##### Table of Contents



UNITED
STATESSECURITIES 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 June 30, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 Commission File No. 001-32230
 
 Life Time Fitness, Inc.
  Minnesota
(State or other jurisdiction of
incorporation or organization)
    
    41-1689746
(I.R.S. Employer
Identification No.)6442 City West Parkway
Eden Prairie, Minnesota
(Address of principal executive offices)
    
    55344
(Zip Code)
 952-947-0000
 
 þ o
 
 þ o o
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of June 30, 2006 and December 31, 2005 (unaudited)
    
    
    3Consolidated Statements of Operations for the Three and Six Months Ended June 30,
2006 and 2005 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and
2005 (unaudited)
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    18Item 1A. Risk Factors
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3. Defaults Upon Senior Securities
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Item 5. Other Information
    
    
    18Item 6. Exhibits
    
    
    19SIGNATURES
    
    
    20Amended and Restated Credit AgreementRule 13a-14(a)/15d-14(a) Certification by Principal Executive OfficerRule 13a-14(a)/15d-14(a) Certification by Principal Financial and Accounting OfficerSection 1350 Certifications




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share data)
 (Unaudited)
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    
    
    
    $
    4,680Accounts receivable, net
    
    
    2,301
    
    
    
    4,267Inventories
    
    
    6,392
    
    
    
    5,669Prepaid expenses and other current assets
    
    
    9,901
    
    
    
    7,187Deferred membership origination costs
    
    
    11,529
    
    
    
    10,082Income tax receivable
    
    
    2,207
    
    
    
    3,510Total current assets
    
    
    32,330
    
    
    
    35,395PROPERTY AND EQUIPMENT, net
    
    
    743,437
    
    
    
    661,371RESTRICTED CASH
    
    
    3,819
    
    
    
    3,915DEFERRED MEMBERSHIP ORIGINATION COSTS
    
    
    9,403
    
    
    
    8,410OTHER ASSETS
    
    
    15,524
    
    
    
    14,369TOTAL ASSETS
    
    $
    804,513
    
    
    $
    723,460LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    14,305
    
    
    $
    14,447Accounts payable
    
    
    8,229
    
    
    
    9,964Construction accounts payable
    
    
    28,710
    
    
    
    25,811Accrued expenses
    
    
    31,849
    
    
    
    27,862Deferred revenue
    
    
    29,090
    
    
    
    23,434Total current liabilities
    
    
    112,183
    
    
    
    101,518LONG-TERM DEBT, net of current portion
    
    
    284,681
    
    
    
    258,835DEFERRED RENT LIABILITY
    
    
    5,774
    
    
    
    5,492DEFERRED INCOME TAXES
    
    
    35,934
    
    
    
    35,419DEFERRED REVENUE
    
    
    15,775
    
    
    
    14,352Total liabilities
    
    
    454,347
    
    
    
    415,616COMMITMENTS 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; 36,261,414 and
35,570,567 shares issued and outstanding,
respectively
    
    
    726
    
    
    
    712Additional paid-in capital
    
    
    245,316
    
    
    
    228,132Deferred compensation
    
    
    
    
    
    
    (2,306
    )Retained earnings
    
    
    104,124
    
    
    
    81,306Total shareholders equity
    
    
    350,166
    
    
    
    307,844TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    804,513
    
    
    $
    723,460
  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
    
    
    For the SixMonths Ended
    
    
    Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUE:Membership dues
    
    $
    80,550
    
    
    $
    64,313
    
    
    $
    156,349
    
    
    $
    124,790Enrollment fees
    
    
    5,561
    
    
    
    5,452
    
    
    
    10,644
    
    
    
    10,137In-center revenue
    
    
    33,787
    
    
    
    24,029
    
    
    
    66,121
    
    
    
    46,702Total center revenue
    
    
    119,898
    
    
    
    93,794
    
    
    
    233,114
    
    
    
    181,629Other revenue
    
    
    2,557
    
    
    
    1,813
    
    
    
    4,766
    
    
    
    3,306Total revenue
    
    
    122,455
    
    
    
    95,607
    
    
    
    237,880
    
    
    
    184,935OPERATING EXPENSES:Center operations (including $889, $0, $1,277
and $0 related to share-based compensation
expense, respectively)
    
    
    68,540
    
    
    
    52,827
    
    
    
    133,633
    
    
    
    102,398Advertising and marketing
    
    
    4,732
    
    
    
    2,619
    
    
    
    10,571
    
    
    
    6,910General and administrative (including $2,826,
$26, $3,649 and $57 related to share- based
compensation expense, respectively)
    
    
    10,861
    
    
    
    7,331
    
    
    
    19,676
    
    
    
    13,821Other operating
    
    
    2,646
    
    
    
    3,226
    
    
    
    5,633
    
    
    
    6,164Depreciation and amortization
    
    
    12,146
    
    
    
    9,190
    
    
    
    23,665
    
    
    
    17,924Total operating expenses
    
    
    98,925
    
    
    
    75,193
    
    
    
    193,178
    
    
    
    147,217Income from operations
    
    
    23,530
    
    
    
    20,414
    
    
    
    44,702
    
    
    
    37,718OTHER INCOME (EXPENSE):Interest expense, net of interest income of
$80, $64, $149 and $123, respectively
    
    
    (4,140
    )
    
    
    (3,243
    )
    
    
    (8,257
    )
    
    
    (7,069
    )Equity in earnings of affiliate
    
    
    251
    
    
    
    266
    
    
    
    494
    
    
    
    554Total other income (expense)
    
    
    (3,889
    )
    
    
    (2,977
    )
    
    
    (7,763
    )
    
    
    (6,515
    )INCOME BEFORE INCOME TAXES
    
    
    19,641
    
    
    
    17,437
    
    
    
    36,939
    
    
    
    31,203PROVISION FOR INCOME TAXES
    
    
    7,256
    
    
    
    7,150
    
    
    
    14,121
    
    
    
    12,794NET INCOME
    
    $
    12,385
    
    
    $
    10,287
    
    
    $
    22,818
    
    
    $
    18,409BASIC EARNINGS PER COMMON SHARE
    
    $
    0.34
    
    
    $
    0.30
    
    
    $
    0.64
    
    
    $
    0.54DILUTED EARNINGS PER COMMON SHARE
    
    $
    0.33
    
    
    $
    0.28
    
    
    $
    0.62
    
    
    $
    0.51WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING  BASIC
    
    
    36,143
    
    
    
    34,360
    
    
    
    35,915
    
    
    
    34,091WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING  DILUTED
    
    
    37,033
    
    
    
    36,161
    
    
    
    36,888
    
    
    
    36,047
  4




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 For the Six Months EndedJune 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    22,818
    
    
    $
    18,409Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    23,665
    
    
    
    17,924Deferred income taxes
    
    
    515
    
    
    
    (874
    )Loss on disposal of property and equipment, net
    
    
    120
    
    
    
    370Amortization of deferred financing costs
    
    
    331
    
    
    
    701Share-based compensation
    
    
    4,926
    
    
    
    87Excess tax benefit from exercise of stock options
    
    
    (5,228
    )
    
    
    Changes in operating assets and liabilities
    
    
    13,706
    
    
    
    17,291Other
    
    
    128
    
    
    
    128Net cash provided by operating activities
    
    
    60,981
    
    
    
    54,036CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (110,432
    )
    
    
    (78,510
    )Proceeds from sale of property and equipment
    
    
    6,566
    
    
    
    3,778Increase in other assets
    
    
    (843
    )
    
    
    (425
    )Decrease in restricted cash
    
    
    96
    
    
    
    8,219Net cash used in investing activities
    
    
    (104,613
    )
    
    
    (66,938
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term borrowings
    
    
    1,650
    
    
    
    112,641Repayments on long-term borrowings
    
    
    (12,654
    )
    
    
    (111,613
    )Proceeds from revolving credit facility, net
    
    
    36,800
    
    
    
    Increase in deferred financing costs
    
    
    (651
    )
    
    
    (1,174
    )Excess tax benefit from exercise of stock options
    
    
    5,228
    
    
    
    Proceeds from exercise of stock options
    
    
    8,579
    
    
    
    3,183Net cash provided by financing activities
    
    
    38,952
    
    
    
    3,037DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (4,680
    )
    
    
    (9,865
    )CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    4,680
    
    
    
    10,211CASH AND CASH EQUIVALENTS  End of period
    
    $
    
    
    
    $
    346SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest, including capitalized interest of $1,962 and $2,037,
respectively
    
    $
    7,766
    
    
    $
    7,934Cash payments for income taxes
    
    $
    7,079
    
    
    $
    6,549SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Issuance of restricted stock
    
    $
    1,458
    
    
    $
    131
  5




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
   2. Share-Based Compensation
    6




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Three Months Ended
    
    
    Six Months Ended,June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Share-based compensation expense related to
stock options
    
    $
    3,329
    
    
    $
    
    
    
    $
    4,224
    
    
    $
    Share-based compensation expense related to
restricted shares
    
    
    386
    
    
    
    26
    
    
    
    702
    
    
    
    57Total share-based compensation expense
    
    $
    3,715
    
    
    $
    26
    
    
    $
    4,926
    
    
    $
    57
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2005
    
    
    June 30, 2005Net income, as reported
    
    $
    10,287
    
    
    $
    18,409Net income, pro forma
    
    $
    9,097
    
    
    $
    16,550Basic earnings per common share:As reported
    
    $
    0.30
    
    
    $
    0.54Pro forma
    
    $
    0.26
    
    
    $
    0.49Diluted earnings per common share:As reported
    
    $
    0.28
    
    
    $
    0.51Pro forma
    
    $
    0.25
    
    
    $
    0.46
  Weighted-
    
    
    Weighted-Average
    
    
    AverageExercise
    
    
    Remaining
    
    
    AggregatePrice per
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Share
    
    
    Term (in years)
    
    
    ValueOutstanding on December 31, 2005
    
    
    2,757,666
    
    
    $
    17.01Granted
    
    
    37,977
    
    
    
    46.02Exercised
    
    
    (659,041
    )
    
    
    13.00Canceled
    
    
    (9,200
    )
    
    
    13.93Outstanding on June 30, 2006
    
    
    2,127,402
    
    
    $
    18.78
    
    
    
    7.56
    
    
    $
    58,494,629Exercisable on June 30, 2006
    
    
    1,122,745
    
    
    $
    15.60
    
    
    
    6.95
    
    
    $
    34,437,288
  7




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Three Months Ended June 30,
    
    Six Months Ended June 30,Weighted Average Valuation Assumptions (1)
    
    2006
    
    2005
    
    2006
    
    2005Risk-free interest rate (2)
    
    
    5.0
    %
    
    
    3.9
    %
    
    
    5.0
    %
    
    
    4.0
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected stock price volatility (3)
    
    
    36.0
    %
    
    
    40.6
    %
    
    
    36.0
    %
    
    
    44.0
    %Expected life of stock options (in years) (3)
    
    
    5.0
    
    
    
    6.0
    
    
    
    5.0
    
    
    
    6.0
 
 (1)
    
    Forfeitures are estimated based on historical experience and projected employee
turnover.(2)
    
    Based on the five-year Treasury constant maturity interest rate whose term is
consistent with the expected life of our stock options.(3)
    
    We estimate the expected life and volatility of stock options based on an
average of the expected lives and volatilities assumptions reported by a peer group of
publicly traded companies.   3. Earnings per Share
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    12,385
    
    
    $
    10,287
    
    
    $
    22,818
    
    
    $
    18,409Weighted average number of
common shares outstanding 
basic
    
    
    36,143
    
    
    
    34,360
    
    
    
    35,915
    
    
    
    34,091Effect of dilutive stock options
and unvested restricted stock
awards
    
    
    890
    
    
    
    1,801
    
    
    
    973
    
    
    
    1,956Weighted average number of
common shares outstanding 
diluted
    
    
    37,033
    
    
    
    36,161
    
    
    
    36,888
    
    
    
    36,047Basic earnings per common share
    
    $
    0.34
    
    
    $
    0.30
    
    
    $
    0.64
    
    
    $
    0.54Diluted earnings per common share
    
    $
    0.33
    
    
    $
    0.28
    
    
    $
    0.62
    
    
    $
    0.51
 8




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4. Operating Segments
   Centers
    
    
    All Other
    
    
    ConsolidatedThree months ended June 30, 2006:Revenue
    
    $
    119,898
    
    
    $
    2,557
    
    
    $
    122,455Net income (loss)
    
    $
    13,872
    
    
    $
    (1,487
    )
    
    $
    12,385Provision (benefit) for income taxes
    
    
    8,247
    
    
    
    (991
    )
    
    
    7,256Interest expense, net
    
    
    3,156
    
    
    
    984
    
    
    
    4,140Depreciation and amortization
    
    
    10,643
    
    
    
    1,503
    
    
    
    12,146EBITDA
    
    $
    35,918
    
    
    $
    9
    
    
    $
    35,927Total assets
    
    $
    713,170
    
    
    $
    91,343
    
    
    $
    804,513Three months ended June 30, 2005:Revenue
    
    $
    93,794
    
    
    $
    1,813
    
    
    $
    95,607Net income (loss)
    
    $
    11,623
    
    
    $
    (1,336
    )
    
    $
    10,287Provision (benefit) for income taxes
    
    
    8,079
    
    
    
    (929
    )
    
    
    7,150Interest expense, net
    
    
    3,002
    
    
    
    241
    
    
    
    3,243Depreciation and amortization
    
    
    7,565
    
    
    
    1,625
    
    
    
    9,190EBITDA
    
    $
    30,269
    
    
    $
    (399
    )
    
    $
    29,870Total assets
    
    $
    546,941
    
    
    $
    70,421
    
    
    $
    617,362Six months ended June 30, 2006:Revenue
    
    $
    233,114
    
    
    $
    4,766
    
    
    $
    237,880Net income (loss)
    
    $
    25,669
    
    
    $
    (2,851
    )
    
    $
    22,818Provision (benefit) for income taxes
    
    
    16,022
    
    
    
    (1,901
    )
    
    
    14,121Interest expense, net
    
    
    6,533
    
    
    
    1,724
    
    
    
    8,257Depreciation and amortization
    
    
    20,663
    
    
    
    3,002
    
    
    
    23,665EBITDA
    
    $
    68,887
    
    
    $
    (26
    )
    
    $
    68,861Total assets
    
    $
    713,170
    
    
    $
    91,343
    
    
    $
    804,513Six months ended June 30, 2005:Revenue
    
    $
    181,629
    
    
    $
    3,306
    
    
    $
    184,935Net income (loss)
    
    $
    21,378
    
    
    $
    (2,969
    )
    
    $
    18,409Provision (benefit) for income taxes
    
    
    14,857
    
    
    
    (2,063
    )
    
    
    12,794Interest expense, net
    
    
    6,008
    
    
    
    1,061
    
    
    
    7,069Depreciation and amortization
    
    
    14,785
    
    
    
    3,139
    
    
    
    17,924EBITDA
    
    $
    57,028
    
    
    $
    (832
    )
    
    $
    56,196Total assets
    
    $
    546,941
    
    
    $
    70,421
    
    
    $
    617,362
 9




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5. Supplementary Cash Flow Information
  For the Six Months EndedJune 30,2006
    
    
    2005Accounts receivable
    
    $
    1,966
    
    
    $
    (2,149
    )Income taxes receivable
    
    
    6,531
    
    
    
    2,897Tax benefit from exercise of stock options
    
    
    
    
    
    
    4,222Inventories
    
    
    (723
    )
    
    
    238Prepaids and other current assets
    
    
    (2,714
    )
    
    
    (615
    )Deferred membership origination costs
    
    
    (2,440
    )
    
    
    (2,070
    )Accounts payable
    
    
    (262
    )
    
    
    1,867Accrued expenses
    
    
    3,987
    
    
    
    5,403Deferred revenue
    
    
    7,079
    
    
    
    6,044Deferred rent
    
    
    282
    
    
    
    1,454Changes in operating assets and liabilities
    
    $
    13,706
    
    
    $
    17,291
 6. Commitments and Contingencies
 Litigation
 7. Subsequent Events
   10




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##### Table of Contents



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




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##### Table of Contents



Experience Life
   Critical Accounting Policies and Estimates
   12




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##### Table of Contents



Results of Operations
  For the Three
    
    
    For the SixMonths Ended
    
    
    Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005RevenueCenter revenue:Membership dues
    
    
    65.8
    %
    
    
    67.3
    %
    
    
    65.7
    %
    
    
    67.5
    %Enrollment fees
    
    
    4.5
    
    
    
    5.7
    
    
    
    4.5
    
    
    
    5.5In-center revenue
    
    
    27.6
    
    
    
    25.1
    
    
    
    27.8
    
    
    
    25.2Total center revenue
    
    
    97.9
    
    
    
    98.1
    
    
    
    98.0
    
    
    
    98.2Other revenue
    
    
    2.1
    
    
    
    1.9
    
    
    
    2.0
    
    
    
    1.8Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating expensesCenter operations (including 0.8%,
0.0%, 0.6% and 0.0% related to
share-based compensation expense,
respectively)
    
    
    56.0
    
    
    
    55.3
    
    
    
    56.2
    
    
    
    55.4Advertising and marketing
    
    
    3.8
    
    
    
    2.7
    
    
    
    4.4
    
    
    
    3.7General and administrative (including
2.3%, 0.0%, 1.5% and 0.0% related to
share-based compensation expense,
respectively)
    
    
    8.9
    
    
    
    7.7
    
    
    
    8.3
    
    
    
    7.5Other operating
    
    
    2.2
    
    
    
    3.3
    
    
    
    2.4
    
    
    
    3.3Depreciation and amortization
    
    
    9.9
    
    
    
    9.6
    
    
    
    9.9
    
    
    
    9.7Total operating expenses
    
    
    80.8
    
    
    
    78.6
    
    
    
    81.2
    
    
    
    79.6Income from operations
    
    
    19.2
    
    
    
    21.4
    
    
    
    18.8
    
    
    
    20.4Other income (expense)Interest expense, net
    
    
    (3.4
    )
    
    
    (3.4
    )
    
    
    (3.5
    )
    
    
    (3.8
    )Equity in earnings of affiliate
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.3Total other income (expense)
    
    
    (3.2
    )
    
    
    (3.1
    )
    
    
    (3.3
    )
    
    
    (3.5
    )Income before income taxes
    
    
    16.0
    
    
    
    18.3
    
    
    
    15.5
    
    
    
    16.9Provision for income taxes
    
    
    5.9
    
    
    
    7.5
    
    
    
    5.9
    
    
    
    6.9Net income
    
    
    10.1
    %
    
    
    10.8
    %
    
    
    9.6
    %
    
    
    10.0
    %Other financial and operating data:Average center revenue per membership
    
    $
    318
    
    
    $
    294
    
    
    $
    632
    
    
    $
    585Average in-center revenue per membership
    
    $
    90
    
    
    $
    75
    
    
    $
    179
    
    
    $
    150Centers open at end of period
    
    
    49
    
    
    
    41
    
    
    
    49
    
    
    
    41Number of memberships at end of period
    
    
    393,011
    
    
    
    335,816
    
    
    
    393,011
    
    
    
    335,816
 Three Months Ended June 30, 2006, Compared to Three Months Ended June 30, 2005
 Total revenue.
  
    
    62.1% was from membership dues, which increased $16.2 million, due to increased
memberships at new and existing centers, the introduction of junior membership programs and
increased sales of Sports and other value-added memberships.
    
    37.5% was from in-center revenue, which increased $9.8 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,
 13




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##### Table of Contents



average in-center revenue per membership
increased to $90 for the three months ended June 30, 2006, from $75 for the three months
ended June 30, 2005.
 
    
    0.4% was from enrollment fees, which are deferred until a center opens and
recognized on a straight-line basis over 36 months. Enrollment fees increased $0.1 million
for the three months ended June 30, 2006 to $5.6 million. Our number of memberships
increased 17.0%, to 393,011 at June 30, 2006, from 335,816 at June 30, 2005.
  Center operations expenses.
 Advertising and marketing expenses.
 General and administrative expenses.
 Other operating expenses.
 Depreciation and amortization.
 Interest expense, net.
 Provision for income taxes.
 Net income.
 Six months ended June 30, 2006, Compared to Six months ended June 30, 2005
 Total revenue.
  14




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##### Table of Contents




    
    61.3% was from membership dues, which increased $31.6 million, due to increased
memberships at new and existing centers, the introduction of junior membership programs and
increased sales of Sports and other value-added memberships.
    
    37.7% was from in-center revenue, which increased $19.4 million primarily as a
result of our members increased use of our personal training, member activities, LifeCafe
and LifeSpa products and services. As a result of this in-center revenue growth and our
focus on broadening our offerings to our members, average in-center revenue per membership
increased to $179 for the six months ended June 30, 2006, from $150 for the six months
ended June 30, 2005.
    
    1.0% was from enrollment fees, which are deferred until a center opens and
recognized on a straight-line basis over 36 months. Enrollment fees increased $0.5 million
for the six months ended June 30, 2006 to $10.6 million. Our number of memberships
increased 17.0%, to 393,011 at June 30, 2006, from 335,816 at June 30, 2005.
  Center operations expenses.
 Advertising and marketing expenses.
 General and administrative expenses.
 Other operating expenses.
 Depreciation and amortization.
 Interest expense, net.
 Provision for income taxes.
 15




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##### Table of Contents



Net income.
 Liquidity and Capital Resources
 Liquidity
  Operating Activities
   Investing Activities
    For the Six Months EndedJune 30,2006
    
    
    2005(In thousands)Capital expenditures for new center land, building
and construction
    
    $
    91,588
    
    
    $
    73,063Capital expenditures for updating existing centers and
corporate infrastructure
    
    
    18,844
    
    
    
    5,447Total capital expenditures
    
    $
    110,432
    
    
    $
    78,510
  16




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##### Table of Contents



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




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  The
anticipated benefits of operating
additional leased centers may not be realized.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Nominee
    
    For
    
    WithheldBahram Akradi
    
    
    33,287,054
    
    
    
    239,463Giles H. Bateman
    
    
    33,420,831
    
    
    
    105,686Timothy C. DeVries
    
    
    33,491,131
    
    
    
    35,386James F. Halpin
    
    
    33,477,031
    
    
    
    49,486Guy C. Jackson
    
    
    33,095,620
    
    
    
    430,897David A. Landau
    
    
    33,435,168
    
    
    
    91,349Stephen R. Sefton
    
    
    33,475,471
    
    
    
    51,046
    
 ITEM 5. OTHER INFORMATION
  18




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##### Table of Contents



ITEM 6. EXHIBITS
 Exhibits filed with this report
 ExhibitNo.
    
    Description
    
    Method of Filing3.1
    
    Amended and Restated Articles of
Incorporation of the Registrant
    
    Incorporated by
reference to Exhibit 3.1
to the Registrants Form
10-Q for the quarter
ended June 30, 2004
(File No. 001-32230)3.2
    
    Amended and Restated Bylaws of the
Registrant
    
    Incorporated by
reference to Exhibit 3.4
to Amendment No. 2 to
the Registrants
Registration Statement
on Form S-1 (File No.
333-113764), filed with
the Commission on May
21, 20044
    
    Specimen of Common Stock Certificate
    
    Incorporated by
reference to Exhibit 4
to Amendment No. 4 to
the Registrants
Registration Statement
of Form S-1 (File No.
333-113764), filed with
the Commission on June
23, 200410.1
    
    Amended and Restated Credit
Agreement, dated as of April 28,
2006, among the Company, U.S. Bank
National Association, as
administrative agent and lead
arranger, J.P. Morgan Securities,
Inc., as syndication agent, and the
banks party thereto from time to
time
    
    Filed Electronically10.2
    
    Form of 2006 Key Executive
Incentive Compensation Plan
    
    Incorporated by
reference to Exhibit
10.1 to the Registrants
Form 8-K dated May 1,
2006 (File No.
001-32230)31.1
    
    Rule 13a-14(a)/15d-14(a)
Certification by Principal
Executive Officer
    
    Filed Electronically31.2
    
    Rule 13a-14(a)/15d-14(a)
Certification by Principal
Financial and Accounting Officer
    
    Filed Electronically32
    
    Section 1350 Certifications
    
    Filed Electronically
 19




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##### Table of Contents



SIGNATURES
  LIFE TIME FITNESS, INC.By:
    /s/ Bahram AkradiName:
    Bahram AkradiTitle:
    Chairman of the Board of Directors, President and
Chief Executive Officer
(Principal Executive Officer and Director)By:
    /s/ Michael R. RobinsonName:
    Michael R. RobinsonTitle:
    Executive Vice President and Chief Financial Officer
(Principal Financial Officer)By:
    /s/ John M. HugoName:
    John M. HugoTitle:
    Controller
(Principal Accounting Officer) 20




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNo.
    
    Description
    
    Method of Filing3.1
    
    Amended and Restated Articles of
Incorporation of the Registrant
    
    Incorporated by
reference to
Exhibit 3.1 to the
Registrants Form
10-Q for the
quarter ended June
30, 2004 (File No.
001-32230)3.2
    
    Amended and Restated Bylaws of the
Registrant
    
    Incorporated by
reference to
Exhibit 3.4 to
Amendment No. 2 to
the Registrants
Registration
Statement on Form
S-1 (File No.
333-113764), filed
with the Commission
on May 21, 20044
    
    Specimen of Common Stock Certificate
    
    Incorporated by
reference to
Exhibit 4 to
Amendment No. 4 to
the Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on June 23, 200410.1
    
    Amended and Restated Credit
Agreement, dated as of April 28,
2006, among the Company, U.S. Bank
National Association, as
administrative agent and lead
arranger, J.P. Morgan Securities,
Inc., as syndication agent, and the
banks party thereto from time to
time
    
    Filed Electronically10.2
    
    Form of 2006 Key Executive
Incentive Compensation Plan
    
    Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K dated May 1,
2006 (File No.
001-32230)31.1
    
    Rule 13a-14(a)/15d-14(a)
Certification by Principal
Executive Officer
    
    Filed Electronically31.2
    
    Rule 13a-14(a)/15d-14(a)
Certification by Principal
Financial and Accounting Officer
    
    Filed Electronically32
    
    Section 1350 Certifications
    
    Filed Electronically
 21