Lifetime Fitness 2007 Annual Report Download

Download and view the complete annual report

Please find the complete 2007 Lifetime Fitness annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 84

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84

2007ANNUAL REPORT

Table of contents

  • Page 1
    2007 ANNUAL REPORT

  • Page 2
    ... many operate 24 hours a day, seven days a week. Programming, services and products uniquely combine education, exercise and nutrition to help our members lead a healthy way of life and achieve their fitness goals. In 2007, Life Time Fitness grew to more than 499,000 memberships at 70 centers across...

  • Page 3
    ... to open 11 centers, three of which will be located in new states for us. We also will continue to invest in our existing centers, programming and services, nutritional products, the expansion of corporate wellness opportunities and ongoing employee training and certification. At Life Time Fitness...

  • Page 4
    (This page intentionally left blank.)

  • Page 5
    ... as of June 29, 2007, the last business day of the registrant's most recently completed second fiscal quarter, was $1,699,600,897, based on the closing sale price for the registrant's common stock on that date. The number of shares outstanding of the Registrant's common stock as of February 18...

  • Page 6

  • Page 7
    ... in Part III. FORWARD-LOOKING STATEMENTS The information presented in this Annual Report on Form 10-K under the headings "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements within the meaning of...

  • Page 8
    ... 67 68 Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services 68 69...

  • Page 9
    ..., family recreation and resort and spa centers under the LIFE TIME FITNESS® brand. We design, develop and operate our own centers and we focus on providing our members and customers with products and services at a high quality and compelling value in the areas of education, exercise and nutrition...

  • Page 10
    ... to the centers 24 hours a day, seven days a week. In addition, we provide sufficient parking spaces, lockers and equipment to allow our members to exercise with little or no waiting time, even at peak hours and when center membership levels are at targeted capacity. Our child center services are...

  • Page 11
    ... we plan to open in 2008 and 2009 will be built in both new and existing markets. Increase membership and optimize membership dues. Of our 70 open centers at December 31, 2007, 32 had not yet reached maturity, which we define as the 37th month of operations. These 32 centers averaged 66% of targeted...

  • Page 12
    ... experience by offering free seminars on health and nutrition to educate members on the benefits of a regular fitness program and a well-rounded lifestyle. Moreover, our centers offer interactive learning opportunities, such as personal training, group fitness sessions and member activities classes...

  • Page 13
    ...Towel Service Use of Lockers Massage Therapy Nutritional Products Personal Training T.E.A.M. Programs O2 Cardio Training Metabolic Testing Nutrition Coaching Activities and Events Aquatics Athletic Leagues Birthday Parties Eastern/Martial Arts Kid's Club Pilates Run Club Scuba Lessons Studio Cycling...

  • Page 14
    ... Our centers offer fitness programs, including group fitness classes and health and wellness training seminars on subjects ranging from mastering your metabolism to personal nutrition. Each current model center has at least two group fitness studios and makes use of the indoor and outdoor pool areas...

  • Page 15
    ... or families for Gold or Platinum memberships. In addition, new members pay a $6 per child monthly fee to include junior members on a membership. Our current model centers average approximately 2.5 people per membership. Usage Our centers are generally open 24 hours a day, seven days a week and...

  • Page 16
    ...a portfolio of broad-reach and targeted consumer and business-to-business media as well as referral promotions. To further attract new members during this period, we offer discounted pre-opening enrollment fees and distribute free copies of our Experience Life magazine to households in the immediate...

  • Page 17
    ... has reached its targeted capacity, marketing efforts are directed at keeping membership levels stable and at growing other in-center services to existing members. Marketing plans for each center are formulated on an annual basis and reviewed monthly by marketing and centerlevel sales personnel. At...

  • Page 18
    ... of our centers and between centers and our corporate office. We have designed and developed the system to allow us to collect information in a secure and easy-to-use environment. Our system enables us to, among other things, enroll new members with a paperless membership agreement, acquire digital...

  • Page 19
    ...cancel, in most cases, within three to ten days after signing, his or her membership and receive a refund of any enrollment fee paid; requiring an escrow for funds received from pre-opening sales or the posting of a bond or proof of financial responsibility; and establishing maximum prices and terms...

  • Page 20
    ... additional capital when required could have an adverse effect on our business plans and operating results. If we are unable to identify and acquire suitable sites for new sports and athletic, professional fitness, family recreation and resort/spa centers, our revenue growth rate and profits may...

  • Page 21
    ...is required to develop and construct new centers. If we are significantly delayed in opening new centers, our competitors may be able to open new clubs in the same market before we open our centers. This change in the competitive landscape could negatively impact our pre-opening sales of memberships...

  • Page 22
    ... in September 2007, we entered into one lease agreement for a center that was previously leased and operated by another health and fitness company. We entered into new leases for these centers with the expectation that we would be able to convert the members at these centers to memberships with us...

  • Page 23
    ... membership fees without paying taxes, thereby allowing them to lower their prices. This competition may limit our ability to increase membership fees, retain members, attract new members and retain qualified personnel. Competitors could copy our business model and erode our market share, brand...

  • Page 24
    ... that use LIFE TIME FITNESS or a similar mark in connection with goods and services related to health and fitness. The rights of these entities in such marks may predate our rights. Accordingly, if we open any centers in the areas in which these parties operate, we may be required to pay royalties...

  • Page 25
    ...Our corporate headquarters, located in Chanhassen, Minnesota next to our Chanhassen current model center, is a 105,000 square foot, free-standing, three-story building. As of February 29, 2008, we operated 71 centers and one satellite center in 16 states, of which we leased 19 sites, were parties to...

  • Page 26
    ... to third parties who operate our cafe, pro shop, salon or climbing wall or to hospitals that use the space to provide physical therapy. The square footage figures include those subleased areas. The square footage figures exclude areas used for tennis courts and outdoor swimming pools. These figures...

  • Page 27
    ... and Issuer Purchaser of Equity Securities. Market Information Our common stock is listed on the New York Stock Exchange ("NYSE") under the symbol LTM. The following table sets forth, for the periods indicated, the high and low sales prices as reported by the NYSE. High Fiscal Year Ended December...

  • Page 28
    ... quarter of 2007. Equity Compensation Plan Information Incorporated by reference hereunder is the information under "Equity Compensation Plan Information" in our Proxy Statement. Certifications by CEO and CFO The certifications by our chief executive officer and chief financial officer required...

  • Page 29
    ... data below in conjunction with our consolidated financial statements and the related notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations." The consolidated statement of operations data for the years ended December 31, 2007, 2006 and 2005 and the...

  • Page 30
    ... 2,731,954 (1) In-center revenue includes revenue generated at our centers from fees for personal training, dieticians, group fitness training and other member activities, sales of products offered at our LifeCafe, sales of products and services offered at our LifeSpa, tennis and renting space in...

  • Page 31
    ... dues, enrollment fees and in-center revenue for a center are included in comparable center revenue growth beginning on the first day of the thirteenth full calendar month of the center's operation. Average revenue per membership is total center revenue for the period divided by an average number...

  • Page 32
    ... the LIFE TIME FITNESS brand. We commenced operations in 1992 by opening centers in the Minneapolis and St. Paul, Minnesota area. During this period of initial growth, we refined the format and model of our center while building our membership base, infrastructure and management team. As a result...

  • Page 33
    ...revenue, or corporate businesses, including our media, athletic events and nutritional product businesses. Our primary media offering is our magazine, Experience Life. Other revenue also includes our two restaurants and rental income on our Highland Park, Minnesota office building. Center operations...

  • Page 34
    ... 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 completed. The revenue and direct membership acquisition costs, primarily sales...

  • Page 35
    ...: For the Year Ended December 31, 2007 2006 2005 Revenue Center revenue Membership dues ...Enrollment fees ...In-center revenue...Total center revenue ...Other revenue ...Total revenue...Operating expenses Center operations (including 0.4%, 0.4% and 0.0% related to sharebased compensation expense...

  • Page 36
    ...of our members' increased use of our personal training, member activities, LifeCafe and LifeSpa products and services. As a result of this in-center revenue growth and our focus on broadening our offerings to our members, average incenter revenue per membership increased from $351 for the year ended...

  • Page 37
    ..., due to increased memberships at new and existing centers, the introduction of junior membership programs and increased sales of value-added memberships. 34.0% was from in-center revenue, which increased $40.6 million primarily as a result of our members' increased use of our personal training...

  • Page 38
    ... as the basis for incentive bonuses paid to selected members of senior and center-level management. We have provided reconciliations of EBITDA to net income in the section "Quarterly Results (Unaudited)," located immediately following the Report of Independent Registered Public Accounting Firm. 32

  • Page 39
    ... completed. Our business model operates with negative working capital because we carry minimal accounts receivable due to our ability to have monthly membership dues paid by electronic draft, we defer enrollment fee revenue and we fund the construction of our new centers under standard arrangements...

  • Page 40
    ...2006, $23.4 million for the construction of our corporate office building which we moved into in December 2007, and $24.8 million for acquisitions and general corporate purposes. At December 31, 2007, we had purchased the real property for nine of the new centers that we plan to open in 2008, we had...

  • Page 41
    ... from Goldman Sachs Commercial Mortgage Capital, L.P. pursuant to a loan agreement dated January 24, 2007. The mortgage financing is secured by six properties owned by the subsidiary and operated as Life Time Fitness centers located in Tempe, Arizona, Commerce Township, Michigan, and Garland, Flower...

  • Page 42
    ..., with a constant monthly debt service payment of $0.6 million. Our subsidiary LTF CMBS I, LLC, as landlord, and LTF Club Operations Company, Inc., another wholly owned subsidiary as tenant, entered into a lease agreement dated January 24, 2007 with respect to the properties. The initial term of the...

  • Page 43
    ... constant at December 31, 2007 rates. (2) Purchase obligations consist primarily of our contracts with construction subcontractors for the completion of eleven of our centers in 2008 and three of our centers in 2009, as well as contracts for the purchase of land. (3) Financial Interpretation No. 48...

  • Page 44
    ... and consolidated results of operations. As of December 31, 2007, our net floating rate indebtedness was approximately $187.8 million. If long-term floating interest rates were to have increased by 100 basis points during the year ended December 31, 2007, our interest costs would have increased by...

  • Page 45
    Item 8. Financial Statements and Supplementary Data. LIFE TIME FITNESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2007 2006 (In thousands, except share and per share data) ASSETS CURRENT ASSETS: Cash and cash equivalents ...Accounts receivable, net...Inventories ...Prepaid ...

  • Page 46
    LIFE TIME FITNESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 31, 2007 2006 2005 (In thousands, except per share data) REVENUE: Membership dues ...$ 434,138 Enrollment fees ...24,741 In-center revenue...182,215 Total center revenue ...Other revenue ......

  • Page 47
    ... Loss Common Stock Shares Amount BALANCE - December 31, 2004 .. 33,791,61 Common stock issued upon exercise of stock options ...1,698,714 Grant of restricted stock ...Compensation related to stock options and restricted stock ...Tax benefit upon exercise of stock options ...Net income...

  • Page 48
    ... net income to net cash provided by operating activities: Depreciation and amortization ...Deferred income taxes ...Loss on disposal of property and equipment, net ...Amortization of deferred financing costs ...Share-based compensation ...Excess tax benefit from stock option exercises ...Changes...

  • Page 49
    ...share and per share data) 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...

  • Page 50
    LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands, except share and per share data) The rollforward of these allowances are as follows: 2007 Allowance for Doubtful Accounts: Balance, beginning of period ...Provisions ...Write-offs against...

  • Page 51
    ...and management, as well as point of sale system enhancements. Costs related to these projects have been capitalized in accordance with Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Other equipment consists primarily of cafe, spa...

  • Page 52
    ...Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," changes in the fair market value of the swap contract are recorded in accumulated other comprehensive income (loss). As of December 31, 2007, the $2.0 million, net of tax, fair market...

  • Page 53
    LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands, except share and per share data) Intangible assets are comprised principally of goodwill, leasehold rights at our Highland Park, Minnesota office building and trade names. In accordance ...

  • Page 54
    LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands, except share and per share data) Accrued Expenses - Accrued expenses consist of the following: December 31, 2007 2006 Payroll related ...Real estate taxes ...Center operating costs ......

  • Page 55
    ... TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands, except share and per share data) The basic and diluted earnings per share calculations are shown below: For the Year Ended December 31, 2007 2006 2005 Net income ...$ 68,019 Weighted average...

  • Page 56
    ... expected life assumptions presented are based on an average of the volatility assumptions reported by a peer group of publicly traded companies. For more information on our share-based compensation plans, see Note 8. Dividends - We have not declared or paid any cash dividends on our common stock in...

  • Page 57
    LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands, except share and per share data) Supplemental Cash Flow Information - Decreases (increases) in operating assets and increases (decreases) in operating liabilities are as follows: For the ...

  • Page 58
    ... other events and circumstances from nonowner sources. For us, the difference between net income as reported on the consolidated statements of operations and comprehensive income is a loss of $2.0 million, net of tax, related to our outstanding interest rate swap contract. For more information, see...

  • Page 59
    LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands, except share and per share data) 4. Long-Term Debt December 31, 2007 2006 Term notes payable to insurance company, monthly interest and principal payments totaling $1,273 including ...

  • Page 60
    ...90 day LIBOR rate resetting every three months. The contract has been designated a hedge against interest rate volatility. Consequently, changes in the fair market value of the swap contract are recorded in accumulated other comprehensive income (loss). As of December 31, 2007, the $2.0 million, net...

  • Page 61
    LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands, except share and per share data) In May 2001, we financed one of our Minnesota centers pursuant to the terms of a sale-leaseback transaction that qualified as a capital lease. Pursuant to...

  • Page 62
    ...for financial reporting. The tax effect of temporary differences that gives rise to the deferred tax liability are as follows: December 31, 2007 2006 Property and equipment...Partnership interest ...Accrued rent expense ...Other comprehensive income ...Costs related to deferred revenue ...Other, net...

  • Page 63
    ... a total of 1,700,000 options to purchase common stock under the 1996 Plan, of which 12,000 were outstanding. In connection with approval of the Life Time Fitness, Inc. 2004 Long-Term Incentive Plan (the 2004 Plan), as discussed below, our Board of Directors approved a resolution to cease making...

  • Page 64
    ... expense related to restricted shares ...Share-based compensation expense related to employee stock purchase program ("ESPP") ...Total share-based compensation expense ...A summary of restricted stock activity follows: Restricted Shares Outstanding Balance - December 31, 2005...Granted ...Canceled...

  • Page 65
    ... fair market value of the stock on the date of grant, is amortized to compensation expense on a straight-line basis over the related vesting period. A summary of option activity is as follows: WeightedAverage Exercise Price Weighted Average Remaining Contractual Term (in years) Options Outstanding...

  • Page 66
    ...tax benefits from the exercise of stock options are presented as cash flows from financing activities. Our employee stock purchase program ("ESPP") provides for the sale of up to 1,500,000 share of our common stock to our employees at discounted purchase prices. The cost per share under this plan is...

  • Page 67
    ... FINANCIAL STATEMENTS (Table amounts in thousands, except share and per share data) The following table presents revenue for the years ended December 31, 2007, 2006 and 2005: For the Year Ended December 31, 2007 2006 2005 Membership dues ...Enrollment fees ...Personal training ...Other in-center...

  • Page 68
    ...-qualified deferred compensation plan are of the same type and risk categories as those offered under our company's 401(k) plan and may be modified or changed by the participant or our company at any time. Distributions can be paid out as in-service payments or at retirement. Retirement benefits can...

  • Page 69
    LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands, except share and per share data) 13. Quarterly Financial Data (Unaudited) The following is a condensed summary of actual quarterly results of operations for 2007 and 2006: 1st Quarter ...

  • Page 70
    ... the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2 to the consolidated financial statements, the Company changed...

  • Page 71
    ... INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Life Time Fitness, Inc.: We have audited the internal control over financial reporting of Life Time Fitness, Inc. (a Minnesota corporation) and subsidiaries (the "Company") as of December 31, 2007, based on...

  • Page 72
    ...) Our quarterly operating results may fluctuate significantly because of several factors, including the timing of new center openings and related expenses, timing of price increases for enrollment fees and membership dues and general economic conditions. In the past, our pre-opening costs, which...

  • Page 73
    ... Act). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the...

  • Page 74
    ...Age 46 43 48 41 48 45 Position Chairman of the Board of Directors and Chief Executive Officer President and Chief Operating Officer Executive Vice President and Chief Financial Officer Executive Vice President, General Counsel and Secretary Executive Vice President Senior Vice President, Life Time...

  • Page 75
    ... and day-to-day operations of U.S. Swim & Fitness Corporation until 1991, at which time he started a career in real estate. Jeffrey G. Zwiefel joined our company in December 1998 as Vice President, Health Enhancement Division and became Vice President of Fitness, Training and New Program Development...

  • Page 76
    ....18 to the Registrant's Registration Statement of Form S-1 (File No. 333-113764), filed with the Commission on March 19, 2004. 3.2 4 Specimen of common stock certificate. 10.1# FCA, Ltd. 1996 Stock Option Plan. 10.2# LIFE TIME FITNESS, Inc. 1998 Stock Option Plan, as amended and restated. 10...

  • Page 77
    ..., DuPage Health Services Fitness Center - Bloomingdale L.L.C. dated December 1, 1999 by and between the Registrant, Bloomingdale Sports Center Land Company and Central DuPage Health. Life Time Fitness, Inc. 2004 Long-Term Incentive Plan. 10.16# 10.17# Form of Executive Employment Agreement. 71

  • Page 78
    ... Restricted Stock Agreement (Non-Employee Director) for 2004 Long-Term Incentive Plan. 10.27 Lease Agreement with Well-Prop (Multi) LLC dated July 26, 2006. 10.28 Guaranty and Suretyship Agreement with Well-Prop (Multi) LLC dated July 26, 2006. 10.29 Purchase and Sale Agreement with Well-Prop...

  • Page 79
    ... LLC and LTF Club Operations Company, Inc. Guaranty of the Loan Agreement dated January 24, 2007 for the benefit of Goldman Sachs Commercial Mortgage Capital, L.P. executed by the Company. Lease Guaranty dated January 24, 2007 for the benefit of LTF CMBS I, LLC executed by the Company. Amendment No...

  • Page 80
    ..., 2008. LIFE TIME FITNESS, INC. By: /s/ Bahram Akradi Name: Bahram Akradi Title: Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer and Director) By: /s/ Michael R. Robinson Name: Michael R. Robinson Title: Executive Vice President and Chief Financial Officer...

  • Page 81
    (This page intentionally left blank.)

  • Page 82
    (This page intentionally left blank.)

  • Page 83
    ... Club Director since 2006 Management Bahram Akradi Chairman and CEO Michael J. Gerend President and COO Michael R. Robinson Executive Vice President and CFO Eric J. Buss Investor Information Stock Exchange Listing New York Stock Exchange: LTM Annual Meeting The annual meeting of Life Time Fitness...

  • Page 84
    ... • Loudoun County (Sterling-2008) 2902 Corporate Place Chanhassen, MN 55317 Phone: 952-947- 0000 Fax: 952-947- 0099 lifetimefitness.com LIFE TIME FITNESS, EXPERIENCE LIFE, FEEL GOOD INSIDE and the LIFE TIME FITNESS LOGO are trademarks of Life Time Fitness, Inc. All other trademarks are the...