Lifetime Fitness 2010 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)
47
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, 2010, we operated 89 centers, including 24 in Minnesota, 18 in Texas, nine in Illinois, six in Michigan, five in
Arizona, four in Georgia and Ohio, three in Colorado and Virginia, two in Kansas, Maryland and New Jersey and
one each in Florida, Indiana, 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 generally 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 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 33 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 so 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 would have been less than $0.1 million to net income. 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 $14.9 million, $8.4 million and $6.0 million for the years
ended December 31, 2010, 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 and spa and cafe products are 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. 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