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WASHINGTON, D.C. 20549
   FORM 10-Q   x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2004 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)
 Registrants 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 o No x Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes o No x The number of shares outstanding of the Registrants common stock as of
July 15, 2004 was 33,666,456 common shares.




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TABLE OF CONTENTS PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    3Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003
    
    
    3Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 (unaudited)
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3.
    
    Quantitative and Qualitative Disclosure about Market Risk
    
    
    23Item 4.
    
    Controls and Procedures
    
    
    24PART II.
    
    OTHER INFORMATION
    
    
    24Item 1.
    
    Legal Proceedings
    
    
    24Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    24Item 3.
    
    Defaults upon Senior Securities
    
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25Item 5.
    
    Other Information
    
    
    27Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    27SIGNATURES
    
    
    28Amended & Restated Articles of IncorporationSchedule of Parties to Executive Employment AgreementsForm of Incentive Stock OptionForm of Non-Qualified Stock OptionAmended/Restated Master Construction & Term Loan AgreementRule 13a-14(a) Certification of Principal Executive OfficerRule 13a-14(a) Certification of Principal Financial OfficerSection 1350 Certifications




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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)
 June 30,
    
    December 31,2004
    
    2003(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    426
    
    
    $
    18,446Accounts receivable, net
    
    
    2,146
    
    
    
    1,217Inventories
    
    
    4,282
    
    
    
    4,654Prepaid expenses and other current assets
    
    
    5,681
    
    
    
    6,977Deferred membership origination costs
    
    
    8,201
    
    
    
    7,363Deferred tax asset
    
    
    5,435
    
    
    
    5,368Income tax receivable
    
    
    1,233
    
    
    
    2,547Total current assets
    
    
    27,404
    
    
    
    46,572PROPERTY AND EQUIPMENT, net
    
    
    425,728
    
    
    
    379,193RESTRICTED CASH
    
    
    11,743
    
    
    
    10,972DEFERRED MEMBERSHIP ORIGINATION COSTS
    
    
    5,952
    
    
    
    5,942OTHER ASSETS
    
    
    13,918
    
    
    
    10,667TOTAL ASSETS
    
    $
    484,745
    
    
    $
    453,346LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    55,477
    
    
    $
    18,278Accounts payable
    
    
    5,518
    
    
    
    6,171Construction accounts payable
    
    
    16,772
    
    
    
    6,522Accrued expenses
    
    
    17,258
    
    
    
    13,105Deferred revenue
    
    
    21,479
    
    
    
    17,836Total current liabilities
    
    
    116,504
    
    
    
    61,912LONG-TERM DEBT, net of current portion
    
    
    178,544
    
    
    
    214,954DEFERRED RENT LIABILITY
    
    
    3,158
    
    
    
    2,660DEFERRED INCOME TAXES
    
    
    23,145
    
    
    
    23,196DEFERRED REVENUE
    
    
    11,184
    
    
    
    11,667Total liabilities
    
    
    332,535
    
    
    
    314,389COMMITMENTS AND CONTINGENCIES (Note 7)REDEEMABLE PREFERRED STOCK:Series B redeemable preferred stock, $.02
par value; 1,000,000 shares authorized,
issued and outstanding each period
    
    
    27,700
    
    
    
    27,003Series C redeemable preferred stock, $.02
par value; 4,500,000 shares authorized,
issued and outstanding each period
    
    
    58,032
    
    
    
    56,029Series D redeemable preferred stock, $.02
par value; 2,000,000 shares authorized,
1,946,250 shares issued and outstanding
each period
    
    
    23,907
    
    
    
    23,133Total redeemable preferred stock
    
    
    109,639
    
    
    
    106,165SHAREHOLDERS EQUITY:Undesignated preferred stock, 2,500,000
shares authorized; none issued or
outstandingCommon stock, $.02 par value, 50,000,000
shares authorized; 16,237,082 and
16,146,607 shares issued and outstanding,
respectively; 4,383,577 and 0 shares
subscribed, respectively
    
    
    412
    
    
    
    323Additional paid-in capital
    
    
    93,439
    
    
    
    17,714Subscription receivable (Note 2)
    
    
    (75,420
    )
    
    
    Retained earnings
    
    
    24,140
    
    
    
    14,755Total shareholders equity
    
    
    42,571
    
    
    
    32,792TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    484,745
    
    
    $
    453,346
 See notes to unaudited consolidated financial statements. 3




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
 For the Three Months Ended
    
    For the Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003REVENUE:Membership dues
    
    $
    51,005
    
    
    $
    42,407
    
    
    $
    100,184
    
    
    $
    82,325Enrollment fees
    
    
    5,189
    
    
    
    5,074
    
    
    
    10,035
    
    
    
    9,980In-center revenue
    
    
    17,740
    
    
    
    13,742
    
    
    
    34,659
    
    
    
    26,674Total center revenue
    
    
    73,934
    
    
    
    61,223
    
    
    
    144,878
    
    
    
    118,979Other revenue
    
    
    2,655
    
    
    
    2,351
    
    
    
    5,881
    
    
    
    4,876Total revenue
    
    
    76,589
    
    
    
    63,574
    
    
    
    150,759
    
    
    
    123,855OPERATING EXPENSES:Sports, fitness and family
recreation center operations
    
    
    40,466
    
    
    
    32,637
    
    
    
    79,519
    
    
    
    63,342Advertising and marketing
    
    
    2,774
    
    
    
    2,179
    
    
    
    6,454
    
    
    
    4,869General and administrative
    
    
    5,599
    
    
    
    4,840
    
    
    
    11,549
    
    
    
    10,598Other operating
    
    
    4,393
    
    
    
    3,506
    
    
    
    8,949
    
    
    
    7,110Depreciation and amortization
    
    
    6,971
    
    
    
    6,240
    
    
    
    13,918
    
    
    
    12,074Total operating expenses
    
    
    60,203
    
    
    
    49,402
    
    
    
    120,389
    
    
    
    97,993Income from operations
    
    
    16,386
    
    
    
    14,172
    
    
    
    30,370
    
    
    
    25,862OTHER INCOME (EXPENSE):Interest expense, net
    
    
    (4,449
    )
    
    
    (4,908
    )
    
    
    (9,061
    )
    
    
    (9,471
    )Equity in earnings of affiliate
    
    
    267
    
    
    
    162
    
    
    
    520
    
    
    
    313Total other income (expense)
    
    
    (4,182
    )
    
    
    (4,746
    )
    
    
    (8,541
    )
    
    
    (9,158
    )INCOME BEFORE INCOME TAXES
    
    
    12,204
    
    
    
    9,426
    
    
    
    21,829
    
    
    
    16,704PROVISION FOR INCOME TAXES
    
    
    4,993
    
    
    
    3,972
    
    
    
    8,970
    
    
    
    7,039NET INCOME
    
    
    7,211
    
    
    
    5,454
    
    
    
    12,859
    
    
    
    9,665ACCRETION ON REDEEMABLE
PREFERRED STOCK
    
    
    1,737
    
    
    
    1,742
    
    
    
    3,474
    
    
    
    3,465NET INCOME APPLICABLE TO COMMON
SHAREHOLDERS
    
    $
    5,474
    
    
    $
    3,712
    
    
    $
    9,385
    
    
    $
    6,200BASIC EARNINGS PER COMMON SHARE
    
    $
    0.34
    
    
    $
    0.23
    
    
    $
    0.58
    
    
    $
    0.39DILUTED EARNINGS PER COMMON
SHARE
    
    $
    0.25
    
    
    $
    0.20
    
    
    $
    0.44
    
    
    $
    0.35
 See notes to unaudited consolidated financial statements. 4




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 For the SixMonths EndedJune 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    12,859
    
    
    $
    9,665Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    13,918
    
    
    
    12,074Deferred income taxes
    
    
    (118
    )
    
    
    5,016Loss on disposal of property, net
    
    
    128
    
    
    
    221Amortization of deferred financing costs
    
    
    704
    
    
    
    683Compensation cost related to stock options
    
    
    149
    
    
    
    Changes in operating assets and liabilities
    
    
    8,719
    
    
    
    2,013Net cash provided by operating activities
    
    
    36,359
    
    
    
    29,672CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment (excluding non-cash purchases
supplementally noted below)
    
    
    (58,721
    )
    
    
    (9,188
    )Increase (decrease) in construction accounts payable
    
    
    9,894
    
    
    
    (3,509
    )Proceeds from sale of property
    
    
    1,247
    
    
    
    25Increase in other assets
    
    
    (2,592
    )
    
    
    (1,502
    )Increase in restricted cash
    
    
    (771
    )
    
    
    (1,408
    )Net cash used in investing activities
    
    
    (50,943
    )
    
    
    (15,582
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term borrowings
    
    
    26,466
    
    
    
    203Repayments on long-term borrowings
    
    
    (29,172
    )
    
    
    (7,439
    )Increase in deferred financing costs
    
    
    (976
    )
    
    
    (723
    )Proceeds from exercise of stock options
    
    
    246
    
    
    
    149Net cash used in financing activities
    
    
    (3,436
    )
    
    
    (7,810
    )INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (18,020
    )
    
    
    6,280CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    18,446
    
    
    
    8,860CASH AND CASH EQUIVALENTS  End of period
    
    $
    426
    
    
    $
    15,140SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest, net of capitalized interest of $665 and $789,
respectively
    
    $
    8,410
    
    
    $
    8,917Cash payments for income taxes
    
    $
    6,819
    
    
    $
    2,932SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Property and equipment purchases financed through notes payable
    
    $
    2,954
    
    
    $
    13,511Property and equipment purchases financed through capital lease obligations
    
    $
    145
    
    
    $
    4,826
 See notes to unaudited consolidated financial statements. 5




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 1. Basis of Presentation The accompanying unaudited consolidated financial statements of Life Time
Fitness, Inc. (the Company) 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 period have
been included. These interim financial statements and the related notes should be read in
conjunction with the annual financial statements and notes included in the
final prospectus relating to the Companys initial public offering, as filed
with the Securities and Exchange Commission (SEC), which includes audited
financial statements for the three fiscal years ended December 31, 2003. 2. Initial Public Offering and Capital Stock The registration statement filed in connection with the Companys initial
public offering, as filed with the SEC, was declared effective on June 29,
2004. The Companys shares began trading on the New York Stock Exchange on June
30, 2004. The Company closed this transaction and received proceeds from the
initial public offering on July 6, 2004. Accordingly, the accompanying
unaudited consolidated financial statements for the periods ended June 30,
2004, reflect the Companys financial condition, results of operations and cash
flows prior to the closing of the public offering. The Company has recorded a
subscription for 4,383,577 shares as of June 30, 2004, and has recorded a
subscription receivable of $75,420, which is included in the equity section of
the accompanying unaudited consolidated balance sheets. As of July 6, 2004, the
total common shares outstanding were 33,641,256. The initial public offering consisted of 11,385,000 shares of common
stock, including the underwriters over-allotment option of 1,485,000 common
shares. Of the shares of common stock sold in the initial public offering, the
Company sold 4,774,941 shares, resulting in proceeds of $80,653, net of
underwriting discounts and commissions and offering expenses payable by the
Company of $7,684. The Company used a portion of the net proceeds to repay
amounts outstanding under its revolving credit facility and to repay a loan
under its construction facility that the Company used to finance the
development of its center in Plano, Texas. The Company expects to use the
remaining net proceeds to finance its growth by opening additional centers. The following table reflects certain of the Companys balance sheet
accounts on an actual basis as of June 30, 2004, and on a pro forma basis to
give effect to (1) the sale by the Company of 4,383,577 shares of common stock
at an initial public offering price of $18.50 per share and the underwriters
exercise of their over-allotment of 391,364 additional shares issued
at $18.50 per share, resulting in net proceeds of $80,653 (2) the conversion of
all redeemable preferred stock upon the completion of the offering, and (3) the
pay down of $8,702 of current debt and $8,868 of long-term debt. 6




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As of June 30, 2004Actual
    
    Pro FormaCash and cash equivalents
    
    $
    426
    
    
    $
    63,509Total debt
    
    $
    234,021
    
    
    $
    216,451Redeemable preferred stock:Series B redeemable preferred stock
    
    
    27,700
    
    
    
    Series C redeemable preferred stock
    
    
    58,032
    
    
    
    Series D redeemable preferred stock
    
    
    23,907
    
    
    
    Total redeemable preferred stock
    
    $
    109,639
    
    
    $
    Shareholders equity:Common stock
    
    $
    412
    
    
    $
    672Additional paid-in capital
    
    
    93,439
    
    
    
    208,051Subscription receivable
    
    
    (75,420
    )
    
    
    Retained earnings
    
    
    24,140
    
    
    
    24,140Total shareholders equity
    
    $
    42,571
    
    
    $
    232,863
 3. Earnings per Share Basic earnings per common share (EPS) is computed by dividing net income
applicable to common shareholders by the weighted average number of shares of
common stock outstanding during each period. Diluted EPS is computed similarly
to basic EPS, except that the numerator is adjusted to add back any redeemable
preferred stock accretion and the denominator is increased for the conversion
of any dilutive common stock equivalents, such as redeemable preferred stock,
and the assumed exercise of dilutive stock options using the treasury stock
method. A reconciliation of these amounts is as follows (share amounts in
thousands): For the Three
    
    For the SixMonths Ended
    
    Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    7,211
    
    
    $
    5,454
    
    
    $
    12,859
    
    
    $
    9,665Less: accretion on redeemable
preferred stock
    
    
    1,737
    
    
    
    1,742
    
    
    
    3,474
    
    
    
    3,465Net income applicable to common
shareholders
    
    $
    5,474
    
    
    $
    3,712
    
    
    $
    9,385
    
    
    $
    6,200Weighted average number of common
shares outstanding  basic (a)
    
    
    16,195
    
    
    
    16,093
    
    
    
    16,175
    
    
    
    16,038Effect of dilutive stock options
    
    
    1,910
    
    
    
    1,161
    
    
    
    1,931
    
    
    
    1,206Effect of dilutive redeemable preferred
shares
    
    
    11,018
    
    
    
    10,446
    
    
    
    11,018
    
    
    
    10,446Weighted average number of common
shares  diluted
    
    
    29,123
    
    
    
    27,700
    
    
    
    29,124
    
    
    
    27,690Basic earnings per common share
    
    $
    0.34
    
    
    $
    0.23
    
    
    $
    0.58
    
    
    $
    0.39Diluted earnings per common share
    
    $
    0.25
    
    
    $
    0.20
    
    
    $
    0.44
    
    
    $
    0.35
 (a)  As of July 6, 2004, total common shares outstanding were 33,641,256. 7




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4. Stock-Based Compensation The Company has stock option and incentive plans for employees, directors
and consultants and accounts for these plans in accordance with Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. If compensation cost for these plans had been determined consistent
with Statement of Financial Accounting Standards (SFAS) No. 123, the Companys
net income applicable to common shareholders, basic EPS and diluted EPS would
have been reduced to the following pro forma amounts: For the Three
    
    For the SixMonths Ended
    
    Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income applicable to common
shareholders  basic:As reported
    
    $
    5,474
    
    
    $
    3,712
    
    
    $
    9,385
    
    
    $
    6,200Pro forma
    
    $
    5,175
    
    
    $
    3,478
    
    
    $
    8,793
    
    
    $
    5,775Basic earnings per common share:As reported
    
    $
    0.34
    
    
    $
    0.23
    
    
    $
    0.58
    
    
    $
    0.39Pro forma
    
    $
    0.32
    
    
    $
    0.22
    
    
    $
    0.54
    
    
    $
    0.36Net income applicable to common
shareholders  diluted:As reported
    
    $
    7,211
    
    
    $
    5,454
    
    
    $
    12,859
    
    
    $
    9,665Pro forma
    
    $
    6,912
    
    
    $
    5,220
    
    
    $
    12,268
    
    
    $
    9,240Diluted earnings per common
share:As reported
    
    $
    0.25
    
    
    $
    0.20
    
    
    $
    0.44
    
    
    $
    0.35Pro forma
    
    $
    0.24
    
    
    $
    0.18
    
    
    $
    0.42
    
    
    $
    0.32
 5. Operating Segments The Companys operations are conducted mainly through its sports, fitness
and family recreation centers. The Company has aggregated the activities of its
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, customers and design. The Companys chief operating decision maker
uses 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, café and other
activities offered to members and non-member participants and rental income.
Included in the All Other category in the table below is operating
information related to nutritional products, media, athletic events, and a
restaurant, 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 financial statements and notes included in the final
prospectus relating to the Companys initial public offering, as filed with the
SEC. 8




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Financial data and reconciling information for the Companys reporting
segment to the consolidated amounts in the financial statements are as follows: Sports, Fitnessand FamilyRecreationCenters
    
    All Other
    
    Eliminations(a)
    
    ConsolidatedThree months ended June 30, 2004:Revenue
    
    $
    73,934
    
    
    $
    3,206
    
    
    $
    (551
    )
    
    $
    76,589Net income (loss)
    
    $
    9,856
    
    
    $
    (2,645
    )
    
    $
    
    
    
    $
    7,211Provision for income taxes
    
    
    6,911
    
    
    
    (1,918
    )
    
    
    
    
    
    
    4,993Interest expense, net
    
    
    4,058
    
    
    
    391
    
    
    
    
    
    
    
    4,449Depreciation and amortization
    
    
    5,596
    
    
    
    1,375
    
    
    
    
    
    
    
    6,971EBITDA
    
    $
    26,421
    
    
    $
    (2,797
    )
    
    $
    
    
    
    $
    23,624Total assets
    
    $
    410,934
    
    
    $
    73,811
    
    
    $
    
    
    
    $
    484,745Three months ended June 30, 2003:Revenue
    
    $
    61,223
    
    
    $
    2,873
    
    
    $
    (522
    )
    
    $
    63,574Net income (loss)
    
    $
    7,071
    
    
    $
    (1,617
    )
    
    $
    
    
    
    $
    5,454Provision for income taxes
    
    
    5,120
    
    
    
    (1,148
    )
    
    
    
    
    
    
    3,972Interest expense, net
    
    
    4,456
    
    
    
    452
    
    
    
    
    
    
    
    4,908Depreciation and amortization
    
    
    5,134
    
    
    
    1,106
    
    
    
    
    
    
    
    6,240EBITDA
    
    $
    21,781
    
    
    $
    (1,207
    )
    
    $
    
    
    
    $
    20,574Total assets
    
    $
    379,750
    
    
    $
    65,953
    
    
    $
    
    
    
    $
    445,703Six months ended June 30, 2004:Revenue
    
    $
    144,878
    
    
    $
    6,998
    
    
    $
    (1,117
    )
    
    $
    150,759Net income (loss)
    
    $
    17,740
    
    
    $
    (4,881
    )
    
    $
    
    
    
    $
    12,859Provision for income taxes
    
    
    12,400
    
    
    
    (3,430
    )
    
    
    
    
    
    
    8,970Interest expense, net
    
    
    8,236
    
    
    
    825
    
    
    
    
    
    
    
    9,061Depreciation and amortization
    
    
    11,186
    
    
    
    2,732
    
    
    
    
    
    
    
    13,918EBITDA
    
    $
    49,562
    
    
    $
    (4,754
    )
    
    $
    
    
    
    $
    44,808Total assets
    
    $
    410,934
    
    
    $
    73,811
    
    
    $
    
    
    
    $
    484,745Six months ended June 30, 2003:Revenue
    
    $
    118,979
    
    
    $
    6,124
    
    
    $
    (1,248
    )
    
    $
    123,855Net income (loss)
    
    $
    13,167
    
    
    $
    (3,502
    )
    
    $
    
    
    
    $
    9,665Provision for income taxes
    
    
    9,534
    
    
    
    (2,495
    )
    
    
    
    
    
    
    7,039Interest expense, net
    
    
    8,786
    
    
    
    685
    
    
    
    
    
    
    
    9,471Depreciation and amortization
    
    
    9,941
    
    
    
    2,133
    
    
    
    
    
    
    
    12,074EBITDA
    
    $
    41,428
    
    
    $
    (3,179
    )
    
    $
    
    
    
    $
    38,249Total assets
    
    $
    379,750
    
    
    $
    65,953
    
    
    $
    
    
    
    $
    445,703
  (a)
    
    Eliminations relate to the sale of the Companys nutritional products to
its owned cafes. 6. Supplementary Cash Flow Information Changes in operating assets and liabilities,
reflecting increases (decreases) in cash, are as follows: For the Six Months EndedJune 30,2004
    
    2003Accounts receivable
    
    $
    (929
    )
    
    $
    614Income taxes receivable
    
    
    1,314
    
    
    
    (834
    )Inventories
    
    
    372
    
    
    
    (787
    )Prepaids and other current assets
    
    
    1,296
    
    
    
    (423
    )Accounts payable
    
    
    (653
    )
    
    
    (348
    )Accrued expenses
    
    
    4,153
    
    
    
    2,967Deferred revenue
    
    
    2,668
    
    
    
    578Deferred rent
    
    
    498
    
    
    
    246$
    8,719
    
    
    $
    2,013
 9




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##### Table of Contents



7. Commitments and Contingencies Litigation The Company is engaged in legal proceedings incidental to the
normal course of business. Although the ultimate outcome of these matters
cannot be determined, management believes that the final disposition of these
proceedings will not have a material adverse effect on the consolidated
financial position or results of operations of the Company. 
 Item 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements The following discussion may contain forward-looking statements regarding
us and our business, prospects and results of operations that are subject to
certain risks and uncertainties posed by many factors and events that could
cause our actual business, prospects and results of operations to differ
materially from those that may be anticipated by such forward-looking
statements. Factors that could cause or contribute to such differences
include, but are not limited to, those described under Factors That May Affect
Future Results in this report. 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
Securities and Exchange Commission (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 final prospectus
relating to our initial public offering, as filed with the SEC, which includes
audited consolidated financial statements for our three fiscal years ended
December 31, 2003. Overview We operate sports, fitness and family recreation centers.

As of July 9, 2004, we operate 35 centers primarily in suburban locations across eight 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. We standardized the size,
design and layout of our centers, which we refer to as our current
model centers. Several of the centers that opened during our early
years have designs that differ from our current model center. We opened six centers in 2001, five centers in 2002 and four centers in
2003. We have opened two current model centers in 2004 and plan to open four
additional centers in 2004, three of which will be current model centers. We
plan to open six current model centers in 2005. We opened our first center in
the Houston market, located in Willowbrook, Texas, on June 4, 2004, and on July
9, 2004, we opened our second center in the Dallas market, located in Garland,
Texas. Each of these new centers is 108,890 square feet. 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
same-center revenue purposes beginning on the first day of the thirteenth full
calendar month of the centers 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 other centers
already in those markets, reducing their revenue and initially lowering their
profitability. 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 same-center revenue increases may be lower in
future periods than in the past. Of the 10




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##### Table of Contents



six new centers we have opened or plan to open in each of 2004 and 2005,
we expect that four will be in existing markets in 2004 and four will be in
existing markets in 2005. We do not expect that operating costs of our planned
new centers will be 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. However, as a result of simultaneous pre-opening sales and
marketing campaigns, our operating margins may be temporarily negatively
impacted. During the third quarter of 2004, the four remaining centers we plan
to open in 2004 will be in the pre-opening sales and marketing phase, compared
to only two centers in the pre-opening sales and marketing phase during the
third quarter of 2003. 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 is 36 months. Second, we generate revenue, which
we refer to as in-center revenue, at our centers from fees for personal
training, 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. Finally, 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, nutritional products
and athletic events businesses. Our primary media offering is our magazine,
Experience Life. Other revenue also includes our restaurant located in the
building where we operate a center designed as an urban executive facility in
downtown Minneapolis, Minnesota. Sports, fitness and family recreation 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,
nutritional products and athletic events businesses. General and administrative
expenses include costs relating to our centralized support functions, such as
accounting, information systems, procurement and member relations, as well as
our real estate and development team and other members of senior management.
Our other operating expenses include the costs associated with our media,
nutritional products and athletic events businesses, our restaurant 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. 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 aggregate, on
average, approximately $23.5 million, which could 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. We perform maintenance and make improvements
on our centers and equipment every year. We conduct a more thorough remodeling
project at each center approximately every five 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 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 11




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on the average expected life of a membership. 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 final prospectus relating to our initial public
offering, as filed with the SEC, which includes audited consolidated financial
statements for our three fiscal years ended December 31, 2003. 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 for the three and six month periods ended June
30, 2003, and 2004. For the
    
    For theThree Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2004
    
    2003
    
    2004
    
    2003RevenueCenter revenue:Membership dues
    
    
    66.6
    %
    
    
    66.7
    %
    
    
    66.5
    %
    
    
    66.5
    %Enrollment fees
    
    
    6.8
    
    
    
    8.0
    
    
    
    6.6
    
    
    
    8.1In-center revenue
    
    
    23.1
    
    
    
    21.6
    
    
    
    23.0
    
    
    
    21.5Total center revenue
    
    
    96.5
    
    
    
    96.3
    
    
    
    96.1
    
    
    
    96.1Other revenue
    
    
    3.5
    
    
    
    3.7
    
    
    
    3.9
    
    
    
    3.9Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating expensesSports, fitness and family recreation
center operations
    
    
    52.9
    
    
    
    51.4
    
    
    
    52.8
    
    
    
    51.1Advertising and marketing
    
    
    3.6
    
    
    
    3.4
    
    
    
    4.3
    
    
    
    3.9General and administrative
    
    
    7.3
    
    
    
    7.6
    
    
    
    7.7
    
    
    
    8.6Other operating
    
    
    5.7
    
    
    
    5.5
    
    
    
    5.9
    
    
    
    5.7Depreciation and amortization
    
    
    9.1
    
    
    
    9.8
    
    
    
    9.2
    
    
    
    9.8Total operating expenses
    
    
    78.6
    
    
    
    77.7
    
    
    
    79.9
    
    
    
    79.1Income from operations
    
    
    21.4
    
    
    
    22.3
    
    
    
    20.1
    
    
    
    20.9Interest expense, net
    
    
    5.8
    
    
    
    7.7
    
    
    
    6.0
    
    
    
    7.7Equity in earnings of affiliate
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.4
    
    
    
    0.3Total other income
    
    
    5.5
    
    
    
    7.5
    
    
    
    5.6
    
    
    
    7.4Income before income taxes
    
    
    15.9
    
    
    
    14.8
    
    
    
    14.5
    
    
    
    13.5Provision for income taxes
    
    
    6.5
    
    
    
    6.2
    
    
    
    6.0
    
    
    
    5.7Net income
    
    
    9.4
    %
    
    
    8.6
    %
    
    
    8.5
    %
    
    
    7.8
    %Other financial and operating data:Average revenue per membership
    
    $
    282
    
    
    $
    275
    
    
    $
    567
    
    
    $
    545Average in-center revenue per membership
    
    $
    68
    
    
    $
    61
    
    
    $
    136
    
    
    $
    122Centers open at end of period
    
    
    34
    
    
    
    30
    
    
    
    34
    
    
    
    30Number of memberships at end of period
    
    
    277,924
    
    
    
    234,940
    
    
    
    277,924
    
    
    
    234,940
 12




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##### Table of Contents



Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003 Total revenue.Total revenue increased $13.0 million, or 20.5%, to $76.6
million for the three months ended June 30, 2004, from $63.6 million for the
three months ended June 30, 2003. Total center revenue grew $12.7 million, or 20.8%, to $73.9 million for
the three months ended June 30, 2004, from $61.2 million for the three months
ended June 30, 2003. Of the $12.7 million increase in total center revenue,  
    
    67.6% was from membership dues, which increased $8.6 million, due to
increased memberships at new and existing centers.
    
    31.5% was from in-center revenue, which increased $4.0 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
$68 for the three months ended June 30, 2004, from $61 for the three
months ended June 30, 2003. Enrollment fees, which are deferred and recognized on a straight-line
basis over 36 months, increased slightly to $5.2 million for the three months
ended June 30, 2004, from $5.1 million for the three months ended June 30,
2003. Our number of memberships increased 18.3%, to 277,924 at June 30, 2004,
from 234,940 at June 30, 2003. This increase in enrollment fees from new
memberships was partially offset by a decreasing amount of recognized deferred
enrollment fees as a result of our opening six new centers in 2001, five new
centers in 2002 and four new centers in 2003. Additionally, the average
enrollment fee of new memberships in existing centers decreased from the three
months ended June 30, 2003, to the three months ended June 30, 2004. The
decrease in average enrollment fees was partially a result of a
continuing
program with a health maintenance organization under which we offer reduced
enrollment fees to its members to drive membership growth in our Minnesota
centers. Other revenue grew 12.9%, to $2.7 million for the three months ended June
30, 2004, which was primarily due to increased revenue generated from
advertising sales in our media division. Sports, fitness and family recreation center operations expenses.Sports,
fitness and family recreation center operations expenses totaled $40.5 million,
or 54.7% of total center revenue (or 52.9% of total revenue), for the three
months ended June 30, 2004 compared to $32.6 million, or 53.3% of total center
revenue (or 51.4% of total revenue), for the three months ended June 30, 2003.
This $7.8 million increase primarily consisted of an increase of $5.0 million
in payroll-related costs to support increased memberships at new and existing
centers and increased expenses to support in-center products and services, as
well as having six centers in the pre-opening sales and marketing phase during
the second quarter of 2004 compared to two centers in the pre-opening sales and
marketing phase in the second quarter of 2003. Additionally, occupancy costs
increased $1.7 million, including $1.2 million in expenses related to a
sale-leaseback transaction with respect to two of our current model centers
that was entered into on September 30,2003. Advertising and marketing expenses.Advertising and marketing expenses
were $2.8 million, or 3.6% of total revenue, for the three months ended June
30, 2004, compared to $2.2 million, or 3.4% of total revenue, for the three
months ended June 30, 2003. As a percentage of total revenue and in aggregate
dollars, these expenses increased primarily due to a national advertising
campaign for our nutritional products, including a major U.S. magazine
advertising placement, and as a result of the simultaneous pre-opening sales
and marketing campaigns for six of the centers opening in 2004. General and administrative expenses.General and administrative expenses
were $5.6 million, or 7.3% of total revenue, for the three months ended June
30, 2004, compared to $4.8 million, or 7.6% of 13




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total revenue, for the three months ended June 30, 2003. This $0.8 million
increase was primarily due to increased costs to support the growth in our
membership and center base in 2004, as well as costs associated with the
preparation of becoming a publicly-held company. As a percentage of total
revenue, general and administrative expenses decreased primarily due to
economies of scale achieved in shared service functions, including member
relations, information technology and procurement, as our membership and center
base expanded. Other operating expenses.Other operating expenses were $4.4 million for
the three months ended June 30, 2004, compared to $3.5 million for the three
months ended June 30, 2003. This $0.9 million increase was primarily due to
branding initiatives related to our media, nutritional products and athletic
events businesses. Depreciation and amortization.Depreciation and amortization was $7.0
million for the three months ended June 30, 2004, compared to $6.2 million for
the three months ended June 30, 2003. This $0.8 million increase was due
primarily to depreciation on our new centers opened in the summer and fall of
2003. Interest expense, net.Interest expense, net of interest income, was $4.4
million for the three months ended June 30, 2004, compared to $4.9 million for
the three months ended June 30, 2003. This decrease was primarily the result of
our sale-leaseback transaction which reduced our average debt balances. Provision for income taxes.The provision for income taxes was $5.0
million for the three months ended June 30, 2004, compared to $4.0 million for
the three months ended June 30, 2003. This $1.0 million increase was due to an
increase in income before income taxes of $2.8 million. Net income.As a result of the factors described above, net income was
$7.2 million, or 9.4% of total revenue, for the three months ended June 30,
2004, compared to $5.5 million, or 8.6% of total revenue, for the three months
ended June 30, 2003. Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003 Total revenue.Total revenue increased $26.9 million, or 21.7%, to $150.8
million for the six months ended June 30, 2004, from $123.9 million for the six
months ended June 30, 2003. Total center revenue grew $25.9 million, or 21.8%, to $144.9 million for
the six months ended June 30, 2004, from $119.0 million for the six months
ended June 30, 2003. Of the $25.9 million increase in total center revenue,  
    
    69.0% was from membership dues, which increased $17.9 million, due to
increased memberships at new and existing centers.
    
    30.8% was from in-center revenue, which increased $8.0 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
$136 for the six months ended June 30, 2004, from $121 for the six
months ended June 30, 2003. Enrollment fees, which are deferred and recognized on a straight-line
basis over 36 months, stayed flat at $10.0 million for the six months ended
June 30, 2004, compared to the same period last year. Our number of memberships
increased 18.3%, to 277,924 at June 30, 2004, from 234,940 at June 30, 2003.
This increase in enrollment fees from new memberships was partially offset by a
decreasing amount of recognized deferred enrollment fees as a result of our
opening six new centers in 2001, five new centers in 2002 and four new centers
in 2003. Additionally, the average enrollment fee of new memberships in
existing centers decreased from the six months ended June 30, 2003, to the six 14




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##### Table of Contents



months ended June 30, 2004. The decrease in average enrollment fees was
partially a result of entering into a program with a health maintenance
organization under which we offer reduced enrollment fees to its members to
drive membership growth in our Minnesota centers. Other revenue grew $1.0 million, or 20.6%, to $5.9 million from $4.9
million, which was primarily due to increased sales of our nutritional products
and increased revenue generated from advertising sales in our media division. Sports, fitness and family recreation center operations expenses.Sports,
fitness and family recreation center operations expenses were $79.5 million, or
54.9% of total center revenue (or 52.8% of total revenue), for the six months
ended June 30, 2004, compared to $63.3 million, or 53.2% of total center
revenue (or 51.1% of total revenue), for the six months ended June 30, 2003.
This $16.2 million increase primarily consisted of an increase of $10.2 million
in payroll-related costs to support increased memberships at new and existing
centers and increased expenses to support in-center products and services, as
well as having six centers in the pre-opening sales and marketing
phase during portions of
the first six months of 2004 compared to three centers in the pre-opening sales
and marketing phase during portions of the first six months of 2003. Additionally, occupancy
costs increased $3.4 million, including $2.4 million in expenses related to a
sale-leaseback transaction with respect to two of our current model centers
that was entered into on September 30, 2003. Advertising and marketing expenses.Advertising and marketing expenses
were $6.5 million, or 4.3% of total revenue, for the six months ended June 30,
2004, compared to $4.9 million, or 3.9% of total revenue, for the six months
ended June 30, 2003. As a percentage of total revenue and in aggregate dollars,
these expenses increased primarily due to a national advertising campaign for
our nutritional products, including a major U.S. magazine advertising
placement, and as a result of the simultaneous pre-opening sales and marketing
campaigns for centers opening in 2004. General and administrative expenses.General and administrative expenses
were $11.5 million, or 7.7% of total revenue, for the six months ended June 30,
2004, compared to $10.6 million, or 8.6% of total revenue, for the six months
ended June 30, 2003. This $0.9 million increase was primarily due to increased
costs to support the growth in our membership and center base in 2004, as well
as costs associated with the preparation of becoming a publicly-held company.
As a percentage of total revenue, general and administrative expenses decreased
primarily due to economies of scale achieved in shared service functions,
including member relations, information technology and procurement, as our
membership and center base expanded. Other operating expenses.Other operating expenses were $8.9 million for
the six months ended June 30, 2004, compared to $7.1 million for the six months
ended June 30, 2003. This $1.8 million increase was primarily due to branding
initiatives related to our media, nutritional products and athletic events
businesses. Depreciation and amortization.Depreciation and amortization was $13.9
million for the six months ended June 30, 2004, compared to $12.1 million for
the six months ended June 30, 2003. This $1.8 million increase was due
primarily to depreciation on our new centers opened in the summer and fall of
2003. Interest expense, net.Interest expense, net of interest income, was $9.1
million for the six months ended June 30, 2004, compared to $9.5 million for
the six months ended June 30, 2003. This decrease was primarily the result of
our sale-leaseback transaction which reduced our average debt balances and our
increased cash flows from operating activities allowing us to limit our
borrowing during the first six months of 2004. Provision for income taxes.The provision for income taxes was $9.0
million for the six months ended June 30, 2004, compared to $7.0 million for
the six months ended June 30, 2003. This $2.0 million increase was due to an
increase in income before income taxes of $5.1 million. 15




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##### Table of Contents



Net income.As a result of the factors described above, net income was
$12.9 million, or 8.5% of total revenue, for the six months ended June 30,
2004, compared to $9.7 million, or 7.8% of total revenue, for the six months
ended June 30, 2003. Liquidity and Capital Resources Liquidity Historically, we have satisfied our liquidity needs through various debt
arrangements, sales of equity to investors and cash flows from operations.
Principal liquidity needs have included the development of new sports, fitness
and family recreation centers, debt service requirements and expenditures
necessary to maintain and update our existing centers and their related fitness
equipment. We believe that we will be able to satisfy our debt service
obligations and capital expenditure requirements through 2005 with available
cash balances, including the net proceeds from the initial public offering,
cash flow from operations, our committed debt facilities and by the extension
of certain of our debt facilities. We believe that we can satisfy our
longer-term debt service obligations and capital expenditure requirements with
cash flow from operations, by the extension of the terms of or refinancing our
existing debt facilities, through sale-leaseback transactions and by continuing
to raise long-term debt, although there can be no assurance that such actions
can 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 and because 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, 2004, we had total cash and cash equivalents of $0.4
million and $11.7 million of restricted cash that served as collateral for
certain of our debt arrangements. On July 6, 2004, we received proceeds of
$80.7 million from our initial public offering, net of underwriting discounts,
commissions and offering expenses payable by us. On the same day, we utilized
$8.7 million of the net proceeds from our initial public offering along with
cash received from monthly membership dues to repay all amounts outstanding
under our revolving credit facility, with the exception a $15.0 million term
loan under the revolving credit facility. We also used $8.9 million of the net
proceeds from the offering to repay a loan under our construction facility that
we used to finance the development of our center in Plano, Texas. We expect to
use the remaining net proceeds of $63.1 million from the offering to finance
our growth by opening additional centers. Net cash provided by operating activities was $36.4 million for the six
months ended June 30, 2004, compared to $29.7 million for the six months ended
June 30, 2003. The increase of $6.7 million was primarily due to a $3.5 million
increase in net income adjusted for non-cash charges and increases in cash
provided by net operating assets and liabilities. Investing Activities Investing activities consist primarily of purchasing real property,
constructing new centers and purchasing new fitness equipment. In addition, we
make 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 has averaged approximately $23.5 million, which
includes the land, the building and approximately $2.5 million of exercise
equipment, furniture and fixtures. At June 30, 2004, we had purchased the real property for the five new
current model centers that we plan to open in 2004, one of which we opened on
June 4, 2004 and one of which we opened on 16




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July 9, 2004, and we had entered into agreements to purchase real property
for the development of all six of the new centers that we plan to open in 2005. Net cash used in investing activities was $50.9 million for the six months
ended June 30, 2004, compared to $37.7 million for the six months ended June
30, 2003. The increase of $13.2 million was primarily due to capital
expenditures for the construction of new centers and maintenance and updates to
our existing centers. Total capital expenditures for the six months ended June
30, 2004, totaled $61.8 million. For the six months ended June 30, 2004,
capital expenditures for the construction of new centers totaled $50.5 million
and capital expenditures for the maintenance and updates to our existing
centers totaled $7.3 million. Additionally, in January 2004, we purchased a jet
for $4.0 million. Financing Activities Net cash used in financing activities was $3.4 million for the six months
ended June 30, 2004, compared to $7.8 million for the six months ended June 30,
2003. The decrease of $4.4 million was primarily due to lower long-term
borrowings, net of long-term repayments, during the six months ended June 30,
2004. We have several secured credit facilities. We have a $55.0 million
revolving credit facility led by Antares Capital Corporation that expires on
June 30, 2005. Availability under this facility is determined based upon a
multiple of a variation of EBITDA as defined in the credit agreement.
Additionally, we are restricted in our borrowings and in general under the
revolving credit facility by certain financial covenants, including capital
expenditure levels and maintaining leverage ratios, fixed charge and interest
coverage ratios and a loan to value ratio. At December 31, 2003, the
outstanding balance was classified as long-term debt in the accompanying
consolidated balance sheets. As of June 30, 2004, we had $37.3 million
outstanding classified as a current-maturity of long-term debt, $5.0 million in
committed letters of credit and $12.7 million available for additional
borrowings under this facility. On July 6, 2004, we repaid $24.4 million
outstanding under this facility, using cash received from monthly membership
dues and a portion of the net proceeds from our initial public offering. We also have a $75.0 million construction credit facility led by U.S.
Bank, National Association. Pursuant to the terms of the construction credit
facility, the lending group has committed to make up to seven individual loans,
the purpose of which is to fund the construction costs related to completing
the construction of certain centers. The current commitment to lend expires on
January 1, 2006. Borrowings under this facility are limited to the lesser of
55.0% of the total land and construction cost, or 75.0% of the appraised value,
of the specific centers currently under construction and are due and payable no
later than three years from the closing date of each individual loan. As
security for the obligations owing under the construction credit facility, we
have granted mortgages on each of the specific centers that are financed by
means of the construction credit facility. Funds are available only after we
have first contributed our portion, which is approximately 45.0%, of the total
project cost to the construction of the specific project and then only for
reimbursement of project construction costs actually incurred. Interest accrues
at a rate of prime plus 0.5%. At June 30, 2004, we had $8.9 million outstanding
related to one specific center and $66.1 million available for additional
borrowings under this facility. On July 6, 2004, the outstanding balance was
paid off with a portion of our net proceeds from our initial public offering. We have financed 13 of our centers with Teachers Insurance and Annuity
Association of America pursuant to the terms of individual notes. The
obligations under these notes are due in full in June 2011, and are secured by
mortgages on each of the centers specifically financed, and we maintain a
letter of credit in the amount of $5.0 million in favor of the lender. The
obligations related to 10 of the notes are being amortized over a 20-year
period, while the obligations related to the other three notes are being
amortized over a 15-year period. The interest rate payable under these notes
has been fixed at 8.25%. The loan documents provide that we will be in default
if Mr. Akradi ceases to be Chairman of the Board of Directors and Chief
Executive Officer for any reason other than due to his death or 17




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incapacity or as a result of his removal pursuant to our articles of
incorporation or bylaws. As of June 30, 2004, $134.1 million remained
outstanding on the notes. Factors That May Affect Future Results If we are unable to identify and acquire suitable sites for new sports, fitness
and family recreation centers, our revenue growth rate and profits may be
negatively impacted. To successfully expand our business, we must identify and acquire sites
that meet the site selection criteria we have established. In addition to
finding sites with the right demographic and other measures we employ in our
selection process, we also need to evaluate the penetration of our competitors
in the market. We face significant competition from other health and fitness
center operators for sites that meet our criteria, and as a result we may lose
those sites, our competitors could copy our format or we could be forced to pay
significantly higher prices for those sites. If we are unable to identify and
acquire sites for new sports, fitness and family recreation centers, our
revenue growth rate and profits may be negatively impacted. Additionally, if
our analysis of the suitability of a site is incorrect, we may not be able to
recover our capital investment in developing and building the new center. For
example, in 2002 we recorded an asset impairment charge of $7.0 million related
to our executive facility, which is located in downtown Minneapolis, Minnesota,
and a restaurant that we operate in the same building. 18




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We may be unable to attract and retain members, which could have a negative
effect on our business. The success of our business depends on our ability to attract and retain
members, and we cannot assure you that we will be successful in our marketing
efforts or that the membership levels at our centers will not materially
decline, especially at those centers that have been in operation for an
extended period of time. All of our members can cancel their membership at any
time upon one months notice. In addition, we experience attrition and must
continually attract new members in order to maintain our membership levels.
There are numerous factors that could lead to a decline in membership levels or
that could prevent us from increasing membership at newer centers where
membership is generally not yet at a targeted capacity, including market
maturity or saturation, a decline in our ability to deliver quality service at
a competitive price, direct and indirect competition in the areas where our
centers are located, a decline in the publics interest in health and fitness,
changes in discretionary spending trends and general economic conditions. In
addition, we may decide to close a center and attempt to move members of that
center to a different center or we may have to temporarily relocate members if
a center is closed for remodeling or due to fire, earthquake or other casualty. Delays in new sports, fitness and family recreation center openings could
materially adversely affect our financial performance. In order to meet our objectives, it is important that we open new centers
on schedule. A significant amount of time and expenditure of capital is
required to develop and construct new centers. If we are significantly delayed
in opening new centers, our competitors may be able to open new clubs in the
same market before we open our centers. This change in the competitive
landscape could negatively impact our pre-opening sales of memberships and
increase our investment costs. In addition, delays in opening new centers could
hurt our ability to meet our growth objectives. Our ability to open new centers
on schedule depends on a number of factors, many of which are beyond our
control. These factors include:  -
    
    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 containments, 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 your investment. Over the past several years, we have experienced significant growth in our
business activities and operations, including an increase in the number of our
sports, fitness and family recreation centers. Our past expansion has placed,
and any future expansion will place, significant demands on our administrative,
operational, financial and other resources. Any failure to manage growth
effectively could seriously harm our business. To be successful, we will need
to continue to implement management information systems and improve our
operating, administrative, financial and accounting systems and controls. We
will also need to train new employees and maintain close coordination among our
executive, accounting, finance, marketing, sales and operations functions.
These processes are time-consuming and expensive, will increase management
responsibilities and will divert management attention. 19




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The opening of new centers in existing locations may negatively impact our
same-center revenue increases and our overall operating margins. We currently operate sports, fitness and family recreation centers in
eight states. Our plans for 2004 include opening six new centers, four of which
are in an existing market. With respect to existing markets, it has been our
experience that opening new centers may attract some memberships away from
other centers already operated by us in those markets and diminish their
revenues. 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 same-center revenue increases may be lower in future
periods than in the past. Another result of opening new centers is that our overall operating
margins may be lower than they have been historically. We expect both the
addition of pre-opening expenses and the lower revenue volumes characteristic
of newly-opened centers to affect our operating margins at these new centers.
We also expect certain operating costs, particularly those related to
occupancy, to be higher than in the past in some newly-entered geographic
regions. As a result of the impact of these rising costs, our total center
contribution and operating margins may be lower in future periods than they
have been in the past. Our debt levels may limit our flexibility in obtaining additional financing and
in pursuing other business opportunities. As of June 30, 2004, we had total consolidated indebtedness of $234.0
million, consisting principally of obligations under construction and term
notes that are secured by certain of our properties, borrowings under our
revolving credit facility that are secured by certain personal property,
mortgage notes that are secured by certain of our sports, fitness and family
recreation centers and obligations under capital leases. Our level of indebtedness could have important consequences to us,
including the following:  -
    
    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. In addition to the amount of indebtedness outstanding as of June 30, 2004,
we have access to an additional $113.8 million under our credit facilities.
Following this offering, we will continue to have the ability to incur new
debt, subject to limitations under our existing credit facilities and in our
debt financing agreements. Furthermore, we have 13 centers financed by Teachers
Insurance and Annuity Association of America that are subject to cross-default
and cross-collateral provisions, which would allow the lender to foreclose on
each of these 13 centers if there is an event of default related to one or more
of these centers. If we incur additional debt, the risks associated with our
leverage, including our ability to service our debt, could intensify. 20




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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 access additional capital, our ability to operate or expand our business may
be impaired and our operating results could be adversely affected. Our business requires significant levels of capital to finance the
development of additional sites for new sports, fitness and family recreation
centers and the construction of our centers. If cash from available sources is
insufficient, or if cash is used for unanticipated needs, we may require
additional capital sooner than anticipated. In the event that we are required
or choose to raise additional funds, we may be unable to do so on favorable
terms or at all. Furthermore, the cost of debt financing could significantly
increase, making it cost-prohibitive to borrow, which could force us to issue
new equity securities. If we issue new equity securities, existing shareholders
may experience additional dilution or the new equity securities may have
rights, preferences or privileges senior to those of existing holders of common
stock. If we cannot raise funds on acceptable terms, we may not be able to take
advantage of future opportunities or respond to competitive pressures. Any
inability to raise additional capital when required could have an adverse
effect on our business plans and operating results. The health club industry is highly competitive and our competitors may have
greater resources and name recognition than we have. We compete with other health and fitness centers, physical fitness and
recreational facilities established by local non-profit organizations,
governments, hospitals, and businesses, amenity and condominium clubs and
similar non-profit organizations, local salons, cafes and businesses offering
similar ancillary services, and, to a lesser extent, racquet, tennis and other
athletic clubs, country clubs, weight reducing salons and the home fitness
equipment industry. Competitors, which may have greater resources or greater
name recognition than we have, may compete with us to attract members in our
markets. Non-profit and government organizations in our markets may be able to
obtain land and construct centers at a lower cost than us and may be able to
collect membership fees without paying taxes, thereby allowing them to lower
their prices. This competition may limit our ability to increase membership
fees, retain members, attract new members and retain qualified personnel. Competitors could copy our business model and erode our market share, brand
recognition and profitability. We employ a business model that could allow competitors to duplicate our
successes. We cannot assure you that our competitors will not attempt to copy
our business model and that this will not erode our market share and brand
recognition and impair our growth rate and profitability. In response to any
such competitors, we may be required to decrease our membership fees, which may
reduce our operating margins 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. We currently operate multiple sports, fitness and family recreation
centers in several metropolitan areas, including 14 in the Minneapolis/St. Paul
market, seven in the Chicago market and five in the Detroit market, with
continued planned expansion in other markets. As a result, any prolonged
disruption in the operations of our centers in any of these markets, whether
due to technical difficulties, power failures or destruction or damage to the
centers as a result of a natural disaster, fire or any other reason, could harm
our operating results. In addition, our concentration in these markets
increases our exposure to adverse developments related to competition, as well
as economic and demographic changes in these areas. 21




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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. We are highly dependent on the services of our senior management team and
other key employees at both our corporate headquarters and our centers, and on
our ability to recruit, retain and motivate key personnel. Competition for such
personnel is intense, and the inability to attract and retain the additional
qualified employees required to expand our activities, or the loss of current
key employees, could materially and adversely affect us. If our founder and chief executive officer leaves our company for any reason,
it could have a material adverse effect on us. Our growth and development to date have been largely dependent upon the
services of Bahram Akradi, our Chairman of the Board of Directors, President,
Chief Executive Officer and founder. If Mr. Akradi ceases to be Chairman of the
Board of Directors and Chief Executive Officer for any reason other than due to
his death or incapacity or as a result of his removal pursuant to our articles
of incorporation or bylaws, we will be in default under the loan documents for
our 13 centers financed with Teachers Insurance and Annuity Association of
America. As a result, Mr. Akradi may be able to exert disproportionate control
over our company because of the significant consequence of his departure. We do
not have any employment or non-competition agreement with Mr. Akradi. We could be subject to claims related to health or safety risks at our sports,
fitness and family recreation centers. Use of our centers poses potential health or safety risks to members or
guests through exertion and use of our equipment, swimming pools and other
facilities and services. We cannot assure you that claims will not be asserted
against us for injury or death suffered by someone using our facilities or
services. In addition, the child care services we offer at our centers expose
us to claims related to child care. Lastly, because we construct our own
centers, we also face liability in connection with the construction of these
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. Various federal and state laws and regulations govern our operations,
including:  -
    
    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;-
    
    federal regulation of health and nutritional products; and-
    
    regulation of rehabilitation service providers. Any changes in such laws could have a material adverse effect on our financial
condition and results of operations. We have introduced other business initiatives that may not be profitable. In addition to our sports, fitness and family recreation centers, we have
introduced other business initiatives in the areas of nutritional products,
media and athletic events in order to capitalize on our brand identity and
membership base. We have limited experience with these other initiatives and
face significant competition against established companies with more retail
experience and greater 22




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financial resources than us. We may not be able to compete effectively against
these established companies, and these other business initiatives may not be
profitable. In addition, we license from a third party the right to use the
mark LIFE TIME in connection with our nutritional products, as well as the
right to use certain ingredients of such products. These rights may be material
to marketing and distributing our nutritional products. If these licenses are
terminated for any reason, we may no longer be able to market and distribute
nutritional products under the LIFE TIME FITNESS brand. We could be subject to claims related to our nutritional products. The nutritional products industry is currently the source of proposed
federal laws and regulations, as well as numerous lawsuits. We advertise and
offer for sale proprietary nutritional products within our centers, on the
Internet and through selected national retail channels. We cannot assure you
that there will be no claims against us regarding the ingredients in,
manufacture of or results of using our nutritional products. Furthermore, we
cannot assure you that any rights we have under indemnification provisions or
insurance policies will be sufficient to cover any losses that might result
from such claims. 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. We may have disputes with third parties to enforce our intellectual
property rights, protect our trademarks, determine the validity and scope of
the proprietary rights of others or defend ourselves from claims of
infringement, invalidity or unenforceability. Such disputes may require us to
engage in litigation. We may incur substantial costs and a diversion of
resources as a result of such disputes and litigation, even if we win. In the
event that we do not win, we may have to enter into royalty or licensing
agreements, we may be prevented from using the marks within certain markets in
connection with goods and services that are material to our business or we may
be unable to prevent a third party from using our marks. We cannot assure you
that we would be able to reach an agreement on reasonable terms, if at all. In
particular, although we own an incontestable federal trademark registration for
use of the LIFE TIME FITNESS® mark in the field of health and fitness centers,
we are aware of entities in certain locations around the country that use LIFE
TIME FITNESS or a similar mark in connection with goods and services related to
health and fitness. The rights of these entities in such marks may predate our
rights. Accordingly, if we open any sports, fitness and family recreation
centers in the areas in which these parties operate, we may be required to pay
royalties or may be prevented from using the mark in such areas. Our business could be affected by acts of war or terrorism. Current world tensions could escalate, potentially leading to war or acts
of terrorism. This could have unpredictable consequences on the world economy
and on our business. 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not believe that we have any significant risk related to interest
rate fluctuations since we have primarily fixed-rate debt. 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 December 31, 2003 and
June 30, 2004, our floating rate indebtedness was approximately $44.4 million
and $53.4 million, respectively. If long-term floating interest rates were to
have increased by 100 basis points during the first six months of 2004, our
interest costs would have increased by approximately $0.2 million. If
short-term interest rates were to have increased by 100 basis points during the
first six months of 2004, our interest income from cash equivalents would have
increased by less than $0.1 million. These amounts are determined by 23




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considering the impact of the hypothetical interest rates on our floating
rate indebtedness and cash equivalents balances at June 30, 2004. 
 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. 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 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES During the quarter ended June 30, 2004, we issued 80,750 shares of common
stock to employees and officers under our 1996 Stock Option Plan and 1998 Stock
Option Plan. All of these issuances were made in reliance on Rule 701 of the
Securities Act of 1933, as amended (the Securities Act). During the quarter ended June 30, 2004, we obtained the approval of the
holders of our Series C and Series D redeemable preferred stock to certain
amendments to the certificates of designation setting forth the rights and
preferences of their securities. Although we do not believe that the
amendments significantly changed the nature of the investment or the investment
risks, the amendments may be deemed to constitute the offer and sale of a new
security. If the approval of the amendments is deemed to constitute an offer
and sale of a new security, the transaction is exempt as an exchange of
securities with existing security holders for no commission or remuneration
under Section 3(a)(9) under the Securities Act. On July 6, 2004, we completed an initial public offering of our common
stock pursuant to a registration statement on Form S-1 (File No. 333-113764)
that was declared effective by the SEC on June 29, 2004. A total of 11,385,000
shares of common stock were offered by us and existing shareholders
under the final prospectus, all of which were sold at a price per share of
$18.50. We issued 4,774,941 shares of common stock and the selling
shareholders offered 6,610,059 shares of common stock. The managing
underwriters of our offering were Credit Suisse First Boston LLC and Merrill
Lynch, Pierce, Fenner & Smith Incorporated. The aggregate gross proceeds of
the shares offered and sold by us totaled $88.3 million and the aggregate gross
proceeds to the selling shareholders totaled $122.3 million. We did not
receive any proceeds from the sale of shares by the selling shareholders. In
connection with the offering, we paid an aggregate of $7.7 million in
underwriting discounts and commissions to the underwriters, and other expenses
in connection with the offering. 24




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Because the initial public offering price of our common stock was less
than $30.00 per share and did not yield a 30% internal rate of return with
respect to such series based on the date of purchase, the conversion ratio of
our Series C redeemable preferred stock and Series D redeemable preferred stock
classes to common stock was adjusted at the time of our offering. Consequently,
each share of Series C redeemable preferred stock became convertible into 1.25
shares of common stock and each share of Series D redeemable preferred stock
became convertible into 1.25 shares of common stock at the time of our
offering. Concurrent with the completion of our offering, our Series B redeemable
preferred stock, Series C redeemable preferred stock and Series D redeemable
preferred stock converted into shares of our common stock. Each
share of Series B redeemable preferred stock converted into 4.571428 shares of
common stock, each share of Series C redeemable preferred stock converted into
1.25 shares of common stock and each share of Series D redeemable preferred
stock converted into 1.25 shares of common stock. After deducting the underwriting discounts and commissions and the
offering expenses, we received net proceeds from our initial public offering of
approximately $80.7 million. We used $8.7 million of the net proceeds to repay
amounts outstanding under our revolving credit facility. We also used
approximately $8.9 million of the net proceeds to repay a loan under our
construction facility. We expect to use the remaining $63.1 million net
proceeds of the offering to finance our growth by opening additional sports,
fitness and family recreation centers. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Meeting of the Shareholders of Life Time Fitness, Inc., a Minnesota
corporation (the Company), held on May 10, 2004, the shareholders voted on
the matters listed below. As of the close of business on the record date for
the meeting, which was April 30, 2004, there were 16,196,332 shares of common
stock, 1,000,000 shares of Series B redeemable preferred stock, 4,500,000
shares of Series C redeemable preferred stock and 1,946,250 shares of Series D
redeemable preferred stock outstanding and entitled to vote at the meeting.
Each share of common stock was entitled to one vote per share, each share of
Series B redeemable preferred stock was entitled to 4.571428 votes per share
and each share of Series C redeemable preferred stock and Series D redeemable
preferred stock was entitled to one vote per share.  1.
    
    Proposal to elect Bahram Akradi as the Common Stock Director. Mr. Akradi
was elected by the holders of common stock, voting as a single class, on a
vote of 13,091,210 shares in favor and 146,880 shares withholding
authority.2.
    
    Proposal to elect Timothy C. DeVries as the Series B Redeemable Preferred
Stock Director. Mr. DeVries was elected by the holders of Series B
redeemable preferred stock, voting as a single class, on a vote of
3,645,711 shares in favor and 0 shares withholding authority.3.
    
    Proposal to elect David A. Landau as the Series C Redeemable Preferred
Stock and Series D Redeemable Preferred Stock Director. Mr. Landau was
elected by the holders of Series C redeemable preferred stock and Series D
redeemable preferred stock, voting together as a single class, on a vote
of 4,806,250 shares in favor and 0 shares withholding authority.4.
    
    Proposal to elect Stephen R. Sefton as the Series B Redeemable Preferred
Stock, Series C Redeemable Preferred Stock and Series D Redeemable
Preferred Stock Director. Mr. Sefton was elected by the holders of Series
B redeemable preferred stock, voting as a single class, on 25




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a vote of 3,645,711 shares in favor and 0 shares withholding authority,
and by the holders of Series C redeemable preferred stock and Series D
redeemable preferred stock, voting together as a single class, on a vote
of 4,806,250 shares in favor and 0 shares withholding authority.5.
    
    Proposal to elect W. John Driscoll and Guy C. Jackson as General
Directors. Messrs. Driscoll and Jackson were each elected by the holders
of common stock, Series B redeemable preferred stock, Series C redeemable
preferred stock and Series D redeemable preferred stock, voting together
as a single class, on a vote of 21,690,051 shares in favor and 0 shares
withholding authority.6.
    
    Proposal to amend the Series C Certificate of Designation. The proposal
was approved by the holders of common stock, Series B redeemable preferred
stock, Series C redeemable preferred stock and Series D redeemable
preferred stock, voting together as a single class, on a vote of
21,654,901 shares in favor, 0 shares against, and 20,200 shares
abstaining; the holders of Series C redeemable preferred stock, voting as
a single class, on a vote of 3,500,000 shares in favor, 0 shares against,
and 0 shares abstaining; and the holders of Series C redeemable preferred
stock and Series D redeemable preferred stock, voting together as a single
class, on a vote of 4,806,250 shares in favor, 0 shares against, and 0
shares abstaining.7.
    
    Proposal to amend the Series D Certificate of Designation. The proposal
was approved by the holders of common stock, Series B redeemable preferred
stock, Series C redeemable preferred stock and Series D redeemable
preferred stock, voting together as a single class, on a vote of
21,613,851 shares in favor, 0 shares against, and 76,200 shares
abstaining; the holders of Series D redeemable preferred stock, voting as
a single class, on a vote of 1,306,250 shares in favor, 0 shares against,
and 0 shares abstaining; and the holders of Series C redeemable preferred
stock and Series D redeemable preferred stock, voting together as a single
class, on a vote of 4,806,250 shares in favor, 0 shares against, and 0
shares abstaining.8.
    
    Proposal to approval selection of underwriters for initial public
offering. The proposal was approved by the holders of Series C redeemable
preferred stock and Series D redeemable preferred stock, voting together
as a single class, by a vote of 4,806,250 shares in favor, 0 shares
against and 0 shares abstaining.9.
    
    Proposal to adopt Amended and Restated Articles of Incorporation. The
proposal to adopt the Amended and Restated Articles of Incorporation was
approved by the holders of common stock, Series B redeemable preferred
stock, Series C redeemable preferred stock and Series D redeemable
preferred stock, voting together as a single class, by a vote of
21,618,851 shares in favor, 0 shares against and 71,200 shares abstaining.10.
    
    Proposal to adopt Amended and Restated Bylaws. The proposal to adopt the
Amended and Restated Bylaws was approved by the holders of common stock,
Series B redeemable preferred stock, Series C redeemable preferred stock
and Series D redeemable preferred stock, voting together as a single
class, by a vote of 21,618,851 shares in favor, 0 shares against and
71,200 shares abstaining.11.
    
    Proposal to adopt the Life Time Fitness, Inc. 2004 Long-term Incentive
Plan. The proposal to adopt the Life Time Fitness, Inc. 2004 Long-term
Incentive Plan was approved by the holders of common stock, Series B
redeemable preferred stock, Series C redeemable preferred stock and Series
D redeemable preferred stock, voting together as a single class, by a
vote of 21,518,851 shares in favor, 0 shares against and 171,200 shares
abstaining.12.
    
    Proposal to approve Deloitte & Touche as the Companys independent
auditors for Fiscal 2004. The proposal to approve Deloitte & Touche as
the Companys independent auditors for fiscal 2004 was approved by the
holders of common stock, Series B redeemable preferred 26




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##### Table of Contents



stock, Series C redeemable preferred stock and Series D redeemable
preferred stock, voting together as a single class, by a vote of
21,628,851 shares in favor, 0 shares against and 61,200 shares
abstaining. 
 ITEM 5. OTHER INFORMATION Not applicable. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a)Exhibits filed with this report ExhibitNo.
    
    Description
    
    Method of Filing3.1
    
    Amended and Restated Articles of
Incorporation of the Registrant
    
    Filed Electronically3.2
    
    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 on Form
S-1 (File No.
333-113764), filed
with the Commission
on June 23, 200410.1
    
    Schedule of parties to Executive
Employment Agreements
    
    Filed Electronically10.2
    
    Form of Incentive Stock Option for
2004 Long-Term Incentive Plan
    
    Filed Electronically10.3
    
    Form of Non-qualified Stock Option
Agreement for 2004 Long-Term
Incentive Plan
    
    Filed Electronically10.4
    
    Amendment No. 8 to Amended and
Restated Master Construction and
Term Loan Agreement dated April 28,
2004, by and among FLA Real Estate
Holdings, LLC, U.S. Bank National
Association, and the Lenders party
thereto
    
    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 and Accounting Officer
    
    Filed Electronically32
    
    Section 1350 Certifications
    
    Filed Electronically
 (b)Reports on Form 8-K No reports on Form 8-K were filed during the fiscal quarter ended June 30,
2004. 27




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##### Table of Contents



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 4, 2004. LIFE TIME FITNESS, INC.By:
    
    /s/ Bahram AkradiName: Bahram AkradiTitle: Chairman of the Board of
Directors, President andChief Executive OfficerBy:
    
    /s/ Michael R. RobinsonName: Michael R. RobinsonTitle: Executive Vice President and Chief Financial Officer
 28




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##### Table of Contents



INDEX TO EXHIBITS ExhibitNo.
    
    Description
    
    Page3.1
    
    Amended and Restated Articles of
Incorporation of the Registrant
    
    Filed Electronically3.2
    
    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 on Form
S-1 (File No.
333-113764), filed
with the Commission
on June 23, 200410.1
    
    Schedule of parties to Executive
Employment Agreements
    
    Filed Electronically10.2
    
    Form of Incentive Stock Option for
2004 Long-Term Incentive Plan
    
    Filed Electronically10.3
    
    Form of Non-qualified Stock Option
Agreement for 2004 Long-Term
Incentive Plan
    
    Filed Electronically10.4
    
    Amendment No. 8 to Amended and
Restated Master Construction and
Term Loan Agreement dated April 28,
2004, by and among FLA Real Estate
Holdings, LLC, U.S. Bank National
Association, and the Lenders party
thereto
    
    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 and Accounting Officer
    
    Filed Electronically32
    
    Section 1350 Certifications
    
    Filed Electronically
 29