Lifetime Fitness 2013 Annual Report Download - page 37

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As a result of new center openings in existing markets, and because older centers will represent an increasing
proportion of our center base over time, our same center revenue may be lower in future periods than in the past. Of
the six new centers we plan to open in 2014, three will be in existing markets. We do not expect operating costs of
our planned new centers to be significantly higher than current centers, and we also do not expect the new centers to
have a material adverse effect on the overall financial condition or results of operations of existing centers.
Our center operating margins have improved each of the last three years, primarily due to higher dues growth and a
higher demographic center mix, which includes 28 Life Time Athletic centers as of February 28, 2014. This has
more than offset the impact of the growth of our in-center businesses which are lower-margin. Additionally,
although our overall membership growth rate may be less than in prior years, we expect our average dues and in-
center revenue per membership to increase as a result of our focus on increasing our number of Life Time Athletic
centers. We also expect center operating margin leverage at these centers.
Our categories of new centers and existing centers do not include the center owned by Bloomingdale, LLC because
it is accounted for as an investment in an unconsolidated affiliate and is not consolidated in our financial statements.
We measure performance using such key operating statistics as member satisfaction ratings, return on invested
capital, average revenue per membership, average in-center revenue per membership and center operating expenses,
with an emphasis on payroll, as a percentage of sales and same center revenue growth. We use center revenue,
EBITDA and EBITDA margins to evaluate overall performance 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 Access membership levels and growth of system-wide memberships; percentage center Access
membership to target capacity; center Access membership usage; center Access membership mix among individual,
couple and family memberships; Non-Access memberships and center attrition rates.
During the years ended December 31, 2011, 2012 and 2013, our annual attrition rate fluctuated between 31.3% and
35.8%, resulting in the estimated average membership life remaining at 33 months during those periods. At
December 31, 2013, our annual attrition rate was 35.8%, and the increase was driven primarily by growth in Non-
Access membership terminations and membership pricing adjustments.
We have three primary sources of revenue:
• First, our largest source of revenue is membership dues (63.6%, 64.6% and 65.5% of total revenue for the
years ended December 31, 2013, 2012 and 2011, respectively) and enrollment fees (1.2%, 1.4% and 1.8%
of total revenue for the years ended December 31, 2013, 2012 and 2011, respectively). 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
(31.1%, 30.8% and 30.4% of total revenue for the years ended December 31, 2013, 2012 and 2011,
respectively), including fees for personal training, registered dietitians, group fitness training and other
member activities, sales of products at our cafés, sales of products and services offered at our spas and
tennis programs.
• Third, we have expanded the LIFE TIME FITNESS® brand into two other offerings: health, and events
and media. These offerings generate revenue, which we refer to as other revenue or ancillary businesses
(4.1%, 3.2% and 2.3% of total revenue for the years ended December 31, 2013, 2012 and 2011,
respectively). Our health offering includes health promotion programs for members, non-members and
corporations. Our events and media offerings include athletic events and related services, which includes
our race registration and timing businesses, and media which includes our magazine, Experience Life®.
We have five primary sources of operating expenses:
• Center operations expenses (57.7%, 58.2% and 60.7% of total revenue for the years ended December 31,
2013, 2012 and 2011, respectively) consist primarily of salaries, 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 (3.6%, 3.5% and 3.5% of total revenue for the years ended
December 31, 2013, 2012 and 2011, respectively) consist of our marketing department costs and media and