##### Table of Contents



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, 2005
 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
incorporation or organization)6442 City West Parkway
Eden Prairie, Minnesota
(Address of principal executive offices)
    
    (I.R.S. Employer
Identification No.)55344
(Zip Code)
 952-947-0000
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, $.02 par value
    
    New York Stock Exchange
  þ o
 Yes o No þ
 þ o
 o
  þ o o
 o þ




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DOCUMENTS INCORPORATED BY REFERENCE
  FORWARD-LOOKING STATEMENTS
  1




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##### 



TABLE OF CONTENTS
 PagePART I.Item 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    13Item 1B.
    
    Unresolved Staff Comments
    
    
    17Item 2.
    
    Properties
    
    
    17Item 3.
    
    Legal Proceedings
    
    
    18Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    19PART II.Item 5.
    
    Market For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    19Item 6.
    
    Selected Financial Data
    
    
    19Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 8.
    
    Financial Statements and Supplementary Data
    
    
    34Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    63Item 9A.
    
    Controls and Procedures
    
    
    63Item 9B.
    
    Other Information
    
    
    63PART III.Item 10.
    
    Directors and Executive Officers of the Registrant
    
    
    64Item 11.
    
    Executive Compensation
    
    
    65Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    65Item 13.
    
    Certain Relationships and Related Transactions
    
    
    65Item 14.
    
    Principal Accountant Fees and Services
    
    
    65PART IV.Item 15.
    
    Exhibits and Financial Statement Schedules
    
    
    65SIGNATURESForm of Incentive Stock Option for 2004 Long-Term Incentive PlanForm of Non-Qualified Stock Option Agreement for 2004 Long-Term Incentive PlanForm of Restricted Stock Agreement (Employee) for 2004 Long-Term Incentive PlanForm of Restricted Stock Agreement (Non-Employee Director) for 2004 Long-Term Incentive PlanSubsidiariesConsent of Deloitte & Touche LLPPowers of AttorneyCertification of Prinicipal Executive OfficerCertification by Principal Financial OfficerSection 1350 Certifications
  2




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PART I
 
 Item 1. Business.
 Company Overview
       Our Competitive Strengths
 We offer comprehensive and convenient programs and services.
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We offer a value proposition that encourages membership loyalty.
 Experience Life
 We offer a product that is convenient for our members.
  We have an established and profitable economic model.
  We believe we have a disciplined and sophisticated site selection and development process.
  4




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Our Growth Strategy
 Drive membership growth.
 New Centers.
 Existing Centers.
 Increase in-center products and services revenue.
  Our Industry
  Our Philosophy  A Healthy Way of Life Company
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##### Table of Contents



Our Sports and Athletic, Professional Fitness, Family Recreation and Resort/Spa Centers
 Size and Location
  Center Environment
  Equipment and Programs
  Large Format Centers, including Current Model Centers
 Facilities
    
    Amenities and Services
    
    Activities and EventsBasketball/Volleyball Courts
    
    24-Hour Availability
    
    AquaticsCardiovascular Training
    
    Fitness Assessments
    
    Athletic LeaguesChild Centers
    
    Child Center
    
    Birthday PartiesFree Weights
    
    Educational Seminars
    
    Eastern/Martial ArtsGroup Fitness Studios
    
    Subscription to Experience Life
    
    Kids ClubLap Pool
    
    Towel Service
    
    PilatesRacquetball/ Squash Courts
    
    Use of Lockers
    
    Running ClubResistance Training
    
    LifeCafe
    
    Scuba LessonsRock Climbing Cavern
    
    LifeSpa
    
    Studio CyclingSaunas
    
    Massage Therapy
    
    Sports-specific Training CampsTwo-story Waterslides
    
    Nutritional Products
    
    Summer CampsWhirlpools
    
    Personal Training
    
    Swimming LessonsZero-depth Entry Swimming Pools
    
    Pool-side Bistro
    
    YogaLifeStudio
    
    T.E.A.M. Weight LossO2 TrainingNutrition Coaching
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Other Centers
 Facilities
    
    Amenities and Services
    
    Activities and EventsCardiovascular Training
    
    Fitness Assessments
    
    PilatesChild Centers
    
    Child Center
    
    Running ClubFree Weights
    
    Educational Seminars
    
    Studio CyclingGroup Fitness Studios
    
    Subscription to Experience Life
    
    YogaLap Pool
    
    Towel ServiceResistance Training
    
    Use of LockersSaunas
    
    Massage TherapyNutritional ProductsPersonal TrainingNutritional CoachingT.E.A.M. Weight LossO2 Training
 Fitness Equipment and Facilities.
  Personalized Services. 2
 Fitness Programs and Classes.
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Other Center Services.
    Membership
   Experience Life
  8




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Usage
  New Center Site Selection and Construction
 Site Selection.
  Construction.
 Marketing and Sales
 Overview of Marketing.
 Overview of Sales.
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Pre-Opening Phase. Experience Life
 Grand Opening Phase.
 Membership Growth Phase.
 Leveraging the LIFE TIME FITNESS Brand
 Experience Life
 Education. Experience Life
 Experience Life Experience Life Experience Life Experience Life
 Athletic Events.
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Nutritional Products.
 Our Employees
    Information Systems
  Competition
  
    
    health club operators, including 24 Hour Fitness Worldwide, Inc., Bally Total Fitness
Holding Corporation, Equinox, LA Fitness, Town Sports International, 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;
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
    
    local salons, cafes and businesses offering similar ancillary services;
    
    exercise studios;
    
    racquet, tennis and other athletic clubs;
    
    amenity and condominium clubs;
    
    country clubs; and
    
    the home-use fitness equipment industry.
  Government Regulation
  
    
    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.
   Trademarks and Trade Names
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Available Information
 www.lifetimefitness.com.
 
 Item 1A. Risk Factors.
 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.
  We may be unable to attract and retain members, which could have a negative effect on our business.
  Delays in new center openings could have a material adverse affect on our financial performance.
  
    
    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.
 
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The opening of new centers in existing locations may negatively impact our same-center revenue
increases and our operating margins.
   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.
  Our debt levels may limit our flexibility in obtaining additional financing and in pursuing other
business opportunities.
   
    
    our ability to obtain additional financing, if necessary, for capital expenditures,
working capital, acquisitions or other purposes may be impaired or such financing may not be
available on favorable terms;
    
    we will need a substantial portion of our cash flow to pay the principal of, and interest
on, our indebtedness, including indebtedness that we may incur in the future;
    
    payments on our indebtedness will reduce the funds that would otherwise be available for
our operations and future business opportunities;
    
    a substantial decrease in our cash flows from operations could make it difficult for us to
meet our debt service requirements and force us to modify our operations;
    
    we may be more highly leveraged than our competitors, which may place us at a competitive
disadvantage;
    
    our debt level may make us more vulnerable and less flexible than our competitors to a
downturn in our business or the economy in general; and
    
    some of our debt has a variable rate of interest, which increases our vulnerability to
interest rate fluctuations.
 
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Because of the capital-intensive nature of our business, we may have to incur additional
indebtedness or issue new equity securities and, if we are not able to obtain additional capital,
our ability to operate or expand our business may be impaired and our operating results could be
adversely affected.
  The health club industry is highly competitive and our competitors may have greater name
recognition than we have.
  Competitors could copy our business model and erode our market share, brand recognition 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.
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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.
  If our founder and chief executive officer leaves our company for any reason, it could have a
material adverse effect on us.
  We could be subject to claims related to health or safety risks at our 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.
  
    
    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.
  We could be subject to claims related to our nutritional products.
  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 become involved in costly litigation or be
required to pay royalties or fees.
  16




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Our business could be affected by acts of war or terrorism.
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
   Center
    
    Square FeetLocation
    
    Owned/Leased
    
    Format
    
    (1)
    
    
    Date Opened1.
    
    Brooklyn Park, MN
    
    Leased
    
    Other
    
    
    26,982
    
    
    July 19922.
    
    Eagan, MN
    
    Owned
    
    Large
    
    
    64,415
    
    
    September 19943.
    
    Woodbury, MN (2)
    
    Leased
    
    Large
    
    
    73,050
    
    
    September 19954.
    
    Roseville, MN
    
    Leased
    
    Other
    
    
    14,000
    
    
    September 19955.
    
    Highland Park, MN (3)
    
    Owned
    
    Other
    
    
    25,827
    
    
    November 19956.
    
    Coon Rapids, MN (4)
    
    Leased
    
    Other
    
    
    90,262
    
    
    May 19967.
    
    Bloomington, MN
    
    Owned
    
    Other
    
    
    47,307
    
    
    November 19968.
    
    Plymouth, MN
    
    Leased (Ground)
    
    Large
    
    
    109,558
    
    
    June 19979.
    
    St. Paul, MN
    
    Leased
    
    Other
    
    
    85,630
    
    
    December 199710.
    
    Troy, MI
    
    Owned
    
    Large
    
    
    93,579
    
    
    January 199911.
    
    Apple Valley, MN
    
    Leased
    
    Other
    
    
    10,375
    
    
    June 199912.
    
    Columbus, OH
    
    Leased (Ground)
    
    Large
    
    
    98,047
    
    
    July 199913.
    
    Indianapolis, IN
    
    Owned
    
    Large
    
    
    90,956
    
    
    August 199914.
    
    Novi, MI
    
    Owned
    
    Large
    
    
    90,956
    
    
    October 199915.
    
    Centreville, VA
    
    Owned
    
    Large
    
    
    90,956
    
    
    January 200016.
    
    Shelby Township, MI
    
    Owned
    
    Large
    
    
    101,680
    
    
    March 200017.
    
    Minneapolis, MN (center and restaurant)
    
    Leased
    
    Other
    
    
    72,547
    
    
    July 200018.
    
    Schaumburg, IL
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    October 200019.
    
    Warrenville, IL
    
    Owned
    
    Large/Current
    
    
    114,993
    
    
    January 200120.
    
    Bloomingdale, IL (5)
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    February 200121.
    
    Algonquin, IL
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    April 200122.
    
    Orland Park, IL
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    August 2001
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Center
    
    Square FeetLocation
    
    Owned/Leased
    
    Format
    
    (1)
    
    
    Date Opened23.
    
    Fairfax City, VA
    
    Leased
    
    Large
    
    
    67,467
    
    
    October 200124.
    
    Champlin, MN
    
    Leased (Ground)
    
    Large
    
    
    61,948
    
    
    October 200125.
    
    Burr Ridge, IL
    
    Owned
    
    Large/Current
    
    
    105,562
    
    
    February 200226.
    
    Savage, MN
    
    Leased (Ground)
    
    Large
    
    
    80,853
    
    
    June 200227.
    
    Old Orchard (Skokie), IL
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    August 200228.
    
    Canton Township, MI (2)
    
    Leased
    
    Large/Current
    
    
    105,010
    
    
    September 200229.
    
    Rochester Hills, MI (2)
    
    Leased
    
    Large/Current
    
    
    108,890
    
    
    November 200230.
    
    Tempe, AZ
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    April 200331.
    
    Gilbert, AZ
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    October 200332.
    
    New Hope, MN
    
    Leased
    
    Other
    
    
    44,156
    
    
    October 200333.
    
    Plano, TX
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    November 200334.
    
    Willowbrook, TX
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    June 200435.
    
    Garland, TX
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    July 200436.
    
    Sugar Land, TX
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    October 200437.
    
    Flower Mound, TX
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    October 200438.
    
    North Dallas, TX
    
    Leased
    
    Large
    
    
    68,982
    
    
    November 200439.
    
    Colleyville, TX
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    November 200440.
    
    Commerce Township, MI
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    March 200541.
    
    Cinco Ranch, TX
    
    Owned
    
    Large/Current
    
    
    108,890
    
    
    June 200542.
    
    Chanhassen, MN
    
    Owned
    
    Large/Current
    
    
    110,563
    
    
    July 200543.
    
    Austin, TX
    
    Owned
    
    Large/Current
    
    
    110,563
    
    
    September 200544.
    
    Romeoville, IL
    
    Owned
    
    Large/Current
    
    
    110,563
    
    
    September 200545.
    
    San Antonio, TX
    
    Owned
    
    Large/Current
    
    
    110,563
    
    
    December 200546.
    
    Maple Grove, MN
    
    Owned
    
    Large
    
    
    72,500
    
    
    December 200547.
    
    Minnetonka, MN
    
    Owned
    
    Other
    
    
    41,000
    
    
    January 200648.
    
    Columbia, MD
    
    Owned
    
    Large/Current
    
    
    110,563
    
    
    February 2006
 
 (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 69,000 square feet that we sublease to third
parties and approximately 17,000 square feet of common areas for the building.(4)
    
    The square footage figure excludes approximately 24,000 square feet that we sublease to third
parties.(5)
    
    This center is a joint venture in which we have a one-third interest. 
 Item 3. Legal Proceedings.
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Item 4. Submission of Matters to a Vote of Security Holders.
  
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchaser of
Equity Securities.
 Market Information
  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
    
    
    $
    22.54Fiscal Year Ended December 31, 2005:First
Quarter (January 1, 2005  March 31, 2005)
    
    $
    27.16
    
    
    $
    23.82Second
Quarter (April 1, 2005  June 30, 2005)
    
    $
    33.99
    
    
    $
    24.73Third
Quarter (July 1, 2005  September 30, 2005)
    
    $
    37.00
    
    
    $
    31.38Fourth
Quarter (October 1, 2005  December 31, 2005)
    
    $
    40.70
    
    
    $
    30.93
 Holders
  Dividends
  
 Item 6. Selected Financial Data.
  19




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##### Table of Contents



For the Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(In thousands, except per share, center and membership data)Statement of Operations Data:RevenueCenter revenueMembership dues
    
    $
    262,989
    
    
    $
    208,893
    
    
    $
    171,596
    
    
    $
    132,124
    
    
    $
    94,652Enrollment fees
    
    
    20,341
    
    
    
    19,608
    
    
    
    19,198
    
    
    
    17,204
    
    
    
    12,443In-center revenue (1)
    
    
    97,710
    
    
    
    71,583
    
    
    
    55,633
    
    
    
    39,630
    
    
    
    26,332Total center revenue
    
    
    381,040
    
    
    
    300,084
    
    
    
    246,427
    
    
    
    188,958
    
    
    
    133,427Other revenue
    
    
    9,076
    
    
    
    11,949
    
    
    
    10,515
    
    
    
    6,208
    
    
    
    3,240Total revenue
    
    
    390,116
    
    
    
    312,033
    
    
    
    256,942
    
    
    
    195,166
    
    
    
    136,667Operating expensesCenter operations
    
    
    216,314
    
    
    
    164,764
    
    
    
    131,825
    
    
    
    102,343
    
    
    
    74,025Advertising and marketing
    
    
    14,446
    
    
    
    12,196
    
    
    
    11,045
    
    
    
    11,722
    
    
    
    6,350General and administrative
    
    
    27,375
    
    
    
    21,596
    
    
    
    18,554
    
    
    
    14,981
    
    
    
    12,305Other operating
    
    
    12,693
    
    
    
    18,256
    
    
    
    16,273
    
    
    
    10,358
    
    
    
    4,458Depreciation and amortization
    
    
    38,346
    
    
    
    29,655
    
    
    
    25,264
    
    
    
    20,801
    
    
    
    17,280Impairment charge (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,952
    
    
    
    Total operating expenses
    
    
    309,174
    
    
    
    246,467
    
    
    
    202,961
    
    
    
    167,157
    
    
    
    114,418Income from operations
    
    
    80,942
    
    
    
    65,566
    
    
    
    53,981
    
    
    
    28,009
    
    
    
    22,249Interest expense, net
    
    
    (14,076
    )
    
    
    (17,573
    )
    
    
    (19,132
    )
    
    
    (14,950
    )
    
    
    (12,035
    )Loss from extinguishment of debt (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,911
    )Equity in earnings (loss) of affiliate (4)
    
    
    1,105
    
    
    
    1,034
    
    
    
    762
    
    
    
    333
    
    
    
    (301
    )Income before income taxes
    
    
    67,971
    
    
    
    49,027
    
    
    
    35,611
    
    
    
    13,392
    
    
    
    7,002Provision for income taxes
    
    
    26,758
    
    
    
    20,119
    
    
    
    15,006
    
    
    
    5,971
    
    
    
    3,019Net income
    
    
    41,213
    
    
    
    28,908
    
    
    
    20,605
    
    
    
    7,421
    
    
    
    3,983Accretion on redeemable preferred stock
    
    
    
    
    
    
    3,570
    
    
    
    6,987
    
    
    
    7,085
    
    
    
    6,447Net income (loss) applicable to common shareholders
    
    $
    41,213
    
    
    $
    25,338
    
    
    $
    13,618
    
    
    $
    336
    
    
    $
    (2,464
    )Basic earnings (loss) per share
    
    $
    1.19
    
    
    $
    1.02
    
    
    $
    0.85
    
    
    $
    0.02
    
    
    $
    (0.20
    )Weighted average number of common and common
equivalent shares outstanding  basic
    
    
    34,592
    
    
    
    24,727
    
    
    
    16,072
    
    
    
    15,054
    
    
    
    12,360Diluted earnings (loss) per share
    
    $
    1.13
    
    
    $
    0.87
    
    
    $
    0.72
    
    
    $
    0.02
    
    
    $
    (0.20
    )Weighted average number of common and common
equivalent shares outstanding  diluted (5)
    
    
    36,339
    
    
    
    33,125
    
    
    
    28,612
    
    
    
    16,430
    
    
    
    12,360Balance Sheet Data (end of period):Cash and cash equivalents
    
    $
    4,680
    
    
    $
    10,211
    
    
    $
    18,446
    
    
    $
    8,860
    
    
    $
    2,208Working capital
    
    
    (66,123
    )
    
    
    (71,952
    )
    
    
    (15,340
    )
    
    
    (29,819
    )
    
    
    (30,242
    )Total assets
    
    
    723,460
    
    
    
    572,087
    
    
    
    453,346
    
    
    
    419,024
    
    
    
    346,815Total debt
    
    
    273,282
    
    
    
    209,244
    
    
    
    233,232
    
    
    
    231,320
    
    
    
    176,727Total redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    106,165
    
    
    
    99,179
    
    
    
    96,973Total shareholders equity
    
    
    307,844
    
    
    
    250,634
    
    
    
    32,792
    
    
    
    18,547
    
    
    
    13,014Cash Flow Data:Net cash provided by operating activities
    
    $
    107,952
    
    
    $
    80,431
    
    
    $
    52,576
    
    
    $
    43,558
    
    
    $
    32,609Net cash used in investing activities
    
    
    (180,850
    )
    
    
    (146,080
    )
    
    
    (24,476
    )
    
    
    (31,350
    )
    
    
    (63,928
    )Net cash provided by (used in) financing activities
    
    
    67,367
    
    
    
    57,414
    
    
    
    (18,514
    )
    
    
    (5,556
    )
    
    
    28,245Other Data:Comparable center revenue growth (6)
    
    
    7.7
    %
    
    
    9.7
    %
    
    
    13.2
    %
    
    
    22.3
    %
    
    
    12.4
    %Average revenue per membership (7)
    
    $
    1,171
    
    
    $
    1,119
    
    
    $
    1,089
    
    
    $
    989
    
    
    $
    878Average in-center revenue per membership (8)
    
    
    300
    
    
    
    267
    
    
    
    242
    
    
    
    207
    
    
    
    173EBITDA (9)
    
    
    120,393
    
    
    
    96,255
    
    
    
    80,007
    
    
    
    49,143
    
    
    
    36,317EBITDA margin (10)
    
    
    30.9
    %
    
    
    30.8
    %
    
    
    31.1
    %
    
    
    25.2
    %
    
    
    26.6
    %Capital expenditures (11)
    
    $
    190,624
    
    
    $
    156,819
    
    
    $
    81,846
    
    
    $
    87,432
    
    
    $
    94,923Operating Data (12):Centers open at end of period
    
    
    46
    
    
    
    39
    
    
    
    33
    
    
    
    29
    
    
    
    24Number of memberships at end of period
    
    
    358,384
    
    
    
    299,538
    
    
    
    249,192
    
    
    
    215,387
    
    
    
    173,875
 20




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##### Table of Contents



(1)
    
    In-center revenue includes revenue generated at our centers from fees for personal
training, dieticians, 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. 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, 2001, there were no dilutive
shares. 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. For the year ended December 31, 2005, the shares issuable upon the exercise of
stock options and the vesting of all restricted stock awards were dilutive.  December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(In thousands)Weighted average number of common shares outstanding
 basic
    
    
    34,592
    
    
    
    24,727
    
    
    
    16,072
    
    
    
    15,054
    
    
    
    12,360Effect of dilutive stock options
    
    
    1,739
    
    
    
    1,943
    
    
    
    1,522
    
    
    
    1,376
    
    
    
    Effect of dilutive restricted stock awards
    
    
    8
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Effect of dilutive redeemable preferred shares outstanding
    
    
    
    
    
    
    6,453
    
    
    
    11,018
    
    
    
    
    
    
    
    Weighted
average number of common shares outstanding 
diluted
    
    
    36,339
    
    
    
    33,125
    
    
    
    28,612
    
    
    
    16,430
    
    
    
    12,360
 (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. 21




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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.  For the Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(In thousands)Net income
    
    $
    41,213
    
    
    $
    28,908
    
    
    $
    20,605
    
    
    $
    7,421
    
    
    $
    3,983Interest expense, net
    
    
    14,076
    
    
    
    17,573
    
    
    
    19,132
    
    
    
    14,950
    
    
    
    12,035Provision for income taxes
    
    
    26,758
    
    
    
    20,119
    
    
    
    15,006
    
    
    
    5,971
    
    
    
    3,019Depreciation and amortization
    
    
    38,346
    
    
    
    29,655
    
    
    
    25,264
    
    
    
    20,801
    
    
    
    17,280EBITDA
    
    $
    120,393
    
    
    $
    96,255
    
    
    $
    80,007
    
    
    $
    49,143
    
    
    $
    36,317
 (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, excluding purchases of property and equipment in accounts
payable at year-end, 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 13 of this report.
 Overview
   22




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Experience Life
   23




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Critical Accounting Policies and Estimates
  Revenue recognition.
  Pre-opening operations.
 Impairment of long-lived assets.
 24




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##### Table of Contents



Results of Operations
  For the Year EndedDecember 31,2005
    
    
    2004
    
    
    2003RevenueCenter revenueMembership dues
    
    
    67.5
    %
    
    
    66.9
    %
    
    
    66.8
    %Enrollment fees
    
    
    5.2
    
    
    
    6.4
    
    
    
    7.4In-center revenue
    
    
    25.0
    
    
    
    22.9
    
    
    
    21.7Total center revenue
    
    
    97.7
    
    
    
    96.2
    
    
    
    95.9Other revenue
    
    
    2.3
    
    
    
    3.8
    
    
    
    4.1Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating expensesCenter operations
    
    
    55.4
    
    
    
    52.8
    
    
    
    51.3Advertising and marketing
    
    
    3.7
    
    
    
    3.9
    
    
    
    4.3General and administrative
    
    
    7.0
    
    
    
    6.9
    
    
    
    7.2Other operating
    
    
    3.3
    
    
    
    5.9
    
    
    
    6.4Depreciation and amortization
    
    
    9.9
    
    
    
    9.5
    
    
    
    9.8Total operating expenses
    
    
    79.3
    
    
    
    79.0
    
    
    
    79.0Income from operations
    
    
    20.7
    
    
    
    21.0
    
    
    
    21.0Other income (expense)Interest expense, net
    
    
    (3.6
    )
    
    
    (5.6
    )
    
    
    (7.4
    )Equity in earnings of affiliate
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3Total other income (expense)
    
    
    (3.3
    )
    
    
    (5.3
    )
    
    
    (7.1
    )Income before income taxes
    
    
    17.4
    
    
    
    15.7
    
    
    
    13.9Provision for income taxes
    
    
    6.8
    
    
    
    6.4
    
    
    
    5.9Net income
    
    
    10.6
    %
    
    
    9.3
    %
    
    
    8.0
    %
 Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 Total revenue.
  
    
    66.8% was from membership dues, which increased $54.1 million, due to increased
memberships at new and existing centers.
    
    32.3% was from in-center revenue, which increased $26.1 million primarily as a result of
our members increased use of our personal training, LifeCafe and LifeSpa products and
services. As a result of this in-center revenue growth and our focus on broadening our
offerings to our members, average in-center revenue per membership increased from $267 to
$300 for the year ended December 31, 2005.
    
    0.9% was from enrollment fees, which are deferred until a center opens and recognized on a
straight-line basis over 36 months. Enrollment fees increased $0.7 million for the year ended
December 31, 2005 to $20.3 million. Our number of memberships increased 19.6% to 358,384 at
December 31, 2005 from 299,538 at December 31, 2004.
  25




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Center operations expenses.
 Advertising and marketing expenses.
 General and administrative expenses.
 Other operating expenses.
 Depreciation and amortization.
 Interest expense, net.
 Provision for income taxes.
 Net income.
 Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
 Total revenue.
  26




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##### Table of Contents




    
    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.
  Center operations expenses.
 Advertising and marketing expenses.
 General and administrative expenses.
 Other operating expenses.
 Depreciation and amortization.
 Interest expense, net.
 27




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Provision for income taxes.
 Net income.
 Interest in an Unconsolidated Affiliated Entity
  Non-GAAP Financial Measures
    
    
    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; and
    
    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.
  
    
    as a measurement of operating performance because it assists us in comparing our
performance on a consistent basis;
    
    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.
 
 28




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Seasonality of Business
  Liquidity and Capital Resources
 Liquidity
  Operating Activities
    Investing Activities
  29




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##### Table of Contents



For the Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Purchases of property and equipment
    
    $
    190,528
    
    
    $
    156,674
    
    
    $
    41,315Non-cash property and equipment
purchases financed through notes
payable
    
    
    
    
    
    
    
    
    
    
    28,668Non-cash property and equipment
purchases financed through capital
lease obligations
    
    
    96
    
    
    
    145
    
    
    
    11,863Total capital expenditures
    
    $
    190,624
    
    
    $
    156,819
    
    
    $
    81,846
  For the Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Capital expenditures for new land, building and construction
    
    $
    166,417
    
    
    $
    138,958
    
    
    $
    69,068Capital expenditures for updating existing centers and corporate
infrastructure
    
    
    24,207
    
    
    
    17,861
    
    
    
    12,778Total capital expenditures
    
    $
    190,624
    
    
    $
    156,819
    
    
    $
    81,846
   Financing Activities
    30




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31




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##### Table of Contents



Contractual Obligations
  Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(In thousands)Long-term debt obligations
    
    $
    251,896
    
    
    $
    5,922
    
    
    $
    17,339
    
    
    $
    128,487
    
    
    $
    100,148Interest (1)
    
    
    104,372
    
    
    
    13,141
    
    
    
    22,426
    
    
    
    19,418
    
    
    
    49,387Operating lease obligations
    
    
    141,115
    
    
    
    8,643
    
    
    
    16,141
    
    
    
    15,683
    
    
    
    100,648Capital lease obligations
    
    
    21,385
    
    
    
    8,525
    
    
    
    6,416
    
    
    
    335
    
    
    
    6,109Purchase obligations (2)
    
    
    82,694
    
    
    
    66,741
    
    
    
    15,835
    
    
    
    118
    
    
    
    Total contractual obligations
    
    $
    601,462
    
    
    $
    102,972
    
    
    $
    78,157
    
    
    $
    164,041
    
    
    $
    256,292
 
 (1)
    
    Interest expense obligations were calculated holding interest rates constant at December 31,
2005 rates.(2)
    
    Purchase obligations consist primarily of our contracts with construction subcontractors for
the completion of eight of our centers in 2006 and contracts for the purchase of land. Recent Accounting Pronouncements
       32




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Impact of Inflation
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  33




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Item 8. Financial Statements and Supplementary Data.
 LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 December 31,2005
    
    
    2004(In thousands, except share and per share data)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    4,680
    
    
    $
    10,211Accounts receivable, net
    
    
    4,267
    
    
    
    1,187Inventories
    
    
    5,669
    
    
    
    4,971Prepaid expenses and other current assets
    
    
    7,187
    
    
    
    7,275Deferred membership origination costs
    
    
    10,082
    
    
    
    8,271Deferred tax asset
    
    
    
    
    
    
    1,597Income tax receivable
    
    
    3,510
    
    
    
    4,579Total current assets
    
    
    35,395
    
    
    
    38,091PROPERTY AND EQUIPMENT, net
    
    
    661,371
    
    
    
    503,690RESTRICTED CASH
    
    
    3,915
    
    
    
    12,092DEFERRED MEMBERSHIP ORIGINATION COSTS
    
    
    8,410
    
    
    
    7,061OTHER ASSETS
    
    
    14,369
    
    
    
    11,153TOTAL ASSETS
    
    $
    723,460
    
    
    $
    572,087LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    14,447
    
    
    $
    47,477Accounts payable
    
    
    9,964
    
    
    
    5,762Construction accounts payable
    
    
    25,811
    
    
    
    17,633Accrued expenses
    
    
    27,862
    
    
    
    19,152Deferred revenue
    
    
    23,434
    
    
    
    20,019Total current liabilities
    
    
    101,518
    
    
    
    110,043LONG-TERM DEBT, net of current portion
    
    
    258,835
    
    
    
    161,767DEFERRED RENT LIABILITY
    
    
    5,492
    
    
    
    3,678DEFERRED INCOME TAXES
    
    
    35,419
    
    
    
    33,701DEFERRED REVENUE
    
    
    14,352
    
    
    
    12,264Total liabilities
    
    
    415,616
    
    
    
    321,453COMMITMENTS AND CONTINGENCIES (Note 9)SHAREHOLDERS EQUITY:Undesignated preferred stock, 10,000,000 shares authorized; none issued
or outstanding
    
    
    
    
    
    
    Common stock, $.02 par value, 50,000,000 shares authorized; 35,570,567
and 33,791,610 shares issued and outstanding, respectively
    
    
    712
    
    
    
    676Additional paid-in capital
    
    
    228,132
    
    
    
    209,931Deferred compensation
    
    
    (2,306
    )
    
    
    (66
    )Retained earnings
    
    
    81,306
    
    
    
    40,093Total shareholders equity
    
    
    307,844
    
    
    
    250,634TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    723,460
    
    
    $
    572,087
  34




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Year EndedDecember 31,2005
    
    
    2004
    
    
    2003(In thousands, except per share data)REVENUE:Membership dues
    
    $
    262,989
    
    
    $
    208,893
    
    
    $
    171,596Enrollment fees
    
    
    20,341
    
    
    
    19,608
    
    
    
    19,198In-center revenue
    
    
    97,710
    
    
    
    71,583
    
    
    
    55,633Total center revenue
    
    
    381,040
    
    
    
    300,084
    
    
    
    246,427Other revenue
    
    
    9,076
    
    
    
    11,949
    
    
    
    10,515Total revenue
    
    
    390,116
    
    
    
    312,033
    
    
    
    256,942OPERATING EXPENSES:Center operations
    
    
    216,314
    
    
    
    164,764
    
    
    
    131,825Advertising and marketing
    
    
    14,446
    
    
    
    12,196
    
    
    
    11,045General and administrative
    
    
    27,375
    
    
    
    21,596
    
    
    
    18,554Other operating
    
    
    12,693
    
    
    
    18,256
    
    
    
    16,273Depreciation and amortization
    
    
    38,346
    
    
    
    29,655
    
    
    
    25,264Total operating expenses
    
    
    309,174
    
    
    
    246,467
    
    
    
    202,961Income from operations
    
    
    80,942
    
    
    
    65,566
    
    
    
    53,981OTHER INCOME (EXPENSE):Interest expense, net of interest income
of $259, $312 and $337, respectively
    
    
    (14,076
    )
    
    
    (17,573
    )
    
    
    (19,132
    )Equity in earnings of affiliate
    
    
    1,105
    
    
    
    1,034
    
    
    
    762Total other income (expense)
    
    
    (12,971
    )
    
    
    (16,539
    )
    
    
    (18,370
    )INCOME BEFORE INCOME TAXES
    
    
    67,971
    
    
    
    49,027
    
    
    
    35,611PROVISION FOR INCOME TAXES
    
    
    26,758
    
    
    
    20,119
    
    
    
    15,006NET INCOME
    
    
    41,213
    
    
    
    28,908
    
    
    
    20,605ACCRETION ON REDEEMABLE PREFERRED STOCK
    
    
    
    
    
    
    3,570
    
    
    
    6,987NET INCOME APPLICABLE TO COMMON SHAREHOLDERS
    
    $
    41,213
    
    
    $
    25,338
    
    
    $
    13,618BASIC EARNINGS PER COMMON SHARE
    
    $
    1.19
    
    
    $
    1.02
    
    
    $
    0.85DILUTED EARNINGS PER COMMON SHARE
    
    $
    1.13
    
    
    $
    0.87
    
    
    $
    0.72WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING  BASIC
    
    
    34,592
    
    
    
    24,727
    
    
    
    16,072WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING  DILUTED
    
    
    36,339
    
    
    
    33,125
    
    
    
    28,612
  35




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##### Table of Contents



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, 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
    
    
    
    250,634Common stock issued upon exercise of
stock options
    
    
    1,698,714
    
    
    
    34
    
    
    
    6,149
    
    
    
    
    
    
    
    
    
    
    
    6,183Grant of restricted stock
    
    
    80,243
    
    
    
    2
    
    
    
    2,625
    
    
    
    (2,627
    )
    
    
    
    
    
    
    Compensation related to stock options and
restricted stock
    
    
    
    
    
    
    
    
    
    
    255
    
    
    
    387
    
    
    
    
    
    
    
    642Tax benefit upon exercise of stock options
    
    
    
    
    
    
    
    
    
    
    9,172
    
    
    
    
    
    
    
    
    
    
    
    9,172Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,213
    
    
    
    41,213BALANCE  December 31, 2005
    
    
    35,570,567
    
    
    $
    712
    
    
    $
    228,132
    
    
    $
    (2,306
    )
    
    $
    81,306
    
    
    $
    307,844
  36




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Year EndedDecember 31,2005
    
    
    2004
    
    
    2003(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    41,213
    
    
    $
    28,908
    
    
    $
    20,605Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    38,346
    
    
    
    29,655
    
    
    
    25,264Deferred income taxes
    
    
    3,315
    
    
    
    14,276
    
    
    
    9,722Loss on disposal of property, net
    
    
    539
    
    
    
    543
    
    
    
    745Amortization of deferred financing costs
    
    
    1,025
    
    
    
    1,035
    
    
    
    1,053Compensation cost related to stock options and restricted stock
    
    
    644
    
    
    
    353
    
    
    
    Tax benefit from exercise of stock options
    
    
    9,172
    
    
    
    869
    
    
    
    216Changes in operating assets and liabilities
    
    
    13,698
    
    
    
    4,792
    
    
    
    (5,029
    )Net cash provided by operating activities
    
    
    107,952
    
    
    
    80,431
    
    
    
    52,576CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment (excluding non-cash purchases
supplementally noted below)
    
    
    (190,528
    )
    
    
    (156,674
    )
    
    
    (41,315
    )Increase (decrease) in construction accounts payable
    
    
    173
    
    
    
    11,112
    
    
    
    (2,834
    )Proceeds from sale of property and equipment
    
    
    4,411
    
    
    
    2,139
    
    
    
    23,740Increase in other assets
    
    
    (3,083
    )
    
    
    (1,537
    )
    
    
    (2,495
    )Decrease (increase) in restricted cash
    
    
    8,177
    
    
    
    (1,120
    )
    
    
    (1,572
    )Net cash used in investing activities
    
    
    (180,850
    )
    
    
    (146,080
    )
    
    
    (24,476
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term borrowings
    
    
    5,652
    
    
    
    44,853
    
    
    
    1,925Repayments on long-term borrowings
    
    
    (23,971
    )
    
    
    (68,986
    )
    
    
    (18,119
    )Proceeds from revolving credit facility, net
    
    
    80,678
    
    
    
    
    
    
    
    Increase in deferred financing costs
    
    
    (1,175
    )
    
    
    
    
    
    
    (2,731
    )Proceeds from initial public offering, net of underwriting
discounts and offering costs
    
    
    
    
    
    
    80,398
    
    
    
    Proceeds from exercise of stock options
    
    
    6,183
    
    
    
    1,061
    
    
    
    411Tax benefit from expenses incurred upon initial public offering
    
    
    
    
    
    
    88
    
    
    
    Net cash provided by (used in) financing activities
    
    
    67,367
    
    
    
    57,414
    
    
    
    (18,514
    )INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (5,531
    )
    
    
    (8,235
    )
    
    
    9,586CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    10,211
    
    
    
    18,446
    
    
    
    8,860CASH AND CASH EQUIVALENTS  End of period
    
    $
    4,680
    
    
    $
    10,211
    
    
    $
    18,446SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest, net of capitalized interest of $3,965,
$1,443 and $1,315, respectively
    
    $
    17,212
    
    
    $
    17,789
    
    
    $
    17,821Cash payments for income taxes
    
    $
    13,227
    
    
    $
    8,986
    
    
    $
    7,107SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:Property and equipment purchases financed through notes payable
    
    $
    
    
    
    $
    
    
    
    $
    28,668Property and equipment purchases financed through capital lease
obligations
    
    $
    96
    
    
    $
    145
    
    
    $
    11,863Property and equipment debt paid directly from sale proceeds
    
    $
    
    
    
    $
    
    
    
    $
    22,309Conversion of redeemable preferred stock to common stock upon
initial public offering
    
    $
    
    
    
    $
    109,735
    
    
    $
    
  37




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANICAL STATEMENTS
 (In thousands, expect share and per share data)
 1. Nature of Business
  2. Significant Accounting Policies
 Principles of Consolidation
 Revenue Recognition 
  Pre-Opening Operations
 Cash and Cash Equivalents
 Restricted Cash
 Accounts Receivable
 38




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANICAL STATEMENTS
 (In thousands, expect share and per share data)
  December 31,2005
    
    
    2004
    
    
    2003Allowance for Doubtful Accounts:Balance, beginning of period
    
    $
    435
    
    
    $
    541
    
    
    $
    446Provisions
    
    
    126
    
    
    
    108
    
    
    
    202Write-offs against allowance
    
    
    (374
    )
    
    
    (214
    )
    
    
    (107
    )Balance, end of period
    
    $
    187
    
    
    $
    435
    
    
    $
    541Sales Returns and Allowances:Balance, beginning of period
    
    $
    289
    
    
    $
    136
    
    
    $
    Provisions
    
    
    255
    
    
    
    563
    
    
    
    136Write-offs against allowance
    
    
    (410
    )
    
    
    (410
    )
    
    
    Balance, end of period
    
    $
    134
    
    
    $
    289
    
    
    $
    136
 Inventories
 Prepaid Expenses and Other Current Assets
 Property and Equipment
  39




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
  Depreciable
    
    
    December 31,Lives
    
    
    2005
    
    
    2004Land
    
    
    
    
    
    $
    118,686
    
    
    $
    89,955Buildings
    
    3-40 years
    
    
    
    460,382
    
    
    
    338,729Leasehold improvements
    
    1-20 years
    
    
    
    32,997
    
    
    
    32,692Construction in progress
    
    
    
    
    
    
    47,084
    
    
    
    31,904659,149
    
    
    
    493,280Equipment:Fitness
    
    5-7 years
    
    
    
    49,428
    
    
    
    42,778Computer and telephone
    
    3-5 years
    
    
    
    25,042
    
    
    
    21,538Capitalized software
    
    5 years
    
    
    
    12,581
    
    
    
    10,518Decor and signage
    
    5 years
    
    
    
    5,324
    
    
    
    4,230Audio/visual
    
    3-5 years
    
    
    
    7,923
    
    
    
    5,792Furniture and fixtures
    
    7 years
    
    
    
    6,583
    
    
    
    6,149Other center equipment
    
    7 years
    
    
    
    28,586
    
    
    
    21,746135,467
    
    
    
    112,751Property and equipment, gross
    
    
    
    
    
    
    794,616
    
    
    
    606,031Less accumulated depreciation
    
    
    
    
    
    
    133,245
    
    
    
    102,341Property and equipment, net
    
    
    
    
    
    $
    661,371
    
    
    $
    503,690
  Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.
  Impairment of Long-lived Assets
 40




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
 Other Assets
 December 31,2005
    
    
    2004Financing costs
    
    $
    3,947
    
    
    $
    3,797Investment in unconsolidated affiliate (see Note 3)
    
    
    2,150
    
    
    
    1,917Pre-development costs
    
    
    1,594
    
    
    
    1,358Lease deposits
    
    
    2,396
    
    
    
    2,531Earnest money deposits
    
    
    1,327
    
    
    
    831Intangibles
    
    
    2,880
    
    
    
    241Other
    
    
    75
    
    
    
    478$
    14,369
    
    
    $
    11,153
    41




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
 Accrued Expenses
 December 31,2005
    
    
    2004Payroll related
    
    $
    4,886
    
    
    $
    5,278Real estate taxes
    
    
    6,027
    
    
    
    3,600Center operating costs
    
    
    7,884
    
    
    
    1,723Insurance
    
    
    1,246
    
    
    
    1,404Other
    
    
    7,819
    
    
    
    7,147$
    27,862
    
    
    $
    19,152
 Income Taxes
 Earnings per Common Share
  42




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
  For the Year Ended December 31,2005
    
    
    2004
    
    
    2003Net income applicable to common shareholders  basic
    
    $
    41,213
    
    
    $
    25,338
    
    
    $
    13,618Add back accretion on redeemable preferred shares
    
    
    
    
    
    
    3,570
    
    
    
    6,987Net income applicable to common shareholders  diluted
    
    $
    41,213
    
    
    $
    28,908
    
    
    $
    20,605Weighted average number of common shares outstanding 
basic
    
    
    34,592
    
    
    
    24,727
    
    
    
    16,072Effect of dilutive stock options
    
    
    1,739
    
    
    
    1,943
    
    
    
    1,522Effect of dilutive restricted stock awards
    
    
    8
    
    
    
    2
    
    
    
    Effect of dilutive redeemable preferred shares outstanding
    
    
    
    
    
    
    6,453
    
    
    
    11,018Weighted average number of common shares outstanding 
diluted
    
    
    36,339
    
    
    
    33,125
    
    
    
    28,612Basic earnings per common share
    
    $
    1.19
    
    
    $
    1.02
    
    
    $
    0.85Diluted earnings per common share
    
    $
    1.13
    
    
    $
    0.87
    
    
    $
    0.72
  Stock-Based Compensation
 43




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
  For the Year EndedDecember 31,2005
    
    
    2004
    
    
    2003Net income applicable to common shareholders  basic:As reported
    
    $
    41,213
    
    
    $
    25,338
    
    
    $
    13,618Pro forma
    
    $
    35,870
    
    
    $
    23,463
    
    
    $
    12,702Basic earnings per common share:As reported
    
    $
    1.19
    
    
    $
    1.02
    
    
    $
    0.85Pro forma
    
    $
    1.04
    
    
    $
    0.95
    
    
    $
    0.79Net income applicable to common shareholders  diluted:As reported
    
    $
    41,213
    
    
    $
    28,908
    
    
    $
    20,605Pro forma
    
    $
    35,870
    
    
    $
    27,033
    
    
    $
    19,689Diluted earnings per common share:As reported
    
    $
    1.13
    
    
    $
    0.87
    
    
    $
    0.72Pro forma
    
    $
    0.99
    
    
    $
    0.82
    
    
    $
    0.69
  44




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
  December 31,2005
    
    2004
    
    2003Risk-free interest rate
    
    
    4.0
    %
    
    
    3.8
    %
    
    
    3.0
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected life in years
    
    
    6
    
    
    
    6
    
    
    
    6Volatility
    
    
    42.7
    %
    
    
    50.5
    %
    
    
    38.3
    %
  Dividends
 Fair Value of Financial Instruments
 Use of Estimates
 Interest Income
 45




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
 Supplemental Cash Flow Information
 For the Year Ended December 31,2005
    
    
    2004
    
    
    2003Accounts receivable
    
    $
    (3,080
    )
    
    $
    30
    
    
    $
    (8
    )Income tax receivable
    
    
    1,068
    
    
    
    (2,032
    )
    
    
    (2,039
    )Inventories
    
    
    (698
    )
    
    
    (317
    )
    
    
    (879
    )Prepaid expenses and other current assets
    
    
    105
    
    
    
    (298
    )
    
    
    (5,241
    )Deferred membership origination costs
    
    
    (3,159
    )
    
    
    (2,027
    )
    
    
    (647
    )Accounts payable
    
    
    3,434
    
    
    
    (409
    )
    
    
    1,595Accrued expenses
    
    
    8,711
    
    
    
    6,047
    
    
    
    1,974Deferred revenue
    
    
    5,503
    
    
    
    2,780
    
    
    
    (400
    )Deferred rent
    
    
    1,814
    
    
    
    1,018
    
    
    
    616$
    13,698
    
    
    $
    4,792
    
    
    $
    (5,029
    )
  For the Year Ended December 31,2005
    
    
    2004
    
    
    2003Purchases of property and equipment
    
    $
    190,528
    
    
    $
    156,674
    
    
    $
    41,315Non-cash property and
equipment purchases financed
through notes payable
    
    
    
    
    
    
    
    
    
    
    28,668Non-cash property and
equipment purchases financed
through capital lease obligations
    
    
    96
    
    
    
    145
    
    
    
    11,863Total capital expenditures
    
    $
    190,624
    
    
    $
    156,819
    
    
    $
    81,846
 New Accounting Pronouncements
    46




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
   Comprehensive Income
 Reclassifications
 3. Investment in Unconsolidated Affiliate
    47




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
  48




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
 4. Long-Term Debt
  December 31,2005
    
    
    2004Term 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
    
    $
    127,439
    
    
    $
    131,991Revolving credit facility, interest only due monthly
at interest rates ranging from LIBOR plus 1.0% to 2.0%
or base plus 0.0% to 0.5%, facility expires April 15,
2010, collateralized by certain personal property
    
    
    111,000
    
    
    
    Revolving credit facility, interest only due monthly
at interest rates ranging from LIBOR plus 4.0% to base
plus 2.5%, collateralized by certain related personal
property; facility terminated April 2005
    
    
    
    
    
    
    30,322Mortgage 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
    
    
    5,018
    
    
    
    5,311Mortgage 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, debt retired April 2005
    
    
    
    
    
    
    3,258Promissory 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, debt
retired March 2005
    
    
    
    
    
    
    3,704Promissory note payable to bank, monthly interest
payments at LIBOR plus 1.50%, expiring April 2010,
collateralized by a certain interest in secured
property
    
    
    5,342
    
    
    
    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
    
    
    3,096
    
    
    
    1,820Total debt (excluding obligations under capital leases)
    
    
    251,895
    
    
    
    176,406Obligations under capital leases (see below)
    
    
    21,387
    
    
    
    32,838Total debt
    
    
    273,282
    
    
    
    209,244Less current maturities
    
    
    14,447
    
    
    
    47,477Total long-term debt
    
    $
    258,835
    
    
    $
    161,767
  49




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
       2006
    
    $
    5,9222007
    
    
    10,7752008
    
    
    6,5632009
    
    
    7,0392010
    
    
    121,448Thereafter
    
    
    100,148$
    251,895
 50




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
  December 31,2005
    
    
    2004Land and buildings
    
    $
    6,622
    
    
    $
    6,624Leasehold improvements
    
    
    
    
    
    
    109Equipment
    
    
    36,507
    
    
    
    50,67743,129
    
    
    
    57,410Less accumulated amortization
    
    
    23,609
    
    
    
    27,881$
    19,520
    
    
    $
    29,529
  2006
    
    $
    10,5832007
    
    
    6,3922008
    
    
    2,1712009
    
    
    9642010
    
    
    880Thereafter
    
    
    10,45831,448Less amounts representing interest
    
    
    10,061Present value of net minimum lease payments
    
    
    21,387Current portion
    
    
    8,525$
    12,862
 5. Income Taxes
  December 31,2005
    
    
    2004
    
    
    2003Current
    
    $
    23,443
    
    
    $
    5,843
    
    
    $
    5,284Deferred
    
    
    3,315
    
    
    
    14,276
    
    
    
    9,722Provision for income taxes
    
    $
    26,758
    
    
    $
    20,119
    
    
    $
    15,006
 51




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
  December 31,2005
    
    
    2004
    
    
    2003Income taxes computed at federal statutory rate
    
    $
    23,790
    
    
    $
    17,159
    
    
    $
    12,464State taxes, net of federal benefit
    
    
    3,495
    
    
    
    2,882
    
    
    
    2,095Other, net
    
    
    (527
    )
    
    
    78
    
    
    
    447$
    26,758
    
    
    $
    20,119
    
    
    $
    15,006
  December 31,2005
    
    
    2004Current deferred income tax assets:Deferred revenue, net of related deferred costs
    
    $
    
    
    
    $
    673Other, net
    
    
    
    
    
    
    924$
    
    
    
    $
    1,597Noncurrent deferred income tax liabilities:Property and equipment
    
    $
    (34,379
    )
    
    $
    (33,167
    )Accrued rent expense
    
    
    1,741
    
    
    
    1,508Internally developed software
    
    
    (1,878
    )
    
    
    (2,123
    )Other, net
    
    
    (903
    )
    
    
    81$
    (35,419
    )
    
    $
    (33,701
    )
  6. Initial Public Offering and Capital Stock
  52




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
   7. Stock Plans
    53




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##### Table of Contents



LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
  Restricted
    
    Range of MarketShares
    
    Price Per ShareOutstanding
    
    on Grant DateBalance  December 31, 2003
    
    
    
    
    
    
    Granted
    
    
    7,028
    
    
    $
    26.23Balance  December 31, 2004
    
    
    7,028
    
    
    
    26.23Granted
    
    
    80,243
    
    
    
    24.75-33.14Vested
    
    
    (3,637
    )
    
    
    25.47-26.23Balance  December 31, 2005
    
    
    83,634
    
    
    $
    24.75-33.14
  WeightedRange of
    
    Average FairOptions
    
    Exercise Price
    
    Value of Options
    
    Exercisable atOutstanding
    
    Per Share
    
    Granted
    
    Year EndBalance  December 31, 2002
    
    
    2,692,000
    
    
    $
    0.75-8.00
    
    
    
    
    
    
    
    1,333,900Granted
    
    
    636,500
    
    
    
    8.00-12.00
    
    
    $
    4.15Exercised
    
    
    (192,750
    )
    
    
    0.75-8.00Canceled
    
    
    (104,275
    )
    
    
    8.00Balance  December 31, 2003
    
    
    3,031,475
    
    
    
    1.25-12.00
    
    
    
    
    
    
    
    1,345,550Granted
    
    
    1,096,334
    
    
    
    18.50-24.91
    
    
    $
    9.74Exercised
    
    
    (233,801
    )
    
    
    1.25-12.00Canceled
    
    
    (62,900
    )
    
    
    8.00-12.00Balance  December 31, 2004
    
    
    3,831,108
    
    
    
    1.25-24.91
    
    
    
    
    
    
    
    2,024,374Granted
    
    
    758,900
    
    
    
    25.47-38.20
    
    
    $
    12.68Exercised
    
    
    (1,699,014
    )
    
    
    1.25-24.91Canceled
    
    
    (133,328
    )
    
    
    8.00-25.47Balance  December 31, 2005
    
    
    2,757,666
    
    
    $
    1.25-38.20
    
    
    
    
    
    
    
    1,105,303
  WeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageNumber
    
    Contractual
    
    Exercise
    
    Number
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    Life (Years)
    
    Price
    
    Exercisable
    
    Price$1.25 to $4.00
    
    
    172,500
    
    
    
    2.25
    
    
    $
    2.09
    
    
    
    172,500
    
    
    $
    2.09$8.00 to $12.00
    
    
    832,550
    
    
    
    6.66
    
    
    
    8.84
    
    
    
    415,950
    
    
    
    8.62$18.50 to $23.25
    
    
    1,010,716
    
    
    
    8.51
    
    
    
    18.88
    
    
    
    516,853
    
    
    
    18.90$25.47 to $38.20
    
    
    741,900
    
    
    
    9.31
    
    
    
    27.10
    
    
    
    
    
    
    
    $1.25 to $38.20
    
    
    2,757,666
    
    
    
    8.51
    
    
    $
    17.01
    
    
    
    1,105,303
    
    
    $
    12.41
 54
    Table of Contents   LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
  8. Operating Segments
  55




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
  Centers
    
    
    All Other
    
    
    ConsolidatedSegment reporting:Year ended December 31, 2005:Revenue
    
    $
    381,040
    
    
    $
    9,076
    
    
    $
    390,116Net income (loss)
    
    $
    46,609
    
    
    $
    (5,396
    )
    
    $
    41,213Provision (benefit) for income taxes
    
    
    30,507
    
    
    
    (3,749
    )
    
    
    26,758Interest expense, net
    
    
    12,288
    
    
    
    1,788
    
    
    
    14,076Depreciation and amortization
    
    
    32,027
    
    
    
    6,319
    
    
    
    38,346EBITDA
    
    $
    121,431
    
    
    $
    (1,038
    )
    
    $
    120,393Total assets
    
    $
    634,789
    
    
    $
    88,671
    
    
    $
    723,460Year ended December 31, 2004:Revenue
    
    $
    300,084
    
    
    $
    11,949
    
    
    $
    312,033Net income (loss)
    
    $
    35,793
    
    
    $
    (6,885
    )
    
    $
    28,908Provision (benefit) for income taxes
    
    
    24,904
    
    
    
    (4,785
    )
    
    
    20,119Interest expense, net
    
    
    15,760
    
    
    
    1,813
    
    
    
    17,573Depreciation and amortization
    
    
    24,026
    
    
    
    5,629
    
    
    
    29,655EBITDA
    
    $
    100,483
    
    
    $
    (4,228
    )
    
    $
    96,255Total assets
    
    $
    486,975
    
    
    $
    85,112
    
    
    $
    572,087Year ended December 31, 2003:Revenue
    
    $
    246,427
    
    
    $
    10,515
    
    
    $
    256,942Net income (loss)
    
    $
    26,029
    
    
    $
    (5,424
    )
    
    $
    20,605Provision (benefit) for income taxes
    
    
    18,776
    
    
    
    (3,770
    )
    
    
    15,006Interest expense, net
    
    
    17,501
    
    
    
    1,631
    
    
    
    19,132Depreciation and amortization
    
    
    20,688
    
    
    
    4,576
    
    
    
    25,264EBITDA
    
    $
    82,994
    
    
    $
    (2,987
    )
    
    $
    80,007Total assets
    
    $
    368,330
    
    
    $
    85,016
    
    
    $
    453,346
 56




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
 9. Commitments and Contingencies
 Lease Commitments
 2006
    
    $
    8,6432007
    
    
    8,4102008
    
    
    7,7302009
    
    
    7,8812010
    
    
    7,802Thereafter
    
    
    100,648$
    141,114
   Litigation
 401(k) Savings and Investment Plan
 10. Related Party Transactions
   57




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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
      11. Quarterly Financial Data (Unaudited)
  2005
    
    20041st
    
    2nd
    
    3rd
    
    4th
    
    1st
    
    2nd
    
    3rd
    
    4thQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter(In thousands, except for per share data)Total revenues
    
    $
    89,328
    
    
    $
    95,607
    
    
    $
    101,612
    
    
    $
    103,569
    
    
    $
    74,170
    
    
    $
    76,589
    
    
    $
    79,185
    
    
    $
    82,089Income from operations
    
    
    17,303
    
    
    
    20,414
    
    
    
    21,175
    
    
    
    22,050
    
    
    
    13,983
    
    
    
    16,386
    
    
    
    17,390
    
    
    
    17,807Net income
    
    
    8,121
    
    
    
    10,287
    
    
    
    10,737
    
    
    
    12,068
    
    
    
    5,647
    
    
    
    7,211
    
    
    
    7,904
    
    
    
    8,146Net income applicable to
common shareholders
    
    
    8,121
    
    
    
    10,287
    
    
    
    10,737
    
    
    
    12,068
    
    
    
    3,910
    
    
    
    5,474
    
    
    
    7,809
    
    
    
    8,146Earnings per share (1)Basic
    
    $
    0.24
    
    
    $
    0.30
    
    
    $
    0.31
    
    
    $
    0.34
    
    
    $
    0.24
    
    
    $
    0.34
    
    
    $
    0.24
    
    
    $
    0.24Diluted
    
    
    0.23
    
    
    
    0.28
    
    
    
    0.29
    
    
    
    0.33
    
    
    
    0.19
    
    
    
    0.25
    
    
    
    0.22
    
    
    
    0.23
 
 (1)
    
    See Note 2 for discussion on the computation of earnings per share. 58




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
    59




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Managements Annual Report on
Internal Control Over Financial Reporting
         60




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Quarterly Results (Unaudited)
   2005
    
    20041st
    
    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
    
    $
    89,328
    
    
    $
    95,607
    
    
    $
    101,612
    
    
    $
    103,569
    
    
    $
    74,170
    
    
    $
    76,589
    
    
    $
    79,185
    
    
    $
    82,089Income from operations
    
    
    17,303
    
    
    
    20,414
    
    
    
    21,175
    
    
    
    22,050
    
    
    
    13,983
    
    
    
    16,386
    
    
    
    17,390
    
    
    
    17,807Net income
    
    
    8,121
    
    
    
    10,287
    
    
    
    10,737
    
    
    
    12,068
    
    
    
    5,647
    
    
    
    7,211
    
    
    
    7,904
    
    
    
    8,146Net income applicable to common
shareholders
    
    
    8,121
    
    
    
    10,287
    
    
    
    10,737
    
    
    
    12,068
    
    
    
    3,910
    
    
    
    5,474
    
    
    
    7,809
    
    
    
    8,146Earnings per shareBasic
    
    $
    0.24
    
    
    $
    0.30
    
    
    $
    0.31
    
    
    $
    0.34
    
    
    $
    0.24
    
    
    $
    0.34
    
    
    $
    0.24
    
    
    $
    0.24Diluted
    
    
    0.23
    
    
    
    0.28
    
    
    
    0.29
    
    
    
    0.33
    
    
    
    0.19
    
    
    
    0.25
    
    
    
    0.22
    
    
    
    0.23Cash Flow Data:Net cash provided by (used in):Operating activities
    
    
    25,001
    
    
    
    29,035
    
    
    
    26,066
    
    
    
    27,850
    
    
    $
    20,783
    
    
    $
    15,576
    
    
    $
    15,653
    
    
    $
    28,419Investing activities
    
    
    (33,164
    )
    
    
    (33,774
    )
    
    
    (48,905
    )
    
    
    (65,007
    )
    
    
    (19,532
    )
    
    
    (31,411
    )
    
    
    (44,670
    )
    
    
    (50,467
    )Financing activities
    
    
    2,001
    
    
    
    1,036
    
    
    
    23,416
    
    
    
    40,914
    
    
    
    (17,390
    )
    
    
    13,954
    
    
    
    45,600
    
    
    
    15,250EBITDA (1)
    
    $
    26,324
    
    
    $
    29,870
    
    
    $
    31,553
    
    
    $
    32,646
    
    
    $
    21,183
    
    
    $
    23,624
    
    
    $
    25,136
    
    
    $
    26,312Centers open at end of quarter
(2)
    
    
    40
    
    
    
    41
    
    
    
    44
    
    
    
    46
    
    
    
    33
    
    
    
    34
    
    
    
    35
    
    
    
    39
 
 (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.(2)
    
    The data being presented include the center owned by Bloomingdale LLC. 61




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2005
    
    
    20041st
    
    
    2nd
    
    
    3rd
    
    
    4th
    
    
    1st
    
    
    2nd
    
    
    3rd
    
    
    4thQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(In thousands)Net income
    
    $
    8,121
    
    
    $
    10,287
    
    
    $
    10,737
    
    
    $
    12,068
    
    
    $
    5,647
    
    
    $
    7,211
    
    
    $
    7,904
    
    
    $
    8,146Interest expense, net
    
    
    3,826
    
    
    
    3,243
    
    
    
    3,278
    
    
    
    3,729
    
    
    
    4,612
    
    
    
    4,449
    
    
    
    4,285
    
    
    
    4,227Provision for income
taxes
    
    
    5,643
    
    
    
    7,150
    
    
    
    7,443
    
    
    
    6,522
    
    
    
    3,977
    
    
    
    4,993
    
    
    
    5,458
    
    
    
    5,691Depreciation and
amortization
    
    
    8,734
    
    
    
    9,190
    
    
    
    10,095
    
    
    
    10,327
    
    
    
    6,947
    
    
    
    6,971
    
    
    
    7,489
    
    
    
    8,248EBITDA
    
    $
    26,324
    
    
    $
    29,870
    
    
    $
    31,553
    
    
    $
    32,646
    
    
    $
    21,183
    
    
    $
    23,624
    
    
    $
    25,136
    
    
    $
    26,312
 62




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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Disclosure Controls and Procedures .
 Managements Annual Report on Internal Control Over Financial Reporting.
 
    
    Pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
    
    Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and
    
    Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a material effect
on the financial statements.
  
  Changes in Internal Control Over Financial Reporting.
 
 Item 9B. Other Information.
  63




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PART III
  
 Item 10. Directors and Executive Officers of the Registrant.
   Name
    
    Age
    
    PositionBahram Akradi
    
    
    44
    
    
    Chairman of the Board of Directors, President and
Chief Executive OfficerMichael J. Gerend
    
    
    41
    
    
    Executive Vice President and Chief Operating OfficerMichael R. Robinson
    
    
    46
    
    
    Executive Vice President and Chief Financial OfficerEric J. Buss
    
    
    39
    
    
    Executive Vice President, General Counsel and
SecretaryMark L. Zaebst
    
    
    46
    
    
    Executive Vice PresidentStephen F. Rowland, Jr
    
    
    46
    
    
    President, FCA Construction Company, LLC
 Bahram Akradi
 Michael J. Gerend
 Michael R. Robinson
 64




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Eric J. Buss
 Mark L. Zaebst
 Stephen F. Rowland, Jr.
 
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
  
 Item 13. Certain Relationships and Related Transactions.
  
 Item 14. Principal Accountant Fees and Services.
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
  
 
 65




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##### Table of Contents



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
    
    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, 2004.10.4
    
    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, 2004.10.5
    
    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, 2004.10.6
    
    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
10.19 to the
Registrants
Registration
Statement of Form
S-1 (File No.
333-113764), filed
with the Commission
on March 19, 2004.10.7
    
    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, 2004.10.8
    
    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, 2004.10.9
    
    Schedule of terms to Form of Second Mortgage,
Assignment of Leases and Rents, Security
Agreement and Fixture Filing Statement made
for the benefit of
    
    Incorporated by reference to Exhibit 10.22
to the Registrants Registration
Statement of Form S-1 (File No. 333-113764), filed
with
 66




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##### Table of Contents



ExhibitNo.
    
    Description
    
    Method of FilingTeachers Insurance and
Annuity Association of America.
    
    the Commission
on March 19, 2004.10.10
    
    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, 2004.10.11
    
    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, 2004.10.12
    
    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, 2004.10.13
    
    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, 2004.10.14
    
    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, 2004.10.15
    
    Operating Agreement of Life Time, 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, 2004.10.16#
    
    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, 2004.10.17#
    
    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, 2004.10.18
    
    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).10.19#
    
    Form of Incentive Stock Option for 2004
Long-Term Incentive Plan.
    
    Filed Electronically.10.20#
    
    Form of Non-Incentive Stock Option Agreement
for 2004 Long-Term Incentive Plan.
    
    Filed Electronically.10.21#
    
    Summary of Non-Employee Director Compensation.
    
    Incorporated by
reference to Exhibit
10.1 to the
Registrants Form
8-K dated February
15, 2005 (File No.
001-32230).10.22#
    
    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).10.23
    
    Credit Agreement, dated as of April 15, 2005,
among the Company, U.S. Bank National
Association, as
    
    Incorporated by reference to Exhibit
10.1 to the Registrants Form
8-K dated April 15,
 67




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##### Table of Contents



ExhibitNo.
    
    Description
    
    Method of Filingadministrative agent and lead
arranger, J.P. Morgan Securities, Inc., as
syndication agent, and the banks party thereto
from time to time.
    
    2005 (File No.
001-32230).10.24
    
    Security Agreement, dated as of April 15,
2005, among the Company and U.S. Bank National
Association, as administrative agent.
    
    Incorporated by
reference to Exhibit
10.2 to the
Registrants Form
8-K dated April 15,
2005 (File No.
001-32230).10.25
    
    Amendment No. 1 to Credit Agreement and
Consent, dated as of September 30, 2005, among
the Company, U.S. Bank National Association,
as administrative agent and lead arranger,
J.P. Morgan Securities, Inc., as syndication
agent, and the banks party thereto from time
to time.
    
    Incorporated by
reference to Exhibit
10.1 to the
Registrants Form
10-Q for the quarter
ended September 30,
2005 (File No.
001-32230).10.26
    
    Form of Restricted Stock Agreement (Employee)
for 2004 Long-Term Incentive Plan.
    
    Filed Electronically.10.27
    
    Form of Restricted Stock Agreement
(Non-Employee Director) for 2004 Long-Term
Incentive Plan
    
    Filed Electronically.21
    
    Subsidiaries of the Registrant.
    
    Filed Electronically.23
    
    Consent of Deloitte & Touche LLP.
    
    Filed Electronically.24
    
    Powers of Attorney.
    
    Filed Electronically.31.1
    
    Rule 13a-14(a)/15d-14(a) Certification by
Principal Executive Officer.
    
    Filed Electronically.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification by
Principal Financial Officer.
    
    Filed Electronically.32
    
    Section 1350 Certifications.
    
    Filed Electronically.
 
 #
    
    Management contract, compensatory plan or arrangement required to be filed as an exhibit to
this Annual Report on Form 10-K. 68




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##### Table of Contents



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