Lifetime Fitness 2009 Annual Report Download - page 39

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34
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 non-refundable after 14 days. Enrollment fees and related
direct expenses, primarily sales commissions, are deferred and recognized on a straight-line basis over an estimated
average membership life of 30 months, which is based on historical membership experience. We review the
estimated average membership life on an annual basis, or more frequently if circumstances change. Changes in
member behavior, competition, economic conditions and our performance may cause attrition levels to change,
which could impact the estimated average membership life. 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 estimated average membership life from 36 months to 33 months. The
pressure continued throughout the second half of 2008; therefore, we reduced the estimated average membership life
to 30 months at the beginning of the fourth quarter. The estimated average membership life remained 30 months
during 2009. Our attrition rate in 2009 improved slightly from a high of 42.7% at the end of first quarter to 40.6% at
year-end. If the estimated average membership life had been 33 months or 27 months for the entire year ended
December 31, 2009, the impact would have been less than $0.1 million to net income. 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 $8.4 million and $6.0 million for the years ended December
31, 2009 and 2008 respectively. Monthly membership dues paid in advance of a center opening are deferred until
the center opens. We only offer members month-to-month memberships and recognize as revenue the monthly
membership dues in the month to which they pertain.
We provide services at each of our centers, including personal training, spa, cafe and other member services. 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, which includes revenue generated primarily from our media, athletic events and
restaurant, is recognized when realized and earned. 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. Restaurant revenue is recognized at the
point of sale to the customer.