Lifetime Fitness 2010 Annual Report Download - page 37

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(15) EBITDAR margin is the ratio of EBITDAR to total revenue.
(16) Market capitalization is calculated by multiplying the year-end total common shares outstanding by the year-
end stock price.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 28, 2011, we operated 90 centers primarily in residential locations
across 20 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 same 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 same 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 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 same 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 2011, one will be
in an existing market. 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. Although these conditions improved in
2010, if the challenging economic conditions were to continue, we may face continued lower 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 same 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 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 decreased from 42.3% to 40.6% and during
2010, our annual attrition rate decreased from 40.6% to 36.3%. Over the past two years we saw our attrition rate
decrease due in part to increased programming focused on member engagement and center utilization.