Lifetime Fitness 2013 Annual Report Download - page 21

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Item 1A. Risk Factors.
We may be unable to attract and retain members, which could have a negative effect on our business.
The success of our business depends on our ability to attract and retain members, and we cannot assure you that we
will be successful in our marketing efforts or that the membership levels at our centers will not materially decline,
especially at those centers in operation for an extended period of time. All of our members can cancel their
membership at any time upon providing advance notice. In addition, we experience attrition and must continually
engage existing members and attract new members in order to maintain our membership levels and sales from in-
center services. There are numerous factors that could lead to a decline in membership levels or sales of in-center
services in mature centers or that could prevent us from increasing membership and in-center service revenue at
newer centers where membership is generally not yet at a targeted capacity. These factors include changing desires
and behaviors of consumers, changes in discretionary spending trends and general economic conditions, market
maturity or saturation, a decline in our ability to deliver quality service at a competitive price, direct and indirect
competition in our trade areas, advances in medical care that lead to less interest in health and fitness activities, and
a decline in the public’s interest in health and fitness as well as social fears such as terror or health threats which
could reduce the desire to be in a concentrated public venue. In order to increase membership levels, we may from
time to time offer lower membership rates and enrollment fees. In addition, we anticipate that most of our future
centers will target higher income members than we have historically targeted. We may not be successful in
optimizing price and mix or in adding new memberships in these new centers, and our growth in membership dues
in these future centers may suffer as a result. Any decrease in our average dues, reduction in enrollment fees or
higher membership acquisition costs may adversely impact our operating margins.
We rely heavily on our revolving credit facility and our ability to access additional capital. If we are not able to
access our credit facility, obtain additional capital or refinance existing debt, our ability to operate our business
and pursue our growth strategy may be impaired.
As of December 31, 2013, we had total consolidated indebtedness of $848.6 million, of which $346.1 million was
floating rate debt, consisting principally of obligations under term notes that are secured by certain of our properties,
borrowings under our revolving credit facility that are secured by certain personal property, mortgage notes that are
secured by certain of our centers, and obligations under capital leases.
The credit markets generally and our level of indebtedness could have important consequences to us, including the
following:
• Our ability to obtain the appropriate levels of capital for working capital purposes or to finance the
development and construction of new centers or acquisitions may limit our growth strategy and future
business opportunities;
• A significant portion of our debt has a variable rate of interest, which increases our vulnerability to interest
rate fluctuations;
• We will need a substantial portion of our cash flow to pay the principal of, and interest on, our
indebtedness, including indebtedness that we may incur in the future, which may reduce the funds that
would otherwise be available for our operations or to pursue our growth strategy and future business
opportunities;
• A substantial decrease in our cash flows from operations or a substantial increase in our investment in new
centers could make it difficult for us to meet our debt service requirements and force us to modify our
operations; and
• We may be more highly leveraged than our competitors, which may place us at a competitive disadvantage
including in the event of an economic downturn.
In addition to the amount of indebtedness outstanding as of December 31, 2013, we had access to an additional
$337.4 million under our credit facility. We also have the ability to incur new debt, subject to limitations under our
existing credit facility and in our debt financing agreements. If we incur additional debt, the risks associated with
our leverage, including our ability to service our debt, could intensify, and we may have to change our growth
strategies as a consequence.