Lifetime Fitness 2009 Annual Report Download - page 37

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our historical results of operations and our liquidity and capital resources should be
read in conjunction with the consolidated financial statements and related notes that appear elsewhere in this
report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated in these forward-looking statements as a result of various factors,
including those discussed in “Risk Factors” beginning on page 16 of this report.
Overview
We operate distinctive and large, multi-use sports and athletic, professional fitness, family recreation and spa centers
in a resort-like environment. As of February 26, 2010, we operated 86 centers primarily in residential locations
across 19 states under the LIFE TIME FITNESS and LIFE TIME ATHLETIC brands.
We compare the results of our centers based on how long the centers have been open at the most recent
measurement period. We include a center for comparable center revenue purposes beginning on the first day of the
thirteenth full calendar month of the center’s operation, prior to which time we refer to the center as a new center.
We include an acquired center for comparable center revenue purposes beginning on the first day of the thirteenth
full calendar month after we assumed the center’s operations.
As we grow our presence in existing markets by opening new centers, we expect to attract some memberships away
from our other existing centers already in those markets, reducing revenue and initially lowering the memberships of
those existing centers. In addition, as a result of new center openings in existing markets, and because older centers
will represent an increasing proportion of our center base over time, our comparable center revenue may be lower in
future periods than in the past. Of the three new large format centers we have opened or plan to open in 2010, two
will be in existing markets. Of the two boutique centers we have opened or plan to open in 2010, both will be in
existing markets. We do not expect that operating costs of our planned new centers will be significantly higher than
centers opened in the past, and we also do not expect that the planned increase in the number of centers will have a
material adverse effect on the overall financial condition or results of operations of existing centers.
As a result of opening new centers, assuming the operations of seven leased facilities in 2006, assuming the
operations of one leased facility in 2007 and entering into sale-leaseback transactions for six facilities in 2008, our
center operating margins are lower than they have been historically. We expect that the addition of pre-opening
expenses and the lower revenue volumes characteristic of newly-opened centers, as well as the occupancy costs for
the eight leased centers and the lease costs for facilities which we financed through sale-leaseback transactions, will
affect our center operating margins at these centers and on a consolidated basis.
In 2008 and 2009, we experienced increased member attrition and lower revenue per membership as well as higher
membership acquisition costs due to the challenging economic environment. If the challenging economic conditions
continue, we may face continued lower total revenue and operating profit in affected centers and on a consolidated
basis. Certain of our markets may be impacted more severely than others as a result of regional economic factors
such as housing, competition or unemployment rates.
Our categories of new centers and existing centers do not include the center owned by Bloomingdale, LLC because
it is accounted for as an investment in an unconsolidated affiliate and is not consolidated in our financial statements.
We measure performance using such key operating statistics as member satisfaction ratings, return on investment,
average revenue per membership, including membership dues and enrollment fees, average in-center revenue per
membership and center operating expenses, with an emphasis on payroll and occupancy costs, as a percentage of
sales and comparable center revenue growth. We use center revenue and EBITDA margins to evaluate overall
performance and profitability on an individual center basis. In addition, we focus on several membership statistics
on a center-level and system-wide basis. These metrics include change in center membership levels and growth of
system-wide memberships, percentage center membership to target capacity, center membership usage, center
membership mix among individual, couple and family memberships, Flex subscription memberships and center
attrition rates. During 2008, our annual attrition rate increased from 34.3% to 42.3% driven primarily by the slowing
economy and inactive members leaving earlier than in the past. During 2009, our annual attrition rate has decreased
from 42.3% to 40.6%.