Lifetime Fitness 2010 Annual Report Download - page 39

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Revenue recognition. We receive a one-time enrollment fee (including an administrative fee) at the time a member
joins and monthly membership dues for usage from our members. The enrollment fees are non-refundable 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 33 months, which is based on historical
membership experience. We review the estimated average membership life on an annual basis, or more frequently if
circumstances change. Changes in member behavior, competition, economic conditions and our performance may
cause attrition levels to change, which could impact the estimated average membership life. 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. 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, and our estimated average
membership life remained 30 months. During 2010, our annual attrition rate has decreased from 40.6% to 36.3%.
During the fourth quarter of 2010, we changed our estimated average membership life from 30 months to 33
months. If the estimated average membership life had been 33 months or 27 months for the entire year ended
December 31, 2010, the impact of this change in accounting estimate on our income from continuing operations and
net income would have been less than $0.1 million, and the change in accounting estimate would have had no
impact on our basic and diluted earnings per common share.. 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 average membership life. The amount of direct expenses
in excess of enrollment fees totaled $14.9 million, $8.4 million and $6.0 million for the years ended December 31,
2010, 2009 and 2008 respectively. Monthly membership dues paid in advance of a center opening are deferred until
the center opens. We only offer members month-to-month memberships and recognize as revenue the monthly
membership dues in the month to which they pertain.
We provide services at each of our centers, including personal training, spa, cafe and other member services. 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, which includes revenue generated primarily from our media, athletic events and
restaurant, is recognized when realized and earned. 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.