##### Table of Contents



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 September 30, 2005
 or
 o
    
    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.
  Minnesota
(State or other jurisdiction of
incorporation or organization)
    
    41-1689746
(I.R.S. Employer
Identification No.)6442 City West Parkway
Eden Prairie, Minnesota
(Address of principal executive offices)
    
    55344
(Zip Code)
 952-947-0000
 
 þ o
 þ o
 o þ




---



TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of September 30, 2005
(unaudited) and December 31, 2004
    
    
    3Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 2005 and 2004 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2005 and 2004 (unaudited)
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    27SIGNATURES
    
    
    28Amendment to Credit Agreement and ConsentRule 13a-14(a)/15d-14(a) Certification by Principal Executive OfficerRule 13a-14(a)/15d-14(a) Certification by Principal Financial OfficerSection 1350 Certification




---



##### Table of Contents



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)
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    923
    
    
    $
    10,211Accounts receivable, net
    
    
    3,705
    
    
    
    1,187Inventories
    
    
    4,984
    
    
    
    4,971Prepaid expenses and other current assets
    
    
    7,274
    
    
    
    7,275Deferred membership origination costs
    
    
    9,500
    
    
    
    8,271Deferred tax asset
    
    
    
    
    
    
    1,597Income tax receivable
    
    
    1,879
    
    
    
    4,579Total current assets
    
    
    28,265
    
    
    
    38,091PROPERTY AND EQUIPMENT, net
    
    
    600,724
    
    
    
    503,690RESTRICTED CASH
    
    
    5,200
    
    
    
    12,092DEFERRED MEMBERSHIP ORIGINATION COSTS
    
    
    8,003
    
    
    
    7,061OTHER ASSETS
    
    
    13,473
    
    
    
    11,153TOTAL ASSETS
    
    $
    655,665
    
    
    $
    572,087LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    14,964
    
    
    $
    47,477Accounts payable
    
    
    7,980
    
    
    
    5,762Construction accounts payable
    
    
    22,142
    
    
    
    17,633Accrued expenses
    
    
    25,764
    
    
    
    19,152Deferred revenue
    
    
    23,184
    
    
    
    20,019Total current liabilities
    
    
    94,034
    
    
    
    110,043LONG-TERM DEBT, net of current portion
    
    
    218,546
    
    
    
    161,767DEFERRED RENT LIABILITY
    
    
    5,354
    
    
    
    3,678DEFERRED INCOME TAXES
    
    
    35,114
    
    
    
    33,701DEFERRED REVENUE
    
    
    14,293
    
    
    
    12,264Total liabilities
    
    
    367,341
    
    
    
    321,453COMMITMENTS AND CONTINGENCIES (Note 7)SHAREHOLDERS EQUITY:Undesignated preferred stock, 10,000,000
shares authorized; none issued or
outstandingCommon stock, $.02 par value, 50,000,000
shares authorized; 34,953,816 and
33,791,610 shares issued and outstanding,
respectively
    
    
    700
    
    
    
    676Additional paid-in capital
    
    
    221,002
    
    
    
    209,931Deferred compensation
    
    
    (2,616
    )
    
    
    (66
    )Retained earnings
    
    
    69,238
    
    
    
    40,093Total shareholders equity
    
    
    288,324
    
    
    
    250,634TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    655,665
    
    
    $
    572,087
  3




---



##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004REVENUE:Membership dues
    
    $
    67,589
    
    
    $
    52,477
    
    
    $
    192,379
    
    
    $
    152,662Enrollment fees
    
    
    5,279
    
    
    
    5,185
    
    
    
    15,415
    
    
    
    14,764In-center revenue
    
    
    25,680
    
    
    
    18,290
    
    
    
    72,383
    
    
    
    53,404Total center revenue
    
    
    98,548
    
    
    
    75,952
    
    
    
    280,177
    
    
    
    220,830Other revenue
    
    
    3,064
    
    
    
    3,233
    
    
    
    6,370
    
    
    
    9,114Total revenue
    
    
    101,612
    
    
    
    79,185
    
    
    
    286,547
    
    
    
    229,944OPERATING EXPENSES:Center operations
    
    
    56,631
    
    
    
    42,529
    
    
    
    159,029
    
    
    
    122,048Advertising and marketing
    
    
    4,161
    
    
    
    2,838
    
    
    
    11,072
    
    
    
    9,292General and administrative
    
    
    6,536
    
    
    
    4,302
    
    
    
    20,357
    
    
    
    15,852Other operating
    
    
    3,014
    
    
    
    4,637
    
    
    
    9,178
    
    
    
    13,586Depreciation and amortization
    
    
    10,095
    
    
    
    7,489
    
    
    
    28,019
    
    
    
    21,407Total operating expenses
    
    
    80,437
    
    
    
    61,795
    
    
    
    227,655
    
    
    
    182,185Income from operations
    
    
    21,175
    
    
    
    17,390
    
    
    
    58,892
    
    
    
    47,759OTHER INCOME (EXPENSE):Interest expense, net
    
    
    (3,278
    )
    
    
    (4,285
    )
    
    
    (10,347
    )
    
    
    (13,346
    )Equity in earnings of affiliate
    
    
    283
    
    
    
    257
    
    
    
    836
    
    
    
    778Total other expense
    
    
    (2,995
    )
    
    
    (4,028
    )
    
    
    (9,511
    )
    
    
    (12,568
    )INCOME BEFORE INCOME TAXES
    
    
    18,180
    
    
    
    13,362
    
    
    
    49,381
    
    
    
    35,191PROVISION FOR INCOME TAXES
    
    
    7,443
    
    
    
    5,458
    
    
    
    20,236
    
    
    
    14,428NET INCOME
    
    
    10,737
    
    
    
    7,904
    
    
    
    29,145
    
    
    
    20,763ACCRETION ON REDEEMABLE
PREFERRED STOCK
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    3,570NET INCOME APPLICABLE TO COMMON
SHAREHOLDERS
    
    $
    10,737
    
    
    $
    7,809
    
    
    $
    29,145
    
    
    $
    17,193BASIC EARNINGS PER COMMON SHARE
    
    $
    0.31
    
    
    $
    0.24
    
    
    $
    0.85
    
    
    $
    0.79DILUTED EARNINGS PER COMMON
SHARE
    
    $
    0.29
    
    
    $
    0.22
    
    
    $
    0.81
    
    
    $
    0.65WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 
BASIC
    
    
    34,846
    
    
    
    32,533
    
    
    
    34,343
    
    
    
    21,628WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 
DILUTED
    
    
    36,476
    
    
    
    35,385
    
    
    
    36,201
    
    
    
    32,177
  4




---



##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 For the NineMonths EndedSeptember 30,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    29,145
    
    
    $
    20,763Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    28,019
    
    
    
    21,407Deferred income taxes
    
    
    3,011
    
    
    
    3,505Loss on disposal of property, net
    
    
    421
    
    
    
    318Amortization of deferred financing costs
    
    
    864
    
    
    
    1,137Compensation related to stock options and restricted stock
    
    
    269
    
    
    
    213Tax benefit from exercise of stock options
    
    
    4,916
    
    
    
    733Changes in operating assets and liabilities
    
    
    13,457
    
    
    
    3,650Net cash provided by operating activities
    
    
    80,102
    
    
    
    51,726CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment (excluding non-cash purchases
supplementally noted below)
    
    
    (122,155
    )
    
    
    (94,682
    )Increase (decrease) in construction accounts payable
    
    
    (2,682
    )
    
    
    1,862Proceeds from sale of property
    
    
    3,842
    
    
    
    1,249Increase in other assets
    
    
    (1,740
    )
    
    
    (1,761
    )Decrease (increase) in restricted cash
    
    
    6,892
    
    
    
    (1,995
    )Net cash used in investing activities
    
    
    (115,843
    )
    
    
    (95,327
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term borrowings
    
    
    228,581
    
    
    
    26,977Repayments on long-term borrowings
    
    
    (204,314
    )
    
    
    (65,292
    )Increase in deferred financing costs
    
    
    (1,174
    )
    
    
    (1,061
    )Proceeds from initial public offering, net of underwriting discounts and
offering costs
    
    
    
    
    
    
    80,653Proceeds from exercise of stock options
    
    
    3,360
    
    
    
    887Net cash provided by financing activities
    
    
    26,453
    
    
    
    42,164DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (9,288
    )
    
    
    (1,437
    )CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    10,211
    
    
    
    18,446CASH AND CASH EQUIVALENTS  End of period
    
    $
    923
    
    
    $
    17,009SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest, net of capitalized interest of $3,046 and
$1,091, respectively
    
    $
    11,714
    
    
    $
    12,549Cash payments for income taxes
    
    $
    9,610
    
    
    $
    8,786SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Property and equipment purchases financed through notes payable
    
    $
    
    
    
    $
    2,954Property and equipment purchases financed through capital lease obligations
    
    $
    
    
    
    $
    145
  5




---



##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
 1. Basis of Presentation
    2. Initial Public Offering and Capital Stock
   3. Earnings per Share
  6




---



##### Table of Contents



For the Three
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income applicable to common
shareholders  basic
    
    $
    10,737
    
    
    $
    7,809
    
    
    $
    29,145
    
    
    $
    17,193Add back: accretion on redeemable
preferred stock
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    3,570Net income applicable to common
shareholders  diluted
    
    $
    10,737
    
    
    $
    7,904
    
    
    $
    29,145
    
    
    $
    20,763Weighted average number of common
shares outstanding  basic
    
    
    34,846
    
    
    
    32,533
    
    
    
    34,343
    
    
    
    21,628Effect of dilutive stock options and
restricted stock awards
    
    
    1,630
    
    
    
    2,166
    
    
    
    1,858
    
    
    
    1,930Effect of dilutive redeemable preferred
shares
    
    
    
    
    
    
    686
    
    
    
    
    
    
    
    8,619Weighted average number of common
shares outstanding  diluted
    
    
    36,476
    
    
    
    35,385
    
    
    
    36,201
    
    
    
    32,177Basic earnings per common share
    
    $
    0.31
    
    
    $
    0.24
    
    
    $
    0.85
    
    
    $
    0.79Diluted earnings per common share
    
    $
    0.29
    
    
    $
    0.22
    
    
    $
    0.81
    
    
    $
    0.65
 4. Stock-Based Compensation
 Accounting for Stock Issued to Employees Accounting for
Stock-Based Compensation
 For the Three
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income applicable to common shareholders  basic:As reported
    
    $
    10,737
    
    
    $
    7,809
    
    
    $
    29,145
    
    
    $
    17,193Pro forma
    
    $
    8,944
    
    
    $
    7,120
    
    
    $
    25,494
    
    
    $
    15,913Basic earnings per common share:As reported
    
    $
    0.31
    
    
    $
    0.24
    
    
    $
    0.85
    
    
    $
    0.79Pro forma
    
    $
    0.26
    
    
    $
    0.22
    
    
    $
    0.74
    
    
    $
    0.74Net income applicable to common shareholders 
diluted:As reported
    
    $
    10,737
    
    
    $
    7,904
    
    
    $
    29,145
    
    
    $
    20,763Pro forma
    
    $
    8,944
    
    
    $
    7,215
    
    
    $
    25,494
    
    
    $
    19,483Diluted earnings per common share:As reported
    
    $
    0.29
    
    
    $
    0.22
    
    
    $
    0.81
    
    
    $
    0.65Pro forma
    
    $
    0.25
    
    
    $
    0.20
    
    
    $
    0.70
    
    
    $
    0.61
 7




---



##### Table of Contents



5. Long-Term Debt
    6. Operating Segments
 Disclosures about Segments of an Enterprise and Related
Information
 8




---



##### Table of Contents



Centers
    
    
    All Other
    
    
    ConsolidatedThree months ended September 30, 2005:Revenue
    
    $
    98,548
    
    
    $
    3,064
    
    
    $
    101,612Net income (loss)
    
    $
    12,065
    
    
    $
    (1,328
    )
    
    $
    10,737Provision (benefit) for income taxes
    
    
    8,366
    
    
    
    (923
    )
    
    
    7,443Interest expense, net
    
    
    3,100
    
    
    
    178
    
    
    
    3,278Depreciation and amortization
    
    
    8,351
    
    
    
    1,744
    
    
    
    10,095EBITDA
    
    $
    31,882
    
    
    $
    (329
    )
    
    $
    31,553Total assets
    
    $
    582,981
    
    
    $
    72,684
    
    
    $
    655,665Three months ended September 30, 2004:Revenue
    
    $
    75,952
    
    
    $
    3,233
    
    
    $
    79,185Net income (loss)
    
    $
    9,421
    
    
    $
    (1,517
    )
    
    $
    7,904Provision (benefit) for income taxes
    
    
    6,513
    
    
    
    (1,055
    )
    
    
    5,458Interest expense, net
    
    
    3,810
    
    
    
    475
    
    
    
    4,285Depreciation and amortization
    
    
    6,066
    
    
    
    1,423
    
    
    
    7,489EBITDA
    
    $
    25,810
    
    
    $
    (674
    )
    
    $
    25,136Total assets
    
    $
    462,886
    
    
    $
    76,395
    
    
    $
    539,281Nine months ended September 30, 2005:Revenue
    
    $
    280,177
    
    
    $
    6,370
    
    
    $
    286,547Net income (loss)
    
    $
    33,442
    
    
    $
    (4,297
    )
    
    $
    29,145Provision (benefit) for income taxes
    
    
    23,222
    
    
    
    (2,986
    )
    
    
    20,236Interest expense, net
    
    
    9,287
    
    
    
    1,060
    
    
    
    10,347Depreciation and amortization
    
    
    23,136
    
    
    
    4,883
    
    
    
    28,019EBITDA
    
    $
    89,087
    
    
    $
    (1,340
    )
    
    $
    87,747Total assets
    
    $
    582,981
    
    
    $
    72,684
    
    
    $
    655,665Nine months ended September 30, 2004:Revenue
    
    $
    220,830
    
    
    $
    9,114
    
    
    $
    229,944Net income (loss)
    
    $
    26,432
    
    
    $
    (5,669
    )
    
    $
    20,763Provision (benefit) for income taxes
    
    
    18,368
    
    
    
    (3,940
    )
    
    
    14,428Interest expense, net
    
    
    12,046
    
    
    
    1,300
    
    
    
    13,346Depreciation and amortization
    
    
    17,258
    
    
    
    4,149
    
    
    
    21,407EBITDA
    
    $
    74,104
    
    
    $
    (4,160
    )
    
    $
    69,944Total assets
    
    $
    462,886
    
    
    $
    76,395
    
    
    $
    539,281
  9




---



##### Table of Contents



7. Supplementary Cash Flow Information
  For the Nine Months EndedSeptember 30,2005
    
    
    2004Accounts receivable
    
    $
    (2,518
    )
    
    $
    (1,406
    )Income taxes receivable
    
    
    2,700
    
    
    
    (1,487
    )Inventories
    
    
    (13
    )
    
    
    147Prepaids and other current assets
    
    
    1
    
    
    
    (696
    )Deferred membership origination costs
    
    
    (2,171
    )
    
    
    (875
    )Accounts payable
    
    
    1,976
    
    
    
    (1,849
    )Accrued expenses
    
    
    6,612
    
    
    
    7,168Deferred revenue
    
    
    5,194
    
    
    
    1,892Deferred rent
    
    
    1,676
    
    
    
    756$
    13,457
    
    
    $
    3,650
 8. Commitments and Contingencies
 Litigation
 9. New and Proposed Accounting Pronouncements
 Share-Based Payment
 10




---



##### Table of Contents



ITEM 2.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
   Overview
    11




---



##### Table of Contents



Experience Life
   12




---



##### Table of Contents



Critical Accounting Policies and Estimates
   Results of Operations
  For the
    
    
    For theThree Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004RevenueCenter revenue:Membership dues
    
    
    66.5
    %
    
    
    66.3
    %
    
    
    67.1
    %
    
    
    66.4
    %Enrollment fees
    
    
    5.2
    
    
    
    6.5
    
    
    
    5.4
    
    
    
    6.4In-center revenue
    
    
    25.3
    
    
    
    23.1
    
    
    
    25.3
    
    
    
    23.2Total center revenue
    
    
    97.0
    
    
    
    95.9
    
    
    
    97.8
    
    
    
    96.0Other revenue
    
    
    3.0
    
    
    
    4.1
    
    
    
    2.2
    
    
    
    4.0Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating expensesCenter operations
    
    
    55.7
    
    
    
    53.7
    
    
    
    55.5
    
    
    
    53.1Advertising and marketing
    
    
    4.1
    
    
    
    3.6
    
    
    
    3.9
    
    
    
    4.0General and administrative
    
    
    6.4
    
    
    
    5.4
    
    
    
    7.1
    
    
    
    6.9Other operating
    
    
    3.1
    
    
    
    5.8
    
    
    
    3.2
    
    
    
    5.9Depreciation and amortization
    
    
    9.9
    
    
    
    9.5
    
    
    
    9.8
    
    
    
    9.3Total operating expenses
    
    
    79.2
    
    
    
    78.0
    
    
    
    79.5
    
    
    
    79.2Income from operations
    
    
    20.8
    
    
    
    22.0
    
    
    
    20.5
    
    
    
    20.8Interest expense, net
    
    
    3.2
    
    
    
    5.4
    
    
    
    3.6
    
    
    
    5.8Equity in earnings of affiliate
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3Total other expense
    
    
    2.9
    
    
    
    5.1
    
    
    
    3.3
    
    
    
    5.5Income before income taxes
    
    
    17.9
    
    
    
    16.9
    
    
    
    17.2
    
    
    
    15.3Provision for income taxes
    
    
    7.3
    
    
    
    6.9
    
    
    
    7.0
    
    
    
    6.3Net income
    
    
    10.6
    %
    
    
    10.0
    %
    
    
    10.2
    %
    
    
    9.0
    %Other financial and operating data:Average center revenue per membership
    
    $
    298
    
    
    $
    280
    
    
    $
    883
    
    
    $
    848Average in-center revenue per membership
    
    $
    78
    
    
    $
    67
    
    
    $
    228
    
    
    $
    205Centers open at end of period
    
    
    44
    
    
    
    35
    
    
    
    44
    
    
    
    35Number of memberships at end of period
    
    
    345,818
    
    
    
    285,975
    
    
    
    345,818
    
    
    
    285,975
 13




---



##### Table of Contents



Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004
 Total revenue.
  
    
    66.9% was from membership dues, which increased $15.1 million, due to increased
memberships at new and existing centers.
    
    32.7% was from in-center revenue, which increased $7.4 million primarily as a
result of our members increased use of our personal training, 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 $78 for the three months ended September 30, 2005, from $67 for the three months ended
September 30, 2004.
    
    0.4% was from enrollment fees, which are deferred until a center opens and
recognized on a straight-line basis over 36 months. Enrollment fees increased $0.1 million
for the three months ended September 30, 2005 to $5.3 million. Our number of memberships
increased 20.9%, to 345,818 at September 30, 2005, from 285,975 at September 30, 2004.
  Center operations expenses.
 Advertising and marketing expenses.
 General and administrative expenses.
 14




---



##### Table of Contents



Other operating expenses.
 Depreciation and amortization.
 Interest expense, net.
 Provision for income taxes.
 Net income.
 Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004
 Total revenue.
  
    
    66.9% was from membership dues, which increased $39.7 million, due to increased
memberships at new and existing centers.
    
    32.0% was from in-center revenue, which increased $19.0 million primarily as a
result of our members increased use of our personal training, 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 $228 for the nine months ended September 30, 2005, from $205 for the nine months ended
September 30, 2004.
    
    1.1% was from enrollment fees, which are deferred until a center opens and
recognized on a straight-line basis over 36 months. Enrollment fees increased $0.7 million
for the nine months ended September 30, 2005 to $15.4 million. Our number of memberships
increased 20.9%, to 345,818 at September 30, 2005, from 285,975 at September 30, 2004.
  15




---



##### Table of Contents



Center operations expenses.
 Advertising and marketing expenses.
 General and administrative expenses.
 Other operating expenses.
 Depreciation and amortization.
 Interest expense, net.
 Provision for income taxes.
 Net income.
 16




---



##### Table of Contents



Liquidity and Capital Resources
 Liquidity
  Operating Activities
   Investing Activities
   17




---



##### Table of Contents



For the Nine MonthsEnded September 30,2005
    
    
    2004(In thousands)Purchases of property and equipment
    
    $
    122,155
    
    
    $
    94,682Non-cash property and equipment purchases
financed through notes payable
    
    
    
    
    
    
    2,954Non-cash property and equipment purchases
financed through capital lease
obligations
    
    
    
    
    
    
    145Total capital expenditures
    
    $
    122,155
    
    
    $
    97,781
  For the Nine MonthsEnded September 30,2005
    
    
    2004(In thousands)Capital expenditures for new land and construction
    
    $
    102,142
    
    
    $
    82,828Capital expenditures for updating existing
centers and corporate infrastructure
    
    
    20,013
    
    
    
    14,953Total capital expenditures
    
    $
    122,155
    
    
    $
    97,781
   Financing Activities
   18




---



##### Table of Contents



Factors That May Affect Future Results
 If we are unable to identify and acquire suitable sites for new sports and athletic, professional
fitness, family recreation and resort/spa centers, our revenue growth rate and profits may be
negatively impacted.
  We may be unable to attract and retain members, which could have a negative effect on our business.
  19




---



##### Table of Contents



Delays in new center openings could have a material adverse affect on our financial performance.
  
    
    obtaining acceptable financing for construction of new sites;
    
    obtaining entitlements, permits and licenses necessary to complete construction of the
new center on schedule;
    
    recruiting, training and retaining qualified management and other personnel;
    
    securing access to labor and materials necessary to develop and construct our centers;
    
    delays due to material shortages, labor issues, weather conditions or other acts of God,
discovery of contaminants, accidents, deaths or injunctions; and
    
    general economic conditions.
 Our continued growth could place strains on our management, employees, information systems and
internal controls which may adversely impact our business and the value of our shareholders
investment.
  The opening of new centers in existing locations may negatively impact our comparable-center
revenue increases and our operating margins.
  20




---



##### Table of Contents



Our debt levels may limit our flexibility in obtaining additional financing and in pursuing other
business opportunities.
   
    
    our ability to obtain additional financing, if necessary, for capital expenditures,
working capital, acquisitions or other purposes may be impaired or such financing may not be
available on favorable terms;
    
    we will need a substantial portion of our cash flow to pay the principal of, and interest
on, our indebtedness, including indebtedness that we may incur in the future;
    
    payments on our indebtedness will reduce the funds that would otherwise be available for
our operations and future business opportunities;
    
    a substantial decrease in our cash flows from operations could make it difficult for us
to meet our debt service requirements and force us to modify our operations;
    
    we may be more highly leveraged than our competitors, which may place us at a competitive
disadvantage;
    
    our debt level may make us more vulnerable and less flexible than our competitors to a
downturn in our business or the economy in general; and
    
    some of our debt has a variable rate of interest, which increases our vulnerability to
interest rate fluctuations.
  Because of the capital-intensive nature of our business, we may have to incur additional
indebtedness or issue new equity securities and, if we are not able to obtain additional capital,
our ability to operate or expand our business may be impaired and our operating results could be
adversely affected.
  21




---



##### Table of Contents



The health club industry is highly competitive and our competitors may have greater name
recognition than we have.
  Competitors could copy our business model and erode our market share, brand recognition and
profitability.
  We have significant operations concentrated in certain geographic areas, and any disruption in the
operations of our centers in any of these areas could harm our operating results.
  If we cannot retain our key personnel and hire additional highly qualified personnel, we may not be
able to successfully manage our operations and pursue our strategic objectives.
  If our founder and chief executive officer leaves our company for any reason, it could have a
material adverse effect on us.
  22




---



##### Table of Contents



We could be subject to claims related to health or safety risks at our centers.
  We are subject to extensive government regulation, and changes in these regulations could have a
negative effect on our financial condition and results of operations.
  
    
    general rules and regulations of the Federal Trade Commission, state and local consumer
protection agencies and state statutes that prescribe certain forms and provisions of
membership contracts and that govern the advertising, sale and collection of our
memberships;
    
    state and local health regulations; and
    
    regulation of rehabilitation service providers.
 We have introduced other business initiatives that may not become profitable.
  We could be subject to claims related to our nutritional products.
  23




---



##### Table of Contents



If it becomes necessary to protect or defend our intellectual property rights or if we infringe on
the intellectual property rights of others, we may be required to pay royalties or fees or become
involved in costly litigation.
  Our business could be affected by acts of war or terrorism.
  We will be exposed to risks relating to evaluations of controls required by Section 404 of the
Sarbanes-Oxley Act of 2002.
  24




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  25




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  26




---



##### Table of Contents



ITEM 6. EXHIBITS
 Exhibits filed with this report
 Exhibit No.
    
    Description
    
    Method of Filing3.1
    
    Amended and Restated Articles of
Incorporation of the Registrant
    
    Incorporated by
reference to Exhibit 3.1
to the Registrants 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 Registrants
Registration Statement
of 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, 200410.1
    
    Amendment No. 1 to Credit Agreement
and Consent, dated as of September
30, 2005, among the Company, 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
    
    Filed Electronically31.1
    
    Rule 13a-14(a)/15d-14(a)
Certification by Principal
Executive Officer
    
    Filed Electronically31.2
    
    Rule 13a-14(a)/15d-14(a)
Certification by Principal
Financial Officer
    
    Filed Electronically32
    
    Section 1350 Certifications
    
    Filed Electronically
 27




---



##### Table of Contents



SIGNATURES
  LIFE TIME FITNESS, INC.By:
    /s/ Bahram AkradiName:
    Bahram AkradiTitle:
    Chairman of the Board of Directors, President and
Chief Executive Officer
(Principal Executive Officer and Director) By:
    /s/ Michael R. RobinsonName:
    Michael R. RobinsonTitle:
    Executive Vice President and Chief Financial Officer
(Principal Financial Officer) By:
    /s/ John M. HugoName:
    John M. HugoTitle:
    Controller
(Principal Accounting Officer) 28




---



##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.
    
    Description
    
    Page3.1
    
    Amended and Restated Articles of
Incorporation of the Registrant
    
    Incorporated by
reference to Exhibit 3.1
to the Registrants 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 Registrants
Registration Statement
of 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, 200410.1
    
    Amendment No. 1 to Credit Agreement
and Consent, dated as of September
30, 2005, among the Company, 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
    
    Filed Electronically31.1
    
    Rule 13a-14(a)/15d-14(a)
Certification by Principal
Executive Officer
    
    Filed Electronically31.2
    
    Rule 13a-14(a)/15d-14(a)
Certification by Principal
Financial Officer
    
    Filed Electronically32
    
    Section 1350 Certifications
    
    Filed Electronically
 29