##### 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, 2006
 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
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of September 30, 2006 and December 31, 2005 (unaudited)
    
    
    3Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2006 and 2005
(unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005 (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
    
    
    17Item 4. Controls and Procedures
    
    
    17PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    18Item 1A. Risk Factors
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3. Defaults Upon Senior Securities
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Item 5. Other Information
    
    
    18Item 6. Exhibits
    
    
    19SIGNATURES
    
    
    20Lease AgreementGuaranty and Suretyship AgreementPurchase and Sale AgreementCertification by Principal Executive OfficerCertification by Principal Financial Accounting OfficerSection 1350 Certifications
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##### 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)
(Unaudited)
 September 30,
    
    
    December 31,2006
    
    
    2005ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    6,570
    
    
    $
    4,680Accounts receivable, net
    
    
    1,937
    
    
    
    4,267Inventories
    
    
    6,944
    
    
    
    5,669Prepaid expenses and other current assets
    
    
    9,544
    
    
    
    7,187Deferred membership origination costs
    
    
    11,988
    
    
    
    10,082Income tax receivable
    
    
    1,661
    
    
    
    3,510Total current assets
    
    
    38,644
    
    
    
    35,395PROPERTY AND EQUIPMENT, net
    
    
    811,674
    
    
    
    661,371RESTRICTED CASH
    
    
    5,179
    
    
    
    3,915DEFERRED MEMBERSHIP ORIGINATION COSTS
    
    
    9,509
    
    
    
    8,410OTHER ASSETS
    
    
    30,865
    
    
    
    14,369TOTAL ASSETS
    
    $
    895,871
    
    
    $
    723,460LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    16,498
    
    
    $
    14,447Accounts payable
    
    
    10,553
    
    
    
    9,964Construction accounts payable
    
    
    36,662
    
    
    
    25,811Accrued expenses
    
    
    38,925
    
    
    
    27,862Deferred revenue
    
    
    30,245
    
    
    
    23,434Total current liabilities
    
    
    132,883
    
    
    
    101,518LONG-TERM DEBT, net of current portion
    
    
    317,404
    
    
    
    258,835DEFERRED RENT LIABILITY
    
    
    25,757
    
    
    
    5,492DEFERRED INCOME TAXES
    
    
    38,968
    
    
    
    35,419DEFERRED REVENUE
    
    
    15,181
    
    
    
    14,352Total liabilities
    
    
    530,193
    
    
    
    415,616COMMITMENTS AND CONTINGENCIES (Note 7)SHAREHOLDERS EQUITY:Undesignated preferred stock, 10,000,000 shares authorized; none issued or outstanding
    
    
    
    
    
    
    Common stock, $.02 par value, 50,000,000 shares authorized; 36,291,916 and 35,570,567
shares issued and outstanding, respectively
    
    
    726
    
    
    
    712Additional paid-in capital
    
    
    247,189
    
    
    
    228,132Deferred compensation
    
    
    
    
    
    
    (2,306
    )Retained earnings
    
    
    117,763
    
    
    
    81,306Total shareholders equity
    
    
    365,678
    
    
    
    307,844TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    895,871
    
    
    $
    723,460
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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 For the Three
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUE:Membership dues
    
    $
    88,774
    
    
    $
    67,589
    
    
    $
    245,123
    
    
    $
    192,379Enrollment fees
    
    
    6,073
    
    
    
    5,279
    
    
    
    16,717
    
    
    
    15,415In-center revenue
    
    
    36,319
    
    
    
    25,680
    
    
    
    102,440
    
    
    
    72,383Total center revenue
    
    
    131,166
    
    
    
    98,548
    
    
    
    364,280
    
    
    
    280,177Other revenue
    
    
    3,575
    
    
    
    3,064
    
    
    
    8,341
    
    
    
    6,370Total revenue
    
    
    134,741
    
    
    
    101,612
    
    
    
    372,621
    
    
    
    286,547OPERATING EXPENSES:Center operations (including
$455, $0, $1,732 and $0
related to share-based
compensation expense,
respectively)
    
    
    77,711
    
    
    
    56,631
    
    
    
    211,344
    
    
    
    159,029Advertising and marketing
    
    
    4,933
    
    
    
    4,161
    
    
    
    15,504
    
    
    
    11,072General and administrative
(including $789, $24, $4,437,
and $78 related to share-based
compensation expense,
respectively)
    
    
    8,729
    
    
    
    6,536
    
    
    
    28,405
    
    
    
    20,357Other operating
    
    
    3,858
    
    
    
    3,014
    
    
    
    9,491
    
    
    
    9,178Depreciation and amortization
    
    
    11,716
    
    
    
    10,095
    
    
    
    35,381
    
    
    
    28,019Total operating expenses
    
    
    106,947
    
    
    
    80,437
    
    
    
    300,125
    
    
    
    227,655Income from operations
    
    
    27,794
    
    
    
    21,175
    
    
    
    72,496
    
    
    
    58,892OTHER INCOME (EXPENSE):Interest expense, net of
interest income of $49, $45,
$198 and $169, respectively
    
    
    (4,204
    )
    
    
    (3,278
    )
    
    
    (12,461
    )
    
    
    (10,347
    )Equity in earnings of affiliate
    
    
    188
    
    
    
    283
    
    
    
    682
    
    
    
    836Total other income (expense)
    
    
    (4,016
    )
    
    
    (2,995
    )
    
    
    (11,779
    )
    
    
    (9,511
    )INCOME BEFORE INCOME TAXES
    
    
    23,778
    
    
    
    18,180
    
    
    
    60,717
    
    
    
    49,381PROVISION FOR INCOME TAXES
    
    
    10,139
    
    
    
    7,443
    
    
    
    24,260
    
    
    
    20,236NET INCOME
    
    $
    13,639
    
    
    $
    10,737
    
    
    $
    36,457
    
    
    $
    29,145BASIC EARNINGS PER COMMON SHARE
    
    $
    0.38
    
    
    $
    0.31
    
    
    $
    1.01
    
    
    $
    0.85DILUTED EARNINGS PER COMMON SHARE
    
    $
    0.37
    
    
    $
    0.29
    
    
    $
    0.99
    
    
    $
    0.81WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING  BASIC
    
    
    36,172
    
    
    
    34,846
    
    
    
    36,006
    
    
    
    34,343WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING  DILUTED
    
    
    37,060
    
    
    
    36,476
    
    
    
    36,976
    
    
    
    36,201
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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 For the Nine Months EndedSeptember 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    36,457
    
    
    $
    29,145Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    35,381
    
    
    
    28,019Deferred income taxes
    
    
    3,549
    
    
    
    3,011Loss on disposal of property and equipment, net
    
    
    562
    
    
    
    421Amortization of deferred financing costs
    
    
    517
    
    
    
    864Share-based compensation
    
    
    6,169
    
    
    
    141Excess tax benefit from exercise of stock options
    
    
    (5,406
    )
    
    
    Changes in operating assets and liabilities
    
    
    25,653
    
    
    
    18,373Other
    
    
    127
    
    
    
    128Net cash provided by operating activities
    
    
    103,009
    
    
    
    80,102CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (172,598
    )
    
    
    (124,837
    )Proceeds from sale of property and equipment
    
    
    6,571
    
    
    
    3,842Proceeds from property insurance settlement
    
    
    464
    
    
    
    Increase in other assets
    
    
    (8,663
    )
    
    
    (1,740
    )Decrease (increase) in restricted cash
    
    
    (1,264
    )
    
    
    6,892Net cash used in investing activities
    
    
    (175,490
    )
    
    
    (115,843
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term borrowings
    
    
    1,650
    
    
    
    228,581Repayments on long-term borrowings
    
    
    (15,938
    )
    
    
    (204,314
    )Proceeds from revolving credit facility, net
    
    
    75,000
    
    
    
    Increase in deferred financing costs
    
    
    (672
    )
    
    
    (1,174
    )Excess tax benefit from exercise of stock options
    
    
    5,406
    
    
    
    Proceeds from exercise of stock options
    
    
    8,925
    
    
    
    3,360Net cash provided by financing activities
    
    
    74,371
    
    
    
    26,453INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    1,890
    
    
    
    (9,288
    )CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    4,680
    
    
    
    10,211CASH AND CASH EQUIVALENTS  End of period
    
    $
    6,570
    
    
    $
    923SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest, including capitalized interest of $3,575 and $3,046, respectively
    
    $
    14,743
    
    
    $
    11,714Cash payments for income taxes
    
    $
    13,489
    
    
    $
    9,610
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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
   2. Share-Based Compensation
    6




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Three Months Ended
    
    
    Nine Months Ended,September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Share-based compensation expense related to stock options
    
    $
    821
    
    
    $
    
    
    
    $
    5,045
    
    
    $
    Share-based compensation expense related to restricted shares
    
    
    423
    
    
    
    24
    
    
    
    1,124
    
    
    
    78Total share-based compensation expense
    
    $
    1,244
    
    
    $
    24
    
    
    $
    6,169
    
    
    $
    78
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2005
    
    
    September 30, 2005Net income, as reported
    
    $
    10,737
    
    
    $
    29,145Net income, pro forma
    
    $
    8,944
    
    
    $
    25,494Basic earnings per common share:As reported
    
    $
    0.31
    
    
    $
    0.85Pro forma
    
    $
    0.26
    
    
    $
    0.74Diluted earnings per common share:As reported
    
    $
    0.29
    
    
    $
    0.81Pro forma
    
    $
    0.25
    
    
    $
    0.70
  Weighted
    
    
    WeightedAverage
    
    
    AverageExercise
    
    
    Remaining
    
    
    AggregatePrice per
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Share
    
    
    Term (in years)
    
    
    ValueOutstanding on December 31, 2005
    
    
    2,757,666
    
    
    $
    17.01Granted
    
    
    65,638
    
    
    
    46.37Exercised
    
    
    (683,843
    )
    
    
    13.05Canceled
    
    
    (9,200
    )
    
    
    13.93Outstanding on September 30, 2006
    
    
    2,130,261
    
    
    $
    19.20
    
    
    
    7.35
    
    
    $
    57,708,252Exercisable on September 30, 2006
    
    
    1,151,983
    
    
    $
    15.65
    
    
    
    6.72
    
    
    $
    35,293,700
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Three Months Ended September 30,
    
    Nine Months Ended September 30,Weighted Average Valuation Assumptions (1)
    
    2006
    
    2005
    
    2006
    
    2005Risk-free interest rate (2)
    
    
    4.7
    %
    
    
    3.9
    %
    
    
    4.9
    %
    
    
    4.0
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected stock price volatility (3)
    
    
    36.0
    %
    
    
    38.2
    %
    
    
    36.0
    %
    
    
    43.5
    %Expected life of stock options (in years) (3)
    
    
    5.0
    
    
    
    6.0
    
    
    
    5.0
    
    
    
    6.0
 
 (1)
    
    Forfeitures are estimated based on historical experience and projected employee turnover and
are adjusted as necessary when information becomes available suggesting that actual
forfeitures differ from estimates.(2)
    
    Based on the five-year Treasury constant maturity interest rate whose term 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.    3. Earnings per Share
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    13,639
    
    
    $
    10,737
    
    
    $
    36,457
    
    
    $
    29,145Weighted average number of
common shares outstanding 
basic
    
    
    36,172
    
    
    
    34,846
    
    
    
    36,006
    
    
    
    34,343Effect of dilutive stock options
and unvested restricted stock
awards
    
    
    888
    
    
    
    1,630
    
    
    
    970
    
    
    
    1,858Weighted average number of
common shares outstanding 
diluted
    
    
    37,060
    
    
    
    36,476
    
    
    
    36,976
    
    
    
    36,201Basic earnings per common share
    
    $
    0.38
    
    
    $
    0.31
    
    
    $
    1.01
    
    
    $
    0.85Diluted earnings per common share
    
    $
    0.37
    
    
    $
    0.29
    
    
    $
    0.99
    
    
    $
    0.81
 8




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4. Operating Segments
   Centers
    
    
    All Other
    
    
    ConsolidatedThree months ended September 30, 2006:Revenue
    
    $
    131,166
    
    
    $
    3,575
    
    
    $
    134,741Net income (loss)
    
    $
    15,302
    
    
    $
    (1,663
    )
    
    $
    13,639Provision (benefit) for income taxes
    
    
    11,248
    
    
    
    (1,109
    )
    
    
    10,139Interest expense, net
    
    
    3,126
    
    
    
    1,078
    
    
    
    4,204Depreciation and amortization
    
    
    10,250
    
    
    
    1,466
    
    
    
    11,716EBITDA
    
    $
    39,926
    
    
    $
    (228
    )
    
    $
    39,698Total assets
    
    $
    779,345
    
    
    $
    116,526
    
    
    $
    895,871Three months ended September 30, 2005:Revenue
    
    $
    98,548
    
    
    $
    3,064
    
    
    $
    101,612Net income (loss)
    
    $
    12,077
    
    
    $
    (1,340
    )
    
    $
    10,737Provision (benefit) for income taxes
    
    
    8,336
    
    
    
    (893
    )
    
    
    7,443Interest expense, net
    
    
    3,100
    
    
    
    178
    
    
    
    3,278Depreciation and amortization
    
    
    8,368
    
    
    
    1,727
    
    
    
    10,095EBITDA
    
    $
    31,881
    
    
    $
    (328
    )
    
    $
    31,553Total assets
    
    $
    582,981
    
    
    $
    72,684
    
    
    $
    655,665Nine months ended September 30, 2006:Revenue
    
    $
    364,280
    
    
    $
    8,341
    
    
    $
    372,621Net income (loss)
    
    $
    40,971
    
    
    $
    (4,514
    )
    
    $
    36,457Provision (benefit) for income taxes
    
    
    27,270
    
    
    
    (3,010
    )
    
    
    24,260Interest expense, net
    
    
    9,659
    
    
    
    2,802
    
    
    
    12,461Depreciation and amortization
    
    
    30,913
    
    
    
    4,468
    
    
    
    35,381EBITDA
    
    $
    108,813
    
    
    $
    (254
    )
    
    $
    108,559Total assets
    
    $
    779,345
    
    
    $
    116,526
    
    
    $
    895,871Nine months ended September 30, 2005:Revenue
    
    $
    280,177
    
    
    $
    6,370
    
    
    $
    286,547Net income (loss)
    
    $
    33,511
    
    
    $
    (4,366
    )
    
    $
    29,145Provision (benefit) for income taxes
    
    
    23,271
    
    
    
    (3,035
    )
    
    
    20,236Interest expense, net
    
    
    8,972
    
    
    
    1,375
    
    
    
    10,347Depreciation and amortization
    
    
    23,153
    
    
    
    4,866
    
    
    
    28,019EBITDA
    
    $
    88,907
    
    
    $
    (1,160
    )
    
    $
    87,747Total assets
    
    $
    582,981
    
    
    $
    72,684
    
    
    $
    655,665
 9




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5. Supplementary Cash Flow Information
  For the Nine Months EndedSeptember 30,2006
    
    
    2005Accounts receivable
    
    $
    2,330
    
    
    $
    (2,518
    )Income taxes receivable
    
    
    7,255
    
    
    
    2,700Tax benefit from exercise of stock options
    
    
    
    
    
    
    4,916Inventories
    
    
    (1,275
    )
    
    
    (13
    )Prepaids and other current assets
    
    
    (2,357
    )
    
    
    1Deferred membership origination costs
    
    
    (3,005
    )
    
    
    (2,171
    )Accounts payable
    
    
    1,415
    
    
    
    1,976Accrued expenses
    
    
    11,063
    
    
    
    6,612Deferred revenue
    
    
    7,640
    
    
    
    5,194Deferred rent
    
    
    2,587
    
    
    
    1,676Changes in operating assets and liabilities
    
    $
    25,653
    
    
    $
    18,373
 6. July 26, 2006 Health and Fitness Facilities Transactions
  7. Commitments and Contingencies
 Litigation
 10




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




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Experience Life
   Critical Accounting Policies and Estimates
   12




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Results of Operations
  For the Three
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005RevenueCenter revenue:Membership dues
    
    
    65.9
    %
    
    
    66.5
    %
    
    
    65.8
    %
    
    
    67.1
    %Enrollment fees
    
    
    4.5
    
    
    
    5.2
    
    
    
    4.5
    
    
    
    5.4In-center revenue
    
    
    27.0
    
    
    
    25.3
    
    
    
    27.5
    
    
    
    25.3Total center revenue
    
    
    97.4
    
    
    
    97.0
    
    
    
    97.8
    
    
    
    97.8Other revenue
    
    
    2.6
    
    
    
    3.0
    
    
    
    2.2
    
    
    
    2.2Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating expensesCenter operations (including 0.3%,
0.0%, 0.5% and 0.0% related to
share-based compensation expense,
respectively)
    
    
    57.7
    
    
    
    55.7
    
    
    
    56.7
    
    
    
    55.5Advertising and marketing
    
    
    3.6
    
    
    
    4.1
    
    
    
    4.2
    
    
    
    3.9General and administrative (including
0.6%, 0.0%, 1.2% and 0.0% related to
share-based compensation expense,
respectively)
    
    
    6.5
    
    
    
    6.4
    
    
    
    7.5
    
    
    
    7.1Other operating
    
    
    2.9
    
    
    
    3.1
    
    
    
    2.6
    
    
    
    3.2Depreciation and amortization
    
    
    8.7
    
    
    
    9.9
    
    
    
    9.5
    
    
    
    9.8Total operating expenses
    
    
    79.4
    
    
    
    79.2
    
    
    
    80.5
    
    
    
    79.5Income from operations
    
    
    20.6
    
    
    
    20.8
    
    
    
    19.5
    
    
    
    20.5Other income (expense)Interest expense, net
    
    
    (3.1
    )
    
    
    (3.2
    )
    
    
    (3.3
    )
    
    
    (3.6
    )Equity in earnings of affiliate
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.3Total other income (expense)
    
    
    (3.0
    )
    
    
    (2.9
    )
    
    
    (3.2
    )
    
    
    (3.3
    )Income before income taxes
    
    
    17.6
    
    
    
    17.9
    
    
    
    16.3
    
    
    
    17.2Provision for income taxes
    
    
    7.5
    
    
    
    7.3
    
    
    
    6.5
    
    
    
    7.0Net income
    
    
    10.1
    %
    
    
    10.6
    %
    
    
    9.8
    %
    
    
    10.2
    %Other financial and operating data:Average center revenue per membership
    
    $
    328
    
    
    $
    298
    
    
    $
    958
    
    
    $
    883Average in-center revenue per membership
    
    $
    91
    
    
    $
    78
    
    
    $
    269
    
    
    $
    228Centers open at end of period
    
    
    56
    
    
    
    44
    
    
    
    56
    
    
    
    44Number of memberships at end of period
    
    
    427,765
    
    
    
    345,818
    
    
    
    427,765
    
    
    
    345,818
 Three Months Ended September 30, 2006, Compared to Three Months Ended September 30, 2005
 Total revenue.
  
    
    65.0% was from membership dues, which increased $21.2 million, due to increased
memberships at new and existing centers, the introduction of junior membership programs
and increased sales of Sports and other value-added memberships.
    
    32.6% was from in-center revenue, which increased $10.6 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 $91 for the three months ended September 30, 2006, from $78 for the three
months ended September 30, 2005.
    
    2.4% was from enrollment fees, which are deferred until a center opens and recognized
on a straight-line basis over 36 months. Enrollment fees increased $0.8 million for the
three months ended September 30, 2006 to $6.1 million. Our number of memberships increased
23.7%, to 427,765 at September 30, 2006, from 345,818 at September 30, 2005.
 13




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##### 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.
 Nine Months Ended September 30, 2006, Compared to Nine Months Ended September 30, 2005
 Total revenue.
  
    
    62.7% was from membership dues, which increased $52.7 million, due to increased
memberships at new and existing centers, the introduction of junior membership programs
and increased sales of Sports and other value-added memberships.
 14




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##### Table of Contents




    
    35.7% was from in-center revenue, which increased $30.1 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 $269 for the nine months ended September 30, 2006, from $228 for the nine
months ended September 30, 2005.
    
    1.6% was from enrollment fees, which are deferred until a center opens and recognized
on a straight-line basis over 36 months. Enrollment fees increased $1.3 million for the
nine months ended September 30, 2006 to $16.7 million. Our number of memberships increased
23.7%, to 427,765 at September 30, 2006, from 345,818 at September 30, 2005.
  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.
 15




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##### Table of Contents



Liquidity and Capital Resources
 Liquidity
  Operating Activities
   Investing Activities
    For the Nine Months EndedSeptember 30,2006
    
    
    2005(In thousands)Capital expenditures for new center land, building and construction
    
    $
    148,667
    
    
    $
    113,841Capital expenditures for updating existing centers and corporate infrastructure
    
    
    23,931
    
    
    
    10,996Total capital expenditures
    
    $
    172,598
    
    
    $
    124,837
   16




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##### Table of Contents



Financing Activities
     
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  17




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  The anticipated benefits of operating additional leased centers may not be realized.
  
 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
  18




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##### Table of Contents



ITEM 6. EXHIBITS
 Exhibits filed with this report
 ExhibitNo.
    
    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 on Form S-1 (File No. 333-113764),
filed with the Commission on May 21, 20044
    
    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
    
    Lease Agreement with Well-Prop (Multi) LLC
dated July 26, 2006
    
    Filed Electronically10.2
    
    Guaranty and Suretyship Agreement with
Well-Prop (Multi) LLC dated July 26, 2006
    
    Filed Electronically10.3
    
    Purchase and Sale Agreement with Well-Prop
(Multi) LLC dated July 26, 2006
    
    Filed Electronically10.4
    
    Modification to 2006 Key Executive Incentive
Compensation Plan dated September 19, 2006
    
    Incorporated by reference to Item 10.1 to the
Registrants Form 8-K dated September 19, 2006
(File No. 001-32230)31.1
    
    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 and Accounting Officer
    
    Filed Electronically32
    
    Section 1350 Certifications
    
    Filed Electronically
 19




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##### 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) 20




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNo.
    
    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 on Form S-1 (File No. 333-113764),
filed with the Commission on May 21, 20044
    
    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
    
    Lease Agreement with Well-Prop (Multi) LLC
dated July 26, 2006
    
    Filed Electronically10.2
    
    Guaranty and Suretyship Agreement with
Well-Prop (Multi) LLC dated July 26, 2006
    
    Filed Electronically10.3
    
    Purchase and Sale Agreement with Well-Prop
(Multi) LLC dated July 26, 2006
    
    Filed Electronically10.4
    
    Modification to 2006 Key Executive Incentive
Compensation Plan dated September 19, 2006
    
    Incorporated by reference to Item 10.1 to the
Registrants Form 8-K dated September 19, 2006
(File No. 001-32230)31.1
    
    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 and Accounting Officer
    
    Filed Electronically32
    
    Section 1350 Certifications
    
    Filed Electronically
 21