e10vq
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 June 30, 2007
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
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41-1689746 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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6442 City West Parkway
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55344 |
Eden Prairie, Minnesota
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(Zip Code) |
(Address of principal executive offices) |
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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 is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large Accelerated Filer þ Accelerated Filer o Non-accelerated filer 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 July 23, 2007 was
37,328,307 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)
(Unaudited)
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June 30, |
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December 31, |
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2007 |
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2006 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
8,263 |
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$ |
6,880 |
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Accounts receivable, net |
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3,283 |
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2,320 |
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Inventories |
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12,649 |
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8,773 |
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Prepaid expenses and other current assets |
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12,251 |
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9,201 |
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Deferred membership origination costs |
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14,746 |
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12,575 |
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Income tax receivable |
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97 |
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Total current assets |
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51,192 |
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39,846 |
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PROPERTY AND EQUIPMENT, net |
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1,076,132 |
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902,122 |
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RESTRICTED CASH |
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5,749 |
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4,738 |
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DEFERRED MEMBERSHIP ORIGINATION COSTS |
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13,496 |
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10,875 |
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OTHER ASSETS |
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43,427 |
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30,095 |
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TOTAL ASSETS |
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$ |
1,189,996 |
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$ |
987,676 |
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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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$ |
10,265 |
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$ |
15,228 |
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Accounts payable |
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14,143 |
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8,878 |
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Construction accounts payable |
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52,171 |
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49,285 |
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Accrued expenses |
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46,348 |
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37,191 |
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Deferred revenue |
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36,319 |
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29,773 |
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Total current liabilities |
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159,246 |
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140,355 |
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LONG-TERM DEBT, net of current portion |
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518,108 |
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374,327 |
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DEFERRED RENT LIABILITY |
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25,606 |
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25,716 |
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DEFERRED INCOME TAXES |
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32,213 |
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38,584 |
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DEFERRED REVENUE |
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17,836 |
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15,917 |
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OTHER LIABILITIES |
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536 |
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264 |
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Total liabilities |
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753,545 |
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595,163 |
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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, $.02 par value, 50,000,000
shares authorized; 37,300,484 and
36,817,199 shares issued and outstanding,
respectively |
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747 |
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737 |
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Additional paid-in capital |
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273,214 |
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259,905 |
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Retained earnings |
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162,490 |
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131,871 |
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Total shareholders equity |
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436,451 |
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392,513 |
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
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$ |
1,189,996 |
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$ |
987,676 |
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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 |
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For the Six |
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Months Ended |
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Months Ended |
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June 30, |
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June 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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REVENUE: |
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Membership dues |
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$ |
106,667 |
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$ |
80,550 |
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$ |
207,195 |
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$ |
156,349 |
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Enrollment fees |
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6,378 |
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5,561 |
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12,064 |
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10,644 |
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In-center revenue |
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45,891 |
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33,787 |
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89,788 |
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66,121 |
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Total center revenue |
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158,936 |
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119,898 |
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309,047 |
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233,114 |
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Other revenue |
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3,201 |
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2,557 |
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6,191 |
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4,766 |
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Total revenue |
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162,137 |
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122,455 |
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315,238 |
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237,880 |
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OPERATING EXPENSES: |
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Center operations |
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94,035 |
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68,540 |
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183,527 |
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133,633 |
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Advertising and marketing |
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5,439 |
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4,732 |
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12,808 |
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10,571 |
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General and administrative |
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10,693 |
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10,861 |
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21,181 |
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19,676 |
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Other operating |
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3,792 |
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2,646 |
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7,116 |
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5,633 |
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Depreciation and amortization |
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14,678 |
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|
12,146 |
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28,365 |
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23,665 |
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Total operating expenses |
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128,637 |
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98,925 |
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252,997 |
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193,178 |
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Income from operations |
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33,500 |
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23,530 |
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62,241 |
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44,702 |
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OTHER INCOME (EXPENSE): |
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Interest expense, net of
interest income of $111, $80,
$155 and $149, respectively |
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|
(6,369 |
) |
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|
(4,140 |
) |
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(11,897 |
) |
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(8,257 |
) |
Equity in earnings of affiliate |
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|
285 |
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|
251 |
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|
601 |
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|
494 |
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Total other income (expense) |
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(6,084 |
) |
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(3,889 |
) |
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(11,296 |
) |
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(7,763 |
) |
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INCOME BEFORE INCOME TAXES |
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27,416 |
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19,641 |
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50,945 |
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|
36,939 |
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PROVISION FOR INCOME TAXES |
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10,931 |
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|
7,256 |
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|
20,326 |
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14,121 |
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NET INCOME |
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$ |
16,485 |
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$ |
12,385 |
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$ |
30,619 |
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$ |
22,818 |
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BASIC EARNINGS PER COMMON SHARE |
|
$ |
0.45 |
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$ |
0.34 |
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$ |
0.83 |
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$ |
0.64 |
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DILUTED EARNINGS PER COMMON SHARE |
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$ |
0.44 |
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$ |
0.33 |
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$ |
0.82 |
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$ |
0.62 |
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING -
BASIC |
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36,864 |
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36,143 |
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|
36,747 |
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|
35,915 |
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING -
DILUTED |
|
|
37,498 |
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|
37,033 |
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|
37,359 |
|
|
|
36,888 |
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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 Six Months Ended |
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June 30, |
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2007 |
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2006 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
30,619 |
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$ |
22,818 |
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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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|
28,365 |
|
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|
23,665 |
|
Deferred income taxes |
|
|
2,474 |
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|
|
515 |
|
Loss on disposal of property and equipment, net |
|
|
164 |
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|
120 |
|
Amortization of deferred financing costs |
|
|
405 |
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|
331 |
|
Share-based compensation |
|
|
3,816 |
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|
4,926 |
|
Excess tax benefit from stock option exercises |
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|
(3,838 |
) |
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|
(5,228 |
) |
Change in investment in unconsolidated subsidiary |
|
|
(601 |
) |
|
|
(498 |
) |
Changes in operating assets and liabilities |
|
|
4,692 |
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|
|
13,706 |
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Other |
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|
81 |
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|
128 |
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|
|
|
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Net cash provided by operating activities |
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|
66,177 |
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|
|
60,483 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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|
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|
Purchases of property and equipment |
|
|
(200,446 |
) |
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|
(110,432 |
) |
Proceeds from sale of property and equipment |
|
|
48 |
|
|
|
6,566 |
|
Proceeds from property insurance settlement |
|
|
48 |
|
|
|
|
|
Increase in other assets |
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|
(9,555 |
) |
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|
(345 |
) |
Decrease (increase) in restricted cash |
|
|
(1,011 |
) |
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|
96 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(210,916 |
) |
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|
(104,115 |
) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
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|
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Proceeds from long-term borrowings |
|
|
105,000 |
|
|
|
1,650 |
|
Repayments on long-term borrowings |
|
|
(6,147 |
) |
|
|
(12,654 |
) |
Proceeds from revolving credit facility, net |
|
|
40,000 |
|
|
|
36,800 |
|
Increase in deferred financing costs |
|
|
(1,896 |
) |
|
|
(651 |
) |
Excess tax benefit from stock option exercises |
|
|
3,838 |
|
|
|
5,228 |
|
Proceeds from exercise of stock options |
|
|
5,327 |
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|
|
8,579 |
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|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
146,122 |
|
|
|
38,952 |
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|
|
|
|
|
|
|
|
|
|
|
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
1,383 |
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|
|
(4,680 |
) |
CASH AND CASH EQUIVALENTS Beginning of period |
|
|
6,880 |
|
|
|
4,680 |
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|
|
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CASH AND CASH EQUIVALENTS End of period |
|
$ |
8,263 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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|
|
|
|
|
|
|
Cash payments for interest, including capitalized interest of
$3,773 and $1,962, respectively |
|
$ |
15,114 |
|
|
$ |
7,766 |
|
|
|
|
|
|
|
|
Cash payments for income taxes |
|
$ |
16,924 |
|
|
$ |
7,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of property and equipment in accounts payable |
|
$ |
3,671 |
|
|
$ |
2,054 |
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements.
5
LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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, 2006.
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 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
June 30, 2007, 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 1,381,025 shares were outstanding,
and a total of 389,311 restricted shares, of which 317,648 restricted shares were unvested. We use
the term restricted shares to define nonvested shares granted to employees, 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.
The total number of options to purchase common stock include shares that vest on continued service
(time-based) or upon achievement of certain market condition criteria (market-based). Most of the
time-based options vest over a period of four or five years. The market-based options were granted
to certain members of management at or around the time of our initial public offering. Upon meeting
specific market performance criteria governing these stock options, sixty percent of these shares
had vested as of December 31, 2005. The remaining forty percent of the shares, upon meeting
additional specific market performance criteria, vested during the second quarter of 2006.
Total share-based compensation expense included in our consolidated statements of operations for
the three and six months ended June 30, 2007 and 2006, was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Share-based compensation expense related to
stock options |
|
$ |
771 |
|
|
$ |
3,329 |
|
|
$ |
1,701 |
|
|
$ |
4,224 |
|
Share-based compensation expense related to
restricted shares |
|
|
1,195 |
|
|
|
386 |
|
|
|
2,054 |
|
|
|
702 |
|
Share-based compensation expense related to ESPP |
|
|
32 |
|
|
|
|
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense |
|
$ |
1,998 |
|
|
$ |
3,715 |
|
|
$ |
3,816 |
|
|
$ |
4,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
The following table summarizes the stock option transactions for the six months ended June 30,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
|
|
|
|
Exercise |
|
|
Term (in |
|
|
Value (in |
|
Options |
|
Shares |
|
|
Price |
|
|
years) |
|
|
thousands) |
|
Outstanding on December 31, 2006 |
|
|
1,724,599 |
|
|
$ |
20.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
2,477 |
|
|
|
50.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(339,151 |
) |
|
|
15.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled |
|
|
(6,900 |
) |
|
|
24.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007 |
|
|
1,381,025 |
|
|
$ |
21.28 |
|
|
|
7.0 |
|
|
$ |
44,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or Expected to Vest at June 30, 2007 |
|
|
1,321,904 |
|
|
$ |
21.13 |
|
|
|
7.0 |
|
|
$ |
42,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2007 |
|
|
731,346 |
|
|
$ |
18.30 |
|
|
|
6.6 |
|
|
$ |
25,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of stock options granted during the six months
ended June 30, 2007 and 2006, was $20.35 and $18.33, respectively. The aggregate intrinsic value of
options (the amount by which the market price of the stock on the date of exercise exceeded the
exercise price of the option) exercised during the six months ended June 30, 2007 and 2006 was
$12.1 million and $19.8 million, respectively. As of June 30, 2007, there was $6.2 million of
unrecognized compensation expense related to stock options that is expected to be recognized over a
weighted average period of 1.7 years.
The fair value of each stock option was estimated on the date of the grant using the Black-Scholes
option pricing model. No options were granted in the three months ended June 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
Weighted Average Valuation Assumptions(1) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Risk-free interest rate (2) |
|
|
|
|
|
|
5.0 |
% |
|
|
4.7 |
% |
|
|
5.0 |
% |
Expected dividend yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected stock price volatility (3) |
|
|
|
|
|
|
36.0 |
% |
|
|
36.9 |
% |
|
|
36.0 |
% |
Expected life of stock options (in years) (3) |
|
|
|
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
|
(1) |
|
Forfeitures are estimated based on historical experience and projected employee
turnover. |
|
(2) |
|
Based on the five-year Treasury constant maturity interest rate with the term
that is consistent with the expected life of our stock options. |
|
(3) |
|
We estimate the expected life and volatility of stock options based on an
average of the expected lives and volatilities assumptions reported by a peer group of
publicly traded companies. |
Net cash proceeds from the exercise of stock options were $5.3 million and $8.6 million for the six
months ended June 30, 2007, and 2006, respectively. The actual income tax benefit realized from
stock option exercises total $3.8 million and $5.2 million, respectively, for those same periods.
7
A summary of restricted stock activity follows:
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
Range of Market |
|
|
Shares |
|
Price Per Share |
|
|
Outstanding |
|
on Grant Date |
Balance December 31, 2006 |
|
|
210,894 |
|
|
$ |
24.75-50.82 |
|
Granted |
|
|
145,876 |
|
|
|
49.06-53.70 |
|
Canceled |
|
|
(1,740 |
) |
|
|
46.51 |
|
Vested |
|
|
(37,382 |
) |
|
|
26.23-47.40 |
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2007 |
|
|
317,648 |
|
|
$ |
24.75-53.70 |
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2007 and 2006, we issued 145,876 and 31,506 shares of
restricted stock, respectively, with an aggregate fair value of $7.2 million and $1.5 million,
respectively. The fair market value of restricted shares that vested during the six months ended
June 30, 2007 was $1.3 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 under the ESPP began July 1,
2007 and ends December 31, 2007. Compensation expense under the ESPP is based on the discount of
10% at the end of the purchase period.
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 Employee Stock Purchase Plan. During the first six months
of 2007, we repurchased 2,235 shares for approximately $109. As of June 30, 2007, there were
489,265 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. Earnings per Share
Basic earnings per common share (EPS) is computed by dividing net income by the weighted average
number of shares of common stock outstanding during each period. Diluted EPS is computed similarly
to basic EPS, except that the denominator is increased for any dilutive common stock equivalents,
such as the assumed exercise of dilutive stock options using the treasury stock method and unvested
restricted stock awards using the treasury stock method. A reconciliation of these amounts is as
follows (share amounts and net income in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net income |
|
$ |
16,485 |
|
|
$ |
12,385 |
|
|
$ |
30,619 |
|
|
$ |
22,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding
basic |
|
|
36,864 |
|
|
|
36,143 |
|
|
|
36,747 |
|
|
|
35,915 |
|
Effect of dilutive stock options
and restricted stock awards |
|
|
634 |
|
|
|
890 |
|
|
|
612 |
|
|
|
973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding
diluted |
|
|
37,498 |
|
|
|
37,033 |
|
|
|
37,359 |
|
|
|
36,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.45 |
|
|
$ |
0.34 |
|
|
$ |
0.83 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
0.44 |
|
|
$ |
0.33 |
|
|
$ |
0.82 |
|
|
$ |
0.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
4. Operating Segments
Our operations are conducted mainly through our sports and athletic, professional fitness, family
recreation and resort/spa centers. We have aggregated the activities of our centers into one
reportable segment as none of the centers meet the quantitative thresholds for separate disclosure
under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, and each
of the centers has similar expected economic characteristics, service and product offerings and
customers. Our chief operating decision makers use EBITDA as the primary measure of segment
performance. For purposes of segment financial reporting and discussion of results of operations,
Centers represent the revenue and associated costs (including general and administrative
expenses) from membership dues and enrollment fees, all in-center activities including personal
training, spa, cafe and other activities offered to members and non-member participants and rental
income generated at the centers. Included in the All Other category in the table below is
operating information related to nutritional products, media, athletic events, and two restaurants,
and expenses, including interest expense, and corporate assets (including depreciation and
amortization) not directly attributable to centers. The accounting policies of the Centers and
operations classified as All Other are the same as those described in the summary of significant
accounting policies in the annual consolidated financial statements and notes included in the
latest Form 10-K, as filed with the SEC.
Financial data and reconciling information for our reporting segment to the consolidated amounts in
the financial statements are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centers |
|
|
All Other |
|
|
Consolidated |
|
Three months ended June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
158,936 |
|
|
$ |
3,201 |
|
|
$ |
162,137 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
18,404 |
|
|
$ |
(1,919 |
) |
|
$ |
16,485 |
|
Provision (benefit) for income taxes |
|
|
12,210 |
|
|
|
(1,279 |
) |
|
|
10,931 |
|
Interest expense, net |
|
|
4,600 |
|
|
|
1,769 |
|
|
|
6,369 |
|
Depreciation and amortization |
|
|
13,108 |
|
|
|
1,570 |
|
|
|
14,678 |
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
48,322 |
|
|
$ |
141 |
|
|
$ |
48,463 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,057,223 |
|
|
$ |
132,773 |
|
|
$ |
1,189,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
119,898 |
|
|
$ |
2,557 |
|
|
$ |
122,455 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
13,872 |
|
|
$ |
(1,487 |
) |
|
$ |
12,385 |
|
Provision (benefit) for income taxes |
|
|
8,247 |
|
|
|
(991 |
) |
|
|
7,256 |
|
Interest expense, net |
|
|
3,156 |
|
|
|
984 |
|
|
|
4,140 |
|
Depreciation and amortization |
|
|
10,643 |
|
|
|
1,503 |
|
|
|
12,146 |
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
35,918 |
|
|
$ |
9 |
|
|
$ |
35,927 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
713,170 |
|
|
$ |
91,343 |
|
|
$ |
804,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
309,047 |
|
|
$ |
6,191 |
|
|
$ |
315,238 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
34,180 |
|
|
$ |
(3,561 |
) |
|
$ |
30,619 |
|
Provision (benefit) for income taxes |
|
|
22,700 |
|
|
|
(2,374 |
) |
|
|
20,326 |
|
Interest expense, net |
|
|
8,792 |
|
|
|
3,105 |
|
|
|
11,897 |
|
Depreciation and amortization |
|
|
25,120 |
|
|
|
3,245 |
|
|
|
28,365 |
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
90,792 |
|
|
$ |
415 |
|
|
$ |
91,207 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,057,223 |
|
|
$ |
132,773 |
|
|
$ |
1,189,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
233,114 |
|
|
$ |
4,766 |
|
|
$ |
237,880 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
25,669 |
|
|
$ |
(2,851 |
) |
|
$ |
22,818 |
|
Provision (benefit) for income taxes |
|
|
16,022 |
|
|
|
(1,901 |
) |
|
|
14,121 |
|
Interest expense, net |
|
|
6,533 |
|
|
|
1,724 |
|
|
|
8,257 |
|
Depreciation and amortization |
|
|
20,663 |
|
|
|
3,002 |
|
|
|
23,665 |
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
68,887 |
|
|
$ |
(26 |
) |
|
$ |
68,861 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
713,170 |
|
|
$ |
91,343 |
|
|
$ |
804,513 |
|
|
|
|
|
|
|
|
|
|
|
9
5. Income Taxes
We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48), on January 1, 2007. No cumulative effect upon adoption of FIN 48 was recorded; however,
certain amounts have been reclassified in the consolidated balance sheet in order to comply with
the requirements of the statement.
At January 1, 2007, we provided a liability for $9.4 million for unrecognized tax benefits related
to various federal and state income tax matters. Of this amount, $1.1 million would affect our
effective tax rate if recognized. The remaining $8.3 million consists of items that are offset by
deferred tax assets, and the federal tax benefit of state income tax items.
As of June 30, 2007, we provided a liability for $10.4 million for unrecognized tax benefits
related to various federal and state income tax matters. Of this amount, $1.2 million would affect
our effective tax rate if recognized. The remaining $9.2 million consists of items that are offset
by deferred tax assets, and the federal tax benefit of state income tax items.
Interest and penalties related to unrecognized tax benefits are recognized as a component of the
provision for income taxes. At January 1, 2007, we recorded a liability of $0.5 million, net of
taxes of $0.3 million for interest and penalties. The liability for the payment of interest and
penalties did not materially change during the six months ended June 30, 2007.
We file tax returns in the U.S. federal jurisdiction and various state jurisdictions. The tax years
2003 through 2006 remain open to examination. Approximately $1.2 million of unrecognized tax
benefits relate to items that are affected by expiring statutes of limitation within the next 12
months, of which $0.1 million may impact our effective tax rate.
6. Supplementary Cash Flow Information
Decreases (increases) in operating assets and increases (decreases) in operating liabilities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
Accounts receivable |
|
$ |
(963 |
) |
|
$ |
1,966 |
|
Income taxes receivable |
|
|
3,935 |
|
|
|
6,531 |
|
Inventories |
|
|
(3,876 |
) |
|
|
(723 |
) |
Prepaids and other current assets |
|
|
(3,050 |
) |
|
|
(2,714 |
) |
Deferred membership origination costs |
|
|
(4,792 |
) |
|
|
(2,440 |
) |
Accounts payable |
|
|
4,499 |
|
|
|
(262 |
) |
Accrued expenses |
|
|
312 |
|
|
|
3,987 |
|
Deferred revenue |
|
|
8,465 |
|
|
|
7,079 |
|
Deferred rent |
|
|
(110 |
) |
|
|
282 |
|
Other liabilities |
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,692 |
|
|
$ |
13,706 |
|
|
|
|
|
|
|
|
7. Commitments and Contingencies
Litigation We are engaged in legal 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.
10
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, 2006.
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 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, 2006.
Overview
We operate distinctive and large sports and athletic, professional fitness, family recreation and
resort/spa centers. As of July 15, 2007, we operated 65 centers primarily in residential locations
across 15 states under the LIFE TIME FITNESS brand. We commenced operations in 1992 by opening
centers in the Minneapolis and St. Paul, Minnesota area. During this period of initial growth, we
refined the format and model of our center while building our membership base, infrastructure and
management team. As a result, several of the centers that opened during our early years have
designs that differ from our current model center.
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. 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 eight new centers we plan to open in 2007, we
expect that four will be in existing markets. We do not expect that operating costs of our planned
new centers will be significantly higher than centers opened in the past, and we also do not expect
that the planned increase in the number of centers will have a material adverse effect on the
overall financial condition or results of operations of existing centers. Another result of opening
new centers, as well as the assumption of operations of seven leased facilities in 2006, is that
our center operating margins may be lower than they have been historically while the centers build
membership base. We expect both the addition of pre-opening expenses and the lower revenue volumes
characteristic of newly-opened centers, as well as the facility costs for the seven leased centers,
to affect our center operating margins at these new centers and on a consolidated basis. Our
operating results generally do not include the center owned by Bloomingdale LIFE TIME Fitness,
L.L.C. 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 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 growth of
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 and center attrition rates.
11
We have three primary sources of revenue. First, our largest source of revenue is membership dues
and enrollment fees 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 36 months. Second, we generate revenue, which we
refer to as in-center revenue, at our centers from fees for personal training, dieticians, group
fitness training and other member activities, sales of products at our LifeCafe, sales of products
and services offered at our LifeSpa and renting space in certain of our centers. And third, we have
expanded the LIFE TIME FITNESS brand into other wellness-related offerings that generate revenue,
which we refer to as other revenue, including our media, corporate wellness and athletic events
businesses. Our primary media offering is our magazine, Experience Life. Other revenue also
includes our two restaurants and rental income on our Highland Park, Minnesota office building.
Center operations expenses consist primarily of salary, commissions, payroll taxes, benefits, real
estate taxes and other occupancy costs, utilities, repairs and maintenance, supplies,
administrative support and communications to operate our centers. Advertising and marketing
expenses consist of our marketing department costs and media and advertising costs to support
center membership growth and our media, athletic event and nutritional product 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, corporate wellness and
athletic events businesses, our 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 and the number of centers engaged
in presale activities.
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, since 2000, has ranged from approximately $18 to $36 million, and 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. The average
cost for the current model centers opened in 2006 increased to $29.5 million as a result of higher
land costs and higher construction costs in states where we are opening centers. We expect the
average cost of new centers constructed in 2007 to be approximately $30 million. 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. Actual 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 weighted 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 the three
fiscal years ended December 31, 2006.
12
Results of Operations
The following table sets forth our statement of operations data as a percentage of total revenues
and also sets forth other financial and operating data:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three |
|
|
For the Six |
|
|
|
Months Ended |
|
|
Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership dues |
|
|
65.8 |
% |
|
|
65.8 |
% |
|
|
65.7 |
% |
|
|
65.7 |
% |
Enrollment fees |
|
|
3.9 |
|
|
|
4.5 |
|
|
|
3.8 |
|
|
|
4.5 |
|
In-center revenue |
|
|
28.3 |
|
|
|
27.6 |
|
|
|
28.5 |
|
|
|
27.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total center revenue |
|
|
98.0 |
|
|
|
97.9 |
|
|
|
98.0 |
|
|
|
98.0 |
|
Other revenue |
|
|
2.0 |
|
|
|
2.1 |
|
|
|
2.0 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center operations |
|
|
58.0 |
|
|
|
56.0 |
|
|
|
58.2 |
|
|
|
56.2 |
|
Advertising and marketing |
|
|
3.4 |
|
|
|
3.8 |
|
|
|
4.1 |
|
|
|
4.4 |
|
General and administrative |
|
|
6.6 |
|
|
|
8.9 |
|
|
|
6.7 |
|
|
|
8.3 |
|
Other operating |
|
|
2.3 |
|
|
|
2.2 |
|
|
|
2.3 |
|
|
|
2.4 |
|
Depreciation and amortization |
|
|
9.0 |
|
|
|
9.9 |
|
|
|
9.0 |
|
|
|
9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
79.3 |
|
|
|
80.8 |
|
|
|
80.3 |
|
|
|
81.2 |
|
Income from operations |
|
|
20.7 |
|
|
|
19.2 |
|
|
|
19.7 |
|
|
|
18.8 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(4.0 |
) |
|
|
(3.4 |
) |
|
|
(3.8 |
) |
|
|
(3.5 |
) |
Equity in earnings of affiliate |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(3.8 |
) |
|
|
(3.2 |
) |
|
|
(3.6 |
) |
|
|
(3.3 |
) |
Income before income taxes |
|
|
16.9 |
|
|
|
16.0 |
|
|
|
16.1 |
|
|
|
15.5 |
|
Provision for income taxes |
|
|
6.7 |
|
|
|
5.9 |
|
|
|
6.4 |
|
|
|
5.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
10.2 |
% |
|
|
10.1 |
% |
|
|
9.7 |
% |
|
|
9.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial and operating data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average center revenue per membership |
|
$ |
338 |
|
|
$ |
318 |
|
|
$ |
672 |
|
|
$ |
632 |
|
Average in-center revenue per membership |
|
$ |
98 |
|
|
$ |
90 |
|
|
$ |
195 |
|
|
$ |
179 |
|
Centers open at end of period |
|
|
64 |
|
|
|
49 |
|
|
|
64 |
|
|
|
49 |
|
Number of memberships at end of period |
|
|
489,489 |
|
|
|
393,011 |
|
|
|
489,489 |
|
|
|
393,011 |
|
Three Months Ended June 30, 2007, Compared to Three Months Ended June 30, 2006
Total revenue. Total revenue increased $39.6 million, or 32.4%, to $162.1 million for the three
months ended June 30, 2007, from $122.5 million for the three months ended June 30, 2006.
Total center revenue grew $39.0 million, or 32.6%, to $158.9 million for the three months ended
June 30, 2007, from $119.9 million for the three months ended June 30, 2006. Comparable center
revenue increased 6.6% for the three months ended June 30, 2007 compared to the three months ended
June 30, 2006. Of the $39.0 million increase in total center revenue,
|
|
|
67.1% was from membership dues, which increased $26.1 million, due to increased
memberships at new and existing centers, junior membership programs and increased sales of
Sports, Advantage and other value-added memberships. |
|
|
|
|
28.9% was from in-center revenue, which increased $12.1 million primarily as a
result of our members increased use of our personal training, member activities, LifeCafe
and LifeSpa products and services. As a result of this in-center revenue growth and our
focus on broadening our offerings to our members, average in-center revenue per membership
increased to $98 for the three months ended June 30, 2007, from $90 for the three months
ended June 30, 2006.
|
13
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|
|
4.0% was from enrollment fees, which are deferred until a center opens and recognized on
a straight-line basis over 36 months. Enrollment fees increased $0.8 million for the three
months ended June 30, 2007 to $6.4 million. Our number of memberships increased 24.5% to
489,489 at June 30, 2007, from 393,011 at June 30, 2006. |
Other revenue increased $0.6 million, or 25.2%, to $3.2 million for the three months ended June 30,
2007, which was primarily due to increased advertising revenue from our media business.
Center operations expenses. Center operations expenses totaled $94.0 million, or 59.2% of total
center revenue (or 58.0% of total revenue), for the three months ended June 30, 2007 compared to
$68.5 million, or 57.2% of total center revenue (or 56.0% of total revenue), for the three months
ended June 30, 2006. This $25.5 million increase primarily consisted of $13.6 million in additional
payroll-related costs to support increased memberships at new centers and an increase of $6.6
million in facility-related costs, including incremental lease expense for the seven leased centers
for which we assumed operations in late July 2006, utilities and real estate taxes, and an increase
in expenses to support in-center products and services. As a percent of total center revenue,
center operations expense increased primarily due to the lower center operating margins associated
with new centers including the leased centers.
Advertising and marketing expenses. Advertising and marketing expenses were $5.4 million, or 3.4%
of total revenue, for the three months ended June 30, 2007, compared to $4.7 million, or 3.8% of
total revenue, for the three months ended June 30, 2006. These expenses increased primarily due to
advertising for our new centers and those centers engaging in presale activities. As a percent of
total revenue, advertising and marketing expenses decreased primarily due to fewer and more
efficient marketing campaigns.
General and administrative expenses. General and administrative expenses were $10.7 million, or
6.6% of total revenue, for the three months ended June 30, 2007, compared to $10.9 million, or 8.9%
of total revenue, for the three months ended June 30, 2006. These expenses decreased primarily due
to lower share-based compensation expense compared to the prior period.
Other operating expenses. Other operating expenses were $3.8 million for the three months ended
June 30, 2007, compared to $2.6 million for the three months ended June 30, 2006.
Depreciation and amortization. Depreciation and amortization was $14.7 million for the three months
ended June 30, 2007, compared to $12.1 million for the three months ended June 30, 2006. This $2.6
million increase was due primarily to depreciation on our new centers opened in 2006 and early
2007.
Interest expense, net. Interest expense, net of interest income, was $6.4 million for the three
months ended June 30, 2007, compared to $4.1 million for the three months ended June 30, 2006. This
increase was primarily the result of increased average debt balances and increased interest rates
on floating rate debt.
Provision for income taxes. The provision for income taxes was $10.9 million for the three months
ended June 30, 2007, compared to $7.3 million for the three months ended June 30, 2006. This $3.6
million increase was due to an increase in income before income taxes of $7.8 million.
Net income. As a result of the factors described above, net income was $16.5 million, or 10.2% of
total revenue, for the three months ended June 30, 2007, compared to $12.4 million, or 10.1% of
total revenue, for the three months ended June 30, 2006.
Six Months Ended June 30, 2007, Compared to Six Months Ended June 30, 2006
Total revenue. Total revenue increased $77.3 million, or 32.5%, to $315.2 million for the six
months ended June 30, 2007, from $237.9 million for the six months ended June 30, 2006.
Total center revenue grew $75.9 million, or 32.6%, to $309.0 million for the six months ended June
30, 2007, from $233.1 million for the six months ended June 30, 2006. Comparable center revenue
increased 7.0% for the six months ended June 30, 2007 compared to the six months ended June 30,
2006. Of the $75.9 million increase in total center revenue,
|
|
|
67.0% was from membership dues, which increased $50.8 million, due to increased
memberships at new and existing centers, junior membership programs and increased sales of
Sports, Advantage and other value-added memberships. |
14
|
|
|
29.1% was from in-center revenue, which increased $23.7 million primarily as a
result of our members increased use of our personal training, member activities, LifeCafe
and LifeSpa products and services. As a result of this in-center revenue growth and our
focus on broadening our offerings to our members, average in-center revenue per membership
increased to $195 for the six months ended June 30, 2007, from $179 for the six months
ended June 30, 2006. |
|
|
|
|
3.9% was from enrollment fees, which are deferred until a center opens and
recognized on a straight-line basis over 36 months. Enrollment fees increased $1.4 million
for the six months ended June 30, 2007 to $12.1 million. Our number of memberships
increased 24.5% to 489,489 at June 30, 2007, from 393,011 at June 30, 2006. |
Other revenue increased $1.4 million, or 29.9%, to $6.2 million for the six months ended June 30,
2007, which was primarily due to increased advertising revenue from our media business.
Center operations expenses. Center operations expenses totaled $183.5 million, or 59.4% of total
center revenue (or 58.2% of total revenue), for the six months ended June 30, 2007 compared to
$133.6 million, or 57.3% of total center revenue (or 56.2% of total revenue), for the six months
ended June 30, 2006. This $49.9 million increase primarily consisted of $25.7 million in additional
payroll-related costs to support increased memberships at new centers and an increase of $13.0
million in facility-related costs, including incremental lease expense for the seven leased centers
for which we assumed operations in late July 2006, utilities and real estate taxes, and an increase
in expenses to support in-center products and services. As a percent of total center revenue,
center operations expense increased primarily due to the lower center operating margins associated
with new centers including the leased centers.
Advertising and marketing expenses. Advertising and marketing expenses were $12.8 million, or 4.1%
of total revenue, for the six months ended June 30, 2007, compared to $10.6 million, or 4.4% of
total revenue, for the six months ended June 30, 2006. These expenses increased primarily due to
advertising for our new centers and those centers engaging in presale activities.
General and administrative expenses. General and administrative expenses were $21.2 million, or
6.7% of total revenue, for the six months ended June 30, 2007, compared to $19.7 million, or 8.3%
of total revenue, for the six months ended June 30, 2006. This $1.5 million increase was primarily
due to increased costs to support the growth in our membership and center base in 2007. As a
percent of total revenue, general and administrative expense decreased primarily due to lower
share-based compensation expense in the first six months of 2007 compared to the same period in
2006.
Other operating expenses. Other operating expenses were $7.1 million for the six months ended June
30, 2007, compared to $5.6 million for the six months ended June 30, 2006.
Depreciation and amortization. Depreciation and amortization was $28.4 million for the six months
ended June 30, 2007, compared to $23.7 million for the six months ended June 30, 2006. This $4.7
million increase was due primarily to depreciation on our new centers opened in 2006 and early
2007.
Interest expense, net. Interest expense, net of interest income, was $11.9 million for the six
months ended June 30, 2007, compared to $8.3 million for the six months ended June 30, 2006. This
increase was primarily the result of increased average debt balances and increased interest rates
on floating rate debt.
Provision for income taxes. The provision for income taxes was $20.3 million for the six months
ended June 30, 2007, compared to $14.1 million for the six months ended June 30, 2006. This $6.2
million increase was due to an increase in income before income taxes of $14.0 million.
Net income. As a result of the factors described above, net income was $30.6 million, or 9.7% of
total revenue, for the six months ended June 30, 2007, compared to $22.8 million, or 9.6% of total
revenue, for the six months ended June 30, 2006.
Liquidity and Capital Resources
Liquidity
Historically, we have satisfied our liquidity needs through various debt arrangements, sales of
equity and cash provided by operations. Principal liquidity needs have included the development of
new centers, debt service requirements and expenditures necessary to maintain and
15
update our
existing centers and their related fitness equipment. We believe that we can satisfy our current
and 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.
Operating Activities
As of June 30, 2007, we had total cash and cash equivalents of $8.3 million and $5.7 million of
restricted cash that serves as collateral for certain of our debt arrangements. We also had $96.2
million available under the existing terms of our revolving credit facility as of June 30, 2007.
Net cash provided by operating activities was $66.2 million for the six months ended June 30, 2007,
compared to $60.5 million for the six months ended June 30, 2006.
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. For current model centers, our
investment, through June 30, 2007, has ranged from approximately $18 to $36 million, which includes
the land, the building and approximately $3 million of exercise equipment, furniture and fixtures.
We expect the average cost of new centers constructed in 2007 to be approximately $30 million.
Net cash used in investing activities was
$210.9 million for the six months ended June 30, 2007,
compared to $104.1 million for the six months ended June 30, 2006. The increase of $106.8 million
was primarily due to capital expenditures for the construction of new centers, purchase of land for
future centers and updates to our existing centers.
The following schedule reflects capital expenditures by type of expenditure:
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|
|
|
|
|
|
|
|
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In thousands) |
|
Capital expenditures for new center land, building and construction |
|
$ |
173,135 |
|
|
$ |
91,588 |
|
Capital expenditures for updating existing centers and corporate
infrastructure |
|
|
27,311 |
|
|
|
18,844 |
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
200,446 |
|
|
$ |
110,432 |
|
|
|
|
|
|
|
|
At July 15, 2007, we had purchased the real property for the eight new centers that we plan to open
in 2007, five of which had already opened. In addition, we had purchased the real property for six
of the ten current model centers we plan to open in 2008, and we had entered into agreements to
purchase real property for the development of three current model centers that we plan to open in
2008.
We expect our capital expenditures to be approximately $160 to $180 million in the remaining six
months of 2007, of which we expect approximately $25 to $35 million to be one-time in nature for
the remodel of the seven centers leased in July 2006 and the completion of a new office building we
plan to move into in the fourth quarter of 2007. In addition, we expect to incur approximately $122
to $127 million for new center construction and approximately $13 to $18 million for the updating
of existing centers and corporate infrastructure. We plan to fund these capital expenditures with
cash from operations, our revolving line of credit and additional mortgage financing.
16
Financing Activities
Net cash provided by financing activities was $146.1 million for the six months ended June 30,
2007, compared to $39.0 million for the six months ended June 30, 2006. The change of $107.1
million was primarily due to a new $105.0 million mortgage financing.
On April 15, 2005, we entered into a Credit Agreement, with U.S. Bank National Association, as
administrative agent and lead arranger, J.P. Morgan Securities, Inc., as syndication agent, and the
banks party thereto from time to time (the U.S. Bank Facility). On May 31, 2007, we entered into
a Second Amended and Restated Credit Agreement effective May 31, 2007 to amend and restate our U.S.
Bank Facility. The material changes to the U.S. Bank Facility increase the amount of the facility
from $300.0 million to $400.0 million, which may be increased by an additional $25.0 million upon
the exercise of an accordion feature, and extend the term of the facility to May 31, 2012. Interest on the amounts borrowed under the U.S. Bank Facility continues to be
based on (i) a base rate, which is the greater of (a) U.S. Banks prime rate and (b) the federal
funds rate plus 50 basis points, or (ii) an adjusted Eurodollar rate, plus, in either case (i) or
(ii), the applicable margin within a range based on our consolidated leverage ratio. In connection
with the amendment and restatement of the U.S. Bank Facility, the applicable margin ranges were
reduced to zero at all times (from zero to 25 basis points) for base rate borrowings and decreased
to 62.5 to 150 basis points (from 75 to 175 basis points) for Eurodollar borrowings. As of June 30,
2007, $285.0 million was outstanding on the U.S. Bank Facility, plus $18.8 million related to
letters of credit.
The weighted average interest rate and debt outstanding under the revolving credit facility for the
six months ended June 30, 2007 was 6.7% and $194.2 million, respectively. The weighted average
interest rate and debt outstanding under the revolving credit facility for the six months ended
June 30, 2006 was 6.2% and $108.6 million, respectively.
On January 24, 2007, LTF CMBS I, LLC, a wholly owned subsidiary, obtained a commercial
mortgage-backed loan in the original principal amount of $105.0 million from Goldman Sachs
Commercial Mortgage Capital, L.P. pursuant to a loan agreement dated January 24, 2007. The mortgage
financing is secured by six properties owned by the subsidiary and operated as Life Time Fitness
centers located in Tempe, Arizona, Commerce Township, Michigan, and Garland, Flower Mound,
Willowbrook and Sugar Land, Texas. The mortgage financing matures in February 2017.
Interest on the amounts borrowed under the mortgage financing referenced above is 6.03% per annum,
with a constant monthly debt service payment of $0.6 million. Our subsidiary LTF CMBS I, LLC, as
landlord, and LTF Club Operations Company, Inc., another wholly owned subsidiary of ours as tenant,
entered into a lease agreement dated January 24, 2007 with respect to the properties. The initial
term of the lease ends in February 2022, but the lease term may be extended at the option of LTF
Club Operations Company, Inc. for two additional periods of five years each. Our subsidiaries may
not transfer any of the properties except as permitted under the loan agreement. We guarantee the
obligations of our subsidiary under the lease.
As additional security for LTF CMBS I, LLCs obligations under the mortgage financing, the
subsidiary granted a security interest in all assets owned from time to time by the subsidiary
including the properties which had a net book value of $99.1 million on January 24, 2007, the
revenues from the properties and all other tangible and intangible property, and certain bank
accounts belonging to the subsidiary that the lender has required pursuant to the mortgage
financing.
We are in compliance in all material respects with all restrictive and financial covenants under
our various credit facilities as of June 30, 2007.
17
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 cash flows and results of
operations. As of June 30, 2007 and December 31, 2006, our floating rate indebtedness was
approximately $285.0 million and $245.0 million, respectively. If long-term floating interest rates
were to have increased by 100 basis points during the six months ended June 30, 2007, our interest
costs would have increased by approximately $1.0 million. If short-term interest rates were to have
increased by 100 basis points during the six months ended June 30, 2007, 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 June 30, 2007.
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 Second Quarter 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Number of |
|
|
Total Number |
|
Average |
|
Shares Purchased as |
|
Shares that May Yet be |
|
|
of Shares |
|
Price Paid |
|
Part of Publicly |
|
Purchased Under the |
Period |
|
Purchased |
|
per Share |
|
Announced Plan (1) |
|
Plan (1) |
April 1 - 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
489,265 |
|
May 1 - 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
489,265 |
|
June 1 - 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
489,265 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
489,265 |
|
|
|
|
(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. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on April 26, 2007, the shareholders voted on the
following:
1. Proposal to elect a board of seven directors, to serve until the next annual meeting of
shareholders or until their successors have been duly elected and qualified. The following
directors were elected based on the votes listed below:
|
|
|
|
|
|
|
|
|
Nominee |
|
For |
|
Withheld |
Bahram Akradi |
|
|
33,826,174 |
|
|
|
386,339 |
|
Giles H. Bateman |
|
|
34,159,342 |
|
|
|
53,171 |
|
James F. Halpin |
|
|
34,159,677 |
|
|
|
52,836 |
|
Guy C. Jackson |
|
|
33,457,419 |
|
|
|
755,094 |
|
John B. Richards |
|
|
34,137,822 |
|
|
|
74,691 |
|
Stephen R. Sefton |
|
|
33,826,417 |
|
|
|
386,096 |
|
Joseph H. Vassalluzzo |
|
|
34,142,784 |
|
|
|
69,729 |
|
2. Proposal to ratify the appointment of Deloitte & Touche LLP as our independent registered public
accounting firm for the fiscal year ending December 31, 2007. The proposal passed on a vote of
34,068,858 in favor, 131,704 against, 11,951 abstentions and no broker non-votes.
As of the close of business on the record date for the meeting, which was February 26, 2007, there
were 36,839,977 shares of common stock outstanding and entitled to vote at the meeting. Each share
of common stock was entitled to one vote per share.
ITEM 5. OTHER INFORMATION
Not applicable.
19
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
Registrants Form
10-Q for the quarter
ended June 30, 2004
(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 Registrants
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 Registrants
Registration
Statement of Form S-1
(File No.
333-113764), filed
with the Commission
on June 23, 2004 |
|
|
|
|
|
10.1
|
|
Second Amended and Restated Credit
Agreement, dated as of May 31, 2007,
among the Company, U.S. Bank National
Association, as administrative agent
and lead arranger, J.P. Morgan
Securities Inc. and Royal Bank of
Canada, as co-syndication agents, BMO
Capital Markets, as documentation
agent, and the banks party thereto
from time to time
|
|
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 August 1, 2007.
|
|
|
|
|
|
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: |
Controller
(Principal Accounting Officer) |
|
|
21
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
Registrants Form
10-Q for the quarter
ended June 30, 2004
(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 Registrants
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 Registrants
Registration
Statement of Form S-1
(File No.
333-113764), filed
with the Commission
on June 23, 2004 |
|
|
|
|
|
10.1
|
|
Second Amended and Restated Credit
Agreement, dated as of May 31, 2007,
among the Company, U.S. Bank National
Association, as administrative agent
and lead arranger, J.P. Morgan
Securities Inc. and Royal Bank of
Canada, as co-syndication agents, BMO
Capital Markets, as documentation
agent, and the banks party thereto
from time to time
|
|
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 |