FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 001-32230
Life Time Fitness, Inc.
(Exact name of registrant as specified in its charter)
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Minnesota
(State or other jurisdiction of
incorporation or organization)
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41-1689746
(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) |
Registrants telephone number, including area code: 952-947-0000
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
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 number of shares outstanding of the registrants common stock as of April 20, 2009 was
40,268,857 common shares.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LIFE TIME FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
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March 31, |
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December 31, |
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2009 |
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2008 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
10,576 |
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$ |
10,829 |
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Accounts receivable, net |
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3,477 |
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6,114 |
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Inventories and center operating supplies |
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14,126 |
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14,632 |
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Prepaid expenses and other current assets |
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14,265 |
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10,994 |
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Deferred membership origination costs |
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20,976 |
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19,877 |
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Deferred income taxes |
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1,668 |
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1,365 |
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Total current assets |
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65,088 |
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63,811 |
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PROPERTY AND EQUIPMENT, net |
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1,523,265 |
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1,515,957 |
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RESTRICTED CASH |
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3,792 |
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3,936 |
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DEFERRED MEMBERSHIP ORIGINATION COSTS |
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14,205 |
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14,210 |
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OTHER ASSETS |
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50,933 |
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49,789 |
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TOTAL ASSETS |
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$ |
1,657,283 |
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$ |
1,647,703 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Current maturities of long-term debt |
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$ |
10,712 |
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$ |
10,335 |
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Accounts payable |
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14,224 |
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14,842 |
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Construction accounts payable |
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43,347 |
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63,418 |
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Accrued expenses |
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54,585 |
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46,230 |
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Deferred revenue |
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39,251 |
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36,098 |
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Total current liabilities |
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162,119 |
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170,923 |
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LONG-TERM DEBT, net of current portion |
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703,704 |
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702,569 |
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DEFERRED RENT LIABILITY |
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27,274 |
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27,925 |
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DEFERRED INCOME TAXES |
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51,502 |
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51,982 |
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DEFERRED REVENUE |
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13,050 |
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13,719 |
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OTHER LIABILITIES |
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28,860 |
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27,684 |
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Total liabilities |
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986,509 |
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994,802 |
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COMMITMENTS AND CONTINGENCIES (Note 7) |
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SHAREHOLDERS EQUITY: |
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Undesignated preferred stock, 10,000,000
shares authorized; none issued or
outstanding |
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Common stock, $.02 par value, 50,000,000
shares authorized; 40,267,837 and
39,612,775 shares issued and outstanding,
respectively |
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806 |
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793 |
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Additional paid-in capital |
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387,424 |
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385,095 |
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Retained earnings |
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286,825 |
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271,711 |
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Accumulated other comprehensive loss |
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(4,281 |
) |
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(4,698 |
) |
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Total shareholders equity |
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670,774 |
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652,901 |
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
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$ |
1,657,283 |
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$ |
1,647,703 |
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See notes to unaudited consolidated financial statements.
3
LIFE TIME FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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For the Three Months Ended |
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March 31, |
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2009 |
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2008 |
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REVENUE: |
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Membership dues |
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$ |
137,397 |
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$ |
119,648 |
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Enrollment fees |
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6,473 |
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6,533 |
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In-center revenue |
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59,302 |
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55,265 |
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Total center revenue |
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203,172 |
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181,446 |
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Other revenue |
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3,262 |
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3,005 |
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Total revenue |
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206,434 |
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184,451 |
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OPERATING EXPENSES: |
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Center operations |
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126,974 |
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107,580 |
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Advertising and marketing |
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8,298 |
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9,498 |
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General and administrative |
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11,708 |
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10,672 |
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Other operating |
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4,887 |
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4,095 |
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Depreciation and amortization |
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22,064 |
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16,590 |
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Total operating expenses |
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173,931 |
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148,435 |
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Income from operations |
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32,503 |
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36,016 |
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OTHER INCOME (EXPENSE): |
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Interest expense, net of interest income of $139 and $71, respectively |
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(7,474 |
) |
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(7,211 |
) |
Equity in earnings of affiliate |
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337 |
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323 |
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Total other income (expense) |
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(7,137 |
) |
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(6,888 |
) |
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INCOME BEFORE INCOME TAXES |
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25,366 |
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29,128 |
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PROVISION FOR INCOME TAXES |
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10,252 |
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11,724 |
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NET INCOME |
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$ |
15,114 |
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$ |
17,404 |
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BASIC EARNINGS PER COMMON SHARE |
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$ |
0.39 |
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$ |
0.45 |
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DILUTED EARNINGS PER COMMON SHARE |
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$ |
0.38 |
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$ |
0.44 |
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC |
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39,226 |
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38,895 |
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING DILUTED |
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39,392 |
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39,363 |
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See notes to unaudited consolidated financial statements.
4
LIFE TIME FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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For the Three Months Ended |
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March 31, |
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2009 |
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2008 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
15,114 |
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$ |
17,404 |
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Adjustments to reconcile net income to net cash provided by operating
activities: |
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Depreciation and amortization |
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22,064 |
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16,590 |
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Deferred income taxes |
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303 |
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3,252 |
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Provision for doubtful accounts |
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106 |
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30 |
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Loss on disposal of property and equipment, net |
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119 |
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|
831 |
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Amortization of deferred financing costs |
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669 |
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235 |
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Share-based compensation |
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2,234 |
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1,782 |
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Excess tax benefit related to share-based payment arrangements |
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(65 |
) |
Equity in earnings of affiliate |
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(337 |
) |
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(323 |
) |
Changes in operating assets and liabilities |
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8,218 |
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9,568 |
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Other |
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1,170 |
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18 |
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Net cash provided by operating activities |
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49,660 |
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49,322 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property and equipment |
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(48,900 |
) |
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(100,485 |
) |
Proceeds from sale of property and equipment |
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4 |
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|
392 |
|
Increase in other assets |
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(1,634 |
) |
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(7,215 |
) |
Decrease in restricted cash |
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144 |
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3,252 |
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Net cash used in investing activities |
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(50,386 |
) |
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(104,056 |
) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from long-term borrowings |
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4,813 |
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Repayments of long-term borrowings |
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(3,694 |
) |
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(2,415 |
) |
Proceeds from (repayments of) revolving credit facility, net |
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(300 |
) |
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54,200 |
|
Increase in deferred financing costs |
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(346 |
) |
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(310 |
) |
Excess tax benefit related to share-based payment arrangements |
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65 |
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Proceeds from stock option exercises |
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299 |
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Net cash provided by financing activities |
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473 |
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51,839 |
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DECREASE IN CASH AND CASH EQUIVALENTS |
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(253 |
) |
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(2,895 |
) |
CASH AND CASH EQUIVALENTS Beginning of period |
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10,829 |
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5,354 |
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CASH AND CASH EQUIVALENTS End of period |
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$ |
10,576 |
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$ |
2,459 |
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|
See notes to unaudited consolidated financial statements.
5
LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by accounting principles generally accepted in
the United States for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary to fairly present financial
position, results of operations and cash flows for the periods have been included.
These interim consolidated financial statements and the related notes should be read in conjunction
with the annual consolidated financial statements and notes included in the latest Form 10-K, as
filed with the Securities and Exchange Commission (SEC), which includes audited consolidated
financial statements for the three fiscal years ended December 31, 2008.
2. Share-Based Compensation
We have four share-based compensation plans, the FCA, Ltd. 1996 Stock Option Plan (the 1996
Plan), the Life Time Fitness, Inc. 1998 Stock Option Plan (the 1998 Plan), the Amended and
Restated Life Time Fitness, Inc. 2004 Long-Term Incentive Plan (the 2004 Plan) and an Employee
Stock Purchase Plan (the ESPP), collectively, the share-based compensation plans. In connection
with approval for the 2004 Plan, our Board of Directors approved a resolution to cease making
additional grants under the 1996 Plan and the 1998 Plan. 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 share-based awards. As of March 31, 2009, we had granted a total of 5,587,165 options to
purchase common stock under all of the share-based compensation plans, of which options to purchase
978,575 shares were outstanding, and a total of 1,497,323 restricted shares were granted, of which
1,042,129 restricted shares were outstanding and unvested. We use the term restricted shares to
define nonvested shares granted to employees and non-employee directors, whereas Statement of
Financial Accounting Standards No. 123, Share-Based Payment (SFAS 123(R)) reserves that term
for fully vested and outstanding shares whose sale is contractually or governmentally prohibited
for a specified period of time.
Total share-based compensation expense included in our consolidated statements of operations for
the three months ended March 31, 2009 and 2008, was as follows:
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For the Three Months Ended |
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March 31, |
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2009 |
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2008 |
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Share-based compensation expense related to stock options |
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$ |
541 |
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$ |
702 |
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Share-based compensation expense related to restricted shares |
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|
1,663 |
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|
1,050 |
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Share-based compensation expense related to ESPP |
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30 |
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|
30 |
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Total share-based compensation expense |
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$ |
2,234 |
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$ |
1,782 |
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6
LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
The following table summarizes the stock option transactions for the three months ended March 31,
2009:
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Weighted |
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Average |
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Weighted- |
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Remaining |
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Aggregate |
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Stock |
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Average |
|
Contractual Term |
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Intrinsic |
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Options |
|
Exercise Price |
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(in years) |
|
Value |
Outstanding at December 31, 2008 |
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|
980,929 |
|
|
$ |
21.65 |
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Granted |
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Exercised |
|
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|
|
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|
|
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Canceled |
|
|
(2,354 |
) |
|
$ |
31.06 |
|
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Outstanding at March 31, 2009 |
|
|
978,575 |
|
|
$ |
21.63 |
|
|
|
5.4 |
|
|
$ |
632 |
|
|
|
|
|
|
|
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|
|
|
|
|
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|
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Vested or Expected to Vest at March 31, 2009 |
|
|
970,815 |
|
|
$ |
21.56 |
|
|
|
5.4 |
|
|
$ |
632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Exercisable at March 31, 2009 |
|
|
897,737 |
|
|
$ |
20.85 |
|
|
|
5.3 |
|
|
$ |
632 |
|
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No options were granted during the three months ended March 31, 2009 or the three months ended
March 31, 2008. No options were exercised during the three months ended March 31, 2009.
As of March 31, 2009, there was $0.4
million of unrecognized compensation expense related to stock options that is expected to be
recognized over a weighted average period of 0.4 years.
The aggregate intrinsic value in
the table above represents the total pretax intrinsic value (the difference between our
closing stock price at March 31, 2009 and the exercise price, multiplied by the number
of in-the-money options) that would have been received by the option holders, had all
option holders exercised their options on March 31, 2009. This amount changes based on the
fair market value of our stock. Total intrinsic value of options exercised during the three
months ended March 31, 2009 and 2008 was $0 and $0.9 million, respectively.
Net cash proceeds from the exercise of stock options were $0 and $0.3 million for the three months
ended March 31, 2009, and 2008, respectively. The actual income tax benefit realized from stock
option exercises total $0 and $0.1 million, respectively, for those same periods.
The following table summarizes the unvested restricted shares activity for the three months ended
March 31, 2009:
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|
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|
|
|
|
Range of Market |
|
|
Restricted |
|
Price Per Share on |
|
|
Shares |
|
Grant Date |
Outstanding at December 31, 2008 |
|
|
487,203 |
|
|
$ |
14.31-53.95 |
|
Granted |
|
|
657,315 |
|
|
|
9.72 |
|
Canceled |
|
|
(2,253 |
) |
|
|
14.31-49.06 |
|
Vested |
|
|
(100,136 |
) |
|
|
14.31-53.95 |
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2009 |
|
|
1,042,129 |
|
|
$ |
9.72-53.95 |
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2009 and 2008, we issued 657,315 and 356,574 shares of
restricted stock, respectively, with an aggregate fair value of $6.4 million and $9.4 million,
respectively. The grant date fair market value of restricted shares that vested during the three
months ended March 31, 2009 was $3.5 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.
Our ESPP provides for the sale of our common stock to our employees at discounted purchase prices.
The cost per share under this plan is 90% of the fair market value of our common stock on the last
day of the purchase period, as defined. The current purchase period for employees under the ESPP
began January 1, 2009 and ends June 30, 2009. Compensation expense under the ESPP is estimated
based on the discount of 10% at the end of the purchase period.
7
LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
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 pursuant to our ESPP. During the first quarter of 2009, we repurchased
43,274 shares for approximately $0.6 million. As of March 31, 2009, there were 399,382 remaining
shares authorized to be repurchased for this purpose. The shares repurchased to date have been
purchased in the open market and, upon repurchase, became authorized, but unissued shares of our
common stock.
3. Subsequent Event
At the annual meeting of our shareholders held on April 23, 2009, the shareholders voted to amend
our Amended and Restated 2004 Long-Term Incentive Plan to increase the number of shares available
for issuance under the plan from 3,500,000 shares to 5,250,000 shares and to amend our Amended and
Restated Articles of Incorporation to increase the authorized shares of common stock from
50,000,000 shares to 75,000,000 shares.
4. Earnings per 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 period.
Diluted EPS is computed based on the weighted-average number of common shares and common equivalent
shares. Common equivalent shares represent the effect of stock options and restricted stock awards
during each period presented, which if exercised, would dilute EPS. Stock options excluded from the
calculation of diluted EPS because the option exercise or award price was greater than the average
market price of the common share were 851,350 and 83,851 for the three months ended March 31, 2009
and 2008, respectively.
The basic and diluted earnings per share calculations are shown below:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
15,114 |
|
|
$ |
17,404 |
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding basic |
|
|
39,226 |
|
|
|
38,895 |
|
Effect of dilutive stock options |
|
|
81 |
|
|
|
299 |
|
Effect of dilutive restricted stock awards |
|
|
85 |
|
|
|
169 |
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding diluted |
|
|
39,392 |
|
|
|
39,363 |
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.39 |
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
0.38 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
8
LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
5. Operating Segments
Our operations are conducted mainly through our large, multi-use sports, fitness and family
recreation centers. We aggregate the activities of our centers and other ancillary products and
services into one reportable segment as none of the centers or other ancillary products or services
meet the quantitative thresholds for separate disclosure under SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. Each of the centers has similar expected
economic characteristics, service and product offerings, customers and design. Each of the other
ancillary products and services either directly or indirectly, through advertising or branding,
complement the operations of the centers. Our chief operating decision maker uses EBITDA, which
consists of net income plus interest expense, net, provision for income taxes and depreciation and
amortization, as the primary measure of operating segment performance.
The following table presents revenue for the three months ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
Membership dues |
|
$ |
137,397 |
|
|
$ |
119,648 |
|
Enrollment fees |
|
|
6,473 |
|
|
|
6,533 |
|
Personal training |
|
|
29,142 |
|
|
|
28,581 |
|
Other in-center |
|
|
30,160 |
|
|
|
26,684 |
|
Other |
|
|
3,262 |
|
|
|
3,005 |
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
206,434 |
|
|
$ |
184,451 |
|
|
|
|
|
|
|
|
6. Supplementary Cash Flow Information
Decreases (increases) in operating assets and increases (decreases) in operating liabilities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
Accounts receivable |
|
$ |
2,531 |
|
|
$ |
1,167 |
|
Income tax receivable |
|
|
|
|
|
|
5,879 |
|
Inventories and center operating supplies |
|
|
506 |
|
|
|
382 |
|
Prepaid expenses and other current assets |
|
|
(2,570 |
) |
|
|
2,790 |
|
Deferred membership origination costs |
|
|
(1,095 |
) |
|
|
(1,918 |
) |
Accounts payable |
|
|
(2,474 |
) |
|
|
(4,704 |
) |
Accrued expenses |
|
|
8,308 |
|
|
|
1,126 |
|
Deferred revenue |
|
|
2,485 |
|
|
|
4,421 |
|
Deferred rent |
|
|
(651 |
) |
|
|
301 |
|
Other liabilities |
|
|
1,178 |
|
|
|
124 |
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities |
|
$ |
8,218 |
|
|
$ |
9,568 |
|
|
|
|
|
|
|
|
We made cash payments for income taxes of $1.6 million and $0.1 million for the three months ended
March 31, 2009 and 2008, respectively.
We made cash payments for interest of $7.1 million and $8.7 million for the three months ended
March 31, 2009 and 2008, respectively. Capitalized interest
was $0.9 million and $1.9 million for the three months
ended March 31, 2009 and 2008, respectively.
Fixed assets in accounts payable and construction accounts payable was $44.3 million at March 31,
2009 and $64.7 million at March 31, 2008.
9
LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
7. Commitments and Contingencies
Litigation We are engaged in proceedings incidental to the normal course of 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 our business will not have a material
adverse impact on the 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.
8. Recent Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 161, Disclosures About Derivative Instruments and Hedging Activities an
amendment of SFAS No. 133 (SFAS 161). SFAS 161 requires enhanced disclosures about an entitys
derivative and hedging activities including how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for and how derivative instruments
and related hedged items affect an entitys financial position, financial performance and cash
flows. SFAS 161 became effective for us on January 1, 2009. The adoption of SFAS 161 did not have a
material effect on our financial position or results of operations. See Note 9, Derivative
Instruments and Fair Value Measurements, for our disclosures required under SFAS 161.
In
April 2009, the FASB issued FASB Staff Position
SFAS 107-1 (FSP SFAS 107-1) and Accounting Principles
Board Opinion 28-1, Interim Disclosures about Fair Value of Financial Instruments (APB 28-1). FSP
SFAS 107-1 and APB 28-1 require disclosures about fair value of financial instruments whenever
summarized financial information for interim reporting periods is presented. Entities shall
disclose the methods and significant assumptions used to estimate the fair value of financial
instruments and shall describe changes in methods and significant assumptions, if any, during the
period. FSP SFAS 107-1 and APB 28-1 are effective for interim reporting periods ending after June
15, 2009. FSP SFAS 107-1 and APB 28-1 are effective for our second quarter 2009 interim reporting
period and the relevant disclosures will be added at such time.
In April 2009, the FASB issued FSP SFAS 157-4, which provides additional guidance for estimating
fair value in accordance with SFAS No. 157, Fair Value Measurements (SFAS 157), when the volume
and level of market activity for the asset or liability have significantly decreased. FSP SFAS
157-4 emphasizes that even if there has been a significant decrease in the volume and level of
market activity for the asset or liability and regardless of the valuation techniques used, the
objective of a fair value measurement remains the same. In addition, the statement provides
guidance on identifying circumstances that indicate a transaction is not orderly. FSP SFAS 157-4 is
effective for interim and annual periods ending after June 15, 2009. We do not expect the
implementation of FSP SFAS 157-4 to have a material impact on our consolidated financial
statements.
9. Derivative Instruments and Fair Value Measurements
Effective January 1, 2009, we adopted SFAS 161, which requires additional disclosures regarding why
we use derivative instruments, the volume of our derivative activities, the fair value amounts
recorded to the consolidated balance sheet for derivatives and the gains and losses on derivative
instruments included in the consolidated statements of operations.
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. The contract has been designated a
cash flow hedge against interest rate volatility. In accordance with SFAS 133, Accounting for
Derivative Instruments and Hedging Activities, changes in the fair market value of the swap
contract are recorded in accumulated other comprehensive income (loss). As of March 31, 2009, the
$4.3 million fair market value loss, net of tax, of the swap contract was recorded as
10
LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
accumulated other comprehensive loss in the shareholders equity section of our consolidated
balance sheets and the $6.9 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.
SFAS 157 established a framework for measuring fair value and expanded disclosures about fair value
measurements. The adoption of SFAS 157 had no impact on our financial position or results of
operations. SFAS 157 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 statement 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 SFAS 157, we recognize the fair value of the swap liability as
a Level 2 valuation.
11
Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The following discussion may contain forward-looking statements regarding us and our business,
prospects and results of operations that are subject to certain risks and uncertainties posed by
many factors and events that could cause our actual business, prospects and results of operations
to differ materially from those that may be anticipated by such forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited to, those described
under Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2008.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak
only as of the date of this report. We undertake no obligation to revise any forward-looking
statements in order to reflect events or circumstances that may subsequently arise. Readers are
urged to carefully review and consider the various disclosures made by us in this report and in our
other reports filed with the SEC that advise interested parties of the risks and factors that may
affect our business.
The interim consolidated financial statements filed on this Form 10-Q and the discussions contained
herein should be read in conjunction with the annual consolidated financial statements and notes
included in the latest Form 10-K, as filed with the SEC, which includes audited consolidated
financial statements for the three fiscal years ended December 31, 2008.
Overview
We operate large, multi-use sports, fitness and family recreation centers. As of April 30, 2009, we
operated 83 centers primarily in residential locations across 18 states under the LIFE TIME FITNESS
brand.
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 centers we have opened or plan to open in 2009, two are
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. Another result of opening new centers, as
well as the assumption of operations of seven leased facilities in 2006, the assumption of
operations of one leased facility in 2007 and our entry into sale-leaseback transactions for six
centers in 2008, is that our center operating margins may be lower than they have been
historically, particularly as newly opened centers build membership. We expect both 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, to affect our center operating margins at these
centers and on a consolidated basis. If the economy continues to slow, we also expect increased
member attrition, lower average dues, lower in-center revenue per membership as well as higher
membership acquisition costs which may result in lower total revenue and operating profit in
affected centers and on a consolidated basis. 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,
12
center membership usage, center membership mix among individual, couple and family memberships and
center attrition rates. During 2008, our attrition rate increased, driven primarily by inactive
members leaving earlier than in the past. Our trailing twelve month attrition rate increased slightly during the first
quarter of 2009.
We have three primary sources of revenue. First, our largest source of revenue is membership dues
(66.6% of total revenue for the three months ended March 31, 2009) and enrollment fees (3.1% of
total revenue for the three months ended March 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 expected average life of the membership, which we estimate to be 30 months
for the first quarter of 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 (28.7% of
total revenue for the three months ended March 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 three months ended March 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, rent,
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, volatility factors, expected lives and rate of
return in determining fair value of option grants, tax provisions and provisions for uncollectible
receivables. We also use estimates for calculating the amortization period for deferred enrollment
fee revenue and associated direct costs, which are based on the historical average expected life of
center memberships. We revise the recorded estimates when better information is available, facts
change or we can determine actual amounts. These revisions can affect operating results.
Our critical accounting policies and use of estimates are discussed in and should be read in
conjunction with the annual consolidated financial statements and notes included in the latest Form
10-K, as filed with the SEC, which includes audited consolidated financial statements for our three
fiscal years ended December 31, 2008.
13
Results of Operations
The following table sets forth our statement of operations data as a percentage of total revenue
and also sets forth other financial and operating data:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Revenue |
|
|
|
|
|
|
|
|
Center revenue |
|
|
|
|
|
|
|
|
Membership dues |
|
|
66.6 |
% |
|
|
64.9 |
% |
Enrollment fees |
|
|
3.1 |
|
|
|
3.5 |
|
In-center revenue |
|
|
28.7 |
|
|
|
30.0 |
|
|
|
|
|
|
|
|
Total center revenue |
|
|
98.4 |
|
|
|
98.4 |
|
Other revenue |
|
|
1.6 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
Total revenue |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Center operations |
|
|
61.5 |
|
|
|
58.3 |
|
Advertising and marketing |
|
|
4.0 |
|
|
|
5.1 |
|
General and administrative |
|
|
5.7 |
|
|
|
5.8 |
|
Other operating |
|
|
2.4 |
|
|
|
2.3 |
|
Depreciation and amortization |
|
|
10.7 |
|
|
|
9.0 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
84.3 |
|
|
|
80.5 |
|
|
|
|
|
|
|
|
Income from operations |
|
|
15.7 |
|
|
|
19.5 |
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(3.6 |
) |
|
|
(3.9 |
) |
Equity in earnings of affiliate |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(3.4 |
) |
|
|
(3.7 |
) |
|
|
|
|
|
|
|
Income before income taxes |
|
|
12.3 |
|
|
|
15.8 |
|
Provision for income taxes |
|
|
5.0 |
|
|
|
6.4 |
|
|
|
|
|
|
|
|
Net income |
|
|
7.3 |
% |
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial and operating data: |
|
|
|
|
|
|
|
|
Comparable center revenue growth |
|
|
(2.7 |
)% |
|
|
4.3 |
% |
Average revenue per membership |
|
$ |
352 |
|
|
$ |
363 |
|
Average in-center revenue per membership |
|
$ |
103 |
|
|
$ |
111 |
|
EBITDA (in thousands) |
|
$ |
54,904 |
|
|
$ |
52,929 |
|
EBITDA margin |
|
|
26.6 |
% |
|
|
28.7 |
% |
Capital expenditures (in thousands) |
|
$ |
48,900 |
|
|
$ |
100,485 |
|
Centers open at end of period |
|
|
83 |
|
|
|
71 |
|
Number of memberships at end of period |
|
|
599,919 |
|
|
|
521,177 |
|
Total center square footage at end of period (1) |
|
|
8,333,579 |
|
|
|
6,961,969 |
|
|
|
|
(1) |
|
The square footage presented in this table reflects fitness square footage which is the best
metric for the efficiencies of a facility. In a few of our centers, we sublease space to third
parties who operate our pro shop, salon 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. |
14
Three Months Ended March 31, 2009, Compared to Three Months Ended March 31, 2008
Total revenue. Total revenue increased $21.9 million, or 11.9%, to $206.4 million for the three
months ended March 31, 2009, from $184.5 million for the three months ended March 31, 2008.
Total
center revenue grew $21.8 million, or 12.0%, to $203.2 million for the three months ended
March 31, 2009, from $181.4 million for the three months ended March 31, 2008. Comparable center
revenue decreased 2.7% for the three months ended March 31, 2009 compared to the three months ended
March 31, 2008. Of the $21.8 million increase in total center revenue,
|
|
|
81.7% was from membership dues, which increased $17.8 million, or 14.8%, due to increased
memberships at new centers, junior membership programs and increased sales of 26-and-under
memberships. Our number of memberships increased 15.1% to 599,919 at March 31, 2009 from
521,177 at March 31, 2008. Our membership growth of 15.1% was up from a membership growth
rate of 9.9% in first quarter 2008 primarily due to new center growth and included new, lower
priced membership offerings introduced in the second half of 2008. |
|
|
|
|
18.6% was from in-center revenue, which increased $4.0 million primarily as a
result of
increased sales of our member activities, LifeCafe products and services and personal
training. Average in-center revenue per membership decreased from $111 for the three months
ended March 31, 2008 to $103 for the three months ended March 31, 2009. We began to see
slower in-center revenue growth in the second half of 2008 and first three months of 2009 due
to worsening economic conditions. |
|
|
|
|
(0.3)% was from enrollment fees, which are deferred until a center opens and recognized
on a straight-line basis over 30 months, our average life of a member. Since fourth quarter
of 2008, the average 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 by less than $0.1 million for the three months ended March 31, 2009 to $6.5 million. In
2008 and the first quarter of 2009, we lowered our enrollment fees to stimulate new
membership demand. |
Other revenue increased $0.3 million, or 8.6%, to $3.3 million for the three months ended March 31,
2009, which was primarily due to increased revenue from our corporate wellness businesses.
Center operations expenses. Center operations expenses totaled $127.0 million, or 62.5% of total
center revenue (or 61.5% of total revenue), for the three months ended March 31, 2009 compared to
$107.6 million, or 59.3% of total center revenue (or 58.3% of total revenue), for the three months
ended March 31, 2008. This $19.4 million increase primarily consisted of $6.5 million in additional
payroll-related costs to support increased memberships at new centers and increases in membership
acquisition costs, an increase of $7.5 million in occupancy-related costs, including utilities,
real estate taxes and rent on leased centers and an increase in expenses to support in-center
products and services. Rent expense totaled $10.0 million for the three months ended March 31, 2009
and $5.1 million for the three months ended March 31, 2008. This $4.9 million increase is primarily
a result of the six sale-leaseback transactions which we entered into during the second half of
2008.
Advertising and marketing expenses. Advertising and marketing expenses were $8.3 million, or 4.0%
of total revenue, for the three months ended March 31, 2009, compared to $9.5 million, or 5.1% of
total revenue, for the three months ended March 31, 2008. These expenses decreased primarily due to
less presale activity and more targeted and more market-specific marketing campaigns.
General and administrative expenses. General and administrative expenses were $11.7 million, or
5.7% of total revenue, for the three months ended March 31, 2009, compared to $10.7 million, or
5.8% of total revenue, for the three months ended March 31, 2008. This $1.0 million increase was
primarily due to increased costs to support the growth in membership and the center base and
unabsorbed real estate and development overhead. These expenses decreased as a percentage of
revenue primarily due to increased efficiencies and productivity improvements.
Other operating expenses. Other operating expenses were $4.9 million for the three months ended
March 31, 2009, compared to $4.1 million for the three months ended March 31, 2008. This increase
is primarily a result of start-up costs associated with the expansion of our corporate wellness
businesses and losses on disposition of assets.
15
Depreciation and amortization. Depreciation and amortization was $22.1 million for the three months
ended March 31, 2009, compared to $16.6 million for the three months ended March 31, 2008. This
$5.5 million increase was due primarily to depreciation on our new centers opened in 2008 and the
first quarter of 2009 and the remodels of acquired clubs completed in 2008.
Interest expense, net. Interest expense, net of interest income, was $7.5 million for the three
months ended March 31, 2009, compared to $7.2 million for the three months ended March 31, 2008.
This $0.3 million increase was primarily the result of increased debt balances and decreased
capitalized interest.
Provision for income taxes. The provision for income taxes was $10.3 million for the three months
ended March 31, 2009, compared to $11.7 million for the three months ended March 31, 2008. This
$1.4 million decrease was due to a decrease in income before income taxes of $3.8 million. The
effective income tax rate for the three months ended March 31, 2009 was 40.4% compared to 40.2% for
the three months ended March 31, 2008.
Net income. As a result of the factors described above, net income was $15.1 million, or 7.3% of
total revenue, for the three months ended March 31, 2009, compared to $17.4 million, or 9.4% of
total revenue, for the three months ended March 31, 2008.
Liquidity and Capital Resources
Liquidity
Historically, we have satisfied our liquidity needs through various debt and sale-leaseback
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 near-term debt service obligations and capital expenditure requirements with cash flow
from operations. We believe that we can satisfy our longer-term debt service obligations and
capital expenditure requirements 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. 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.
The following table summarizes our capital structure as of March 31, 2009 and December 31, 2008 (in
thousands).
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Debt |
|
|
|
|
|
|
|
|
Long-term |
|
$ |
703,704 |
|
|
$ |
702,569 |
|
Current maturities of long-term |
|
|
10,712 |
|
|
|
10,335 |
|
|
|
|
|
|
|
|
Total debt |
|
|
714,416 |
|
|
|
712,904 |
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
|
|
|
|
|
|
Common stock |
|
|
806 |
|
|
|
793 |
|
Additional paid-in capital |
|
|
387,424 |
|
|
|
385,095 |
|
Retained earnings |
|
|
286,825 |
|
|
|
271,711 |
|
Accumulated other comprehensive loss |
|
|
(4,281 |
) |
|
|
(4,698 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
670,774 |
|
|
|
652,901 |
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
1,385,190 |
|
|
$ |
1,365,805 |
|
|
|
|
|
|
|
|
16
Debt highlights, as of March 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2009 |
|
2008 |
Fixed-rate debt as a percent of total debt |
|
|
54.7 |
% |
|
|
54.6 |
% |
Weighted-average annual interest rate of total debt |
|
|
4.0 |
% |
|
|
4.5 |
% |
Total debt (net of cash) as a percent of total capitalization
(total debt (net of cash) and total shareholders equity) |
|
|
51.2 |
% |
|
|
51.8 |
% |
Cash provided by operating activities (trailing twelve months) as a percent of total debt |
|
|
25.7 |
% |
|
|
25.7 |
% |
Operating Activities
As of March 31, 2009, we had total cash and cash equivalents of $10.6 million. We also had $45.8
million available under the existing terms of our revolving credit facility as of March 31, 2009.
Net cash provided by operating activities was $49.7 million for the three months ended March 31,
2009 compared to $49.3 million for the three months ended March 31, 2008.
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 in the near-term
through cash payments from operations. We plan to finance the purchase of our property and
equipment in the longer-term through cash payments from operations or by financing through notes
payable or capital lease obligations.
Net cash used in investing activities was $50.4 million for the three months ended March 31, 2009,
compared to $104.1 million for the three months ended March 31, 2008. The decrease of $53.7 million
was primarily due to the reduced number of centers we currently plan to open.
Our capital expenditures were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
Purchases of property and equipment |
|
$ |
48,900 |
|
|
$ |
100,485 |
|
Non-cash property and equipment financed through capital lease obligations |
|
|
|
|
|
|
9,543 |
|
Changes in construction accounts payable and accounts payable realted to property and equipment |
|
|
(19,470 |
) |
|
|
4,957 |
|
Non-cash share-based compensation capitalized to projects under development |
|
|
153 |
|
|
|
228 |
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
29,583 |
|
|
$ |
115,213 |
|
|
|
|
|
|
|
|
The following schedule reflects capital expenditures by type of expenditure for the three months
ended March 31, 2009 (in thousands):
|
|
|
|
|
New center building and construction on clubs opened or to be opened in 2009 |
|
$ |
15,921 |
|
New center building and construction on clubs to be opened in 2010 and beyond |
|
|
6,796 |
|
Updating existing centers and corporate infrastructure |
|
|
6,866 |
|
|
|
|
|
Total capital expenditures |
|
$ |
29,583 |
|
|
|
|
|
At April 30, 2009, we had purchased or leased the real property for the three new centers that we
plan to open in 2009, two of which have already opened. In addition, we have purchased the real
property for two and entered into a ground lease for one of the three large format centers we plan
to open in 2010, and we had purchased real property for three of the
large format centers that we
plan to open after 2010. Construction in progress, including land purchased for future development,
totaled $108.2 million at March 31, 2009 and $209.8 million at March 31, 2008.
17
We expect our cash outlays for capital expenditures to be approximately $125 to $150 million in
2009, including approximately $75 to $100 million in the remaining nine months of 2009. Of this
approximately $75 to $100 million, we expect to incur approximately $55 to $70 million for new
center construction and approximately $20 to $30 million for the updating of existing centers and
corporate infrastructure. We plan to fund these capital expenditures
primarily with cash from operations. In addition, we will continue to pursue
appropriately-priced long-term financing, mainly in the forms of mortgages and sale-leaseback
transactions. Our specific expected capital expenditures will be dependent on our cash flow from
operations and our availability of additional financing.
Financing Activities
Net cash provided by financing activities was $0.5 million for the three months ended March 31,
2009, compared to $51.8 million for the three months ended March 31, 2008. The decrease of $51.3
million was primarily due to reduced borrowings on our revolving credit facility.
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Term notes payable to insurance company, monthly interest and principal payments totaling $1,273 including interest at 8.25% to June 2011 |
|
$ |
110,290 |
|
|
$ |
111,812 |
|
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 |
|
|
414,300 |
|
|
|
414,600 |
|
Term notes payable with monthly interest and principal payments totaling $632 including interest at 6.03% to February 2017 |
|
|
102,405 |
|
|
|
102,752 |
|
Other |
|
|
67,953 |
|
|
|
64,056 |
|
|
|
|
|
|
|
|
Total debt (excluding obligations under capital leases) |
|
|
694,948 |
|
|
|
693,220 |
|
Obligations under capital leases |
|
|
19,468 |
|
|
|
19,684 |
|
|
|
|
|
|
|
|
Total debt |
|
|
714,416 |
|
|
|
712,904 |
|
Less current maturities |
|
|
10,712 |
|
|
|
10,335 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
703,704 |
|
|
$ |
702,569 |
|
|
|
|
|
|
|
|
Revolving Credit Facility
The amount of our revolving credit facility is $470.0 million. 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 March 31, 2009,
$414.3 million was outstanding on the facility, plus $9.9 million related to
letters of credit, leaving $45.8 million available for additional borrowing under the existing terms of the facility.
The weighted average interest rate and debt outstanding under the revolving credit facility for the three months ended March 31, 2009 was 2.2% and $392.8 million, respectively. The weighted average interest rate and debt outstanding under the revolving credit facility for the three months
ended March 31, 2008 was 5.3% and $320.9 million, respectively.
New Long-Term Debt
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 March 2014. As
security for the obligation, we have granted a mortgage on this center. As of March 31, 2009, $4.8
million was outstanding with respect to this obligation.
Debt Covenants
We are in compliance in all material respects with all restrictive and financial covenants under
our various credit facilities as of March 31, 2009.
Our primary financial covenants under our revolving credit facility are:
|
|
|
|
|
|
|
|
|
|
|
Actual as of |
|
Actual as of |
Covenant |
|
Requirement |
|
March 31, 2009 |
|
December 31, 2008 |
Total Consolidated Debt to EBITDAR
|
|
Not more than 4.0 to 1.0
|
|
3.54 to 1.0
|
|
3.51 to 1.0 |
Senior Debt to EBITDA
|
|
Not more than 3.25 to 1.0
|
|
2.20 to 1.0
|
|
2.22 to 1.0 |
Fixed Charge Coverage Ratio
|
|
Not less than 1.60
|
|
2.97 to 1.0
|
|
3.16 to 1.0 |
The formulas for these covenants are specifically defined in the revolving credit facility and
include, among other things, an add back of share-based compensation expense to EBITDAR and EBITDA.
18
Item 3. 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 our interest expense on floating-rate indebtedness and, therefore, impact our consolidated cash flows and
consolidated results of operations. As of March 31, 2009 and
December 31, 2008, our net floating-rate indebtedness was approximately $323.5 million and $323.8 million, respectively. If our
interest rates on our floating-rate indebtedness were to have increased by 100 basis points during the three months ended
March 31, 2009, our interest costs would have increased by approximately $0.8 million. If
short-term interest rates were to have increased by 100 basis points during the three months ended
March 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 March 31, 2009.
Item 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of the principal executive officer and principal financial
officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the Exchange Act)). Based on this evaluation, the
principal executive officer and principal financial officer concluded that our disclosure controls
and procedures are effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules and forms and is
accumulated and communicated to our management, including the principal executive and principal
financial officer, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. There was no change in our internal control over financial
reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of
the Exchange Act that occurred during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities in First Quarter 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Number of |
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
Shares that May Yet |
|
|
Total Number of |
|
Average Price Paid |
|
Part of Publicly |
|
be Purchased Under |
Period |
|
Shares Purchased |
|
per Share |
|
Announced Plan (1) |
|
the Plan (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1 31, 2009 |
|
|
43,274 |
|
|
$ |
13.57 |
|
|
|
43,274 |
|
|
|
399,382 |
|
February 1 28, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
399,382 |
|
March 1 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
399,382 |
|
Total |
|
|
43,274 |
|
|
$ |
13.57 |
|
|
|
43,274 |
|
|
|
399,382 |
|
|
|
|
(1) |
|
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. |
19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
Exhibits filed with this report
|
|
|
|
|
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
|
|
|
3.1
|
|
Amended and Restated Articles of
Incorporation, as amended
|
|
Incorporated by
reference to
Exhibit 3.1 to Form
8-K dated April 20,
2009 (File No.
001-32230) |
|
|
|
|
|
3.2
|
|
Amended and Restated Bylaws
|
|
Incorporated by
reference to
Exhibit 3.4 to
Amendment No. 2 to
Registration
Statement on Form
S-1 (File No.
333-113764), filed
with the Commission
on May 21, 2004 |
|
|
|
|
|
4
|
|
Specimen of Common Stock Certificate
|
|
Incorporated by
reference to
Exhibit 4 to
Amendment No. 4 to
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on June 23, 2004 |
|
|
|
|
|
10.1
|
|
Form of 2009 Restricted Stock Agreement
(Executive) for 2004 Long-Term Incentive
Plan with performance-based vesting
component
|
|
Filed Electronically |
|
|
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification by
Principal Executive Officer
|
|
Filed Electronically |
|
|
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification by
Principal Financial and Accounting Officer
|
|
Filed Electronically |
|
|
|
|
|
32
|
|
Section 1350 Certifications |
|
Filed Electronically |
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Life Time Fitness, Inc.
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on May 5, 2009.
|
|
|
|
|
LIFE TIME FITNESS, INC.
|
|
|
By: |
/s/ Bahram Akradi
|
|
|
|
Name: |
Bahram Akradi |
|
|
|
Title: |
Chairman of the Board of Directors and Chief Executive Officer
(Principal Executive Officer and Director) |
|
|
|
|
|
|
By: |
/s/ Michael R. Robinson
|
|
|
|
Name: |
Michael R. Robinson |
|
|
|
Title: |
Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |
|
|
|
|
|
|
By: |
/s/ John M. Hugo
|
|
|
|
Name: |
John M. Hugo |
|
|
|
Title: |
Vice President and Corporate Controller
(Principal Accounting Officer) |
|
|
21
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
|
|
|
3.1
|
|
Amended and Restated Articles of
Incorporation, as amended
|
|
Incorporated by
reference to
Exhibit 3.1 to Form
8-K dated April 20,
2009 (File No.
001-32230) |
|
|
|
|
|
3.2
|
|
Amended and Restated Bylaws
|
|
Incorporated by
reference to
Exhibit 3.4 to
Amendment No. 2 to
Registration
Statement on Form
S-1 (File No.
333-113764), filed
with the Commission
on May 21, 2004 |
|
|
|
|
|
4
|
|
Specimen of Common Stock Certificate
|
|
Incorporated by
reference to
Exhibit 4 to
Amendment No. 4 to
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on June 23, 2004 |
|
|
|
|
|
10.1
|
|
Form of 2009 Restricted Stock Agreement
(Executive) for 2004 Long-Term Incentive
Plan with performance-based vesting
component
|
|
Filed Electronically |
|
|
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification by
Principal Executive Officer
|
|
Filed Electronically |
|
|
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification by
Principal Financial and Accounting Officer
|
|
Filed Electronically |
|
|
|
|
|
32
|
|
Section 1350 Certifications |
|
Filed Electronically |
22