Lifetime Fitness 2006 Annual Report Download - page 35

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29
Other revenue increased $2.4 million, or 26.8%, to $11.5 million from $9.1 million, which was primarily due to
increased advertising revenue from our media business and rental revenue from our Highland Park office building.
Center operations expenses. Center operations expenses were $292.3 million, or 58.4% of total center revenue (or
57.1% of total revenue), for the year ended December 31, 2006 compared to $216.3 million, or 56.8% of total center
revenue (or 55.4% of total revenue), for the year ended December 31, 2005. This $76.0 million increase primarily
consisted of $38.9 million in additional payroll-related costs to support increased memberships at new centers, an
increase of $16.5 million in facility-related costs, including incremental lease expense for the seven leased centers,
utilities and real estate taxes, an increase in expenses to support in-center products and services and $2.2 million due
to incremental share-based compensation expense. As a percent of total center revenue, center operations expense
increased primarily due to the lower center operating margins associated with new centers including the leased
centers for which we assumed operations in July 2006 and the incremental share-based compensation expense.
Advertising and marketing expenses. Advertising and marketing expenses were $20.8 million, or 4.1% of total
revenue, for the year ended December 31, 2006 compared to $14.5 million, or 3.7% of total revenue, for the year
ended December 31, 2005. These expenses increased primarily due to advertising for our new centers and those
centers engaging in presale activities.
General and administrative expenses. General and administrative expenses were $37.8 million, or 7.4% of total
revenue, for the year ended December 31, 2006 compared to $27.4 million, or 7.0% of total revenue, for the year
ended December 31, 2005. This $10.4 million increase was primarily due to increased costs to support the growth in
membership and the center base in 2006, as well as $5.4 million of incremental share-based compensation expense.
Other operating expenses. Other operating expenses were $13.0 million for the year ended December 31, 2006
compared to $12.7 million for the year ended December 31, 2005.
Depreciation and amortization. Depreciation and amortization was $47.6 million for the year ended December 31,
2006 compared to $38.3 million for the year ended December 31, 2005. This $9.3 million increase was due
primarily to depreciation on our centers opened in 2005 and 2006.
Interest expense, net. Interest expense, net of interest income, was $17.4 million for the year ended December 31,
2006 compared to $14.1 million for the year ended December 31, 2005. This $3.3 million increase was primarily the
result of increased average debt balances.
Provision for income taxes. The provision for income taxes was $33.5 million for the year ended December 31, 2006
compared to $26.8 million for the year ended December 31, 2005. This $6.7 million increase was due to an increase
in income before income taxes of $16.1 million and an increase in the effective tax rate to 39.9% for the year ended
December 31, 2006 compared to 39.4% for the year ended December 31, 2005.
Net income. As a result of the factors described above, net income was $50.6 million, or 9.9% of total revenue, for
the year ended December 31, 2006 compared to $41.2 million, or 10.6% of total revenue, for the year ended
December 31, 2005.
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Total revenue. Total revenue increased $78.1 million, or 25.0%, to $390.1 million for the year ended December 31,
2005 from $312.0 million for the year ended December 31, 2004.
Total center revenue grew $80.9 million, or 27.0%, to $381.0 million from $300.1 million, driven by a 7.7%
increase in comparable center revenue, opening of seven new centers in 2005 and the full-year contribution of six
centers opened in 2004. Of the $80.9 million increase in total center revenue,
• 66.8% was from membership dues, which increased $54.1 million, due to increased memberships at new and
existing centers.
• 32.3% was from in-center revenue, which increased $26.1 million primarily as a result of our members’
increased use of our personal training, LifeCafe and LifeSpa products and services. As a result of this in-