Lifetime Fitness 2006 Annual Report Download - page 47

LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
41
1. Nature of Business
Life Time Fitness, Inc., a Minnesota corporation, and our subsidiaries are primarily engaged in designing, building
and operating sports and athletic, professional fitness, family recreation and resort/spa centers, principally in
residential locations of major metropolitan areas. As of December 31, 2006, we operated 60 centers, including 22 in
Minnesota, 11 in Texas, eight in Illinois, six in Michigan, four in Arizona, two in Virginia and one each in Florida,
Georgia, Indiana, Kansas, Maryland, Ohio 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 30 days. Enrollment fees and related
direct expenses, primarily sales commissions, are deferred and recognized on a straight-line basis over an estimated
membership period of 36 months, which is based on historical membership experience. 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 service 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 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. In limited instances in our media and athletic events businesses, we recognize revenue on barter
transactions. We recognize barter revenue equal to the lesser of the value of the advertising or promotion given up or
the value of the asset received. Restaurant revenue is recognized at the point of sale to the customer.
Pre-Opening Operations — We generally operate a preview center up to nine 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 a period of 36
months 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 consider 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.
Accounts Receivable — Accounts receivable is presented net of allowance for doubtful accounts and sales returns
and allowances.