Lifetime Fitness 2011 Annual Report Download - page 37

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and profitability on an individual center basis. In addition, we focus on several membership statistics on a center-
level and system-wide basis. These metrics include change in center membership levels and growth of system-wide
memberships; percentage center membership to target capacity; center membership usage; center membership mix
among individual, couple and family memberships; Flex memberships and center attrition rates. During 2009 and
2010, our annual attrition rate decreased from 42.3% to 36.3%. During 2011, our annual attrition rate decreased
from 36.3% to 35.0%. Over the past three years we saw our attrition rate decrease due in part to increased
programming focused on member engagement and center utilization.
We have three primary sources of revenue:
• First, our largest source of revenue is membership dues (65.5% of total revenue for the year ended
December 31, 2011, down from 66.1% for the year ended December 31, 2010) and enrollment fees (1.8%
of total revenue for the year ended December 31, 2011, down from 2.7% for the year ended December 31,
2010) paid by our members. We recognize revenue from monthly membership dues in the month to which
they pertain.
• Second, we generate revenue within a center, which we refer to as in-center revenue or in-center businesses
(30.4% of total revenue for the year ended December 31, 2011, up from 29.1% for the year ended
December 31, 2010), including fees for personal training, registered dietitians, group fitness training and
other member activities, sales of products at our LifeCafe, sales of products and services offered at our
LifeSpa, tennis programs and renting space in certain of our centers.
• Third, we have expanded the LIFE TIME FITNESS® brand into other wellness-related offerings that
generate revenue, which we refer to as other revenue or corporate businesses (2.3% of total revenue for the
year ended December 31, 2011, up from 2.1% for the year ended December 31, 2010), including our media,
wellness and athletic events businesses. Our primary media offering is our magazine, Experience Life®.
Other revenue also includes one stand-alone restaurant in the Minneapolis market and rental income from
our Highland Park, Minnesota office building.
Center operations expenses consist primarily of salary, commissions, payroll taxes, benefits, real estate taxes and
other occupancy costs, utilities, repairs and maintenance, supplies, administrative support and communications to
operate our centers. Advertising and marketing expenses consist of our marketing department costs and media and
advertising costs to support and grow center membership levels, in-center businesses, new center openings and our
corporate businesses. General and administrative expenses include costs relating to our centralized support
functions, such as accounting, information systems, procurement, real estate and development and member relations.
Our other operating expenses include the costs associated with our media, athletic events and nutritional product
businesses, one restaurant and other corporate expenses, as well as gains or losses on our dispositions of assets. Our
total operating expenses may vary from period to period depending on the number of new centers opened during that
period, the number of centers engaged in presale activities and the performance of our in-center businesses.
Our primary capital expenditures relate to the construction of new centers and updating and maintaining our existing
centers. The land acquisition, construction and equipment costs for a current model center can vary considerably
based on variability in land cost, the cost of construction labor and the size or amenities of the center, including the
addition of tennis facilities, an expanded gymnasium or other facilities. We perform maintenance and make
improvements on our centers and equipment throughout each year. We conduct a more thorough remodeling project
at each center approximately every four to six years.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S., or
GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Ultimate results could differ from those estimates. In recording
transactions and balances resulting from business operations, we use estimates based on the best information
available. We use estimates for such items as depreciable lives, probability of meeting certain performance targets
and tax provisions. We also use estimates for calculating the amortization period for deferred enrollment fee revenue
and associated direct costs, which are based on the historical estimated average membership life. We revise the
recorded estimates when better information is available, facts change or we can determine actual amounts. These