    
    
    19,587
    
    
    
    5.3
    %
    
    
    19,517
    
    
    
    5.1
    %
    
    
    0.4
    %Ancillary club revenue
    
    
    63,283
    
    
    
    17.0
    %
    
    
    67,229
    
    
    
    17.5
    %
    
    
    (5.9
    )%Fees and other revenue
    
    
    3,700
    
    
    
    1.0
    %
    
    
    4,504
    
    
    
    1.2
    %
    
    
    (17.9
    )%Total revenue
    
    $
    371,070
    
    
    
    100.0
    %
    
    $
    383,822
    
    
    
    100.0
    %
    
    
    (3.3
    )%
     18




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##### Table of Contents



Operating expenses were comprised of the following for the periods indicated (in 000s):
 Nine Months Ended September 30,2009
    
    2008
    

% VariancePayroll and related
    
    $
    146,480
    
    
    $
    146,228
    
    
    
    0.2
    %Club operating
    
    
    137,499
    
    
    
    128,799
    
    
    
    6.8
    %General and administrative
    
    
    23,938
    
    
    
    25,898
    
    
    
    (7.6
    )%Depreciation and amortization
    
    
    42,995
    
    
    
    38,788
    
    
    
    10.8
    %Impairment of fixed assets
    
    
    4,604
    
    
    
    1,981
    
    
    
    132.4
    %Operating expenses
    
    $
    355,516
    
    
    $
    341,694
    
    
    
    4.0
    %
  Payroll and related
  Club
operating
 
    
    Rent and occupancy expenses increased $6.9 million. Rent and occupancy
costs increased $4.3 million at clubs that opened after January 1, 2008
and increased $2.3 million at our clubs that opened prior to
January 1, 2008. In addition, we recorded early lease termination costs of $811,000 in the
nine months ended September 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 leasing 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
$1.0 million, before rent penalties, at our clubs that were closed
after January 1, 2008.
    
    Electric, gas and oil expenses increased $756,000 primarily due to the
13 clubs that opened after January 1, 2008 as well as the new laundry
facility in Elmsford, NY.
    
    Expenses relating to laundry and towels decreased $630,000 primarily
related to the opening of our laundry facility in Elmsford, NY in
January 2009.
 General and administrative
 Depreciation and amortization
 Impairment of fixed assets
 19




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##### Table of Contents



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 our 11% Senior Discount Notes 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 Period (in (000s)Less than
    
    
    
    
    
    
    
    
    
    
    AfterContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsLong-Term Debt
    
    $
    327,625
    
    
    $
    10,650
    
    
    $
    3,700
    
    
    $
    313,275
    
    
    $
    Operating Lease Obligations(1)
    
    
    833,156
    
    
    
    81,347
    
    
    
    159,127
    
    
    
    143,395
    
    
    
    449,287Total Contractual Cash Obligations
    
    $
    1,160,781
    
    
    $
    91,997
    
    
    $
    162,827
    
    
    $
    456,670
    
    
    $
    449,287
 Notes:
      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
  Town Sports International, LLC v. Ajilon Solutions,
a division of Ajilon Professional Staffing LLC (Supreme Court of the State of New York, New York
County, 602911-09)
  
 Item 1A.
    
    Risk Factors
  25




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##### Table of Contents



ITEM 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 3.
    
    Defaults Upon Senior Securities.
  
 ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
  
 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: October 28, 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 September 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).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