Lifetime Fitness 2009 Annual Report Download - page 53

LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
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1. Nature of Business
Life Time Fitness, Inc., a Minnesota corporation, and our subsidiaries are primarily engaged in designing, building
and operating distinctive and large, multi-use sports and athletic, professional fitness, family recreation and spa
centers in a resort-like environment, principally in residential locations of major metropolitan areas. As of December
31, 2009, we operated 84 centers, including 24 in Minnesota, 17 in Texas, nine in Illinois, six in Michigan, four in
Arizona and Georgia, three in Ohio and Virginia, two in Colorado, Maryland and New Jersey and one each in
Florida, Indiana, Kansas, Missouri, Nebraska, North Carolina, Tennessee and Utah.
2. Significant Accounting Policies
Principles of Consolidation — The consolidated financial statements include the accounts of Life Time Fitness, Inc.
and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.
Revenue Recognition — We receive a one-time enrollment fee at the time a member joins and monthly membership
dues for usage from our members. The enrollment fees are nonrefundable after 14 days. Enrollment fees and related
direct expenses, primarily sales commissions, are deferred and recognized on a straight-line basis over an estimated
average membership life of 30 months, which is based on historical membership experience. During 2008, there was
a substantial shift in our attrition activity, primarily as a result of macroeconomic pressures and a challenging
consumer environment. During the second quarter of 2008, we changed our estimated average membership life from
36 months to 33 months. The pressure continued throughout the second half of 2008; therefore, we reduced the
estimated average membership life to 30 months at the beginning of the fourth quarter. Since the fourth quarter of
2008, the estimated average membership life has been 30 months. Our attrition rate in 2009 improved slightly from
a high of 42.7% at the end of first quarter to 40.6% at year-end. If the direct expenses related to the enrollment fees
exceed the enrollment fees for any center, the amount of direct expenses in excess of the enrollment fees are
expensed in the current period instead of deferred over the estimated average membership life. The amount of direct
expenses in excess of enrollment fees totaled $8.4 million and $6.0 million for the years ended December 31, 2009
and 2008 respectively. In addition, monthly membership dues paid in advance of a center’s opening are deferred
until the center opens. We offer members month-to-month memberships and recognize as revenue the monthly
membership dues in the month to which they pertain.
We provide a wide range of services at each of our centers, including personal training, spa, cafe and other member
offerings. The revenue associated with these services is recognized at the time the service is performed. Personal
training revenue received in advance of training sessions and the related commissions are deferred and recognized
when services are performed. Other revenue includes revenue from our media, athletic events and restaurant. Media
advertising revenue is recognized over the duration of the advertising placement. For athletic events, revenue is
generated primarily through sponsorship sales and registration fees. Athletic event revenue is recognized upon the
completion of the event. Restaurant revenue is recognized at the point of sale to the customer.
Pre-Opening Operations — We generally operate a preview center up to five months prior to the planned opening
of a center during which time memberships are sold as construction of the center is being completed. The revenue
and direct membership acquisition costs, primarily sales commissions, incurred during the period prior to a center
opening are deferred until the center opens and are then recognized on a straight-line basis over the estimated
average membership life, beginning when the center opens; however, the related advertising, office, rent and other
expenses incurred during this period are expensed as incurred.
Cash and Cash Equivalents — We classify all unrestricted cash accounts and highly liquid debt instruments
purchased with original maturities of three months or less to be cash and cash equivalents.
Restricted Cash — We are required to keep funds on deposit at certain financial institutions related to certain of our
credit facilities. Our lender or lenders, as the case may be, may access the restricted cash after the occurrence of an
event of default, as defined under their respective credit facilities.