Lifetime Fitness 2012 Annual Report Download - page 54

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 distinctive and large, multi-use sports and athletic, professional fitness, family recreation and spa
centers in a resort-like environment, principally in residential locations of major metropolitan areas in the United
States and Canada. As of December 31, 2012, we operated 105 centers, including 24 in Minnesota, 18 in Texas, nine
in Illinois, six in Georgia, Michigan, North Carolina and Ohio, five in Arizona, four in Colorado, three in Indiana
and Virginia, two in Kansas, Maryland and New Jersey and one each in Florida, Missouri, Nebraska, Nevada, New
York, Oklahoma, Tennessee and Utah, and one in Ontario, Canada.
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 monthly membership dues for usage from our members. We offer members
month-to-month memberships and recognize as revenue the monthly membership dues in the month to which they
pertain.
Generally we also receive a one-time enrollment fee (including an administrative fee) at the time a member joins.
The enrollment fees are nonrefundable 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. During the years ended December 31, 2010, 2011 and
2012, our annual attrition rate fluctuated between 35.0% and 38.2%, resulting in the estimated average membership
life remaining at 33 months during those periods. At December 31, 2012, our annual attrition rate was 38.2%, and
the increase was primarily the result of the higher attrition rates associated with the LFF clubs acquired in late 2011.
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 estimated
average membership life. The amount of direct expenses in excess of enrollment fees totaled $20.7 million, $14.9
million and $14.9 million for the years ended December 31, 2012, 2011 and 2010, respectively. In addition, monthly
membership dues paid in advance of a center’s opening are deferred until the center opens.
We provide a wide range of services at each of our centers, including personal training, spa, café and other member
offerings. Revenue from spa and café services and products is recognized at the point of sale to the customer. 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 based on historical member usage.
Other revenue includes revenue from our media, health, athletic events and race registration and timing businesses.
Media advertising revenue is recognized over the duration of the advertising placement. Health revenue is
recognized primarily at the time the service is performed. For athletic events, revenue is generated primarily through
sponsorship sales and race registration fees. Athletic event revenue and race registration revenue is recognized upon
the completion of the event. Race timing revenue is recognized at the time of delivery to customer.
Pre-Opening Operations — We generally operate a preview center up to five months prior to the planned opening of
a center during which time memberships are sold as center construction is being completed. The revenue and direct
membership acquisition costs, primarily sales commissions, 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 average
membership life, beginning when the center opens. If the direct expenses related to the enrollment fees exceed the