e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File
No. 001-32230
Life Time Fitness,
Inc.
(Exact name of Registrant as
specified in its charter)
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Minnesota
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41-1689746
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2902 Corporate Place
Chanhassen, Minnesota
(Address of principal
executive offices)
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55317
(Zip Code)
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Registrants telephone number, including area code:
952-947-0000
Securities registered pursuant to Section 12(b) of the
Act
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.02 par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and
smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company
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(do
not check if smaller
reporting
company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the common stock held by
non-affiliates of the registrant as of June 30, 2009, the
last business day of the registrants most recently
completed second fiscal quarter, was $760,798,629, based on the
closing sale price for the registrants common stock on
that date.
The number of shares outstanding of the Registrants common
stock as of February 15, 2010 was 41,410,478 common shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the annual meeting of
shareholders to be held April 22, 2010 are incorporated by
reference in Part III.
FORWARD-LOOKING
STATEMENTS
The information presented in this Annual Report on
Form 10-K
under the headings Item 1. Business and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations contains
forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. These
statements are subject to risks and uncertainties, including
those discussed under Risk Factors on
pages 16-21
of this Annual Report on
Form 10-K
that could cause actual results to differ materially from those
projected. Because actual results may differ, we caution you not
to place undue reliance on these forward-looking statements. We
are not obligated to update these forward-looking statements or
publicly release the results of any revisions to them to reflect
events or circumstances after the date of this Annual Report on
Form 10-K
or to reflect the occurrence of unanticipated events.
1
PART I
Company
Overview
As a Healthy Way of Life company, Life Time Fitness is committed
to helping its members achieve healthier, more active lives. To
accomplish this, we generally operate distinctive and large,
multi-use sports and athletic, professional fitness, family
recreation and spa centers in a resort-like environment under
the LIFE TIME
FITNESS®
and LIFE TIME
ATHLETICsm
brands. We design, build and operate our centers and we focus on
providing our members and customers with products and services
at a high quality and compelling value in the areas of
education, exercise and nutrition. As of February 26, 2010,
we operated 86 centers primarily in suburban locations in
19 states and 24 major markets.
We believe our centers provide a desirable and unique experience
for our members, resulting in a high number of memberships per
center, which we manage to optimize the member experience. We
have refined our center size and design with the opening of each
new center. Of our 86 centers, we consider 76 to be of our large
format design. Among these 76 centers, we consider 52 to be of
our current model design. Although the size and design of our
centers may vary, our business strategy and operating processes
remain consistent across all of our centers. Our current model
centers generally target 8,500 to 11,500 memberships by
offering, on average, 113,000 square feet of multi-use
sports and athletic, professional fitness, family recreation,
spa amenities and programs and services in a resort-like
environment.
Our principal executive offices are located at 2902 Corporate
Place, Chanhassen, Minnesota 55317, and our telephone number is
(952) 947-0000.
Our Web site is located at lifetimefitness.com. The information
contained on our Web site is not a part of this annual report.
Our
History
Our Chairman, President and Chief Executive Officer, Bahram
Akradi, founded Life Time Fitness with the vision to create a
Healthy Way of Life company that would provide an educational
and entertaining experience of uncompromising quality, while
meeting the health and fitness needs of our members by always
putting the customer first. For example, our company has never
required long-term member contracts, instead preferring to offer
month-to-month
agreements that provide members flexibility, while focusing the
efforts of our employees on the goal of earning our
members business each and every day, upon each and every
visit.
We were incorporated in 1990 as a Minnesota corporation under
the name FCA, Ltd. We changed our name to Life Time Fitness,
Inc. in 1998. In 1992, we opened our first center in Brooklyn
Park, Minnesota. This 27,000 square-foot facility served as
the first validation of a new, highly differentiated product and
service that uniquely catered to individuals and families.
Since then, we have been credited with transforming the health
and fitness industry with category-redefining centers that
feature sports and athletics, family recreation and
entertainment, professional fitness, spa services, and amenities
and programming in a resort-like environment.
In 2000, we expanded our offerings beyond operating our centers
with the introduction of our proprietary line of nutritional
products and supplements, and our award-winning magazine,
Experience Life. In 2001, we formalized our Athletic Events
division, which now offers nearly 100 events each year,
including triathlons (indoor and outdoor) and running events.
Beginning in 2003, we launched a portfolio of health seminars,
assessments and innovative partnerships with health insurance
companies with the goal of further extending our Healthy Way of
Life mission to corporate America.
In 2004, we completed our initial public offering and our stock
is listed on the New York Stock Exchange (Ticker: LTM).
We have only closed one facility in our history the
previously mentioned Brooklyn Park, Minnesota center. We decided
not to renew our lease at that location in December 2006 because
we had since opened five other locations in the vicinity that
continue to serve the membership from this former location.
3
Since inception, we have led the creation not of a health club
chain, but rather a comprehensive, Healthy Way of Life company
and brand that continues to have a significant impact on the
health and wellness of consumers.
Our
Competitive Strengths
We
offer comprehensive and convenient programs and
services.
Most of our centers offer access 24 hours a day, seven days
a week. Unlike traditional health clubs, our large format
centers offer an expansive selection of premium amenities and
services, including more than 400 pieces of
state-of-the-art
cardiovascular and resistance equipment and free-weights.
Amenities generally include multiple group fitness studios with
free classes, a team of certified personal trainers and
programming, educational seminars and fitness assessments, a
wide selection of adult and youth programs and activities,
athletic events, cycle theaters, rock climbing walls, multiple
basketball courts, racquetball and squash courts, Pilates and
yoga studios, dry saunas, complimentary towel and locker
service, large indoor and outdoor aquatics centers with
multiple, two-story waterslides, two large zero-depth entrance
recreation pools, a lap pool, two whirlpools, an outdoor bistro,
a large child center featuring a computer center, separate
infant playroom, and numerous childrens activities, a
separate family locker room, LifeSpa, which delivers a full
range of hair, nail and skin care services, and therapeutic
massage, and LifeCafe, which offers the best in nutritional food
and beverage services.
Our team of member-focused employees, each trained through our
specifically designed program of classes
and/or
certifications, is committed to providing an environment that is
clean, educational and entertaining, friendly and inviting, and
functional and innovative.
We
offer a value proposition that encourages membership
loyalty.
The broad range of amenities, programs and services we offer
exceed that of most other health and fitness center alternatives
available to consumers. We offer different types of membership
plans for individuals, couples and families. Our typical monthly
membership dues range from $50 to $80 per month for an
individual membership and from $130 to $160 per month for a
couple or family membership. We also offer a premium membership
(Onyx) with dues starting at $90 per month for an individual
membership and up to $250 per month for a family membership. Our
memberships include the primary members children under the
age of 12 at a nominal per child monthly cost. We provide the
majority of our members with a variety of complimentary
services, including group fitness classes, educational seminars
and fitness assessments, towel and locker service and a
subscription to our award-winning magazine, Experience
Life. Our membership plans include initial
14-day money
back guarantees and are
month-to-month,
cancelable by giving up to sixty days advance notice. We believe
our value proposition and member focused approach creates
loyalty among our members.
We
offer a product that is convenient for our
members.
Our centers are generally situated in residential areas and are
easily accessed and centrally located among the residential,
business and shopping districts of the surrounding community. We
design, build and operate our centers to accommodate a large and
active membership base by generally providing access to the
centers 24 hours a day, seven days a week. In addition, we
provide sufficient parking spaces, lockers and equipment to
allow our members to exercise with little or no waiting time,
even at peak hours and when center membership levels are at
targeted capacity. Our child center services are available to
the majority of our members for a modest monthly fee per child
for up to two hours per day. Most of our centers offer the
convenience of spa and cafe services. Most members have access
to more than one center in markets where we operate more than
one location.
We
have an established and profitable economic model.
Our economic model is both based and dependent on attracting a
large membership base within the first three years after a new
center is opened, as well as retaining those members and
maintaining tight expense control. In 2009, this economic model
resulted in revenue growth of 9%, with revenue of
$837.0 million; EBITDA growth of 9%, with EBITDA of
$240.9 million and an EBITDA margin of 28.8%; and net
income growth of 1%, with net income of $72.4 million.
4
We
believe we have a disciplined and sophisticated site selection
and development process.
We believe we have developed a disciplined and sophisticated
process to evaluate metropolitan markets in which to build or
lease new centers, as well as specific sites for potential
future centers within those markets. This multi-step process is
based upon applying our proven successful experience and
analysis to predetermined physical, demographic, psychographic
and competitive criteria generated from profiles of each of our
existing centers. We continue to modify these criteria based
upon the performance of our centers. A formal business plan is
developed for each proposed new center and the plan must pass
multiple stages of approval by our management and Finance
Committee of the board of directors. By utilizing a wholly owned
construction subsidiary, FCA Construction Company, LLC (FCA
Construction), that is dedicated solely to building and
remodeling our centers, we maintain maximum flexibility over the
design process of our centers and control over the cost and
timing of the construction process subject to financing and
capital availability.
Our
Growth Strategy
Our growth strategy is driven by three primary elements:
Open
new centers.
We intend to expand our base of centers, primarily through new
center development. In 2009, we opened three large format
centers that we designed and constructed. We expect to open
three large format centers in 2010, as well as two boutique
centers featuring exclusive services, such as Pilates, yoga,
personal training and massage. One of these large format centers
opened in January 2010 and the remaining two large format
centers are currently under construction. One of the boutique
centers opened in February 2010. A rollforward of our recent
center openings is as follows:
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For the Year Ended December 31,
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2009
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2008
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2007
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2006
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2005
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Total centers, beginning of year
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81
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70
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60
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46
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39
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New centers constructed
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3
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10
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8
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7
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6
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New centers remodel of existing space
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1
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1
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Acquired centers
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2
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7
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1
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Closed centers
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(1
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Total centers, end of year
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84
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81
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70
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60
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46
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In December of 2006, the lease expired on our 27,000 square
foot center in Brooklyn Park, Minnesota, which opened in 1992.
After opening that center, we had since opened five other
locations in the vicinity that continue to serve the membership
from that former location.
Increase
membership and optimize membership dues.
Of our 84 open centers at December 31, 2009, 60 had reached
maturity, which we define as the 37th month of operations. Our
goal is for a mature center to operate with at least 90% of
targeted membership capacity by the end of its third year of
operations. Due to recent economic conditions, our mature
centers, in the aggregate, are currently below our 90% target.
We have 24 centers that have not yet reached maturity. These 24
centers averaged 64% of targeted membership capacity as of
December 31, 2009. We expect the continuing increase in
memberships at these centers to contribute significantly to our
future growth as these centers move toward our goal of 90% of
targeted membership capacity by the end of their third year of
operations. Our membership levels for our non-mature centers
were as follows:
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As of December 31,
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2009
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2008
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2007
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2006
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2005
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Non-mature centers
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24
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36
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32
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28
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17
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Non-mature centers percentage of targeted capacity
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64.0
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%
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62.6
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%
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66.4
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65.3
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%
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66.4
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%
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5
In addition to increasing membership levels, we focus on
optimizing our membership dues by improving the mix of our
memberships. Our membership dues mix can be improved by
increasing the number of members covered under a membership (for
instance, an individual to a couple membership, or a couple to a
family membership). In addition, a member can upgrade a
membership to a higher tier (for example, from Gold to Platinum).
In order to achieve and maintain our membership goals, we focus
on demographics, center usage and membership trends, and employ
marketing programs to effectively communicate our value
proposition to existing and prospective members. We also offer a
membership option, referred to as a Flex membership, for members
who do not access the center, but still maintain certain member
benefits.
Increase
in-center products and services revenue.
From 2005 to 2009, revenue from the sale of in-center products
and services grew at a compound annual growth rate of 19.0% from
$97.7 million to $232.8 million and we increased
in-center revenue per membership from $300 to $400, with a high
of $414 in 2008. We believe revenue from the sale of our
in-center products and services will continue to grow. Our
centers offer a variety of in-center programs, products and
services, including individual and group sessions with certified
professional personal trainers, LifeSpa services, member
activities programs, wellness programs, Pilates and yoga, tennis
programs and the food and beverage from our LifeCafes. We expect
to continue driving in-center revenue both by increasing sales
of our current in-center products and services and introducing
new products and services to our members.
Our
Industry
We participate in the large and growing U.S. health and
wellness industry, which we define to include health clubs,
fitness equipment, athletics, physical therapy, wellness
education, nutritional products, athletic apparel, spa services
and other wellness-related activities. According to
International Health, Racquet & Sportclub Association
(IHRSA), the estimated market size of the
U.S. health club industry, which is a relatively small part
of the health and wellness industry, was approximately
$19.1 billion in revenue for 2008 and 45.5 million
memberships with approximately 30,000 clubs as of January 2009.
Based on IHRSA membership data, the number of health club
memberships in the U.S. increased 10% from
41.3 million in 2004 to 45.5 million in 2008. Over
this same period, total U.S. health club industry revenues
increased 29% from $14.8 billion to $19.1 billion.
Our
Philosophy A Healthy Way of Life
Company
We help our members achieve a healthy and active way of life by
delivering high-quality, high-value programs, products and
services in the areas of exercise, education and nutrition both
at and outside of our centers. We aim to connect and engage our
members in their unique areas of interest and in accordance with
their specific goals and objectives to help them achieve
success. Furthermore, we promote continuous education on the
benefits of a regular, balanced exercise and nutrition program
as a key part of a members experience by offering our
award-winning Experience Life magazine, along with free seminars
on health and nutrition. Moreover, our centers offer interactive
training and learning opportunities, such as personal training,
group fitness and nutrition coach sessions, and member
activities classes and programs. We believe that by helping our
members experience the rewards of challenging and investing in
themselves, and achieving their health and fitness goals and
objectives, they will associate our company with healthy and
active living.
We recognize that our fundamental objective of helping people
lead and achieve a healthy way of life depends not only on
helping individuals make good choices about nutrition and
physical activity, but also on doing our part to promote healthy
communities and a healthy planet. At the most basic level, we
understand that the health of individuals, communities and
businesses all depend on clean water and air, healthy soil and a
stable climate. For this reason, we are committed to conducting
our business in a way that respects these connections. Our
efforts include a variety of evolving corporate responsibility
and sustainability initiatives that we believe enhance our
ability to support a healthy way of life.
6
Our
Sports and Athletic, Professional Fitness, Family Recreation and
Spa Centers
Size
and Location
Our centers have evolved since inception and will continue to
evolve. All centers are centrally located in areas that offer
convenient access from residential, business and shopping
districts of the surrounding community, and generally provide
free and ample parking.
Of our 84 centers as of December 31, 2009, 75 are of our
large format design and 51 of those conform to our current model
center design. Our distinctive format is designed to provide
efficient and inviting spaces that are conducive to the wide
range of healthy way of life programming we deliver and
accommodate our targeted capacity, which is individually
established for each center. Our current model centers and other
large format centers generally target 8,500 to 11,500 and 5,500
to 10,500 memberships, respectively. This targeted capacity is
designed to maximize the member experience based upon our
historical understanding of membership usage, facility layout,
the number of individual, couple and family memberships and
pricing.
Generally, the main differences between our large format centers
and those that are not of the current model design are the
inclusion (or absence) of an outdoor aquatics park, larger
indoor aquatics area, larger gymnasium, up to three additional
studios and enhanced LifeSpa and LifeCafe spaces. We believe
that all of our large format centers serve as
all-in-one
sports and athletic, professional fitness, family recreation and
spa resorts.
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As of December 31,
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2009
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2008
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2007
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2006
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2005
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Large format centers current model
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Number of centers
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51
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48
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38
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30
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23
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Average square feet
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113,000
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113,000
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110,000
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110,000
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109,000
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Large format centers other
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Number of centers
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24
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24
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23
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21
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14
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Average square feet
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95,000
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95,000
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95,000
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100,000
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83,000
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Center
Environment
Our centers combine modern architecture and décor with
state-of-the-art
amenities to create a friendly and inviting, functional and
innovative sports and athletic, professional fitness, family
recreation and spa destination for the entire family. The
majority of our current model centers and most of our large
format centers are freestanding buildings designed with open
architecture and naturally illuminated atriums that create a
spacious, inviting atmosphere. From the limestone floors,
natural wood lockers and granite countertops, to our safe and
bright child centers, each room is carefully designed to create
an appealing and luxurious environment that attracts and retains
members and encourages them to visit the center. Moreover, we
have specific staff members who are responsible for maintaining
the cleanliness and neatness of the locker room areas, which
contain approximately
800-900
lockers, throughout the day and particularly during the
centers peak usage periods. We regularly update and
refurbish our centers to maintain a high-quality experience. Our
commitment to quality and detail provides a similar look and
feel at each of our large format centers.
7
Equipment
and Programs
The table below displays the wide assortment of amenities,
services, activities and events typically found at our large
format centers, including our current model centers:
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Amenities
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Services
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Activities and Events
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Basketball/Volleyball Courts
Cardiovascular, Resistance and
Free Weight Equipment
Cycle Theaters
Group Fitness Studios
Lap Pool
Racquetball/Squash Courts
Child Center
Rock Climbing Cavern
Saunas
Two-story Waterslides
Whirlpool Spas
Zero-depth Entry Swimming Pools
LifeStudio
LifeCafe
LifeSpa
Pool-side Bistro
Mens, Womens and Family
Locker Rooms
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24-Hour Availability
Fitness Assessments
Educational Seminars
Experience Life Magazine
Towel Service
Locker Service
Massage Therapy
Nutritional Products
Personal Training
T.E.A.M. Programs
Cardiovascular and Resistance Training
Metabolic Testing
Nutrition Coaching
Endurance Coaching
Member Advantage
Corporate Wellness Products
and Services
myLT.com
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Aquatics
Athletic Leagues
Birthday Parties
Eastern/Martial Arts
Kids Club
Pilates
Group Fitness Classes
Scuba Lessons
Studio Cycling
Sports Training Camps
Summer Camps
Swimming Lessons
Yoga
Educational Camps
Dance Classes
Athletic Events
Run Club, Cycle-Club and other
interest driven clubs
Social Events
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Fitness Equipment and Facilities. To help
members develop and maintain a healthy way of life, train for
athletic events or lose weight, our centers have up to 400
pieces of cardiovascular and resistance training equipment plus
free weights. Exercise equipment is arranged in spacious workout
areas to allow for easy movement from machine to machine,
facilitating a convenient and efficient workout. Equipment in
these areas is arranged in long parallel rows that are clearly
labeled by muscle group, allowing members to conveniently
customize their exercise programs and reduce downtime during
their workouts. Due to the large amount of equipment in each
center, members rarely have to wait to use a machine. We have
in-house technicians that service and maintain our equipment,
which generally enables us to repair or replace any piece of
equipment promptly. In addition, we have a comprehensive system
of large-screen televisions in the fitness area.
Our current model centers have large indoor and outdoor
recreation pools with zero depth entrances and water slides, lap
pools, saunas, steam baths and whirlpools. A majority of these
centers also have at least two regulation-size basketball courts
that can be used for various sports activities, as well as other
dedicated facilities for group fitness, cycling, rock climbing,
racquetball
and/or
squash. In addition, 12 of our current model and large format
centers have tennis courts. Programs at these tennis facilities
include professional instruction and leagues.
Personalized Services for Individuals and Small
Groups. On average, we employ 25 personal
trainers in a current model center. Our personal trainers are
skilled in assessing and formulating safe and effective
individual and group exercise programs. Our personal training
program goal has been and will continue to be to improve the
health and wellness of our members and be considered a leader in
the industry. To this end, our personal trainers are required to
be certified by one of the nationally accredited certification
bodies within six months of employment and take a rigorous
one-week internal certification program before providing member
service.
We offer many different programs featuring our certified
professional personal trainers including:
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One-On-One
sessions an individual member meets directly
with a personal trainer designed to help members achieve their
healthy way of life goals, including losing weight, gaining
weight/muscle mass, or specific event training.
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Small Group sessions designed for a
group of 2 to 4 members who meet directly with a single personal
trainer designed to help members achieve their goals with others.
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T.E.A.M. Training Education Accountability
Motivation®
programs We have developed a number of
large group (typically 8 to 12 members) programs under our
proprietary T.E.A.M. platform. Our T.E.A.M. Weight Loss program
focuses on exercise, education and nutrition and provides the
resources as well as support needed for long-term weight loss
success. The T.E.A.M. Fitness program combines cardio exercise
with strength training. Our endurance program focuses on
training in the right heart rate zones, for the right duration
of time and at the right frequency to burn fat more efficiently
while improving overall health and wellness. Our T.E.A.M. Boot
Camp challenges our members to test their limits in strength,
agility and stamina.
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Assessments We offer various
assessments for a detailed view of total health. Whether the
member is an athlete or simply seeking better health, our
assessments help achieve health goals more efficiently and
confidently by providing precise scientific data on the
members current health and fitness.
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Fitness Programs and Classes. Our centers
offer fitness programs, including group fitness classes and
health and wellness training seminars on subjects ranging from
metabolism to personal nutrition. Each current model center has
at least two group fitness studios and makes use of the indoor
and outdoor pool areas for classes. These centers also offer
yoga and Pilates as well as a studio dedicated to studio
cycling. On average, we offer 85 group fitness classes per week
at each current model center, including, for example, studio
cycling, step workout, dance classes, circuit training and
fitness yoga classes. These classes generally are free of charge
to our members. The volume and variety of activities at each
center allow each member to enjoy the center, whether
participating in personalized activities or with other family
members in group activities.
Other Center Services. Our large format
centers feature a LifeCafe, which offers fresh and healthy
pre-prepared and
made-to-order
sandwiches, snacks and shakes to our members. Our LifeCafe
offers members the choice of dining indoors, ordering their
meals and snacks to go or, in each of our current model centers
and certain of our other large format centers, dining outdoors
at the poolside bistro. Our LifeCafes also carry our own line of
nutritional products, third-party nutritional products, sports
accessories and personal care products.
Our current model centers and almost all of our other large
format centers also feature a LifeSpa, which is a full-service
spa located inside the centers. Our LifeSpas offer hair, body,
skin care and massage therapy services, customized to each
clients individual needs. The LifeSpas are located in
separate, self-contained areas that provide a relaxing and
rejuvenating environment.
Almost all of our centers offer
on-site
child centers for children ages three months to 11 years as
part of a low monthly fee per child. Child center services are
available for up to two hours per child per day while members
use our centers. The childrens area features a computer
center, separate infant playroom, and numerous childrens
activities. We hire experienced personnel that are dedicated to
working in the child centers to ensure that children have an
enjoyable and safe experience.
All of our large format centers offer a variety of programs for
children, including swimming lessons, activity programs, martial
arts classes, sports programs and craft programs. We also offer
several childrens camps during the summer and holidays.
For adults, we offer racquetball, squash and tennis (where
available) in addition to various sports leagues.
Memberships
We define a membership as one individual, couple or family. For
example, a family of three people would be considered one
membership. As of December 31, 2009, we had 578,937
memberships and 1,155,855 members, an average of 2.0 members per
membership. Our current model centers average approximately 2.4
members per membership, as a result of a higher family
concentration for those centers.
We offer a convenient
month-to-month
membership with no long-term contracts. Our members pay a low,
one-time joining fee, which includes an enrollment fee and an
administrative fee and receive an initial
14-day money
back guarantee.
Primary Membership Plans. We have four primary
membership plans, which are Bronze, Gold, Platinum and Onyx.
Depending on the center classification, a member is required to
have a minimum membership level. For
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instance, our center in Eagan, Minnesota is designated as a Gold
center, requiring all members to have the Gold, Platinum or Onyx
plan. Our center in Florham Park, New Jersey is designated as an
Onyx center; therefore all members are required to have the Onyx
plan. Decisions of center designation are made on a
center-by-center
basis and are dependent on the market presence, demographic
nature, population density and initial investment in the center.
All memberships, regardless of plan level, typically include the
following:
24-hour
access, locker and towel service, complimentary group fitness
classes (such as core, cycle and yoga), and various educational
programs. Members may also take advantage of equipment
orientations and participate in a complimentary fitness
assessment which consists of fitness testing, review of exercise
history, body fat measurement and goal setting.
Then, depending on plan level, a member would receive enhanced
benefits as they upgrade their membership plan. These include
access to a greater number of centers nationwide, more guest
privileges, more Member Advantage (a program designed to give
our members discounts at select local and national partner
businesses) opportunities, higher-end amenities and additional
complimentary programs and services.
The following table compares our different membership types, as
of December 31, 2009:
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Bronze
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Gold
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Platinum
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Onyx
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A great experience at our most affordable rate
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Many center choices nationwide
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Nationwide center access, premium partner benefits and tennis
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The ultimate in access, amenities and benefits
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Number of centers designated
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11
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47
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16
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10
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Joining fee
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$75-150
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$75-150
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$75-150
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$75-150
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Individual dues
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$50
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$60-70
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$70-80
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$90-120
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Family dues
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$130
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$140-150
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$150-160
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$200-250
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Center access
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All bronze centers
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All Bronze and Gold centers (58)
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All Bronze, Gold and Platinum centers (74)
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All Life Time Fitness locations nationwide, including Life Time
Athletic centers (84)
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In-center amenities
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Complimentary towel and locker service and free group fitness
classes
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All Bronze benefits plus: complimentary climbing wall,
racquetball and squash court access
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All Gold benefits, plus: access to Platinum-level tennis clubs,
fee-based tennis court access
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All Platinum benefits
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Member Advantage
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10+ local and national partners
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500+ local and national partners
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575+ local and national partners
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575+ local and national partners
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Other Membership Plans. We have three other
membership plans that are aimed to attract niche memberships.
They include the following:
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Junior Membership: Children under the age of
12 qualify for a junior membership, with dues of $6 to
$8 per month, depending on the center. The junior
membership provides access to the child care center, pools and
gyms at designated times. We do not count junior memberships as
reported memberships since they are already part of the family
membership.
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Under 26 Membership: In 2008, we created a
26-and-under
membership which provides individuals in this age group with
monthly membership dues that are $10 to $20 less than the
standard rate. This membership type is intended to increase the
number of members we serve in this demographic in selected
locations.
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Express Membership: From time to time, we
offer a limited service, center-only membership. Memberships in
this plan generally pay $10 less per month than the standard
rate.
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Other Subscription Plans. We have a
subscription plan (Flex membership) for members who choose to
freeze rather than terminate their membership with
us. Memberships in this plan pay $10 per month, whether they are
an individual, couple or a family. Benefits include access to
our exclusive member Web site, myLT.com, Member Advantage
discounts, subscription to Experience Life magazine and the
ability to resume their
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membership without paying an enrollment or administrative fee.
We do not count these frozen memberships in our membership count
since they do not have access to our centers. We do not count
these frozen memberships as terminations in our attrition
calculation since they remain connected and continue to receive
other benefits associated with a Life Time Fitness membership.
We experienced significant growth in this membership type in
2009, which we believe was due to the economic challenges our
members faced and, yet, reflects our members desire to
maintain a direct relationship with our company. As of
December 31, 2009 and 2008, we had 50,001 and 20,890 Flex
memberships, respectively.
Usage
Our centers are generally open 24 hours a day, seven days a
week. We typically experience the highest level of member
activity at a center during the 5:00 a.m. to
11:00 a.m. and 4:00 p.m. to 8:00 p.m. time
periods on weekdays and during the 8:00 a.m. to
5:00 p.m. time period on weekends. Our centers are staffed
accordingly during peak and non-peak hours to provide each
member with a positive experience. We have introduced a number
of initiatives focused on getting our members more involved and
connected with the goal of higher membership usage and increased
member satisfaction. The following table reports our usage
statistics:
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For the Year Ended December 31,
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2009
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2008
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2007
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2006
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2005
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Total number of visits (in millions)
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57.7
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50.4
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42.1
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33.8
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26.8
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Average number of visits per month, per center
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57,792
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56,300
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54,647
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54,376
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53,175
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Average visits per year, per membership
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98
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94
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88
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84
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80
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New
Center Site Selection and Construction
Site Selection. Our management devotes
significant time and resources to analyzing each prospective
site (both undeveloped land and existing facilities available
for lease) on the basis of predetermined physical, demographic,
psychographic and competitive criteria in order to achieve
maximum return on our investment. We focus mainly on markets
that will allow us to operate multiple centers that create
certain efficiencies in marketing and branding activities;
however, we select each site based on whether that site can
support an individual center on a stand-alone basis.
After we identify a potential site, we develop a business plan
for a center on that site. This requires approvals from all
functional areas of executive management and the finance
committee of our board of directors. We believe that our
structured process provides discipline and reduces the potential
for developing a site that the market cannot support.
Design and Construction. We have a wholly
owned subsidiary, FCA Construction, which provides us with
experienced in-house architecture and construction teams and is
comprised of approximately 60 employees. This subsidiary is
dedicated solely to overseeing the design and construction of
each new center and the remodeling of existing centers.
Our centers are designed by our architecture division, which has
developed a prototypical set of design and construction plans
and specifications that can be easily adapted to each new site.
Our architecture division also assists our construction division
in obtaining bids and permits in connection with constructing
each new center.
Our construction division includes the project management of
each new site and remodel, as well as all other back office
responsibilities, such as purchasing, project accounting and
sub-contractor
selection. Dedicated internal personnel work on expediting the
permitting processes and project scheduling. Our bid phase
specialists obtain referrals for local subcontractors, monitor
project costs, coordinate compliance with safety requirements,
and prepare site documentation. Our project management group
oversees the construction of each new center and works with our
architects to review bids and monitor quality. Our construction
procurement group bids each component of our projects to ensure
cost-effective pricing. By using the same materials at each
center, we not only maintain a consistent look and
feel, but also are generally able to purchase materials in
sufficient quantities to receive favorable pricing. Each center
has an
on-site
construction superintendant responsible for coordinating the
project build-out.
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By utilizing FCA Construction, we are able to maximize our
flexibility in the design process, retain control over the cost
and timing of the construction process and realize potential
cost savings on each project. Nearly all of the costs of the FCA
Construction subsidiary are capitalized as a part of the overall
initial investment in the center or the remodel. Any remaining
unallocated costs are recognized as an expense in the period
incurred. Because FCA Construction performs services solely for
us, we do not recognize any revenue or profit related to FCA
Constructions operations.
In October 2008, we announced the decision to reduce the number
of planned new center openings in 2009 and 2010. This business
decision was made as a result of economic factors and, most
notably, the challenging capital markets upon which we rely to
fund the construction of new centers. In connection with this
decision, in late 2008 and early 2009, we realigned our staffing
levels and cost structure with the revised growth plan. As a
result of these actions, we believe we are in a position to fund
our planned new center development for the foreseeable future
via existing financing and cash flow, and that we have a cost
structure that aligns with our revised growth plans. We will
continue to evaluate our staffing levels and cost structure in
the future.
Marketing
and Sales
Overview of Marketing. Our centralized
marketing agency is responsible for generating membership leads
for our sales force, supporting our corporate businesses and
promoting our brand. Our marketing agency consists of four fully
integrated divisions which are new member acquisition and
retention, planning and analysis, creative development and
production, and Web development. By centralizing our marketing
effort, we bring our marketing experience and strategy to each
new market we enter in a coordinated manner. We also market to
corporations and, in some situations, we offer discounted
enrollment fees for persons associated with these corporations.
Membership enrollment activity is tracked to gauge the
effectiveness of each marketing medium, which can be adjusted as
necessary from a centers pre-opening phase to maturity and
beyond.
Overview of Sales. We have a trained and
certified, commissioned sales staff in each center that is
responsible for membership acquisition and member retention
through the conversion of company generated leads and for self
generated leads through many various prospecting channels.
During the pre-opening and grand opening phases described below,
we have up to 12 member advisors on staff at a center. As the
center matures, we reduce the number of member advisors on staff
to between six and eight. Our sales staff also uses our customer
relationship management system to gather fitness and related
interests of our members and prospects and to effectively manage
these relationships to promote maximum results.
Pre-Opening Phase. We generally begin selling
memberships up to five months prior to a centers scheduled
opening. New members are attracted during this period primarily
through a portfolio of broad-reach and targeted consumer and
business-to-business
media as well as referral promotions. To further attract new
members during this period, we occasionally offer lower
pre-opening enrollment fees.
Grand Opening Phase. We deploy a marketing
program during the first month of a centers operation that
builds on our pre-opening efforts. The reach and frequency of
the advertising campaign culminate when all households within a
strategically designated trade area, based on local access
considerations, housing density and travel patterns, receive
targeted advertising. Simultaneously, prospective members
receive special invitations to grand opening activities and
educational seminars designed to assist them in their
orientation to the center. Our corporate clients receive special
enrollment opportunities, as well as invitations to open house
activities.
Membership Growth Phase. After the grand
opening phase, marketing activities and costs should decrease as
drive-by visibility and
word-of-mouth
marketing become more influential. The goal of each center is to
achieve consistent membership growth until targeted capacity is
reached. Once the center has reached its targeted capacity,
marketing efforts are directed at keeping membership levels
stable and at growing other in-center services to existing
members. Marketing plans for each center are formulated on an
annual basis and reviewed monthly by marketing and center-level
sales personnel. At monthly intervals, a comprehensive situation
analysis is performed to ensure sales and retention objectives
are meeting the goals of the centers business plan.
Member Retention Phase. After a new member has
joined Life Time Fitness, we initiate a member engagement
process where the goal is to help the member achieve their
personal goals in addition to our achieving member loyalty and
connectivity to our centers. We have developed several
connectivity programs, including, but
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not limited to, access to our dedicated member Web site,
myLT.com, our periodic offerings of various physical and social
venues entitled myEvents and access to Member Advantage, a
program designed to provide our members with discounts at select
local and national partner businesses.
Leveraging
the LIFE TIME FITNESS Brand
We continue to build our brand nationally via our centers, and
by delivering products and services in the areas of exercise,
education and nutrition at a high quality and value. We are
further strengthening the LIFE TIME FITNESS brand by broadening
our portfolio of centers, expanding the circulation of our
Experience Life magazine, and through our series of
athletic events and line of nutritional products.
Centers. As of February 26, 2010, we
operated 86 centers in 19 states and 24 major markets under
the LIFE TIME FITNESS and LIFE TIME ATHLETIC brands.
Education. Core to our member commitment is
the delivery of educational information that supports healthy
and active lifestyles. We uphold this by offering Healthy Way of
Life stories, news, products, tips and recipes on our Web sites,
including lifetimefitness.com, experiencelifemag.com, myLT.com,
and lifetimeendurance.com. We also offer educational classes at
our centers and distribute our award-winning Experience Life
magazine to most of our members. Experience Life
includes an average of 95 full-color pages of health tips and
insights, articles featuring
quality-of-life
topics and advertisements, and has a current circulation of
approximately 630,000 copies to our members, non-member
subscribers, households in new market areas and selected major
bookstores nationwide. Experience Life averages
34 pages of advertising per issue and is expected to be
published 10 times in 2010. Since 2002, Experience Life has
earned several Minnesota Magazine Publications Association
awards, including the top prize for Overall Excellence three
times.
Athletic Events. Our premier event is our
annual Life Time Fitness Triathlon, held in Minneapolis,
Minnesota, which attracted participants from 42 states and
5 countries in 2009, as well as national sponsors. The Life Time
Fitness Triathlon offers a professional division with one of the
sports largest prize purses. The event draws significant
local, national and international media coverage. We manage the
Life Time Fitness Triathlon Series, consisting of the Life Time
Fitness Triathlon, Nautica New York City Triathlon, Accenture
Chicago Triathlon, Kaiser Permanente Los Angeles Triathlon, and
the Life Time Fitness-produced Toyota U.S. Open Triathlon
in Dallas. In 2010, the Philadelphia Insurance Triathlon will be
a part of the Series. This Series, which also is open to all
amateur athletes, provides invited professional triathletes with
the opportunity to compete in each race for a chance to win a
portion of the Series total available prize purse. In
addition to the Life Time Fitness Triathlon and Life Time
Fitness Triathlon Series, we produce several shorter fun
run/walks during the year, such as the 5K Reindeer Run in many
of the cities where we operate centers, the Torchlight 5K Run
and Turkey Day 5K in Minneapolis, and the Run Wild 5K Fun
Run & Walk in Phoenix, Arizona, as well as indoor
triathlons in many of our centers.
Nutritional Products. We offer a line of
nutritional products, including Mens and Womens
Performance Multivitamins, Omega-3 Fish Oil, Joint Maintenance
Formulation, LeanSource Soft Gels, Whey Protein isolate, and
Fast- Fuel Complete, our new meal replacement, that we believe
deliver the highest possible quality, value and the performance
when it comes to helping our members achieve their health and
fitness goals. Our products use high quality ingredients and are
available in our LifeCafes and through our Web site,
lifetimefitness.com. Our current nutritional product line
focuses on four areas, which are daily health, weight
management, energy and athletic performance. Our weight
management products work safely and effectively to help manage
weight. Our formulations are created and extensively tested by a
team of external scientific experts. We use experienced and
professional third parties to manufacture our nutritional
products.
Our
Employees
Most of our current model centers are staffed with an average of
225 full-time and part-time employees. Approximately 11
center employees are in management positions, typically
including a general manager, operations department head and
sales department head to ensure a well-managed facility and
motivated work force. All employees are provided dedicated
training
and/or
certification to support the member experience we expect.
Additionally, our personal trainers, massage therapists,
physical therapists and cosmetologists are required to maintain
a professional license or one of their industrys top
certifications.
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All center employees are required to participate in a training
program that is specifically designed to promote a friendly and
inviting environment at each center and a consistent standard of
performance across all of our centers. Employees also receive
ongoing mentoring, and continuing education is required before
they are permitted to advance to other positions within our
company.
As of December 31, 2009, we had approximately
17,400 employees, including approximately
11,600 part-time employees and approximately
500 employees at our Corporate office. We are not a party
to a collective bargaining agreement with any of our employees.
Although we experience turnover of non-management personnel,
historically we have not experienced difficulty in obtaining
adequate replacement personnel. In general, we believe relations
with our employees are good.
Information
Systems
In addition to our standard operating and administrative
systems, we utilize an integrated and flexible member management
system to manage the flow of member information within each of
our centers and between centers and our corporate office. We
have designed and developed our proprietary system to allow us
to collect information in a secure and easy-to-use environment.
Our system enables us to, among other things, enroll new members
with a paperless membership agreement, acquire digital pictures
of members for identification purposes and capture and maintain
specific member information, including usage. The system allows
us to streamline the collection of membership dues
electronically, thereby offering additional convenience for our
members while at the same time reducing our corporate overhead
and accounts receivable. We have a customer relationship
management system to enhance our marketing campaigns and
management oversight regarding daily sales and marketing
activities.
Competition
Due to the innovative nature of our comprehensive centers,
programming, product and service offering, we believe that we
are well positioned in the health club industry. However, this
industry is highly competitive and our competition may have
greater name recognition than we have or greater economies of
scale. We consider the following groups to be the primary
industry participants in the health and fitness industry:
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health club operators, including 24 Hour Fitness Worldwide,
Inc., Bally Total Fitness Holding Corporation, Equinox Holdings,
Inc., LA Fitness International, LLC and Town Sports
International, Inc.;
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the YMCA and similar non-profit organizations;
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physical fitness and recreational facilities established by
local governments, hospitals and businesses;
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local salons, cafes and businesses offering similar ancillary
services;
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exercise and small fitness clubs and studios, including Anytime
Fitness, Curves International and Snap Fitness;
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racquet, tennis and other athletic clubs;
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amenity and condominium clubs;
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country clubs;
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online personal training and fitness coaching; and
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the home-use fitness equipment industry.
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Competition in the health club industry varies from market to
market and is based on several factors, including the breadth of
product and service offerings, the level of enrollment fees and
membership dues, the flexibility of membership options and the
overall quality of the offering. We believe that our
comprehensive product offering and focus on services, amenities
and value provide us with a distinct competitive advantage.
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Government
Regulation
All areas of our operations and business practices are subject
to regulation at federal, state and local levels. The general
rules and regulations of the Federal Trade Commission and other
consumer protection agencies apply to our advertising, sales and
other trade practices. State statutes and regulations affecting
the health club industry have been enacted or proposed that
prescribe certain forms for, and regulate the terms and
provisions of, membership contracts, including:
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giving the member the right under various state
cooling-off statutes to cancel, in most cases,
within three to ten days after signing, his or her membership
and receive a refund of any enrollment fee paid;
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requiring an escrow for funds received from pre-opening sales or
the posting of a bond or proof of financial
responsibility; and
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establishing maximum prices and terms for membership contracts
and limitations on the financing term of contracts.
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We are subject to federal and state regulations governing the
collection, use, retention, sharing and security of certain
types of information that we receive from our members, guests,
participants in our various services and users of our various
products.
We are subject to federal and state regulations governing the
manufacture and sale of supplement and food products in the
U.S. The U.S. Food and Drug Administration and the
Federal Trade Commission are increasingly scrutinizing claims
made for supplement and food products, especially claims related
to weight loss. We work with the manufacturers of our food and
supplement products to ensure that appropriate regulatory
notices have been provided, where necessary.
All laws, rules and regulations are subject to varying
interpretations by a large number of state and federal
enforcement agencies and the courts. We maintain internal review
procedures in order to comply with these requirements and
believe our activities are in substantial compliance with all
applicable statutes, rules and decisions.
Trademarks
and Trade Names
We own several trademarks and service marks registered with the
U.S. Patent and Trademark Office (USPTO),
including LIFE TIME
FITNESS®,
EXPERIENCE
LIFE®
and LIFE TIME FITNESS TRIATHLON
SERIES®
and T.E.A.M. TRAINING EDUCATION ACCOUNTABILITY
MOTIVATION®.
We have also registered our logo and our LIFE TIME FITNESS
Triathlon logo. We also registered the LIFE TIME
FITNESS mark in certain foreign countries.
We believe our trademarks and trade names have become important
components in our marketing and branding strategies. We believe
that we have all licenses necessary to conduct our business. In
particular, we license the mark LIFE TIME in
connection with our nutritional products so that we can market
and distribute them under the LIFE TIME FITNESS brand.
Available
Information
Our corporate Web site is lifetimefitness.com. We make
available through our Web site all reports and amendments to
those reports filed or furnished pursuant to Section 13(a)
of the Securities and Exchange Act of 1934, as amended (the
Exchange Act), as soon as reasonably practicable
after we electronically file such material with, or furnish it
to, the Securities and Exchange Commission (the SEC).
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 that have been in operation for an extended period
of time. All of our members
15
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,
including 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 the areas where our centers
are located and a decline in the publics 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. Any decrease in our average dues, reduction
in enrollment fees or higher membership acquisition costs may
adversely impact our operating margins.
Our
debt levels may limit our ability to access additional funds
under our existing credit facilities and limit our flexibility
in obtaining additional financing to pursue our growth strategy
and other business opportunities.
As of December 31, 2009, we had total consolidated
indebtedness of $660.3 million, of which
$271.1 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 and
mortgage notes that are secured by certain of our centers and
obligations under capital leases.
Our level of indebtedness could have important consequences to
us, including the following:
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our ability to obtain additional financing, if necessary, for
capital expenditures, working capital, acquisitions or other
purposes may be impaired or such financing may not be available
on favorable terms;
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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;
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payments on our indebtedness will reduce the funds that would
otherwise be available for our operations and future business
opportunities;
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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;
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we may be more highly leveraged than our competitors, which may
place us at a competitive disadvantage;
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our debt level may make us more vulnerable and less flexible
than our competitors to a downturn in our business or the
economy in general; and
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some of our debt has a variable rate of interest, which
increases our vulnerability to interest rate fluctuations.
|
In addition to the amount of indebtedness outstanding as of
December 31, 2009, we had access to an additional
$101.0 million under our credit facilities. We also have
the ability to incur new debt, subject to limitations under our
existing credit facilities 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.
If we
fail to comply with any of the covenants in our financing
documents, we may not be able to access our existing credit
facilities, we may be required to pay increased interest and our
obligations to repay our indebtedness may be
accelerated.
We have entered into several financing transactions to finance
the development of our centers. Certain of the loan documents
contain financial and other covenants applicable to us, and
certain of these loan documents contain cross-default
provisions. For example, we have 13 centers financed by Teachers
Insurance and Annuity Association of America (TIAA)
that are subject to cross-default and cross-collateral
provisions, which would allow the lender to foreclose on each of
these 13 centers if there is an event of default related to one
or more of these centers. In
16
addition, any default or acceleration of payments under any loan
facility of more than $1 million and any default that
results in termination of acceleration of payments under any
lease transaction involving annual payments in excess of
$1 million, constitutes an event of default under our
revolving credit facility. If we fail to comply with any of the
covenants, it may cause a default under one or more of our loan
documents, which could limit our ability to obtain additional
financing under our existing credit facilities, require us to
pay higher levels of interest or accelerate our obligations to
repay our indebtedness. See footnote 5, Subsequent
Event to our consolidated financial statements for a
description of a partial prepayment on this obligation.
Because
of the capital-intensive nature of our business, we rely on our
revolving credit facilities and may have to incur additional
indebtedness or issue new equity securities. If we are not able
to access our credit facilities, obtain additional capital or
refinance existing debt, our ability to operate or expand our
business may be impaired and our operating results could be
adversely affected.
Our business requires significant levels of capital to finance
the development of additional sites for new centers, the
construction of our centers and repayment of indebtedness at
maturity. If cash from available sources is insufficient or
unavailable due to restrictive credit markets, or if cash is
used for unanticipated needs, we may require additional capital
sooner than anticipated. In the event that we are required or
choose to raise additional funds, we may be unable to do so on
favorable terms or at all. Furthermore, the cost of debt
financing could significantly increase, making it
cost-prohibitive to borrow, which could force us to issue new
equity securities. If we issue new equity securities, existing
shareholders may experience additional dilution or the new
equity securities may have rights, preferences or privileges
senior to those of existing holders of common stock. If we
cannot access existing credit facilities, raise funds on
acceptable terms, or utilize cash flow from operations, we may
not be able to execute on current growth plans, complete
projects we have commenced, take advantage of future
opportunities or respond to competitive pressures. Any inability
to access existing credit facilities, raise additional capital
when required or repay scheduled indebtedness at maturity could
have an adverse effect on our business plans and operating
results.
Our
continued growth could place strains on our management,
employees, information systems and internal controls which may
adversely impact our business.
Over the past several years, we have experienced significant
growth in our business activities and operations, including an
increase in the number of our centers. Our past expansion has
placed, and any accelerated future expansion may place,
significant demands on our administrative, operational,
financial and other resources. Any failure to manage growth
effectively could seriously harm our business. To be successful,
we will need to continue to implement management information
systems and improve our operating, administrative, financial and
accounting systems and controls. We will also need to train new
employees and maintain close coordination among our executive,
accounting, finance, marketing, sales and operations functions.
These processes are time-consuming and expensive, will increase
management responsibilities and will divert management
attention. In addition, if we seek to grow our business through
acquisition, we will face risks related to identifying
appropriate targets, conducting effective due diligence and
integrating the acquired businesses in order for any
acquisitions to be accretive to earnings over the long term.
If we
fail to properly maintain the integrity of our data or to
strategically implement new or upgrade or consolidate existing
information systems, our reputation and business could be
materially adversely affected.
As we grow our business, we increasingly use electronic means to
interact with our customers and collect, maintain and store
individually identifiable information, including but not limited
to personal financial information. Despite the security measures
we have in place to ensure compliance with applicable laws and
rules, our facilities and systems, and those of our third party
service providers may be vulnerable to security breaches, acts
of cyber terrorism, vandalism or theft, computer viruses,
misplaced or lost data, programming
and/or human
errors or other similar events. Additionally, the collection,
maintenance, use, disclosure and disposal of individually
identifiable data by our businesses are regulated at the federal
and state levels as well as by certain financial industry
groups, such as the Payment Card Industry organization. Such
federal, state and financial industry groups may also consider
17
from time to time new privacy and security requirements that may
apply to our businesses. Compliance with such privacy and
security laws, requirements, and regulations may result in cost
increases due to necessary systems changes, new limitations or
constraints on our business models and the development of new
administrative processes. They also may impose further
restrictions on our collection, disclosure and use of
individually identifiable information that are housed in one or
more of our databases. Noncompliance with any privacy laws, any
financial industry group requirements or any security breach
involving the misappropriation, loss or other unauthorized
disclosure of sensitive or confidential member information,
whether by us or by one of our vendors, could have a material
adverse effect on our business, reputation and results of
operations, including: material fines and penalties; increased
financial processing fees; compensatory, special, punitive, and
statutory damages; consent orders regarding our privacy and
security practices; adverse actions against our licenses to do
business; and injunctive relief.
The
health club industry is highly competitive and our competitors
may have greater name recognition than we have.
We compete with other health and fitness centers, physical
fitness and recreational facilities established by local
non-profit organizations, governments, hospitals, and
businesses, local salons, cafes and businesses offering similar
ancillary services, and to a lesser extent, amenity and
condominium clubs and similar non-profit organizations, exercise
studios, racquet, tennis and other athletic clubs, country
clubs, online personal training and fitness coaching and the
home fitness equipment industry. We cannot assure you that our
competitors will not attempt to copy our business model, or
portions thereof, and that this will not erode our market share
and brand recognition and impair our growth rate and
profitability. Competitors, which may have greater name
recognition than we have, may compete with us to attract members
in our markets. Non-profit and government organizations in our
markets may be able to obtain land and construct centers at a
lower cost than us and may be able to collect membership fees
without paying taxes, thereby allowing them to lower their
prices. Furthermore, due to the increased number of low cost
health club and fitness center alternatives, we may face
increased competition during periods when discretionary spending
declines or unemployment remains high. This competition may
limit our ability to increase membership fees, retain members,
attract new members and retain qualified personnel.
Delays
in new center openings could have a material adverse effect on
our financial performance.
In order to meet our objectives, it is important that we open
new centers on schedule. A significant amount of time and
expenditure of capital is required to develop and construct new
centers. If we are significantly delayed in opening new centers,
our competitors may be able to open new clubs in the same market
before we open our centers or improve centers currently open.
This change in the competitive landscape could negatively impact
our pre-opening sales of memberships and increase our investment
costs. In addition, delays in opening new centers could hurt our
ability to meet our growth objectives. Our ability to open new
centers on schedule depends on a number of factors, many of
which are beyond our control. These factors include:
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obtaining acceptable financing for construction of new sites;
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obtaining entitlements, permits and licenses necessary to
complete construction of the new center on schedule;
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recruiting, training and retaining qualified management and
other personnel;
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securing access to labor and materials necessary to develop and
construct our centers;
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delays due to material shortages, labor issues, weather
conditions or other acts of god, discovery of contaminants,
accidents, deaths or injunctions; and
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general economic conditions.
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18
We may
incur rising costs related to construction of new centers and
maintaining our existing centers. If we are not able to pass
these cost increases through to our members, our returns may be
adversely affected.
Our centers require significant upfront investment. If our
investment is higher than we had planned, we may need to
outperform our operational plan to achieve our targeted return.
Over the longer term, we believe that we can offset cost
increases by increasing our membership dues and other fees and
improving profitability through cost efficiencies; however,
higher costs in certain regions where we are opening new centers
during any period of time may be difficult to offset in the
short-term.
The
opening of new centers in existing locations may negatively
impact our same-center revenue increases and our operating
margins.
We currently operate centers in 19 states. We plan to open
three new large format centers in 2010, two of which are in
existing markets. With respect to existing markets, it has been
our experience that opening new centers in existing markets may
attract some memberships away from other centers already
operated by us in those markets and diminish their revenues. In
addition, 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
increases may be lower in future periods than in the past.
Another result of opening new centers is that our center
operating margins may be lower than they have been historically
while the centers build membership base. We expect both the
addition of pre-opening expenses and the lower revenue volumes
characteristic of newly-opened centers to affect our center
operating margins at these new centers. We also expect certain
operating costs, particularly those related to occupancy, to be
higher than in the past in some newly-entered geographic
regions. As a result of the impact of these rising costs, our
total center contribution and operating margins may be lower in
future periods than they have been in the past.
We
have significant operations concentrated in certain geographic
areas, and any disruption in the operations of our centers in
any of these areas could harm our operating
results.
We currently operate multiple centers in several metropolitan
areas, including 24 in the Minneapolis/ St. Paul market, nine in
the Chicago market, eight in the Dallas market, and six in the
Detroit market, with future continued planned expansion in
current and new markets. As a result, any prolonged disruption
in the operations of our centers in any of these markets,
whether due to technical difficulties, power failures or
destruction or damage to the centers as a result of a natural
disaster, fire or any other reason, could harm our operating
results. In addition, our concentration in these markets
increases our exposure to adverse developments related to
competition, as well as economic and demographic changes in
these areas.
If we
are unable to identify and acquire suitable sites for new sports
and athletic, professional fitness, family recreation and spa
centers, our revenue growth rate and profits may be negatively
impacted.
To successfully expand our business, we must identify and
acquire sites that meet the site selection criteria we have
established. In addition to finding sites with the right
demographic and other measures we employ in our selection
process, we also need to evaluate the penetration of our
competitors in the market. We face significant competition for
sites that meet our criteria, and as a result we may lose those
sites, our competitors could copy our format or we could be
forced to pay significantly higher prices for those sites. If we
are unable to identify and acquire sites for new centers, our
revenue growth rate and profits may be negatively impacted.
Additionally, if our analysis of the suitability of a site is
incorrect, we may not be able to recover our capital investment
in developing and building the new center. Due to the current
credit environment, we have chosen to slow down our new center
expansion plans. Accordingly, we expect our revenue growth rate
to decelerate near-term.
If we
cannot retain our key personnel and hire additional highly
qualified personnel, we may not be able to successfully manage
our operations and pursue our strategic
objectives.
We are highly dependent on the services of our senior management
team and other key employees at both our corporate headquarters
and our centers, and on our ability to recruit, retain and
motivate key personnel. Competition
19
for such personnel is intense, and the inability to attract and
retain the additional qualified employees required to expand our
activities, or the loss of current key employees, could
materially and adversely affect us.
We
could be subject to claims related to health or safety risks at
our centers.
Use of our centers poses potential health or safety risks to
members or guests through exertion and use of our equipment,
swimming pools, rock climbing walls, waterslides and other
facilities and services. We cannot assure you that claims will
not be asserted against us for injury or death suffered by
someone using our facilities or services. In addition, the child
center services we offer at our centers expose us to claims
related to child care. Lastly, because we construct our own
centers, we also face liability in connection with the
construction of these centers.
We are
subject to extensive government regulation, and changes in these
regulations could have a negative effect on our financial
condition and results of operations.
Various federal and state laws and regulations govern our
operations, including:
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general rules and regulations of the Federal Trade Commission,
state and local consumer protection agencies and state statutes
that prescribe certain forms and provisions of membership
contracts and that govern the advertising, sale and collection
of our memberships;
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state and local health regulations;
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federal regulation of health and nutritional products; and,
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regulation of service providers.
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Any changes in such laws could have a material adverse effect on
our financial condition and results of operations.
We
could be subject to claims related to our nutritional
products.
The nutritional products industry is currently the source of
proposed federal laws and regulations, as well as numerous
lawsuits. We advertise and offer for sale proprietary
nutritional products within our centers and through our Web
site. We cannot assure you that there will be no claims against
us regarding the ingredients in, manufacture of or results of
using our nutritional products. Furthermore, we cannot assure
you that any rights we have under indemnification provisions or
insurance policies will be sufficient to cover any losses that
might result from such claims.
If our
founder and chief executive officer leaves our company for any
reason, it could have a material adverse effect on
us.
Our growth and development to date have been largely dependent
upon the services of Bahram Akradi, our Chairman of the Board of
Directors, President, Chief Executive Officer and founder. If
Mr. Akradi ceases to be Chairman of the Board of Directors
and Chief Executive Officer for any reason other than due to his
death or incapacity or as a result of his removal pursuant to
our articles of incorporation or bylaws, we will be in default
under the loan documents for our 13 centers financed with TIAA.
In addition, if Mr. Akradi fails to retain at least
1.8 million unencumbered shares of our common stock, we
will be in default under the loan documents. As a result,
Mr. Akradi may be able to exert disproportionate control
over us because of the significant consequence of his departure.
We do not have any employment or non-competition agreement with
Mr. Akradi. See footnote 5, Subsequent Event to
our consolidated financial statements for a description of a
partial prepayment on our TIAA obligation that reduced the
unencumbered shares of our common stock that Mr. Akradi
must retain.
20
If it
becomes necessary to protect or defend our intellectual property
rights or if we infringe on the intellectual property rights of
others, we may become involved in costly litigation or be
required to pay royalties or fees.
We may have disputes with third parties to enforce our
intellectual property rights, protect our trademarks, determine
the validity and scope of the proprietary rights of others or
defend ourselves from claims of infringement, invalidity or
unenforceability. Such disputes may require us to engage in
litigation. We may incur substantial costs and a diversion of
resources as a result of such disputes and litigation, even if
we win. In the event that we do not win, we may have to enter
into royalty or licensing agreements, we may be prevented from
using the marks within certain markets in connection with goods
and services that are material to our business or we may be
unable to prevent a third party from using our marks. We cannot
assure you that we would be able to reach an agreement on
reasonable terms, if at all. In particular, although we own an
incontestable federal trademark registration for use of the LIFE
TIME
FITNESS®
mark in the field of health and fitness centers, we are aware of
entities in certain locations around the country that use LIFE
TIME FITNESS or a similar mark in connection with goods and
services related to health and fitness. The rights of these
entities in such marks may predate our rights. Accordingly, if
we open any centers in the areas in which these parties operate,
we may be required to pay royalties or may be prevented from
using the mark in such areas.
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Item 1B.
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Unresolved
Staff Comments.
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None.
21
Our corporate headquarters, located in Chanhassen, Minnesota
next to our Chanhassen large format center, is a
105,000 square foot, free-standing, three-story building
that we own.
As of February 26, 2010, we operated 86 centers in
19 states, of which we leased 27 sites, were parties
to long-term ground leases for six sites, owned 52 sites
and were a member to a joint-venture that owned one site. We
expect to open three large format centers, as well as two
boutique centers featuring services such as Pilates, yoga,
personal training and massage, in 2010 on sites we own or lease
in various markets. One of the large format centers opened in
January and the remaining two are currently under construction.
One of the boutique centers opened in February. Excluding
renewal options, the terms of leased centers, including ground
leases, expire at various dates from 2010 (St. Paul,
Minnesota) through 2049. The majority of our leases have renewal
options and a few give us the right to purchase the property.
The table below contains information about our open centers:
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Center
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Square
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Date
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|
|
|
Location
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|
Format
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|
Feet(1)
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Opened(2)
|
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|
86
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Scottsdale (Pima Crossing), AZ
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Other
|
|
20,620
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Feb-10
|
|
85
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|
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Beachwood (Cleveland), OH
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|
Large/Current
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|
112,110
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|
Jan-10
|
|
84
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|
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Collierville, TN
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|
Large/Current
|
|
112,110
|
|
Jun-09
|
|
83
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|
|
Lake Houston (Houston), TX
|
|
Large/Current
|
|
112,110
|
|
Feb-09
|
|
82
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|
|
Berkeley Heights, NJ
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|
Large/Current
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|
112,110
|
|
Feb-09
|
|
81
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|
|
Westminster, CO
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|
Large/Current
|
|
112,110
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|
Nov-08
|
|
80
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|
Florham Park, NJ
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|
Large/Current
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|
109,995
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|
Nov-08
|
|
79
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|
|
Loudoun County, VA
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|
Large/Current
|
|
112,110
|
|
Oct-08
|
|
78
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|
|
Mansfield (Dallas), TX
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Large/Current
|
|
129,155
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|
Oct-08
|
|
77
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|
|
Vernon Hills, IL
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|
Large/Current
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|
140,495
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|
Sep-08
|
|
76
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|
Houston City Centre, TX
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|
Large/Current
|
|
140,495
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|
Sep-08
|
|
75
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|
|
Rockville, MD
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|
Large
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|
66,700
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|
Sep-08
|
|
74
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|
|
Mountain Brook, GA
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|
Large/Current
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|
112,110
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|
Jun-08
|
|
73
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|
|
West County, MO
|
|
Large/Current
|
|
112,110
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|
Jun-08
|
|
72
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|
|
Johns Creek, GA
|
|
Large/Current
|
|
112,110
|
|
May-08
|
|
71
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|
|
Parker, CO
|
|
Large/Current
|
|
129,155
|
|
Jan-08
|
|
70
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|
|
NW San Antonio, TX
|
|
Large/Current
|
|
112,110
|
|
Dec-07
|
|
69
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|
|
Sugarloaf, GA
|
|
Large/Current
|
|
112,110
|
|
Nov-07
|
|
68
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|
|
South Austin, TX
|
|
Large/Current
|
|
109,045
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|
Oct-07
|
|
67
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|
|
Premier Place (Dallas), TX
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|
Large
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|
62,000
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|
Sep-07
|
|
66
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|
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White Bear Lake, MN
|
|
Large
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|
58,782
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|
Sep-07
|
|
65
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|
|
Deerfield Township (Cincinnati), OH
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Large/Current
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|
127,040
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|
Jul-07
|
|
64
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|
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Omaha, NE
|
|
Large/Current
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|
115,030
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|
Jun-07
|
|
63
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|
|
Lakeville, MN
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|
Large/Current
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|
115,030
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|
Jun-07
|
|
62
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|
|
Cary, NC
|
|
Large/Current
|
|
109,995
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|
May-07
|
|
61
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|
|
Dublin (Columbus), OH
|
|
Large/Current
|
|
109,045
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|
Apr-07
|
|
60
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|
|
Scottsdale, AZ
|
|
Large/Current
|
|
109,775
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|
Dec-06
|
|
59
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|
|
Alpharetta, GA
|
|
Large/Current
|
|
109,720
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|
Dec-06
|
|
58
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|
|
Goodyear Palm Valley, AZ
|
|
Large/Current
|
|
109,775
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|
Oct-06
|
|
57
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|
|
Overland Park, KS
|
|
Large/Current
|
|
110,080
|
|
Oct-06
|
|
56
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|
|
South Valley, UT
|
|
Large/Current
|
|
108,925
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|
Aug-06
|
|
55
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|
|
Boca Raton, FL
|
|
Large
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|
73,688
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|
Jul-06
|
|
54
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|
|
Bloomington South, MN
|
|
Large
|
|
95,314
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|
Jul-06
|
|
53
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|
|
Eden Prairie, MN
|
|
Large
|
|
89,011
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|
Jul-06
|
|
52
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|
|
St. Louis Park, MN
|
|
Large
|
|
189,496
|
|
Jul-06
|
|
51
|
|
|
Crosstown (Eden Prairie), MN
|
|
Large
|
|
145,896
|
|
Jul-06
|
|
50
|
|
|
Minneapolis Target Center, MN
|
|
Large
|
|
170,925
|
|
Jul-06
|
|
49
|
|
|
Fridley, MN
|
|
Large
|
|
162,048
|
|
Jul-06
|
|
48
|
|
|
Allen-McKinney (Dallas), TX
|
|
Large/Current
|
|
125,475
|
|
May-06
|
|
47
|
|
|
Columbia, MD
|
|
Large/Current
|
|
110,563
|
|
Feb-06
|
|
46
|
|
|
Minnetonka, MN
|
|
Other
|
|
41,000
|
|
Jan-06
|
|
45
|
|
|
Maple Grove, MN
|
|
Large
|
|
72,500
|
|
Dec-05
|
|
44
|
|
|
San Antonio, TX
|
|
Large/Current
|
|
110,563
|
|
Dec-05
|
|
43
|
|
|
Romeoville, IL
|
|
Large/Current
|
|
110,563
|
|
Sep-05
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center
|
|
Square
|
|
Date
|
|
|
|
Location
|
|
Format
|
|
Feet(1)
|
|
Opened(2)
|
|
|
42
|
|
|
Austin, TX
|
|
Large/Current
|
|
110,563
|
|
Sep-05
|
|
41
|
|
|
Chanhassen, MN
|
|
Large/Current
|
|
110,563
|
|
Jul-05
|
|
40
|
|
|
Cinco Ranch (Houston), TX
|
|
Large/Current
|
|
108,890
|
|
Jun-05
|
|
39
|
|
|
Commerce Township, MI
|
|
Large/Current
|
|
108,890
|
|
Mar-05
|
|
38
|
|
|
Colleyville (Dallas), TX
|
|
Large/Current
|
|
108,890
|
|
Nov-04
|
|
37
|
|
|
Dallas, TX
|
|
Large
|
|
68,982
|
|
Nov-04
|
|
36
|
|
|
Flower Mound (Dallas), TX
|
|
Large/Current
|
|
108,890
|
|
Oct-04
|
|
35
|
|
|
Sugar Land (Houston), TX
|
|
Large/Current
|
|
108,890
|
|
Oct-04
|
|
34
|
|
|
Garland (Dallas), TX
|
|
Large/Current
|
|
108,890
|
|
Jul-04
|
|
33
|
|
|
Champions (Houston), TX
|
|
Large/Current
|
|
108,890
|
|
Jun-04
|
|
32
|
|
|
Plano (Dallas), TX
|
|
Large/Current
|
|
108,890
|
|
Nov-03
|
|
31
|
|
|
New Hope, MN
|
|
Other
|
|
44,156
|
|
Oct-03
|
|
30
|
|
|
Gilbert, AZ
|
|
Large/Current
|
|
108,890
|
|
Oct-03
|
|
29
|
|
|
Tempe, AZ
|
|
Large/Current
|
|
108,890
|
|
Apr-03
|
|
28
|
|
|
Rochester Hills, MI
|
|
Large/Current
|
|
108,890
|
|
Nov-02
|
|
27
|
|
|
Canton Township, MI
|
|
Large/Current
|
|
105,010
|
|
Sep-02
|
|
26
|
|
|
Old Orchard (Skokie), IL
|
|
Large/Current
|
|
108,890
|
|
Aug-02
|
|
25
|
|
|
Savage, MN
|
|
Large
|
|
80,853
|
|
Jun-02
|
|
24
|
|
|
Burr Ridge, IL
|
|
Large/Current
|
|
105,562
|
|
Feb-02
|
|
23
|
|
|
Champlin, MN
|
|
Large
|
|
61,948
|
|
Oct-01
|
|
22
|
|
|
Fairfax City, VA
|
|
Large
|
|
67,467
|
|
Oct-01
|
|
21
|
|
|
Orland Park, IL
|
|
Large/Current
|
|
108,890
|
|
Aug-01
|
|
20
|
|
|
Algonquin, IL
|
|
Large/Current
|
|
108,890
|
|
Apr-01
|
|
19
|
|
|
Bloomingdale, IL(3)
|
|
Large/Current
|
|
108,890
|
|
Feb-01
|
|
18
|
|
|
Warrenville, IL
|
|
Large/Current
|
|
114,993
|
|
Jan-01
|
|
17
|
|
|
Schaumburg, IL
|
|
Large/Current
|
|
108,890
|
|
Oct-00
|
|
16
|
|
|
Minneapolis, MN(4)
|
|
Other
|
|
58,705
|
|
Jul-00
|
|
15
|
|
|
Shelby, MI
|
|
Large
|
|
101,680
|
|
Mar-00
|
|
14
|
|
|
Centreville, VA
|
|
Large
|
|
90,956
|
|
Jan-00
|
|
13
|
|
|
Novi, MI
|
|
Large
|
|
90,956
|
|
Oct-99
|
|
12
|
|
|
Indianapolis, IN
|
|
Large
|
|
90,956
|
|
Aug-99
|
|
11
|
|
|
Columbus, OH
|
|
Large
|
|
98,047
|
|
Jul-99
|
|
10
|
|
|
Apple Valley, MN
|
|
Other
|
|
10,375
|
|
Jun-99
|
|
9
|
|
|
Troy, MI
|
|
Large
|
|
93,579
|
|
Jan-99
|
|
8
|
|
|
St. Paul, MN
|
|
Other
|
|
85,630
|
|
Dec-97
|
|
7
|
|
|
Plymouth, MN
|
|
Large
|
|
109,558
|
|
Jun-97
|
|
6
|
|
|
Bloomington North, MN
|
|
Other
|
|
47,307
|
|
Nov-96
|
|
5
|
|
|
Coon Rapids, MN
|
|
Other
|
|
90,262
|
|
May-96
|
|
4
|
|
|
Highland Park (St. Paul), MN(5)
|
|
Other
|
|
39,578
|
|
Nov-95
|
|
3
|
|
|
Roseville, MN
|
|
Other
|
|
14,000
|
|
Sep-95
|
|
2
|
|
|
Woodbury, MN
|
|
Large
|
|
73,050
|
|
Sep-95
|
|
1
|
|
|
Eagan, MN
|
|
Large
|
|
64,415
|
|
Sep-94
|
|
|
|
(1) |
|
In a few of our centers, we sublease space to third parties who
operate our pro shop or climbing wall or to hospitals or
chiropractors that use the space to provide physical therapy.
The square footage figures include those subleased areas. The
square footage figures exclude areas used for tennis courts and
outdoor swimming pools. These figures are approximations. |
|
(2) |
|
For acquired centers, date opened is the date we assumed
operations of the center. |
|
(3) |
|
This center is a joint venture in which we have a one-third
interest. |
|
(4) |
|
We operate a separate 13,842 square foot full-service restaurant
in the same building. The square footage figure in the table
does not include the restaurant. |
|
(5) |
|
Our Highland Park, Minnesota center is located in a
109,346 square foot office building that we own. |
In addition to the centers listed in the table above, we also
operated three facilities which we classify as satellite
locations. These include an owned 15,640 tennis-only facility in
Minnetonka, Minnesota, a leased 42,574 square
23
foot facility in Flower Mound, Texas which operates as an
ancillary site to our Flower Mound center, and an owned
21,829 square foot health club/presale center in Colorado
Springs, Colorado.
Other
Property Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Number of centers)
|
|
|
Center age
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open 1 to 12 months
|
|
|
3
|
|
|
|
11
|
|
|
|
10
|
|
|
|
15
|
|
|
|
7
|
|
Open 13 to 36 months
|
|
|
21
|
|
|
|
25
|
|
|
|
22
|
|
|
|
13
|
|
|
|
10
|
|
Open 37+ months (mature)
|
|
|
60
|
|
|
|
45
|
|
|
|
38
|
|
|
|
32
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total centers
|
|
|
84
|
|
|
|
81
|
|
|
|
70
|
|
|
|
60
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center format
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large format current model
|
|
|
51
|
|
|
|
48
|
|
|
|
38
|
|
|
|
30
|
|
|
|
23
|
|
Large format other
|
|
|
24
|
|
|
|
24
|
|
|
|
23
|
|
|
|
21
|
|
|
|
14
|
|
Other format
|
|
|
9
|
|
|
|
9
|
|
|
|
9
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total centers
|
|
|
84
|
|
|
|
81
|
|
|
|
70
|
|
|
|
60
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center ownership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Own
|
|
|
28
|
|
|
|
29
|
|
|
|
28
|
|
|
|
25
|
|
|
|
16
|
|
Own/ground lease
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Own/mortgaged
|
|
|
23
|
|
|
|
20
|
|
|
|
18
|
|
|
|
12
|
|
|
|
13
|
|
Own/ground lease/mortgaged
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Joint venture
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Leased
|
|
|
26
|
|
|
|
26
|
|
|
|
19
|
|
|
|
18
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total centers
|
|
|
84
|
|
|
|
81
|
|
|
|
70
|
|
|
|
60
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 3.
|
Legal
Proceedings.
|
We may be subject to litigation from time to time incidental to
the normal course of our business. Due to their nature, such
legal proceedings involve inherent uncertainties, including but
not limited to, court rulings, negotiations between affected
parties and governmental intervention. We have established
reserves for matters that are probable and estimable in amounts
we believe are adequate to cover reasonable adverse judgments
not covered by insurance. Based upon the information available
to us and discussions with legal counsel, it is our opinion that
the outcome of the various legal actions and claims that are
incidental to the our business will not have a material adverse
impact on our consolidated financial position, results of
operations or cash flows; however, such matters are subject to
many uncertainties, and the outcome of individual matters are
not predictable with assurance.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
None.
24
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchaser of Equity Securities.
|
Market
Information
Our common stock is listed on the New York Stock Exchange
(NYSE) under the symbol LTM. The following table
sets forth, for the periods indicated, the high and low sales
prices as reported by the NYSE.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
First Quarter (January 1, 2008 March 31,
2008)
|
|
$
|
50.28
|
|
|
$
|
25.64
|
|
Second Quarter (April 1, 2008 June 30,
2008)
|
|
|
41.04
|
|
|
|
28.12
|
|
Third Quarter (July 1, 2008 September 30,
2008)
|
|
|
41.50
|
|
|
|
27.16
|
|
Fourth Quarter (October 1, 2008
December 31, 2008)
|
|
|
34.00
|
|
|
|
8.03
|
|
Fiscal Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
First Quarter (January 1, 2009 March 31,
2009)
|
|
$
|
16.73
|
|
|
$
|
7.07
|
|
Second Quarter (April 1, 2009 June 30,
2009)
|
|
|
21.59
|
|
|
|
12.01
|
|
Third Quarter (July 1, 2009 September 30,
2009)
|
|
|
32.05
|
|
|
|
16.66
|
|
Fourth Quarter (October 1, 2009
December 31, 2009)
|
|
|
31.38
|
|
|
|
21.29
|
|
Holders
As of February 16, 2010, the number of record holders of
our common stock was approximately 334, consisting of
21 record holders with our transfer agent and approximately
313 employees granted restricted stock by the Company.
Performance
Graph
The following graph compares the annual change in the cumulative
total shareholder return on our common stock from
December 31, 2004 through December 31, 2009 with the
cumulative total return on the NYSE Composite Index and Russell
2000 Index. The comparison assumes $100 was invested on
December 31, 2004 in Life Time Fitness common stock and in
each of the foregoing indices and assumes that dividends were
reinvested when and as paid. We have not declared dividends on
our common stock. You should not consider shareholder return
over the indicated period to be indicative of future shareholder
returns.
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2004
|
|
|
12/31/2005
|
|
|
12/31/2006
|
|
|
12/31/2007
|
|
|
12/31/2008
|
|
|
12/31/2009
|
|
|
Life Time Fitness
|
|
$
|
100
|
|
|
$
|
147
|
|
|
$
|
187
|
|
|
$
|
192
|
|
|
$
|
50
|
|
|
$
|
96
|
|
NYSE Composite Index
|
|
|
100
|
|
|
|
107
|
|
|
|
126
|
|
|
|
134
|
|
|
|
79
|
|
|
|
99
|
|
Russell 2000 Index
|
|
|
100
|
|
|
|
103
|
|
|
|
121
|
|
|
|
118
|
|
|
|
77
|
|
|
|
96
|
|
Dividends
We have never declared or paid any cash dividends on our common
stock. We currently intend to invest all future earnings into
the operation and expansion of our business and do not
anticipate declaring or paying any cash dividends on our common
stock in the foreseeable future. In addition, the terms of our
revolving credit facility and certain of our debt financing
agreements prohibit us from paying dividends without the consent
of the lenders. The payment of any dividends in the future will
be at the discretion of our board of directors and will depend
upon our results of operations, earnings, capital requirements,
contractual restrictions, outstanding indebtedness and other
factors deemed relevant by our board.
Issuer
Purchases of Equity Securities in Fourth Quarter 2009
In June 2006, our Board of Directors authorized the repurchase
of 500,000 shares of our common stock from time to time in
the open market or otherwise for the primary purpose of
offsetting the dilutive effect of shares issued pursuant to our
Employee Stock Purchase Plan. Since June 2006, through December
2009, we have repurchased 124,612 shares. No shares were
repurchased by us in the fourth quarter of 2009.
Equity
Compensation Plan Information
Incorporated by reference hereunder is the information under
Equity Compensation Plan Information in our Proxy
Statement.
26
|
|
Item 6.
|
Selected
Financial Data.
|
You should read the selected consolidated financial data below
in conjunction with our consolidated financial statements and
the related notes and with Managements Discussion
and Analysis of Financial Condition and Results of
Operations. The consolidated statement of operations data
for the years ended December 31, 2009, 2008 and 2007 and
the consolidated balance sheet data as of December 31, 2009
and 2008 are prepared from our audited consolidated financial
statements that are included elsewhere in this report. The
consolidated statement of operations data for the years ended
December 31, 2006 and 2005 and the consolidated balance
sheet data as of December 31, 2007, 2006 and 2005 are
derived from our audited consolidated financial statements that
have been previously filed with the SEC. Historical results are
not necessarily indicative of the results of operations to be
expected for future periods. See Note 2 to our consolidated
financial statements for a description of the method used to
compute basic and diluted net earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share, center and membership
data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership dues
|
|
$
|
564,605
|
|
|
$
|
508,927
|
|
|
$
|
434,138
|
|
|
$
|
339,623
|
|
|
$
|
262,989
|
|
Enrollment fees
|
|
|
26,138
|
|
|
|
26,570
|
|
|
|
24,741
|
|
|
|
22,438
|
|
|
|
20,341
|
|
In-center revenue(1)
|
|
|
232,834
|
|
|
|
218,198
|
|
|
|
182,215
|
|
|
|
138,332
|
|
|
|
97,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total center revenue
|
|
|
823,577
|
|
|
|
753,695
|
|
|
|
641,094
|
|
|
|
500,393
|
|
|
|
381,040
|
|
Other revenue
|
|
|
13,424
|
|
|
|
15,926
|
|
|
|
14,692
|
|
|
|
11,504
|
|
|
|
9,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
837,001
|
|
|
|
769,621
|
|
|
|
655,786
|
|
|
|
511,897
|
|
|
|
390,116
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center operations
|
|
|
506,443
|
|
|
|
454,645
|
|
|
|
377,235
|
|
|
|
292,273
|
|
|
|
216,314
|
|
Advertising and marketing
|
|
|
26,299
|
|
|
|
31,500
|
|
|
|
24,967
|
|
|
|
20,770
|
|
|
|
14,446
|
|
General and administrative
|
|
|
42,776
|
|
|
|
43,749
|
|
|
|
40,820
|
|
|
|
37,781
|
|
|
|
27,375
|
|
Other operating
|
|
|
21,852
|
|
|
|
19,426
|
|
|
|
16,340
|
|
|
|
12,998
|
|
|
|
12,693
|
|
Depreciation and amortization
|
|
|
90,770
|
|
|
|
72,947
|
|
|
|
59,014
|
|
|
|
47,560
|
|
|
|
38,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses(2)
|
|
|
688,140
|
|
|
|
622,267
|
|
|
|
518,376
|
|
|
|
411,382
|
|
|
|
309,174
|
|
Income from operations
|
|
|
148,861
|
|
|
|
147,354
|
|
|
|
137,410
|
|
|
|
100,515
|
|
|
|
80,942
|
|
Interest expense, net
|
|
|
(30,338
|
)
|
|
|
(29,552
|
)
|
|
|
(25,443
|
)
|
|
|
(17,356
|
)
|
|
|
(14,076
|
)
|
Equity in earnings of affiliate(3)
|
|
|
1,302
|
|
|
|
1,243
|
|
|
|
1,272
|
|
|
|
919
|
|
|
|
1,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
119,825
|
|
|
|
119,045
|
|
|
|
113,239
|
|
|
|
84,078
|
|
|
|
67,971
|
|
Provision for income taxes
|
|
|
47,441
|
|
|
|
47,224
|
|
|
|
45,220
|
|
|
|
33,513
|
|
|
|
26,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
72,384
|
|
|
$
|
71,821
|
|
|
$
|
68,019
|
|
|
$
|
50,565
|
|
|
$
|
41,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
1.84
|
|
|
$
|
1.84
|
|
|
$
|
1.81
|
|
|
$
|
1.40
|
|
|
$
|
1.19
|
|
Weighted average number of common shares outstanding
basic
|
|
|
39,297
|
|
|
|
39,002
|
|
|
|
37,518
|
|
|
|
36,118
|
|
|
|
34,592
|
|
Diluted earnings per common share
|
|
$
|
1.82
|
|
|
$
|
1.83
|
|
|
$
|
1.78
|
|
|
$
|
1.37
|
|
|
$
|
1.13
|
|
Weighted average number of common shares outstanding
diluted(4)
|
|
|
39,870
|
|
|
|
39,342
|
|
|
|
38,127
|
|
|
|
36,779
|
|
|
|
36,339
|
|
Balance Sheet Data (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,282
|
|
|
$
|
10,829
|
|
|
$
|
5,354
|
|
|
$
|
6,880
|
|
|
$
|
4,680
|
|
Working capital
|
|
|
(67,396
|
)
|
|
|
(107,112
|
)
|
|
|
(100,281
|
)
|
|
|
(100,509
|
)
|
|
|
(66,123
|
)
|
Total assets
|
|
|
1,631,525
|
|
|
|
1,647,703
|
|
|
|
1,386,533
|
|
|
|
987,676
|
|
|
|
723,460
|
|
Long-term debt, net of current portion
|
|
|
643,630
|
|
|
|
702,569
|
|
|
|
555,037
|
|
|
|
374,327
|
|
|
|
258,835
|
|
Total debt
|
|
|
660,346
|
|
|
|
712,904
|
|
|
|
564,605
|
|
|
|
389,555
|
|
|
|
273,282
|
|
Total shareholders equity
|
|
|
737,431
|
|
|
|
652,901
|
|
|
|
572,557
|
|
|
|
392,513
|
|
|
|
307,844
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share, center and membership
data)
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
186,203
|
|
|
$
|
183,066
|
|
|
$
|
142,206
|
|
|
$
|
125,852
|
|
|
$
|
107,952
|
|
Net cash used in investing activities
|
|
|
(143,285
|
)
|
|
|
(305,995
|
)
|
|
|
(417,207
|
)
|
|
|
(263,183
|
)
|
|
|
(180,850
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(47,465
|
)
|
|
|
128,404
|
|
|
|
273,475
|
|
|
|
139,531
|
|
|
|
67,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands, except per share, center and membership
data)
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same center revenue 13 month(5)
|
|
|
(3.1
|
)%
|
|
|
2.8
|
%
|
|
|
6.1
|
%
|
|
|
7.3
|
%
|
|
|
7.7
|
%
|
Same center revenue 37 month(5)
|
|
|
(7.5
|
)%
|
|
|
(2.8
|
)%
|
|
|
0.8
|
%
|
|
|
2.1
|
%
|
|
|
2.2
|
%
|
Average revenue per membership(6)
|
|
$
|
1,414
|
|
|
$
|
1,427
|
|
|
$
|
1,360
|
|
|
$
|
1,270
|
|
|
$
|
1,171
|
|
Average in-center revenue per membership(7)
|
|
$
|
400
|
|
|
$
|
414
|
|
|
$
|
387
|
|
|
$
|
351
|
|
|
$
|
300
|
|
Annual attrition rate(8)
|
|
|
40.6
|
%
|
|
|
42.3
|
%
|
|
|
34.3
|
%
|
|
|
34.6
|
%
|
|
|
34.1
|
%
|
EBITDA(9)
|
|
$
|
240,933
|
|
|
$
|
221,544
|
|
|
$
|
197,696
|
|
|
$
|
148,994
|
|
|
$
|
120,393
|
|
EBITDAR(9)
|
|
$
|
281,174
|
|
|
$
|
248,919
|
|
|
$
|
217,072
|
|
|
$
|
162,718
|
|
|
$
|
130,593
|
|
Capital expenditures(10)
|
|
$
|
146,632
|
|
|
$
|
463,337
|
|
|
$
|
415,822
|
|
|
$
|
261,767
|
|
|
$
|
190,355
|
|
Free cash flows(11)
|
|
$
|
39,571
|
|
|
$
|
(280,271
|
)
|
|
$
|
(273,616
|
)
|
|
$
|
(135,915
|
)
|
|
$
|
(82,403
|
)
|
Operating Data (end of period)(12):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centers open
|
|
|
84
|
|
|
|
81
|
|
|
|
70
|
|
|
|
60
|
|
|
|
46
|
|
Memberships
|
|
|
578,937
|
|
|
|
567,110
|
|
|
|
499,092
|
|
|
|
443,660
|
|
|
|
358,384
|
|
Center square footage(13)
|
|
|
8,459,540
|
|
|
|
8,109,359
|
|
|
|
6,832,814
|
|
|
|
5,802,627
|
|
|
|
4,077,918
|
|
Employees
|
|
|
17,400
|
|
|
|
16,700
|
|
|
|
15,000
|
|
|
|
12,350
|
|
|
|
9,500
|
|
Margins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center operations
|
|
|
39.5
|
%
|
|
|
40.9
|
%
|
|
|
42.5
|
%
|
|
|
42.9
|
%
|
|
|
44.6
|
%
|
EBITDA(14)
|
|
|
28.8
|
%
|
|
|
28.8
|
%
|
|
|
30.1
|
%
|
|
|
29.1
|
%
|
|
|
30.9
|
%
|
EBITDAR(15)
|
|
|
33.6
|
%
|
|
|
32.3
|
%
|
|
|
33.1
|
%
|
|
|
31.8
|
%
|
|
|
33.5
|
%
|
Operating income
|
|
|
17.8
|
%
|
|
|
19.1
|
%
|
|
|
21.0
|
%
|
|
|
19.6
|
%
|
|
|
20.8
|
%
|
Net Income
|
|
|
8.6
|
%
|
|
|
9.3
|
%
|
|
|
10.4
|
%
|
|
|
9.9
|
%
|
|
|
10.6
|
%
|
Stock Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total common shares outstanding
|
|
|
41,410
|
|
|
|
39,613
|
|
|
|
39,138
|
|
|
|
36,817
|
|
|
|
35,571
|
|
Market price per share high
|
|
$
|
32.05
|
|
|
$
|
50.28
|
|
|
$
|
65.09
|
|
|
$
|
53.04
|
|
|
$
|
40.70
|
|
Market price per share close
|
|
$
|
24.93
|
|
|
$
|
12.95
|
|
|
$
|
49.68
|
|
|
$
|
48.51
|
|
|
$
|
38.09
|
|
Market price per share low
|
|
$
|
7.07
|
|
|
$
|
8.03
|
|
|
$
|
45.89
|
|
|
$
|
37.17
|
|
|
$
|
23.82
|
|
Price / earnings ratio at year-end diluted
|
|
|
13.6
|
|
|
|
7.1
|
|
|
|
27.9
|
|
|
|
35.4
|
|
|
|
33.7
|
|
Market capitalization(16)
|
|
$
|
1,032,351
|
|
|
$
|
512,988
|
|
|
$
|
1,944,376
|
|
|
$
|
1,785,993
|
|
|
$
|
1,354,899
|
|
|
|
|
(1) |
|
In-center revenue includes revenue generated at our centers from
fees for personal training, dieticians, group fitness training
and other member activities, sales of products offered at our
LifeCafe, sales of products and services offered at our LifeSpa,
tennis and renting space in certain of our centers. |
|
(2) |
|
Total operating expenses in 2008 includes expenses totaling
$5.0 million associated with plans to slow the development
of new centers. These expenses include severance costs,
lower-of-cost-or-market
adjustments in connection with assets held for sale and
write-offs associated with land development cancelled in the
fourth quarter of 2008. |
28
|
|
|
(3) |
|
In 1999, we formed Bloomingdale LIFE TIME Fitness, L.L.C.
(Bloomingdale LLC) with two unrelated organizations
for the purpose of constructing, owning and operating a center
in Bloomingdale, Illinois. Each member made an initial capital
contribution of $2.0 million and owns a one-third interest
in Bloomingdale LLC. The center commenced operations in February
2001. The terms of the relationship among the members are
governed by an operating agreement. Bloomingdale LLC is
accounted for as an investment in an unconsolidated affiliate
and is not consolidated in our financial statements. |
|
(4) |
|
The diluted weighted average number of common shares outstanding
is the weighted average number of common shares plus the
weighted average conversion of any dilutive common stock
equivalents, such as redeemable preferred stock, the assumed
weighted average exercise of dilutive stock options using the
treasury stock method, and unvested restricted stock awards
using the treasury stock method. The shares issuable upon the
exercise of stock options and the vesting of all restricted
stock awards were dilutive. |
|
|
|
The following table summarizes the weighted average number of
common shares for basic and diluted earnings per share
computations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Weighted average number of common shares outstanding
basic
|
|
|
39,297
|
|
|
|
39,002
|
|
|
|
37,518
|
|
|
|
36,118
|
|
|
|
34,592
|
|
Effect of dilutive stock options
|
|
|
69
|
|
|
|
164
|
|
|
|
476
|
|
|
|
509
|
|
|
|
1,739
|
|
Effect of dilutive restricted stock awards
|
|
|
504
|
|
|
|
176
|
|
|
|
133
|
|
|
|
152
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
diluted
|
|
|
39,870
|
|
|
|
39,342
|
|
|
|
38,127
|
|
|
|
36,779
|
|
|
|
36,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) |
|
Membership dues, enrollment fees and in-center revenue for a
center are included in comparable center revenue
growth 13 month beginning on the first day
of the thirteenth full calendar month of the centers
operation and are included in comparable center revenue
growth 37 month beginning on the first day
of the thirty-seventh full calendar month of the centers
operation. |
|
(6) |
|
Average revenue per membership is total center revenue for the
period divided by an average number of memberships for the
period, where the average number of memberships for the period
is derived from dividing the sum of the total memberships
outstanding at the end of each month during the period by the
total number of months in the period. |
|
(7) |
|
Average in-center revenue per membership is total in-center
revenue for the period divided by the average number of
memberships for the period, where the average number of
memberships for the period is derived from dividing the sum of
the total memberships outstanding at the end of each month
during the period by the total number of months in the period. |
|
(8) |
|
Annual attrition rate is calculated as follows: total
terminations for the trailing 12 months (excluding frozen
memberships) divided into the average beginning month membership
balance for the trailing 12 months. |
|
(9) |
|
EBITDA consists of net income plus interest expense, net,
provision for income taxes and depreciation and amortization.
EBITDAR adds rent expense to EBITDA. These terms, as we define
them, may not be comparable to a similarly titled measures used
by other companies and are not measures of performance presented
in accordance with GAAP. We use EBITDA and EBITDAR as measures
of operating performance. EBITDA or EBITDAR should not be
considered as a substitute for net income, cash flows provided
by operating activities or other income or cash flow data
prepared in accordance with GAAP. The funds depicted by EBITDA
and EBITDAR are not necessarily available for discretionary use
if they are reserved for particular capital purposes, to
maintain debt covenants, to service debt or to pay taxes.
Additional details related to EBITDA and EBITDAR are provided in
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Non-GAAP Financial Measures. |
29
|
|
|
|
|
The following table provides a reconciliation of net income, the
most directly comparable GAAP measure, to EBITDA and EBITDAR: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
72,384
|
|
|
$
|
71,821
|
|
|
$
|
68,019
|
|
|
$
|
50,565
|
|
|
$
|
41,213
|
|
Interest expense, net
|
|
|
30,338
|
|
|
|
29,552
|
|
|
|
25,443
|
|
|
|
17,356
|
|
|
|
14,076
|
|
Provision for income taxes
|
|
|
47,441
|
|
|
|
47,224
|
|
|
|
45,220
|
|
|
|
33,513
|
|
|
|
26,758
|
|
Depreciation and amortization
|
|
|
90,770
|
|
|
|
72,947
|
|
|
|
59,014
|
|
|
|
47,560
|
|
|
|
38,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
240,933
|
|
|
$
|
221,544
|
|
|
$
|
197,696
|
|
|
$
|
148,994
|
|
|
$
|
120,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense
|
|
|
40,241
|
|
|
|
27,375
|
|
|
|
19,376
|
|
|
|
13,724
|
|
|
|
10,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDAR
|
|
$
|
281,174
|
|
|
$
|
248,919
|
|
|
$
|
217,072
|
|
|
$
|
162,718
|
|
|
$
|
130,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10) |
|
Capital expenditures represent investments in our new centers,
costs related to updating and maintaining our existing centers
and other infrastructure investments. For purposes of deriving
capital expenditures from our cash flows statement, capital
expenditures include our purchases of property and equipment,
excluding purchases of property and equipment in accounts
payable at year-end, property and equipment purchases financed
through notes payable and capital lease obligations, and
non-cash share-based compensation capitalized to projects under
development. |
|
(11) |
|
Free cash flow is a non-GAAP measure consisting of net cash
provided by operating activities, less purchases of property and
equipment. This term, as we define it, may not be comparable to
a similarly titled measure used by other companies and does not
represent the total increase or decrease in the cash balance
presented in accordance with GAAP. We use free cash flow as a
measure of cash generated after spending on property and
equipment. Free cash flow should not be considered as a
substitute for net cash provided by operating activities
prepared in accordance with GAAP. Additional details related to
free cash flow are provided in Managements
Discussion and Analysis of Financial Condition and Results of
Operations Non-GAAP Financial Measures. |
|
|
|
|
|
The following table provides a reconciliation of net cash
provided by operating activities to free cash flow: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
186,203
|
|
|
$
|
183,066
|
|
|
$
|
142,206
|
|
|
$
|
125,852
|
|
|
$
|
107,952
|
|
Less: Purchases of property and equipment
|
|
|
146,632
|
|
|
|
463,337
|
|
|
|
415,822
|
|
|
|
261,767
|
|
|
|
190,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
39,571
|
|
|
$
|
(280,271
|
)
|
|
$
|
(273,616
|
)
|
|
$
|
(135,915
|
)
|
|
$
|
(82,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12) |
|
The operating data presented in these items include the center
owned by Bloomingdale LLC. The data presented elsewhere in this
section exclude the center owned by Bloomingdale LLC. |
|
(13) |
|
The square footage presented in this table reflects fitness
square footage which is the best metric for the efficiencies of
a facility. We exclude outdoor pool, outdoor play areas,
indoor/outdoor tennis elements and satellite facility square
footage. |
|
(14) |
|
EBITDA margin is the ratio of EBITDA to total revenue. |
|
(15) |
|
EBITDAR margin is the ratio of EBITDAR to total revenue. |
|
(16) |
|
Market capitalization is calculated by multiplying the year-end
total common shares outstanding by the year-end stock price. |
30
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The following discussion of our historical results of
operations and our liquidity and capital resources should be
read in conjunction with the consolidated financial statements
and related notes that appear elsewhere in this report. This
discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking
statements as a result of various factors, including those
discussed in Risk Factors beginning on page 16
of this report.
Overview
We operate distinctive and large, multi-use sports and athletic,
professional fitness, family recreation and spa centers in a
resort-like environment. As of February 26, 2010, we
operated 86 centers primarily in residential locations across
19 states under the LIFE TIME FITNESS and LIFE TIME
ATHLETIC brands.
We compare the results of our centers based on how long the
centers have been open at the most recent measurement period. We
include a center for comparable center revenue purposes
beginning on the first day of the thirteenth full calendar month
of the centers operation, prior to which time we refer to
the center as a new center. We include an acquired center for
comparable center revenue purposes beginning on the first day of
the thirteenth full calendar month after we assumed the
centers operations.
As we grow our presence in existing markets by opening new
centers, we expect to attract some memberships away from our
other existing centers already in those markets, reducing
revenue and initially lowering the memberships of those existing
centers. In addition, 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
comparable center revenue may be lower in future periods than in
the past. Of the three new large format centers we have opened
or plan to open in 2010, two will be in existing markets. Of the
two boutique centers we have opened or plan to open in 2010,
both will be in existing markets. We do not expect that
operating costs of our planned new centers will be significantly
higher than centers opened in the past, and we also do not
expect that the planned increase in the number of centers will
have a material adverse effect on the overall financial
condition or results of operations of existing centers.
As a result of opening new centers, assuming the operations of
seven leased facilities in 2006, assuming the operations of one
leased facility in 2007 and entering into sale-leaseback
transactions for six facilities in 2008, our center operating
margins are lower than they have been historically. We expect
that the addition of pre-opening expenses and the lower revenue
volumes characteristic of newly-opened centers, as well as the
occupancy costs for the eight leased centers and the lease costs
for facilities which we financed through sale-leaseback
transactions, will affect our center operating margins at these
centers and on a consolidated basis.
In 2008 and 2009, we experienced increased member attrition and
lower revenue per membership as well as higher membership
acquisition costs due to the challenging economic environment.
If the challenging economic conditions continue, we may face
continued lower total revenue and operating profit in affected
centers and on a consolidated basis. Certain of our markets may
be impacted more severely than others as a result of regional
economic factors such as housing, competition or unemployment
rates.
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 investment, average
revenue per membership, including membership dues and enrollment
fees, average in-center revenue per membership and center
operating expenses, with an emphasis on payroll and occupancy
costs, as a percentage of sales and comparable center revenue
growth. We use center revenue 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 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 subscription memberships and
center attrition rates. During 2008, our annual attrition rate
increased from 34.3% to 42.3% driven primarily by the
31
slowing economy and inactive members leaving earlier than in the
past. During 2009, our annual attrition rate has decreased from
42.3% to 40.6%.
We have three primary sources of revenue:
|
|
|
|
|
First, our largest source of revenue is membership dues (67.5%
of total revenue for the year ended December 31,
2009) and enrollment fees (3.1% of total revenue for the
year ended December 31, 2009) paid by our members. We
recognize revenue from monthly membership dues in the month to
which they pertain. We recognize revenue from enrollment fees
over the estimated average membership life, which we estimate to
be 30 months for 2009 and the fourth quarter of 2008,
33 months for the second and third quarters of 2008 and
36 months for the first quarter of 2008 and prior periods.
|
|
|
|
Second, we generate revenue within a center, which we refer to
as in-center revenue, or in-center businesses (27.8% of total
revenue for the year ended December 31, 2009), including
fees for personal training, registered dieticians, 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 (1.6% of total
revenue for the year ended December 31, 2009), including
our media, wellness and athletic events businesses. Our primary
media offering is our magazine, Experience Life. Other
revenue also includes two restaurants 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 center membership levels, in-center businesses 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, two restaurants 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 and the cost of construction labor, as well as
whether or not a tennis area is included or whether or not we
expand the gymnasium or add 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 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 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
32
fees and related direct expenses, primarily sales commissions,
are deferred and recognized on a straight-line basis over an
estimated average membership life of 30 months, which is
based on historical membership experience. We review the
estimated average membership life on an annual basis, or more
frequently if circumstances change. Changes in member behavior,
competition, economic conditions and our performance may cause
attrition levels to change, which could impact the estimated
average membership life. During 2008, there was a substantial
shift in our attrition activity, primarily as a result of
macroeconomic pressures and a challenging consumer environment.
During the second quarter of 2008, we changed our estimated
average membership life from 36 months to 33 months.
The pressure continued throughout the second half of 2008;
therefore, we reduced the estimated average membership life to
30 months at the beginning of the fourth quarter. The
estimated average membership life remained 30 months during
2009. Our attrition rate in 2009 improved slightly from a high
of 42.7% at the end of first quarter to 40.6% at year-end. If
the estimated average membership life had been 33 months or
27 months for the entire year ended December 31, 2009,
the impact would have been less than $0.1 million to net
income. 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 average membership
life. The amount of direct expenses in excess of enrollment fees
totaled $8.4 million and $6.0 million for the years
ended December 31, 2009 and 2008 respectively. Monthly
membership dues paid in advance of a center opening are deferred
until the center opens. We only offer members
month-to-month
memberships and recognize as revenue the monthly membership dues
in the month to which they pertain.
We provide services at each of our centers, including personal
training, spa, cafe and other member services. 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. Other
revenue, which includes revenue generated primarily from our
media, athletic events and restaurant, is recognized when
realized and earned. Media advertising revenue is recognized
over the duration of the advertising placement. For athletic
events, revenue is generated primarily through sponsorship sales
and registration fees. Athletic event revenue is recognized upon
the completion of the event. Restaurant revenue is recognized at
the point of sale to the customer.
Results
of Operations
The following table sets forth our consolidated statements of
operations data as a percentage of total revenue for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
REVENUE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership dues
|
|
|
67.5
|
%
|
|
|
66.1
|
%
|
|
|
66.2
|
%
|
Enrollment fees
|
|
|
3.1
|
|
|
|
3.4
|
|
|
|
3.8
|
|
In-center revenue
|
|
|
27.8
|
|
|
|
28.4
|
|
|
|
27.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total center revenue
|
|
|
98.4
|
|
|
|
97.9
|
|
|
|
97.8
|
|
Other revenue
|
|
|
1.6
|
|
|
|
2.1
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Center operations
|
|
|
60.5
|
|
|
|
59.1
|
|
|
|
57.5
|
|
Advertising and marketing
|
|
|
3.2
|
|
|
|
4.1
|
|
|
|
3.8
|
|
General and administrative
|
|
|
5.1
|
|
|
|
5.7
|
|
|
|
6.2
|
|
Other operating
|
|
|
2.6
|
|
|
|
2.5
|
|
|
|
2.5
|
|
Depreciation and amortization
|
|
|
10.8
|
|
|
|
9.5
|
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
82.2
|
|
|
|
80.9
|
|
|
|
79.0
|
|
Income from operations
|
|
|
17.8
|
|
|
|
19.1
|
|
|
|
21.0
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(3.7
|
)
|
|
|
(3.8
|
)
|
|
|
(3.9
|
)
|
Equity in earnings of affiliate
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(3.5
|
)
|
|
|
(3.6
|
)
|
|
|
(3.7
|
)
|
INCOME BEFORE INCOME TAXES
|
|
|
14.3
|
|
|
|
15.5
|
|
|
|
17.3
|
|
PROVISION FOR INCOME TAXES
|
|
|
5.7
|
|
|
|
6.2
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
|
8.6
|
%
|
|
|
9.3
|
%
|
|
|
10.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Total revenue. Total revenue increased
$67.4 million, or 8.8%, to $837.0 million for the year
ended December 31, 2009 from $769.6 million for the
year ended December 31, 2008.
Total center revenue grew $69.9 million, or 9.3%, to
$823.6 million for the year ended December 31, 2009,
from $753.7 million for the year ended December 31,
2008. Of the $69.9 million increase in total center revenue,
|
|
|
|
|
79.7% was from membership dues, which increased
$55.7 million, or 10.9%, due to increased memberships at
new centers and higher dues per membership. Our number of
memberships increased 2.1% to 578,937 at December 31, 2009
from 567,110 at December 31, 2008.
|
|
|
|
20.9% was from in-center revenue, which increased
$14.6 million primarily as a result of increased sales of
our LifeCafe products and services and personal training.
Average in-center revenue per membership decreased from $414 for
the year ended December 31, 2008 to $400 for the year ended
December 31, 2009. We began to see slower in-center revenue
growth in the second half of the 2008 through all of 2009 due to
the slower economy.
|
|
|
|
(0.6%) was from enrollment fees, which are deferred until a
center opens and recognized on a straight-line basis over our
estimated average membership life Since the fourth quarter of
2008, the estimated average membership life has been
30 months. For the second and third quarters of 2008, it
was 33 months, and for the first quarter of 2008 and prior,
it was 36 months. Enrollment fees decreased
$0.4 million for the year ended December 31, 2009 to
$26.1 million. In 2008 and 2009, we lowered our enrollment
fees to stimulate new membership demand.
|
Other revenue decreased $2.5 million, or 15.7%, to
$13.4 million for the year ended December 31, 2009,
which was primarily due to lower media sales.
Center operations expenses. Center operations
expenses totaled $506.4 million, or 61.5% of total center
revenue (or 60.5% of total revenue), for the year ended
December 31, 2009 compared to $454.6 million, or 60.3%
of total center revenue (or 59.1% of total revenue), for the
year ended December 31, 2008. This $51.8 million
increase primarily consisted of an increase of
$20.9 million in occupancy-related costs, including
utilities, real estate taxes and rent on leased centers,
$13.0 million in additional payroll-related costs to
support general business growth and an increase in expenses to
support in-center products and services. Center rent expense
totaled $39.7 million for the year ended December 31,
2009 and $26.8 million for the year ended December 31,
2008. This $12.9 million increase is primarily a result of
the six sale-leaseback transactions that we entered into during
the second half of 2008.
Advertising and marketing
expenses. Advertising and marketing expenses were
$26.3 million, or 3.2% of total revenue, for the year ended
December 31, 2009, compared to $31.5 million, or 4.1%
of total revenue, for the year ended December 31, 2008.
These expenses decreased primarily due to less presale activity
and more targeted and more market-specific marketing campaigns.
34
General and administrative expenses. General
and administrative expenses were $42.8 million, or 5.1% of
total revenue, for the year ended December 31, 2009,
compared to $43.7 million, or 5.7% of total revenue, for
the year ended December 31, 2008. This decrease was
primarily due to increased efficiencies and productivity
improvements in 2009 and the business slowdown costs incurred in
2008, offset slightly by increased costs to support the growth
in memberships and the number of centers and unabsorbed real
estate and development overhead.
Other operating expenses. Other operating
expenses were $21.9 million for the year ended
December 31, 2009, compared to $19.4 million for the
year ended December 31, 2008. This increase is primarily a
result of construction-related expenses associated with slower
development of new centers, costs associated with the expansion
of our corporate wellness businesses and losses on the
disposition of assets.
Depreciation and amortization. Depreciation
and amortization was $90.8 million for the year ended
December 31, 2009, compared to $72.9 million for the
year ended December 31, 2008. This $17.9 million
increase was due primarily to depreciation on our new centers
opened in 2008 and 2009 and the remodels of acquired centers
completed in 2008.
Interest expense, net. Interest expense, net
of interest income, was $30.3 million for the year ended
December 31, 2009, compared to $29.6 million for the
year ended December 31, 2008. This $0.7 million
increase was primarily the result of the result of decreased
capitalized interest on construction projects partially offset
by a reduction in debt levels throughout the year.
Provision for income taxes. The provision for
income taxes was $47.4 million for the year ended
December 31, 2009, compared to $47.2 million for the
year ended December 31, 2008. This $0.2 million
increase was due to slightly higher income before income taxes
partially offset by an effective income tax rate of 39.6% for
the year ended December 31, 2009 compared to 39.7% for the
year ended December 31, 2008.
Net income. As a result of the factors
described above, net income was $72.4 million, or 8.6% of
total revenue, for the year ended December 31, 2009
compared to $71.8 million, or 9.3% of total revenue, for
the year ended December 31, 2008.
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Total revenue. Total revenue increased
$113.8 million, or 17.4%, to $769.6 million for the
year ended December 31, 2008 from $655.8 million for
the year ended December 31, 2007.
Total center revenue grew $112.6 million, or 17.6%, to
$753.7 million for the year ended December 31, 2008,
from $641.1 million for the year ended December 31,
2007. Comparable center revenue increased 2.8% for the year
ended December 31, 2008 compared to the year ended
December 31, 2007. Of the $112.6 million increase in
total center revenue,
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66.4% was from membership dues, which increased
$74.8 million, or 17.2%, due to increased memberships at
new centers, junior membership programs and increased sales of
value-added memberships. Our number of memberships increased
13.6% to 567,110 at December 31, 2008 from 499,092 at
December 31, 2007. Our membership growth of 13.6% was up
slightly from a membership growth rate of 12.5% in 2007. This
rate increase was driven by new center growth and included new,
lower priced membership offerings in the second half of 2008.
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32.0% was from in-center revenue, which increased
$36.0 million primarily as a result of increased sales of
our personal training, member activities and LifeCafe products
and services. As a result of this, in-center revenue growth and
our focus on broadening our offerings to our members, average
in-center revenue per membership increased from $387 for the
year ended December 31, 2007 to $414 for the year ended
December 31, 2008. We began to see slower in-center revenue
growth in the second half of the year due to worsening economic
conditions.
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1.6% was from enrollment fees, which are deferred until a center
opens and recognized on a straight-line basis over
36 months for the first quarter of 2008, 33 months for
the second and third quarter of 2008 and 30 months for the
fourth quarter of 2008. Enrollment fees increased
$1.8 million for the year ended
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35
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December 31, 2008 to $26.6 million. In 2008, we
lowered our enrollment fees to stimulate new membership demand.
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Other revenue increased $1.2 million, or 8.4%, to
$15.9 million for the year ended December 31, 2008,
which was primarily due to increased advertising revenue from
our media business.
Center operations expenses. Center operations
expenses totaled $454.6 million, or 60.3% of total center
revenue (or 59.1% of total revenue), for the year ended
December 31, 2008 compared to $377.2 million, or 58.8%
of total center revenue (or 57.5% of total revenue), for the
year ended December 31, 2007. This $77.4 million
increase primarily consisted of $38.9 million in additional
payroll-related costs to support increased memberships at new
centers and increases in membership acquisition costs, an
increase of $21.1 million in occupancy-related costs,
including utilities, real estate taxes, rent on leased centers
and an increase in expenses to support in-center products and
services.
Advertising and marketing
expenses. Advertising and marketing expenses were
$31.5 million, or 4.1% of total revenue, for the year ended
December 31, 2008, compared to $25.0 million, or 3.8%
of total revenue, for the year ended December 31, 2007.
These expenses increased primarily due to broader advertising
for existing and new centers and those centers engaging in
presale activities to stimulate new membership demand.
General and administrative expenses. General
and administrative expenses were $43.7 million, or 5.7% of
total revenue, for the year ended December 31, 2008,
compared to $40.8 million, or 6.2% of total revenue, for
the year ended December 31, 2007. These expenses decreased
as a percentage of revenue primarily due to increased
efficiencies and productivity improvements, as well as the
elimination of lease costs for our former corporate office.
General and administrative expenses include approximately
$3.9 million of expenses associated with plans to slow the
development of new centers mainly comprised of severance costs
and write-offs associated with land development cancelled in the
fourth quarter of 2008.
Other operating expenses. Other operating
expenses were $19.4 million for the year ended
December 31, 2008, compared to $16.3 million for the
year ended December 31, 2007. This increase is primarily a
result of
start-up
costs associated with the expansion of our corporate wellness
businesses and
lower-of-cost-or-market
adjustments in connection with assets held for sale.
Depreciation and amortization. Depreciation
and amortization was $72.9 million for the year ended
December 31, 2008, compared to $59.0 million for the
year ended December 31, 2007. This $13.9 million
increase was due primarily to depreciation on our new centers
and new headquarters opened in 2007 and 2008, the completed
remodels of our leased centers acquired in July 2006 and
lower-of-cost-or-market
adjustments in connection with assets held for sale.
Interest expense, net. Interest expense, net
of interest income, was $29.6 million for the year ended
December 31, 2008, compared to $25.4 million for the
year ended December 31, 2007. This $4.2 million
increase was primarily the result of increased average debt
balances on floating rate debt.
Provision for income taxes. The provision for
income taxes was $47.2 million for the year ended
December 31, 2008, compared to $45.2 million for the
year ended December 31, 2007. This $2.0 million
increase was due to an increase in income before income taxes of
$5.8 million. The effective income tax rate for the year
ended December 31, 2008 was 39.7% compared to 39.9% for the
year ended December 31, 2007.
Net income. As a result of the factors
described above, net income was $71.8 million, or 9.3% of
total revenue, for the year ended December 31, 2008
compared to $68.0 million, or 10.4% of total revenue, for
the year ended December 31, 2007.
Interest
in an Unconsolidated Affiliated Entity
In 1999, we formed Bloomingdale LLC with two unrelated
organizations for the purpose of constructing, owning and
operating a center in Bloomingdale, Illinois, which opened in
February, 2001. The terms of the relationship among the members
are governed by an operating agreement, which expires on the
earlier of December 2039 or the liquidation of Bloomingdale LLC.
In December 1999, Bloomingdale LLC entered into a management
agreement with us, pursuant to which we agreed to manage the
day-to-day
operations of the center, subject to the
36
overall supervision by the Management Committee of Bloomingdale
LLC, which is comprised of six members, two from each of the
three members of the joint venture. We have no unilateral
control of the center, as all decisions essential to the
accomplishments of the purpose of the joint venture require the
approval of a majority of the members. Bloomingdale LLC is
accounted for as an investment in an unconsolidated affiliate
and is not consolidated in our financial statements. Additional
details related to our interest in Bloomingdale LLC are provided
in Note 3 to our consolidated financial statements.
Non-GAAP Financial
Measures
We use EBITDA, EBITDAR and free cash flow as measures of
operating performance.
EBITDA and EBITDAR should not be considered substitutes for net
income, cash flows provided by operating activities, or other
income or cash flow data prepared in accordance with GAAP. The
funds depicted by EBITDA and EBITDAR are not necessarily
available for discretionary use if they are reserved for
particular capital purposes, to maintain compliance with debt
covenants, to service debt or to pay taxes.
We believe EBITDA and EBITDAR are useful to an investor in
evaluating our operating performance and liquidity because:
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both are widely accepted financial indicators of a
companys ability to service its debt and we are required
to comply with certain covenants and borrowing limitations that
are based on variations of EBITDA and EBITDAR in certain of our
financing documents; and
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both are widely used to measure a companys operating
performance without regard to items such as depreciation and
amortization, which can vary depending upon accounting methods
and the book value of assets, and to present a meaningful
measure of corporate performance exclusive of our capital
structure and the method by which assets were acquired.
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Our management uses EBITDA
and/or
EBITDAR:
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as measurements of operating performance because they assists us
in comparing our performance on a consistent basis;
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in presentations to the members of our board of directors to
enable our board to have the same consistent measurement basis
of operating performance used by management; and
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as the basis for incentive bonuses paid to selected members of
senior and center-level management.
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We have provided reconciliations of EBITDA and EBITDAR to net
income in the section Quarterly Results (Unaudited),
located immediately following the Report of Independent
Registered Public Accounting Firm and in the Selected
Financial Data section.
Free cash flow is a non-GAAP measure consisting of net cash
provided by operating activities, less purchases of property and
equipment. This term, as we define it, may not be comparable to
a similarly titled measure used by other companies and does not
represent the total increase or decrease in the cash balance
presented in accordance with GAAP. We use free cash flow as a
measure of cash generated after spending on property and
equipment. Free cash flow should not be considered as a
substitute for net cash provided by operating activities
prepared in accordance with GAAP. Additional details related to
free cash flow are provided in Managements
Discussion and Analysis of Financial Condition and Results of
Operations Non-GAAP Financial Measures.
We believe free cash flow is useful to an investor in
understanding our cash flow generation because:
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free cash flow allows us to evaluate the cash generated by
operations and the ability of our operations to fund investment
items related to purchases of property and equipment, repay
indebtedness, add to our cash balance, or to use in other
discretionary activities; and
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if negative, free cash flow reflects the need for incremental
financing activities or use of existing cash balances.
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37
Our management uses free cash flow:
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to monitor cash available for repayment of indebtedness; and
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in discussions with the investment community.
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We have provided reconciliations of free cash flow to cash flows
from operations in the section Quarterly Results
(Unaudited), located immediately following the Report of
Independent Registered Public Accounting Firm and in the
Selected Financial Data section.
Seasonality
of Business
Seasonal trends have a limited effect on our overall business.
Generally, we have experienced greater membership growth at the
beginning of the year. We also experience increased membership
in certain centers during the summer pool season. During the
summer months, we also experience a slight increase in in-center
business activity with summer programming and operating expenses
due to our outdoor aquatics operations. We experience an
increased level of membership attrition during the third and
fourth quarters as the summer pool season ends and we enter the
holiday season. This can lead to a sequential decline in
memberships during those quarters.
Liquidity
and Capital Resources
Liquidity
Historically, we have satisfied our liquidity needs through
various debt arrangements, sales of equity and cash flow
provided by operations. Principal liquidity needs have included
the development of new centers, debt service requirements and
expenditures necessary to maintain and update our existing
centers and associated fitness equipment. We believe that we can
satisfy our current and longer-term debt service obligations and
capital expenditure requirements primarily with cash flow from
operations, by the extension of the terms of or refinancing our
existing debt facilities, through sale-leaseback transactions
and by continuing to raise long-term debt or equity capital,
although there can be no assurance that such actions can or will
be completed.
In 2009, we slowed our growth plans and began to generate free
cash flow that allowed us to pay down a portion of our existing
debt. We plan to pay off or refinance debt scheduled to mature
in 2011 and 2012, including mortgage notes payable to Teachers
Insurance and Annuity Association of America in July 2011 and
our revolving credit facility in May 2012, through cash flow
from operations, refinancing existing debt facilities or issuing
new debt.
Our business model operates with negative working capital
because we carry minimal accounts receivable due to our ability
to have monthly membership dues paid by electronic draft, we
defer enrollment fee revenue and we fund the construction of our
new centers under standard arrangements with our vendors that
are paid with proceeds from long-term debt.
On February 23, 2010, we prepaid three of the mortgage
notes payable to TIAA at the par amount of $30.2 million.
Concurrent with the prepayment, the mortgages were released on
three of our centers. Additionally, the loan documents with TIAA
were amended reducing the number of shares of our common stock
our Chief Executive Officer must retain from 1.8 million to
1.0 million. As of the date of the prepayment, the
obligations to TIAA under the remaining ten mortgage notes
payable, totaling $74.3 million, remain due in July 2011.
Credit Rating. We have never had public debt.
Accordingly, we do not have, nor have we had, a credit rating as
stated through Standard and Poors Rating Services or
Moodys Investor Service.
38
The following table summarizes our capital structure as of
December 31, 2009 and 2008.
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December 31,
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2009
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2008
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(In thousands)
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Debt
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Long-term
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$
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643,630
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$
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702,569
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Current maturities of long-term
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16,716
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10,335
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Total debt
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660,346
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712,904
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Shareholders Equity
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Common stock
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829
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793
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Additional paid-in capital
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395,121
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385,095
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Retained earnings
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344,095
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271,711
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Accumulated other comprehensive loss
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(2,614
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)
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(4,698
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)
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|
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Total shareholders equity
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737,431
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652,901
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Total capitalization
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$
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1,397,777
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$
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1,365,805
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Debt highlights, as of December 31, 2009 and 2008:
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|
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December 31,
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2009
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2008
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Fixed-rate debt as a percent of total debt
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59.6
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%
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54.6
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%
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Weighted-average annual interest rate of total debt
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|
3.7
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%
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4.5
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%
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Total debt (net of cash) as a percent of total capitalization
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(total debt (net of cash) and total shareholders equity)
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47.0
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%
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51.8
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%
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Cash provided by operating activities as a percent of total debt
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28.2
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%
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25.7
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%
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Operating
Activities
As of December 31, 2009, we had total cash and cash
equivalents of $6.3 million and $2.9 million of
restricted cash that serves as collateral for certain of our
debt arrangements. We also had $101.0 million available
under the terms of our revolving credit facility as of
December 31, 2009.
Net cash provided by operating activities was
$186.2 million for 2009 compared to $183.1 million for
2008, driven primarily by a $0.6 million, or 0.8%
improvement in net income, a $17.8 million increase in
depreciation expense, offset by $11.0 million of cash used
in changes in operating assets and liabilities.
Net cash provided by operating activities was
$183.1 million for 2008 compared to $142.2 million for
2007, driven primarily by a $3.8 million, or 5.6%,
improvement in net income, a $13.9 million increase in
depreciation expense and $13.5 million of cash provided by
changes in operating assets and liabilities.
Investing
Activities
Investing activities consist primarily of purchasing real
property, constructing new centers and purchasing new fitness
equipment. In addition, we invest in capital expenditures to
maintain and update our existing centers. We finance the
purchase of our property and equipment by cash payments or by
financing through notes payable or capital lease obligations.
39
Our total capital expenditures were as follows:
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For the Year Ended December 31,
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2009
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2008
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2007
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(In thousands)
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Purchases of property and equipment
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$
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146,632
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$
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463,337
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$
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415,822
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Non-cash property and equipment financed through capital lease
obligations
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31
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9,910
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1,445
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Non-cash property financed through notes payable obligations
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|
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95
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Non-cash property purchases in construction accounts payable
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(53,789
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)
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3,963
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|
10,218
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Non-cash share-based compensation capitalized to projects under
development
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385
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|
641
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744
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|
|
|
|
|
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Total capital expenditures
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$
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93,259
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$
|
477,851
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$
|
428,324
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The following schedule reflects 2009 capital expenditures by
type of expenditure (in thousands):
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For the Year Ended
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December 31, 2009
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New center land and construction
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$
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60,915
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Initial remodels of acquired centers
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2,091
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Maintenance of existing facilities and centralized infrastructure
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30,253
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Total capital expenditures
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$
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93,259
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At December 31, 2009 we had purchased the real property for
all of the large format centers we plan to open in 2010, and we
had purchased real property for three and entered into a ground
lease for one of the large format centers that we plan to open
after 2010.
We expect our capital expenditures to be approximately $100 to
$120 million in 2010, of which we expect to incur
approximately $70 to $80 million for new center
construction and approximately $30 to $40 million for the
updating of existing centers and corporate infrastructure. We
plan to fund these capital expenditures primarily with cash flow
from operations.
Financing
Activities
During the year ended December, 31, 2009, we had the following
changes to our capital structure.
Interest
Rate Swap
On September 17, 2007, we entered into an interest rate
swap contract with J.P. Morgan Chase Bank, N.A. that
effectively fixed the rates paid on a total of
$125.0 million of variable rate borrowings from our
revolving credit facility at 4.825% plus the applicable spread
(depending on cash flow leverage ratio) until October 2010.
Effective July 10, 2009, we revised the terms of the swap,
reducing the fixed rate to 4.715% plus the applicable spread.
All other terms of the swap remained the same. The spread as of
December 31, 2009 was 1.25%. The contract has been
designated a hedge against interest rate volatility. We
currently apply this hedge to variable rate interest debt under
the U.S. Bank Facility. Changes in the fair market value of
the swap contract are recorded in accumulated other
comprehensive income (loss). As of December 31, 2009, the
$2.6 million net of tax, fair market value of the swap
contract was recorded as accumulated other comprehensive loss in
the shareholder equity section and the $4.2 million gross
fair market value of the swap contract was included in long-term
debt. See footnote 4, Long-Term Debt to our
consolidated financial statements for more information.
40
Mortgage
Notes Financing
In March 2009, we financed one Minnesota center using an
obligation bearing interest at a fixed rate of 6.25% amortized
over a
15-year
period. This obligation is due in full in March 2014. As
security for the obligation, we have granted a mortgage on this
center. At December 31, 2009, $4.7 million was
outstanding with respect to this obligation.
In May 2009, we financed one Minnesota center using an
obligation bearing interest at a rate of 7.10%, to be reset in
May 2014 and May 2019 using the five-year LIBOR swap rate plus
4.50%, with a 6.00% floor, and amortized over a
20-year
period. This obligation is due in full in May 2024. As security
for the obligation, we have granted a mortgage on this center.
At December 31, 2009, $2.9 million was outstanding
with respect to this obligation.
In November 2009, we financed one Minnesota center using an
obligation bearing interest at a fixed rate of 6.95% amortized
over a
15-year
period. This obligation is due in full in November 2014. As
security for the obligation, we have granted a mortgage on this
center. At December 31, 2009, $10.3 million was
outstanding with respect to this obligation.
See footnote 4, Long-Term Debt to our consolidated
financial statements for a description of all of our outstanding
financing arrangements.
Debt
Covenants
We are in compliance in all material respects with all
restrictive and financial covenants under our various credit
facilities as of December 31, 2009.
Our primary financial covenants are:
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Actual as of December 31,
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Covenant
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Requirement
|
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2009
|
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2008
|
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Revolving credit facility:
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Total Consolidated Debt to EBITDAR(1)
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Not more than 4.00 to 1.0
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3.29 to 1.0
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3.51 to 1.0
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Senior Debt to EBITDA(1)
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Not more than 3.25 to 1.0
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1.82 to 1.0
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2.22 to 1.0
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Fixed Charge Coverage Ratio(1)(2)
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Not less than 1.60
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2.65 to 1.0
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3.16 to 1.0
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Sale-leaseback:
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Tangible Net Worth(3)
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Not less than $200.0 million
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$688.4 million
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|
$598.1 million
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(1) |
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The formulas for these covenants are specifically defined in the
revolving credit facility and include, amount other things, an
add back of share-based compensation expense to EBITDAR and
EBITDA. See footnote 4, Long-Term Debt for more
information on our revolving credit facility. |
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(2) |
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The Fixed Charge Coverage Ratio decrease of 0.51 from
December 31, 2008 to December 31, 2009 was primarily
due to additional rent expense from the six sale-leaseback
transactions that we entered into during the second half of
2008. See footnote 10, Commitments and Contingencies
to our consolidated financial statements for more information on
our sale-leaseback transactions. |
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(3) |
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The formula for this covenant is specifically defined in our
Senior Housing Properties Trust agreement. See footnote 10,
Commitments and Contingencies to our consolidated
financial statements for more information on this sale-leaseback
transaction. |
41
Contractual
Obligations
The following is a summary of our contractual obligations as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
After 2014
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations, excluding capital lease obligations
|
|
$
|
641,637
|
|
|
$
|
15,654
|
|
|
$
|
102,788
|
|
|
$
|
364,908
|
|
|
$
|
9,962
|
|
|
$
|
15,757
|
|
|
$
|
132,568
|
|
Capital lease obligations
|
|
|
18,709
|
|
|
|
1,062
|
|
|
|
1,037
|
|
|
|
1,180
|
|
|
|
617
|
|
|
|
10,220
|
|
|
|
4,593
|
|
Interest(1)
|
|
|
93,974
|
|
|
|
28,351
|
|
|
|
20,565
|
|
|
|
11,737
|
|
|
|
9,036
|
|
|
|
8,181
|
|
|
|
16,104
|
|
Operating lease obligations
|
|
|
769,984
|
|
|
|
40,278
|
|
|
|
40,422
|
|
|
|
39,529
|
|
|
|
38,802
|
|
|
|
39,661
|
|
|
|
571,292
|
|
Purchase obligations(2)
|
|
|
44,616
|
|
|
|
38,714
|
|
|
|
3,599
|
|
|
|
1,090
|
|
|
|
714
|
|
|
|
499
|
|
|
|
|
|
Other long-term liabilities(3)
|
|
|
1,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,570,519
|
|
|
$
|
124,059
|
|
|
$
|
168,411
|
|
|
$
|
418,444
|
|
|
$
|
59,131
|
|
|
$
|
74,318
|
|
|
$
|
726,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest expense obligations were calculated holding floating
rate debt balances and interest rates constant at
December 31, 2009 rates. This includes the impact of our
interest rate swap. |
|
(2) |
|
Purchase obligations consist primarily of our contracts with
construction subcontractors for the completion of the five large
format centers under construction as of December 31, 2009,
three of which we plan to open in 2010, as well as contracts for
the purchase of land. |
|
(3) |
|
In addition to the other long-term liabilities presented in the
table above, approximately $1.4 million of unrecognized tax
benefits, including interest and penalties, have been recorded
as liabilities in accordance with applicable accounting
guidance, and we are uncertain as to if or when such amounts may
be settled. |
Recent
Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board
(FASB) issued guidance which establishes the FASB
Accounting Standards Codification as the source of authoritative
accounting principles recognized by the FASB to be applied by
non-governmental entities in the preparation of financial
statements in conformity with Generally Accepted Accounting
Principles (GAAP) in the United States. It became
effective for our interim reporting period ended
September 30, 2009.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
We invest our excess cash in highly liquid short-term
investments. These investments are not held for trading or other
speculative purposes. Changes in interest rates affect the
investment income we earn on our cash and cash equivalents and,
therefore, impact our consolidated cash flows and consolidated
results of operations. As of December 31, 2009, our net
floating rate indebtedness was approximately
$271.1 million. If long-term floating interest rates were
to have increased by 100 basis points during the year ended
December 31, 2009, our interest costs would have increased
by approximately $2.9 million. If short-term interest rates
were to have increased by 100 basis points during the year
ended December 31, 2009, our interest income from cash
equivalents would have increased by less than $0.1 million.
These amounts are determined by considering the impact of the
hypothetical interest rates on our floating rate indebtedness
and cash equivalents balances at December 31, 2009.
42
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share
|
|
|
|
and per share data)
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,282
|
|
|
$
|
10,829
|
|
Accounts receivable, net
|
|
|
4,026
|
|
|
|
6,114
|
|
Center operating supplies and inventories
|
|
|
14,621
|
|
|
|
14,632
|
|
Prepaid expenses and other current assets
|
|
|
12,938
|
|
|
|
10,994
|
|
Deferred membership origination costs
|
|
|
20,278
|
|
|
|
19,877
|
|
Deferred income taxes
|
|
|
660
|
|
|
|
1,365
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
58,805
|
|
|
|
63,811
|
|
PROPERTY AND EQUIPMENT, net
|
|
|
1,512,993
|
|
|
|
1,515,957
|
|
RESTRICTED CASH
|
|
|
2,941
|
|
|
|
3,936
|
|
DEFERRED MEMBERSHIP ORIGINATION COSTS
|
|
|
8,716
|
|
|
|
14,210
|
|
OTHER ASSETS
|
|
|
48,070
|
|
|
|
49,789
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,631,525
|
|
|
$
|
1,647,703
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
16,716
|
|
|
$
|
10,335
|
|
Accounts payable
|
|
|
14,429
|
|
|
|
14,842
|
|
Construction accounts payable
|
|
|
9,882
|
|
|
|
63,418
|
|
Accrued expenses
|
|
|
48,235
|
|
|
|
46,230
|
|
Deferred revenue
|
|
|
36,939
|
|
|
|
36,098
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
126,201
|
|
|
|
170,923
|
|
LONG-TERM DEBT, net of current portion
|
|
|
643,630
|
|
|
|
702,569
|
|
DEFERRED RENT LIABILITY
|
|
|
29,048
|
|
|
|
27,925
|
|
DEFERRED INCOME TAXES
|
|
|
77,189
|
|
|
|
51,982
|
|
DEFERRED REVENUE
|
|
|
8,819
|
|
|
|
13,719
|
|
OTHER LIABILITIES
|
|
|
9,207
|
|
|
|
27,684
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
894,094
|
|
|
|
994,802
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 10)
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Undesignated preferred stock, 10,000,000 shares authorized;
none issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $.02 par value, 75,000,000 and
50,000,000 shares authorized, respectively; 41,410,367 and
39,612,775 shares issued and outstanding, respectively
|
|
|
829
|
|
|
|
793
|
|
Additional paid-in capital
|
|
|
395,121
|
|
|
|
385,095
|
|
Retained earnings
|
|
|
344,095
|
|
|
|
271,711
|
|
Accumulated other comprehensive loss
|
|
|
(2,614
|
)
|
|
|
(4,698
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
737,431
|
|
|
|
652,901
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
1,631,525
|
|
|
$
|
1,647,703
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
43
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
REVENUE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership dues
|
|
$
|
564,605
|
|
|
$
|
508,927
|
|
|
$
|
434,138
|
|
Enrollment fees
|
|
|
26,138
|
|
|
|
26,570
|
|
|
|
24,741
|
|
In-center revenue
|
|
|
232,834
|
|
|
|
218,198
|
|
|
|
182,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total center revenue
|
|
|
823,577
|
|
|
|
753,695
|
|
|
|
641,094
|
|
Other revenue
|
|
|
13,424
|
|
|
|
15,926
|
|
|
|
14,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
837,001
|
|
|
|
769,621
|
|
|
|
655,786
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Center operations
|
|
|
506,443
|
|
|
|
454,645
|
|
|
|
377,235
|
|
Advertising and marketing
|
|
|
26,299
|
|
|
|
31,500
|
|
|
|
24,967
|
|
General and administrative
|
|
|
42,776
|
|
|
|
43,749
|
|
|
|
40,820
|
|
Other operating
|
|
|
21,852
|
|
|
|
19,426
|
|
|
|
16,340
|
|
Depreciation and amortization
|
|
|
90,770
|
|
|
|
72,947
|
|
|
|
59,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
688,140
|
|
|
|
622,267
|
|
|
|
518,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
148,861
|
|
|
|
147,354
|
|
|
|
137,410
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income of $399, $235 and $438,
respectively
|
|
|
(30,338
|
)
|
|
|
(29,552
|
)
|
|
|
(25,443
|
)
|
Equity in earnings of affiliate
|
|
|
1,302
|
|
|
|
1,243
|
|
|
|
1,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(29,036
|
)
|
|
|
(28,309
|
)
|
|
|
(24,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
119,825
|
|
|
|
119,045
|
|
|
|
113,239
|
|
PROVISION FOR INCOME TAXES
|
|
|
47,441
|
|
|
|
47,224
|
|
|
|
45,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
72,384
|
|
|
$
|
71,821
|
|
|
$
|
68,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER COMMON SHARE
|
|
$
|
1.84
|
|
|
$
|
1.84
|
|
|
$
|
1.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER COMMON SHARE
|
|
$
|
1.82
|
|
|
$
|
1.83
|
|
|
$
|
1.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING BASIC
|
|
|
39,297
|
|
|
|
39,002
|
|
|
|
37,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DILUTED
|
|
|
39,870
|
|
|
|
39,342
|
|
|
|
38,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
44
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Earnings
|
|
|
Total
|
|
|
|
(In thousands, except per share data)
|
|
|
BALANCE December 31, 2006
|
|
|
36,817,199
|
|
|
$
|
737
|
|
|
$
|
259,905
|
|
|
$
|
|
|
|
$
|
131,871
|
|
|
$
|
392,513
|
|
Common stock issued upon common stock offering
|
|
|
1,675,000
|
|
|
|
33
|
|
|
|
92,469
|
|
|
|
|
|
|
|
|
|
|
|
92,502
|
|
Common stock issued upon exercise of stock options
|
|
|
487,075
|
|
|
|
10
|
|
|
|
8,444
|
|
|
|
|
|
|
|
|
|
|
|
8,454
|
|
Grant of restricted stock
|
|
|
162,393
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of restricted stock
|
|
|
(3,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense related to stock options and restricted
stock
|
|
|
|
|
|
|
|
|
|
|
7,746
|
|
|
|
|
|
|
|
|
|
|
|
7,746
|
|
Capitalized compensation expense related to stock options and
restricted stock
|
|
|
|
|
|
|
|
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
744
|
|
Tax benefit upon exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
4,605
|
|
|
|
|
|
|
|
|
|
|
|
4,605
|
|
Interest rate swap contract
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,026
|
)
|
|
|
|
|
|
|
(2,026
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,019
|
|
|
|
68,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE December 31, 2007
|
|
|
39,137,947
|
|
|
|
783
|
|
|
|
373,910
|
|
|
|
(2,026
|
)
|
|
|
199,890
|
|
|
|
572,557
|
|
Common stock issued upon exercise of stock options
|
|
|
185,453
|
|
|
|
4
|
|
|
|
2,991
|
|
|
|
|
|
|
|
|
|
|
|
2,995
|
|
Grant of restricted stock
|
|
|
434,180
|
|
|
|
9
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of restricted stock
|
|
|
(144,805
|
)
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense related to stock options and restricted
stock
|
|
|
|
|
|
|
|
|
|
|
7,456
|
|
|
|
|
|
|
|
|
|
|
|
7,456
|
|
Capitalized compensation expense related to stock options and
restricted stock
|
|
|
|
|
|
|
|
|
|
|
641
|
|
|
|
|
|
|
|
|
|
|
|
641
|
|
Tax benefit upon exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
Interest rate swap contract
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,672
|
)
|
|
|
|
|
|
|
(2,672
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,821
|
|
|
|
71,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE December 31, 2008
|
|
|
39,612,775
|
|
|
|
793
|
|
|
|
385,095
|
|
|
|
(4,698
|
)
|
|
|
271,711
|
|
|
|
652,901
|
|
Common stock issued upon exercise of stock options
|
|
|
166,950
|
|
|
|
3
|
|
|
|
2,467
|
|
|
|
|
|
|
|
|
|
|
|
2,470
|
|
Grant of restricted stock
|
|
|
1,698,194
|
|
|
|
34
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of restricted stock
|
|
|
(67,552
|
)
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense related to stock options and restricted
stock
|
|
|
|
|
|
|
|
|
|
|
8,082
|
|
|
|
|
|
|
|
|
|
|
|
8,082
|
|
Capitalized compensation expense related to stock options and
restricted stock
|
|
|
|
|
|
|
|
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
385
|
|
Tax benefit upon exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(875
|
)
|
|
|
|
|
|
|
|
|
|
|
(875
|
)
|
Interest rate swap contract
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,084
|
|
|
|
|
|
|
|
2,084
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,384
|
|
|
|
72,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE December 31, 2009
|
|
|
41,410,367
|
|
|
$
|
829
|
|
|
$
|
395,121
|
|
|
$
|
(2,614
|
)
|
|
$
|
344,095
|
|
|
$
|
737,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
45
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
72,384
|
|
|
$
|
71,821
|
|
|
$
|
68,019
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
90,770
|
|
|
|
72,947
|
|
|
|
59,014
|
|
Deferred income taxes
|
|
|
23,270
|
|
|
|
14,815
|
|
|
|
11,505
|
|
Loss on disposal of property and equipment, net
|
|
|
1,229
|
|
|
|
985
|
|
|
|
354
|
|
Gain on land held for sale
|
|
|
(1,132
|
)
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
2,544
|
|
|
|
1,663
|
|
|
|
853
|
|
Share-based compensation
|
|
|
8,082
|
|
|
|
7,456
|
|
|
|
7,746
|
|
Excess tax benefit related to share-based payment arrangements
|
|
|
(507
|
)
|
|
|
(103
|
)
|
|
|
(4,605
|
)
|
Changes in operating assets and liabilities
|
|
|
(10,951
|
)
|
|
|
13,543
|
|
|
|
(544
|
)
|
Other
|
|
|
514
|
|
|
|
(61
|
)
|
|
|
(1,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
186,203
|
|
|
|
183,066
|
|
|
|
142,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(146,632
|
)
|
|
|
(463,337
|
)
|
|
|
(415,822
|
)
|
Proceeds from sale of property and equipment
|
|
|
8
|
|
|
|
161,888
|
|
|
|
5,054
|
|
Proceeds from sale of land held for sale
|
|
|
1,954
|
|
|
|
|
|
|
|
|
|
Proceeds from property insurance settlement
|
|
|
|
|
|
|
318
|
|
|
|
78
|
|
Decrease (increase) in other assets
|
|
|
390
|
|
|
|
(7,695
|
)
|
|
|
(4,488
|
)
|
Decrease (increase) in restricted cash
|
|
|
995
|
|
|
|
2,831
|
|
|
|
(2,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(143,285
|
)
|
|
|
(305,995
|
)
|
|
|
(417,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term borrowings
|
|
|
18,151
|
|
|
|
43,272
|
|
|
|
113,455
|
|
Repayments of long-term borrowings
|
|
|
(11,001
|
)
|
|
|
(13,143
|
)
|
|
|
(11,181
|
)
|
Proceeds from (repayments of) revolving credit facility, net
|
|
|
(56,500
|
)
|
|
|
101,800
|
|
|
|
67,800
|
|
Increase in deferred financing costs
|
|
|
(1,092
|
)
|
|
|
(6,664
|
)
|
|
|
(2,160
|
)
|
Proceeds from common stock offering, net of underwriting
discount and offering costs
|
|
|
|
|
|
|
|
|
|
|
92,502
|
|
Excess tax benefit related to share-based payment arrangements
|
|
|
507
|
|
|
|
103
|
|
|
|
4,605
|
|
Proceeds from stock option exercises
|
|
|
2,470
|
|
|
|
3,036
|
|
|
|
8,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(47,465
|
)
|
|
|
128,404
|
|
|
|
273,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(4,547
|
)
|
|
|
5,475
|
|
|
|
(1,526
|
)
|
CASH AND CASH EQUIVALENTS Beginning of period
|
|
|
10,829
|
|
|
|
5,354
|
|
|
|
6,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS End of period
|
|
$
|
6,282
|
|
|
$
|
10,829
|
|
|
$
|
5,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
46
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Table
amounts in thousands, except share and per share data)
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. As of December 31, 2009, we
operated 84 centers, including 24 in Minnesota, 17 in Texas,
nine in Illinois, six in Michigan, four in Arizona and Georgia,
three in Ohio and Virginia, two in Colorado, Maryland and New
Jersey and one each in Florida, Indiana, Kansas, Missouri,
Nebraska, North Carolina, Tennessee and Utah.
|
|
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 a one-time
enrollment fee at the time a member joins and monthly membership
dues for usage from our members. 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 30 months, which is based on historical
membership experience. During 2008, there was a substantial
shift in our attrition activity, primarily as a result of
macroeconomic pressures and a challenging consumer environment.
During the second quarter of 2008, we changed our estimated
average membership life from 36 months to 33 months.
The pressure continued throughout the second half of 2008;
therefore, we reduced the estimated average membership life to
30 months at the beginning of the fourth quarter. Since the
fourth quarter of 2008, the estimated average membership life
has been 30 months. Our attrition rate in 2009 improved
slightly from a high of 42.7% at the end of first quarter to
40.6% at year-end. 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 $8.4 million and
$6.0 million for the years ended December 31, 2009 and
2008 respectively. In addition, monthly membership dues paid in
advance of a centers opening are deferred until the center
opens. We offer members
month-to-month
memberships and recognize as revenue the monthly membership dues
in the month to which they pertain.
We provide a wide range of services at each of our centers,
including personal training, spa, cafe and other member
offerings. 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. Other revenue includes revenue from our
media, athletic events and restaurant. Media advertising revenue
is recognized over the duration of the advertising placement.
For athletic events, revenue is generated primarily through
sponsorship sales and registration fees. Athletic event revenue
is recognized upon the completion of the event. Restaurant
revenue is recognized at the point of sale to the 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 construction
of the center 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; however, the related
advertising, office, rent and other expenses incurred during
this period are expensed as incurred.
Cash and Cash Equivalents We classify all
unrestricted cash accounts and highly liquid debt instruments
purchased with original maturities of three months or less to be
cash and cash equivalents.
47
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
Restricted Cash We are required to keep funds
on deposit at certain financial institutions related to certain
of our credit facilities. Our lender or lenders, as the case may
be, may access the restricted cash after the occurrence of an
event of default, as defined under their respective credit
facilities.
Accounts Receivable Accounts receivable is
presented net of allowance for doubtful accounts. The
rollforward of these allowances are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Allowance for doubtful Accounts beginning of period
|
|
$
|
267
|
|
|
$
|
755
|
|
Provisions
|
|
|
326
|
|
|
|
108
|
|
Write-offs against allowance
|
|
|
(204
|
)
|
|
|
(596
|
)
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful Accounts end of period
|
|
$
|
389
|
|
|
$
|
267
|
|
|
|
|
|
|
|
|
|
|
Center Operating Supplies and Inventories Our
operating supplies are primarily center supplies. Inventories
are stated at the
lower-of-cost-or-market
value. Our inventories primarily consist of spa, café and
nutritional products as well as heart rate monitors. These
balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Center operating supplies
|
|
$
|
4,448
|
|
|
$
|
5,434
|
|
In-center businesses inventory and supplies
|
|
|
8,758
|
|
|
|
7,122
|
|
Apparel
|
|
|
798
|
|
|
|
1,239
|
|
Other
|
|
|
617
|
|
|
|
837
|
|
|
|
|
|
|
|
|
|
|
Total center operating supplies and inventories
|
|
$
|
14,621
|
|
|
$
|
14,632
|
|
|
|
|
|
|
|
|
|
|
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred costs associated with personal training deferred revenue
|
|
$
|
2,876
|
|
|
$
|
2,144
|
|
Prepaid lease obligations
|
|
|
3,134
|
|
|
|
2,767
|
|
Prepaid marketing and media expenses
|
|
|
1,373
|
|
|
|
1,927
|
|
Other prepaid expenses
|
|
|
2,996
|
|
|
|
3,132
|
|
Other current assets
|
|
|
2,559
|
|
|
|
1,024
|
|
|
|
|
|
|
|
|
|
|
Total prepaid expenses and other current assets
|
|
$
|
12,938
|
|
|
$
|
10,994
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment Property, equipment
and leasehold improvements are recorded at cost. Improvements
are capitalized, while repair and maintenance costs are charged
to operations when incurred. The cost and accumulated
depreciation of property and equipment retired and other items
disposed of are removed from the related accounts, and any
residual values are charged or credited to income.
Depreciation is computed primarily using the straight-line
method over estimated useful lives of the assets. Leasehold
improvements are amortized using the straight-line method over
the shorter of the lease term or the estimated useful life of
the improvement. Accelerated depreciation methods are used for
tax reporting purposes.
48
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciable
|
|
|
December 31,
|
|
|
|
Lives
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
|
|
|
|
$
|
231,304
|
|
|
$
|
235,414
|
|
Buildings and related fixtures
|
|
|
3-40 years
|
|
|
|
1,117,857
|
|
|
|
1,012,277
|
|
Leasehold improvements
|
|
|
1-20 years
|
|
|
|
118,686
|
|
|
|
110,900
|
|
Construction in progress
|
|
|
|
|
|
|
99,923
|
|
|
|
154,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,567,770
|
|
|
|
1,512,710
|
|
Equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fitness
|
|
|
5-7 years
|
|
|
|
96,045
|
|
|
|
91,457
|
|
Computer and telephone
|
|
|
3-5 years
|
|
|
|
47,846
|
|
|
|
44,554
|
|
Capitalized software
|
|
|
5 years
|
|
|
|
35,388
|
|
|
|
27,981
|
|
Decor and signage
|
|
|
5 years
|
|
|
|
14,985
|
|
|
|
13,323
|
|
Audio/visual
|
|
|
3-5 years
|
|
|
|
26,047
|
|
|
|
22,552
|
|
Furniture and fixtures
|
|
|
7 years
|
|
|
|
13,074
|
|
|
|
12,722
|
|
Other equipment
|
|
|
3-7 years
|
|
|
|
66,626
|
|
|
|
61,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,011
|
|
|
|
274,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, gross
|
|
|
|
|
|
|
1,867,781
|
|
|
|
1,787,161
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
354,788
|
|
|
|
271,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
$
|
1,512,993
|
|
|
$
|
1,515,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, we had five large format centers
under construction, of which three are planned to open in 2010.
Construction in progress, including land for future development
totaled $132.3 million at December 31, 2009 and
$193.7 million at December 31, 2008.
Capitalized software includes our internally developed Web-based
systems to facilitate member enrollment and management, as well
as point of sale system enhancements and our payroll and human
resources software. Costs related to these projects have been
capitalized in accordance with accounting guidance.
We capitalize interest during the construction period of our
centers and in accordance with accounting guidance on the
capitalization of interest costs, this capitalized
interest is included in the cost of the building. We capitalized
interest of $3.6 million and $9.1 million for the
years ended December 31, 2009 and 2008, respectively.
Other equipment consists primarily of cafe, spa and playground
and laundry equipment.
Impairment of Long-lived Assets The carrying
value of long-lived assets is reviewed annually and whenever
events or changes in circumstances indicate that such carrying
values may not be recoverable. We consider a history of
consistent and significant operating losses to be our primary
indicator of potential impairment. Assets are grouped and
evaluated for impairment at the lowest level for which there are
identifiable cash flows, which is generally at an individual
center level or corporate business. The determination of whether
impairment has occurred is based on an estimate of undiscounted
future cash flows directly related to that center or corporate
business, compared to the carrying value of these assets. If an
impairment has occurred, the amount of impairment recognized is
determined by estimating the fair value of these assets and
recording a loss if the carrying value is greater than the fair
value. Based upon our review and analysis, no impairments on
operating assets were deemed to have occurred during 2009, 2008
or 2007.
49
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
Derivative Instruments and Hedging Activities
As part of our risk management program, we may periodically use
interest rate swaps to manage known market exposures. Terms of
derivative instruments are structured to match the terms of the
risk being managed and are generally held to maturity.
In 2007, we entered into an interest rate swap contract that
effectively fixed the rates paid on a total of
$125.0 million of variable rate borrowings at 4.825% plus
the applicable spread (which depends on our cash flow leverage
ratio) until October 2010. In May 2009, we amended the interest
swap contract to effectively fix the rates paid on the
$125.0 million of variable rate borrowings at 4.715% plus
the applicable spread from July 2009 until October 2010. The
contract has been designated a cash flow hedge against interest
rate volatility. In accordance with applicable accounting
guidance, changes in the fair market value of the swap contract
are recorded in accumulated other comprehensive income (loss).
As of December 31, 2009, the $2.6 million fair market
value loss, net of tax, of the swap contract was recorded as
accumulated other comprehensive loss in the shareholders
equity section of our consolidated balance sheets and the
$4.2 million gross fair market value of the swap contract
was included in long-term debt.
On an ongoing basis, we assess whether the interest rate swap
used in this hedging transaction is highly effective
in offsetting changes in the fair value or cash flow of the
hedged item by comparing the current terms of the swap and the
debt to assure they continue to coincide and through an
evaluation of the continued ability of the counterparty to the
swap to honor its obligations under the swap. If it is
determined that the derivative is not highly effective as a
hedge or hedge accounting is discontinued, any change in fair
value of the derivative since the last date at which it was
determined to be effective would be recognized in earnings.
Since there is no ineffective portion, no amount was
reclassified into earnings for the years ended December 31,
2007, 2008 or 2009.
Other Assets We record other assets at cost.
Amortization of financing costs is computed over the periods of
the related debt financing. Other assets consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Financing costs, net
|
|
$
|
8,535
|
|
|
$
|
9,988
|
|
Investment in unconsolidated affiliate (see Note 3)
|
|
|
3,148
|
|
|
|
2,865
|
|
Site development costs
|
|
|
40
|
|
|
|
618
|
|
Intangible assets
|
|
|
8,596
|
|
|
|
8,596
|
|
Land held for sale
|
|
|
21,346
|
|
|
|
21,105
|
|
Other
|
|
|
6,405
|
|
|
|
6,617
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
48,070
|
|
|
$
|
49,789
|
|
|
|
|
|
|
|
|
|
|
Site development costs consist of legal, engineering,
architectural, environmental, feasibility and other direct
expenditures incurred for certain new center projects.
Capitalization commences when acquisition of a particular
property is deemed probable by management. Should a specific
project be deemed not viable for construction, any capitalized
costs related to that project are charged to operations at the
time of that determination. Costs incurred prior to the point at
which the acquisition is deemed probable are expensed as
incurred. Upon completion of a project, the site development
costs are classified as property and depreciated over the useful
life of the asset.
Land held for sale consists of excess land purchased as part of
our original center site acquisitions. All land held for sale is
currently being marketed for sale. If the excess land is
currently under contract for sale, the cost is reflected as
current and listed within prepaid expenses and other current
assets. We had $21.3 million and $21.1 million of land
held for sale, long-term, at December 31, 2009 and 2008,
respectively. We had $0.0 million and $0.6 million of
land held for sale, short-term, at December 31, 2009 and
2008, respectively.
50
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
Intangible assets are comprised principally of goodwill,
leasehold rights at our Highland Park, Minnesota office building
and trade names. In accordance with accounting guidance on
goodwill and intangible assets, intangible assets determined to
have an indefinite useful life, which consist of all our
intangible assets, are not amortized but instead tested for
impairment at least annually.
We are required to test our intangible assets for impairment on
an annual basis. We are also required to evaluate these assets
for impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the
fair value of the intangible asset below its carrying amount. An
indicator of potential impairment that could impact our
intangible asset values include, but is not limited to, a
significant loss of occupancy at our rental property located in
Highland Park, Minnesota.
The following table summarizes the changes in our net intangible
balance during the years ended December 31, 2009 and 2008:
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
5,505
|
|
Purchase price adjustment(1)
|
|
|
340
|
|
Goodwill acquired
|
|
|
2,751
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
8,596
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
8,596
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes adjustments related to the finalization of the purchase
price allocation of acquisition transactions. |
The following table summarizes the carrying amounts of our
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Goodwill
|
|
$
|
5,690
|
|
|
$
|
5,690
|
|
Leasehold rights
|
|
|
2,318
|
|
|
|
2,318
|
|
Trade names
|
|
|
588
|
|
|
|
588
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
8,596
|
|
|
$
|
8,596
|
|
|
|
|
|
|
|
|
|
|
Accrued Expenses Accrued expenses consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Payroll related
|
|
$
|
9,222
|
|
|
$
|
9,063
|
|
Real estate taxes
|
|
|
16,291
|
|
|
|
13,557
|
|
Center operating costs
|
|
|
11,385
|
|
|
|
11,167
|
|
Insurance
|
|
|
2,847
|
|
|
|
2,659
|
|
Interest
|
|
|
1,792
|
|
|
|
3,357
|
|
Income taxes
|
|
|
1,117
|
|
|
|
887
|
|
Other
|
|
|
5,581
|
|
|
|
5,540
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
48,235
|
|
|
$
|
46,230
|
|
|
|
|
|
|
|
|
|
|
Income Taxes We account for income taxes
under the asset and liability method, which requires the
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
included in the financial statements. Under this method,
deferred tax assets and liabilities are determined based on the
differences between the financial statements and tax basis of
assets and liabilities using enacted tax rates in
51
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
effect for the year in which the differences are expected to
reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period
that includes the enactment date.
We record net deferred tax assets to the extent we believe these
assets will more likely than not be realized. In making such
determination, we consider all available positive and negative
evidence, including scheduled reversals of deferred tax
liabilities, projected future taxable income, tax planning
strategies and recent financial operations. In the event we were
to determine that we would be able to realize our deferred
income tax assets in the future in excess of their net recorded
amount, we would record a valuation allowance, which would
reduce the provision for income taxes.
We follow the applicable accounting guidance related to income
taxes to recognize, measure, present and disclose uncertain tax
positions that we have taken or expect to take in our income tax
returns. In accordance with this guidance we recognize a tax
position when it is more likely than not that the position will
be sustained upon examination, including resolutions of any
related appeals or litigation processes, based on the technical
merits.
We recognize interest and penalties related to unrecognized tax
benefits within the income tax expense line in the accompanying
consolidated statement of operations. Accrued interest and
penalties are included within the related tax liability line in
the consolidated balance sheet.
Earnings per Common Share Basic earnings per
common share (EPS) is computed by dividing net
income applicable to common shareholders by the weighted average
number of shares of common stock outstanding for each year.
Diluted EPS is computed similarly to basic EPS, except that the
denominator is increased for the conversion of any dilutive
common stock equivalents, such as redeemable preferred stock,
the assumed exercise of dilutive stock options using the
treasury stock method and unvested restricted stock awards using
the treasury stock method. Stock options excluded from the
calculation of diluted EPS because the option exercise price was
greater than the average market price of the common share were
435,128 and 136,003 for the years ended December 31, 2009
and 2008, respectively. No stock options were excluded from the
calculation of diluted EPS for the year ended December 31,
2007.
The basic and diluted earnings per share calculations are shown
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
72,384
|
|
|
$
|
71,821
|
|
|
$
|
68,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
basic
|
|
|
39,297
|
|
|
|
39,002
|
|
|
|
37,518
|
|
Effect of dilutive stock options
|
|
|
69
|
|
|
|
164
|
|
|
|
476
|
|
Effect of dilutive restricted stock awards
|
|
|
504
|
|
|
|
176
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
diluted
|
|
|
39,870
|
|
|
|
39,342
|
|
|
|
38,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
1.84
|
|
|
$
|
1.84
|
|
|
$
|
1.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
1.82
|
|
|
$
|
1.83
|
|
|
$
|
1.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of total common shares outstanding at
December 31, 2009 was 41,410,367.
Dividends We have not declared or paid any
cash dividends on our common stock in the past. As discussed in
Note 4, the terms of our revolving credit facility and
certain debt financing agreements prohibit us from paying
dividends without the consent of the lenders.
52
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
Fair Value of Financial Instruments The
carrying amounts related to cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities approximate
fair value due to the relatively short maturities of such
instruments. The fair value of our long-term debt and capital
leases are estimated based on estimated current rates for debt
with similar terms, credit worthiness and the same remaining
maturities. The fair value estimates presented are based on
information available to us as of December 31, 2009. These
fair value estimates have not been comprehensively revalued for
purposes of these consolidated financial statements since that
date, and current estimates of fair values may differ
significantly.
The following table presents the carrying value and the
estimated fair value of long-term debt as of December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Value
|
|
|
Fair Value
|
|
|
Fixed-rate debt
|
|
$
|
370,510
|
|
|
$
|
348,448
|
|
Obligations under capital leases
|
|
|
18,709
|
|
|
|
18,571
|
|
Floating-rate debt
|
|
|
271,127
|
|
|
|
257,817
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
660,346
|
|
|
$
|
624,836
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements The accounting
guidance established a framework for measuring fair value and
expanded disclosures about fair value measurements. The guidance
applies to all assets and liabilities that are measured and
reported on a fair value basis. This enables the reader of the
financial statements to assess the inputs used to develop those
measurements by establishing a hierarchy for ranking the quality
and reliability of the information used to determine fair
values. The guidance requires that each asset and liability
carried at fair value be classified into one of the following
categories:
Level 1: Quoted market prices in active markets for
identical assets or liabilities.
Level 2: Observable market based inputs or unobservable
inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by
market data.
We determined the fair value of the swap contract based upon
current fair values as quoted by recognized dealers. As
prescribed by the guidance, we recognize the fair value of the
swap liability as a Level 2 valuation.
Use of Estimates The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management 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
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 revisions can affect
operating results.
53
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
Supplemental Cash Flow Information Decreases
(increases) in operating assets and increases (decreases) in
operating liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Accounts receivable
|
|
$
|
1,762
|
|
|
$
|
(1,747
|
)
|
|
$
|
(2,155
|
)
|
Income tax receivable
|
|
|
|
|
|
|
5,917
|
|
|
|
(1,112
|
)
|
Inventories and center operating supplies
|
|
|
11
|
|
|
|
(308
|
)
|
|
|
(5,551
|
)
|
Prepaid expenses and other current assets
|
|
|
1,126
|
|
|
|
5,028
|
|
|
|
(6,762
|
)
|
Deferred membership origination costs
|
|
|
5,093
|
|
|
|
(3,515
|
)
|
|
|
(7,122
|
)
|
Other assets
|
|
|
(1,564
|
)
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
349
|
|
|
|
(5,364
|
)
|
|
|
4,895
|
|
Accrued expenses
|
|
|
2,167
|
|
|
|
(315
|
)
|
|
|
9,861
|
|
Deferred revenue
|
|
|
(4,025
|
)
|
|
|
(2,190
|
)
|
|
|
6,690
|
|
Deferred rent
|
|
|
1,123
|
|
|
|
2,399
|
|
|
|
(190
|
)
|
Other liabilities
|
|
|
(16,993
|
)
|
|
|
13,638
|
|
|
|
902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities
|
|
|
(10,951
|
)
|
|
$
|
13,543
|
|
|
$
|
(544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our capital expenditures were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Purchases of property and equipment
|
|
$
|
146,632
|
|
|
$
|
463,337
|
|
|
$
|
415,822
|
|
Non-cash property and equipment purchases financed through
capital lease obligations
|
|
|
31
|
|
|
|
9,910
|
|
|
|
1,445
|
|
Non-cash property purchases financed through notes payable
obligations
|
|
|
|
|
|
|
|
|
|
|
95
|
|
Non-cash property purchases in construction accounts payable
|
|
|
(53,789
|
)
|
|
|
3,963
|
|
|
|
10,218
|
|
Non-cash share-based compensation capitalized to projects under
development
|
|
|
385
|
|
|
|
641
|
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
93,259
|
|
|
$
|
477,851
|
|
|
$
|
428,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We made cash payments for income taxes for each of the three
years ended December 31, 2009, 2008 and 2007 of
$41.3 million, $19.9 million and $33.7 million,
respectively.
We made cash payments for interest, net of capitalized interest,
for each of the three years ended December 31, 2009, 2008
and 2007 of $29.9 million, $35.6 million and
$30.6 million, respectively. Capitalized interest was
$3.6 million, $9.1 million and $8.4 million
during those same periods, respectively.
Construction accounts payable and accounts payable related to
property and equipment was $9.9 million at
December 31, 2009 and $63.7 million at
December 31, 2008.
New Accounting Pronouncements In June 2009,
the Financial Accounting Standards Board (FASB)
issued guidance which establishes the FASB Accounting Standards
Codification as the source of authoritative accounting
principles recognized by the FASB to be applied by
non-governmental entities in the preparation of financial
statements in conformity with Generally Accepted Accounting
Principles (GAAP) in the United States. It became
effective for our interim reporting period ended
September 30, 2009.
54
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
Comprehensive Income We follow the accounting
guidance which established standards for reporting and
displaying of comprehensive income (loss) and its components.
Comprehensive income (loss) reflects the change in equity of a
business enterprise during a period from transactions and other
events and circumstances from nonowner sources. For us, the
difference between net income as reported on the consolidated
statements of operations and comprehensive income is a gain of
$3.4 million, net of tax of $1.3 million, related to
our outstanding interest rate swap contract. For more
information, see Note 4.
|
|
3.
|
Investment
in Unconsolidated Affiliate
|
In December 1999, we, together with two unrelated organizations,
formed an Illinois limited liability company named LIFE TIME
Fitness Bloomingdale L.L.C. (Bloomingdale LLC) for
the purpose of constructing and operating a center in
Bloomingdale, Illinois. The center opened for business in
February 2001. Each of the three members maintains an equal
interest in Bloomingdale LLC. Pursuant to the terms of the
agreement that governs the formation and operation of
Bloomingdale LLC (the Operating Agreement), each of
the three members contributed $2.0 million to Bloomingdale
LLC. We have no unilateral control of the center, as all
decisions essential to the accomplishments of the purpose of
Bloomingdale LLC require the consent of the other members of
Bloomingdale LLC. The Operating Agreement expires on the earlier
of December 2039 or the liquidation of Bloomingdale LLC. We
account for our interest in Bloomingdale LLC using the equity
method.
Bloomingdale LLC issued indebtedness in June 2000 in a taxable
bond financing that is secured by a letter of credit in an
amount not to exceed $14.7 million. All of the members
separately guaranteed one-third of these obligations to the bank
for the letter of credit and pledged their membership interest
to the bank as security for the guarantee. The guarantee runs
through June 7, 2010 subsequently extended to June 7,
2011 by the bank as of February 24, 2010. As of
December 31, 2009, the maximum amount of future payments
under our one-third of the guarantee was $2.8 million. We
have the right to recover from Bloomingdale LLC any amounts paid
under the terms of the guarantee, but only after Bloomingdale
LLCs obligations to the bank have been satisfied.
Pursuant to the terms of the Operating Agreement, beginning in
March 2002 and continuing throughout the term of such agreement,
the members are entitled to receive monthly cash distributions
from Bloomingdale LLC. The amount of this monthly distribution
is, and will continue to be throughout the term of the
agreement, approximately $0.1 million per member. In the
event that Bloomingdale LLC does not generate sufficient cash
flow through its own operations to make the required monthly
distributions, we are obligated to make such payments to each of
the other two members. To date, Bloomingdale LLC has generated
cash flows sufficient to make all such payments. Each of the
three members had the right to receive distributions from
Bloomingdale LLC in the amount of $0.7 million for each of
the three years 2009, 2008 and 2007.
55
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Revolving credit facility, interest only due monthly at interest
rates ranging from LIBOR plus 0.625% to 1.50% or base plus 0.0%,
facility expires May 2012, collateralized by certain personal
property
|
|
$
|
358,100
|
|
|
$
|
414,600
|
|
Interest rate swap on notional amount of $125,000 at a fixed
annual rate of 4.715%, expiring October 2010
|
|
|
4,196
|
|
|
|
7,541
|
|
Mortgage notes payable to insurance company, monthly interest
and principal payments totaling $1,273 including interest at
8.25% to July 2011, collateralized by certain related real
estate and buildings
|
|
|
105,531
|
|
|
|
111,812
|
|
Commercial mortgage-backed notes payable with monthly interest
and principal payments totaling $632 including interest at 6.03%
to February 2017, collateralized by certain related real estate
and buildings
|
|
|
101,418
|
|
|
|
102,752
|
|
Mortgage notes payable to banks with monthly interest and
principal payments totaling $257 including interest ranging from
6.25% to 7.10%, expiring between January 2012 and May 2024,
collateralized by certain related real estate and buildings
|
|
|
27,197
|
|
|
|
9,841
|
|
Variable Rate Demand Notes, interest due monthly at a variable
rate resetting weekly, principal due annually according to an
agreement with a Letter of Credit provider that secures the
notes, notes mature in July 2033
|
|
|
33,831
|
|
|
|
34,235
|
|
Promissory note payable to lender, monthly interest and
principal payments totaling $80 including interest at 5.78% to
January 2015, collateralized by a certain interest in secured
property
|
|
|
7,503
|
|
|
|
8,013
|
|
Other debt including promissory note payable and special
assessments payable
|
|
|
3,861
|
|
|
|
4,426
|
|
|
|
|
|
|
|
|
|
|
Total debt (excluding obligations under capital leases)
|
|
|
641,637
|
|
|
|
693,220
|
|
Obligations under capital leases (see below)
|
|
|
18,709
|
|
|
|
19,684
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
660,346
|
|
|
|
712,904
|
|
Less current maturities
|
|
|
16,716
|
|
|
|
10,335
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
643,630
|
|
|
$
|
702,569
|
|
|
|
|
|
|
|
|
|
|
Revolving
Credit Facility
On April 15, 2005, we entered into a Credit Agreement, with
U.S. Bank National Association, as administrative agent and
lead arranger, J.P. Morgan Securities, Inc., as syndication
agent, and the banks party thereto from time to time (the
U.S. Bank Facility). On May 31, 2007, we
entered into a Second Amended and Restated Credit Agreement
effective May 31, 2007 to amend and restate our
U.S. Bank Facility. The material changes to the
U.S. Bank Facility at that time were to increase the amount
of the facility from $300.0 million to $400.0 million,
establish a $25.0 million accordion feature, and extend the
term of the facility by a little over one year to May 31,
2012. Interest on the amounts borrowed under the U.S. Bank
Facility continues to be based on (i) a base rate, which is
the greater of (a) U.S. Banks prime rate and
(b) the federal funds rate plus 50 basis points, or
(ii) an adjusted Eurodollar rate, plus, in either case
(i) or (ii), the applicable margin within a range based on
our consolidated leverage ratio. In connection with the
amendment and restatement of the U.S. Bank Facility, the
applicable margin
56
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
ranges were reduced to zero at all times (from zero to
25 basis points) for base rate borrowings and decreased to
62.5 to 150 basis points (from 75 to 175 basis points)
for Eurodollar borrowings.
On September 17, 2007, we fixed $125.0 million of our
revolver with an interest rate swap contract.
On January 24, 2008, we amended the facility to increase
the amount of the accordion feature from $25.0 million to
$200.0 million and increase the senior secured operating
company leverage ratio from not more than 2.50 to 1.00 to not
more than 3.25 to 1.00. The amendment also allows for the
issuance of additional senior debt and sharing of related
collateral with lenders other than the existing bank syndicate.
In the second quarter of 2008, we exercised $70.0 million
of the accordion feature with commitments from certain of our
bank lenders, increasing the amount of the facility from
$400.0 million to $470.0 million. Under the terms of
the amended credit facility, we may increase the total amount of
the facility up to $600.0 million through further exercise
of the accordion feature by us and if one or more lenders commit
the additional $130.0 million. As of December 31,
2009, $358.1 million was outstanding on the U.S. Bank
Facility, plus $10.9 million related to letters of credit.
The weighted average interest rate and debt outstanding under
the revolving credit facility for the year ended
December 31, 2009 was 2.0% and $376.1 million,
respectively. The weighted average interest rate and debt
outstanding under the revolving credit facility for the year
ended December 31, 2008 was 4.4% and $366.2 million,
respectively.
Interest
Rate Swap
On September 17, 2007, we entered into an interest rate
swap contract with J.P. Morgan Chase Bank, N.A. that
effectively fixed the rates paid on a total of
$125.0 million of variable rate borrowings from our
revolving credit facility at 4.825% plus the applicable spread
(depending on cash flow leverage ratio) until October 2010.
Effective July 10, 2009, we revised the terms of the swap,
reducing the fixed rate to 4.715% plus the applicable spread.
All other terms of the swap remained the same. The spread as of
December 31, 2009 was 1.25%. The contract has been
designated a hedge against interest rate volatility. We
currently apply this hedge to variable rate interest debt under
the U.S. Bank Facility. Changes in the fair market value of
the swap contract are recorded in accumulated other
comprehensive income (loss). As of December 31, 2009, the
$2.6 million net of tax, fair market value of the swap
contract was recorded as accumulated other comprehensive loss in
the shareholder equity section and the $4.2 million gross
fair market value of the swap contract was included in long-term
debt.
Mortgage
Notes Payable to Insurance Company
We have financed 13 of our centers with Teachers Insurance and
Annuity Association of America (TIAA) pursuant to
the terms of individual notes. The obligations under these notes
are due in full in July 2011, at which time we will owe
approximately $100 million. These notes are secured by
mortgages on each of the centers specifically financed, and we
maintain a letter of credit in the amount of $5.0 million
in favor of the lender. The obligations related to 10 of the
notes are amortized over a
20-year
period, while the obligations related to the other three notes
are being amortized over a
15-year
period. The interest rate payable under these notes has been
fixed at 8.25%. The loan documents provide that we will be in
default if our Chief Executive Officer, Mr. Akradi, ceases
to be Chairman of the Board of Directors and Chief Executive
Officer for any reason other than due to his death or incapacity
or as a result of his removal pursuant to our articles of
incorporation or bylaws.
On November 10, 2008, we entered into an Omnibus Amendment
with TIAA with respect to the terms of the mortgages that secure
our obligations to TIAA. Pursuant to the terms of the Omnibus
Amendment, the equity interest requirement applicable to our
Chief Executive Officer was amended such that he must, at all
times during the loan, retain at least 1.8 million shares
of our common stock (subject to appropriate adjustment for stock
splits and similar readjustments), which shares on and after
November 30, 2008 must be owned unencumbered, and the
57
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
equity interest requirement applicable to our other employees
was amended such that our employees must, in the aggregate, hold
shares or options representing at least 3% of our outstanding
common stock.
We may prepay the debt in full, but not in part, with the
payment of a prepayment premium equal to the greater of
(i) 1% of the outstanding principal balance or
(ii) the amount by which the sum of the discounted values
of the remaining note payments exceeds the outstanding principal
balance. The discount rate for this calculation is the yield on
U.S. Treasury issues having a maturity date most closely
corresponding to the maturity date of the debt. The debt may be
prepaid in full without a prepayment premium during the last
90 days of the term.
At December 31, 2009, $105.5 million was outstanding
with respect to this obligation. See Note 5,
Subsequent Event for a description of a prepayment
on this obligation.
Commercial
Mortgage-Backed Notes Financing
On January 24, 2007, LTF CMBS I, LLC, a wholly owned
subsidiary, obtained a commercial mortgage-backed loan in the
original principal amount of $105.0 million from Goldman
Sachs Commercial Mortgage Capital, L.P. pursuant to a loan
agreement dated January 24, 2007. The mortgage financing is
secured by six properties owned by the subsidiary and operated
as Life Time Fitness centers. The mortgage financing matures in
February 2017.
Interest on the amounts borrowed under the mortgage financing
referenced above is 6.03% per annum, with a constant monthly
debt service payment of $0.6 million. Our subsidiary LTF
CMBS I, LLC, as landlord, and LTF Club Operations Company,
Inc., another wholly owned subsidiary as tenant, entered into a
lease agreement dated January 24, 2007 with respect to the
properties. The initial term of the lease ends in February 2022,
but the lease term may be extended at the option of LTF Club
Operations Company, Inc. for two additional periods of five
years each. Our subsidiaries may not transfer any of the
properties except as permitted under the loan agreement. We
guarantee the obligations of our subsidiary as tenant under the
lease.
As additional security for LTF CMBS I, LLCs
obligations under the mortgage financing, the subsidiary granted
a security interest in all assets owned from time to time by the
subsidiary including the properties which had a net book value
of $99.1 million on January 24, 2007, the revenues
from the properties and all other tangible and intangible
property, and certain bank accounts belonging to the subsidiary
that the lender has required pursuant to the mortgage financing.
As of December 31, 2009, $101.4 million remained
outstanding on the loan.
Other
Mortgage Notes Financing
In January 2002, we financed one Minnesota center using an
obligation bearing interest at a fixed rate of 6.42% amortized
over a 10 year period. This obligation is due in full
January 2012. As security for the obligation, we have granted a
mortgage on this center. As of December 31, 2009
$1.5 million was outstanding.
In August 2002, we financed one Minnesota center using an
obligation bearing interest at a fixed rate of 6.39% amortized
over a 10 year period. This obligation is due in full
October 2012. As security for the obligation, we have granted a
mortgage on this center. As of December 31, 2009
$2.2 million was outstanding.
In November 2008, we financed one Minnesota center using an
obligation bearing interest at a fixed rate of 6.54% amortized
over a 20 year period. This obligation is due in full
November 2013. As security for the obligation, we have granted a
mortgage on this center. As of December 31, 2009
$5.6 million was outstanding.
In March 2009, we financed one Minnesota center using an
obligation bearing interest at a fixed rate of 6.25% amortized
over a
15-year
period. This obligation is due in full in March 2014. As
security for the obligation, we have granted a mortgage on this
center. At December 31, 2009, $4.7 million was
outstanding.
In May 2009, we financed one Minnesota center using an
obligation bearing interest at a rate of 7.10%, to be reset in
May 2014 and May 2019 using the five-year LIBOR swap rate plus
4.50%, with a 6.00% floor, and
58
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
amortized over a
20-year
period. This obligation is due in full in May 2024. As security
for the obligation, we have granted a mortgage on this center.
At December 31, 200, $2.9 million was outstanding.
In November 2009, we financed one Minnesota center using an
obligation bearing interest at a fixed rate of 6.95% amortized
over a
15-year
period. This obligation is due in full in November 2014. As
security for the obligation, we have granted a mortgage on this
center. At December 31, 2009, $10.3 million was
outstanding.
Variable
Rate Demand Notes
On July 13, 2008, a wholly owned subsidiary issued variable
rate demand notes in the principal amount of $34.2 million,
the proceeds of which were used to provide permanent financing
for our corporate headquarters and our Overland Park, Kansas
center. The notes, which mature on July 1, 2033, bear
interest at a variable rate that is adjusted weekly. The
interest rate at December 31, 2009 was 0.30%. The notes are
backed by a letter of credit from General Electric Capital
Corporation (GECC), for which we will pay GECC an annual fee of
1.40% of the maximum amount available under the letter of
credit, as well as other drawing and reimbursement fees. In
connection with the letter of credit, which expires June 1,
2023, the borrower subsidiary entered into a reimbursement
agreement with GECC. Under the terms of the reimbursement
agreement if the notes are purchased with proceeds of a drawing
under the letter of credit, and cannot thereafter be remarketed,
GECC is obligated to hold the notes and the indebtedness
evidenced by those notes will be amortized over a period ending
June 1, 2023. The subsidiarys obligations under the
reimbursement agreement are secured by mortgages against the two
aforementioned properties. We guaranteed the subsidiarys
obligations under the leases that will fund any reimbursement
obligations. As of December 31, 2009, $33.8 million
remained outstanding on the notes.
Promissory
Note Payable to Lender
In December 2007, we borrowed $8.5 million. The loan is
evidenced by a promissory note that matures in January 2015,
bears fixed interest at 5.78% and is secured by an interest in
certain personal property. As of December 31, 2009,
$7.5 million was outstanding on this note.
Aggregate annual future maturities of long-term debt (excluding
capital leases) at December 31, 2009 are as follows:
|
|
|
|
|
2010
|
|
$
|
15,654
|
|
2011
|
|
|
102,788
|
|
2012
|
|
|
364,908
|
|
2013
|
|
|
9,962
|
|
2014
|
|
|
15,757
|
|
Thereafter
|
|
|
132,568
|
|
|
|
|
|
|
Total future maturities of long-term debt (excluding capital
leases)
|
|
$
|
641,637
|
|
|
|
|
|
|
Capital
Leases
In May 2001, we financed one of our Minnesota centers pursuant
to the terms of a sale-leaseback transaction that qualified as a
capital lease. Pursuant to the terms of the lease, we agreed to
lease the center for a period of 20 years. At
December 31, 2009, the present value of the future minimum
lease payments due under the lease amounted to $6.3 million.
In March 2007, we entered into a ground lease which runs through
October 2048 for our Loudoun County, Virginia center. Pursuant
to the terms of the lease which qualifies as a capital lease, we
have an option to purchase
59
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
the land by giving notice during the fifth or eleventh lease
year. At December 31, 2009, the present value of the future
minimum lease payments due under the lease amounted to
$9.8 million.
We have financed our purchase of some of our equipment through
capital lease agreements with an agent and lender, on behalf of
itself and other lenders. The terms of such leases are typically
60 months and our interest rates range from 5.5% to 7.5%.
As security for the obligations owing under the capital lease
agreements, we have granted a security interest in the leased
equipment to the lender or its assigns. At December 31,
2009, $2.6 million was outstanding under these leases.
We are a party to capital equipment leases with third parties
which include monthly rental payments of approximately
$0.2 million as of December 31, 2009. Amortization
recorded for these capital leased assets totaled
$1.0 million and $2.6 million for the years ended
December 31, 2009 and 2008, respectively. The following is
a summary of property and equipment recorded under capital
leases:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land and buildings
|
|
$
|
15,484
|
|
|
$
|
16,912
|
|
Equipment
|
|
|
4,014
|
|
|
|
16,946
|
|
|
|
|
|
|
|
|
|
|
Gross property and equipment under capital lease
|
|
|
19,498
|
|
|
|
33,858
|
|
Less accumulated amortization
|
|
|
4,196
|
|
|
|
18,007
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment under capital lease
|
|
$
|
15,302
|
|
|
$
|
15,851
|
|
|
|
|
|
|
|
|
|
|
Future minimum lease payments and the present value of net
minimum lease payments on capital leases at December 31,
2009 are as follows:
|
|
|
|
|
2010
|
|
$
|
2,606
|
|
2011
|
|
|
2,501
|
|
2012
|
|
|
2,551
|
|
2013
|
|
|
1,910
|
|
2014
|
|
|
11,405
|
|
Thereafter
|
|
|
6,460
|
|
|
|
|
|
|
|
|
|
27,433
|
|
Less amounts representing interest
|
|
|
8,724
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
18,709
|
|
Current portion
|
|
|
1,062
|
|
|
|
|
|
|
|
|
$
|
17,647
|
|
|
|
|
|
|
Debt
Covenants
We were in compliance in all material respects with all
restrictive and financial covenants under our various credit
facilities as of December 31, 2009.
On February 23, 2010, we prepaid three of the mortgage
notes payable to TIAA at the par amount of $30.2 million.
Concurrent with the prepayment, the mortgages were released on
three of our centers. Additionally, the loan documents with TIAA
were amended reducing the number of shares of our common stock
our Chief
60
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
Executive Officer must retain from 1.8 million to
1.0 million. As of the date of the prepayment, the
obligations to TIAA under the remaining ten mortgage notes
payable, totaling $74.3 million, remain due in July 2011.
The provision for income taxes is comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current tax expense
|
|
$
|
41,721
|
|
|
$
|
26,445
|
|
|
$
|
33,358
|
|
Deferred tax expense
|
|
|
23,316
|
|
|
|
14,833
|
|
|
|
8,297
|
|
Non-current tax expense
|
|
|
(17,596
|
)
|
|
|
5,946
|
|
|
|
3,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
47,441
|
|
|
$
|
47,224
|
|
|
$
|
45,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of deferred tax expense does not reconcile to the
change in the deferred tax year end balances due to the tax
effect of other comprehensive income or additional paid-in
capital items.
The reconciliation between our effective tax rate on income from
continuing operations and the statutory tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income tax provision at federal statutory rate
|
|
$
|
41,939
|
|
|
$
|
41,666
|
|
|
$
|
39,634
|
|
State and local income taxes, net of federal tax benefit
|
|
|
5,414
|
|
|
|
5,236
|
|
|
|
4,837
|
|
Other, net
|
|
|
88
|
|
|
|
322
|
|
|
|
749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
47,441
|
|
|
$
|
47,224
|
|
|
$
|
45,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes are the result of provisions of the tax
laws that either require or permit certain items of income or
expense to be reported for tax purposes in different periods
than they are reported for financial reporting. The tax effect
of temporary differences that gives rise to the deferred tax
liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Property and equipment
|
|
$
|
(81,112
|
)
|
|
$
|
(58,002
|
)
|
Partnership interest
|
|
|
(8,334
|
)
|
|
|
(8,475
|
)
|
Accrued rent expense
|
|
|
11,592
|
|
|
|
14,071
|
|
Other comprehensive income
|
|
|
1,581
|
|
|
|
2,843
|
|
Costs related to deferred revenue
|
|
|
(5,411
|
)
|
|
|
(7,965
|
)
|
Other, net
|
|
|
5,155
|
|
|
|
6,911
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(76,529
|
)
|
|
$
|
(50,617
|
)
|
|
|
|
|
|
|
|
|
|
61
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
The following is a reconciliation of the total amounts of
unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Unrecognized tax benefit beginning balance
|
|
$
|
18,411
|
|
|
$
|
12,892
|
|
|
$
|
9,228
|
|
Gross increases tax positions in current period
|
|
|
235
|
|
|
|
9,041
|
|
|
|
4,329
|
|
Settlements
|
|
|
(9
|
)
|
|
|
|
|
|
|
(161
|
)
|
Prior year increases
|
|
|
7
|
|
|
|
419
|
|
|
|
|
|
Prior year decreases
|
|
|
(15,346
|
)
|
|
|
(523
|
)
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(1,921
|
)
|
|
|
(3,418
|
)
|
|
|
(504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefit ending balance
|
|
$
|
1,377
|
|
|
$
|
18,411
|
|
|
$
|
12,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the balance of unrecognized tax benefits at
December 31, 2009, 2008 and 2007 are $0.3 million,
$0.7 million and $1.4 million, respectively, of
benefits that, if recognized, would affect the effective tax
rate.
We recognize interest accrued related to unrecognized tax
benefits and penalties as income tax expense. Related to the
uncertain tax benefits noted above, we accrued penalties and
interest of $0.6 million during 2009 and in total, as of
December 31, 2009, has recognized a liability for penalties
and interest of $0.1 million. During 2008, we accrued
penalties and interest of $0.6 million and in total, as of
December 31, 2008 had recognized a liability for penalties
and interest of $1.1 million. During 2007, we accrued
penalties and interest of $0.4 million and in total, as of
December 31, 2007 had recognized a liability for penalties
and interest of $0.8 million.
We do not anticipate that the total amounts of unrecognized tax
benefits will significantly increase or decrease in the next
12 months.
We are subject to taxation in the U.S. and various states.
Our tax years 2006, 2007 and 2008 are subject to examination by
the tax authorities. With few exceptions, we are no longer
subject to U.S. federal, state or local examinations by tax
authorities for years before 2006.
|
|
7.
|
Offering
of Capital Stock
|
On August 29, 2007, we closed on the public offering,
issuance and sale of 1,500,000 shares of our common stock,
and on September 7, 2007, we closed on the issuance and
sale of 175,000 shares of our common stock pursuant to
exercise of the underwriters over-allotment option. The
shares were sold pursuant to an underwriting agreement with
Credit Suisse Securities (USA) LLC that was entered into on
August 24, 2007. The shares were sold to the public at
$55.40 per share, and the resulting proceeds totaled
$92.5 million, net of underwriting discounts and
commissions and offering expenses of $0.3 million. We used
the net proceeds to repay a portion of the amounts outstanding
under our revolving credit facility.
|
|
8.
|
Share-Based
Compensation
|
Stock
Option and Incentive Plans
The FCA, Ltd.1996 Stock Option Plan (the 1996 Plan) reserved up
to 2,000,000 shares of our common stock for issuance. Under
the 1996 Plan, the Board of Directors had the authority to grant
incentive and nonqualified options to purchase shares of the our
common stock to eligible employees, directors, and contractors
at a price of not less than 100% of the fair market value at the
time of the grant. Incentive stock options expire no later than
10 years from the date of grant, and nonqualified stock
options expire no later than 15 years from the date of
grant. As of December 31, 2009, we had granted a total of
1,700,000 options to purchase common stock under the 1996 Plan,
of which none were outstanding. In connection with approval of
the Life Time Fitness, Inc. 2004 Long-Term Incentive
62
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
Plan (the 2004 Plan), as discussed below, our Board of Directors
approved a resolution to cease making additional grants under
the 1996 Plan.
The LIFE TIME FITNESS, Inc. 1998 Stock Option Plan (the 1998
Plan), reserved up to 1,600,000 shares of our common stock
for issuance. Under the 1998 Plan, the Board of Directors had
the authority to grant incentive and nonqualified options to
purchase shares of our common stock to eligible employees,
directors and contractors at a price of not less than 100% of
the fair market value at the time of the grant. Incentive stock
options expire no later than 10 years from the date of
grant, and nonqualified stock options expire no later than
15 years from the date of grant. The 1998 Plan was amended
in December 2003 by our Board of Directors and shareholders to
reserve an additional 1,500,000 shares of our common stock
for issuance. As of December 31, 2009, we had granted a
total of 1,957,500 options to purchase common stock under the
1998 Plan, of which 147,825 were outstanding. In connection with
approval of the 2004 Plan, as discussed below, our Board of
Directors approved a resolution to cease making additional
grants under the 1998 Plan.
The 2004 Plan originally reserved 3,500,000 shares of our
common stock for issuance. In 2009, our shareholders authorized
an additional 1,750,000 shares, for a new total of
5,250,000 shares. Under the 2004 Plan, the Compensation
Committee of our Board of Directors administers the 2004 Plan
and has the power to select the persons to receive awards and
determine the type, size and terms of awards and establish
objectives and conditions for earning awards. The types of
awards that may be granted under the 2004 Plan include incentive
and non-qualified options to purchase shares of common stock,
stock appreciation rights, restricted shares, restricted share
units, performance awards and other types of stock-based awards.
We use the term restricted shares to define
nonvested shares granted to employees, whereas applicable
accounting guidance reserves that term for fully vested and
outstanding shares whose sale is contractually or governmentally
prohibited for a specified period of time. Eligible participants
under the 2004 Plan include our officers, employees,
non-employee directors and consultants. Each award agreement
will specify the number and type of award, together with any
other terms and conditions as determined by the Compensation
Committee of the Board of Directors or its designees. In
connection with approval of the 2004 Plan, our Board of
Directors approved a resolution to cease making additional
grants under the 1996 Plan and 1998 Plan. During 2009, we issued
1,698,194 shares of restricted stock. The value of the
restricted shares was based upon the closing price of our stock
on the dates of issue which ranged from $9.72 to $24.95 during
2009. The restricted stock generally vests over periods ranging
from one to four years. As of December 31, 2009, we had
granted a total of 1,929,665 options to purchase common stock
under the 2004 Plan, of which options to purchase
662,753 shares were outstanding, and a total of 2,538,202
restricted shares under the 2004 Plan, of which 1,966,672
restricted shares were unvested. As of December 31, 2009,
1,150,954 shares remain available for grant under the 2004
Plan.
Total share-based compensation expense, which includes stock
option expense and restricted stock expense, included in our
consolidated statements of operations for the years ended
December 31, 2009 and 2008, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Share based compensation expense related to stock options
|
|
$
|
797
|
|
|
$
|
2,536
|
|
|
$
|
3,206
|
|
Share based compensation expense related to restricted shares
|
|
|
7,191
|
|
|
|
4,796
|
|
|
|
4,410
|
|
Share based compensation expense related to employee stock
purchase program (ESPP)
|
|
|
94
|
|
|
|
124
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share based compensation expense
|
|
$
|
8,082
|
|
|
$
|
7,456
|
|
|
$
|
7,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
Summary
of Restricted Stock Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of
|
|
|
|
Restricted
|
|
|
Market Price
|
|
|
|
Shares
|
|
|
per Share
|
|
|
|
Outstanding
|
|
|
on Grant Date
|
|
|
Balance December 31, 2007
|
|
|
302,345
|
|
|
$
|
24.75-53.95
|
|
Granted
|
|
|
434,180
|
|
|
|
14.31-35.77
|
|
Canceled
|
|
|
(144,805
|
)
|
|
|
26.46-51.15
|
|
Vested
|
|
|
(104,517
|
)
|
|
|
24.75-53.95
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
|
487,203
|
|
|
|
14.31-53.95
|
|
Granted
|
|
|
1,698,194
|
|
|
|
9.72-24.95
|
|
Canceled
|
|
|
(67,552
|
)
|
|
|
9.72-51.15
|
|
Vested
|
|
|
(151,173
|
)
|
|
|
9.72-53.95
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009
|
|
|
1,966,672
|
|
|
$
|
9.72-53.95
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2009 and 2008, we
issued 1,698,194 and 434,180 shares of restricted stock,
respectively, with an aggregate fair value of $27.6 million
and $11.6 million, respectively. The fair market value of
restricted shares that became vested during the year ended
December 31, 2009 was $5.6 million. The total value of
each restricted stock grant, based on the fair market value of
the stock on the date of grant, is amortized to compensation
expense on a straight-line basis over the related vesting
period. As of December 31, 2009, there was
$17.4 million of unrecognized compensation expense related
to restricted stock that is expected to be recognized over a
weighted average period of 2.7 years.
Special
2009 Restricted Stock Grant
In June 2009, the Compensation Committee of our Board of
Directors approved the grant of 996,000 shares of long-term
performance-based restricted stock to serve as an incentive to
our senior management team to achieve certain diluted earnings
per share (EPS) targets in 2011 and 2012. These
shares were included in the overall grant of 1,698,194
restricted shares granted in 2009. If a specified EPS target is
achieved for fiscal 2011, 50% of the restricted shares will
vest. If a higher EPS target is achieved for fiscal 2011, 100%
of the restricted shares will vest. If the grant has not fully
vested after fiscal 2011, 50% of the shares will vest if a
specified EPS target is achieved for fiscal 2012. If none of the
shares vested after fiscal 2011, 100% of the shares will vest if
a higher EPS target is achieved for fiscal 2012. In the event
that we do not achieve the required EPS targets, the restricted
stock will be forfeited. A maximum of $20.4 million could
be recognized as compensation expense under this grant if all
EPS targets are met.
We consider the specific EPS targets to be competitively
sensitive information during the performance period. We believe
these targets, inclusive of compensation expense under this
grant, to be aggressive goals in excess of our current baseline
expect 2009, nor has any share amount been included in our total
diluted shares. If all of the targets had been considered
probable at December 31, 2009, we would have recognized
$4.3 million of compensation cost during the year ended
December 31, 2009. If it becomes probable that certain of
the EPS performance targets will be achieved, the corresponding
estimated cost of the grant will be recorded as compensation
expense over the performance period. The probability of reaching
the targets is revaluated each reporting period. If it becomes
probable that certain of the target performance levels will be
achieved, a cumulative adjustment will be recorded and future
compensation expense will increase based on the currently
projected performance levels. If we later determine that it is
not probable that the minimum EPS performance threshold for the
grants will be met, no further compensation cost will be
recognized and any previously recognized compensation cost will
be reversed.
64
LIFE TIME
FITNESS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Table
amounts in thousands, except share and per share data)
Summary
of Stock Option Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Options
|
|
Shares
|
|
|
Price
|
|
|
Term (in years)
|
|
|
Value
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
1,724,599
|
|
|
$
|
20.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,477
|
|
|
|
50.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(487,075
|
)
|
|
|
17.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(31,734
|
)
|
|
|
26.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
1,208,267
|
|
|
|
21.17
|
|
|
|
|
|