##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 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
    
    41-1689746(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)2902 Corporate Place
    
    55317Chanhassen, Minnesota
    
    (Zip Code)(Address of principal executive offices)
 952-947-0000
 
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer
o(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Operations for the Three and Nine Months Ended September
30, 2008 and 2007 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008
and 2007 (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 Disclosures about Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3. Defaults Upon Senior Securities
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20Item 5. Other Information
    
    
    20Item 6. Exhibits
    
    
    21SIGNATURES
    
    
    22EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 10.3EXHIBIT 10.4EXHIBIT 10.5EXHIBIT 31.1EXHIBIT 31.2EX-32




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE
SHEETS
(In thousands, except share and per share data)
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    7,119
    
    
    $
    5,354Accounts receivable, net
    
    
    5,318
    
    
    
    4,475Inventories
    
    
    14,739
    
    
    
    14,324Prepaid expenses and other current assets
    
    
    15,510
    
    
    
    15,963Deferred membership origination costs
    
    
    19,280
    
    
    
    16,205Deferred income taxes
    
    
    2,126
    
    
    
    1,188Income tax receivable
    
    
    
    
    
    
    5,814Total current assets
    
    
    64,092
    
    
    
    63,323PROPERTY AND EQUIPMENT, net
    
    
    1,451,641
    
    
    
    1,259,271RESTRICTED CASH
    
    
    9,285
    
    
    
    6,767DEFERRED MEMBERSHIP ORIGINATION COSTS
    
    
    14,895
    
    
    
    14,367OTHER ASSETS
    
    
    56,012
    
    
    
    42,805TOTAL ASSETS
    
    $
    1,595,925
    
    
    $
    1,386,533LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    10,222
    
    
    $
    9,568Accounts payable
    
    
    15,921
    
    
    
    12,872Construction accounts payable
    
    
    86,744
    
    
    
    59,261Accrued expenses
    
    
    55,430
    
    
    
    47,052Deferred revenue
    
    
    37,146
    
    
    
    34,851Total current liabilities
    
    
    205,463
    
    
    
    163,604LONG-TERM DEBT, net of current portion
    
    
    636,898
    
    
    
    555,037DEFERRED RENT LIABILITY
    
    
    26,906
    
    
    
    25,526DEFERRED INCOME TAXES
    
    
    48,931
    
    
    
    38,607DEFERRED REVENUE
    
    
    15,415
    
    
    
    17,529OTHER LIABILITIES
    
    
    21,888
    
    
    
    13,673Total liabilities
    
    
    955,501
    
    
    
    813,976COMMITMENTS AND CONTINGENCIES (Note 6)SHAREHOLDERS EQUITY:Undesignated preferred stock, 10,000,000
shares authorized; none issued or
outstanding
    
    
    
    
    
    
    Common stock, $.02 par value, 50,000,000
shares authorized; 39,708,302 and
39,137,947 shares issued and outstanding,
respectively
    
    
    794
    
    
    
    783Additional paid-in capital
    
    
    383,470
    
    
    
    373,910Retained earnings
    
    
    258,696
    
    
    
    199,890Accumulated other comprehensive loss
    
    
    (2,536
    )
    
    
    (2,026
    )Total shareholders equity
    
    
    640,424
    
    
    
    572,557TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    1,595,925
    
    
    $
    1,386,533
  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 Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007REVENUE:Membership dues
    
    $
    131,232
    
    
    $
    111,744
    
    
    $
    377,001
    
    
    $
    318,939Enrollment fees
    
    
    6,818
    
    
    
    6,501
    
    
    
    19,991
    
    
    
    18,565In-center revenue
    
    
    56,151
    
    
    
    47,517
    
    
    
    167,385
    
    
    
    137,305Total center revenue
    
    
    194,201
    
    
    
    165,762
    
    
    
    564,377
    
    
    
    474,809Other revenue
    
    
    4,608
    
    
    
    3,688
    
    
    
    11,290
    
    
    
    9,879Total revenue
    
    
    198,809
    
    
    
    169,450
    
    
    
    575,667
    
    
    
    484,688OPERATING EXPENSES:Center operations
    
    
    116,300
    
    
    
    97,626
    
    
    
    337,139
    
    
    
    281,153Advertising and marketing
    
    
    7,287
    
    
    
    5,359
    
    
    
    23,608
    
    
    
    18,167General and administrative
    
    
    9,453
    
    
    
    9,750
    
    
    
    30,707
    
    
    
    30,931Other operating
    
    
    4,926
    
    
    
    4,255
    
    
    
    13,696
    
    
    
    11,371Depreciation and amortization
    
    
    18,720
    
    
    
    14,917
    
    
    
    52,500
    
    
    
    43,282Total operating expenses
    
    
    156,686
    
    
    
    131,907
    
    
    
    457,650
    
    
    
    384,904Income from operations
    
    
    42,123
    
    
    
    37,543
    
    
    
    118,017
    
    
    
    99,784OTHER INCOME (EXPENSE):Interest expense, net of
interest income of $30, $169,
$119 and $324, respectively
    
    
    (7,185
    )
    
    
    (7,135
    )
    
    
    (21,301
    )
    
    
    (19,032
    )Equity in earnings of affiliate
    
    
    336
    
    
    
    316
    
    
    
    985
    
    
    
    917Total other income (expense)
    
    
    (6,849
    )
    
    
    (6,819
    )
    
    
    (20,316
    )
    
    
    (18,115
    )INCOME BEFORE INCOME TAXES
    
    
    35,274
    
    
    
    30,724
    
    
    
    97,701
    
    
    
    81,669PROVISION FOR INCOME TAXES
    
    
    13,700
    
    
    
    12,374
    
    
    
    38,895
    
    
    
    32,700NET INCOME
    
    $
    21,574
    
    
    $
    18,350
    
    
    $
    58,806
    
    
    $
    48,969BASIC EARNINGS PER COMMON SHARE
    
    $
    0.55
    
    
    $
    0.49
    
    
    $
    1.51
    
    
    $
    1.32DILUTED EARNINGS PER COMMON
SHARE
    
    $
    0.55
    
    
    $
    0.48
    
    
    $
    1.49
    
    
    $
    1.30WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 
BASIC
    
    
    39,025
    
    
    
    37,630
    
    
    
    38,946
    
    
    
    37,061WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 
DILUTED
    
    
    39,370
    
    
    
    38,309
    
    
    
    39,350
    
    
    
    37,651
  4




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 For the Nine Months EndedSeptember 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    58,806
    
    
    $
    48,969Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    52,500
    
    
    
    43,282Deferred income taxes
    
    
    8,094
    
    
    
    4,856Provision for doubtful accounts
    
    
    15
    
    
    
    105Loss on disposal of property and equipment, net
    
    
    1,159
    
    
    
    281Amortization of deferred financing costs
    
    
    1,078
    
    
    
    628Share-based compensation
    
    
    5,989
    
    
    
    5,671Excess tax benefit from stock option exercises
    
    
    (38
    )
    
    
    (4,501
    )Equity in earnings of affiliate
    
    
    (985
    )
    
    
    (917
    )Changes in operating assets and liabilities
    
    
    16,840
    
    
    
    8,953Other
    
    
    54
    
    
    
    17Net cash provided by operating activities
    
    
    143,512
    
    
    
    107,344CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment (excluding non-cash purchases
supplementally noted below)
    
    
    (360,551
    )
    
    
    (310,478
    )Proceeds from sale of property and equipment
    
    
    161,885
    
    
    
    4,664Proceeds from property insurance settlements
    
    
    317
    
    
    
    48Increase in other assets
    
    
    (6,443
    )
    
    
    (6,568
    )Increase in restricted cash
    
    
    (2,518
    )
    
    
    (2,253
    )Net cash used in investing activities
    
    
    (207,310
    )
    
    
    (314,587
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term borrowings
    
    
    39,188
    
    
    
    105,000Repayments of long-term borrowings
    
    
    (13,043
    )
    
    
    (9,279
    )Proceeds from revolving credit facility, net
    
    
    42,500
    
    
    
    2,800Increase in deferred financing costs
    
    
    (6,113
    )
    
    
    (2,008
    )Proceeds from common stock offering, net of underwriting
discount and offering costs
    
    
    
    
    
    
    92,510Excess tax benefit from stock option exercises
    
    
    38
    
    
    
    4,501Proceeds from stock option exercises
    
    
    2,993
    
    
    
    7,612Net cash provided by financing activities
    
    
    65,563
    
    
    
    201,136INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    1,765
    
    
    
    (6,107
    )CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    5,354
    
    
    
    6,880CASH AND CASH EQUIVALENTS  End of period
    
    $
    7,119
    
    
    $
    773SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest, net of capitalized interest of $7,491 and
$5,792, respectively
    
    $
    19,555
    
    
    $
    17,845Cash payments for income taxes
    
    $
    18,839
    
    
    $
    24,982SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:Purchases of property and equipment financed through capital lease
obligations
    
    $
    12,294
    
    
    $
    Purchases of property and equipment in accounts payable
    
    $
    28,909
    
    
    $
    2,548Non-cash share-based compensation capitalized to projects under
development
    
    $
    552
    
    
    $
    522
  5




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1. Basis of Presentation
   2. Share-Based Compensation
   For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    

Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Share-based compensation expense
related to stock options
    
    $
    533
    
    
    $
    705
    
    
    $
    1,852
    
    
    $
    2,406Share-based compensation expense
related to restricted shares
    
    
    1,531
    
    
    
    1,120
    
    
    
    4,039
    
    
    
    3,174Share-based compensation expense
related to ESPP
    
    
    30
    
    
    
    30
    
    
    
    98
    
    
    
    91Total share-based compensation expense
    
    $
    2,094
    
    
    $
    1,855
    
    
    $
    5,989
    
    
    $
    5,671
 6




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WeightedAverageWeighted-
    
    RemainingAverage
    
    Contractual
    
    AggregateStock
    
    Exercise
    
    Term (in
    
    IntrinsicOptions
    
    Price
    
    years)
    
    ValueOutstanding at December 31, 2007
    
    
    1,208,267
    
    
    $
    21.17Granted
    
    
    
    
    
    
    Exercised
    
    
    (179,853
    )
    
    $
    16.69Canceled
    
    
    (21,844
    )
    
    $
    32.46Outstanding at September 30, 2008
    
    
    1,006,570
    
    
    $
    21.73
    
    
    
    5.9
    
    
    $
    9,601Vested or Expected to Vest at
September 30, 2008
    
    
    982,873
    
    
    $
    21.58
    
    
    
    5.8
    
    
    $
    9,524Exercisable at September 30, 2008
    
    
    767,208
    
    
    $
    19.78
    
    
    
    5.7
    
    
    $
    8,819
  (1)
 For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2008
    
    2007
    
    2008
    
    2007Risk-free interest rate (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.7
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected life in years (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Volatility (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36.9
    %
 
     7




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Range ofMarket PriceRestricted
    
    Per Share onShares
    
    Grant DateOutstanding at December 31, 2007
    
    
    302,345
    
    
    $
    24.75-53.95Granted
    
    
    404,638
    
    
    
    26.46-35.77Canceled
    
    
    (14,136
    )
    
    
    26.46-51.15Vested
    
    
    (99,728
    )
    
    
    24.75-53.95Outstanding at September 30, 2008
    
    
    593,119
    
    
    $
    26.46-53.95
    3. Earnings per Share
   For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    21,574
    
    
    $
    18,350
    
    
    $
    58,806
    
    
    $
    48,969Weighted average number of common shares
outstanding  basic
    
    
    39,025
    
    
    
    37,630
    
    
    
    38,946
    
    
    
    37,061Effect of dilutive stock options
    
    
    215
    
    
    
    538
    
    
    
    215
    
    
    
    472Effect of dilutive restricted stock awards
    
    
    130
    
    
    
    141
    
    
    
    189
    
    
    
    118Weighted average number of common shares
outstanding  diluted
    
    
    39,370
    
    
    
    38,309
    
    
    
    39,350
    
    
    
    37,651Basic earnings per common share
    
    $
    0.55
    
    
    $
    0.49
    
    
    $
    1.51
    
    
    $
    1.32Diluted earnings per common share
    
    $
    0.55
    
    
    $
    0.48
    
    
    $
    1.49
    
    
    $
    1.30
 8




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4. Operating Segments
   For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Membership dues
    
    $
    131,232
    
    
    $
    111,744
    
    
    $
    377,001
    
    
    $
    318,939Enrollment fees
    
    
    6,818
    
    
    
    6,501
    
    
    
    19,991
    
    
    
    18,565Personal training
    
    
    25,944
    
    
    
    22,027
    
    
    
    81,093
    
    
    
    64,803Other in-center
    
    
    30,207
    
    
    
    25,490
    
    
    
    86,292
    
    
    
    72,502Other
    
    
    4,608
    
    
    
    3,688
    
    
    
    11,290
    
    
    
    9,879Total revenue
    
    $
    198,809
    
    
    $
    169,450
    
    
    $
    575,667
    
    
    $
    484,688
 5. Supplementary Cash Flow Information
  For the Nine MonthsEnded September 30,2008
    
    
    2007Accounts receivable
    
    $
    (858
    )
    
    $
    (1,241
    )Income tax receivable
    
    
    5,852
    
    
    
    1,843Inventories
    
    
    (415
    )
    
    
    (3,964
    )Prepaid expenses and other current assets
    
    
    2,273
    
    
    
    (2,619
    )Deferred membership origination costs
    
    
    (3,603
    )
    
    
    (5,663
    )Accounts payable
    
    
    (4,637
    )
    
    
    6,189Accrued expenses
    
    
    8,757
    
    
    
    7,539Deferred revenue
    
    
    181
    
    
    
    6,595Deferred rent
    
    
    1,380
    
    
    
    (165
    )Other liabilities
    
    
    7,910
    
    
    
    439Changes in operating assets and liabilities
    
    $
    16,840
    
    
    $
    8,953
 6. Commitments and Contingencies
 Litigation
 9




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7. New Accounting Pronouncements
    
 Item 2.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
   Overview
   10




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Experience Life
  11




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Critical Accounting Policies and Estimates
   12




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##### Table of Contents



Results of Operations
  For the Three
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007RevenueCenter revenueMembership dues
    
    
    66.0
    %
    
    
    66.0
    %
    
    
    65.5
    %
    
    
    65.8
    %Enrollment fees
    
    
    3.5
    
    
    
    3.8
    
    
    
    3.4
    
    
    
    3.8In-center revenue
    
    
    28.2
    
    
    
    28.0
    
    
    
    29.1
    
    
    
    28.4Total center revenue
    
    
    97.7
    
    
    
    97.8
    
    
    
    98.0
    
    
    
    98.0Other revenue
    
    
    2.3
    
    
    
    2.2
    
    
    
    2.0
    
    
    
    2.0Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating expensesCenter operations
    
    
    58.4
    
    
    
    57.6
    
    
    
    58.6
    
    
    
    58.0Advertising and marketing
    
    
    3.7
    
    
    
    3.2
    
    
    
    4.1
    
    
    
    3.8General and administrative
    
    
    4.8
    
    
    
    5.8
    
    
    
    5.3
    
    
    
    6.4Other operating
    
    
    2.5
    
    
    
    2.5
    
    
    
    2.4
    
    
    
    2.3Depreciation and amortization
    
    
    9.4
    
    
    
    8.8
    
    
    
    9.1
    
    
    
    8.9Total operating expenses
    
    
    78.8
    
    
    
    77.9
    
    
    
    79.5
    
    
    
    79.4Income from operations
    
    
    21.2
    
    
    
    22.1
    
    
    
    20.5
    
    
    
    20.6Other income (expense)Interest expense, net
    
    
    (3.6
    )
    
    
    (4.2
    )
    
    
    (3.7
    )
    
    
    (3.9
    )Equity in earnings of affiliate
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2Total other income (expense)
    
    
    (3.4
    )
    
    
    (4.0
    )
    
    
    (3.5
    )
    
    
    (3.7
    )Income before income taxes
    
    
    17.8
    
    
    
    18.1
    
    
    
    17.0
    
    
    
    16.9Provision for income taxes
    
    
    6.9
    
    
    
    7.3
    
    
    
    6.8
    
    
    
    6.8Net income
    
    
    10.9
    %
    
    
    10.8
    %
    
    
    10.2
    %
    
    
    10.1
    %Other financial and operating dataAverage center revenue per membership
    
    $
    358
    
    
    $
    345
    
    
    $
    1,082
    
    
    $
    1,016Average in-center revenue per membership
    
    $
    104
    
    
    $
    99
    
    
    $
    321
    
    
    $
    294Centers open at end of period
    
    
    77
    
    
    
    67
    
    
    
    77
    
    
    
    67Number of memberships at end of period
    
    
    557,164
    
    
    
    492,410
    
    
    
    557,164
    
    
    
    492,410Total center square footage at end of period (1)
    
    
    7,645,989
    
    
    
    6,499,549
    
    
    
    7,645,989
    
    
    
    6,499,549
 
 (1)
    
    The square footage presented in this table reflects fitness square footage which is the
best metric for the efficiencies of a facility. We exclude outdoor pool, outdoor play areas
and indoor/outdoor tennis elements. 13




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##### Table of Contents



Three Months Ended September 30, 2008, Compared to Three Months Ended September 30, 2007
 Total revenue.
  
    
    68.5% was from membership dues, which increased $19.5 million, or 17.4%, due to increased
memberships at new centers, junior membership programs and increased sales of value-added
memberships. Our number of memberships increased 13.2% to 557,164 at September 30, 2008 from
492,410 at September 30, 2007. The membership growth of 13.2% was down from membership growth
of 15.1% from September 30, 2007 over September 30, 2006, primarily due to the second
anniversary of our acquisition of seven leased centers in July 2006, and the effects of a
slower economy in the fourth quarter of 2007 and the first nine months of 2008.
    
    30.4% was from in-center revenue, which increased $8.6 million primarily as a result of
our members use of our personal training, member activities, LifeCafe and LifeSpa products
and services. As a result of this in-center revenue growth and our focus on broadening our
offerings to our members, average in-center revenue per membership increased from $99 for the
three months ended September 30, 2007 to $104 for the three months ended September 30, 2008.
Overall, in-center revenue growth slowed from 11.4% the first half of 2008 to 4.8% in the
third quarter driven primarily by reduced consumer spending on in-center services in the
current slower economy.
    
    1.1% was from enrollment fees, which are deferred until a center opens and recognized on
a straight-line basis over 33 months for the second and third quarters of 2008 and 36
months for the first quarter of 2008 and prior periods. Enrollment fees increased $0.3
million for the three months ended September 30, 2008 to $6.8 million. In 2008, we lowered
our enrollment fees to stimulate new membership demand.
  Center operations expenses.
 Advertising and marketing expenses.
 General and administrative expenses.
 Other operating expenses.
 Depreciation and amortization.
 14




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##### Table of Contents



Interest expense, net.
 Provision for income taxes.
 Net income.
 Nine Months Ended September 30, 2008, Compared to Nine Months Ended September 30, 2007
 Total revenue.
  
    
    64.8% was from membership dues, which increased $58.1 million, or 18.2%, due to increased
memberships at new centers, junior membership programs and increased sales of value-added
memberships. Our number of memberships increased 13.2% to 557,164 at September 30, 2008 from
492,410 at September 30, 2007. The membership growth of 13.2% was down from membership growth
of 15.1% from September 30, 2007 over September 30, 2006, primarily due to the second
anniversary of our acquisition of seven leased centers in July 2006, our strategy to reduce
memberships in centers where memberships exceed our target capacity and the effects of a
slower economy in the fourth quarter of 2007 and the first nine months of 2008.
    
    33.6% was from in-center revenue, which increased $30.1 million primarily as a result of
our members increased use of our personal training, member activities, LifeCafe and LifeSpa
products and services. As a result of this in-center revenue growth and our focus on
broadening our offerings to our members, average in-center revenue per membership increased
from $294 for the nine months ended September 30, 2007 to $321 for the nine months ended
September 30, 2008.
    
    1.6% was from enrollment fees, which are deferred until a center opens and recognized on
a straight-line basis over 33 months for the second and third quarters of 2008 and 36
months for the first quarter of 2008 and prior periods. Enrollment fees increased $1.4
million for the nine months ended September 30, 2008 to $20.0 million. In 2008, we lowered
our enrollment fees to stimulate new membership demand.
  Center operations expenses.
 Advertising and marketing expenses.
 General and administrative expenses.
 15




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##### Table of Contents



Other operating expenses.
 Depreciation and amortization.
 Interest expense, net.
 Provision for income taxes.
 Net income.
 Liquidity and Capital Resources
 Liquidity
  Operating Activities
 
  Investing Activities
  16




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##### Table of Contents



For the Nine MonthsEnded September 30,2008
    
    
    2007Cash purchases of property and equipment
    
    $
    360,551
    
    
    $
    310,478Non-cash purchases of property and equipment financed through
capital lease obligations
    
    
    12,294
    
    
    
    Non-cash purchases of property and equipment in accounts payable
    
    
    28,909
    
    
    
    2,548Non-cash share-based compensation capitalized to projects under
development
    
    
    552
    
    
    
    522Total capital expenditures
    
    $
    402,306
    
    
    $
    313,548
  For the Nine MonthsEnded September 30,2008
    
    
    2007New center land, building and construction on clubs opened or to be
opened through the current calendar year
    
    $
    211,380
    
    
    $
    145,852New center land, building and construction on clubs planned to be
opened in the next calendar year
    
    
    71,863
    
    
    
    91,963New center land, building and construction on clubs planned to be
opened two years out
    
    
    31,836
    
    
    
    11,236Acquisitions, updating existing centers and corporate infrastructure
    
    
    87,227
    
    
    
    64,497Total capital expenditures
    
    $
    402,306
    
    
    $
    313,548
   17




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##### Table of Contents



Financing Activities
  Revolving Credit Facility
    Variable Rate Demand Notes
  Sale Leaseback Transactions
  18




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##### Table of Contents



Debt Covenants
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
  19




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Issuer Purchases of Equity Securities in Third Quarter 2008
 Total Number of
    
    Maximum Number ofTotal Number
    
    Average
    
    Shares Purchased as
    
    Shares that May Yet beof Shares
    
    Price Paid
    
    Part of Publicly
    
    Purchased Under thePeriod
    
    Purchased
    
    per Share
    
    Announced Plan (1)
    
    Plan (1)July 1 - 31, 2008
    
    
    466
    
    
    $
    29.83
    
    
    
    466
    
    
    
    442,656August 1 - 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    442,656September 1 - 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    442,656Total
    
    
    466
    
    
    $
    29.83
    
    
    
    466
    
    
    
    442,656
 
 (1)
    
    In June 2006, our Board of Directors authorized the repurchase of 500,000 shares of our
common stock from time to time in the open market or otherwise for the primary purpose of
offsetting the dilutive effect of shares issued pursuant to our Employee Stock Purchase Plan. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  20




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##### Table of Contents



ITEM 6. EXHIBITS
 Exhibits filed with this report
 ExhibitNo.
    
    Description
    
    Method of Filing3.1
    
    Amended and Restated Articles of
Incorporation of the Registrant
    
    Incorporated by
reference to Exhibit
3.1 to the
Registrants Form
10-Q for the quarter
ended September 30,
2004 (File No.
001-32230)3.2
    
    Amended and Restated Bylaws of the
Registrant
    
    Incorporated by
reference to
Exhibit 3.4 to
Amendment No. 2 to
the Registrants
Registration
Statement on Form S-1
(File No.
333-113764), filed
with the Commission
on May 21, 20044
    
    Specimen of Common Stock Certificate
    
    Incorporated by
reference to Exhibit
4 to Amendment No. 4
to the Registrants
Registration
Statement of Form S-1
(File No.
333-113764), filed
with the Commission
on June 23, 200410.1
    
    Purchase and Sale Agreement by and
among Life Time Fitness, Inc. and LTF
Real Estate Company, Inc., as Seller,
and Senior Housing Properties Trust,
as Purchaser, dated as of August 21,
2008
    
    Filed Electronically10.2
    
    Lease Agreement dated as of August
21, 2008 by and among SNH LTF
Properties LLC, as Landlord, and LTF
Real Estate Company, Inc., as Tenant
    
    Filed Electronically10.3
    
    Guaranty Agreement dated as of August
21, 2008 by Life Time Fitness, Inc.
for the benefit of SNH LTF Properties
LLC
    
    Filed Electronically10.4
    
    Lease Agreement between LT FIT
(AZ-MD) LLC (an affiliate of W.P.
Carey & Col, LLC), as Landlord, and
LTF Real Estate Company, Inc., as
Tenant dated September 26, 2008
    
    Filed Electronically10.5
    
    Guaranty and Suretyship Agreement
dated as of September 26, 2008 made
by Life Time Fitness, Inc. to LT FIT
(AZ-MD) LLC
    
    Filed Electronically31.1
    
    Rule 13a-14(a)/15d-14(a)
Certification by Principal Executive
Officer
    
    Filed Electronically31.2
    
    Rule 13a-14(a)/15d-14(a)
Certification by Principal Financial
Officer
    
    Filed Electronically32
    
    Section 1350 Certifications
    
    Filed Electronically
 21




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##### Table of Contents



SIGNATURES
  LIFE TIME FITNESS, INC.By:
    /s/ Bahram AkradiName:
    Bahram AkradiTitle:
    Chairman of the Board of Directors and Chief Executive Officer
(Principal Executive Officer and Director)By:
    /s/ Michael R. RobinsonName:
    Michael R. RobinsonTitle:
    Executive Vice President and Chief Financial Officer
(Principal Financial Officer)By:
    /s/ John M. HugoName:
    John M. HugoTitle:
    Vice President and Corporate Controller
(Principal Accounting Officer) 22




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNo.
    
    Description
    
    Method of Filing3.1
    
    Amended and Restated Articles of
Incorporation of the Registrant
    
    Incorporated by
reference to Exhibit
3.1 to the
Registrants Form
10-Q for the quarter
ended September 30,
2004 (File No.
001-32230)3.2
    
    Amended and Restated Bylaws of the
Registrant
    
    Incorporated by
reference to
Exhibit 3.4 to
Amendment No. 2 to
the Registrants
Registration
Statement on Form S-1
(File No.
333-113764), filed
with the Commission
on May 21, 20044
    
    Specimen of Common Stock Certificate
    
    Incorporated by
reference to Exhibit
4 to Amendment No. 4
to the Registrants
Registration
Statement of Form S-1
(File No.
333-113764), filed
with the Commission
on June 23, 200410.1
    
    Purchase and Sale Agreement by and
among Life Time Fitness, Inc. and LTF
Real Estate Company, Inc., as Seller,
and Senior Housing Properties Trust,
as Purchaser, dated as of August 21,
2008
    
    Filed Electronically10.2
    
    Lease Agreement dated as of August
21, 2008 by and among SNH LTF
Properties LLC, as Landlord, and LTF
Real Estate Company, Inc., as Tenant
    
    Filed Electronically10.3
    
    Guaranty Agreement dated as of August
21, 2008 by Life Time Fitness, Inc.
for the benefit of SNH LTF Properties
LLC
    
    Filed Electronically10.4
    
    Lease Agreement between LT FIT
(AZ-MD) LLC (an affiliate of W.P.
Carey & Col, LLC), as Landlord, and
LTF Real Estate Company, Inc., as
Tenant dated September 26, 2008
    
    Filed Electronically10.5
    
    Guaranty and Suretyship Agreement
dated as of September 26, 2008 made
by Life Time Fitness, Inc. to LT FIT
(AZ-MD) LLC
    
    Filed Electronically31.1
    
    Rule 13a-14(a)/15d-14(a)
Certification by Principal Executive
Officer
    
    Filed Electronically31.2
    
    Rule 13a-14(a)/15d-14(a)
Certification by Principal Financial
Officer
    
    Filed Electronically32
    
    Section 1350 Certifications
    
    Filed Electronically
 23