Lifetime Fitness 2006 Annual Report Download - page 36

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center revenue growth and our focus on broadening our offerings to our members, average in-center revenue
per membership increased from $267 to $300 for the year ended December 31, 2005.
• 0.9% was from enrollment fees, which are deferred until a center opens and recognized on a straight-line
basis over 36 months. Enrollment fees increased $0.7 million for the year ended December 31, 2005 to $20.3
million. Our number of memberships increased 19.6% to 358,384 at December 31, 2005 from 299,538 at
December 31, 2004.
Other revenue decreased $2.8 million, or 23.5%, to $9.1 million from $11.9 million, which was primarily due to
decreased revenue generated from external sales in our nutritionals division as a result of our phase out of selling our
nutritional products at third party retailers.
Center operations expenses. Center operations expenses were $216.3 million, or 56.8% of total center revenue (or
55.4% of total revenue), for the year ended December 31, 2005 compared to $164.8 million, or 54.9% of total center
revenue (or 52.8% of total revenue), for the year ended December 31, 2004. This $51.5 million increase primarily
consisted of an increase of $22.0 million in payroll-related costs to support increased memberships at new centers,
an increase in $10.3 million in facility-related costs, including utilities and real estate taxes, and increased expenses
to support in-center products and services. As a percent of total center revenue, center operations expense increased
primarily due to the lower operating margins associated with new centers. At December 31, 2005, we had seven
centers in the first year of operations compared to six centers in the first year of operations at December 31, 2004,
and 13 centers in the first 24 months of operations at December 31, 2005 compared to 10 centers in the first 24
months of operations at December 31, 2004.
Advertising and marketing expenses. Advertising and marketing expenses were $14.5 million, or 3.7% of total
revenue, for the year ended December 31, 2005 compared to $12.2 million, or 3.9% of total revenue, for the year
ended December 31, 2004. As a percentage of total revenue, these expenses decreased primarily due to lower
advertising costs associated with our nutritional business, partially offset by increased advertising at our new
centers.
General and administrative expenses. General and administrative expenses were $27.4 million, or 7.0% of total
revenue, for the year ended December 31, 2005 compared to $21.6 million, or 6.9% of total revenue, for the year
ended December 31, 2004. This $5.8 million increase was primarily due to increased costs to support the growth in
membership and the center base in 2005, as well as costs associated with being a public company.
Other operating expenses. Other operating expenses were $12.7 million for the year ended December 31, 2005
compared to $18.3 million for the year ended December 31, 2004. This $5.6 million decrease was primarily due to
lower costs associated with our nutritional product and media businesses.
Depreciation and amortization. Depreciation and amortization was $38.3 million for the year ended December 31,
2005 compared to $29.7 million for the year ended December 31, 2004. This $8.6 million increase was due to the
opening of seven centers during the year, as well as the full-year effect of depreciation for the six centers opened in
2004.
Interest expense, net. Interest expense, net of interest income, was $14.1 million for the year ended December 31,
2005 compared to $17.6 million for the year ended December 31, 2004. This $3.5 million decrease was primarily
the result of reduced average debt balances for our non-construction related debt, lower interest rates on certain of
our non-construction related debt and a reduction in interest expense on leased equipment. Proceeds from the initial
public offering and increased cash flows from operating activities allowed us to limit our borrowings during 2004
and 2005.
Provision for income taxes. The provision for income taxes was $26.8 million for the year ended December 31, 2005
compared to $20.1 million for the year ended December 31, 2004. This $6.7 million increase was due to an increase
in income before income taxes of $19.0 million, partially offset by a decrease in the effective tax rate to 39.4% for
the year ended December 31, 2005 compared to 41.0% for the year ended December 31, 2004. The reduction in tax
rate was driven by a business entity realignment that reduced state income taxes and resultant cumulative state
deferred tax liabilities.