Lifetime Fitness 2008 Annual Report Download - page 51

LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
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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 spa centers in a resort-like environment,
principally in residential locations of major metropolitan areas. As of December 31, 2008, we operated 81 centers,
including 24 in Minnesota, 16 in Texas, nine in Illinois, six in Michigan, four in Arizona and Georgia, three in Ohio
and Virginia, two each in Colorado and Maryland and one each in Florida, Indiana, Kansas, Missouri, Nebraska,
New Jersey, North Carolina and Utah.
2. Significant Accounting Policies
Principles of Consolidation — The consolidated financial statements include the accounts of Life Time Fitness, Inc.
and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.
Revenue Recognition — We receive a one-time enrollment fee at the time a member joins and monthly membership
dues for usage from our members. The enrollment fees are nonrefundable after 30 days. Enrollment fees and related
direct expenses, primarily sales commissions, are deferred and recognized on a straight-line basis over an estimated
membership period of 30 months, which is based on historical membership experience. During 2008, there was a
substantial shift in our attrition activity, primarily as a result of macroeconomic pressures and a challenging
consumer environment. During the second quarter of 2008, we changed our average membership life from 36
months to 33 months. The pressure continued throughout the second half of 2008; therefore, we reduced the
average membership life to 30 months at the beginning of the fourth quarter. If the estimated membership period had
been 30 months for the entire year ended December 31, 2008, the impact would have been an increase in net income
of less than $0.1 million. If the direct expenses related to the enrollment fees exceed the enrollment fees for any
center, the amount of direct expenses in excess of the enrollment fees are expensed in the current period instead of
deferred over the average membership life. The amount of direct expenses in excess of enrollment fees totaled $6.0
million and $1.4 million for the years ended December 31, 2008 and 2007 respectively. In addition, monthly
membership dues paid in advance of a center’s opening are deferred until the center opens. We offer members
month-to-month memberships and recognize as revenue the monthly membership dues in the month to which they
pertain.
We provide a wide range of services at each of our centers, including personal training, spa, cafe and other member
offerings. The revenue associated with these services is recognized at the time the service is performed. Personal
training revenue received in advance of training sessions and the related commissions are deferred and recognized
when services are performed. Other revenue includes revenue from our media, athletic events and restaurant. Media
advertising revenue is recognized over the duration of the advertising placement. For athletic events, revenue is
generated primarily through sponsorship sales and registration fees. Athletic event revenue is recognized upon the
completion of the event. In limited instances in our media and athletic events businesses, we recognize revenue on
barter transactions. We recognize barter revenue equal to the lesser of the value of the advertising or promotion
given up or the value of the asset received. Restaurant revenue is recognized at the point 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 being completed. The revenue
and direct membership acquisition costs, primarily sales commissions and related benefits, incurred during the
period prior to a center opening are deferred until the center opens and are then recognized on a straight-line basis
over the estimated membership period, beginning when the center opens; however, the related advertising, office,
rent and other expenses incurred during this period are expensed as incurred.
Cash and Cash Equivalents — We classify all unrestricted cash accounts and highly liquid debt instruments
purchased with original maturities of three months or less to be cash and cash equivalents.