Lifetime Fitness 2009 Annual Report Download - page 38

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We have three primary sources of revenue:
xFirst, our largest source of revenue is membership dues (67.5% of total revenue for the year ended
December 31, 2009) and enrollment fees (3.1% of total revenue for the year ended December 31, 2009)
paid by our members. We recognize revenue from monthly membership dues in the month to which they
pertain. We recognize revenue from enrollment fees over the estimated average membership life, which we
estimate to be 30 months for 2009 and the fourth quarter of 2008, 33 months for the second and third
quarters of 2008 and 36 months for the first quarter of 2008 and prior periods.
xSecond, we generate revenue within a center, which we refer to as in-center revenue, or in-center
businesses (27.8% of total revenue for the year ended December 31, 2009), including fees for personal
training, registered dieticians, group fitness training and other member activities, sales of products at our
LifeCafe, sales of products and services offered at our LifeSpa, tennis programs and renting space in
certain of our centers.
xThird, we have expanded the LIFE TIME FITNESS brand into other wellness-related offerings that
generate revenue, which we refer to as other revenue, or corporate businesses (1.6% of total revenue for the
year ended December 31, 2009), including our media, wellness and athletic events businesses. Our primary
media offering is our magazine, Experience Life. Other revenue also includes two restaurants in the
Minneapolis market and rental income from our Highland Park, Minnesota office building.
Center operations expenses consist primarily of salary, commissions, payroll taxes, benefits, real estate taxes and
other occupancy costs, utilities, repairs and maintenance, supplies, administrative support and communications to
operate our centers. Advertising and marketing expenses consist of our marketing department costs and media and
advertising costs to support center membership levels, in-center businesses and our corporate businesses. General
and administrative expenses include costs relating to our centralized support functions, such as accounting,
information systems, procurement, real estate and development and member relations. Our other operating expenses
include the costs associated with our media, athletic events and nutritional product businesses, two restaurants and
other corporate expenses, as well as gains or losses on our dispositions of assets. Our total operating expenses may
vary from period to period depending on the number of new centers opened during that period, the number of
centers engaged in presale activities and the performance of our in-center businesses.
Our primary capital expenditures relate to the construction of new centers and updating and maintaining our existing
centers. The land acquisition, construction and equipment costs for a current model center can vary considerably
based on variability in land cost and the cost of construction labor, as well as whether or not a tennis area is included
or whether or not we expand the gymnasium or add other facilities. We perform maintenance and make
improvements on our centers and equipment throughout each year. We conduct a more thorough remodeling project
at each center approximately every four to six years.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S., or
GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Ultimate results could differ from those estimates. In recording
transactions and balances resulting from business operations, we use estimates based on the best information
available. We use estimates for such items as depreciable lives and tax provisions. We also use estimates for
calculating the amortization period for deferred enrollment fee revenue and associated direct costs, which are based
on the historical estimated average membership life. We revise the recorded estimates when better information is
available, facts change or we can determine actual amounts. These revisions can affect operating results. We have
identified below the following accounting policies that we consider to be critical.