Lifetime Fitness 2007 Annual Report Download - page 10

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We offer a value proposition that encourages membership loyalty.
The amenities, programs and services we offer exceed most other health and fitness center alternatives available to
our members. We offer different types of membership plans for individuals, couples and families. Our typical
monthly membership dues range from $60 to $80 per month for an individual membership and from $100 to $150
per month for a couple or family membership. Our memberships now include the primary member’s children under
the age of 12 at a nominal per child monthly cost. We provide the majority of our members with a variety of
complimentary services, including group fitness classes, educational seminars and fitness assessments, towel and
locker service and a subscription to our award-winning magazine, Experience Life. Our membership plans are
month-to-month, cancelable at any time by giving advance notice and include initial 30-day money back guarantees.
We believe our value proposition and member focused approach creates loyalty among our members.
We offer a product that is convenient for our members.
Our centers are generally situated in high-traffic residential areas and are easily accessed and centrally located
among the residential, business and shopping districts of the surrounding community. We design, develop and
operate our centers to accommodate a large and active membership base by generally providing access 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 available to the majority of our members for up to two hours
per day and most of our centers offer the convenience of spa and cafe services under the same roof.
We have an established and profitable economic model.
Our economic model is based on and depends on attracting a large membership base within the first three years after
a new center is opened, as well as retaining those members and maintaining tight expense control. For each of the
fiscal years from 2005 to 2007, this economic model has resulted in annual revenue growth of 25%, 31% and 28%,
respectively, with revenue of $655.8 million in 2007; annual EBITDA growth of 25%, 24% and 33%, respectively,
with EBITDA of $197.7 million in 2007; and annual net income growth of 43%, 23% and 35%, respectively, with
net income of $68.0 million in 2007. We expect the typical membership base at our large format centers to grow
from approximately 35% of targeted membership capacity at the end of the first month of operations to 90% of
targeted membership capacity by the end of the third year of operations, which is consistent with our historical
performance. Average targeted membership capacity is approximately 7,900 for all of our large format centers and
8,500 to 11,500 for our current model centers. Average revenue at our 29 large format mature centers (those large
format centers that reached their 37th month of operation by the end of 2007) approximated $12.1 million for the
year ended December 31, 2007. At these centers during the same period, average EBITDA exceeded 37% of
revenue and average net income exceeded 15% of revenue. Over the past three years, average revenue has ranged
from $12.1 million to $12.5 million, driven by the mix of center size and pricing and our in-center revenue
expansion. Our typical investment for the 39 current model centers constructed from 2000 to 2007 has ranged from
approximately $18 to $38 million, which includes the purchase of land, the building and approximately $3 million of
exercise equipment, furniture and fixtures. The cost of the eight current model centers opened in 2007 averaged
approximately $31 million.
We believe we have a disciplined and sophisticated site selection and development process.
We believe we have developed a disciplined and sophisticated process to evaluate metropolitan markets in which to
build new centers, as well as specific sites for future centers within those markets. This multi-step process is based
upon applying our proven successful experience and analysis to predetermined physical, demographic,
psychographic and competitive criteria generated from profiles of each of our existing centers. We continue to
modify these criteria based upon the performance of our centers. A formal business plan is developed for each
proposed new center and the plan must pass multiple stages of management and board of directors’ approval. By
utilizing a wholly owned construction subsidiary, FCA Construction Company, LLC (FCA Construction), that is
dedicated solely to building and remodeling our centers, we maintain maximum flexibility over the design process
of our centers and control over the cost and timing of the construction process. As a result of this disciplined
process, our large format centers produced, on average, EBITDA in excess of 21% of revenue and net income in
excess of 2% of revenue during their first year of operation.