Lifetime Fitness 2008 Annual Report Download - page 37

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31
December 31, 2008. We began to see slower in-center revenue growth in the second half of the year due to
worsening economic conditions.
x 1.6% was from enrollment fees, which are deferred until a center opens and recognized on a straight-line
basis over 36 months for the first quarter of 2008, 33 months for the second and third quarter of 2008 and 30
months for the fourth quarter of 2008. Enrollment fees increased $1.8 million for the year ended December
31, 2008 to $26.6 million. In 2008, we lowered our enrollment fees to stimulate new membership demand.
Other revenue increased $1.2 million, or 8.4%, to $15.9 million for the year ended December 31, 2008, which was
primarily due to increased advertising revenue from our media business.
Center operations expenses. Center operations expenses totaled $454.6 million, or 60.3% of total center revenue (or
59.1% of total revenue), for the year ended December 31, 2008 compared to $377.2 million, or 58.8% of total center
revenue (or 57.5% of total revenue), for the year ended December 31, 2007. This $77.4 million increase primarily
consisted of $38.9 million in additional payroll-related costs to support increased memberships at new centers and
increases in membership acquisition costs, an increase of $21.1 million in million in occupancy-related costs,
including utilities, real estate taxes, rent on leased centers and an increase in expenses to support in-center products
and services.
Advertising and marketing expenses. Advertising and marketing expenses were $31.5 million, or 4.1% of total
revenue, for the year ended December 31, 2008, compared to $25.0 million, or 3.8% of total revenue, for the year
ended December 31, 2007. These expenses increased primarily due to broader advertising for existing and new
centers and those centers engaging in presale activities to stimulate new membership demand.
General and administrative expenses. General and administrative expenses were $43.7 million, or 5.7% of total
revenue, for the year ended December 31, 2008, compared to $40.8 million, or 6.2% of total revenue, for the year
ended December 31, 2007. These expenses decreased as a percentage of revenue primarily due to increased
efficiencies and productivity improvements, as well as the elimination of lease costs for our former corporate office.
General and administrative expenses include approximately $3.9 million of expenses associated with plans to slow
the development of new centers mainly comprised of severance costs and write-offs associated with land
development cancelled in the fourth quarter of 2008.
Other operating expenses. Other operating expenses were $19.4 million for the year ended December 31, 2008,
compared to $16.3 million for the year ended December 31, 2007. This increase is primarily a result of start-up costs
associated with the expansion of our corporate wellness businesses and lower-of-cost-or-market adjustments in
connection with assets held for sale.
Depreciation and amortization. Depreciation and amortization was $72.9 million for the year ended December 31,
2008, compared to $59.0 million for the year ended December 31, 2007. This $13.9 million increase was due
primarily to depreciation on our new centers and new headquarters opened in 2007 and 2008, the completed
remodels of our leased centers acquired in July 2006 and lower-of-cost-or-market adjustments in connection with
assets held for sale.
Interest expense, net. Interest expense, net of interest income, was $29.6 million for the year ended December 31,
2008, compared to $25.4 million for the year ended December 31, 2007. This $4.2 million increase was primarily
the result of increased average debt balances on floating rate debt.
Provision for income taxes. The provision for income taxes was $47.2 million for the year ended December 31,
2008, compared to $45.2 million for the year ended December 31, 2007. This $2.0 million increase was due to an
increase in income before income taxes of $5.8 million. The effective income tax rate for the year ended December
31, 2008 was 39.7% compared to 39.9% for the year ended December 31, 2007.
Net income. As a result of the factors described above, net income was $71.8 million, or 9.3% of total revenue, for
the year ended December 31, 2008 compared to $68.0 million, or 10.4% of total revenue, for the year ended
December 31, 2007.