Lifetime Fitness 2007 Annual Report Download - page 39

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Seasonality of Business
Seasonal trends have a limited effect on our overall business. Generally, we have experienced greater membership
growth at the beginning of the year and we have not experienced an increased rate of membership attrition during
any particular season of the year. During the summer months, we have experienced a slight increase in operating
expenses due to our outdoor aquatics operations.
Liquidity and Capital Resources
Liquidity
Historically, we have satisfied our liquidity needs through various debt arrangements, sales of equity and cash
provided by operations. Principal liquidity needs have included the development of new centers, debt service
requirements and expenditures necessary to maintain and update our existing centers and their related fitness
equipment. We believe that we can satisfy our current and longer-term debt service obligations and capital
expenditure requirements with cash flow from operations, by the extension of the terms of or refinancing our
existing debt facilities, through sale-leaseback transactions and by continuing to raise long-term debt or equity
capital, although there can be no assurance that such actions can or will be 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 with our vendors that are paid with proceeds from long-term debt.
Operating Activities
As of December 31, 2007, we had total cash and cash equivalents of $5.4 million and $6.8 million of restricted cash
that serves as collateral for certain of our debt arrangements. We also had $66.7 million available under the terms of
our revolving credit facility as of December 31, 2007.
Net cash provided by operating activities was $142.2 million for 2007 compared to $125.9 million for 2006, driven
primarily by a $17.5 million, or 34.5%, improvement in net income. Historically, our operating cash flow has been
in line with our EBITDA growth rate. In 2007, however, we experienced a divergence of these rates as operating
cash flow grew by 13.0% and EBITDA grew by 32.7%. The primary reason for this change is the impact our
working capital had on overall operating cash flows, as we experienced approximately $26.0 million less of changes
in operating assets and liabilities in 2007 than in 2006. Drivers of this include a $14.8 million reduction in income
taxes receivable due to greater tax payments made during 2007 as compared to 2006, a $4.7 million increase in other
current assets due to land held for sale, an increase of $4.1 million in accounts receivable due to growth in
our corporate businesses and a $2.4 million increase in inventories due to in-center business growth.
Net cash provided by operating activities was $125.9 million for 2006 compared to $108.0 million for 2005, driven
primarily by a $9.4 million or 22.7%, improvement in net income.
Investing Activities
Investing activities consist primarily of purchasing real property, constructing new centers and purchasing new
fitness equipment. In addition, we invest in capital expenditures to maintain and update our existing centers. We
finance the purchase of our property and equipment by cash payments or by financing through notes payable or
capital lease obligations. For current model centers, our investment, through 2007, has ranged from approximately
$18 to $38 million, which includes the land, the building and approximately $3 million of exercise equipment,
furniture and fixtures. We expect the average cost of new centers constructed in 2008 to be approximately $35
million, reflecting location costs and the new 3-story centers set to open.