Lifetime Fitness 2012 Annual Report Download - page 37

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We have three primary sources of revenue:
• First, our largest source of revenue is membership dues (64.6% of total revenue for the year ended
December 31, 2012, down from 65.5% for the year ended December 31, 2011) and enrollment fees (1.4%
of total revenue for the year ended December 31, 2012, down from 1.8% for the year ended December 31,
2011) 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
(30.8% of total revenue for the year ended December 31, 2012, up from 30.4% for the year ended
December 31, 2011), 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 ancillary businesses (3.2% of total revenue for the
year ended December 31, 2012, up from 2.3% for the year ended December 31, 2011), media, athletic
events and related services, health promotion programs and training and certification programs. Our
primary media offering is our magazine, Experience Life®. Other revenue also includes revenue from our
race registration and timing businesses 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
ancillary 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
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,
tax provisions and deferred personal training revenue. 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 revisions can affect operating results. We have identified below the following
accounting policies that we consider to be critical.
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 33 months, which is based on historical membership experience. We review the