Lifetime Fitness 2009 Annual Report Download - page 17

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12
Design and Construction. We have a wholly owned subsidiary, FCA Construction, which provides us with
experienced in-house architecture and construction teams and is comprised of approximately 60 employees. This
subsidiary is dedicated solely to overseeing the design and construction of each new center and the remodeling of
existing centers.
Our centers are designed by our architecture division, which has developed a prototypical set of design and
construction plans and specifications that can be easily adapted to each new site. Our architecture division also
assists our construction division in obtaining bids and permits in connection with constructing each new center.
Our construction division includes the project management of each new site and remodel, as well as all other back
office responsibilities, such as purchasing, project accounting and sub-contractor selection. Dedicated internal
personnel work on expediting the permitting processes and project scheduling. Our bid phase specialists obtain
referrals for local subcontractors, monitor project costs, coordinate compliance with safety requirements, and
prepare site documentation. Our project management group oversees the construction of each new center and works
with our architects to review bids and monitor quality. Our construction procurement group bids each component of
our projects to ensure cost-effective pricing. By using the same materials at each center, we not only maintain a
consistent ‘look and feel,’ but also are generally able to purchase materials in sufficient quantities to receive
favorable pricing. Each center has an on-site construction superintendant responsible for coordinating the project
build-out.
By utilizing FCA Construction, we are able to maximize our flexibility in the design process, retain control over the
cost and timing of the construction process and realize potential cost savings on each project. Nearly all of the costs
of the FCA Construction subsidiary are capitalized as a part of the overall initial investment in the center or the
remodel. Any remaining unallocated costs are recognized as an expense in the period incurred. Because FCA
Construction performs services solely for us, we do not recognize any revenue or profit related to FCA
Construction's operations.
In October 2008, we announced the decision to reduce the number of planned new center openings in 2009 and
2010. This business decision was made as a result of economic factors and, most notably, the challenging capital
markets upon which we rely to fund the construction of new centers. In connection with this decision, in late 2008
and early 2009, we realigned our staffing levels and cost structure with the revised growth plan. As a result of these
actions, we believe we are in a position to fund our planned new center development for the foreseeable future via
existing financing and cash flow, and that we have a cost structure that aligns with our revised growth plans. We
will continue to evaluate our staffing levels and cost structure in the future.
Marketing and Sales
Overview of Marketing. Our centralized marketing agency is responsible for generating membership leads for our
sales force, supporting our corporate businesses and promoting our brand. Our marketing agency consists of four
fully integrated divisions which are new member acquisition and retention, planning and analysis, creative
development and production, and Web development. By centralizing our marketing effort, we bring our marketing
experience and strategy to each new market we enter in a coordinated manner. We also market to corporations and,
in some situations, we offer discounted enrollment fees for persons associated with these corporations. Membership
enrollment activity is tracked to gauge the effectiveness of each marketing medium, which can be adjusted as
necessary from a center’s pre-opening phase to maturity and beyond.
Overview of Sales. We have a trained and certified, commissioned sales staff in each center that is responsible for
membership acquisition and member retention through the conversion of company generated leads and for self
generated leads through many various prospecting channels. During the pre-opening and grand opening phases
described below, we have up to 12 member advisors on staff at a center. As the center matures, we reduce the
number of member advisors on staff to between six and eight. Our sales staff also uses our customer relationship
management system to gather fitness and related interests of our members and prospects and to effectively manage
these relationships to promote maximum results.
Pre-Opening Phase. We generally begin selling memberships up to five months prior to a center’s scheduled
opening. New members are attracted during this period primarily through a portfolio of broad-reach and targeted
consumer and business-to-business media as well as referral promotions. To further attract new members during this
period, we occasionally offer lower pre-opening enrollment fees.