XNYS:LTM Life Time Fitness, Inc. Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-Q
_______________________________
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-32230
_______________________________


Life Time Fitness, Inc.
(Exact name of registrant as specified in its charter)
_______________________________
Minnesota
(State or other jurisdiction of incorporation or organization)
41-1689746
(I.R.S. Employer Identification No.)
 
 
2902 Corporate Place
Chanhassen, Minnesota
(Address of principal executive offices)
55317
(Zip Code)

952-947-0000
(Registrant's telephone number, including area code)
_______________________________

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 ¨
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

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.    
Large accelerated filer
þ
Accelerated filer
¨
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
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 ¨ No þ

The number of shares outstanding of the registrant's common stock as of April 18, 2012 was 42,865,562 common shares.
 




TABLE OF CONTENTS
    
 
 
Page
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 
 
SIGNATURES    







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)
 
March 31,
 
December 31,
 
2012
 
2011
ASSETS
(Unaudited)
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
10,797

 
$
7,487

Accounts receivable, net
5,551

 
6,156

Center operating supplies and inventories
21,876

 
21,600

Prepaid expenses and other current assets
25,573

 
22,905

Deferred membership origination costs
12,221

 
12,525

Deferred income taxes
4,345

 
9,850

Income tax receivable
3,013

 
5,022

Total current assets
83,376

 
85,545

PROPERTY AND EQUIPMENT, net
1,755,264

 
1,740,434

RESTRICTED CASH
1,264

 
1,088

DEFERRED MEMBERSHIP ORIGINATION COSTS
8,168

 
8,131

GOODWILL
26,456

 
25,550

OTHER ASSETS
59,236

 
55,080

TOTAL ASSETS
$
1,933,764

 
$
1,915,828

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Current maturities of long-term debt
$
7,102

 
$
6,849

Accounts payable
23,105

 
22,035

Construction accounts payable
24,816

 
21,892

Accrued expenses
58,187

 
56,284

Deferred revenue
40,268

 
33,898

Total current liabilities
153,478

 
140,958

LONG-TERM DEBT, net of current portion
643,374

 
679,449

DEFERRED RENT LIABILITY
20,351

 
19,370

DEFERRED INCOME TAXES
100,382

 
100,582

DEFERRED REVENUE
8,221

 
8,203

OTHER LIABILITIES
10,147

 
9,793

Total liabilities
935,953

 
958,355

COMMITMENTS AND CONTINGENCIES (Note 6)


 


SHAREHOLDERS’ EQUITY:
 
 
 
Undesignated preferred stock, 10,000,000 shares authorized; none issued or outstanding

 

Common stock, $.02 par value, 75,000,000 shares authorized; 42,866,712 and 42,428,265 shares issued and outstanding, respectively
857

 
849

Additional paid-in capital
455,861

 
441,813

Retained earnings
543,076

 
517,404

Accumulated other comprehensive loss
(1,983
)
 
(2,593
)
Total shareholders’ equity
997,811

 
957,473

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,933,764

 
$
1,915,828

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)

 
For the Three Months Ended
 
March 31,
 
2012
 
2011
REVENUE:
 
 
 
Membership dues
$
175,470

 
$
158,013

Enrollment fees
3,954

 
5,201

In-center revenue
84,616

 
73,689

Total center revenue
264,040

 
236,903

Other revenue
4,407

 
3,742

Total revenue
268,447

 
240,645

OPERATING EXPENSES:
 
 
 
Center operations
160,715

 
149,552

Advertising and marketing
10,356

 
8,563

General and administrative
13,703

 
12,651

Other operating
8,391

 
5,992

Depreciation and amortization
26,960

 
23,624

Total operating expenses
220,125

 
200,382

Income from operations
48,322

 
40,263

OTHER INCOME (EXPENSE):
 
 
 
Interest expense, net of interest income of $0 and $1, respectively
(6,277
)
 
(5,504
)
Equity in earnings of affiliate
373

 
301

Total other income (expense)
(5,904
)
 
(5,203
)
INCOME BEFORE INCOME TAXES
42,418

 
35,060

PROVISION FOR INCOME TAXES
16,746

 
14,224

NET INCOME
$
25,672

 
$
20,836

 
 
 
 
BASIC EARNINGS PER COMMON SHARE
$
0.62

 
$
0.52

DILUTED EARNINGS PER COMMON SHARE
$
0.62

 
$
0.51

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC
41,174

 
40,362

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – DILUTED
41,675

 
40,949


See notes to unaudited consolidated financial statements.




4



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

 
For the Three Months Ended
 
March 31,
 
2012
 
2011
NET INCOME
$
25,672

 
$
20,836

Other comprehensive income, net of tax:
 
 
 
Foreign currency translation adjustments, net of taxes of $(287) and $(53), respectively
$
729

 
$
139

Unrealized losses on cash flow hedges, net of taxes of $79 and $0, respectively
(119
)
 

Other comprehensive income/loss, net of tax:
610

 
139

COMPREHENSIVE INCOME
$
26,282

 
$
20,975


See notes to unaudited consolidated financial statements.







5



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
For the Three Months Ended
 
March 31,
 
2012
 
2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
25,672

 
$
20,836

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
26,960

 
23,624

Deferred income taxes
5,360

 
741

(Gain) loss on disposal of property and equipment, net
(2
)
 
137

Amortization of deferred financing costs
503

 
587

Share-based compensation
3,878

 
3,308

Excess tax benefit related to share-based payment arrangements
(8,118
)
 
(2,074
)
Changes in operating assets and liabilities
19,789

 
13,196

Other
(139
)
 
(232
)
Net cash provided by operating activities
73,903

 
60,123

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(38,477
)
 
(38,363
)
Acquisitions, net of cash acquired
(6,578
)
 
(1,245
)
Proceeds from sale of property and equipment
363

 
338

Proceeds from property insurance settlements
670

 

Increase in other assets
(172
)
 
(22
)
Increase in restricted cash
(177
)
 
(47
)
Net cash used in investing activities
(44,371
)
 
(39,339
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Repayments of long-term borrowings
(1,441
)
 
(2,184
)
Repayments of revolving credit facility, net
(34,600
)
 
(22,200
)
Increase in deferred financing costs
(10
)
 

Excess tax benefit related to share-based payment arrangements
8,118

 
2,074

Proceeds from stock option exercises
1,972

 
774

Proceeds from employee stock purchase plan
388

 
336

Stock purchased for employee stock purchase plan
(649
)
 
(547
)
Net cash used in financing activities
(26,222
)
 
(21,747
)
 
 
 
 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
3,310

 
(963
)
CASH AND CASH EQUIVALENTS – Beginning of period
7,487

 
12,227

CASH AND CASH EQUIVALENTS – End of period
$
10,797

 
$
11,264


See notes to unaudited consolidated financial statements.



6


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, 2011.

2.
Share-Based Compensation
Stock Option and Incentive Plans
We have four share-based compensation plans, 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”), the Life Time Fitness, Inc. 2011 Long-Term Incentive Plan (the “2011 Plan”) and an Employee Stock Purchase Plan (the “ESPP”), collectively, the share-based compensation plans. We no longer make additional grants under the 1998 Plan and the 2004 Plan. There are 2,500,000 shares of common stock reserved for grant under the 2011 Plan and, as of March 31, 2012, there were 2,153,026 shares available for grant. The types of awards that may be granted under the 2011 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, 2012, 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 306,160 shares were outstanding and vested, and a total of 3,656,748 restricted shares were granted, of which 1,423,176 restricted shares were outstanding and unvested. We use the term “restricted shares” to define unvested shares granted to employees and non-employee directors, 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.
Total share-based compensation expense included in our consolidated statements of operations for the three months ended March 31, 2012 and 2011, was as follows:
 
For the Three Months Ended
 
March 31,
 
2012
 
2011
Share-based compensation expense related to restricted shares
$
3,848

 
$
3,278

Share-based compensation expense related to ESPP
30

 
30

Total share-based compensation expense
$
3,878

 
$
3,308




7


LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)



Summary of Restricted Stock Activity


Shares
 
Weighted Average Grant Date Fair Value
Outstanding at December 31, 2011
1,902,083

 
$24.27
Granted
331,750

 
$50.47
Canceled
(6,970
)
 
$25.29
Vested
(803,687
)
 
$21.98
Outstanding at March 31, 2012
1,423,176

 
$31.66

During the three months ended March 31, 2012 and 2011, we issued 331,750 and 337,029 shares of restricted stock, respectively, with an aggregate fair value of $16.7 million and $12.9 million, respectively. The grant date fair market value of restricted shares that vested during the three months ended March 31, 2012 and 2011 was $17.7 million and $6.7 million, respectively. 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 March 31, 2012, there was $35.6 million of unrecognized compensation expense related to restricted stock that is expected to be recognized over a weighted average period of 2.1 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. In August 2010, an additional 20,000 shares of long-term performance-based restricted stock were granted to a new member of senior management using the same diluted EPS targets and vesting schedule. A specified diluted EPS target was achieved for fiscal 2011 and consequently, 50% of the then-outstanding restricted shares (representing 453,500 shares of restricted stock) vested. As of March 31, 2012, 451,500 of the remaining shares were still outstanding and unvested. The remaining shares will vest if a specified diluted EPS target is achieved for fiscal 2012. In the event that we do not achieve the specified diluted EPS target for fiscal 2012, the remaining restricted stock will be forfeited.
In fourth quarter 2010, we determined that achieving the 2011 diluted EPS targets required for vesting of 50% of the restricted shares was probable. As a result, we recognized a cumulative, non-cash performance share-based compensation expense of $5.6 million in fourth quarter 2010 and $3.9 million in 2011. In accordance with the related accounting guidance, all of the vested restricted shares were included in our total diluted share count at December 31, 2011 and March 31, 2012.
In fourth quarter 2011, we determined that achieving the 2012 diluted EPS targets required for vesting of the remaining restricted shares was probable. As a result, we recognized a cumulative, non-cash performance share-based compensation expense of $6.8 million in fourth quarter 2011 and $0.7 million in the first three months of 2012. We anticipate recognizing the remaining portion of performance share-based compensation expense of approximately $2.0 million (pretax) ratably in 2012. The probability of reaching the targets is evaluated each reporting period. If we later determine that it is not probable that the minimum diluted EPS performance threshold for 2012 will be met, no further compensation cost will be recognized and any recognized compensation cost relating to the shares that have not vested will be reversed. In accordance with the related accounting guidance, none of the remaining unvested restricted shares were included in our total diluted share count at March 31, 2012 or 2011.


8


LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)



Summary of Stock Option Activity
 
Shares
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (Years)
 
Aggregate Intrinsic Value
Outstanding at December 31, 2011
407,200

 
$23.62
 
2.9
 
$9,429
Exercised
(101,040
)
 
$19.52
 
 
 
 
Canceled

 
$—
 
 
 
 
Outstanding at March 31, 2012
306,160

 
$24.98
 
2.8
 
$7,836
Vested at March 31, 2012
306,160

 
$24.98
 
2.8
 
$7,836

No stock options have been granted since 2007. As of March 31, 2012, there was no unrecognized compensation expense related to stock options, and all outstanding stock options were vested.
The aggregate intrinsic values in the table above represent the total pretax intrinsic values (the differences between our closing stock price 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 that date. 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, 2012 and 2011 was $3.0 million and $0.4 million, respectively.
Our net cash proceeds from the exercise of stock options were $2.0 million and $0.8 million for the three months ended March 31, 2012 and 2011, respectively. The actual income tax benefit realized from stock option exercises and restricted stock vesting was $8.1 million and $2.1 million, respectively, for those same periods. In accordance with the related accounting guidance, this tax benefit is presented as a financing cash inflow. There is a corresponding cash outflow included in cash flows from operating activities.
Employee Stock Purchase Plan
Our ESPP provides for the sale of up to 1,500,000 shares 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, 2012 and ends June 30, 2012. Compensation expense under the ESPP is estimated based on the discount of 10% at the end of the purchase period. During the three months ended March 31, 2012, $0.4 million was withheld from employees for the purpose of purchasing shares under the ESPP. There were 1,302,020 shares of common stock available for purchase under the ESPP as of March 31, 2012.
Share Repurchase Plans
In June 2006, our Board of Directors authorized the repurchase of up to 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 three months of 2012, we repurchased 12,650 shares for approximately $0.6 million. As of March 31, 2012, there were 302,020 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.
In August 2011, our Board of Directors authorized the repurchase of up to $60 million of our outstanding common stock from time to time through open market or privately negotiated transactions. The authorization to repurchase shares terminates when the aggregate repurchase amount totals $60 million or at the close of business on August 17, 2013, whichever comes earlier. The share repurchase program does not obligate us to repurchase any dollar amount or number of shares of our common stock and the program may be extended, modified, suspended or discontinued at any time. As of March 31, 2012, no shares have been repurchased under this program.




9


LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)



3.     Earnings per Share
Basic 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 similarly to basic EPS, except that the denominator is increased for the assumed exercise of dilutive stock options 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 2,477 and 42,277 for the three months ended March 31, 2012 and 2011, respectively.
The basic and diluted EPS calculations are shown below:
 
For the Three Months Ended
 
March 31,
 
2012
 
2011
Net income
$
25,672

 
$
20,836

Weighted average number of common shares outstanding – basic
41,174

 
40,362

Effect of dilutive stock options
129

 
185

Effect of dilutive restricted stock awards
372

 
402

Weighted average number of common shares outstanding – diluted
41,675

 
40,949

Basic earnings per common share
$
0.62

 
$
0.52

Diluted earnings per common share
$
0.62

 
$
0.51


4.
Operating Segment
Our operations are conducted mainly through our distinctive and large, multi-use sports and athletic, professional fitness, family recreation and spa centers in a resort-like environment. We aggregate the activities of our centers and other ancillary products and services into one reportable segment. Each of the centers has similar economic characteristics, services, product offerings and customers, and in-center revenues are derived primarily from services to our members. Each of the other ancillary products and services either directly or indirectly, through advertising or branding, compliment the operations of the centers. Our chief operating decision maker uses EBITDA as the primary measure of operating segment performance. Our chief operating decision maker is our Chief Executive Officer.
The following table presents revenue for the three months ended March 31, 2012 and 2011:
 
For the Three Months Ended
 
March 31,
 
2012
 
2011
Membership dues
$
175,470

 
$
158,013

Enrollment fees
3,954

 
5,201

Personal training
41,760

 
37,109

Other in-center revenue
42,856

 
36,580

Other revenue
4,407

 
3,742

Total revenue
$
268,447

 
$
240,645





10


LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)



5.
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,
 
2012
 
2011
Accounts receivable, net
$
389

 
$
(1,467
)
Center operating supplies and inventories
(276
)
 
(473
)
Prepaid expenses and other current assets
(1,506
)
 
(5,101
)
Income tax receivable
2,009

 
9,916

Deferred membership origination costs
266

 
1,105

Accounts payable
1,330

 
2,547

Accrued expenses
9,991

 
1,592

Deferred revenue
6,176

 
4,170

Deferred rent liability
981

 
729

Other liabilities
429

 
178

Changes in operating assets and liabilities
$
19,789

 
$
13,196


We made cash payments for income taxes of $1.2 million and $0.6 million for the three months ended March 31, 2012 and 2011, respectively.
We made cash payments for interest, net of capitalized interest, of $5.6 million and $5.0 million for the three months ended March 31, 2012 and 2011, respectively. Capitalized interest was $0.5 million and $0.4 million for the same periods.
Construction accounts payable was $24.8 million and $22.0 million at March 31, 2012 and 2011, respectively.

6.
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. These reserves are not material to our consolidated financial statements. 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. Such matters are subject to many uncertainties, and the outcome of individual matters are not predictable with assurance.

7.
Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board ("FASB") issued guidance on goodwill impairment testing. The guidance became effective for us in fiscal 2012. The guidance allows companies to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance also includes examples of the types of factors to consider in conducting the qualitative assessment. We do not expect the implementation of the guidance to have a material impact on our consolidated financial statements.


11


LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)



In June 2011, the FASB updated guidance on presentation of comprehensive income. The FASB subsequently deferred the effective date of certain provisions of this standard pertaining to the reclassification of items out of accumulated other comprehensive income, pending the issuance of further guidance on that matter. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity is required to present either a continuous statement of net income and other comprehensive income or two separate but consecutive statements. As this guidance relates to presentation only, the adoption did not have a material impact on our consolidated financial statements.

8.
Derivative Instruments
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 August 2011, we entered into an interest rate swap contract that effectively fixed the rates paid on a total of $200.0 million of variable rate borrowings at 1.32% plus the applicable spread (which depends on our EBITDAR leverage ratio) until June 2016. We pay 1.32% and receive LIBOR on the notional amount of $200.0 million. 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 (loss) income, net of tax. As of March 31, 2012, the $1.9 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 $3.2 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 continued 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.

9.
Fair Value Measurements
The carrying amounts related to cash and cash equivalents, accounts receivable, income tax 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 March 31, 2012. 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:
 
March 31, 2012
 
Carrying Value
 
Estimated Fair Value
Fixed-rate debt
$
400,655

 
$
398,371

Obligations under capital leases
16,332

 
16,423

Floating-rate debt
233,489

 
233,489

Total
$
650,476

 
$
648,283



12


LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)



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.


Item 2.
MANAGEMENT’S 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, 2011. 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 Annual Report on Form 10-K, as filed with the SEC, which includes audited consolidated financial statements for the three fiscal years ended December 31, 2011.
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 April 26, 2012, we operated 103 centers primarily in residential locations across 27 markets in 21 states and one Canadian province 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's revenue in the same center revenue category for comparison purposes beginning on the first day of the thirteenth full calendar month of the center's operations, prior to which time we refer to the center as a new center. We include an acquired center's revenue in the same center revenue category for comparison purposes beginning on the first day of the thirteenth full calendar month after we assumed the center's operations. We also include a center's revenue in the same center revenue category for comparison purposes beginning on the first day of the thirty-seventh full calendar month of the center's operations, prior to which time we refer to the center as a new center.
As we grow our presence in existing markets by opening new centers, we expect to attract some memberships away from our other existing centers in those markets, reducing revenue and initially lowering the memberships of those existing centers. In


13


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 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 2012, one will be in an existing market. In addition, in January 2012, we acquired Racquet Club of the South, a tennis facility in the Atlanta market, which we rebranded as Life Time Tennis Atlanta. 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.
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. Bloomingdale LLC is accounted for using the equity method 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 same 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 memberships and center attrition rates.
During 2010, our annual attrition rate decreased from 40.6% to 36.3%. During 2011, our annual attrition rate decreased from 36.3% to 35.0%. At March 31, 2012, our annual (or trailing twelve month) attrition rate was 35.6%. In 2010 and 2011, we saw our attrition rate decrease due in part to increased programming focused on member engagement and center utilization. The attrition rate increased during the first quarter of 2012 due primarily to membership transitions in centers we acquired in late 2011 and a dues price increase in late 2011.
We have three primary sources of revenue:
First, our largest source of revenue is membership dues (65.4% of total revenue for the three months ended March 31, 2012, down from 65.7% for the three months ended March 31, 2011) and enrollment fees (1.5% of total revenue for the three months ended March 31, 2012, down from 2.1% for the three months ended March 31, 2011) paid by our members. We recognize revenue from monthly membership dues in the month to which they pertain.
Second, we generate revenue within a center, which we refer to as in-center revenue, or in-center businesses (31.5% of total revenue for the three months ended March 31, 2012, up from 30.6% for the three months ended March 31, 2011), including fees for personal training, registered dietitians, 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 healthy way-of-life 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, 2012, and 1.6% for the three months ended March 31, 2011), including our media, total health and athletic events businesses. Our primary media offering is our magazine, Experience Life®. Other revenue also includes one stand-alone restaurant in the Minneapolis market and rental income from our Highland Park, Minnesota office building.
We have five primary sources of operating expenses:
Center operations expenses consist primarily of salaries, commissions, payroll taxes, benefits, real estate taxes and other occupancy costs, utilities, repairs and maintenance, supplies, administrative support and communications to operate our centers.
Advertising and marketing expenses consist of our marketing department costs and media and advertising costs to support and grow center membership levels, in-center businesses, new center openings 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.


14


Other operating expenses include the costs associated with our media, athletic events and nutritional product businesses, one restaurant and other corporate expenses, as well as gains or losses on our disposal of assets.
Depreciation and amortization are 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.
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, the cost of construction labor and the size or amenities of the center, including the addition of tennis facilities, an expanded gymnasium or 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, probability of meeting certain performance targets 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.
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, 2011.

Results of Operations
The following table sets forth our statements of operations data as a percentage of total revenue and also sets forth other financial and operating data:


15



 
For the Three Months Ended
 
March 31,
 
2012
 
2011
REVENUE:
 
 
 
Membership dues
65.4
 %
 
65.7
 %
Enrollment fees
1.5

 
2.1

In-center revenue
31.5

 
30.6

Total center revenue
98.4

 
98.4

Other revenue
1.6

 
1.6

Total revenue
100.0

 
100.0

OPERATING EXPENSES:


 


Center operations
59.9

 
62.1

Advertising and marketing
3.9

 
3.6

General and administrative
5.1

 
5.3

Other operating
3.0

 
2.5

Depreciation and amortization
10.1

 
9.8

Total operating expenses
82.0

 
83.3

Income from operations (operating profit)
18.0

 
16.7

OTHER INCOME (EXPENSE):


 


Interest expense, net
(2.3
)
 
(2.3
)
Equity in earnings of affiliate
0.1

 
0.2

Total other income (expense)
(2.2
)
 
(2.1
)
INCOME BEFORE INCOME TAXES
15.8

 
14.6

PROVISION FOR INCOME TAXES
6.2

 
5.9

NET INCOME
9.6
 %
 
8.7
 %
Other financial data:
 
 
 
Same-center revenue growth (open 13 months or longer) (1)
5.4
 %
 
5.3
 %
Same-center revenue growth (open 37 months or longer) (1)
5.0
 %
 
3.8
 %
Average center revenue per membership (2)
$
386

 
$
379

Average in-center revenue per membership (3)
$
124

 
$
118

Trailing 12-month attrition rate (4)
35.6
 %
 
36.1
 %
Quarterly attrition rate (5)
8.9
 %
 
8.4
 %
EBITDA (in thousands) (6)
$
75,655

 
$
64,188

EBITDA margin (7)
28.2
 %
 
26.7
 %
EBITDAR (in thousands) (6)
$
85,239

 
$
74,747

EBITDAR margin (8)
31.8
 %
 
31.1
 %
Capital expenditures (in thousands) (9)
$
38,477

 
$
38,363

Free cash flow (in thousands) (10)
$
35,426

 
$
21,760

 
 
 
 
Operating data (end of period) (11):
 
 
 
Centers open
103

 
90

Memberships
704,467

 
650,784

Center square footage (12)
9,669,819

 
8,922,617




16



(1)
Membership dues, enrollment fees and in-center revenue for a center are included in same center revenue growth - 13 month beginning on the first day of the thirteenth full calendar month of the center's operation and are included in same center revenue growth - 37 month beginning on the first day of the thirty-seventh full calendar month of the center's operation.
(2)
Average center 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.
(3)
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.
(4)
Trailing 12-month attrition rate (or annual attrition rate) is calculated as follows: total terminations for the trailing 12 months (excluding frozen/Flex memberships) divided into the average beginning month membership balance for the trailing 12 months.
(5)
Quarterly attrition rate is calculated as follows: total terminations for the quarter (excluding frozen/Flex memberships) divided into the average beginning month membership balance for the quarter.
(6)
EBITDA is a non-GAAP non-cash measure which consists of net income plus interest expense, net, provision for income taxes and depreciation and amortization. EBITDAR is EBITDA net of rent expense. 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.
The following table provides a reconciliation of net income, the most directly comparable GAAP measure, to EBITDA and EBITDAR (in thousands):
 
For the Three Months Ended
 
March 31,
 
2012
 
2011
Net income
$
25,672

 
$
20,836

Interest expense, net
6,277

 
5,504

Provision for income taxes
16,746

 
14,224

Depreciation and amortization
26,960

 
23,624

EBITDA
$
75,655

 
$
64,188

Rent expense
9,584

 
10,559

EBITDAR
$
85,239

 
$
74,747


(7)
EBITDA margin is the ratio of EBITDA to total revenue.
(8)
EBITDAR margin is the ratio of EBITDAR to total revenue.
(9)
Capital expenditures represent investments in our new centers, remodeling our acquired 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.


17



(10)
Free cash flow is a non-GAAP measure consisting of net cash provided by operating activities, less purchases of property and equipment, excluding acquisitions. 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, excluding acquisitions. The funds depicted by free cash flow 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. Free cash flow should not be considered as a substitute for net cash provided by operating activities prepared in accordance with GAAP.
The following table provides a reconciliation of net cash provided by operating activities to free cash flow (in thousands):
 
For the Three Months Ended
 
March 31,
 
2012
 
2011
Net cash provided by operating activities
$
73,903

 
$
60,123

Less: Purchases of property and equipment
(38,477
)
 
(38,363
)
Free cash flow
$
35,426

 
$
21,760


(11)
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.
(12)
The square footage presented in this table reflects fitness square footage which we believe is the best metric for the efficiencies of a facility. We exclude outdoor swimming pools, outdoor play areas, tennis courts and satellite facility square footage. These figures are approximations.
Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011
Total revenue. Total revenue increased $27.8 million, or 11.6%, to $268.4 million for the three months ended March 31, 2012, from $240.6 million for the three months ended March 31, 2011.
Total center revenue grew $27.1 million, or 11.5%, to $264.0 million for the three months ended March 31, 2012, from $236.9 million for the three months ended March 31, 2011. Of the $27.1 million increase in total center revenue,
64.3% was from membership dues, which increased $17.5 million, or 11.0%, due to increased memberships, primarily at new and ramping centers, and higher average dues. Our number of memberships increased 8.2% to 704,467 at March 31, 2012 from 650,784 at March 31, 2011.
40.3% was from in-center revenue, which increased $10.9 million, or 14.8%, primarily as a result of increased personal training revenue, which increased $4.7 million, or 12.5%, and increased sales of our LifeSpa and LifeCafe products and services, which increased $4.4 million, or 16.0%. Average in-center revenue per membership increased to $124 for the three months ended March 31, 2012 from $118 for the three months ended March 31, 2011.
(4.6)% 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 2010, the estimated average membership life has been 33 months. For the fourth quarter of 2008 through the third quarter of 2010, the estimated average membership life was 30 months. Enrollment fees decreased $1.2 million for the three months ended March 31, 2012 to $4.0 million. The revenue recognized from enrollment fees is lower in the first quarter of 2012 as compared to the first quarter of 2011 primarily due to lower total enrollment fees over the deferral period.
Other revenue increased $0.7 million, or 17.8%, to $4.4 million for the three months ended March 31, 2012, which was primarily due to growth in media.


18



Center operations expenses. Center operations expenses totaled $160.7 million, or 60.9% of total center revenue (or 59.9% of total revenue), for the three months ended March 31, 2012 compared to $149.6 million, or 63.1% of total center revenue (or 62.1% of total revenue), for the three months ended March 31, 2011. This $11.1 million increase primarily consisted of an increase of $7.6 million in additional payroll-related costs to support increased memberships and in-center revenue growth at our centers. Center operations expenses decreased as a percent of total revenue due primarily to leverage provided by dues growth.
Advertising and marketing expenses. Advertising and marketing expenses were $10.4 million, or 3.9% of total revenue, for the three months ended March 31, 2012, compared to $8.6 million, or 3.6% of total revenue, for the three months ended March 31, 2011. These expenses increased primarily due to increased marketing activity to drive memberships and in-center businesses.
General and administrative expenses. General and administrative expenses were $13.7 million, or 5.1% of total revenue, for the three months ended March 31, 2012, compared to $12.7 million, or 5.3% of total revenue, for the three months ended March 31, 2011. This increase of $1.0 million is primarily related to corporate initiatives to support our continued growth. For the three months ended March 31, 2012, share-based compensation expense related to the special 2009 restricted stock grant totaled $0.7 million of which $0.5 million was reported in general and administrative expenses.
Other operating expenses. Other operating expenses were $8.4 million for the three months ended March 31, 2012, compared to $6.0 million for the three months ended March 31, 2011. This increase is primarily due to growth in infrastructure and operating costs of approximately $1.4 million in our media, athletic events and total health divisions.
Depreciation and amortization. Depreciation and amortization was $27.0 million for the three months ended March 31, 2012, compared to $23.6 million for the three months ended March 31, 2011. This increase was primarily due to the depreciation on the six formerly leased facilities which we acquired in December 2011.
Interest expense, net. Interest expense, net of interest income, was $6.3 million for the three months ended March 31, 2012, compared to $5.5 million for the three months ended March 31, 2011. This $0.8 million increase was primarily the result of an increase in debt levels over the three months ended March 31, 2011.
Provision for income taxes. The provision for income taxes was $16.7 million for the three months ended March 31, 2012, compared to $14.2 million for the three months ended March 31, 2011. This $2.5 million increase was due to an increase in income before income taxes of $7.4 million.
Net income. As a result of the factors described above, net income was $25.7 million, or 9.6% of total revenue, for the three months ended March 31, 2012 compared to $20.8 million, or 8.7% of total revenue, for the three months ended March 31, 2011.

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. Our 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 and may include the acquisition and remodeling of centers we acquire from time to time, as well as acquisitions to support our in-center and corporate businesses. 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.


19



In the second quarter of 2011, we retired mortgage debt scheduled to mature in July 2011. We also amended, enlarged and extended our revolving credit facility, previously scheduled to mature in May 2012, now scheduled to mature on June 30, 2016. We expect to use the proceeds from the amended revolving credit facility for general corporate purposes, future center expansion and to help fund other growth initiatives.
Our business model operates with negative working capital primarily for three reasons. First, we carry minimal accounts receivable due to our ability to have monthly membership dues paid by electronic draft. Second, we defer enrollment fee revenue. Third, we fund the construction of our new centers under standard arrangements with our vendors that are paid with cash flows from operations or the revolving credit facility.
The following table summarizes our capital structure as of March 31, 2012 and December 31, 2011.
 
March 31,
 
December 31,
 
2012
 
2011
 
(In thousands)
Debt
 
 
 
Long-term debt
$
643,374

 
$
679,449

Current maturities of long-term debt
7,102

 
6,849

Total debt
650,476

 
686,298

Shareholders’ Equity
 
 
 
Common stock
857

 
849

Additional paid-in capital
455,861

 
441,813

Retained earnings
543,076

 
517,404

Accumulated other comprehensive (loss) income
(1,983
)
 
(2,593
)
Total shareholders’ equity
997,811

 
957,473

Total capitalization
$
1,648,287

 
$
1,643,771


Operating Activities
As of March 31, 2012, we had total cash and cash equivalents of $10.8 million. We also had $254.5 million available under the existing terms of our revolving credit facility as of March 31, 2012.
Net cash provided by operating activities was $73.9 million for the three months ended March 31, 2012 compared to $60.1 million for the three months ended March 31, 2011. This increase is primarily due to increased net income and changes in working capital.
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.
Net cash used in investing activities was $44.4 million for the three months ended March 31, 2012 compared to $39.3 million for the three months ended March 31, 2011. The increase of $5.1 million was primarily due to acquisitions.


20



Our capital expenditures were as follows:
 
For the Three Months Ended
 
March 31,
 
2012
 
2011
 
(In thousands)
Cash purchases of property and equipment
$
38,477

 
$
38,363

Non-cash change in construction accounts payable
2,924

 
(2,283
)
Other non-cash changes to property and equipment
(234
)
 
100

Total capital expenditures
$
41,167

 
$
36,180

The following schedule reflects capital expenditures by type of expenditure:
 
For the Three Months Ended
 
March 31,
 
2012
 
2011
 
(In thousands)
New center land and construction
$
25,613

 
$
29,673

Maintenance of existing facilities, remodels of acquired centers and corporate capital expenditures
15,554

 
6,507

Total capital expenditures
$
41,167

 
$
36,180


At March 31, 2012, we had purchased the real property for one and entered into ground leases for two of the three large format centers we have opened or plan to open in 2012, and we had entered into a ground lease for one of the large format centers that we plan to open after 2012. Construction in progress, including land purchased for future development, totaled $59.9 million at March 31, 2012 and $102.7 million at March 31, 2011.
We expect our capital expenditures to be approximately $200 million to $250 million in 2012, including approximately $162 million to $212 million in the remaining nine months of 2012. Of this approximately $162 million to $212 million, we expect to incur approximately $116 million to $146 million for new center construction and approximately $46 million to $66 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
Net cash used in financing activities was $26.2 million for the three months ended March 31, 2012 compared to $21.7 million for the three months ended March 31, 2011. The increase of $4.5 million was primarily due to increased repayments on our revolving credit facility.


21



Long-term debt consists of the following:
 
March 31,
 
December 31,
 
2012
 
2011
 
(In thousands)
Revolving credit facility, interest only due monthly at interest rates ranging from LIBOR plus 1.25% to 2.25% or base plus 0.25% to 1.25%, facility expires June 2016
$
397,400

 
$
432,000

Commercial mortgage-backed notes payable with monthly interest and principal payments totaling $632 including interest at 6.03% to February 2017
98,098

 
98,493

Commercial mortgage-backed notes payable with monthly interest and principal payments totaling $503 including interest at 5.75% to December 2016
71,587

 
71,905

Other
67,059

 
67,283

Total debt (excluding obligations under capital leases)
634,144

 
669,681

Obligations under capital leases
16,332

 
16,617

Total debt
650,476

 
686,298

Less current maturities
7,102

 
6,849

Total long-term debt
$
643,374

 
$
679,449

Revolving Credit Facility
The amount of our revolving credit facility is $660.0 million. We may increase the total amount of the facility up to $900.0 million through the exercise of an accordion feature by us if one or more lenders commit the additional $240.0 million. As of March 31, 2012, $397.4 million was outstanding on the revolving credit facility, plus $8.1 million related to letters of credit, leaving $254.5 million available for additional borrowing under the revolving credit facility.
As of March 31, 2012, $397.4 million was outstanding on the revolving credit facility at a weighted average interest rate of 2.5%. The weighted average interest rate and debt outstanding under the revolving credit facility for the three months ended March 31, 2012 was 2.6% and $397.1 million, respectively. The maximum month-end balance during the three months ended March 31, 2012 was $427.7 million.
As of March 31, 2011, $332.0 million was outstanding on the revolving credit facility at a weighted average interest rate of 1.3%. The weighted average interest rate and debt outstanding under the revolving credit facility for the three months ended March 31, 2011 was 1.5% and $322.3 million, respectively. The maximum month-end balance during the three months ended March 31, 2011 was $335.1 million.
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, 2012.
Our primary financial covenants under the revolving credit facility are:
 
 
 
 
Actual as of
 
Actual as of
 
 
 
 
March 31,
 
December 31,
Covenant
 
Requirement
 
2012
 
2011
Total Consolidated Debt to Adjusted EBITDAR
 
Not more than 4.00 to 1.00
 
2.62 to 1.00
 
2.83 to 1.00
Fixed Charge Coverage Ratio
 
Not less than 1.50 to 1.00
 
3.70 to 1.00
 
3.51 to 1.00
Unencumbered Asset Ratio
 
Not less than 1.30 to 1.00
 
3.09 to 1.00
 
2.79 to 1.00
The formulas for these covenants are specifically defined in the Third Amended and Restated Credit Agreement and include, among other things, an add back of share-based compensation expense to EBITDAR.



22



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, therefore, impact our consolidated cash flows and consolidated results of operations. As of March 31, 2012 and December 31, 2011, our net floating rate indebtedness was approximately $230.3 million and $267.9 million, respectively. If long-term floating interest rates were to have increased by 100 basis points during the three months ended March 31, 2012, our interest costs would have increased by approximately $0.6 million. If short-term interest rates were to have increased by 100 basis points during the three months ended March 31, 2012, 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, 2012.

Item 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, 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 or 15d-15 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 2012
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plan (1)
 
Maximum Number of Shares that May Yet be Purchased Under the Plan (1)
January 1-31, 2012
 
 
 
 
$—
 
 
 
 
314,670
February 1-29, 2012
 
 
12,650
 
 
$51.32
 
 
12,650
 
 
302,020
March 1-31, 2012
 
 
 
 
$—
 
 
 
 
302,020
Total
 
 
12,650
 
 
$51.32
 
 
12,650
 
 
302,020
(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. In August 2011, our Board of Directors authorized the repurchase of up to $60 million of our outstanding common stock from time to time through open market or privately negotiated transactions. As of March 31, 2012, no shares have been repurchased under this program.


23




ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES
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 of the Registrant.
 
Incorporated by reference to Exhibit 3.1 to the Registrant's Form 8-K dated April 20, 2009 (File No. 001-32230).
3.2
 
Amended and Restated Bylaws of the Registrant.
 
Incorporated by reference to Exhibit 3.4 to Amendment No. 2 to the Registrant's 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 the Registrant's Registration Statement of Form S-1 (File No. 333-113764), filed with the Commission on June 23, 2004.
10.1
 
Form of 2012 Restricted Stock Agreement (Executive) for 2011 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 Officer.
 
Filed Electronically.
32
 
Section 1350 Certifications.
 
Filed Electronically.
101
 
The following materials from Life Time Fitness's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of cash flows, and (iv) notes to the unaudited consolidated financial statements.
 
Filed Electronically.




24



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 April 26, 2012.

LIFE TIME FITNESS, INC.
By:

/s/ Bahram Akradi
 
Name: Bahram Akradi
Title: Chairman of the Board of Directors, President 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)





25




INDEX TO EXHIBITS
Exhibit No.
 
Description
 
Method of Filing
3.1
 
Amended and Restated Articles of Incorporation of the Registrant.
 
Incorporated by reference to Exhibit 3.1 to the Registrant's Form 8-K dated April 20, 2009 (File No. 001-32230).
3.2
 
Amended and Restated Bylaws of the Registrant.
 
Incorporated by reference to Exhibit 3.4 to Amendment No. 2 to the Registrant's 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 the Registrant's Registration Statement of Form S-1 (File No. 333-113764), filed with the Commission on June 23, 2004.
10.1
 
Form of 2012 Restricted Stock Agreement (Executive) for 2011 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 Officer.
 
Filed Electronically.
32
 
Section 1350 Certifications.
 
Filed Electronically.
101
 
The following materials from Life Time Fitness's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of cash flows, and (iv) notes to the unaudited consolidated financial statements.
 
Filed Electronically.



26

XNYS:LTM Life Time Fitness, Inc. Quarterly Report 10-Q Filling

Life Time Fitness, Inc. XNYS:LTM Stock - Get Quarterly Report SEC Filing of Life Time Fitness, Inc. XNYS:LTM stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

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XNYS:LTM Life Time Fitness, Inc. Quarterly Report 10-Q Filing - 3/31/2012
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