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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-K   þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 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
    
    41-1689746(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)6442 City West Parkway
    
    55344Eden Prairie, Minnesota
    
    (Zip Code)(Address of principal executive offices)
 Registrants telephone number, including area code: 952-947-0000 Securities registered pursuant to Section 12(b) of the Act Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, $.02 par value
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act: None 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 þ No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ The aggregate market value of the common stock held by non-affiliates of the registrant
as of June 30, 2004, the last business day of the registrants most recently completed second
fiscal quarter, was $375,544,449, based on the closing sale price for the registrants common
stock on that date. The number of shares outstanding of the Registrants common stock as of March 1, 2005 was
33,820,179 common shares.




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DOCUMENTS INCORPORATED BY REFERENCE Portions of our Proxy Statement for the annual meeting of shareholders to be held May 5,
2005 are incorporated by reference in Part III. FORWARD-LOOKING STATEMENTS The information presented in this Annual Report on Form 10-K under the headings Item 1.
Business and Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934. These statements are subject to risks and uncertainties, including those
discussed under Risk Factors on pages 27  31 of this
Annual Report on Form 10-K, that could cause actual results to differ materially from those
projected. Because actual results may differ, we caution you not to place undue reliance on these
forward-looking statements. We are not obligated to update these forward-looking statements or
publicly release the results of any revisions to them to reflect events or circumstances after the
date of this Annual Report on Form 10-K or the reflect the occurrence of unanticipated events.




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TABLE OF CONTENTS PagePART I.Item 1.
    
    Business
    
3Item 2.
    
    Properties
    
12Item 3.
    
    Legal Proceedings
    
13Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
13PART II.Item 5.
    
    Market For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
13Item 6.
    
    Selected Financial Data
    
14Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
17Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
31Item 8.
    
    Financial Statements and Supplementary Data
    
32Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
57Item 9A.
    
    Controls and Procedures
    
57Item 9B.
    
    Other Information
    
57PART III.Item 10.
    
    Directors and Executive Officers of the Registrant
    
57Item 11.
    
    Executive Compensation
    
57Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
57Item 13.
    
    Certain Relationships and Related Transactions
    
57Item 14.
    
    Principal Accountant Fees and Services
    
58PART IV.Item 15.
    
    Exhibits and Financial Statement Schedules
    
58SIGNATURESSummary of Non-Employee Director CompensationAnnual ReportSubsidiaries of the RegistrantConsent of Deloitte & Touche LLPPowers of AttorneyCertification of President and Chief Executive OfficerCertification of Executive Vice President and Chief Financial OfficerCertifications Pursuant to Section 906




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PART I 
 Item 1. Business. Company Overview We operate distinctive and large sports and athletic, professional fitness, family recreation
and resort/spa centers under the LIFE TIME FITNESS® brand. We design and develop our own centers,
and we focus on providing our members and customers with products and services at a compelling
value in the areas of exercise, education and nutrition. As of March 10, 2005, we operated 40 centers primarily in suburban locations across eight states.
In addition to traditional health club offerings, most of our centers include an expansive
selection of premium amenities and services, such as indoor swimming pools with water slides,
basketball and racquet courts, interactive and entertaining child centers, full-service spas and
dining services and, in many cases, climbing walls and outdoor swimming pools. We believe our
centers provide a unique experience for our members, resulting in a high number of memberships per
center and attrition rates that were 4.8% better than the industry average in 2003. Over the past 13 years, as we have opened new centers, we have refined the size and design of our
centers. Of our 40 centers, we consider 31 to be of our large format design, and of these 31
centers, we consider 18 to be of our current model design. Although the size and design of our
centers may vary, our business strategy and operating processes remain consistent across all of our
centers. Each of our current model centers targets 11,500 memberships by offering approximately
105,000 square feet of health, fitness and family recreation programs and services. Most of the
centers that we have opened since 2000 conform to our current model center, and each of these
centers has delivered growth in membership levels, revenue and profitability across a range of
geographic markets. Throughout our history, we have consistently grown our business by opening new centers, increasing
the number of memberships per existing center and focusing on the sale of additional programs and
services in our centers. For each of the fiscal years from 2002 to 2004, we experienced annual
revenue growth of 43%, 32% and 21%, respectively, with revenue of $312.0 million in 2004; annual
EBITDA growth of 35%, 63% and 20%, respectively, with EBITDA of $96.3 million in 2004; and annual
net income growth of 86%, 178% and 40%, respectively, with net income of $28.9 million in 2004. We were incorporated on October 15, 1990 as a Minnesota corporation under the name FCA, Ltd. and we
began doing business under the name LIFE TIME FITNESS in
July 1992. We changed our corporate name to Life
Time Fitness, Inc. on December 8, 1998 to correspond with our brand name. Our principal executive offices are located at 6442 City West Parkway, Eden Prairie, Minnesota
55344, and our telephone number is (952) 947-0000. Our website is located at
www.lifetimefitness.com. The information contained on our website is not a part of this annual
report. Our Competitive Strengths We offer comprehensive and convenient programs and services. Our large format centers offer high quality programs and services in a resort-like setting and are
generally situated on a parcel of land of at least 10 acres. Unlike traditional health clubs, these
centers typically offer large indoor and outdoor family recreation pools, climbing walls and
basketball and racquet courts, in addition to approximately 400 pieces of cardiovascular and
resistance training equipment and an extensive offering of health and fitness classes. Our staff of
member-focused employees, each trained through our specifically designed program of classes, is
committed to providing an environment that is comfortable, friendly, inviting and clean. Our large
format centers include luxurious reception areas and locker rooms, child care facilities with
spacious play areas and computers, spas offering massage and beauty services and cafes with healthy
product offerings throughout the day. We offer a value proposition that encourages membership loyalty. The amenities and services we offer exceed most other health and fitness center alternatives
available to our members. We offer different types of membership plans for individuals, couples and
families. Our typical monthly membership dues range from $40 to $60 per month for an individual
membership and from $80 to $130 per month for a couple or family membership. Each of our
memberships includes all of the primary members children under the age of 12 at no additional
cost. We provide the majority of our members with a variety of complimentary services, including
child care, lockers, towels, group fitness classes and our magazine, Experience Life. Our 3




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membership plans are month-to-month, cancelable at any time on one months notice and include
initial 30-day money back guarantees. Our value proposition and member-focused approach create
loyalty among our members that reduces our attrition rate. We offer a product that is convenient for our members. Our centers are generally situated in high-traffic suburban areas and are easily accessible and
centrally located among the residential, business and shopping districts of the surrounding
community. We design and operate our centers to accommodate a large and active membership base by
providing access to the centers 24 hours a day, seven days a week. In addition, we provide
sufficient lockers and equipment to allow our members to exercise with little or no waiting time,
even at peak hours and when center membership levels are at targeted capacity. Our child care
services are available to the majority of our members for up to two hours per day at no additional
cost and most of our centers offer the convenience of spa and dining services under the same roof.
Membership generally affords our members the right to utilize any of our centers. We have an established and profitable economic model. Our economic model is based on and depends on attracting a large membership base within the first
three years after a new center is opened, as well as retaining those members and maintaining tight
expense control. For each of the fiscal years from 2002 to 2004, this economic model has resulted
in annual revenue growth of 43%, 32% and 21%, respectively, with revenue of $312.0 million in 2004;
annual EBITDA growth of 35%, 63% and 20%, respectively, with EBITDA of $96.3 million in 2004; and
annual net income growth of 86%, 178% and 40%, respectively, with net income of $28.9 million in
2004. We expect the typical membership base at our large format centers to grow from approximately
35% of targeted membership capacity at the end of the first month of operations to over 90% of our
targeted membership capacity by the end of the third year of operations, which is consistent with
our historical performance. Average targeted membership capacity is approximately 10,700 for all of
our large format centers and 11,500 for our large format centers that are current model centers.
Average revenue at our 20 large format centers that we opened in 2002 or earlier exceeded $11.7
million for the year ended December 31, 2004. At these centers during the same period, EBITDA
averaged approximately 40% of revenue, and net income averaged approximately 16% of revenue. Our
investment for a large format center has averaged approximately $17.7 million, which includes the
purchase of land, the building and approximately $2.5 million of exercise equipment, furniture and
fixtures, and our typical investment for a current model center has averaged approximately $22.5
million. We believe we have a disciplined and sophisticated site selection and development process. We believe we have developed a disciplined and sophisticated process to evaluate metropolitan
markets in which to build new centers, as well as specific sites for future centers within those
markets. This multi-step process is based upon applying our experience and analysis to
predetermined physical, demographic, psychographic and competitive criteria generated from profiles
of already successful centers. We continue to modify these criteria based upon the performance of
our centers. A formal business plan is developed for each proposed new center and the plan must
pass multiple stages of management approval. By utilizing a wholly owned construction subsidiary,
FCA Construction Holdings, LLC, that is dedicated solely to building our centers, we maintain
maximum flexibility over the design process of our centers and control over the cost and timing of
the construction process. As a result of our strict adherence to this disciplined process, we have
never closed a center, and our large format centers produced, on average, EBITDA in excess of 21%
of revenue and net income of less than 1% of revenue during their first year of operation. Our Growth Strategy Drive membership growth. New Centers.Since the beginning of 1999, we have expanded our base of centers from nine to 40. We
opened six large format centers in 2004, five of which are current model centers. We expect to
open six current model centers in 2005, one of which is already open with the remaining five
currently under construction. We expect to open seven current model centers in 2006, and we have
identified sites for all seven of these centers. The new centers we plan to open will be built in
both new and existing markets. We believe that, based upon our data, there is the potential for
adding at least 220 additional current model centers throughout the U.S. in existing as well as new
markets. We have built a corporate infrastructure that we believe will support our growth for the
next several years. Existing Centers.Of our 40 centers, the 10 that opened in 2003 and 2004 averaged 53.2% of
targeted membership capacity as of December 31, 2004. We expect the continuing ramp in memberships
at these centers to contribute 4




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significantly to our growth in 2005 as these centers move toward our goal of 90% of targeted
membership capacity by the end of their third year of operations. We also plan to continue to drive
membership growth at centers that are not yet at targeted capacity. In order to achieve this goal,
we employ marketing programs to effectively communicate our value proposition to prospective
members and have implemented a customer relationship management system that will allow us to better
manage and increase prospective member conversion. Increase in-center products and services revenue. From 2000 to 2004, revenue from the sale of in-center products and services grew from $10.6 million
to $71.6 million and we increased in-center revenue per membership from $163 to $267. We believe
the revenue from sales of our in-center products and services will grow at a faster rate than
membership dues and enrollment fees. Our centers offer a variety of in-center products and
services, including private and group sessions with highly skilled and professional personal
trainers, relaxing LifeSpa salon and spa services, engaging member activities programs and a
nutritional LifeCafe restaurant. We expect to continue to drive in-center revenue by increasing
sales of our current in-center products and services and introducing new products and services to
our members. Our Industry We participate in the large and growing U.S. health and wellness industry, which we define to
include health and fitness centers, fitness equipment, athletics, physical therapy, wellness
education, nutritional products, athletic apparel, spa services and other wellness-related
activities. According to International Health, Racquet & Sportclub Association, or IHRSA, the
estimated market size of the U.S. health club industry, which is a relatively small part of the
health and wellness industry, was approximately $14.1 billion in revenues and 39.4 million
memberships at the end of 2003 with approximately 26,000 clubs at the end of July 2004. According
to IHRSA, the percentage of the total U.S. population with health club memberships increased from
7.4%, or 20.7 million memberships, in 1990 to 13.5%, or 33.8 million memberships, in 2001. IHRSA
also reports that total U.S. health club memberships increased from 24.1 million memberships in
1995 to 39.4 million memberships in 2003, resulting in a compound annual growth rate of 6.3%. Over
this same period, total U.S. health club industry revenues increased from $7.8 billion to $14.1
billion. Our Philosophy  Developing a Healthy Way of Life Company We strive to offer our members a healthy way of life in the areas of exercise, nutrition and
education by providing high quality products and services both in and outside of our centers. We
promote continuous education as an easy and inspiring part of every members experience by offering
free seminars on health, nutrition, stress reduction, time management and life extension to educate
members on the benefits of a regular fitness program and a well-rounded lifestyle. Moreover, our
centers offer interactive learning opportunities, such as personal training, group fitness sessions
and member activities classes and programs. We believe that by helping our members experience the
rewards of developing their bodies and challenging and investing in themselves, they will associate
our company with healthy living. Our Sports and Athletic, Professional Fitness, Family Recreation and Resort/Spa Centers Size and Location Our centers have evolved over the past several years. Out of our 40 centers, 31 are of our large
format design and 18 of these 31 centers conform to our current model center. Our current model
center is approximately 105,000 square feet and serves as an all-in-one sports and athletic club,
professional fitness facility, family recreation center and spa and cafe. Our distinctive format is
designed to provide an efficient and inviting use of space that accommodates our targeted capacity
of 11,500 memberships and provides a premium assortment of amenities and services. Our 13 centers
that have the large format design, but do not conform to our current model center, average
approximately 84,000 square feet and have an average targeted
capacity of 9,600 memberships.
Generally, targeted capacity for a center is 1,100 memberships for every 10,000 square feet at a
center. This targeted capacity is designed to maximize the customer experience based upon our
historical understanding of membership usage. Our centers are centrally located in areas that offer
convenient access from the residential, business and shopping districts of the surrounding
community, and also provide free and ample parking. Center Environment Our sports and athletic, professional fitness, family recreation and resort/spa centers combine
modern architecture and décor with state-of-the-art amenities to create an innovative and
functional health and recreation destination for 5




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the entire family. All of our current model centers and most of our large format centers are
scalable, freestanding buildings designed with open architecture and naturally illuminated atriums
that create a spacious, inviting atmosphere. From the limestone floors, natural wood lockers and
granite countertops to safe and bright child centers, each room is carefully designed to create an
appealing and luxurious environment that attracts and retains members and encourages them to visit
the center. Moreover, we have specific staff members who are responsible for maintaining the
cleanliness and neatness of the locker room areas, which contain approximately 800 lockers,
throughout the day and particularly during the centers peak usage periods. We continually update
and refurbish our centers to maintain a high quality fitness experience. Our commitment to quality
and detail provides a similar look and feel at each of our large format centers. Equipment and Programs The table below displays the wide assortment of amenities and services typically found at our
centers, which are included in the cost of most of our memberships: Large Format Centers, including Current Model Centers Facilities
    
    Amenities and Services
    
    Activities and EventsBasketball/Volleyball Courts
    
    24-Hour Availability
    
    Adventure TravelCardiovascular Training
    
    360 Fitness Assessment
    
    AquaticsChild Centers
    
    Child Care
    
    Athletic LeaguesFree Weights
    
    Educational Seminars
    
    Birthday PartiesGroup Fitness Studios
    
    Subscription to Experience Life
    
    Eastern/Martial ArtsLap Pool
    
    Towel Service
    
    Kids ClubRacquetball/ Squash Courts
    
    Use of Lockers
    
    PilatesResistance Training
    
    LifeCafe
    
    Running ClubRock Climbing Cavern
    
    LifeSpa Salon
    
    Scuba LessonsSaunas
    
    Massage Therapy
    
    SpinningTwo-story Waterslides
    
    Nutritional Products
    
    Sports-specific Training CampsWhirlpools
    
    Personal Training
    
    Summer CampsZero-depth Entry Swimming Pools
    
    Pool-side Bistro
    
    Swimming LessonsYoga
 Other Centers Facilities
    
    Amenities and Services
    
    Activities and EventsCardiovascular Training
    
    360 Fitness Assessment
    
    Adventure TravelChild Centers
    
    Child Care
    
    PilatesFree Weights
    
    Educational Seminars
    
    Running ClubGroup Fitness Studios
    
    Subscription to Experience Life
    
    SpinningLap Pool
    
    Towel Service
    
    YogaResistance Training
    
    Use of LockersSaunas
    
    Massage TherapyNutritional ProductsPersonal Training
 Fitness Equipment and Facilities.To help a member lose weight, train for athletic events or
develop and maintain a healthy way of living, our centers have up to 400 pieces of cardiovascular,
free weight and resistance training equipment. Exercise equipment is arranged in spacious workout
areas to allow for easy movement from machine to machine, thus providing a convenient and efficient
workout. Equipment in these areas is arranged in long parallel rows that are clearly labeled by
body part, allowing members to easily customize their exercise programs and reduce downtime during
their workouts. Due to the large amount of equipment in each center, members rarely have to wait to
use a machine. We have in-house technicians that service and maintain our equipment, which
generally enables us to repair or replace any piece of equipment within 24 hours. In addition, we
have a comprehensive system of large-screen televisions in the fitness area, and members can tune
their personal headsets to a radio frequency to hear the audio for each television program. 6




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Our current model centers have full-sized indoor and outdoor recreation pools with zero depth
entrances and water slides, lap pools, saunas, steam baths and whirlpools. These centers also have
two regulation-size basketball courts that can be used for various sports activities, as well as
other dedicated facilities for group fitness, rock climbing, racquetball and squash. In addition,
four of our current model centers have tennis courts. Personalized Services.We offer professional personal training programs that involve regular
one-on-one sessions designed to help members achieve their personal fitness goals. Our personal
trainers are required to be certified by the American Council on Exercise, one of two accredited
certifying organizations in the fitness industry. On average, we employ over 25 personal trainers
at a current model center. Our personal trainers also provide the education and nutritional
information essential for a safe and effective exercise plan. In addition to one-on-one sessions,
we offer other personalized small group activities. Many of our members realize the value of
working with the same person over a long period of time to achieve their personal fitness goals and
develop a strong relationship with their trainers. Fitness Programs and Classes.Our centers offer fitness programs, including group fitness classes
and health and wellness training seminars on subjects ranging from stress management to personal
nutrition. Each current model center has two group fitness studios and makes use of the indoor and
outdoor pool areas for classes. On average, we offer over 90 group fitness classes per week at each
current model center, including spinning, Pilates, step workout, circuit training and yoga classes.
The volume and variety of activities at each center allow each member of the family to enjoy the
center, whether participating in personalized activities or with other family members in group
activities. Other Center Services.Our large format centers feature a LifeCafe, which offers fresh and healthy
sandwiches, snacks and shakes to our members. Our LifeCafe offers members the choice of dining
indoors, ordering their meals and snacks to go or, in each of our current model centers and certain
of our other large format centers, dining outdoors at the poolside bistro. Our LifeCafes also carry
our own line of nutritional products in addition to third-party nutritional products. Our current model centers and almost all of our other large format centers also feature a LifeSpa,
which is a full-service spa and salon located inside the centers. Our LifeSpas offer hair, body,
skin care and massage therapy services, customized to each persons individual needs. The LifeSpas
are located in separate, self-contained areas that provide a relaxing environment. Almost all of our centers offer free on-site child care services for children ages three months to
11 years for up to two hours while members are using our centers. These services are included in
the cost of a typical membership. The childrens area includes games, educational toys, computers,
maze structures and junior basketball courts. We hire experienced personnel that are dedicated to
working in the child care centers to ensure that children have an enjoyable and safe experience. All of our large format centers offer a variety of programs for children, including swimming
lessons, activity programs, karate classes, sports programs and craft programs, all of which are
open to both members and non-members. We also offer several childrens camps during the summers and
holidays. For adults, we offer various sports leagues and karate classes. Membership Our month-to-month membership plans typically include 24-hour access, free child care, free locker
and towel service, a full range of educational programs and other premium amenities. Moreover, we
offer an initial 30-day money back guarantee on upfront membership enrollment fees and the first
months membership dues, which is a longer period than required by state law and longer than
offered by most other health clubs. We believe our customer service, broad appeal to multiple
family members and attractive value proposition reduce our attrition rate. We continually monitor
member satisfaction through roundtable forums that enable us to collect feedback from our members
and modify our offerings in response to the feedback. As part of our value proposition, the majority of our new members are entitled to receive a free
360 Fitness Assessment, which consists of fitness testing, exercise history, percent body fat
measurement and goal setting. Fitness clinics on different types of workouts and other courses in
nutrition and stress management are also offered free of charge. The majority of our new members
are encouraged to take advantage of free equipment orientations and a free introductory
consultation with a personal trainer. 7




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We have a flexible membership structure, which includes different types of membership plans, the
most common of which are the Fitness and Sports plans. Our Fitness membership plan is our standard
plan and offers a member access to the majority of our centers. Our Sports membership plan offers
all the benefits of our Fitness membership, plus access to all but one of our centers, while also
offering discounts on our other center services and third-party facilities, such as participating
golf courses, ski resorts and tennis clubs throughout the nation. In addition, the Sports
membership plan entitles a member to free use of the centers racquetball and squash courts and
climbing walls, as well as a free running club membership and discounts on certain personal
training programs. Beginning in 2005, we started offering an Elite membership option at the
majority of our centers, which offers all of the benefits of our Fitness and Sports memberships,
access to all of our centers, nutritional products and fitness and nutritional assessments. An
Athletic membership option is also offered at our executive center located in downtown Minneapolis,
which is not accessible to our other members. The Athletic membership plan offers all of the
benefits of our Fitness and Sports memberships, access to all of our centers and additional
executive benefits. In certain centers we also offer an Express membership plan, which involves a
lower membership fee than our Fitness membership plan, but restricts access to a single center and
does not include a subscription to Experience Lifemagazine, an initial fitness assessment or
access to the child center. We have always offered a convenient month-to-month membership, with no long-term contracts, a low,
one-time enrollment fee and an initial 30-day money back guarantee. Depending upon the market area
and the membership plan, new members typically pay a one-time enrollment fee of $125 to $300 for
individual members, plus $60 to $100 for each additional family member over the age of 12. Members
typically pay monthly membership dues ranging from $40 to $60 for individuals and $80 to $130 for
couples or families. Our memberships include all of the primary members children under the age of
12 at no additional cost. As a result, our current model centers that have a targeted 11,500
membership capacity average approximately 2.4 people per membership. Usage Our centers are generally open 24 hours a day, seven days a week and our current model centers
average approximately 68,000 visits per month. We typically experience the highest level of member
activity at a center during the 5:00 a.m. to 10:00 a.m. and 4:00 p.m. to 8:00 p.m. time periods on
weekdays and during the 8:00 a.m. to 5:00 p.m. time period on weekends. Our centers are staffed
accordingly to provide each member with a positive experience during peak and non-peak hours. New Center Site Selection and Construction Site Selection.Our management devotes significant time and resources to analyzing each
prospective site on the basis of predetermined physical, demographic, psychographic and competitive
criteria in order to achieve maximum return on our investment. Our ideal site for a current model
center is a tract of land with at least 10 acres and a relatively flat topography affording good
access and proper zoning. We target market areas that have at least 150,000 people within a
five-mile radius that meet certain demographic criteria regarding income, education, age and
household size. We focus mainly on markets that will allow us to operate multiple centers that
create certain efficiencies in marketing and branding activities; however, we select each site
based on whether that site can support an individual center on a stand-alone basis. After we identify a potential site, we develop a business plan for the center on the site that
requires approvals from all areas of operations and the finance committee of our board of
directors. We believe that our structured process provides discipline and reduces the likelihood
that we would develop a site that the market cannot support. As a result of our strict adherence to
this disciplined process, we have never closed a center, and our large format centers produced, on
average, EBITDA in excess of 21% of revenue and net income of less than 1% of revenue during their
first year of operation. We did, however, recognize an asset impairment charge in 2002 related to
our only executive facility, which is located in downtown Minneapolis, Minnesota, and a restaurant
that we operate in the same building. The center is one of only two centers that are located in
urban areas and it differs significantly from our standard model. Construction.We have an experienced in-house construction team that is solely dedicated to
overseeing the construction of each center through opening. Our architects have developed a
prototypical set of design and construction plans and specifications that can be easily adapted to
each new site to build our current model centers. They also assist in obtaining bids and permits in
connection with constructing each new center. We have dedicated internal personnel who work on
expediting the permit process and scheduling the project. Our bid phase specialists obtain
referrals for local subcontractors and monitor project costs, and they also coordinate compliance
with safety 8




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requirements and prepare site documentation. Our project management group oversees the construction
of each new center and works with our architects to review bids and monitor quality. Our
construction procurement group bids each component of our projects to ensure cost-effective pricing
and, by using the same materials at each center to maintain a consistent look and feel, we are
generally able to purchase materials in sufficient quantities to receive favorable pricing. Our
construction team also has a dedicated safety consultant and controller. Each center has an on-site
construction manager responsible for coordinating the entire project. By utilizing our own
dedicated design and construction group, we are able to maximize our flexibility in the design
process and retain control over the cost and timing of the construction process. Marketing and Sales Overview of Marketing.Our centralized marketing agency is responsible for generating
membership leads for our sales force, supporting our corporate business and promoting our brand.
Our marketing agency consists of four fully integrated divisions,
which are planning and analysis, creative development and production,
public relations and communications and web development. By centralizing our
marketing effort, we bring our marketing experience and strategy to each new market we enter in a
coordinated manner. We also market to corporations and, in some situations, we offer discounted
enrollment fees for persons associated with these corporations. Overview of Sales.We have a trained, commissioned sales staff in each center that is responsible
for converting the leads generated by our centralized marketing agency into new memberships.
During the pre-opening and grand opening phases described below, we have up to 12 sales
representatives on staff at a center. As the center matures, we reduce the number of sales
representatives on staff to between six and eight professionals. Our sales staff also uses our
customer relationship management system to introduce and sell additional products to members and
manage existing member relationships. Pre-Opening Phase.Our pre-opening marketing program is one of the reasons why our large format
centers have attracted sufficient membership to generate, on average, EBITDA in excess of 21% of
revenue and net income of less than 1% of revenue during their first year of operation. We
generally begin selling memberships up to nine months prior to a centers scheduled opening. New
members are attracted during this period primarily through targeted direct mail, print advertising,
corporate sales and referral promotions. To further attract new members during this period, we
offer discounted enrollment fees and distribute free copies of our Experience Lifemagazine to
households in the immediate vicinity of the new center. Membership enrollment activity is tracked
to gauge the effectiveness of each marketing medium, which can be adjusted as necessary throughout
the pre-opening process. Grand Opening Phase.We deploy a marketing program during the first month of a centers operation
that builds on our pre-opening efforts. The reach and frequency of the advertising campaign
culminate when all households within a five-mile radius receive poster mailings. Simultaneously,
prospective members receive special invitations to grand opening activities and educational
seminars designed to assist them in their orientation to the center. Our corporate clients receive
special enrollment opportunities, as well as invitations to open house activities. Membership Growth Phase.After the grand opening phase, marketing activities and costs
decrease as drive-by visibility and word-of-mouth marketing become
more influential. The goal of
each center is to achieve consistent membership growth until targeted capacity is reached. Once the
center has reached its targeted capacity, marketing efforts are directed at keeping membership
levels stable and at selling other in-center services to existing members. Marketing plans for each
center are formulated on an annual basis and reviewed monthly by marketing and center-level sales
personnel. At monthly intervals, a comprehensive situation analysis is performed to ensure sales
and retention objectives are meeting the goals of the centers business plan. Leveraging the LIFE TIME FITNESS Brand We are building a national brand by delivering products and services in the areas of exercise,
education and nutrition at an attractive price. We are further strengthening the LIFE TIME FITNESS
brand by growing our Experience Lifemagazine, our line of nutritional products and our
internationally-recognized and award winning triathlon. Education.We work to educate people by offering educational information and tips on our website,
www.lifetimefitness.com, and by distributing Experience Lifeto each of our members. Our website
offers various educational features, including healthy cooking recipes, health news and exercise
tips. The website also has interactive functions that allow a user to ask exercise or fitness
questions and create an ongoing personalized nutrition program that meets the users weight-loss
and nutrition objectives. 9




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##### Table of Contents



Our Experience Lifemagazine includes an average of 98 full-color pages of health tips and
insights, articles featuring quality-of-life topics and advertisements and has a current
circulation of approximately 500,000 copies to all of our members, non-member subscribers,
households in new market areas and selected major bookstores nationwide. Experience Lifeaverages
36 pages of advertising per issue and is expected to be published 10 times in 2005. In 2004, the
Minnesota Magazine Publishing Association named Experience Lifea Gold medal winner for Best
Regular Column; a Silver medal winner for Overall Excellence, Best Single Topic Issue, and Best
Overall Design; and a Bronze medal winner for Best Use of Visuals. Athletic Events.Our annual LIFE TIME FITNESS Triathlon attracted participants from 40 states and
16 countries in 2004, as well as national sponsors. The LIFE TIME FITNESS Triathlon offers an
invitation-only professional division that allows male and female professionals to compete directly
against each other for the sports largest purse. In addition to significant selected local media
coverage, the LIFE TIME FITNESS Triathlon was broadcast nationally by NBC in 2003 and 2004 and will
be broadcast by NBC again in 2005. Competitor Magazinehonored the 2003 LIFE TIME FITNESS Triathlon
as its 2003 Event of the Year. In addition to the Triathlon, we organize several shorter
run/walks during the year, such as the 5K Reindeer Run in most of the cities where we have centers
and the Torchlight Run in Minneapolis, Minnesota. Nutritional Products.We offer a line of nutritional products, including multi-vitamins, energy
bars, powder drink mixes, ready-to-drink beverages and supplements. Our products use high quality
ingredients and are available in our LifeCafes and through our website. Our current nutritional
product line focuses on four areas, which are daily health, weight management, energy and athletic
performance. Our weight management products, which have never included ephedra, work safely and
effectively to manage weight. Our formulations are created and tested by a team of external
physicians and experts and each formulation undergoes extensive testing. We use experienced and
professional third-parties to manufacture our nutritional products and commission independent
testing to ensure that the product labels accurately list the ingredients delivered in the
products. Our Employees Most of our current model centers are staffed with an average of 270 full-time and part-time
employees, of which approximately 12 are in management positions, all of whom are trained to
provide members with a positive experience. Our personal trainers, massage therapists, physical
therapists and cosmetologists are required to maintain a professional license or one of their
industrys top certifications, as the case may be. Each center typically has a general manager, an
operations manager and a sales manager to ensure a well-managed center and a motivated work force. All center employees are required to participate in a training program that is specifically
designed to promote a friendly, personable environment at each center and a consistent standard of
performance across all of our centers. Employees also receive ongoing mentoring, and continuing
education is required before they are permitted to advance to other positions within our company. As of December 31, 2004, we had approximately 8,400 employees, including approximately 5,400
part-time employees. We are not a party to a collective bargaining agreement with any of our
employees. Although we experience turnover of non-management personnel, historically we have not
experienced difficulty in obtaining adequate replacement personnel. In general, we believe
relations with our employees are good. Information Systems In addition to our standard operating and administrative systems, we utilize an integrated and
flexible member management system to manage the flow of member information within each of our
centers and between centers and our corporate office. We have designed and developed the system to
allow us to collect information in a secure and easy-to-use environment. Our system enables us to,
among other things, enroll new members with a paperless membership agreement, acquire and print
digital pictures of members and capture and maintain specific member information, including
frequency of use. The system allows us to streamline the collection of membership dues
electronically, thereby offering additional convenience for our members while at the same time
reducing our corporate overhead and accounts receivable exposure. We have deployed a customer
relationship management system to enhance our marketing campaigns and management oversight
regarding daily sales and marketing activities. 10




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##### Table of Contents



Competition There are a number of health club industry participants that compete directly and indirectly
with us that may have significantly greater financial resources, higher revenues and greater
economies of scale. However, due to the innovative nature of our complete product and service
offering, we believe that there are no competitors in this industry offering the same experience
and services we offer at a comparable value. We consider the following groups to be the primary
competitors in the health and fitness industry:  
    health club operators, including Bally Total Fitness Holding Corporation, 24 Hour
Fitness Worldwide, Inc., Town Sports International, Inc., LA Fitness, The Sports Club
Company, Inc. and The WellBridge Company doing business under various names such as
Northwest Athletic Club;
    the YMCA and similar non-profit organizations;
    physical fitness and recreational facilities established by local governments, hospitals and businesses;
    local salons, cafes and businesses offering similar ancillary services;
    amenity and condominium clubs;
    racquet, tennis and other athletic clubs;
    country clubs;
    weight reducing salons; and
    the home-use fitness equipment industry. Competition in the health club industry varies from market to market and is based on several
factors, including the breadth of product and service offerings, the level of enrollment fees and
membership dues, the flexibility of membership options and the overall quality of the offering. We
believe that our comprehensive product offering and focus on customer service provide us with a
distinct competitive advantage. Our nutrition and education products and services compete against large, established companies and
organizations that have more experience selling retail products. We may not be able to compete
effectively against these established companies. Government Regulation All areas of our operations and business practices are subject to regulation at federal, state
and local levels. The general rules and regulations of the Federal Trade Commission and other
consumer protection agencies apply to our advertising, sales and other trade practices, including,
but not limited to, our line of nutritional products. State statutes and regulations affecting the
health club industry have been enacted or proposed that prescribe certain forms for, and regulate
the terms and provisions of, membership contracts, including:  
    giving the member the right under various state cooling-off statutes to cancel, in
most cases, within three to ten days after signing, his or her membership and receive a
refund of any enrollment fee paid;
    requiring an escrow for funds received from pre-opening sales or the posting of a bond
or proof of financial responsibility; and
    establishing maximum prices and terms for membership contracts and limitations on the
financing term of contracts. As we pursue our business initiatives of selling nutritional products, dietary supplements and
sports drinks, we may become further subject to the extensive federal and state regulations
governing the manufacture and sale of supplement and food products in the U.S. The U.S. Food and
Drug Administration and the Federal Trade Commission are increasingly scrutinizing claims made for
supplement and food products, especially claims relating to weight loss. We work with the
manufacturers of our food and supplement products to ensure that appropriate regulatory notices
have been provided, where necessary, and that product labeling conforms to regulatory requirements.
The failure of these manufacturers to comply with applicable regulations, or negligence or other
misconduct on their part, could have a material adverse effect on our financial condition or
results of operations. We require our manufacturing partners to warrant to us that the products are
safe and effective. In most cases, the manufacturer agrees to indemnify us for losses we suffer
arising from claims related to the product and in many 11




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##### Table of Contents



cases we are named as an additional insured on the manufacturers insurance policy. In addition, we
carry our own products liability insurance coverage. All laws, rules and regulations are subject to varying interpretations by a large number of state
and federal enforcement agencies and the courts. We maintain internal review procedures in order to
comply with these requirements and believe our activities are in substantial compliance with all
applicable statutes, rules and decisions. Trademarks and Trade Names We own several trademarks and service marks registered with the U.S. Patent and Trademark
Office, referred to as the USPTO, including LIFE TIME FITNESS®, EXPERIENCE LIFE® and
LEANSOURCE®. We have also registered our logo, our design depicting six circles of fitness
activities and our LIFE TIME FITNESS Triathlon logo. We have several applications pending with the
USPTO for trademark registrations. We also registered or have applications pending in certain
foreign countries for the LIFE TIME FITNESS mark. In addition to our trademarks, we filed a
patent application for one of our nutritional products. We believe our trademarks and trade names have become important components in our marketing and
branding strategies. We believe that we have all licenses necessary to conduct our business. In
particular, we license the mark LIFE TIME in connection with our nutritional products so that we
can market and distribute them under the LIFE TIME FITNESS brand. Available Information Our website is www.lifetimefitness.com.We make available, free of charge, through our website
our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities and
Exchange Act of 1934, as amended (the Exchange Act), as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and Exchange Commission
(the SEC). 
 Item 2. Properties. Our corporate headquarters, located in Eden Prairie, Minnesota, is approximately 61,150 square
feet, of which approximately 49,000 square feet is currently under lease until October 2007 and
approximately 12,150 square feet is currently under lease until October 2008. As of March 10, 2005, we operated 40 centers, of which we leased 13 sites, were parties to
long-term ground leases for four sites and owned 23 sites. We expect to open six current model
centers on sites we own in various markets in 2005, one of which is already open, with the
remaining five currently under construction. Excluding renewal options, the terms of leased
centers, including ground leases, expire at various dates from 2005 through 2041. The majority of
our leases have renewal options and a few give us the right to purchase the property. The table
below contains information about our current center locations: SquareLocation
    
    Owned/Leased
    
    
    Center Format
    
    
    Feet(1)
    
    
    Date OpenedBrooklyn Park, MN
    
    Leased
    
    Other
    
    
    26,982
    
    
    July 1992Eagan, MN
    
    Owned
    
    Large
    
    
    64,415
    
    
    September 1994Woodbury, MN(2)
    
    Leased
    
    Large
    
    
    73,050
    
    
    September 1995Roseville, MN
    
    Leased
    
    Other
    
    
    14,000
    
    
    September 1995Highland Park, MN
    
    Leased
    
    Other
    
    
    25,827
    
    
    November 1995Coon Rapids, MN(3)
    
    Leased
    
    Other
    
    
    90,262
    
    
    May 1996Bloomington, MN
    
    Owned
    
    Other
    
    
    47,307
    
    
    November 1996Plymouth, MN
    
    Leased (Ground)
    
    Large
    
    
    109,558
    
    
    June 1997St. Paul, MN
    
    Leased
    
    Other
    
    
    85,630
    
    
    December 1997Troy, MI
    
    Owned
    
    Large
    
    
    93,579
    
    
    January 1999Apple Valley, MN
    
    Leased
    
    Other
    
    
    10,375
    
    
    June 1999Columbus, OH
    
    Leased (Ground)
    
    Large
    
    
    98,047
    
    
    July 1999Indianapolis, IN
    
    Owned
    
    Large
    
    
    90,956
    
    
    August 1999Novi, MI
    
    Owned
    
    Large
    
    
    90,956
    
    
    October 1999Centreville, VA
    
    Owned
    
    Large
    
    
    90,956
    
    
    January 2000Shelby Township, MI
    
    Owned
    
    Large
    
    
    101,680
    
    
    March 2000
 12




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##### Table of Contents



SquareLocation
    
    Owned/Leased
    
    
    Center Format
    
    
    Feet(1)
    
    
    Date OpenedMinneapolis, MN (center and restaurant)
    
    Leased
    
    Other
    
    
    72,547
    
    
    July 2000Schaumburg, IL
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    October 2000Warrenville, IL
    
    Owned
    
    Large/Current
    
    
    114,993
    
    
    January 2001Bloomingdale, IL(4)
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    February 2001Algonquin, IL
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    April 2001Orland Park, IL
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    August 2001Fairfax City, VA
    
    Leased
    
    Large
    
    
    67,467
    
    
    October 2001Champlin, MN
    
    Leased (Ground)
    
    Large
    
    
    61,948
    
    
    October 2001Burr Ridge, IL
    
    Owned
    
    Large/Current
    
    
    105,562
    
    
    February 2002Savage, MN
    
    Leased (Ground)
    
    Large
    
    
    80,853
    
    
    June 2002Old Orchard (Skokie), IL
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    August 2002Canton Township, MI(2)
    
    Leased
    
    Large/Current
    
    
    105,010
    
    
    September 2002Rochester Hills, MI(2)
    
    Leased
    
    Large/Current
    
    
    108,890
    
    
    November 2002Tempe, AZ
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    April 2003Gilbert, AZ
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    October 2003New Hope, MN
    
    Leased
    
    Other
    
    
    44,156
    
    
    October 2003Plano, TX
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    November 2003Willowbrook, TX
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    June 2004Garland, TX
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    July 2004Sugarland, TX
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    October 2004Flower Mound, TX
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    October 2004North Dallas, TX
    
    Leased
    
    Large
    
    
    68,982
    
    
    November 2004Colleyville, TX
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    November 2004Commerce Township, MI
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    March 2005
   (1)
    
    In a few of our centers, we sublease space to third parties who operate our LifeCafe or
climbing wall or to hospitals that use the space to provide physical therapy. The square
footage figures include those subleased areas. The square footage figures exclude areas used
for tennis courts and outdoor swimming pools. These figures are approximations.(2)
    
    We are the sole lessee of the center pursuant to the terms of a sale-leaseback transaction.(3)
    
    The square footage figure excludes approximately 24,000 square feet that we sublease to third
parties.(4)
    
    This is a joint venture project in which we have a one-third interest. 
 Item 3. Legal Proceedings. Although we may be subject to litigation from time to time in the ordinary course of our
business, we are not party to any pending legal proceedings that we believe will have a material
adverse impact on our business or our consolidated financial position or results of operations. 
 Item 4. Submission of Matters to a Vote of Security Holders. None. 
 PART II 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchaser of
Equity Securities. Market Information Our common stock began trading on June 30, 2004 on the New York Stock Exchange under the symbol
LTM in connection with our initial public offering. Prior to June 30, 2004, there was no public
market for our common 13




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##### Table of Contents



stock. The following table sets forth, for the second, third and fourth quarters of 2004, the high
and low prices of our common stock beginning on June 30, 2004. High
    
    
    LowFiscal Year Ended December 31, 2004:Second Quarter (June 30, 2004)
    
    $
    21.25
    
    
    $
    20.39Third Quarter (July 1, 2004  September 30, 2004)
    
    $
    26.95
    
    
    $
    20.85Fourth Quarter (October 1, 2004  December 31, 2004)
    
    $
    27.22
    
    
    $
    22.54
 Holders As of March 1, 2005, there were approximately 84 record holders of our common stock. Dividends We have never declared or paid any cash dividends on our common stock. We currently intend to
retain all future earnings for the operation and expansion of our business and do not anticipate
declaring or paying any cash dividends on our common stock in the foreseeable future. In addition,
the terms of our revolving credit facility and certain of our debt financing agreements prohibit us
from paying dividends without the consent of the lenders. The payment of any dividends in the
future will be at the discretion of our board of directors and will depend upon our results of
operations, earnings, capital requirements, contractual restrictions, outstanding indebtedness and
other factors deemed relevant by our board. 
 Item 6. Selected Financial Data. You should read the selected consolidated financial data below in conjunction with our
consolidated financial statements and the related notes and with Managements Discussion and
Analysis of Financial Condition and Results of Operations. The consolidated statement of
operations data for the years ended December 31, 2004, 2003 and 2002 and the consolidated balance
sheet data as of December 31, 2004 and 2003 are derived from our audited consolidated financial
statements that are included elsewhere in this report. The consolidated statement of operations
data for the year ended December 31, 2001 and the consolidated balance sheet data as of December
31, 2002 are derived from our audited consolidated financial statements that have been previously
filed with the Securities and Exchange Commission. The consolidated statement of operations data
for the year ended December 31, 2000 and the balance sheet data as of December 31, 2001 and 2000
are unaudited, have been derived from our internal records, have been prepared on the same basis as
the audited consolidated financial statements and, in the opinion of management, present fairly our
consolidated financial position as of such dates and our consolidated results of operations for
such periods. Historical results are not necessarily indicative of the results of operations to be
expected for future periods. See Note 2 to our consolidated financial statements for a description
of the method used to compute basic and diluted net earnings (loss) per share. 14




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##### Table of Contents



For the Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(In thousands, except per share, center and membership data)Statement of Operations Data:RevenueCenter revenueMembership dues
    
    $
    208,893
    
    
    $
    171,596
    
    
    $
    132,124
    
    
    $
    94,652
    
    
    $
    65,601Enrollment fees
    
    
    19,608
    
    
    
    19,198
    
    
    
    17,204
    
    
    
    12,443
    
    
    
    8,385In-center revenue (1)
    
    
    71,583
    
    
    
    55,633
    
    
    
    39,630
    
    
    
    26,332
    
    
    
    19,088Total center revenue
    
    
    300,084
    
    
    
    246,427
    
    
    
    188,958
    
    
    
    133,427
    
    
    
    93,074Other revenue
    
    
    11,949
    
    
    
    10,515
    
    
    
    6,208
    
    
    
    3,240
    
    
    
    1,403Total revenue
    
    
    312,033
    
    
    
    256,942
    
    
    
    195,166
    
    
    
    136,667
    
    
    
    94,477Operating expensesSports, fitness and family recreation
center operations
    
    
    164,764
    
    
    
    131,825
    
    
    
    102,343
    
    
    
    74,025
    
    
    
    51,106Advertising and marketing
    
    
    12,196
    
    
    
    11,045
    
    
    
    11,722
    
    
    
    6,350
    
    
    
    6,136General and administrative
    
    
    21,596
    
    
    
    18,554
    
    
    
    14,981
    
    
    
    12,305
    
    
    
    9,996Other operating
    
    
    18,256
    
    
    
    16,273
    
    
    
    10,358
    
    
    
    4,458
    
    
    
    3,337Depreciation and amortization
    
    
    29,655
    
    
    
    25,264
    
    
    
    20,801
    
    
    
    17,280
    
    
    
    10,291Impairment charge (2)
    
    
    
    
    
    
    
    
    
    
    6,952
    
    
    
    
    
    
    
    Total operating expenses
    
    
    246,467
    
    
    
    202,961
    
    
    
    167,157
    
    
    
    114,418
    
    
    
    80,866Income from operations
    
    
    65,566
    
    
    
    53,981
    
    
    
    28,009
    
    
    
    22,249
    
    
    
    13,611Interest expense, net
    
    
    (17,573
    )
    
    
    (19,132
    )
    
    
    (14,950
    )
    
    
    (12,035
    )
    
    
    (7,861
    )Loss from extinguishment of debt (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,911
    )
    
    
    Equity in earnings (loss) of affiliate (4)
    
    
    1,034
    
    
    
    762
    
    
    
    333
    
    
    
    (301
    )
    
    
    (347
    )Income before income taxes
    
    
    49,027
    
    
    
    35,611
    
    
    
    13,392
    
    
    
    7,002
    
    
    
    5,403Provision for income taxes
    
    
    20,119
    
    
    
    15,006
    
    
    
    5,971
    
    
    
    3,019
    
    
    
    1,681Net income
    
    
    28,908
    
    
    
    20,605
    
    
    
    7,421
    
    
    
    3,983
    
    
    
    3,722Accretion of redeemable preferred stock
    
    
    3,570
    
    
    
    6,987
    
    
    
    7,085
    
    
    
    6,447
    
    
    
    3,490Net income (loss) applicable to
common shareholders
    
    $
    25,338
    
    
    $
    13,618
    
    
    $
    336
    
    
    $
    (2,464
    )
    
    $
    232Basic earnings (loss) per share
    
    $
    1.02
    
    
    $
    0.85
    
    
    $
    0.02
    
    
    $
    (0.20
    )
    
    $
    0.02Weighted average number of common and common
equivalent shares outstanding  basic
    
    
    24,727
    
    
    
    16,072
    
    
    
    15,054
    
    
    
    12,360
    
    
    
    10,602Diluted earnings (loss) per share
    
    $
    0.87
    
    
    $
    0.72
    
    
    $
    0.02
    
    
    $
    (0.20
    )
    
    $
    0.02Weighted average number of common and common
equivalent shares outstanding  diluted (5)
    
    
    33,125
    
    
    
    28,612
    
    
    
    16,430
    
    
    
    12,360
    
    
    
    12,251Balance Sheet Data (end of period):Cash and cash equivalents
    
    $
    10,211
    
    
    $
    18,446
    
    
    $
    8,860
    
    
    $
    2,208
    
    
    $
    5,192Working capital
    
    
    (71,952
    )
    
    
    (15,340
    )
    
    
    (29,819
    )
    
    
    (30,242
    )
    
    
    (25,057
    )Total assets
    
    
    572,087
    
    
    
    453,346
    
    
    
    419,024
    
    
    
    346,815
    
    
    
    264,516Total debt
    
    
    209,244
    
    
    
    233,232
    
    
    
    231,320
    
    
    
    176,727
    
    
    
    128,710Total redeemable preferred stock
    
    
    
    
    
    
    106,165
    
    
    
    99,179
    
    
    
    96,973
    
    
    
    75,719Total shareholders equity
    
    
    250,634
    
    
    
    32,792
    
    
    
    18,547
    
    
    
    13,014
    
    
    
    10,826Cash Flow Data:Net cash provided by operating activities
    
    $
    80,431
    
    
    $
    52,576
    
    
    $
    43,558
    
    
    $
    32,609
    
    
    $
    16,350Net cash used in investing activities
    
    
    (146,080
    )
    
    
    (24,476
    )
    
    
    (31,350
    )
    
    
    (63,928
    )
    
    
    (56,875
    )Net cash provided by (used in) financing activities
    
    
    57,414
    
    
    
    (18,514
    )
    
    
    (5,556
    )
    
    
    28,245
    
    
    
    44,964Other Data:Comparable center revenue growth (6)
    
    
    9.7
    %
    
    
    13.2
    %
    
    
    22.3
    %
    
    
    12.4
    %
    
    
    16.1
    %Average revenue per membership (7)
    
    $
    1,119
    
    
    $
    1,089
    
    
    $
    989
    
    
    $
    878
    
    
    $
    794Average in-center revenue per membership (8)
    
    
    267
    
    
    
    242
    
    
    
    207
    
    
    
    173
    
    
    
    163EBITDA (9)
    
    
    96,255
    
    
    
    80,007
    
    
    
    49,143
    
    
    
    36,317
    
    
    
    23,555EBITDA margin (10)
    
    
    30.8
    %
    
    
    31.1
    %
    
    
    25.2
    %
    
    
    26.6
    %
    
    
    24.9
    %Capital expenditures (11)
    
    $
    156,819
    
    
    $
    81,846
    
    
    $
    87,432
    
    
    $
    94,923
    
    
    $
    105,763Operating Data (12):Centers open at end of period
    
    
    39
    
    
    
    33
    
    
    
    29
    
    
    
    24
    
    
    
    18Number of memberships at end of period
    
    
    299,538
    
    
    
    249,192
    
    
    
    215,387
    
    
    
    173,875
    
    
    
    133,480
 15




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##### Table of Contents



(1)
    
    In-center revenue includes revenue generated at our centers from fees for personal
training, group fitness training and other member activities, sales of products offered at our
LifeCafe, sales of products and services offered at our LifeSpa, tennis and renting space in
certain of our centers.(2)
    
    For the year ended December 31, 2002, we recorded an asset impairment charge of $7.0 million
related to our only executive facility, which is located in downtown Minneapolis, Minnesota,
and a restaurant that we operate separately in the same building. The center is one of only
two of our centers that are located in urban areas. This executive facility and restaurant
differ significantly from our standard model and the initial cash flow results have not been
as high as projected. Additionally, this facility and restaurant are located in a more costly
geographic area of downtown Minneapolis. The charge represents the difference between the fair
value of the assets as determined by discounted estimated future cash flows and the carrying
amount of the assets.(3)
    
    A loss on the extinguishment of debt of $2.9 million was recorded for the year ended December
31, 2001. The charge consisted of early extinguishment fees and the write-off of loan costs
related to the original debt in connection with the refinancing of 10 of our centers.(4)
    
    In 1999, we formed Bloomingdale LIFE TIME Fitness, L.L.C., referred to as Bloomingdale LLC,
with two unrelated organizations for the purpose of constructing, owning and operating a
center in Bloomingdale, Illinois. Each member made an initial capital contribution of $2.0
million and owns a one-third interest in Bloomingdale LLC. The center commenced operations in
February 2001. The terms of the relationship among the members are governed by an operating
agreement. Bloomingdale LLC is accounted for as an investment in an unconsolidated affiliate
and is not consolidated in our financial statements.(5)
    
    The diluted weighted average number of common shares outstanding is the weighted average
number of common shares plus the weighted average conversion of any dilutive common stock
equivalents, such as redeemable preferred stock, the assumed weighted average exercise of
dilutive stock options using the treasury stock method, and unvested restricted stock awards
using the treasury stock method. For the year ended December 31, 2002, only the shares
issuable upon the exercise of stock options were dilutive. For the year ended December 31,
2003, the shares issuable upon the exercise of stock options and the conversion of redeemable
preferred stock were dilutive. For the year ended December 21, 2004, the shares issuable upon
the exercise of stock options, the conversion of redeemable preferred stock and the vesting of
all restricted stock awards were dilutive. The number of shares excluded from the computation
of diluted earnings per share was 0, 0 and 11,323,000 for the years ended December 31, 2004,
2003 and 2002, respectively.The following table summarizes the weighted average common shares for basic and diluted
earnings per share computations: December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(In thousands)Weighted average number of common shares
outstanding  basic
    
    
    24,727
    
    
    
    16,072
    
    
    
    15,054
    
    
    
    12,360
    
    
    
    10,602Effect of dilutive stock options
    
    
    1,943
    
    
    
    1,522
    
    
    
    1,376
    
    
    
    
    
    
    
    Effect of dilutive restricted stock awards
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Effect of dilutive redeemable preferred
shares outstanding
    
    
    6,453
    
    
    
    11,018
    
    
    
    
    
    
    
    
    
    
    
    Weighted average number of common shares
outstanding  diluted
    
    
    33,125
    
    
    
    28,612
    
    
    
    16,430
    
    
    
    12,360
    
    
    
    10,602
  (6)
    Membership dues, enrollment fees and in-center revenue for a center are included in
comparable center revenue growth beginning on the first day of the thirteenth full calendar
month of the centers operation.(7)
    Average revenue per membership is total center revenue for the period divided by an average
number of memberships for the period, where average number of memberships for the period is
derived from dividing the sum of the total memberships outstanding at the end of each month
during the period by the total number of months in the period. 16




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##### Table of Contents



(8)
    Average in-center revenue per membership is total in-center revenue for the period divided by
the average number of memberships for the period, where the average number of memberships for
the period is derived from dividing the sum of the total memberships outstanding at the end of
each month during the period by the total number of months in the period.(9)
    EBITDA consists of net income plus interest expense, net, provision for income taxes and
depreciation and amortization. This term, as we define it, may not be comparable to a
similarly titled measure used by other companies and is not a measure of performance presented
in accordance with GAAP. We use EBITDA as a measure of operating performance. EBITDA should
not be considered as a substitute for net income, cash flows provided by operating activities
or other income or cash flow data prepared in accordance with GAAP. The funds depicted by
EBITDA are not necessarily available for discretionary use if they are reserved for particular
capital purposes, to maintain debt covenants, to service debt or to pay taxes. Additional
details related to EBITDA are provided in Managements Discussion and Analysis of Financial
Condition and Results of Operations  Non-GAAP Financial Measures.The following table provides a reconciliation of net income, the most directly comparable GAAP
measure, to EBITDA: For the Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(In thousands)Net income
    
    $
    28,908
    
    
    $
    20,605
    
    
    $
    7,421
    
    
    $
    3,983
    
    
    $
    3,722Interest expense, net
    
    
    17,573
    
    
    
    19,132
    
    
    
    14,950
    
    
    
    12,035
    
    
    
    7,861Provision for income taxes
    
    
    20,119
    
    
    
    15,006
    
    
    
    5,971
    
    
    
    3,019
    
    
    
    1,681Depreciation and amortization
    
    
    29,655
    
    
    
    25,264
    
    
    
    20,801
    
    
    
    17,280
    
    
    
    10,291EBITDA
    
    $
    96,255
    
    
    $
    80,007
    
    
    $
    49,143
    
    
    $
    36,317
    
    
    $
    23,555
  (10)
    EBITDA margin is the ratio of EBITDA to total revenue.(11)
    Capital expenditures represent investments in our new centers, costs related to updating and
maintaining our existing centers and other infrastructure investments. For purposes of
deriving capital expenditures from our cash flows statement, capital expenditures include our
purchases of property and equipment and property and equipment purchases financed through
notes payable and capital lease obligations.(12)
    The operating data being presented in these items include the center owned by Bloomingdale
LLC. The data presented elsewhere in this section exclude the center owned by Bloomingdale
LLC. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations. The following discussion of our historical results of operations and our liquidity and capital
resources should be read in conjunction with the consolidated financial statements and related
notes that appear elsewhere in this report. This discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors, including those
discussed in Risk Factors beginning on page 27 of this report. Overview We operate sports and athletic, professional fitness, family recreation and resort/spa
centers. As of March 10, 2005, we operated 40 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. As a result, several of the centers that opened during our early years have designs that
differ from our current model center. 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 comparable center revenue purposes beginning on
the first day of the 17




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##### Table of Contents



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 our other existing centers already in those markets,
reducing revenue and initially lowering the memberships of those existing centers. 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 comparable center revenue increases may be
lower in future periods than in the past. Of the six new centers we plan to open in 2005, we expect
that four will be in existing markets. 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. Another result of opening new centers is
that our center operating margins may be lower than they have been historically while the centers build membership base. We expect both
the addition of pre-opening expenses and the lower revenue volumes characteristic of newly-opened
centers to affect our center operating margins at these new centers. Our categories of new centers and
comparable centers do not include the center owned by Bloomingdale LLC because it is accounted for
as an investment in an unconsolidated affiliate and is not consolidated in our financial
statements. We measure performance using such key operating statistics as average revenue per membership,
including membership dues and enrollment fees, average in-center revenue per membership and center
operating expenses, with an emphasis on payroll and occupancy costs, as a percentage of sales and
comparable center revenue growth. We use center revenue and EBITDA margins to evaluate overall
performance and profitability on an individual center basis. In addition, we focus on several
membership statistics on a center-level and system-wide basis. These
metrics include growth of center membership levels and growth of system-wide memberships, percentage center membership to
target capacity, center membership usage, center membership mix among individual, couple and family
memberships and center attrition rates. 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. And third, 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 product and
athletic event 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 and the number of centers engaged
in pre-sale activities. 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 total, on average, approximately $22.5 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. The current average cost decreased slightly during 2004 as a result of
efficiencies gained in the Texas markets, including lower land costs and construction costs. 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 18




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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 on the weighted average expected life of center memberships. We revise the recorded estimates
when better information is available, facts change or we can determine actual amounts. These
revisions can affect operating results. We have identified below the following accounting policies
that we consider to be critical. Revenue recognition.We receive a one-time enrollment fee at the time a member joins and monthly
membership dues for usage from our members. The enrollment fees are non-refundable after 30 days.
Enrollment fees and related direct expenses, primarily commissions, are deferred and recognized on
a straight-line basis over an estimated membership period of 36 months, which is based on
historical membership experience. In addition, monthly membership dues paid in advance of a center
opening are deferred until the center opens. We only offer members month-to-month memberships and
recognize as revenue the monthly membership dues in the month to which they pertain. We provide services at each of our centers, including personal training, LifeSpa, LifeCafe and
other member services. The revenue associated with these services is recognized at the time the
service is performed. Personal training revenue received in advance of training sessions and the
related direct expenses, primarily commissions, are deferred and recognized when services are
performed. Other revenue, which includes revenue generated from our nutritional products, media,
athletic events and restaurant, is recognized when realized and earned. For nutritional products,
revenue is recognized net of sales returns and allowances. Media advertising revenue is recognized
over the duration of the advertising placement. For athletic events, revenue is generated primarily
through sponsorship sales and registration fees. Athletic event revenue is recognized upon the
completion of the event. In certain instances in our media and athletic events businesses, we
recognize revenue on barter transactions. We recognize barter revenue equal to the lesser of the
value of the advertising or promotion given up or the value of the asset received. Restaurant
revenue is recognized at the point of sale to the customer. Pre-opening operations.We generally operate a preview center up to nine months prior to the
planned opening of a center during which time memberships are sold as construction of the center is
being completed. The revenue and direct membership acquisition costs (primarily sales commissions)
incurred during the period prior to a center opening are deferred and amortization begins when the
center opens; however, the related advertising, office and rent expenses incurred during this
period are expensed as incurred. Impairment of long-lived assets.The carrying value of our long-lived assets is reviewed annually
and whenever events or changes in circumstances indicate that such carrying values may not be
recoverable. We consider a history of consistent and significant operating losses to be our primary
indicator of potential impairment. Assets are grouped and evaluated for impairment at the lowest
level for which there are identifiable cash flows, which is generally at an individual center level
or the separate restaurant. The determination of whether an impairment has occurred is based on an
estimate of undiscounted future cash flows directly related to that center or the separate
restaurant, compared to the carrying value of the assets. If an impairment has occurred, the amount
of impairment recognized is determined by estimating the fair value of the assets and recording a
loss if the carrying value is greater than the fair value. 19




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##### Table of Contents



Results of Operations The following table sets forth our statement of operations data as a percentage of total
revenues for the periods indicated: For the Year EndedDecember 31,2004
    
    
    2003
    
    
    2002RevenueCenter revenue
Membership dues
    
    
    66.9
    %
    
    
    66.8
    %
    
    
    67.7
    %Enrollment fees
    
    
    6.4
    
    
    
    7.4
    
    
    
    8.8In-center revenue
    
    
    22.9
    
    
    
    21.7
    
    
    
    20.3Total center revenue
    
    
    96.2
    
    
    
    95.9
    
    
    
    96.8Other revenue
    
    
    3.8
    
    
    
    4.1
    
    
    
    3.2Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating expensesSports, fitness and family recreation center
operations
    
    
    52.8
    
    
    
    51.3
    
    
    
    52.4Advertising and marketing
    
    
    3.9
    
    
    
    4.3
    
    
    
    6.0General and administrative
    
    
    6.9
    
    
    
    7.2
    
    
    
    7.7Other operating
    
    
    5.9
    
    
    
    6.4
    
    
    
    5.2Depreciation and amortization
    
    
    9.5
    
    
    
    9.8
    
    
    
    10.7Impairment charge
    
    
    
    
    
    
    
    
    
    
    3.6Total operating expenses
    
    
    79.0
    
    
    
    79.0
    
    
    
    85.6Income from operations
    
    
    21.0
    
    
    
    21.0
    
    
    
    14.4Interest expense, net
    
    
    5.6
    
    
    
    7.4
    
    
    
    7.7Equity in earnings of affiliate
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.2Total other income
    
    
    5.3
    
    
    
    7.1
    
    
    
    7.5Income before income taxes
    
    
    15.7
    
    
    
    13.9
    
    
    
    6.9Provision for income taxes
    
    
    6.4
    
    
    
    5.9
    
    
    
    3.1Net income
    
    
    9.3
    %
    
    
    8.0
    %
    
    
    3.8
    %
 Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 Total revenue.Total revenue increased $55.1 million, or 21.4%, to $312.0 million for the year
ended December 31, 2004 from $256.9 million for the year ended December 31, 2003. Total center revenue grew $53.7 million, or 21.8%, to $300.1 million from $246.4 million, driven by
a 9.7% increase in comparable center revenue, opening of six new centers in 2004 and the full-year
contribution of four centers opened in 2003. Of the $53.7 million increase in total center revenue,  
    69.5% was from membership dues, which increased $37.3 million.
    29.8% was from in-center revenue, which increased $16.0 million primarily as a result of
our members increased use of personal training services and our LifeCafes and LifeSpas. 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 $242 to $267 for the year
ended December 31, 2004.
    0.7% was from enrollment fees, which increased $0.4 million. Enrollment fee revenue
associated with new members at open centers was 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. Other revenue grew $1.4 million, or 13.6%, to $11.9 million from $10.5 million, which was primarily
due to increased advertising sales in our media business. Sports, fitness and family recreation center operations expenses.Sports, fitness and family
recreation center operations expenses were $164.8 million, or 54.9% of total center revenue (or
52.8% of total revenue), for the year ended December 31, 2004 compared to $131.8 million, or 53.5%
of total center revenue (or 51.3% of total revenue), for the year ended December 31, 2003. This
$32.9 million increase primarily consisted of an increase of $22.0 million in payroll-related costs
to support increased memberships at new and existing centers and increased sales of in-center
products and services. Additionally, occupancy costs increased $7.2 million, including $4.8 million
in 20




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expenses related to a sale-leaseback transaction with respect to two of our current model centers
that was entered into on September 30, 2003. As a percent of total center revenue, these expenses
increased due to higher presale expenses from opening six centers in 2004 compared to four centers
in 2003, as well as the increase in occupancy costs related to the sale-leaseback transaction. Advertising and marketing expenses.Advertising and marketing expenses were $12.2 million, or 3.9%
of total revenue, for the year ended December 31, 2004 compared to $11.0 million, or 4.3% of total
revenue, for the year ended December 31, 2003. The $1.2 million increase was 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 the six centers that opened in 2004 compared to four centers that opened in 2003. As
a percentage of total revenue, these expenses decreased due to more cost-effective marketing
campaigns at our centers and efficiencies due to multiple openings in our Texas markets during
2004. General and administrative expenses.General and administrative expenses were $21.6 million, or
6.9% of total revenue, for the year ended December 31, 2004 compared to $18.6 million, or 7.2% of
total revenue, for the year ended December 31, 2003. This $3.0 million increase was primarily due
to increased costs to support the growth in membership and the center base during 2004 and costs
associated with being a public 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 $18.3 million for the year ended December
31, 2004 compared to $16.3 million for the year ended December 31, 2003. This $2.0 million increase
was primarily due to branding initiatives related to our media, nutritional product and athletic
event businesses. Depreciation and amortization.Depreciation and amortization was $29.7 million for the year ended
December 31, 2004 compared to $25.3 million for the year ended December 31, 2003. This $4.4 million
increase was due to the opening of six centers during the year, as well as the full-year effect of
depreciation for those centers opened in 2003. Interest expense, net.Interest expense, net of interest income, was $17.6 million for the year
ended December 31, 2004 compared to $19.1 million for the year ended December 31, 2003. This $1.5
million decrease was primarily the result of a sale-leaseback transaction which reduced our average
debt balances, interest income generated from the proceeds of our initial public offering, and our
increased cash flows from operating activities allowing us to limit our borrowing during 2004. Provision for income taxes.The provision for income taxes was $20.1 million for the year ended
December 31, 2004 compared to $15.0 million for the year ended December 31, 2003. This $5.1 million
increase was due to an increase in income before income taxes of $13.4 million, partially offset by
a decrease in the effective tax rate to 41.0% for the year ended December 31, 2004 compared to
42.1% for the year ended December 31, 2003. Net income.As a result of the factors described above, net income was $28.9 million, or 9.3% of
total revenue, for the year ended December 31, 2004 compared to $20.6 million, or 8.0% of total
revenue, for the year ended December 31, 2003. Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Total revenue.Total revenue increased $61.8 million, or 31.7%, to $256.9 million for the year
ended December 31, 2003 from $195.2 million for the year ended December 31, 2002. Total center revenue grew $57.5 million, or 30.4%, to $246.4 million from $189.0 million, driven by
a 13.2% increase in comparable center revenue and the opening of four new centers in 2003 and the
full-year contribution of centers opened in 2002. Of the $57.5 million increase in total center
revenue,  
    68.7% was from membership dues, which increased $39.5 million.
    3.5% was from enrollment fees, which increased $2.0 million as a result of membership
growth in existing centers and the opening of the four new centers. Total net memberships
grew by approximately 33,800 during the year.
    27.8% was from in-center revenue, which increased $16.0 million primarily as a result of
our members increased use of personal training services and our LifeCafes and LifeSpas. As a
result of this in-center 21




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revenue growth and our focus on broadening our offerings to our members, average in-center
revenue per membership increased from $207 to $242 for the year ended December 31, 2003. Other revenue grew $4.3 million, or 69.4%, to $10.5 million from $6.2 million, which was primarily
due to the increased sales of our nutritional products. Sports, fitness and family recreation center operations expenses.Sports, fitness and family
recreation center operations expenses were $131.8 million, or 53.5% of total center revenue (or
51.3% of total revenue), for the year ended December 31, 2003 compared to $102.3 million, or 54.2%
of total center revenue (or 52.4% of total revenue), for the year ended December 31, 2002. This
$29.5 million increase primarily consisted of an increase of $15.8 million in payroll-related costs
and an increase of $6.0 million in utilities and occupancy costs, both to support increased
memberships at new and existing centers and increased sales of in-center products and services. As
a percentage of total revenue, these expenses decreased primarily due to the leveraging of payroll,
utilities and occupancy costs over a growing membership base and an expanded number of centers. Advertising and marketing expenses.Advertising and marketing expenses were $11.0 million, or 4.3%
of total revenue, for the year ended December 31, 2003 compared to $11.7 million, or 6.0% of total
revenue, for the year ended December 31, 2002. As a percentage of total revenue and in aggregate
dollars, these expenses decreased primarily due to lower advertising expenditures at existing
centers and the opening of fewer centers during 2003. General and administrative expenses.General and administrative expenses were $18.6 million, or
7.2% of total revenue, for the year ended December 31, 2003 compared to $15.0 million, or 7.7% of
total revenue, for the year ended December 31, 2002. This $3.6 million increase was primarily due
to increased payroll expenses to support the growth in membership and the center base during 2003.
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, accounting and
procurement, as our membership and center base expanded. Other operating expenses.Other operating expenses were $16.3 million for the year ended December
31, 2003 compared to $10.4 million for the year ended December 31, 2002. This $5.9 million increase
was primarily due to branding initiatives related to our media, nutritional product and athletic
event businesses, as well as a $0.5 million increase in losses recognized on the disposal of assets
from updating and refurbishing certain centers. Depreciation and amortization.Depreciation and amortization was $25.3 million for the year ended
December 31, 2003 compared to $20.8 million for the year ended December 31, 2002. This $4.5 million
increase was due to the opening of four centers during the year, as well as the full-year effect of
depreciation for those centers opened in 2002. Interest expense, net.Interest expense, net of interest income, was $19.1 million for the year
ended December 31, 2003 compared to $15.0 million for the year ended December 31, 2002. This $4.2
million increase was primarily due to the increase in outstanding debt related to the five centers
that opened during 2002 and the opening of four additional centers in 2003. Provision for income taxes.The provision for income taxes was $15.0 million for the year ended
December 31, 2003 compared to $6.0 million for the year ended December 31, 2002. This $9.0 million
increase was due to an increase in income before income taxes of $22.2 million, partially offset by
a decrease in the effective tax rate to 42.1% for the year ended December 31, 2003 compared to
44.6% for the year ended December 31, 2002. Net income.As a result of the factors described above, net income was $20.6 million, or 8.0% of
total revenue, for the year ended December 31, 2003 compared to $7.4 million, or 3.8% of total
revenue, for the year ended December 31, 2002. Interest in an Unconsolidated Affiliated Entity In 1999, we formed Bloomingdale LIFE TIME Fitness, L.L.C., referred to as Bloomingdale LLC, with
two unrelated organizations for the purpose of constructing, owning and operating a sports and
athletic, professional fitness, family recreation and resort/spa center in Bloomingdale, Illinois.
The terms of the relationship among the members are governed by an operating agreement, referred to
as the Operating Agreement, which expires on the earlier of December 1, 2039 or the liquidation of
Bloomingdale LLC. On December 1, 1999, Bloomingdale LLC entered into a management agreement with
us, pursuant to which we agreed to manage the day-to-day operations of the center, subject to the
overall supervision by the Management Committee of Bloomingdale LLC, which
 is comprised
of six members, two from each of the three members of the joint venture. We have no unilateral
control 22




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of the center, as all decisions essential to the accomplishments of the purpose of the
joint venture require the approval of a majority of the members. Bloomingdale LLC is
accounted for as an investment in an unconsolidated affiliate and is not consolidated in our
financial statements. Additional details related to our interest in Bloomingdale LLC are provided
in Note 3 to our consolidated financial statements. Non-GAAP Financial Measures We use the terms EBITDA and EBITDA margin. EBITDA consists of net income plus interest
expense, net, provision for income taxes and depreciation and amortization. This term, as we define
it, may not be comparable to a similarly titled measure used by other companies and is not a
measure of performance presented in accordance with GAAP. We use EBITDA and EBITDA margin as measures of operating performance. EBITDA should not be
considered as a substitute for net income, cash flows provided by operating activities, or other
income or cash flow data prepared in accordance with GAAP. The funds depicted by EBITDA are not
necessarily available for discretionary use if they are reserved for particular capital purposes,
to maintain compliance with debt covenants, to service debt or to pay taxes. We believe EBITDA is useful to an investor in evaluating our operating performance and liquidity
because:  
    it is a widely accepted financial indicator of a companys ability to service its debt and
we are required to comply with certain covenants and borrowing limitations that are based on
variations of EBITDA in certain of our financing documents;
    it is widely used to measure a companys operating performance without regard to items
such as depreciation and amortization, which can vary depending upon accounting methods and
the book value of assets, and to present a meaningful measure of corporate performance
exclusive of our capital structure and the method by which assets were acquired; and
    it helps investors to more meaningfully evaluate and compare the results of our operations
from period to period by removing from our operating results the impact of our capital
structure, primarily interest expense from our outstanding debt, and asset base, primarily
depreciation and amortization of our properties. Our management uses EBITDA:  
    as a measurement of operating performance because it assists us in comparing our
performance on a consistent basis, as it removes from our operating results the impact of our
capital structure, which includes interest expense from our outstanding debt, and our asset
base, which includes depreciation and amortization of our properties;
    in presentations to the members of our board of directors to enable our board to have the
same consistent measurement basis of operating performance used by management; and
    as the basis for incentive bonuses paid to selected members of senior and center-level
management. We have provided reconciliations of EBITDA to net income in footnote 9 under Item 6. Selected
Financial Data. Seasonality of Business Seasonal trends have a limited effect on our overall business. Generally, we have experienced
greater membership growth at the beginning of the year and we have not experienced an increased
rate of membership attrition during any particular season of the year. During the summer months, we
have experienced a slight increase in operating expenses due to our outdoor aquatics operations. Liquidity and Capital Resources Liquidity Historically, we have satisfied our liquidity needs through various debt arrangements, sales
of equity and cash 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
can satisfy our current and 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 or equity 23




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capital, although there can be no assurance that such actions can or will 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, we defer enrollment
fee revenue and 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 December 31, 2004, we had total cash and cash equivalents of $10.2 million and $12.1 million
of restricted cash that serves as collateral for certain of our debt arrangements. We also had
$16.7 million available under the terms of our revolving credit facility and $75.0 million
available under our construction facility as of December 31, 2004. Net cash provided by
operating activities was $80.4 million for 2004 compared to $52.6 million for
2003. The increase of $27.8 million was primarily due to a $16.3 million increase in net income
adjusted for non-cash charges and in cash provided by net operating assets and liabilities in 2004
compared to 2003. The cash provided by net operating assets and liabilities was a result of an
increased number of centers and memberships and included increases in deferred revenues and accrued
expenses. Net cash provided by operating activities was $52.6 million for 2003 compared to $43.6 million for
2002. The increase of $9.0 million was primarily due to a $20.9 million increase in net income
adjusted for non-cash charges, which was offset by an increase in cash used for net operating
assets and liabilities in 2003 compared to 2002. The cash used for net operating assets and
liabilities was primarily due to increases in prepaid insurance expenses, lease deposits and income
taxes receivable. Investing Activities Investing activities consist primarily of purchasing real property, constructing new sports,
fitness and family recreation 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 $22.5 million,
which includes the purchase of land, the building and approximately $2.5 million of exercise
equipment, furniture and fixtures. Our total capital expenditures were as follows: For the Year Ended December 31,2004
    
    
    2003
    
    
    2002(In thousands)Cash purchases of property and equipment
    
    $
    156,674
    
    
    $
    41,315
    
    
    $
    27,508Non-cash property and equipment purchases
financed through notes payable
    
    
    
    
    
    
    28,668
    
    
    
    47,224Non-cash property and equipment purchases
financed through capital lease obligations
    
    
    145
    
    
    
    11,863
    
    
    
    12,700Total capital expenditures
    
    $
    156,819
    
    
    $
    81,846
    
    
    $
    87,432
 The following schedule reflects capital expenditures by type of expenditure: For the Year Ended December 31,2004
    
    
    2003
    
    
    2002(In thousands)Capital expenditures for new construction
    
    $
    138,958
    
    
    $
    69,068
    
    
    $
    81,304Capital expenditures for maintenance and
updating existing centers and corporate
infrastructure
    
    
    17,861
    
    
    
    12,778
    
    
    
    6,128Total capital expenditures
    
    $
    156,819
    
    
    $
    81,846
    
    
    $
    87,432
 At December 31, 2004, we had purchased the real property for the six new current model centers that
we plan to open in 2005 and one of the new current model centers that we plan to open in 2006, and
we had entered into agreements to purchase real property for the development of four of the new
centers that we plan to open in 2006. 24




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We expect our capital expenditures to be approximately $180 to $185 million in 2005, of which we
expect approximately $18 to $20 million to be for the maintenance of existing centers and corporate
infrastructure. In September 2003, we entered into a sale-leaseback transaction with respect to two of our current
model centers. Pursuant to the terms of this transaction, we sold the centers for $42.9 million and
simultaneously entered into an operating lease of the centers for a period of 20 years. Financing Activities 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. Our 2004
maintenance capital expenditures were limited, as of December 31, 2004, to $20.0 million. As of
December 31, 2004, we were required to maintain a senior leverage ratio not in excess of 2.75 to
1.00, a total leverage ratio not in excess of 4.5 to 1.0, a fixed charge coverage ratio of at least
1.15 to 1.00, an interest coverage ratio of at least 3.0 to 1.0, an adjusted total leverage ratio
not in excess of 4.0 to 1.0 and a loan to value ratio not in excess of 0.5 to 1.0. The revolving
credit facility also contains covenants that, among other things, restrict our ability to incur
certain additional debt, pay dividends, create certain liens and engage in certain transactions. We
are in compliance in all material respects with our covenants and we do not expect the limits on
our borrowing ability to prevent us from obtaining the funds we need under the revolving credit
facility. As security for our obligations under the revolving credit facility, we have granted a
security interest in all of our personal property. Interest accrues at the rate of either the prime
rate plus 2.5% or LIBOR plus 4.0%, as we elect from time to time. As of December 31, 2004, we had
$30.3 million outstanding, $8.0 million in committed letters of credit and $16.7 million available
for additional borrowings under this facility. 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 December 31, 2004, we had no amounts outstanding under this
facility. We have financed 13 of our centers with Teachers Insurance and Annuity Association of America
pursuant to the terms of individual notes. 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 remaining 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 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 incapacity or as a result of his removal pursuant to
our articles of incorporation or bylaws. As of December 31, 2004, $132.0 million remained
outstanding on the notes. We have financed our centers in Champlin and Savage, Minnesota separately. These obligations bear
interest at a fixed rate of 6.0% and are being amortized over a 15-year period. The obligation
related to our Champlin center is due in full in January 2007 and the obligation for our Savage
center is due in full in August 2007. As security for the obligations, we have granted mortgages on
these two centers. At December 31, 2004, $5.3 million was outstanding with respect to these
obligations. We have financed our center in Plymouth, Minnesota. This obligation bears interest at a variable
rate of 0.5% plus the prime rate and is being amortized over a 15-year period. We are restricted
under this obligation by a requirement that we maintain a total leverage ratio not in excess of 4.5
to 1.0 and a fixed charge coverage ratio not in excess of 1.15 to 1.0. The loan documents also
contain covenants that, among other things, restrict our ability to pay dividends 25




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and engage in certain transactions. We are in compliance with our covenants in all material
respects. As security for the obligation, we have granted a mortgage on this center. The obligation
for our Plymouth center is due in full in February 2007. As of December 31, 2004, a total of $3.3
million was outstanding with respect to this obligation. In May 2001, we financed one of our Minnesota centers pursuant to the terms of a sale-leaseback
transaction that qualified as a capital lease. Pursuant to the terms of the lease, we agreed to
lease the center for a period of 20 years. At March 31, 2004, the present value of the future
minimum lease payments due under the lease amounted to $6.9 million. We have financed our purchase of most of our equipment through capital lease agreements with an
agent and lender, on behalf of itself and other lenders. The terms of such leases are typically 60
months and our interest rates range from 7.1% to 12.8%. As security for the obligations owing under
the capital lease agreements, we have granted a security interest in the leased equipment to the
lender or its assigns. At December 31, 2004, $25.9 million was outstanding under these leases. Contractual Obligations The following is a summary of our contractual obligations as of December 31, 2004: Payments due by periodLess than


    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(In thousands)Long-term debt obligations
    
    $
    176,406
    
    
    $
    35,949
    
    
    $
    19,367
    
    
    $
    15,104
    
    
    $
    105,986Interest
    
    
    117,586
    
    
    
    15,141
    
    
    
    23,934
    
    
    
    20,177
    
    
    
    58,334Operating lease obligations
    
    
    149,407
    
    
    
    8,570
    
    
    
    17,056
    
    
    
    15,618
    
    
    
    108,163Capital lease obligations
    
    
    32,838
    
    
    
    11,528
    
    
    
    13,494
    
    
    
    1,530
    
    
    
    6,286Purchase obligations (1)
    
    
    68,651
    
    
    
    66,579
    
    
    
    2,049
    
    
    
    23
    
    
    
    Total contractual obligations
    
    $
    544,888
    
    
    $
    137,767
    
    
    $
    75,900
    
    
    $
    52,452
    
    
    $
    278,769
   (1)
    
    Purchase obligations consist primarily of our contracts with construction subcontractors for
the completion of six of our centers in 2005 and contracts for the purchase of land. Recent Accounting Pronouncements In January 2003, the Financial Accounting Standards Board, or the FASB, issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities,or FIN 46. FIN 46 clarifies the
application of Accounting Research Bulletin No. 51, Consolidated Financial Statements,to certain
entities in which equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated support from other parties. FIN 46 requires existing unconsolidated
variable interest entities to be consolidated by their primary beneficiaries if the entities do not
effectively disperse risks among parties involved. In December 2003, the FASB revised FIN 46 to
exclude from its scope certain entities which meet the definition of a business under Emerging
Issues Task Force No. 98-3, Determining Whether a Nonmonetary Transaction Involves Receipt of
Productive Assets or of a Business.FIN 46, as revised, shall be applied no later than the first
reporting period ending after March 15, 2004. The adoption of FIN 46, as revised, did not have an
impact on our consolidated financial position or results of operations. In December 2004, the FASB issued SFAS No. 123R, Share-Based Payments. SFAS No. 123R is a
revision of SFAS No. 123, Accounting for Stock Based Compensation, and supersedes APB 25. Among
other items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of accounting,
and requires companies to recognize the cost of employee services received in exchange for awards
of equity instruments, based on the grant date fair value of those awards, in the financial
statements. The effective date of SFAS 123R is the first reporting period beginning after June 15,
2005, which is third quarter 2005 for calendar year companies, although early adoption is allowed.
SFAS 123R permits companies to adopt its requirements using either a modified prospective method,
or a modified retrospective method. Under the modified prospective method, compensation cost is
recognized in the financial statements beginning with the effective date, based on the requirements
of SFAS 123R for all share-based payments granted after that date, and based on the requirements of
SFAS 123 for all unvested awards granted prior to the effective date of SFAS 123R. Under the
modified retrospective method, the 26




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requirements are the same as under the modified prospective method, but also permits entities to
restate financial statements of previous periods based on proforma disclosures made in accordance
with SFAS 123. We currently utilize a standard option pricing model (i.e., Black-Scholes) to measure the fair
value of stock options granted to Employees. While SFAS 123R permits entities to continue to use
such a model, the standard also permits the use of a lattice model. We have not yet determined
which model we will use to measure the fair value of employee stock options upon the adoption of
SFAS 123R. SFAS 123R also requires that the benefits associated with the tax deductions in excess of
recognized compensation cost be reported as a financing cash flow, rather than as an operating cash
flow as required under current literature. This requirement will reduce net operating cash flows
and increase net financing cash flows in periods after the effective date. These future amounts
cannot be estimated, because they depend on, among other things, when employees exercise stock
options. We currently expect to adopt SFAS 123R effective July 1, 2005; however, we have not yet determined
which of the aforementioned adoption methods we will use. See Note 7 of Item 8. Financial
Statements and Supplementary Data, for further information on our stock-based compensation plans. Impact of Inflation We believe that inflation has not had a material impact on our results of operations for any of the
years in the three-year period ended December 31, 2004. We cannot assure you that future inflation
will not have an adverse impact on our operating results and financial condition. Factors That May Affect Future Results If we are unable to identify and acquire suitable sites for new sports and athletic,
professional fitness, family recreation and resort/spa centers, our revenue growth rate and profits
may be negatively impacted. 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 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 separately operate in the same building. 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 center openings could have a material adverse affect on 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 27




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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 contaminants, accidents, deaths or injunctions; and
    general economic conditions. Our continued growth could place strains on our management, employees, information systems and
internal controls which may adversely impact our business and the value of 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 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. The opening of new centers in existing locations may negatively impact our same-center revenue
increases and our operating margins. We currently operate centers in eight states. During 2005, we plan to open six additional
centers, one of which opened on March 4, 2005. Three of the remaining five openings in 2005 are in
existing markets. 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 center operating margins may be lower than
they have been historically while the centers build membership base. We expect both the addition of pre-opening expenses and the lower
revenue volumes characteristic of newly-opened centers to affect our
center 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 December 31, 2004, we had total consolidated indebtedness of $209.2 million, consisting
principally of obligations under 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 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; 28




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
    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 December 31, 2004, we have access
to an additional $91.7 million under our credit facilities. We also 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. Because of the capital-intensive nature of our business, we may have to incur additional
indebtedness or issue new equity securities and, if we are not able to obtain additional capital,
our ability to operate or expand our business may be impaired and our operating results could be
adversely affected. Our business requires significant levels of capital to finance the development of additional
sites for new 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 centers in several metropolitan areas, including 14 in the
Minneapolis/ St. Paul market, seven in the Chicago market, six in the Detroit market, and five in
the Dallas 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. 29




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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 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 become profitable. In addition to our sports and athletic, professional fitness, family recreation and resort/spa
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 financial resources than us. We may
not be able to compete effectively against these established companies, and these other business
initiatives may not become 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 and through our website. 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. 30




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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
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 7A. 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, 2004, our floating
rate indebtedness was approximately $37.3 million. If long-term floating interest rates were to
have increased by 100 basis points during the year ended December 31, 2004, our interest costs
would have increased by approximately $0.3 million. If short-term interest rates were to have
increased by 100 basis points during the year ended December 31, 2004, our interest income from
cash equivalents would have increased by approximately $0.2 million. These amounts are determined
by considering the impact of the hypothetical interest rates on our floating rate indebtedness and
cash equivalents balances at December 31, 2004 . 31




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Item 8. Financial Statements and Supplementary Data. LIFE TIME FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS December 31,2004
    
    
    2003(In thousands, except share and per share data)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    10,211
    
    
    $
    18,446Accounts receivable, net
    
    
    1,187
    
    
    
    1,217Inventories
    
    
    4,971
    
    
    
    4,654Prepaid expenses and other current assets
    
    
    7,275
    
    
    
    6,977Deferred membership origination costs
    
    
    8,271
    
    
    
    7,363Deferred tax asset
    
    
    1,597
    
    
    
    5,368Income tax receivable
    
    
    4,579
    
    
    
    2,547Total current assets
    
    
    38,091
    
    
    
    46,572PROPERTY AND EQUIPMENT, net
    
    
    503,690
    
    
    
    379,193RESTRICTED CASH
    
    
    12,092
    
    
    
    10,972DEFERRED MEMBERSHIP ORIGINATION COSTS
    
    
    7,061
    
    
    
    5,942OTHER ASSETS
    
    
    11,153
    
    
    
    10,667TOTAL ASSETS
    
    $
    572,087
    
    
    $
    453,346LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    47,477
    
    
    $
    18,278Accounts payable
    
    
    5,762
    
    
    
    6,171Construction accounts payable
    
    
    17,633
    
    
    
    6,522Accrued expenses
    
    
    19,152
    
    
    
    13,105Deferred revenue
    
    
    20,019
    
    
    
    17,836Total current liabilities
    
    
    110,043
    
    
    
    61,912LONG-TERM DEBT, net of current portion
    
    
    161,767
    
    
    
    214,954DEFERRED RENT LIABILITY
    
    
    3,678
    
    
    
    2,660DEFERRED INCOME TAXES
    
    
    33,701
    
    
    
    23,196DEFERRED REVENUE
    
    
    12,264
    
    
    
    11,667Total liabilities
    
    
    321,453
    
    
    
    314,389COMMITMENTS AND CONTINGENCIES (Note 9)REDEEMABLE PREFERRED STOCK:Series B redeemable preferred stock, $.02 par value; 0 and 1,000,000 shares
authorized, issued and outstanding each period
    
    
    
    
    
    
    27,003Series C redeemable preferred stock, $.02 par value; 0 and 4,500,000 shares
authorized, issued and outstanding each period
    
    
    
    
    
    
    56,029Series D redeemable preferred stock, $.02 par value; 0 and 2,000,000 shares
authorized, 0 and 1,946,250 shares issued and outstanding each period
    
    
    
    
    
    
    23,133Total redeemable preferred stock
    
    
    
    
    
    
    106,165SHAREHOLDERS EQUITY:Undesignated preferred stock, 10,000,000 and 2,500,000 shares authorized;
none issued or outstandingCommon stock, $.02 par value, 50,000,000 shares authorized; 33,791,610
and 16,146,607 shares issued and outstanding, respectively
    
    
    676
    
    
    
    323Additional paid-in capital
    
    
    209,931
    
    
    
    17,714Deferred compensation
    
    
    (66
    )
    
    
    Retained earnings
    
    
    40,093
    
    
    
    14,755Total shareholders equity
    
    
    250,634
    
    
    
    32,792TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    572,087
    
    
    $
    453,346
 See notes to consolidated financial statements. 32




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS For the Year EndedDecember 31,2004
    
    
    2003
    
    
    2002(In thousands, except per share data)REVENUE:Membership dues
    
    $
    208,893
    
    
    $
    171,596
    
    
    $
    132,124Enrollment fees
    
    
    19,608
    
    
    
    19,198
    
    
    
    17,204In-center revenue
    
    
    71,583
    
    
    
    55,633
    
    
    
    39,630Total center revenue
    
    
    300,084
    
    
    
    246,427
    
    
    
    188,958Other revenue
    
    
    11,949
    
    
    
    10,515
    
    
    
    6,208Total revenue
    
    
    312,033
    
    
    
    256,942
    
    
    
    195,166OPERATING EXPENSES:Sports, fitness and family
recreation center operations
    
    
    164,764
    
    
    
    131,825
    
    
    
    102,343Advertising and marketing
    
    
    12,196
    
    
    
    11,045
    
    
    
    11,722General and administrative
    
    
    21,596
    
    
    
    18,554
    
    
    
    14,981Other operating
    
    
    18,256
    
    
    
    16,273
    
    
    
    10,358Depreciation and amortization
    
    
    29,655
    
    
    
    25,264
    
    
    
    20,801Impairment charge
    
    
    
    
    
    
    
    
    
    
    6,952Total operating expenses
    
    
    246,467
    
    
    
    202,961
    
    
    
    167,157Income from operations
    
    
    65,566
    
    
    
    53,981
    
    
    
    28,009OTHER INCOME (EXPENSE):Interest expense, net
    
    
    (17,573
    )
    
    
    (19,132
    )
    
    
    (14,950
    )Equity in earnings of affiliate
    
    
    1,034
    
    
    
    762
    
    
    
    333Total other income (expense)
    
    
    (16,539
    )
    
    
    (18,370
    )
    
    
    (14,617
    )INCOME BEFORE INCOME TAXES
    
    
    49,027
    
    
    
    35,611
    
    
    
    13,392PROVISION FOR INCOME TAXES
    
    
    20,119
    
    
    
    15,006
    
    
    
    5,971NET INCOME
    
    
    28,908
    
    
    
    20,605
    
    
    
    7,421ACCRETION ON REDEEMABLE
PREFERRED STOCK
    
    
    3,570
    
    
    
    6,987
    
    
    
    7,085NET INCOME APPLICABLE TO COMMON
SHAREHOLDERS
    
    $
    25,338
    
    
    $
    13,618
    
    
    $
    336BASIC EARNINGS PER COMMON SHARE
    
    $
    1.02
    
    
    $
    0.85
    
    
    $
    0.02DILUTED EARNINGS PER COMMON SHARE
    
    $
    0.87
    
    
    $
    0.72
    
    
    $
    0.02WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING-BASIC
    
    
    24,727
    
    
    
    16,072
    
    
    
    15,054WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING-
DILUTED
    
    
    33,125
    
    
    
    28,612
    
    
    
    16,430
 See notes to consolidated financial statements. 33




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AdditionalCommon Stock
    
    
    Paid-In
    
    
    Deferred
    
    
    RetainedShares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Earnings
    
    
    Total(In thousands, except share data)BALANCE  December 31, 2001
    
    
    13,262,491
    
    
    $
    265
    
    
    $
    11,948
    
    
    $
    
    
    
    $
    801
    
    
    $
    13,014Common stock issued upon exercise of
stock options
    
    
    151,380
    
    
    
    3
    
    
    
    319
    
    
    
    
    
    
    
    
    
    
    
    322Common stock issued in connection with
Series A redeemable preferred stock
conversion
    
    
    2,539,986
    
    
    
    51
    
    
    
    4,824
    
    
    
    
    
    
    
    
    
    
    
    4,875Accretion on redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,085
    )
    
    
    (7,085
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,421
    
    
    
    7,421BALANCE  December 31, 2002
    
    
    15,953,857
    
    
    
    319
    
    
    
    17,091
    
    
    
    
    
    
    
    1,137
    
    
    
    18,547Common stock issued upon exercise of
stock options
    
    
    192,750
    
    
    
    4
    
    
    
    407
    
    
    
    
    
    
    
    
    
    
    
    411Tax benefit upon exercise of stock options
    
    
    
    
    
    
    
    
    
    
    216
    
    
    
    
    
    
    
    
    
    
    
    216Accretion on redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,987
    )
    
    
    (6,987
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,605
    
    
    
    20,605BALANCE  December 31, 2003
    
    
    16,146,607
    
    
    
    323
    
    
    
    17,714
    
    
    
    
    
    
    
    14,755
    
    
    
    32,792Common stock issued upon initial public
offering
    
    
    4,774,941
    
    
    
    95
    
    
    
    80,303
    
    
    
    
    
    
    
    
    
    
    
    80,398Tax benefit from expenses incurred upon
initial public offering
    
    
    
    
    
    
    
    
    
    
    88
    
    
    
    
    
    
    
    
    
    
    
    88Conversion of redeemable preferred stock
to common stock upon initial public
offering
    
    
    12,629,233
    
    
    
    253
    
    
    
    109,482
    
    
    
    
    
    
    
    
    
    
    
    109,735Common stock issued upon exercise of
stock options
    
    
    233,801
    
    
    
    5
    
    
    
    1,056
    
    
    
    
    
    
    
    
    
    
    
    1,061Grant of restricted stock
    
    
    7,028
    
    
    
    
    
    
    
    142
    
    
    
    (142
    )
    
    
    
    
    
    
    Compensation related to stock options and
restricted stock
    
    
    
    
    
    
    
    
    
    
    277
    
    
    
    76
    
    
    
    
    
    
    
    353Tax benefit upon exercise of stock options
    
    
    
    
    
    
    
    
    
    
    869
    
    
    
    
    
    
    
    
    
    
    
    869Accretion on redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,570
    )
    
    
    (3,570
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,908
    
    
    
    28,908BALANCE  December 31, 2004
    
    
    33,791,610
    
    
    $
    676
    
    
    $
    209,931
    
    
    $
    (66
    )
    
    $
    40,093
    
    
    $
    250,634
 See notes to consolidated financial statements. 34




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year EndedDecember 31,2004
    
    
    2003
    
    
    2002(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    28,908
    
    
    $
    20,605
    
    
    $
    7,421Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    29,655
    
    
    
    25,264
    
    
    
    20,801Deferred income taxes
    
    
    14,276
    
    
    
    9,722
    
    
    
    819Impairment charge
    
    
    
    
    
    
    
    
    
    
    6,952Loss on disposal of property, net
    
    
    543
    
    
    
    745
    
    
    
    162Amortization of deferred financing costs
    
    
    1,035
    
    
    
    1,053
    
    
    
    529Tax benefit from exercise of stock options
    
    
    869
    
    
    
    216
    
    
    
    Compensation cost related to stock options and restricted stock
    
    
    353
    
    
    
    
    
    
    
    Changes in operating assets and liabilities
    
    
    4,792
    
    
    
    (5,029
    )
    
    
    6,874Net cash provided by operating activities
    
    
    80,431
    
    
    
    52,576
    
    
    
    43,558CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment (excluding non-cash purchases
supplementally noted below)
    
    
    (156,674
    )
    
    
    (41,315
    )
    
    
    (27,508
    )Increase (decrease) in construction accounts payable
    
    
    11,112
    
    
    
    (2,834
    )
    
    
    (1,632
    )Proceeds from sale of property
    
    
    2,139
    
    
    
    23,740
    
    
    
    133Increase in other assets
    
    
    (1,537
    )
    
    
    (2,495
    )
    
    
    (859
    )Increase in restricted cash
    
    
    (1,120
    )
    
    
    (1,572
    )
    
    
    (1,484
    )Net cash used in investing activities
    
    
    (146,080
    )
    
    
    (24,476
    )
    
    
    (31,350
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term borrowings
    
    
    44,853
    
    
    
    1,925
    
    
    
    21,919Repayments on long-term borrowings
    
    
    (68,986
    )
    
    
    (18,119
    )
    
    
    (27,249
    )Increase in deferred financing costs
    
    
    
    
    
    
    (2,731
    )
    
    
    (548
    )Proceeds from initial public offering, net of underwriting
discounts and offering costs
    
    
    80,398
    
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    1,061
    
    
    
    411
    
    
    
    322Tax benefit from expenses incurred upon initial public offering
    
    
    88
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    57,414
    
    
    
    (18,514
    )
    
    
    (5,556
    )INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (8,235
    )
    
    
    9,586
    
    
    
    6,652CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    18,446
    
    
    
    8,860
    
    
    
    2,208CASH AND CASH EQUIVALENTS  End of period
    
    $
    10,211
    
    
    $
    18,446
    
    
    $
    8,860SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest, net of capitalized interest of
$1,443, $1,315 and $1,647, respectively
    
    $
    17,789
    
    
    $
    17,821
    
    
    $
    14,201Cash payments for income taxes
    
    $
    8,986
    
    
    $
    7,107
    
    
    $
    3,900SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:Property and equipment purchases financed through notes payable
    
    $
    
    
    
    $
    28,668
    
    
    $
    47,224Property and equipment purchases financed through capital lease
obligations
    
    $
    145
    
    
    $
    11,863
    
    
    $
    12,700Property and equipment debt paid directly from sale proceeds
    
    $
    
    
    
    $
    22,309
    
    
    $
    Conversion of redeemable preferred stock to common stock upon
initial public offering
    
    $
    109,735
    
    
    $
    
    
    
    $
    
 See notes to consolidated financial statements. 35




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 1. Nature of Business Life Time Fitness, Inc. and the Subsidiaries (collectively, the Company) are primarily engaged
in designing, building and operating sports and athletic, professional fitness, family recreation
and resort/spa centers, principally in suburban locations of major metropolitan areas. As of
December 31, 2004, the Company operated 39 centers, including 14 in Minnesota, seven each in
Illinois and Texas, five in Michigan, two each in Virginia and Arizona, and one each in Ohio and
Indiana. 2. Significant Accounting Policies Principles of Consolidation- The consolidated financial statements include the accounts of
Life Time Fitness, Inc. and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation. Revenue Recognition The Company receives a one-time enrollment fee at the time a member
joins and monthly membership dues for usage from its members. The enrollment fees are nonrefundable
after 30 days. Enrollment fees and related direct expenses (primarily commissions) are deferred and
recognized on a straight-line basis over an estimated membership period of 36 months, which is
based on historical membership experience. In addition, monthly membership dues paid in advance of
a centers opening are deferred until the center opens. The Company offers members month-to-month
memberships and recognizes as revenue the monthly membership dues in the month to which they
pertain. The Company provides services at each of its centers, including personal training, spa, cafe
and other member services. The revenue associated with these services is recognized at the time the
service is performed. Personal training revenue received in advance of training sessions and the
related direct expenses (primarily commissions) are deferred and recognized when services are
performed. Other revenue includes revenue generated from the Companys nutritional products, media,
athletic events and a restaurant. For nutritional products, revenue is recognized net of sales
returns and allowances. Media advertising revenue is recognized over the duration of the
advertising placement. For athletic events, revenue is generated primarily through sponsorship
sales and registration fees. Athletic event revenue is recognized upon the completion of the event.
In certain instances in our media and athletic events businesses, we recognize revenue on barter
transactions. We recognize barter revenue equal to the lesser of the value of the advertising or
promotion given up or the value of the asset received. Restaurant revenue is recognized at the
point of sale to the customer. Pre-Opening Operations- The Company generally operates a preview center up to nine months
prior to the planned opening of a center during which time memberships are sold as construction of
the center is being completed. The revenue and direct membership acquisition costs (primarily sales
commissions) incurred during the period prior to a center opening are deferred until the center
opens and amortization begins when the center opens; however, the related advertising, office and
rent expenses incurred during this period are expensed as incurred. Cash and Cash Equivalents- The Company considers all unrestricted cash accounts and highly
liquid debt instruments purchased with original maturities of three months or less to be cash and
cash equivalents. Restricted Cash- The Company is required to keep funds on deposit at certain financial
institutions related to certain of its credit facilities. The Companys lender or lenders, as the
case may be, may access the restricted cash after the occurrence of an event of default, as defined
under their respective credit facilities. Accounts Receivable- Accounts receivable is presented net of allowance for doubtful accounts
and sales returns and allowances. 36




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) The rollforward of these allowances are as follows: December 31,2004
    
    
    2003
    
    
    2002Allowance for Doubtful Accounts:Balance, beginning of period
    
    $
    541
    
    
    $
    446
    
    
    $
    28Provisions
    
    
    108
    
    
    
    202
    
    
    
    485Write-offs against allowance
    
    
    (214
    )
    
    
    (107
    )
    
    
    (67
    )Balance, end of period
    
    $
    435
    
    
    $
    541
    
    
    $
    446Sales Returns and Allowances:Balance, beginning of period
    
    $
    136
    
    
    $
    
    
    
    $
    Provisions
    
    
    563
    
    
    
    136
    
    
    
    Write-offs against allowance
    
    
    (410
    )
    
    
    
    
    
    
    Balance, end of period
    
    $
    289
    
    
    $
    136
    
    
    $
    
 Inventories- Inventories consisted primarily of nutritional products, operational
supplies and uniforms. These inventories are stated at the lower of cost or market value. Prepaid Expenses and Other Current Assets- Prepaid expenses and other current assets
consisted primarily of prepaid insurance, other prepaid operating expenses and deposits. Property and Equipment- Property, equipment and leasehold improvements are recorded at cost.
Improvements are capitalized, while repair and maintenance costs are charged to operations when
incurred. Depreciation is computed primarily using the straight-line method over estimated useful lives
of the assets. Leasehold improvements are amortized using the straight-line method over the shorter
of the lease term or the estimated useful life of the improvement. 37




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Property and equipment consist of the following: December 31,Useful Lives
    
    2004
    
    
    2003Land
    
    
    
    
    
    $
    89,955
    
    
    $
    65,223Buildings
    
    3-40 years
    
    
    338,729
    
    
    
    262,557Leasehold improvements
    
    1-20 years
    
    
    32,692
    
    
    
    25,092Construction in progress
    
    
    
    
    
    
    31,904
    
    
    
    13,999493,280
    
    
    
    366,871Equipment:Fitness
    
    7 years
    
    
    42,778
    
    
    
    37,125Computer and telephone
    
    3-5 years
    
    
    21,538
    
    
    
    17,696Capitalized software
    
    5 years
    
    
    10,518
    
    
    
    8,101Decor and signage
    
    5 years
    
    
    4,230
    
    
    
    3,222Audio/visual
    
    3-5 years
    
    
    5,792
    
    
    
    4,937Furniture and fixtures
    
    7 years
    
    
    6,149
    
    
    
    5,511Other center equipment
    
    7 years
    
    
    21,746
    
    
    
    14,516112,751
    
    
    
    91,108Property and equipment, gross
    
    
    
    
    
    
    606,031
    
    
    
    457,979Less accumulated depreciation
    
    
    
    
    
    
    102,341
    
    
    
    78,786Property and equipment, net
    
    
    
    
    
    $
    503,690
    
    
    $
    379,193
 At December 31, 2004, the Company had six centers under construction: two in Texas and
one each in Michigan, Minnesota, Illinois and Maryland. The Company has developed web-based systems to facilitate member enrollment and management.
Costs related to these projects have been capitalized in accordance with Statement of Position No.
98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Other center equipment consists primarily of playground equipment and laundry facilities. Impairment of Long-lived Assets- The carrying value of long-lived assets is reviewed annually
and whenever events or changes in circumstances indicate that such carrying values may not be
recoverable. The Company considers a history of consistent and significant operating losses to be
its primary indicator of potential impairment. Assets are grouped and evaluated for impairment at
the lowest level for which there are identifiable cash flows, which is generally at an individual
center level or the separate restaurant. The determination of whether impairment has occurred is
based on an estimate of undiscounted future cash flows directly related to that center or the
restaurant, compared to the carrying value of these assets. If an impairment has occurred, the
amount of impairment recognized is determined by estimating the fair value of these assets and
recording a loss if the carrying value is greater than the fair value. For the year ended December
31, 2002, an impairment charge of $6,952 was recorded related to one of the centers designed as an
urban executive facility located in downtown Minneapolis, Minnesota and a restaurant the Company
operates separately in the same building. The urban executive facility and restaurant differ
significantly from the Companys standard model and initial cash flow results have not been as high
as projected. Additionally, these facilities are located in a more costly geographic area of
downtown Minneapolis. 38




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Other
Assets- The Company records its other assets at cost. Amortization of financing
costs is computed over the periods of the related debt financing. Other assets consist of the
following: December 31,2004
    
    
    2003Financing costs
    
    $
    3,797
    
    
    $
    4,833Investment in unconsolidated affiliate (see Note 3)
    
    
    1,917
    
    
    
    1,553Pre-development costs
    
    
    1,358
    
    
    
    512Lease deposits
    
    
    2,531
    
    
    
    2,471Earnest money deposits
    
    
    831
    
    
    
    534Other
    
    
    719
    
    
    
    764$
    11,153
    
    
    $
    10,667
 Pre-development costs consist of legal, travel, architectural, feasibility and other direct
expenditures incurred for certain prospective new center projects. Capitalization commences when
acquisition of a particular property is deemed probable by management. Should a specific project be
deemed not viable for construction, any capitalized costs related to that project are charged to
operations at the time of that determination. Costs incurred prior to the point at which the
acquisition is deemed probable are expensed as incurred. Pre-development costs capitalized in the
years ended December 31, 2004 and 2003 were approximately $4,302 and $2,094, respectively. Upon
completion of a project, the pre-development costs are classified as property and equipment and
depreciated over the useful life of the asset. Accrued Expenses- Accrued expenses consist of the following: December 31,2004
    
    
    2003Payroll related
    
    $
    5,278
    
    
    $
    4,308Real estate taxes
    
    
    3,600
    
    
    
    2,555Facility operating costs
    
    
    1,723
    
    
    
    1,652Insurance
    
    
    1,404
    
    
    
    1,283Other
    
    
    7,147
    
    
    
    3,307$
    19,152
    
    
    $
    13,105
 Income Taxes- The Company files consolidated federal and state income tax returns. Deferred
income taxes are provided using the liability method whereby deferred tax assets are recognized for
deductible temporary differences and operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax bases at currently
enacted tax rates. Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment. Earnings per Common 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
for each year. 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 39




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) equivalents, such as redeemable preferred stock, the assumed exercise of dilutive stock
options using the treasury stock method and unvested restricted stock awards using the treasury
stock method. Accretion on redeemable preferred stock is computed based on the per share annual return on
the respective series of redeemable preferred stock plus any accumulated but unpaid dividends. The
discount on redeemable preferred stock attributable to offering expenses is also accreted over the
period to the mandatory redemption date. As a result of the Companys initial public offering (see
Note 6), the redeemable preferred stock converted to common stock and the accretion on redeemable
preferred stock discontinued. Accretion on redeemable preferred stock was as follows: Redeemable
    
    For the Year Ended December 31,Preferred Stock
    
    2004
    
    
    2003
    
    
    2002Series A
    
    $
    
    
    
    $
    
    
    
    $
    98Series B
    
    
    715
    
    
    
    1,400
    
    
    
    1,400Series C
    
    
    2,059
    
    
    
    4,030
    
    
    
    4,030Series D
    
    
    796
    
    
    
    1,557
    
    
    
    1,557Total
    
    $
    3,570
    
    
    $
    6,987
    
    
    $
    7,085
 The basic and diluted earnings per share calculations are shown below: December 31,2004
    
    
    2003
    
    
    2002Net income applicable to common shareholders-basic
    
    $
    25,338
    
    
    $
    13,618
    
    
    $
    336Add back accretion on redeemable preferred shares
    
    
    3,570
    
    
    
    6,987
    
    
    
    Net income applicable to common shareholders-diluted
    
    $
    28,908
    
    
    $
    20,605
    
    
    $
    336Weighted average number of common shares outstanding 
basic
    
    
    24,727
    
    
    
    16,072
    
    
    
    15,054Effect of dilutive stock options
    
    
    1,943
    
    
    
    1,522
    
    
    
    1,376Effect of dilutive restricted stock awards
    
    
    2
    
    
    
    
    
    
    
    Effect of dilutive redeemable preferred shares outstanding
    
    
    6,453
    
    
    
    11,018
    
    
    
    Weighted average number of common shares outstanding 
diluted
    
    
    33,125
    
    
    
    28,612
    
    
    
    16,430Basic earnings per common share
    
    $
    1.02
    
    
    $
    0.85
    
    
    $
    0.02Diluted earnings per common share
    
    $
    0.87
    
    
    $
    0.72
    
    
    $
    0.02
 The effect of the shares issuable upon the conversion of redeemable preferred stock was
not included in the calculation of diluted EPS for the year ended December 31, 2002 as they were
antidilutive. The number of equivalent shares excluded from the computation of diluted EPS was 0, 0
and 11,323,000 for the years ended December 31, 2004, 2003 and 2002, respectively. The number of
total common shares outstanding at December 31, 2004 was 33,791,610. Stock-Based Compensation- The Company has stock option plans for employees and accounts for
these option plans in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees. For more information on the Companys stock-based compensation
plans, see Note 7. 40




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Had compensation cost for these plans been determined consistent with Statement of Financial
Accounting Standards (SFAS) No. 123, Share-Based Payments, the Companys net income (loss)
applicable to common shareholders, basic EPS and diluted EPS would have been reduced to the
following pro forma amounts: For the Year EndedDecember 31,2004
    
    
    2003
    
    
    2002Net income (loss) applicable to common
shareholders  basic:As reported
    
    $
    25,338
    
    
    $
    13,618
    
    
    $
    336Pro forma
    
    $
    23,463
    
    
    $
    12,702
    
    
    $
    (598
    )Basic earnings (loss) per common share:As reported
    
    $
    1.02
    
    
    $
    0.85
    
    
    $
    0.02Pro forma
    
    $
    0.95
    
    
    $
    0.79
    
    
    $
    (0.04
    )Net income (loss) applicable to common
shareholders  diluted:As reported
    
    $
    28,908
    
    
    $
    20,605
    
    
    $
    336Pro forma
    
    $
    27,033
    
    
    $
    19,689
    
    
    $
    (598
    )Diluted earnings (loss) per common share:As reported
    
    $
    0.87
    
    
    $
    0.72
    
    
    $
    0.02Pro forma
    
    $
    0.82
    
    
    $
    0.69
    
    
    $
    (0.04
    )
 The weighted-average fair value of options granted was $9.74, $4.15 and $4.42 for the
years ended December 31, 2004, 2003 and 2002, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used: December 31,2004
    
    
    2003
    
    
    2002Risk-free interest rate
    
    
    3.8
    %
    
    
    3.0
    %
    
    
    4.0
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected life in years
    
    
    6
    
    
    
    6
    
    
    
    6Volatility
    
    
    50.5
    %
    
    
    38.3
    %
    
    
    54.2
    %
 The volatility assumptions presented are based on an average of the volatility
assumptions reported by a peer group of publicly traded companies. Fair Value of Financial Instruments- The carrying amounts related to cash and cash
equivalents approximate fair value due to the relatively short maturities of such instruments. The
fair value of long-term debt approximates the carrying value and is based on interest rates for the
same or similar debt offered to the Company having the same or similar remaining maturities and
collateral requirements. Use of Estimates- The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management 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 41




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 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, the Company uses estimates based on the best information available. The
Company uses estimates for such items as depreciable lives, volatility factors in determining fair
value of option grants, tax provisions, provisions for uncollectible receivables and for
calculating the amortization period for deferred enrollment fee revenue and associated direct costs
(based on the weighted average expected life of center memberships). The Company revises the
recorded estimates when better information is available, facts change, or the Company can determine
actual amounts. Those revisions can affect operating results. Interest Income- Interest income included in interest expense, net, for the years ended
December 31, 2004, 2003 and 2002 was $312, $337 and $196, respectively. Supplemental Cash Flow Information- Changes in operating assets and liabilities, reflecting
increases (decreases) in cash, are as follows: For the Year Ended December 312004
    
    
    2003
    
    
    2002Accounts receivable
    
    $
    30
    
    
    $
    (8
    )
    
    $
    204Income tax receivable
    
    
    (2,032
    )
    
    
    (2,039
    )
    
    
    1,862Inventories
    
    
    (317
    )
    
    
    (879
    )
    
    
    (2,444
    )Prepaid expenses and other current assets
    
    
    (298
    )
    
    
    (5,241
    )
    
    
    (433
    )Deferred membership origination costs
    
    
    (2,027
    )
    
    
    (647
    )
    
    
    (1,494
    )Accounts payable
    
    
    (409
    )
    
    
    1,595
    
    
    
    2,123Accrued expenses
    
    
    6,047
    
    
    
    1,974
    
    
    
    3,054Deferred revenue
    
    
    2,780
    
    
    
    (400
    )
    
    
    3,358Deferred rent liability
    
    
    1,018
    
    
    
    616
    
    
    
    644$
    4,792
    
    
    $
    (5,029
    )
    
    $
    6,874
 The Companys capital expenditures were as follows: Fiscal Year Ended December 312004
    
    
    2003
    
    
    2002Cash purchases of property and equipment
    
    $
    156,674
    
    
    $
    41,315
    
    
    $
    27,508Non-cash property and equipment
purchases financed through notes
payable
    
    
    
    
    
    
    28,668
    
    
    
    47,224Non-cash property and equipment
purchases financed through capital
lease obligations
    
    
    145
    
    
    
    11,863
    
    
    
    12,700Total capital expenditures
    
    $
    156,819
    
    
    $
    81,846
    
    
    $
    87,432
 New Accounting Pronouncements-In January 2003, the FASB issued FASB Interpretation No.
46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in
which equity investors do not have the characteristics of a controlling financial interest or do
not have sufficient equity at risk for the entity to finance its activities without additional
subordinated support from other parties. FIN 46 requires existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries if the entities do not effectively
disperse risks among parties involved. In December 2003, the FASB revised FIN 46 to exclude from
its scope certain entities which meet the definition of a business under Emerging Issues Task Force
No. 98-3, Determining Whether a 42




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business. FIN 46, as
revised, shall be applied no later than the first reporting period ending after March 15, 2004. The
adoption of FIN 46, as revised, did not have an impact on the Companys consolidated financial
position or results of operations. In December 2004, the FASB issued SFAS No. 123R, Share-Based Payments. SFAS No. 123R is a
revision of SFAS No. 123, Accounting for Stock Based Compensation, and supersedes APB 25. Among
other items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of accounting,
and requires companies to recognize the cost of employee services received in exchange for awards
of equity instruments, based on the grant date fair value of those awards, in the financial
statements. The effective date of SFAS 123R is the first reporting period beginning after June 15,
2005, which is third quarter 2005 for calendar year companies, although early adoption is allowed.
SFAS 123R permits companies to adopt its requirements using either a modified prospective method,
or a modified retrospective method. Under the modified prospective method, compensation cost is
recognized in the financial statements beginning with the effective date, based on the requirements
of SFAS 123R for all share-based payments granted after that date, and based on the requirements of
SFAS 123 for all unvested awards granted prior to the effective date of SFAS 123R. Under the
modified retrospective method, the requirements are the same as under the modified prospective
method, but also permits entities to restate financial statements of previous periods based on
proforma disclosures made in accordance with SFAS 123. The Company currently utilizes a standard option pricing model (i.e., Black-Scholes) to
measure the fair value of stock options granted to Employees. While SFAS 123R permits entities to
continue to use such a model, the standard also permits the use of a lattice model. The Company
has not yet determined which model it will use to measure the fair value of employee stock options
upon the adoption of SFAS 123R. SFAS 123R also requires that the benefits associated with the tax deductions in excess of
recognized compensation cost be reported as a financing cash flow, rather than as an operating cash
flow as required under current literature. This requirement will reduce net operating cash flows
and increase net financing cash flows in periods after the effective date. These future amounts
cannot be estimated, because they depend on, among other things, when employees exercise stock
options. The Company currently expects to adopt SFAS 123R effective July 1, 2005; however, the Company
has not yet determined which of the aforementioned adoption methods it will use. See Note 7 for
further information on the Companys stock-based compensation plans. Reclassifications- Certain prior period amounts have been reclassified to conform with the
current period presentation. 3. Investment in Unconsolidated Affiliate In December 1999, the Company, together with two unrelated organizations, formed an Illinois
limited liability company named LIFE TIME Fitness Bloomingdale L.L.C. (Bloomingdale LLC) for the
purpose of constructing and operating a center in Bloomingdale, Illinois. The center opened for
business in February 2001. Each of the three members maintains an equal interest in Bloomingdale
LLC. Pursuant to the terms of the agreement that governs the formation and operation of
Bloomingdale LLC (the Operating Agreement), each of the three members contributed $2,000 to
Bloomingdale LLC. The Company has no unilateral control of the center, as all decisions essential
to the accomplishments of the purpose of Bloomingdale LLC require the consent of the other members
of Bloomingdale LLC. The Operating Agreement expires on the earlier of December 1, 2039 or the
liquidation of Bloomingdale LLC. The Company accounts for its interest in Bloomingdale LLC on the
equity method. On December 1, 1999, Bloomingdale LLC entered into a management agreement with the Company,
pursuant to which the Company agreed to manage the day-to-day operations of the center, subject to
the overall supervision by the management committee of Bloomingdale LLC, which is comprised of six
members, two from each of the three members of the joint venture. The management agreement expires
on December 31, 2039 unless it terminates 43




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) earlier pursuant to its terms. The Company does not receive a management fee in connection
with its duties under the management agreement, but does receive an overhead cost recovery charge
equal to the lesser of (i) the lowest rate charged to any of the Companys other centers, or (ii)
9.0% of the net revenue of the Bloomingdale LLC center, provided, however, that in no event would
Bloomingdale LLC be charged overhead cost recovery at a rate in excess of the ratio of the
Companys total overhead expense to its total net center revenue. Overhead cost recovery charges to
Bloomingdale LLC were $1,044, $988 and $799 for the years ended December 31, 2004, 2003 and 2002,
respectively. Bloomingdale LLC issued indebtedness in June 2000 in a taxable bond financing that is secured
by a letter of credit in an amount not to exceed $14,700. All of the members separately guaranteed
one-third of these obligations to the bank for the letter of credit and pledged their membership
interest to the bank as security for the guarantee. Pursuant to the terms of the Operating Agreement, beginning in March 2002 and continuing
throughout the term of such agreement, the members are entitled to receive monthly cash
distributions from Bloomingdale LLC. The amount of this monthly distribution is, and will continue
to be throughout the term of the agreement, $56 per member. In the event that Bloomingdale LLC does
not generate sufficient cash flow through its own operations to make the required monthly
distributions, the Company is obligated to make such payments to each of the other two members. To
date, Bloomingdale LLC has generated cash flows sufficient to make all such payments. Each of the
three members received distributions from Bloomingdale LLC in the amount of $872, $614 and $281 in
2004, 2003 and 2002, respectively. 44




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 4. Long-Term Debt Long-term debt consists of the following: December 31,2004
    
    
    2003Term notes payable to insurance company, monthly
interest and principal payments totaling $1,273
including interest at 8.25% to June 30, 2011,
collateralized by certain related real estate and
buildings
    
    $
    131,991
    
    
    $
    136,183Construction credit facility, monthly interest
payments at the reference rate plus one-half of 1%
expiring January 1, 2006, collateralized by certain
related real estate and buildings
    
    
    
    
    
    
    25,865Revolving credit facility, interest only due monthly
at interest rates ranging from LIBOR plus 4.0% to base
plus 2.5%, facility expires June 30, 2005,
collateralized by certain related personal property
    
    
    30,322
    
    
    
    15,000Mortgage notes payable to bank, due in monthly
installments of $51 through August 2007, including
interest at 6%, collateralized by certain interests in
related two centers
    
    
    5,311
    
    
    
    5,585Mortgage note payable to bank, due in monthly
installments of $37 through February 2007, including
interest at reference rate plus one-half of 1%,
collateralized by a certain interest in one related
center
    
    
    3,258
    
    
    
    3,531Promissory note payable to bank, due in monthly
installments of $40 through January 2009, including
interest at 0.25% under the index rate, collateralized
by a certain interest in secured property
    
    
    3,704
    
    
    
    Special assessments payable, due in variable
semiannual installments through September 2028,
including interest at 4.25% to 8.50%, secured by the
related real estate and buildings
    
    
    1,820
    
    
    
    1,627Total debt (excluding obligations under capital leases)
    
    
    176,406
    
    
    
    187,791Obligations under capital leases (see below)
    
    
    32,838
    
    
    
    45,441Total debt
    
    
    209,244
    
    
    
    233,232Less current maturities
    
    
    47,477
    
    
    
    18,278Total long-term debt
    
    $
    161,767
    
    
    $
    214,954
 In June and October 2001, the Company, through certain of its wholly owned subsidiaries,
refinanced 10 of its centers pursuant to the terms of individual notes issued to an insurance
company. Outstanding obligations under the notes bear interest at 8.25%. In 2001, the Company began
making monthly payments of principal and interest on these obligations, based upon a 20-year
amortization period. The Companys obligations to the insurance company mature in June 2011. In November 2002, the Company, through certain of its wholly owned subsidiaries, refinanced
three centers pursuant to the terms of individual notes issued to an insurance company. Outstanding
obligations under the notes bear interest at 8.25%. In December 2002, the Company began making
monthly payments of principal and interest on these obligations, based upon a 15-year amortization
period. The Companys obligations to the insurance company mature in June 2011. The Company is a party to a $75,000 construction credit facility. Pursuant to the terms of the
construction credit facility, the lending group has committed to make up to seven separate series
loans, the purpose of which is to fund 45




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) the construction costs related to completing the construction of certain centers. The
commitment to continue to make loans available to the Company under this facility has been renewed
by the lenders annually. 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 costs, or
75% of the appraised value, of the specific centers currently under construction and are due and
payable no later than three years from the date of the series supplement for each series loan. As
security for the obligations owing under the construction credit facility, the Company has granted
mortgages on each of the specific centers that are financed by means of the construction credit
facility. Interest accrues at the reference rate plus 0.5%. At December 31, 2004, there were no
amounts outstanding on this facility. The Company is a party to a revolving credit facility with a group of financial institutions.
The revolving credit facility, as amended and restated, allows for borrowings and letters of credit
of up to $55,000 (of which $15,000 is a term loan). Availability under the facility is determined
based upon a multiple of operating cash flow adjusted for outstanding indebtedness, as defined
therein. As of December 31, 2004, $30,322 was outstanding, $8,000 of letters of credit were
outstanding and the Company had approximately $16,678 available for additional borrowings under
this facility. Interest accrues at the rate of either a base rate plus 2.5% or LIBOR plus 4.0%, as
the Company may elect from time to time. The revolving credit facility requires payment of
commitment fees of 0.5% on unused credit availability. The Companys 2004 maintenance capital
expenditures were limited, as of December 31, 2004, to $20.0 million. As of December 31, 2004, the
Company is required to maintain a senior leverage ratio not in excess of 2.75 to 1.00, a total
leverage ratio not in excess of 4.5 to 1.0, a fixed charge coverage ratio of at least 1.15 to 1.00,
an interest coverage ratio of at least 3.0 to 1.0, an adjusted total leverage ratio not in excess
of 4.0 to 1.0 and a loan to value ratio not in excess of 0.5 to 1.0. The revolving credit facility
also contains covenants that, among other things, restrict the ability to incur certain additional
debt, pay dividends, create certain liens and engage in certain transactions. In May 2001, the Company entered into a sale/leaseback transaction with respect to one of its
centers. Pursuant to the terms of this transaction, the Company sold the center for $7,200. The
Company did not recognize any material gain or loss on the sale of the center. The Company retired
$2,900 of indebtedness related to this center. At the time of the sale, the Company simultaneously
entered into a lease of the center. Pursuant to the lease, the Company has agreed to lease the
center for a period of 20 years. As of December 31, 2004, the present value of the future minimum
lease payments due under the lease amounted to $6,919 and is included in obligations under capital
lease. The Company was in compliance in all material respects with all restrictive and financial
covenants under its various credit facilities as of December 31, 2004. Aggregate annual future maturities of long-term debt (excluding capital leases) at December
31, 2004 are as follows: 2005
    
    $
    35,9492006
    
    
    6,0402007
    
    
    13,3272008
    
    
    6,2512009
    
    
    8,853Thereafter
    
    
    105,986$
    176,406
 The Company is a party to capital equipment leases with third parties which provide for
monthly rental payments of approximately $1,281 as of December 31, 2004. The following is a summary
of property and equipment recorded under capital leases: 46




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) December 31,2004
    
    
    2003Land and buildings
    
    $
    6,624
    
    
    $
    6,754Leasehold improvements
    
    
    109
    
    
    
    1,909Equipment
    
    
    50,677
    
    
    
    68,59657,410
    
    
    
    77,259Less accumulated depreciation
    
    
    27,881
    
    
    
    33,776$
    29,529
    
    
    $
    43,483
 Future minimum lease payments and the present value of net minimum lease payments on
capital leases at December 31, 2004 are as follows: 2005
    
    $
    14,1232006
    
    
    10,1292007
    
    
    5,9862008
    
    
    2,1492009
    
    
    883Thereafter
    
    
    11,33644,606Less amounts representing interest
    
    
    11,768Present value of net minimum lease payments
    
    
    32,838Current portion
    
    
    11,528$
    21,310
 5. Income Taxes The components of the provision for income taxes are as follows: December 31,2004
    
    
    2003
    
    
    2002Current
    
    $
    5,843
    

    
    $
    5,284
    
    
    $
    5,152Deferred
    
    
    14,276
    
    
    
    9,722
    
    
    
    819Provision for income taxes
    
    $
    20,119
    
    
    $
    15,006
    
    
    $
    5,971
 The provision for income taxes differs from the federal statutory rate as follows: December 31,2004
    
    
    2003
    
    
    2002Income taxes computed at federal statutory rate
    
    $
    17,159
    
    
    $
    12,464
    
    
    $
    4,553State taxes, net of federal benefit
    
    
    2,882
    
    
    
    2,095
    
    
    
    848Other, net
    
    
    78
    
    
    
    447
    
    
    
    570$
    20,119
    
    
    $
    15,006
    
    
    $
    5,971
 47




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Deferred income taxes are the result of provisions of the tax laws that either require or
permit certain items of income or expense to be reported for tax purposes in different periods than
they are reported for financial reporting. The tax effect of temporary differences that gives rise
to the deferred tax asset (liability) are as follows: December 31,2004
    
    
    2003Current deferred income tax assets:Deferred revenue, net of related deferred costs
    
    $
    673
    
    
    $
    4,206Other, net
    
    
    924
    
    
    
    1,162$
    1,597
    
    
    $
    5,368Noncurrent deferred income tax liabilities:Deferred revenue, net of related deferred costs
    
    $
    
    
    
    $
    1,728Property and equipment
    
    
    (33,167
    )
    
    
    (22,711
    )Other, net
    
    
    (534
    )
    
    
    (2,213
    )$
    (33,701
    )
    
    $
    (23,196
    )
 6. Initial Public Offering 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. 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 $80,398, 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 used the remaining net proceeds to open additional centers. 7. Stock Plans The 1996 Stock Option Plan (the 1996 Plan) reserved up to 2,000,000 shares of the Companys
common stock for issuance. Under the 1996 Plan, the Board of Directors had the authority to grant
incentive and nonqualified options to purchase shares of the Companys common stock to eligible
employees, directors, and contractors at a price of not less than 100% of the fair market value at
the time of the grant. Incentive stock options expire no later than 10 years from the date of
grant, and nonqualified stock options expire no later than 15 years from the date of grant. As of
December 31, 2004, the Company had granted a total of 1,700,000 options to purchase common stock
under the 1996 Plan, of which 1,228,674 were outstanding. The 1998 Stock Option Plan (the 1998 Plan), reserved up to 1,600,000 shares of the Companys
common stock for issuance. Under the 1998 Plan, the Board of Directors had the authority to grant
incentive and nonqualified options to purchase shares of the Companys common stock to eligible
employees, directors and contractors at a price of not less than 100% of the fair market value at
the time of the grant. Incentive stock options expire no later than 10 years from the date of
grant, and nonqualified stock options expire no later than 15 years from the date of grant. The
1998 Plan was amended in December 2003 by the Companys Board of Directors and shareholders to
reserve an additional 1,500,000 shares of the Companys common stock for issuance. As of December
31, 2004, the Company had granted a total of 1,957,500 options to purchase common stock under the
1998 Plan, of which 1,506,100 were outstanding. 48




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) The 2004 Long-Term Incentive Plan (the 2004 Plan) reserved up to 3,500,000 shares of the
Companys common stock for issuance. Under the 2004 Plan, the Compensation Committee of the
Companys Board of Directors administers the 2004 Plan and has the power to select the persons to
receive awards and determine the type, size and terms of awards and establish objectives and
conditions for earning awards. The types of awards that may be granted under the 2004 Plan include
incentive and non-qualified options to purchase shares of common stock, stock appreciation rights,
restricted shares, restricted share units, performance awards and other types of stock-based
awards. Eligible participants under the 2004 Plan include the Companys officers, employees,
non-employee directors and consultants. Each award agreement will specify the number and type of
award, together with any other terms and conditions as determined by the Compensation Committee of
the Board of Directors. In connection with approval of the 2004 Plan, the Companys Board of
Directors approved a resolution to cease making additional grants under the 1996 Plan and 1998
Plan. As of December 31, 2004, the Company had granted a total of 1,096,334 options to purchase
common stock and a total of 7,028 restricted shares under the 2004 Plan. A summary of option activity is as follows: Range ofOptions
    
    
    Exercise PriceOutstanding
    
    
    Per ShareBalance  December 31, 2001
    
    
    2,539,130
    
    
    $
    0.75-8.00Granted
    
    
    345,000
    
    
    
    8.00Exercised
    
    
    (151,380
    )
    
    
    1.25-8.00Canceled
    
    
    (40,750
    )
    
    
    1.67-8.00Balance  December 31, 2002
    
    
    2,692,000
    
    
    
    0.75-8.00Granted
    
    
    636,500
    
    
    
    8.00-12.00Exercised
    
    
    (192,750
    )
    
    
    0.75-8.00Canceled
    
    
    (104,275
    )
    
    
    8.00Balance  December 31, 2003
    
    
    3,031,475
    
    
    
    1.25-12.00Granted
    
    
    1,096,334
    
    
    
    18.50-24.91Exercised
    
    
    (233,801
    )
    
    
    1.25-12.00Canceled
    
    
    (62,900
    )
    
    
    8.00-12.00Balance  December 31, 2004
    
    
    3,831,108
    
    
    $
    1.25-24.91
 The options granted generally vest over a period of three to five years from the date of
grant. At December 31, 2004, options to purchase 2,024,374 shares were exercisable. The following
table summarizes information concerning options outstanding and exercisable as of December 31,
2004: WeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Life (Years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$1.25 to $1.67
    
    
    1,192,674
    
    
    
    1.73
    
    
    $
    1.53
    
    
    
    1,192,674
    
    
    $
    1.53$3.00 to $4.00
    
    
    303,000
    
    
    
    4.55
    
    
    
    3.88
    
    
    
    303,000
    
    
    
    3.88$8.00 to $12.00
    
    
    1,239,100
    
    
    
    7.67
    
    
    
    8.89
    
    
    
    527,500
    
    
    
    8.29$18.50 to $24.91
    
    
    1,096,334
    
    
    
    9.51
    
    
    
    18.88
    
    
    
    1,200
    
    
    
    18.50$1.25 to $24.91
    
    
    3,831,108
    
    
    
    8.35
    
    
    $
    9.06
    
    
    
    2,024,374
    
    
    $
    3.65
 49




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) In December 2003, the Company granted 303,500 options to purchase common stock under the
1998 Plan at $12.00 per share. The fair value per share was determined to be $16.00, resulting in
intrinsic value of $4.00 per share which the Company is recording as compensation expense of $255
per year over the weighted average vesting period of 4.8 years. The fair value of the common stock
was determined on a contemporaneous basis by management. Management did not obtain an independent
contemporaneous valuation at the time of the grant due to an independent valuation that was
performed as of June 30, 2003. Events occurring since June 30, 2003, including the Companys
contemplated initial public offering, were considered by management in determining the value of the
Companys common stock for the December 2003 grant of stock options. 8. Operating Segments The Companys operations are conducted mainly through its sports and athletic, professional
fitness, family recreation and resort/spa 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, cafe 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. 50




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 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)
    
    
    ConsolidatedSegment reporting:Year ended December 31, 2004:Revenues
    
    $
    300,084
    
    
    $
    14,460
    
    
    $
    (2,511
    )
    
    $
    312,033Income before tax
    
    $
    60,039
    
    
    $
    (11,012
    )
    
    $
    
    
    
    $
    49,027Interest expense, net
    
    
    15,760
    
    
    
    1,813
    
    
    
    
    
    
    
    17,573Depreciation and amortization
    
    
    24,001
    
    
    
    5,654
    
    
    
    
    
    
    
    29,655EBITDA
    
    $
    99,800
    
    
    $
    (3,545
    )
    
    $
    
    
    
    $
    96,255Total assets
    
    $
    486,975
    
    
    $
    85,112
    
    
    $
    
    
    
    $
    572,087Year ended December 31, 2003:Revenues
    
    $
    246,427
    
    
    $
    13,002
    
    
    $
    (2,487
    )
    
    $
    256,942Income before tax
    
    $
    46,803
    
    
    $
    (11,192
    )
    
    $
    
    
    
    $
    35,611Interest expense, net
    
    
    17,501
    
    
    
    1,631
    
    
    
    
    
    
    
    19,132Depreciation and amortization
    
    
    20,682
    
    
    
    4,582
    

    
    
    
    
    
    
    25,264EBITDA
    
    $
    84,986
    
    
    $
    (4,979
    )
    
    $
    
    
    
    $
    80,007Total assets
    
    $
    368,330
    
    
    $
    85,016
    
    
    $
    
    
    
    $
    453,346Year ended December 31, 2002:Revenues
    
    $
    188,958
    
    
    $
    8,728
    
    
    $
    (2,520
    )
    
    $
    195,166Income before tax
    
    $
    22,647
    
    
    $
    (9,255
    )
    
    $
    
    
    
    $
    13,392Interest expense, net
    
    
    14,250
    
    
    
    700
    
    
    
    
    
    
    
    14,950Depreciation and amortization
    
    
    16,872
    
    
    
    3,929
    
    
    
    
    
    
    
    20,801EBITDA
    
    $
    53,769
    
    
    $
    (4,626
    )
    
    $
    
    
    
    $
    49,143Total assets
    
    $
    358,207
    
    
    $
    60,817
    
    
    $
    
    
    
    $
    419,024
   (a)
    
    Eliminations relate to the sale of the Companys nutritional products to the Companys owned
cafes. 9. Commitments and Contingencies Lease Commitments- The Company leases certain property and equipment under operating leases.
The minimum annual payments under all noncancelable operating leases at December 31, 2004 are as
follows: 2005
    
    $
    8,5702006
    
    
    8,6462007
    
    
    8,4102008
    
    
    7,7302009
    
    
    7,888Thereafter
    
    
    108,163$
    149,407
 51




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Rent expense under operating leases was $10,871, $6,135 and $4,890 for the years ended
December 31, 2004, 2003 and 2002. Certain lease agreements call for escalating lease payments over
the term of the lease, resulting in a deferred rent liability due to the expense being recognized
on the straight-line basis over the life of the lease. In September 2003, the Company entered into a sale/leaseback transaction with respect to two
of its Michigan centers. Pursuant to the terms of this transaction, the Company sold the centers
for $42,900. The Company retired $22,390 of indebtedness related to these centers. At the time of
the sale, the Company simultaneously entered into a 20-year operating lease for the centers. The
gain on the sale/leaseback transaction of $504 has been deferred and is being recognized as a
reduction of lease expense over the term of the lease. 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. 401(k)Savings and Investment Plan- The Company offers a 401(k) savings and investment plan
(the 401(k) Plan) to substantially all full-time employees who have at least one year of service
and 1,000 hours worked during the year and are at least 21 years of age. The Company made
discretionary contributions to the 401(k) Plan in the amount of $838, $753 and $634 for the years
ended December 31, 2004, 2003 and 2002. 10. Related Party Transactions Certain of the Companys refurbishing and remodeling construction projects at its centers in
Minnesota were managed by a general contractor, which is primarily owned by the president of one of
the Companys wholly owned subsidiaries. The Company paid such general contractor $49 for the year
ended December 31, 2002. No such payments were made in 2004 and 2003. The Company leased one jet until June 2003 (two jets in 2002) from an aviation company that
was wholly owned by the Companys chief executive officer and the president of a wholly owned
subsidiary of the Company. Each month the Company was charged the equivalent of the debt service
for the exclusive use of the jets. The Company also paid an hourly fee for the periodic use of
other aircraft owned by the aviation company. Beginning in July 2003, the Company paid an hourly
rate for the periodic use of the one jet owned by the aviation company. The Company was charged in
total $6, $892 and $857 for the use of this aircraft or aircrafts, as the case may be, for the
years ended December 31, 2004, 2003 and 2002. The Company purchased one jet from the aviation
company for fair market value of $3,950 in January 2004. The Companys chief executive officer was the landlord under a lease involving a center leased
by the Company. Consequently, the Company made payments for monthly rent to its chief executive
officer under such lease in the amounts of $234 and $355 for the years ended December 31, 2003 and
2002, respectively. In August 2003, the Companys chief executive officer sold his position as
landlord under the lease to an entity unrelated to the Company. As a result, no such lease
payments were made to the Companys chief executive officer in 2004. The Company leases various fitness and office equipment for use at the center in Bloomingdale,
Illinois. The Company then subleases this equipment to Bloomingdale LLC. The terms of the sublease
are such that Bloomingdale LLC is charged the equivalent of the debt service for the use of the
equipment. The Company charged $423, $425 and $426 for the years ended December 31, 2004, 2003 and
2002. As noted in Note 4, in May 2001, the Company completed a transaction to sell and
simultaneously lease back one of its Minnesota centers. The Company did not recognize any material
gain or loss on the sale of the center. The purchaser and landlord in such transaction is an entity
composed of four individuals, one of whom is the president of a wholly owned subsidiary of the
Company. The Company paid rent pursuant to the lease of $880 for the years 52




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) ended December 31, 2004, 2003 and 2002. In connection with the sale, the Company received a
note in the amount of approximately $264 which was repaid in December 2003. In October 2003, the Company leased a center located within a shopping center that is owned by
a general partnership in which the Companys chief executive officer has a 50% interest. In
December 2003, the Company and the general partnership executed an addendum to this lease whereby
the Company leased an additional 5,000 square feet of office space on a month-to-month basis within
the shopping center. The Company paid rent pursuant to this lease of $540 and $125 for the years
ended December 31, 2004 and 2003, respectively. 53




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of
Life Time Fitness, Inc.: We have audited the accompanying consolidated balance sheets of Life Time Fitness, Inc. (a
Minnesota corporation) and Subsidiaries (the Company) as of December 31, 2004 and 2003, and the
related consolidated statements of operations, shareholders equity, and cash flows for each of the
three years in the period ended December 31, 2004. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Companys internal control over
financial reporting. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2004 and 2003, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2004, in
conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP
 Minneapolis, Minnesota
March 9, 2005 54




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Quarterly Results Our quarterly operating results may fluctuate significantly because of several factors,
including the timing of new center openings and related expenses, timing of price increases for
enrollment fees and membership dues and general economic conditions. In the past, our pre-opening costs, which primarily consist of compensation and related expenses,
as well as marketing, have varied significantly from quarter to quarter, primarily due to the
timing of center openings. In addition, our compensation and related expenses as well as our
operating costs in the beginning of a centers operations are greater than what can be expected in
the future, both in aggregate dollars and as a percentage of membership revenue. Accordingly, the
volume and timing of new center openings in any quarter have had, and are expected to continue to
have, an impact on quarterly pre-opening costs, compensation and related expenses and occupancy and
real estate costs. Due to these factors, results for a quarter may not indicate results to be
expected for any other quarter or for a full fiscal year. 2004
    
    
    20031st
    
    
    2nd
    
    
    3rd
    
    
    4th
    
    
    1st
    
    
    2nd
    
    
    3rd
    
    
    4thQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(In thousands, except for number of centers and per share data)Total revenues
    
    $
    74,170
    
    
    $
    76,589
    
    
    $
    79,185
    
    
    $
    82,089
    
    
    $
    60,281
    
    
    $
    63,574
    
    
    $
    66,027
    
    
    $
    67,060Income from operations
    
    
    13,983
    
    
    
    16,386
    
    
    
    17,390
    
    
    
    17,807
    
    
    
    11,691
    
    
    
    14,172
    
    
    
    14,417
    
    
    
    13,701Net income
    
    
    5,647
    
    
    
    7,211
    
    
    
    7,904
    
    
    
    8,146
    
    
    
    4,212
    
    
    
    5,454
    
    
    
    5,654
    
    
    
    5,286Net income applicable to common
shareholders
    
    
    3,910
    
    
    
    5,474
    
    
    
    7,809
    
    
    
    8,146
    
    
    
    2,489
    
    
    
    3,712
    
    
    
    3,893
    
    
    
    3,523Earnings per shareBasic
    
    $
    0.24
    
    
    $
    0.34
    
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.16
    
    
    $
    0.23
    
    
    $
    0.24
    
    
    $
    0.22Diluted
    
    
    0.19
    
    
    
    0.25
    
    
    
    0.22
    
    
    
    0.23
    
    
    
    0.15
    
    
    
    0.20
    
    
    
    0.20
    
    
    
    0.18Cash Flow Data:Net cash provided by (used in):Operating activities
    
    $
    20,783
    
    
    $
    15,576
    
    
    $
    15,653
    
    
    $
    28,419
    
    
    $
    14,831
    
    
    $
    14,841
    
    
    $
    9,610
    
    
    $
    14,066Investing activities
    
    
    (19,532
    )
    
    
    (31,411
    )
    
    
    (44,670
    )
    
    
    (50,467
    )
    
    
    (3,223
    )
    
    
    (12,359
    )
    
    
    7,520
    
    
    
    (17,186
    )Financing activities
    
    
    (17,390
    )
    
    
    13,954
    
    
    
    45,600
    
    
    
    15,250
    
    
    
    (3,442
    )
    
    
    (4,368
    )
    
    
    (4,705
    )
    
    
    (5,999
    )EBITDA (1)
    
    $
    21,183
    
    
    $
    23,624
    
    
    $
    25,136
    
    
    $
    26,312
    
    
    $
    17,675
    
    
    $
    20,574
    
    
    $
    20,922
    
    
    $
    20,837Centers open at end of quarter (2)
    
    
    33
    
    
    
    34
    
    
    
    35
    
    
    
    39
    
    
    
    29
    
    
    
    30
    
    
    
    30
    
    
    
    33
   (1)
    
    EBITDA consists of net income plus interest expense, net, provision for income taxes and
depreciation and amortization. This term, as we define it, may not be comparable to a
similarly titled measure used by other companies and is not a measure of performance presented
in accordance with GAAP. We use EBITDA as a measure of operating performance. EBITDA should
not be considered as a substitute for net income, cash flows provided by operating activities,
or other income or cash flow data prepared in accordance with GAAP. The funds depicted by
EBITDA are not necessarily available for discretionary use if they are reserved for particular
capital purposes, to maintain debt covenants, to service debt or to pay taxes. Additional
details related to EBITDA are provided in Managements Discussion and Analysis of Financial
Condition and Results of Operations  Non-GAAP Financial Measures. 55




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##### Table of Contents



The following table provides a reconciliation of net income to EBITDA: 2004
    
    
    20031st
    
    
    2nd
    
    
    3rd
    
    
    4th
    
    
    1st
    
    
    2nd
    
    
    3rd
    
    
    4thQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(In thousands)Net income
    
    $
    5,647
    
    
    $
    7,211
    
    
    $
    7,904
    
    
    $
    8,146
    
    
    $
    4,212
    
    
    $
    5,454
    
    
    $
    5,654
    
    
    $
    5,286Interest expense, net
    
    
    4,612
    
    
    
    4,449
    
    
    
    4,285
    
    
    
    4,227
    
    
    
    4,563
    
    
    
    4,908
    
    
    
    4,850
    
    
    
    4,811Provision for income
taxes
    
    
    3,977
    
    
    
    4,993
    
    
    
    5,458
    
    
    
    5,691
    
    
    
    3,067
    
    
    
    3,972
    
    
    
    4,118
    
    
    
    3,849Depreciation and
amortization
    
    
    6,947
    
    
    
    6,971
    
    
    
    7,489
    
    
    
    8,248
    
    
    
    5,833
    
    
    
    6,240
    
    
    
    6,300
    
    
    
    6,891EBITDA
    
    $
    21,183
    
    
    $
    23,624
    
    
    $
    25,136
    
    
    $
    26,312
    
    
    $
    17,675
    
    
    $
    20,574
    
    
    $
    20,922
    
    
    $
    20,837
   (2)
    
    The data being presented include the center owned by Bloomingdale LLC. 56




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##### Table of Contents



Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. 
 Item 9A. 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 Exchange Act). These controls and procedures are designed to ensure that material
information relating to our company is communicated to our Chief Executive Officer and the Chief
Financial Officer. 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. 
 Item 9B. Other Information. None. 
 PART III Certain information required by Part III is incorporated by reference from our definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on May 5, 2005 (the Proxy Statement),
which will be filed with the SEC pursuant to Regulation 14A within 120 days after December 31,
2004. Except for those portions specifically incorporated in this Form 10-K by reference to our
Proxy Statement, no other portions of the Proxy Statement are deemed to be filed as part of this
Form 10-K. 
 Item 10. Directors and Executive Officers of the Registrant Incorporated into this item by reference is the information under Election of Directors 
Directors and Director Nominees, Election of Directors  Committees of Our Board of Directors,
Election of Directors  Code of Business Conduct and Ethics and Section 16(a) Beneficial
Ownership Reporting Compliance in our Proxy Statement. 
 Item 11. Executive Compensation Incorporated into this item by reference is the information under Election of Directors 
Compensation of Directors and Executive Compensation in our Proxy Statement. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters Incorporated into this item by reference is the information under Equity Compensation Plan
Information and Security Ownership of Principal Shareholders and Management in our Proxy
Statement. 
 Item 13. Certain Relationships and Related Transactions Incorporated into this item by reference is the information under Certain Relationships and
Related Party Transactions in our Proxy Statement. 57




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##### Table of Contents



Item 14. Principal Accountant Fees and Services Incorporated into this item by reference is the information under Ratification of Independent
Public Accounting Firm  Fees in our Proxy Statement. 
 PART IV 
 Item 15. Exhibits and Financial Statement Schedules (a) Documents filed as Part of this Annual Report on Form 10-K: 1. Consolidated Financial Statements: Consolidated
Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002
Consolidated Statements of Shareholders Equity for the years ended December 31, 2004, 2003 and
2002
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm 2. Financial Statement Schedules: The information required by Schedule II  Valuation and Qualifying Accounts is provided in Note
2 to the Consolidated Financial Statements. Other schedules are omitted because they are not required. (b) 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 Form
S-1 (File No.
333-113764), filed
with the Commission
on May 21, 2004.4
    
    Specimen of common stock certificate.
    
    Incorporated by
reference to Exhibit
4 to Amendment No. 4
to the Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on June 23, 2004.10.1
    
    FCA, Ltd. 1996 Stock Option Plan.
    
    Incorporated by
reference to Exhibit
10.1 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.2
    
    LIFE TIME FITNESS, Inc. 1998 Stock Option
Plan, as amended and restated.
    
    Incorporated by
reference to Exhibit
10.2 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.
 58




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##### Table of Contents



ExhibitNo.
    
    Description
    
    Method of Filing10.3
    
    Second Amended and Restated Credit Agreement
dated as of July 19, 2001, by and among the
Registrant, as Borrower, Antares Capital
Corporation, as a Lender and as Agent for all
Lenders, BNP Paribas, as a Lender and as
Documentation Agent, and the other financial
institutions party thereto as Lenders.
    
    Incorporated by
reference to Exhibit
10.5 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.4
    
    First Amendment to Second Amended and Restated
Credit Agreement dated as of July 12, 2002, by
and among the Registrant, Antares Capital
Corporation, BNP Paribas, and JP Morgan Chase
Bank.
    
    Incorporated by
reference to Exhibit
10.6 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.5
    
    Second Amendment to Second Amended and
Restated Credit Agreement dated as of August
29, 2003, by and among the Registrant, Antares
Capital Corporation, JP Morgan Chase Bank,
Mariner CDO 2002, Ltd., Merrill Lynch Capital,
and M&I Marshall & Ilsley Bank.
    
    Incorporated by
reference to Exhibit
10.7 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.6
    
    Third Amendment to Second Amended and Restated
Credit Agreement dated as of December 31,
2003, by and among the Registrant, Antares
Capital Corporation, JP Morgan Chase Bank,
Mariner CDO 2002, Ltd., Merrill Lynch Capital,
and M&I Marshall & Ilsley Bank.
    
    Incorporated by
reference to Exhibit
10.8 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.7
    
    Amended and Restated Master Construction and
Term Loan Agreement dated as of July 17, 2000,
by and among FCA Real Estate Holdings, LLC, as
Borrower, U.S. Bank National Association, as
Agent and Administrative Bank for the Lenders,
and U.S. Bank National Association, as
Collateral Agent.
    
    Incorporated by
reference to Exhibit
10.9 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.8
    
    Amendment No. 1 to Amended and Restated Master
Construction and Term Loan Agreement dated as
of June 14, 2001, by and among FCA Real Estate
Holdings, LLC, U.S. Bank National Association,
and the Lenders party thereto.
    
    Incorporated by
reference to Exhibit
10.10 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.9
    
    Amendment No. 2 to Amended and Restated Master
Construction and Term Loan Agreement dated as
of July 19, 2001, by and among FCA Real Estate
Holdings, LLC, U.S. Bank National Association,
and the Lenders party thereto.
    
    Incorporated by
reference to Exhibit
10.11 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.10
    
    Amendment No. 3 to Amended and Restated Master
Construction and Term Loan Agreement dated as
of August 21, 2001, by and among FCA Real
Estate Holdings, LLC, U.S. Bank National
Association, and the Lenders party thereto.
    
    Incorporated by
reference to Exhibit
10.12 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.11
    
    Amendment No. 4 to Amended and Restated Master
Construction and Term Loan Agreement dated as
of February 28, 2002, by and among FCA Real

Estate Holdings, LLC, U.S. Bank National
Association, and the Lenders party thereto.
    
    Incorporated by
reference to Exhibit
10.13 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.12
    
    Amendment No. 5 to Amended and Restated Master
Construction and Term Loan Agreement effective
as of May 31, 2002, by and among FCA Real
Estate Holdings, LLC, U.S. Bank National
Association, and the Lenders party thereto.
    
    Incorporated by
reference to Exhibit
10.14 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.13
    
    Amendment No. 6 to Amended and Restated Master
Construction and Term Loan Agreement;
Amendment of Supplements for Series Loans N, O
and P; and Amendment of Notes for Series Loans
N, O and P, dated
    
    Incorporated by
reference to Exhibit
10.15 to the
Registrants Registration Statement of Form S-1 (File No.
333-113764), filed with
 59




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##### Table of Contents



ExhibitNo.
    
    Description
    
    Method of Filingas of April 18, 2003, by and
among FCA Real Estate Holdings, LLC, U.S. Bank
National Association, and the Lenders party
thereto.
    
    the Commission
on March 19, 2004.10.14
    
    Form of Promissory Note made in favor of
Teachers Insurance and Annuity Association of
America.
    
    Incorporated by
reference to Exhibit
10.16 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.15
    
    Schedule of terms to Form of Promissory Note
made in favor of Teachers Insurance and
Annuity Association of America.
    
    Incorporated by
reference to Exhibit
10.17 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.16
    
    Open-End Leasehold Mortgage, Assignment of
Leases and Rents, Security Agreement and
Fixtures Filing Statement made by LTF USA Real
Estate, LLC for the benefit of Teachers
Insurance and Annuity Association of America.
    
    Incorporated by
reference to Exhibit
10.18 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.17
    
    Form of Mortgage, Assignment of Leases and
Rents, Security Agreement and Fixture Filing
Statement made for the benefit of Teachers
Insurance and Annuity Association of America.
    
    I Incorporated by
reference to Exhibit
10.19 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.18
    
    Schedule of terms to Form of Mortgage,
Assignment of Leases and Rents, Security
Agreement and Fixture Filing Statement made
for the benefit of Teachers Insurance and
Annuity Association of America.
    
    Incorporated by
reference to Exhibit
10.20 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.19
    
    Form of Second Mortgage, Assignment of Leases
and Rents, Security Agreement and Fixture
Filing Statement made for the benefit of
Teachers Insurance and Annuity Association of
America.
    
    Incorporated by
reference to Exhibit
10.21 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.20
    
    Schedule of terms to Form of Second Mortgage,
Assignment of Leases and Rents, Security
Agreement and Fixture Filing Statement made
for the benefit of Teachers Insurance and
Annuity Association of America.
    
    Incorporated by
reference to Exhibit
10.22 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.21
    
    Lease Agreement dated as of September 30,
2003, by and between LT Fitness (DE) QRS
15-53, Inc., as landlord, and Life Time
Fitness, Inc., as tenant.
    
    Incorporated by
reference to Exhibit
10.23 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.22
    
    Series A Stock Purchase Agreement dated May 7,
1996, including amendments thereto.
    
    Incorporated by
reference to Exhibit
10.25 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.23
    
    Series B Stock Purchase Agreement dated
December 8, 1998, including amendments
thereto.
    
    Incorporated by
reference to Exhibit
10.26 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.24
    
    Series C Stock Purchase Agreement dated August
16, 2000, including amendments thereto.
    
    Incorporated by
reference to Exhibit
10.27 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.25
    
    Series D Stock Purchase Agreement dated July
19, 2001, including amendments thereto.
    
    Incorporated by
reference to Exhibit
10.28 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.
 60




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##### Table of Contents



ExhibitNo.
    
    Description
    
    Method of Filing10.26
    
    Operating Agreement of LifeTime, BSC Land,
DuPage Health Services Fitness Center -
Bloomingdale L.L.C. dated December 1, 1999 by
and between the Registrant, Bloomingdale
Sports Center Land Company and Central DuPage
Health.
    
    Incorporated by
reference to Exhibit
10.29 to Amendment
No. 2 to the
Registrants Form
S-1 (File No.
333-113764), filed
with the Commission
on May 21, 2004.10.27#
    
    Life Time Fitness, Inc. 2004 Long-Term
Incentive Plan.
    
    Incorporated by
reference to Exhibit
10.30 to Amendment
No. 2 to the
Registrants Form
S-1 (File No.
333-113764), filed
with the Commission
on May 21, 2004.10.28
    
    Amendment No. 7 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.
    
    Incorporated by
reference to Exhibit
10.31 to Amendment
No. 2 to the
Registrants Form
S-1 (File No.
333-113764), filed
with the Commission
on May 21, 2004.10.29#
    
    Form of Executive Employment Agreement.
    
    Incorporated by
reference to Exhibit
10.32 to Amendment
No. 3 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on June 9, 2004.10.30
    
    Schedule of parties to Executive Employment
Agreements.
    
    Incorporated by
reference to Exhibit
10.1 to the
Registrants Form
10-Q for the quarter
ended September 30,
2004 (File No.
001-32230).10.31#
    
    Form of Incentive Stock Option for 2004
Long-Term Incentive Plan.
    
    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).10.32#
    
    Form of Non-qualified Stock Option Agreement
for 2004 Long-Term Incentive Plan.
    
    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).10.33
    
    Amendment No. 8 to Amended and Restated Master
Construction and Term Loan Agreement dated
April 28, 2004, by and among FCA Real Estate
Holdings, LLC, U.S. Bank National Association,
and the Lenders party thereto.
    
    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).10.34
    
    Fourth Amendment to Second Amended and
Restated Credit Agreement dated as of
September 30, 2004, by and among the
Registrant, Antares Capital Corporation, JP
Morgan Chase Bank, Mariner CDO 2002, Ltd.,
Merrill Lynch Capital, and M&I Marshall &
Ilsley.
    
    Incorporated by
reference to Exhibit
10.2 to the
Registrants Form
10-Q for the quarter
ended September 30,
2004 (File No.
001-32230).10.35#
    
    Summary of Non-Employee Director Compensation.
    
    Filed Electronically.10.36#
    
    2005 Key Executive Incentive Compensation Plan.
    
    Incorporated by
reference to Exhibit
10.1 to the
Registrants Form
8-K dated February
16, 2005 (File No.
001-32230).13
    
    Annual Report.
    
    Filed Electronically.21
    
    Subsidiaries of the Registrant.
    
    Filed Electronically.23
    
    Consent of Deloitte & Touche LLP.
    
    Filed Electronically.24
    
    Powers of Attorney.
    
    Filed Electronically.
   #
    
    Management contract, compensatory plan or arrangement required to be filed as an exhibit to
this Annual Report on Form 10-K. 61




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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 March 10, 2005. 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) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed on March 10, 2005 by the following persons on behalf of the Registrant in the capacities
indicated Signature
    
    Title/s/ Timothy C. DeVries*

     Timothy C. DeVries
    
    Director/s/ James F. Halpin*

     James F. Halpin
    
    Director/s/ Guy C. Jackson *

     Guy C. Jackson
    
    Director/s/ David A. Landau *

     David A. Landau
    
    Director/s/ Stephen R. Sefton*

     Stephen R. Sefton
    
    Director
   *
    
    Michael R. Robinson, by signing his name hereto, does hereby sign this document on behalf of
each of the above-named officers and/or directors of the Registrant pursuant to powers of
attorney duly executed by such persons. By
    /s/  Michael R. RobinsonMichael R. Robinson, Attorney-in-Fact




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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 Form
S-1 (File No.
333-113764), filed
with the Commission
on May 21, 2004.4
    
    Specimen of common stock certificate.
    
    Incorporated by
reference to Exhibit
4 to Amendment No. 4
to the Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on June 23, 2004.10.1
    
    FCA, Ltd. 1996 Stock Option Plan.
    
    Incorporated by
reference to Exhibit
10.1 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.2
    
    LIFE TIME FITNESS, Inc. 1998 Stock Option
Plan, as amended and restated.
    
    Incorporated by
reference to Exhibit
10.2 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.3
    
    Second Amended and Restated Credit Agreement
dated as of July 19, 2001, by and among the
Registrant, as Borrower, Antares Capital
Corporation, as a Lender and as Agent for all
Lenders, BNP Paribas, as a Lender and as
Documentation Agent, and the other financial
institutions party thereto as Lenders.
    
    Incorporated by
reference to Exhibit
10.5 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.4
    
    First Amendment to Second Amended and Restated
Credit Agreement dated as of July 12, 2002, by
and among the Registrant, Antares Capital
Corporation, BNP Paribas, and JP Morgan Chase
Bank.
    
    Incorporated by
reference to Exhibit
10.6 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.5
    
    Second Amendment to Second Amended and
Restated Credit Agreement dated as of August
29, 2003, by and among the Registrant, Antares
Capital Corporation, JP Morgan Chase Bank,
Mariner CDO 2002, Ltd., Merrill Lynch Capital,
and M&I Marshall & Ilsley Bank.
    
    Incorporated by
reference to Exhibit
10.7 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.6
    
    Third Amendment to Second Amended and Restated
Credit Agreement dated as of December 31,
2003, by and among the Registrant, Antares
Capital Corporation, JP Morgan Chase Bank,
Mariner CDO 2002, Ltd., Merrill Lynch Capital,
and M&I Marshall & Ilsley Bank.
    
    Incorporated by
reference to Exhibit
10.8 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.7
    
    Amended and Restated Master Construction and
Term Loan Agreement dated as of July 17, 2000,
by and among FCA Real Estate Holdings, LLC, as
Borrower, U.S. Bank National Association, as
Agent and Administrative Bank for the Lenders,
and U.S. Bank National Association, as
Collateral Agent.
    
    Incorporated by
reference to Exhibit
10.9 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.8
    
    Amendment No. 1 to Amended and Restated Master
Construction and Term Loan Agreement dated as
of June 14, 2001, by and among FCA Real Estate
Holdings, LLC, U.S. Bank National Association,
and the Lenders party thereto.
    
    Incorporated by
reference to Exhibit
10.10 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.




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##### Table of Contents



ExhibitNo.
    
    Description
    
    Method of Filing10.9
    
    Amendment No. 2 to Amended and Restated Master
Construction and Term Loan Agreement dated as
of July 19, 2001, by and among FCA Real Estate
Holdings, LLC, U.S. Bank National Association,
and the Lenders party thereto.
    
    Incorporated by
reference to Exhibit
10.11 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.10
    
    Amendment No. 3 to Amended and Restated Master
Construction and Term Loan Agreement dated as
of August 21, 2001, by and among FCA Real
Estate Holdings, LLC, U.S. Bank National
Association, and the Lenders party thereto.
    
    Incorporated by
reference to Exhibit
10.12 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.11
    
    Amendment No. 4 to Amended and Restated Master
Construction and Term Loan Agreement dated as
of February 28, 2002, by and among FCA Real
Estate Holdings, LLC, U.S. Bank National
Association, and the Lenders party thereto.
    
    Incorporated by
reference to Exhibit
10.13 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.12
    
    Amendment No. 5 to Amended and Restated Master
Construction and Term Loan Agreement effective
as of May 31, 2002, by and among FCA Real
Estate Holdings, LLC, U.S. Bank National
Association, and the Lenders party thereto.
    
    Incorporated by
reference to Exhibit
10.14 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.13
    
    Amendment No. 6 to Amended and Restated Master
Construction and Term Loan Agreement;
Amendment of Supplements for Series Loans N, O
and P; and Amendment of Notes for Series Loans
N, O and P, dated as of April 18, 2003, by and
among FCA Real Estate Holdings, LLC, U.S. Bank
National Association, and the Lenders party
thereto.
    
    Incorporated by
reference to Exhibit
10.15 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.14
    
    Form of Promissory Note made in favor of
Teachers Insurance and Annuity Association of
America.
    
    Incorporated by
reference to Exhibit
10.16 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.15
    
    Schedule of terms to Form of Promissory Note
made in favor of Teachers Insurance and
Annuity Association of America.
    
    Incorporated by
reference to Exhibit
10.17 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.16
    
    Open-End Leasehold Mortgage, Assignment of
Leases and Rents, Security Agreement and
Fixtures Filing Statement made by LTF USA Real
Estate, LLC for the benefit of Teachers
Insurance and Annuity Association of America.
    
    Incorporated by
reference to Exhibit
10.18 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.17
    
    Form of Mortgage, Assignment of Leases and
Rents, Security Agreement and Fixture Filing
Statement made for the benefit of Teachers
Insurance and Annuity Association of America.
    
    I Incorporated by
reference to Exhibit
10.19 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.18
    
    Schedule of terms to Form of Mortgage,
Assignment of Leases and Rents, Security
Agreement and Fixture Filing Statement made
for the benefit of Teachers Insurance and
Annuity Association of America.
    
    Incorporated by
reference to Exhibit
10.20 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.19
    
    Form of Second Mortgage, Assignment of Leases
and Rents, Security Agreement and Fixture
Filing Statement made for the benefit of
Teachers Insurance and Annuity Association of
America.
    
    Incorporated by
reference to Exhibit
10.21 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.20
    
    Schedule of terms to Form of Second Mortgage,
Assignment of Leases and Rents, Security
Agreement and Fixture Filing Statement made
for the benefit of Teachers Insurance and
Annuity Association of America.
    
    Incorporated by
reference to Exhibit
10.22 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.




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##### Table of Contents



ExhibitNo.
    
    Description
    
    Method of Filing10.21
    
    Lease Agreement dated as of September 30,
2003, by and between LT Fitness (DE) QRS
15-53, Inc., as landlord, and Life Time
Fitness, Inc., as tenant.
    
    Incorporated by
reference to Exhibit
10.23 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.22
    
    Series A Stock Purchase Agreement dated May 7,
1996, including amendments thereto.
    
    Incorporated by
reference to Exhibit
10.25 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.23
    
    Series B Stock Purchase Agreement dated
December 8, 1998, including amendments
thereto.
    
    Incorporated by
reference to Exhibit
10.26 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.24
    
    Series C Stock Purchase Agreement dated August
16, 2000, including amendments thereto.
    
    Incorporated by
reference to Exhibit
10.27 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.25
    
    Series D Stock Purchase Agreement dated July
19, 2001, including amendments thereto.
    
    Incorporated by
reference to Exhibit
10.28 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.26
    
    Operating Agreement of LifeTime, BSC Land,
DuPage Health Services Fitness Center -
Bloomingdale L.L.C. dated December 1, 1999 by
and between the Registrant, Bloomingdale
Sports Center Land Company and Central DuPage
Health.
    
    Incorporated by
reference to Exhibit
10.29 to Amendment
No. 2 to the
Registrants Form
S-1 (File No.
333-113764), filed
with the Commission
on May 21, 2004.10.27#
    
    Life Time Fitness, Inc. 2004 Long-Term
Incentive Plan.
    
    Incorporated by
reference to Exhibit
10.30 to Amendment
No. 2 to the
Registrants Form
S-1 (File No.
333-113764), filed
with the Commission
on May 21, 2004.10.28
    
    Amendment No. 7 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.
    
    Incorporated by
reference to Exhibit
10.31 to Amendment
No. 2 to the
Registrants Form
S-1 (File No.
333-113764), filed
with the Commission
on May 21, 2004.10.29#
    
    Form of Executive Employment Agreement.
    
    Incorporated by
reference to Exhibit
10.32 to Amendment
No. 3 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on June 9, 2004.10.30
    
    Schedule of parties to Executive Employment
Agreements.
    
    Incorporated by
reference to Exhibit
10.1 to the
Registrants Form
10-Q for the quarter
ended September 30,
2004 (File No.
001-32230).10.31#
    
    Form of Incentive Stock Option for 2004
Long-Term Incentive Plan.
    
    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).10.32#
    
    Form of Non-qualified Stock Option Agreement
for 2004 Long-Term Incentive Plan.
    
    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).10.33
    
    Amendment No. 8 to Amended and Restated Master
Construction and Term Loan Agreement dated
April 28, 2004, by and among FCA Real Estate
Holdings, LLC, U.S. Bank National Association,
and the Lenders party thereto.
    
    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).




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##### Table of Contents



ExhibitNo.
    
    Description
    
    Method of Filing10.34
    
    Fourth Amendment to Second Amended and
Restated Credit Agreement dated as of
September 30, 2004, by and among the
Registrant, Antares Capital Corporation, JP
Morgan Chase Bank, Mariner CDO 2002, Ltd.,
Merrill Lynch Capital, and M&I Marshall &
Ilsley.
    
    Incorporated by
reference to Exhibit
10.2 to the
Registrants Form
10-Q for the quarter
ended September 30,
2004 (File No.
001-32230).10.35#
    
    Summary of Non-Employee Director Compensation.
    
    Filed Electronically.10.36#
    
    2005 Key Executive Incentive Compensation Plan.
    
    Incorporated by
reference to Exhibit
10.1 to the
Registrants Form
8-K dated February
16, 2005 (File No.
001-32230).13
    
    Annual Report.
    
    Filed Electronically.21
    
    Subsidiaries of the Registrant.
    
    Filed Electronically.23
    
    Consent of Deloitte & Touche LLP.
    
    Filed Electronically.24
    
    Powers of Attorney.
    
    Filed Electronically.
   #
    
    Management contract, compensatory plan or arrangement required to be filed as an exhibit to this
Annual Report on Form 10-K.