Lifetime Fitness 2008 Annual Report Download - page 23

17
Delays in new center openings could have a material adverse effect on our financial performance.
In order to meet our objectives, it is important that we open new centers on schedule. A significant amount of time
and expenditure of capital 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
or improve centers currently open. This change in the competitive landscape could negatively impact our pre-
opening sales of memberships and increase our investment costs. In addition, delays in opening new centers could
hurt our ability to meet our growth objectives. Our ability to open new centers on schedule depends on a number of
factors, many of which are beyond our control. These factors include:
x obtaining acceptable financing for construction of new sites;
x obtaining entitlements, permits and licenses necessary to complete construction of the new center on
schedule;
x recruiting, training and retaining qualified management and other personnel;
x securing access to labor and materials necessary to develop and construct our centers;
x delays due to material shortages, labor issues, weather conditions or other acts of god, discovery of
contaminants, accidents, deaths or injunctions; and
x general economic conditions.
We may incur rising costs related to construction of new centers and maintaining our existing centers. If we are
not able to pass these cost increases through to our members, our returns may be adversely affected.
Our centers require significant upfront investment. If our investment is higher than we had planned, we may need to
outperform our operational plan to achieve our targeted return. Over the longer term, we believe that we can offset
cost increases by increasing our membership dues and other fees and improving profitability through cost
efficiencies; however, higher costs in certain regions where we are opening new centers during any period of time
may be difficult to offset in the short-term.
The opening of new centers in existing locations may negatively impact our same-center revenue increases and
our operating margins.
We currently operate centers in 18 states. We plan to open up to six centers in 2009, some of which are in existing
markets. With respect to existing markets, it has been our experience that opening new centers in existing markets
may attract some memberships away from other centers already operated by us in those markets and diminish their
revenues. In addition, as a result of new center openings in existing markets, and because older centers will represent
an increasing proportion of our center base over time, our same-center revenue increases may be lower in future
periods than in the past.
Another result of opening new centers is that our center operating margins may be lower than they have been
historically while the centers build membership base. We expect both the addition of pre-opening expenses and the
lower revenue volumes characteristic of newly-opened centers to affect our center operating margins at these new
centers. We also expect certain operating costs, particularly those related to occupancy, to be higher than in the past
in some newly-entered geographic regions. As a result of the impact of these rising costs, our total center
contribution and operating margins may be lower in future periods than they have been in the past.
Our continued growth could place strains on our management, employees, information systems and internal
controls which may adversely impact our business and the value of your investment.
Over the past several years, we have experienced significant growth in our business activities and operations,
including an increase in the number of our centers. Our past expansion has placed, and any future expansion will
place, significant demands on our administrative, operational, financial and other resources. Any failure to manage
growth effectively could seriously harm our business. To be successful, we will need to continue to implement
management information systems and improve our operating, administrative, financial and accounting systems and
controls. We will also need to train new employees and maintain close coordination among our executive,
accounting, finance, marketing, sales and operations functions. These processes are time-consuming and expensive,
will increase management responsibilities and will divert management attention.