10-K 1 ltm201410k.htm 10-K LTM 2014 10K
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
R
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-32230
Life Time Fitness, Inc.
(Exact name of Registrant as specified in its charter)
Minnesota
(State or other jurisdiction of incorporation or organization)
41-1689746
(I.R.S. Employer Identification No.)
2902 Corporate Place
Chanhassen, Minnesota
(Address of principal executive offices)
55317
(Zip Code)
Registrant's telephone number, including area code: (952) 947-0000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, $.02 par value
 
New York Stock Exchange
Preferred Share Purchase Rights
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes R No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No R
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes R No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. R
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer R
Accelerated filer o
Non-accelerated filer o                      (do not check if smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No R
The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2014 was $1,779,437,157, based on the closing sale price for the registrant’s common stock on that date.
The number of shares outstanding of the registrant's common stock as of February 19, 2015 was 39,014,939.
DOCUMENTS INCORPORATED BY REFERENCE
Document
 
Incorporated as to
Proxy Statement for the 2015 Annual Meeting of Shareholders
 
Part II, Item 5 and Part III
 



TABLE OF CONTENTS

 
Page
 
 
 
 
 
 




FORWARD-LOOKING STATEMENTS
This Annual Report contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can usually be identified by the use of terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “evolve,” “expect,” “forecast,” “intend,” “looking ahead,” “may,” “opinion,” “plan,” “possible,” “potential,” “project,” “should,” “will” and similar words or expressions. Forward-looking statements are subject to certain risks and uncertainties that could cause the Company's actual results in the future to differ materially from its historical results and those presently anticipated or projected. Among these factors are attracting and retaining members, risks related to our debt levels and debt covenants, the ability to access our existing credit facility and obtain additional financing, strains on our business from continued and future growth, including potential acquisitions and other strategic initiatives, risks related to maintenance and security of our data, potential recognition of compensation expense related to performance-based stock grants, competition from other health and fitness centers, identifying and acquiring suitable sites for new centers, delays in opening new centers, unanticipated expenses relating to regulatory matters or litigation, the ability to convert our real estate assets into a REIT, the potential advantages, benefits and impact of, and opportunities created by, converting our real estate assets into a REIT, including potential tax benefits, and other factors set forth in Part I, Section 1A of this Annual Report entitled “Risk Factors.” Consequently, no forward-looking statement can be guaranteed and actual results may vary materially.
We intend to take advantage of the protective provisions of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding our forward-looking statements. We caution investors not to place undue reliance on any such forward-looking statements, which speak only as of the date on which such statements were made. We undertake no obligation to update such statements to reflect events or circumstances arising after such date.
PART I

Item 1. Business.
Company Overview
Life Time Fitness, Inc. ("Life Time") is The Healthy Way of Life Company. We help organizations, communities and individuals achieve their total health objectives, athletic aspirations and fitness goals by engaging in their areas of interest, or discovering new passions, both inside and outside of Life Time's distinctive, resort-like sports, professional fitness, family recreation and spa destinations, most of which operate 24 hours a day, seven days a week. Our Healthy Way of Life approach enables our customers to achieve success by providing the best places, people and programs of exceptional quality and value. As of March 2, 2015, we operated 113 centers under the LIFE TIME FITNESS® and LIFE TIME ATHLETIC® brands primarily in suburban locations in 32 major markets in the United States and Canada.
We believe our centers provide a desirable and unique experience for our members, resulting in a high number of memberships per center. We directly operate and manage all of our centers both to optimize and deliver the high-quality member experience we expect. Of our 113 centers, we consider 92 to be of our large format design. Among these 92 centers, we consider 67 to be of our current model design. Although the size and design of our centers may vary, our business strategy, member-focused approach and core operating processes generally remain consistent across our centers. Our current model centers target 6,500 to 10,500 memberships by offering, on average, 114,000 square feet of multi-use sports and athletic, professional fitness, family recreation, spa amenities and programs and services in a resort-like environment.
The breadth of our programs allows us to help members achieve their goals while connecting and engaging them in their areas of passion. By offering best-in-class programming - both inside and outside of our centers - along with a trained and certified team of Life Time employees who lead each program, we help members achieve their goals. Life Time programs include a wide range of interest areas, such as group fitness, yoga, swimming, running, racquetball, squash, tennis, Pilates, martial arts, kids activities and camps, adult activities and leagues, rock

1


climbing, cycling, basketball, personal training, weight loss and nutrition initiatives, spa, medi-spa and chiropractic services. Life Time program offerings may vary by location.
Our offerings also include our proprietary line of nutritional products and supplements, and our award-winning magazine, Experience Life®. We also operate an Athletic Events division, which offers more than 75 events each year, including running, cycling and triathlon events from entry-level to ultra-endurance. Additionally, we offer a portfolio of health programs and assessments to members at our centers as well as employees of corporate clients, along with partnerships with health insurance companies, with the goal of further extending our Healthy Way of Life products, programs, services and brand.
Our corporate headquarters are located at 2902 Corporate Place, Chanhassen, Minnesota 55317, and our telephone number is (952) 947-0000. Our principal website is lifetimefitness.com. The information contained on our websites is not a part of this annual report.
Our History
Our Chairman, President and Chief Executive Officer, Bahram Akradi, opened the first Life Time Fitness center in 1992 with an unwavering commitment to our members and their experiences with us. From the design of our centers, to the amenities and services we provide, to the sheer breadth of programming and events we deliver, everything we do is driven from the member point of view. For example, our company has never required long-term member contracts, instead preferring to offer month-to-month agreements that provide members flexibility, while maintaining clear focus on delivering unparalleled programs and value in an effort to earn their business each and every day.
At Life Time, our mission is clear. We provide an educational, entertaining, friendly and inviting, functional and innovative experience that meets the health and fitness needs of the entire family. Over the course of more than two decades, Life Time has raised the standards in the health club industry significantly while also pioneering the creation of a new comprehensive health and wellness industry we call Healthy Way of Life. Through this, we aim to deliver best-in-class programs that help organizations, communities and individuals achieve their total health objectives, athletic aspirations and fitness goals by engaging in their areas of passion. Life Time is well positioned to help them do so by providing the best programs, best people and best places to deliver exceptional experiences, quality and value.
We were incorporated in 1990 as a Minnesota corporation under the name FCA, Ltd., and subsequently registered to use the name of Life Time Fitness in 1992. We then officially changed our corporate name to Life Time Fitness, Inc. in 1998. In 2004, we completed our initial public offering. Our stock is listed on the New York Stock Exchange (Ticker: LTM).
Our Competitive Strengths
We offer comprehensive programs and services.
The breadth of our programs allows us to connect and engage members in their areas of passion. Unlike many traditional health clubs or gyms, which typically offer little more than rooms with equipment, most Life Time destinations offer an expansive selection of premium amenities and services; comprehensive programming with dedicated spaces; a large team of certified professionals, service and operations employees; and hundreds of pieces of best-in-class cardiovascular and resistance equipment and free-weights. Many of the premium amenities and services are included in the standard membership dues.
We offer a value proposition that encourages membership loyalty.
The broad range of amenities, programs and services we offer exceeds that of most other health and fitness center alternatives available to consumers. We offer different types of membership plans for individuals, couples and families including Access and Non-Access memberships. Our Non-Access membership option is for members who do not access the center, but still want to maintain certain member benefits. Our typical monthly Access membership dues range from $45 to $160 per month for an individual membership and from $75 to $340 per month for a couple

2


or family membership. Our typical Non-Access dues are $10 to $20 per month for an individual, couple or family membership. The majority of our memberships include the primary member’s children under the age of 12 at a modest per child monthly cost. In addition, for children under the age of 12, we offer Life Time Kids Academy, at select locations, which includes more in-depth, skills-based programming focused on activity, learning and fitness. At December 31, 2014, this program was in 20 clubs, and offers monthly dues between $20 and $90 per month. We provide the majority of our members with a variety of services with their membership, including group fitness classes and fitness assessments, towel and locker service and an online subscription to our award-winning magazine, Experience Life®. Our membership plans include initial 14-day money back guarantees and are month-to-month, cancelable by giving up to 60 days advance notice. We believe our value proposition and member-focused approach creates loyalty among our members.
We offer a product that is convenient for our members.
Our centers generally are situated in easily accessible areas and centrally located among the residential, business and shopping districts of the surrounding community. Many members have access to more than one center in markets where we operate more than one location, as well as across our network of centers in the U.S. and Canada. We design, build and operate our centers to accommodate a large and active membership base by generally providing access to the centers 24 hours a day, seven days a week. In addition, we provide sufficient parking spaces, lockers and equipment to allow our members to use our centers with little or no waiting time, even at peak hours and when centers are at targeted capacity. Our child center services are available to the majority of our members for a modest monthly fee per child for up to two hours per day. Most of our centers offer the convenience of spa and café services.
We have an established and profitable economic model.
Our center-level economic model has been regularly refined and is both based and dependent on driving membership growth by ramping memberships and optimizing membership mix and pricing after a new center is opened, as well as retaining the dues stream and maintaining tight expense control once the center matures. Since our first center opened in 1992, we have opened and operated over 100 centers, each of which utilizes this economic model. In 2014, this economic model resulted in revenue growth of 7.0%, with revenue of $1.3 billion and EBITDA growth of 6.4%, with EBITDA of $374.3 million and an EBITDA margin of 29.0%. EBITDA is a non-GAAP, non-cash measure which consists of net income plus interest expense, net, provision for income taxes and depreciation and amortization. Additional details related to EBITDA are provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures.”
We have a disciplined and sophisticated site selection and development process.
We have developed a disciplined and sophisticated process to evaluate metropolitan markets in which to build or lease new centers, as well as evaluate specific sites for potential centers within those markets. This multi-step process is based upon applying our proven successful experience and analysis generated from profiles of our existing centers to the market's potential base, including physical geography, drive patterns, demographics, cultural and competitive information. We continue to modify the analysis based upon the performance of our centers including newer centers as they mature. A formal business plan is developed for each proposed new center and the plan must pass multiple stages of approval by our management team and the Finance Committee of the Board of Directors. By utilizing a wholly owned construction subsidiary, LTF Construction Company, LLC (“Life Time Construction”) that builds and remodels our centers as well as an in-house architectural team that designs and produces construction drawings, we maintain maximum flexibility over the design process of our centers as well as control over the cost and timing of the construction process.

3


Our Growth Strategy
Our growth strategy is driven by three primary elements:
Build and acquire new centers.
We intend to expand our base of centers, primarily through new center development as well as opportunistic acquisition. Our new center expansion will focus on strategic locations which we believe will generate higher average dues, higher in-center revenue per membership and higher revenue per square foot. These locations typically represent our Life Time Athletic centers, which include our Onyx and Diamond membership plans. In 2014, we opened six large format centers that we designed and constructed, all of which are Life Time Athletic centers. We expect to open six centers in 2015, five of which are Life Time Athletic centers and all of which are currently under construction. A rollforward of our center growth is as follows:
 
For the Year Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
Total centers, beginning of year
108

 
105

 
101

 
89

 
84

New centers – constructed
6

 
3

 
3

 
3

 
3

New centers – remodel of existing space

 

 

 

 
2

Acquired centers (1)

 

 
1

 
9

 
1

Closed centers (2)
(1
)
 

 

 

 
(1
)
Total centers, end of year
113

 
108

 
105

 
101

 
89

(1) In 2012, we acquired the Racquet Club of the South, a tennis facility in the Atlanta market, which we rebranded as Life Time Athletic Peachtree Corners. In 2011, we acquired nine centers from Lifestyle Family Fitness ("LFF") in Indiana, North Carolina and Ohio. In 2010, we acquired one center in Texas.
(2) In 2014, we closed one small, leased Minneapolis center and transferred all member programming and equipment to our other Minneapolis centers. In 2010, the lease expired on our 85,630 square foot center in St. Paul, Minnesota which opened in 1997. We closed the center and transferred its memberships to our surrounding locations.
Grow membership dues and in-center revenue.
We focus on growing our membership dues through membership retention and loyalty, optimizing dues through price and mix, and adding new memberships. We expect to continue driving in-center revenue both by introducing new products and services and by expanding our marketing and affinity programs to introduce more members to our products and services.
Grow membership dues. We focus on growing our membership dues through member retention and loyalty initiatives. We focus on optimizing our membership dues through price increases and by improving the mix of our memberships. Our membership dues mix can be improved by increasing the number of members covered under a membership (for instance, an individual to a couple membership, or a couple to a family membership). A member may also upgrade a membership to a higher plan level (for example, from Gold to Platinum).
In order to achieve and maintain our membership and dues goals, we focus on membership retention, demographics, center usage and membership trends, and employ marketing programs to effectively communicate our value proposition to existing and prospective members. We also offer a subscription option, referred to as a Non-Access membership, for members who do not access the center, but still want to maintain certain member benefits.
Grow in-center revenue. In 2014, revenue from the sale of in-center products, programming and services grew $35.4 million, or 9.4%, to $411.0 million and we increased in-center revenue per membership from $545 to $597. Our programming and services include personal training, spa, café and other member offerings. We focus on growing in-

4


center revenues by getting more members involved in or using our current product and service portfolio, continually introducing new products and services and by marketing our in-center businesses.
Grow ancillary businesses revenue.
Our ancillary businesses include athletic events, media and health programs. These businesses help build the LIFE TIME FITNESS® brand, differentiate our program offerings and support our membership base.
We produce athletic events for members and non-members, both inside and outside our centers. The primary focus has been on endurance activities, including running, cycling and triathlon. Our events range from entry level to ultra endurance events and draw from local, regional, national and international markets. We also acquired and operate a race registration and timing business.
Through our media business, we provide our partners with reach to sought-after consumers through a range of print and digital media, including our award-winning Experience Life® magazine and event sponsorships.
Our health and weight loss programs are expanding as we seek to serve both businesses and individuals with an array of differentiated health, wellness, fitness, weight loss and nutrition solutions. As we do so, we also are creating opportunities to expand the reach of our destinations, programs and services to new members while also growing our subscription-based model to include new types of memberships with limited or no regular center access.
Revenue from ancillary businesses grew $7.1 million, or 14.4%, to $56.7 million, which was due primarily to our January 2014 acquisition of several major-market athletic events.
Our Centers
Size and Location
Our centers have evolved since inception. All centers are centrally located in areas that offer convenient access from residential, business and shopping districts of the surrounding community, and generally provide free and ample parking.
Of our 113 centers as of December 31, 2014, 92 are of our large format design and 67 of those conform to our current model center design. Our distinctive format is designed to provide efficient and inviting spaces that are conducive to the wide range of healthy way of life programming we deliver and that accommodate each center’s targeted capacity. Our current model centers generally target 6,500 to 10,500 memberships and our other large format centers generally target 3,500 to 10,500 memberships. This targeted capacity is designed to maximize the member experience based upon our historical understanding of membership usage, facility layout, the number of individual, couple and family memberships and pricing.
Generally, the main differences between our large format centers and those that are of the current model design are that our current model centers generally include an outdoor aquatics park, larger indoor aquatics area, larger gymnasium, up to three additional studios and enhanced spa and café spaces. We believe that all of our large format centers serve as all-in-one sports and athletic, professional fitness, family recreation and spa destinations. The following table provides the number and average square footage of our large format centers:
 
As of December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
Large format centers – current model
 
 
 
 
 
 
 
 
 
Number of centers    
67

 
63

 
60

 
57

 
54

Average square feet    
114,000

 
114,000

 
114,000

 
113,000

 
113,000

Large format centers – other
 
 
 
 
 
 
 
 
 
Number of centers    
25

 
24

 
24

 
24

 
24

Average square feet    
95,000

 
95,000

 
95,000

 
95,000

 
95,000


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Center Environment
Our centers generally combine modern architecture and decor with best-in-class amenities. Most of our current model and large format centers are freestanding buildings designed with open architecture and naturally illuminated atriums that create a spacious, inviting atmosphere. With finishes such as limestone floors, wood lockers and granite countertops, our centers are carefully designed to create an appealing and luxurious environment that attracts and retains members and encourages them to visit the center. Moreover, we have specific staff members who are responsible for maintaining the cleanliness of the entire center. We regularly update and refurbish our centers to maintain a high-quality experience. Our commitment to quality and detail provides a similar look and feel at each of our large format centers.
The table below displays the wide assortment of amenities, services, activities and events typically found at our large format centers, including our current model centers:
Amenities
 
Services
 
Activities and Events
Cardiovascular Equipment
 
24-Hour Availability
 
Aquatics
Free Weight and Resistance Equipment
 
Towel Service
 
Athletic Leagues
Group Fitness Studios
 
Locker Service
 
Kids' Birthday Parties
Studio Cycle Theaters
 
Experience Life® Magazine
 
Martial Arts
LifePowerSM Studio
 
Massage Therapy
 
Kids’ Academy
Basketball/Volleyball Courts
 
Health and Fitness Assessments
 
Pilates
Racquetball/Squash Courts
 
Personal Training
 
Group Fitness Classes
Lap Pool and Whirlpool Spas
 
T.E.A.M. Programs
 
Studio Cycling
Zero-depth Entry Swimming Pools
 
Weight Loss Programs
 
Sports Training Camps
Two-story Waterslides
 
Nutritional Products
 
Summer and Vacation Camps
Saunas
 
Nutrition Coaching
 
Swimming Lessons
Rock Climbing Cavern
 
Endurance Coaching
 
Yoga
Child Center
 
Member Advantage
 
Dance Classes
LifeSpa and Medi-spa
 
myLT.com and Other Online Services
 
Athletic Events
LifeCafe and Pool-side Bistro
 
Chiropractic Services
 
Social Events
Men’s, Women’s and Family
Locker Rooms
 
Cardiovascular and Resistance Training
 
Run, Cycle and Other
Interest-Driven Clubs
Fitness Equipment and Facilities. To help members develop and maintain a healthy way of life, train for athletic events or lose weight, our centers have up to 400 pieces of cardiovascular and resistance training equipment plus free weights. Exercise equipment is arranged in spacious workout areas to allow for easy movement from machine to machine, facilitating a convenient and efficient workout. Equipment in these areas is arranged in long parallel rows that are clearly labeled by muscle group, allowing members to conveniently customize their exercise programs and reduce downtime during their workouts. Due to the large amount of equipment in each center, members rarely have to wait to use a machine. We have in-house technicians who service and maintain our equipment. In addition, we have large-screen televisions in several areas of the center.
Our current model centers have large indoor and outdoor recreation pools with zero-depth entrances and water slides, lap pools, saunas, steam baths and whirlpools. A majority of these centers also have at least two regulation-size basketball courts that can be used for various sports activities, as well as other dedicated facilities for group fitness, cycling, rock climbing, racquetball and/or squash. In addition, we have tennis facilities at 22 locations with professional instruction.
Fitness Services for Individuals and Groups. On average, we employ 25 personal trainers in a current model center. Our personal trainers are skilled in assessing and formulating effective individual and group exercise programs. Our personal training program aims to improve the long-term health and fitness of our members and be considered a

6


leader in the industry. To this end, our personal trainers are required to be certified by one of the nationally accredited certification bodies within six months of employment and take a rigorous one-week internal certification program before providing a member service.
We offer many different programs featuring our certified professional personal trainers including:
One-on-One Sessions – We offer sessions in which an individual member meets directly with a personal trainer to help him or her achieve healthy way of life goals, including losing weight, gaining weight/muscle mass, or specific event training.
Group Sessions – We offer small group (two to four members) and large group (typically eight to 12 members) training sessions to help members achieve their healthy way of life goals with others.
Assessments – We offer various health and fitness assessments for a detailed view of total health including metabolic cardiovascular testing, metabolic profile assessments and lab testing.
Weight Loss –We offer weight loss and management programs, such as the Life Time 90-Day Weight Loss Challenge, Transformational Challenge and various other programs as an opportunity for members to receive education, training and motivation that helps them set and achieve their health and fitness goals, and keep their overall health programs on track.
Fitness Programs and Classes. Our centers offer fitness programs, including group fitness classes and health and fitness training seminars on subjects ranging from metabolism to personal nutrition. Each current model center has at least two group fitness studios and makes use of the indoor and outdoor pool areas for classes. These centers also offer yoga and Pilates as well as a studio dedicated to indoor cycling. On average, we offer 85 group fitness classes per week at each current model center, including, for example, indoor cycling, strength training, cardio conditioning, dance, circuit training and yoga classes. These classes are generally included with membership. The volume and variety of activities at each center allows members to enjoy the center, whether participating in personalized activities or with other members in group activities.
LifeCafe. Our large format centers feature an on-site, full-service, chef-driven LifeCafe, which offers an all-natural menu with an abundance of organic, preservative- and cage-free offerings. In keeping with our commitment to provide members with healthy, all-natural food, a broad menu of made-to-order and pre-prepared breakfast, lunch and dinner items offer better ingredients - free of artificial flavors, artificial colors, artificial preservatives, artificial sweeteners, trans fats and bleached flour. Customers can enjoy the convenience of dining indoors, ordering items to go or selecting pre-made 'grab and go' meals. Additionally, they may take advantage of our outdoor poolside bistro at each of our current model centers and certain of our other large format centers. LifeCafes also typically offer our line of nutritional products and supplements, third-party nutritional products, exercise accessories and personal care products.
LifeSpa. Our current model centers and almost all of our other large format centers also feature a LifeSpa, which is a full-service salon and spa. Each in-center LifeSpa offers hair, body, skin care and massage therapy services, customized to each client’s individual needs. We also offer medi-spa services in select locations. Each LifeSpa is located in a separate, self-contained area that provides a relaxing and rejuvenating environment.
LifeClinic Chiropractic. In select locations, LifeClinic Chiropractic services are provided by third-party licensed chiropractors. LifeClinic Chiropractic offers an innovative, non-invasive form of soft tissue and joint treatment.
Child Centers. Nearly all of our centers offer on-site child centers for children from three months through 11 years of age as part of a monthly fee per child. Child center services are available for up to two hours per child per day while members use our centers. During this time, children ages one to five years can participate in enrichment programs, such as music, movement and arts and crafts while children ages six to 11 years can participate in Kids Play, which includes gym and rock wall activities. The child center features a computer center, separate infant and toddler playrooms and numerous children's activities. We hire employees that are dedicated to working in the child centers to provide children with an enjoyable experience.

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Additional Programs. All of our large format centers offer a variety of additional programs for children, which may include birthday parties, summer and school break camps, rock wall climbing activities, parents' night out, sports and fitness classes and swimming lessons. For adults, we offer a variety of sports leagues and interest-driven clubs.
Memberships
We define a membership in two ways: Access memberships and Non-Access memberships or other subscriptions. As of December 31, 2014, we had 809,445 memberships, comprised of 683,530 Access memberships and 125,915 Non-Access memberships. As of December 31, 2014, we had 1,464,928 members, an average of 1.8 members per membership.
Access Membership Plans. We offer a variety of convenient month-to-month memberships with no long-term contracts. Our members may pay a one-time joining fee, which includes an initiation fee and an administrative fee, and receive an initial 14-day money back guarantee. In this document, we refer to the total cost to join as an enrollment fee. Within each Access membership, we define a singular membership as one individual, couple or family (for example, a family of three people would be considered one membership). We currently offer five Access membership levels, including Bronze, Gold, Platinum, Onyx and Diamond. Within Access membership levels, a member may purchase full access to only one club or, with an elite membership, access to all clubs at that membership level and below (for example, Platinum membership holders may access all Platinum, Gold and Bronze centers). Depending on the center classification, a member is required to have a minimum membership level (for example, a Platinum-designated center requires a Platinum membership at minimum). A member may hold a higher level membership than the center designation should they want access to additional centers, guest privileges and additional amenities, programs and services. Offered memberships vary by location. Decisions of center designation are made on a center-by-center basis and are dependent on the market presence, demographic nature, population density, initial investment in the center and available services and amenities.
All Access memberships, regardless of level, typically include 24-hour access, locker and towel service, group fitness classes and Member Advantage (an offering that provides discounts on purchases from national and local businesses for Life Time members).
Part of the Access membership plan offering at most centers is a junior membership. Children under the age of 12 qualify for a junior membership, with dues of $10 to $90 per month, depending on the center. The junior membership provides access to the child center, pools and gymnasiums at designated times. In addition, we have added a new offering also for children under the age of 12 – Life Time Kids Academy – which includes more in-depth programming focused on activity, learning, and fitness. At December 31, 2014, this program is in 20 clubs and is priced between $20 and $90 per month. We do not count junior memberships or Life Time Kids Academy memberships as incremental reported memberships since they are already part of the Access membership. We also have occasionally offered other membership plans aimed to attract niche members.
The following table compares our different Access membership plans as of December 31, 2014:
 
Bronze
 
Gold
 
Platinum
 
Onyx
 
Diamond
 
 
 
Fitness,
 
Outstanding
 
Exceptional
 
Premium
 
Value and
 
fun and
 
club
 
service
 
benefits, value
 
affordability
 
relaxation
 
amenities
 
and luxury
 
and privileges
Number of centers
15
 
53
 
13
 
17
 
15
Enrollment fee
$0-105
 
$0-115
 
$0-115
 
$0-145
 
$0-165
Individual dues
$45-55
 
$55-80
 
$80-90
 
$80-120
 
$135-160
Family dues (1)
$95-135
 
$135-170
 
$180-190
 
$170-260
 
$285-340
Center access
All Bronze centers
(15)
 
All Bronze and Gold centers
(68)
 
All Bronze, Gold and Platinum centers
(81)
 
All Bronze, Gold, Platinum and Onyx centers
(98)
 
All centers (113)

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(1) Does not include the cost of junior memberships or Life Time Kids Academy memberships.

From time to time we change a club's designation, for example, from Bronze to Gold. Our clubs by membership type are as follows:
 
December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
Life Time Fitness centers
 
 
 
 
 
 
 
 
 
Bronze
15

 
14

 
18

 
20

 
10

Gold
53

 
55

 
51

 
49

 
51

Platinum
13

 
12

 
16

 
15

 
14

Total Life Time Fitness centers
81

 
81

 
85

 
84

 
75

Life Time Athletic centers
 
 
 
 
 
 
 
 
 
Onyx
17

 
16

 
11

 
9

 
9

Diamond
15

 
11

 
9

 
8

 
5

Total Life Time Athletic centers
32

 
27

 
20

 
17

 
14

Total centers
113

 
108

 
105

 
101

 
89

Non-Access Memberships and Other Subscription Plans. Non-Access memberships are $10 to $20 per month, whether an individual, couple or a family. Non-access members have access to myLT.com, which includes Member Advantage and interest-area content, a subscription to Experience Life® magazine and the ability to resume Access membership without paying enrollment fees. In the future, we may develop and implement other membership or subscription plans that will not have full access to the centers. These types of memberships will be included in this category of Non-Access and other subscription plans.
Usage
Our centers are generally open 24 hours a day, seven days a week. We typically experience the highest level of member activity at a center between 8:00 a.m. to noon and 3:00 p.m. to 8:00 p.m. Our centers are appropriately staffed during peak and non-peak hours to provide each member with a positive experience. We have introduced a number of initiatives focused on getting our members more involved and connected with the goal of higher membership usage and increased member satisfaction. The following table reports our usage statistics:
 
For the Year Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
Total number of visits (in millions)
69.4

 
69.2

 
68.4

 
63.8

 
60.1

Average number of visits to large format centers per month
60,034

 
63,412

 
64,263

 
63,496

 
62,229

Average number of visits to large format centers per year per membership
100

 
100

 
100

 
99

 
98

New Center Site Selection and Construction
Site Selection. Our management devotes significant time and resources to analysis of each prospective site (including both undeveloped land and existing facilities available for lease) on the basis of facts. We look at the physical geography of the site, the highway patterns and drive times, demographics within primary and secondary trade areas as well as cultural and competitive information. We focus mainly on markets that will allow us to operate multiple centers that create certain efficiencies in marketing and branding activities, but we select each site based on whether that site and trade area can support an individual center.

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After we identify a potential site and determine that it is a viable site, we develop a business plan for a center on that site. This requires analysis from several functional areas of management as well as approval from the Finance Committee of our Board of Directors. We believe that our disciplined, structured process reduces the potential for developing a site that the market cannot support.
Design and Construction. Our wholly owned subsidiary, Life Time Construction, provides us with architecture and design services, millwork fabrication and construction management. With approximately 140 employees, this subsidiary is dedicated solely to the design and construction of each new center and the remodel of existing and acquired centers.
We have developed a series of prototypical plans and specifications that can be easily adapted to each specific site. Project architects along with our construction management teams monitor quality and oversee the construction progress throughout the development of each new center.
Life Time Construction's management teams provide on-site supervision, as well as administrative services, such as permitting, purchasing, project accounting and safety administration, for each new site and remodel. The construction management teams qualify subcontractors, bid each component of our projects to ensure cost-effective pricing, and monitor cost progress for the duration of the project. By using similar materials at each center, we not only maintain a consistent look and feel, but we are also able to maximize buying power and leverage economies of scale in purchasing.
Through Life Time Construction we are able to maximize flexibility in the design process, retain control over the cost and timing of the construction process and realize potential cost savings on each project. Nearly all costs are capitalized as a part of the overall initial investment in the new center or the remodel. Any remaining unallocated costs are recognized as an expense in the period incurred. Because this subsidiary performed services solely for us, we have not recognized any revenue or profit related to Life Time Construction's operations.
Marketing and Sales
Overview of Marketing. Our in-house marketing and creative design agency is responsible for promoting and differentiating the Life Time Healthy Way of Life brand so as to attract, connect and engage existing and new customers to our centers, products and services. Our marketing and creative design initiatives focus on our comprehensive, healthy lifestyle-oriented approach of helping people set and achieve their health and fitness goals by participating in activities that interest them - and helping them to identify new areas of passion - both inside and outside of our healthy way of life destinations. In turn, these efforts further engage existing members in our ancillary business areas and generate new consumer leads for our membership sales force. Our in-house marketing and creative design agency integrates four key areas, including member acquisition and retention, media planning and analysis, creative development and production, and web, digital and social media. By delivering centralized marketing and creative design services to our centers and ancillary businesses, we bring proven, experienced, consistent and innovative strategic planning, creative design, member experience and production to our existing and new markets in an efficient and effective manner.
Overview of Sales. We have trained, commissioned member engagement advisors (sales team) in each center who are responsible for member acquisition and retention. Our member engagement advisors are responsible for prospecting potential members, setting up personalized visits and tours of our centers, and highlighting relevant programs, services and amenities that align with expressed member interests and goals. The member engagement advisors inspire action on the part of prospective members to get started on their healthy way of life and ensure they are connected to our programs and professionals. The member engagement advisors also serve as a primary relationship manager for new members through consistent engagement and timely follow up. During the pre-opening and grand opening phases described below, we have up to 12 member engagement managers on staff at a center. As the center matures, we reduce the number of member engagement advisors on staff to between six and eight.
Pre-Opening Phase. We generally begin selling memberships up to five months prior to a center's scheduled opening. We market to prospective members during this period primarily through a portfolio of broad-reach and

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targeted consumer and business-to-business media as well as referral promotions. To further attract new members during this period, we occasionally offer lower pre-opening enrollment fees.
Grand Opening Phase. We deploy a marketing program during the first month of a center's operation that builds on our pre-opening efforts. The campaign culminates with households in a strategically designated trade area - based on local access considerations, housing density and travel patterns - receiving targeted advertising. Simultaneously, new members receive special invitations to post-grand-opening activities designed to assist them in their orientation to the center.
Membership Growth Phase. After the grand opening phase, marketing activities and costs generally decrease as drive-by visibility and word-of-mouth marketing become more influential. The goal of each center is to achieve consistent membership growth until targeted capacity is reached. Once the center has reached its targeted capacity, marketing efforts aim to keep membership levels stable and grow other in-center services. Marketing plans for each center are formulated on an annual basis and reviewed monthly by marketing and center-level sales employees. At monthly intervals, a comprehensive situation analysis is performed and adjustments are implemented, as necessary, to ensure sales and retention objectives are meeting the goals of the center's business plan.
Ongoing Member Retention Phase. When a new member joins, we initiate a comprehensive connectivity and engagement process aimed at helping them to achieve their total health objectives, athletic aspirations and fitness goals by engaging in their areas of passion. We are in the position to help them achieve this by providing the best places, people and programs of exceptional quality and value. We have created dozens of specific interest areas, along with connectivity programs, including, but not limited to, our dedicated member website, myLT.com; our periodic offerings of various athletic and social events; access to national and local Member Advantage discounts; and access to myLT Buck$, a member loyalty or rewards program. We focus on proactive member retention activities that we believe deliver a better member experience and fewer members requesting to cancel their membership.
Leveraging the LIFE TIME Brand
We continue to build our brand nationally and internationally through expansion of our portfolio of centers, by delivering high-quality products and services in the area of athletic events and media and by offering comprehensive health programs that focus on the Healthy Way of Life.
Centers. As of March 2, 2015, we operated 113 centers in 32 major markets in the United States and Canada under the LIFE TIME FITNESS® and LIFE TIME ATHLETIC® brands. Today, we provide consumers with the highest quality, most comprehensive health and fitness destinations featuring a resort-like atmosphere and amenities, and comprehensive health and fitness experience. Each space within our centers is carefully designed to be inviting, functional, innovative and inspiring. Our destinations are complemented by a large, trained and certified team of professionals who uphold a common objective: helping our customers achieve their total health objectives, athletic aspirations and fitness goals. Moreover, we operate some twenty different businesses within our destinations, each deliberately designed to meet all of the sports, health, fitness, recreation and entertainment needs of the most discerning consumer - all under one roof. These boutique-like, interest-driven programs help ensure that our customers are able to achieve success by participating in the activities that match their areas of passion. In both existing and new markets, our centers provide a powerful reinforcement of the unique and differentiated Healthy Way of Life brand, programs, products and services we deliver to individuals, communities and organizations.
Athletic Events and Media. We produce athletic events for members and non-members, both inside and outside our centers. The primary focus has been on endurance activities, including running, cycling and triathlon. In 2014, we produced more than 75 events, serving approximately 200,000 participants. Our events range from entry level to ultra endurance events and draw from local, regional, national and international markets. Our larger events include triathlons such as the New York City Triathlon and the Chicago Triathlon, as well as the iconic Leadville Trail 100® event series. In addition, we own and manage the Life Time Tri Pro Series, which connects seven of the most prominent international distance triathlon events in the United States. We produce events primarily in markets in which we operate centers, including themed runs such as the Torchlight 5K Run, Turkey Day 5K and Commitment

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Day 5KSM. We also produce indoor triathlons in many of our centers, which are geared towards introducing members to the sport of triathlon.
Through our media business, we provide our partners with reach to sought-after consumers through a range of print and digital media, including our award-winning Experience Life® magazine and event sponsorships.
Comprehensive Health Programs. Our health, fitness and weight loss programs are expanding as we seek to serve both businesses and individuals with an array of differentiated health, wellness, fitness, weight loss and nutrition solutions. As we do so, we also are creating opportunities to expand the reach of our destinations, programs and services to new members, while also growing our subscription-based model to include new types of memberships with limited or no regular center access.
Our Employees
Our current model centers are staffed with an average of 250 full-time and part-time employees. Approximately 10 center employees are in management positions, typically including a general manager, member services department head, operations department head, member engagement manager and personal training department head to ensure a well-managed facility and motivated work force.
All center team members are required to participate in a training and certification program that is specifically designed to promote a friendly and inviting environment with each member interaction while upholding a consistent standard of performance across all of our centers. Team members also receive ongoing mentoring and continuing education, and annually a re-certification is required before any team member is permitted to work or to advance to other positions within our company. Additionally, our personal trainers, registered dietitians, massage therapists, group fitness instructors and cosmetologists are required to maintain a professional license or one of their industry’s top certifications.
As of February 19, 2015, we had approximately 24,600 employees, including approximately 17,300 part-time employees. We are not a party to a collective bargaining agreement with any of our employees. Although we experience turnover of non-management employees, historically we have not experienced difficulty in obtaining adequate replacement employees. In general, we believe relations with our employees are good.
Information Systems
In addition to our standard operating and administrative systems, we use an integrated member management system to manage the flow of member information within each of our centers and between centers and our corporate office. We have designed and developed our proprietary system to allow us to easily collect and process information. Our system enables us to, among other things, enroll new members with an electronic membership agreement, capture digital pictures of members for identification purposes and capture and maintain specific member information, including usage. The system allows us to streamline the collection of membership dues electronically, thereby offering additional convenience for our members while at the same time reducing our corporate overhead and accounts receivable. We also have a customer relationship management system to enhance our marketing campaigns and management oversight regarding daily sales and marketing activities.
Competition
We consider the following groups to be the primary industry participants in the health and wellness industry:
health club operators, including 24 Hour Fitness Worldwide, Inc., Equinox Holdings, Inc., LA Fitness International, LLC, Town Sports International, Inc. and Gold's Gym;
the YMCA and similar non-profit organizations;
physical fitness and recreational facilities established by local governments, hospitals and businesses;
local salons, cafés and businesses offering similar ancillary services;

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exercise and small fitness clubs, and studios, including Anytime Fitness, Curves International and Snap Fitness;
racquet, tennis and other athletic clubs;
amenity and condominium clubs;
country clubs;
online personal training and fitness coaching;
the home-use fitness equipment industry;
athletic event operators and related suppliers; and
providers of wellness and other healthy way of life orientated products and services.
The health and wellness industry is highly competitive. While competition in the industry varies from market to market, it may be impacted by various factors, including the breadth and price of membership offerings and other products and services, the flexibility of membership options, the overall quality of the offering, name or brand recognition and economies of scale. We believe that our comprehensive product offering and focus on services, amenities and value provide us with a distinct competitive advantage, positioning us well in the health and wellness industry.
Government Regulation
Our operations and business practices are subject to regulation at federal, state and local levels, including consumer protection regulation related to our advertising, marketing, and sales efforts; health and safety regulation and licensing requirements related to our café, spa, aquatics, child care and ancillary health and fitness-related products and services; and regulation related to the collection, use and security of personal information about our members, guests and purchasers.
With respect to the health and fitness industry specifically, state statutes regulate the sale and terms of our membership contracts. State statutes often require that we:
include certain terms in our membership contracts, including the right to cancel a membership, in most cases, within three to 10 days after joining, and receive a refund of enrollment fees paid;
escrow funds received from pre-opening sales or post a bond or proof of financial responsibility; and
adhere to price or financing limitations.
Financial Information about Geographic Areas
We operate centers and offer other wellness-related offerings in the U.S. and Canada. Our race registration and timing business also has customers outside of the U.S. and Canada. Net sales by geographic area is presented by attributing revenue from our members and customers on the basis of whether the product or services are sold within the U.S. or outside of the U.S. Our revenues from members and customers within the U.S. were $1,268.7 million, $1,183.3 million and $1,111.5 million for the fiscal years ended December 31, 2014, 2013 and 2012, respectively. Our revenues from members and customers in all foreign countries were $21.9 million, $22.6 million and $15.4 million in the aggregate for those same periods. Additionally, we also held net long-term assets within the U.S. of $2,516.0 million, $2,230.3 million and $1,975.6 million at December 31, 2014, 2013 and 2012, respectively, and outside of the U.S. of $56.9 million, $44.6 million and $41.6 million in the aggregate as of December 31, 2014, 2013 and 2012, respectively.
Seasonality of Business
Seasonal trends have an effect on our overall business. Generally, we have experienced greater membership growth at the beginning of the year. We also experience increased membership in certain centers during the summer pool season. During the summer months, we also experience a slight increase in in-center business activity with summer

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programming and operating expenses due to our outdoor aquatics operations. We experience an increased level of membership attrition during the third and fourth quarters as the summer pool season ends and we enter the holiday season. This can lead to a sequential decline in memberships during those quarters.
Trademarks and Trade Names
We own several trademarks and service marks registered with the U.S. Patent and Trademark Office, including, among others, LIFE TIME FITNESS®, LIFE TIME ATHLETIC®, EXPERIENCE LIFE®, MYHEALTHCHECK® and MYHEALTHSCORE®. We have also registered our logo and our LIFE TIME FITNESS Triathlon logo. We also registered the “LIFE TIME FITNESS” mark in certain foreign countries.
We believe our trademarks and trade names have become important components in our marketing and branding strategies. We believe that we have all licenses necessary to conduct our business. In particular, we license the mark “LIFE TIME” in connection with our nutritional products so that we can market and distribute them under the LIFE TIME FITNESS® brand.
Available Information
Our corporate website is lifetimefitness.com. We make available through our website, free of charge, all reports and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”).
Item 1A. Risk Factors.
We may be unable to attract and retain members, which could have a negative effect on our business.
The success of our business depends on our ability to attract and retain members, and we cannot assure you that we will be successful in our marketing efforts or that the membership levels at our centers will not decline, especially at those centers in operation for an extended period of time. All of our members can cancel their membership at any time upon providing advance notice. In addition, we experience attrition and must continually engage existing members and attract new members in order to maintain our membership levels and sales from in-center services. There are numerous factors that could lead to a decline in membership levels or sales of in-center services in mature centers or that could prevent us from increasing membership and in-center service revenue at newer centers where membership is generally not yet at a targeted capacity. These factors include changing desires and behaviors of consumers, changes in discretionary spending trends and general economic conditions, market maturity or saturation, a decline in our ability to deliver quality service at a competitive price, direct and indirect competition in our trade areas, advances in medical care that lead to less interest in health and fitness activities, and a decline in the public’s interest in health and fitness as well as social fears such as terror or health threats which could reduce the desire to be in a concentrated public venue. In order to increase membership levels, we may from time to time offer lower membership rates and enrollment fees. In addition, we anticipate that most of our future centers will target higher income members than we have historically targeted. We may not be successful in optimizing price and mix or in adding new memberships in these new centers, and our growth in membership dues in these future centers may suffer as a result. Any decrease in our average dues, reduction in enrollment fees or higher membership acquisition costs may adversely impact our operating margins.
We rely heavily on our credit facility and our ability to access additional capital. If we are not able to access our credit facility, obtain additional capital or refinance existing debt, our ability to operate our business and pursue our growth strategy may be impaired.
As of December 31, 2014, we had total consolidated indebtedness of $1,200.9 million, of which $567.3 million was floating rate debt, consisting principally of obligations under term notes that are secured by certain of our properties, borrowings under our credit facility that are secured by certain personal property, mortgage notes that are secured by certain of our centers, and obligations under capital leases.

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The credit markets generally and our level of indebtedness could have important consequences to us, including the following:
Our ability to obtain the appropriate levels of capital for working capital purposes or to finance the development and construction of new centers or acquisitions may limit our growth strategy and future business opportunities;
A significant portion of our debt has a variable rate of interest, which increases our vulnerability to interest rate fluctuations;
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, which may reduce the funds that would otherwise be available for our operations or to pursue our growth strategy and future business opportunities;
A substantial decrease in our cash flows from operations or a substantial increase in our investment in new centers could make it difficult for us to meet our debt service requirements and force us to modify our operations; and
We may be more highly leveraged than our competitors, which may place us at a competitive disadvantage including in the event of an economic downturn.
In addition to the amount of indebtedness outstanding as of December 31, 2014, we had access to an additional $448.7 million under our credit facility. We also have the ability to incur new debt, subject to limitations under our existing credit facility and in our debt financing agreements. If we incur additional debt, the risks associated with our leverage, including our ability to service our debt, could intensify, and we may have to change our growth strategies as a consequence.
Finally, if cash from available sources is insufficient or unavailable, or if cash is used for unanticipated needs, we may require additional capital sooner than anticipated. In the event that we are required or choose to raise additional funds, we may be unable to do so on favorable terms or at all. Furthermore, the cost of debt financing could significantly increase, making it cost prohibitive to borrow, which could force us to issue new equity securities. If we issue new equity securities, existing shareholders may experience dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of common stock.
Any inability to access our existing credit facility, to raise additional capital when required or with favorable terms, or to repay scheduled indebtedness at maturity could have an adverse effect on our business plans and operating results.
If we fail to properly maintain the integrity of our data or to strategically implement, upgrade or consolidate existing information systems, our reputation and business could be adversely affected.
We increasingly use electronic means to interact with our customers and collect, maintain and store individually identifiable information, including, but not limited to, personal financial information and health-related information. Despite the security measures we have in place to ensure compliance with applicable laws and rules, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of cyber terrorism, vandalism or theft, computer viruses, misplaced or lost data, programming and/or human errors or other similar events. Additionally, the collection, maintenance, use, disclosure and disposal of individually identifiable data by our businesses are regulated at the federal and state levels as well as by certain financial industry groups, such as the Payment Card Industry organization. Federal, state and financial industry groups may also consider from time to time new privacy and security requirements that may apply to our businesses. Compliance with evolving privacy and security laws, requirements, and regulations may result in cost increases due to necessary systems changes, new limitations or constraints on our business models and the development of new administrative processes. They also may impose further restrictions on our collection, disclosure and use of individually identifiable information that are housed in one or more of our databases. Noncompliance with privacy laws, financial industry group requirements or a security breach involving the misappropriation, loss or other unauthorized disclosure of personal, sensitive and/or confidential information, whether by us or by one of our vendors, could have adverse effects on our business, operations, reputation and financial condition, including decreased revenue; fines and penalties; increased financial processing fees; compensatory, statutory, punitive or other damages; adverse

15


actions against our licenses to do business; and injunctive relief whether by court or consent order. Like other large companies, we have, from time to time, experienced threats to our data and systems, including malware and computer virus attacks, unauthorized access, systems failures and disruptions, none of which have had an impact on our business, results of operation or financial condition and none of which have required us to provide formal notification to any parties.
Our planned growth could place strains on our management, employees, information systems and internal controls which may adversely impact our business.
Over the past several years, we have experienced growth in our business activities and operations, including an increase in the number of our centers, development of new businesses and acquisitions of other businesses. Our past expansion has placed, and our planned accelerated future expansion may place, significant demands on our administrative, operational, financial and other resources. Any failure to manage growth effectively could seriously harm our business. To be successful, we will need to continue to implement management information systems and improve our operating, administrative, financial and accounting systems and controls. We will also need to train new employees and maintain close coordination among our executive, accounting, finance, legal, human resources, risk management, marketing, sales and operations functions. These processes are time-consuming and expensive, increase management responsibilities and divert management attention.
Our business could be adversely affected by strong competition in the highly competitive health and wellness industry.
We compete with the following industry participants: other health and fitness centers; physical fitness and recreational facilities established by non-profit organizations, governments, hospitals, and businesses; local salons, cafés and businesses offering similar ancillary services; exercise and small fitness clubs and studios and other boutique fitness offerings; racquet, tennis and other athletic clubs; amenity and condominium clubs; country clubs; online personal training and fitness coaching; the home-use fitness equipment industry; athletic event operators and related suppliers; and providers of wellness and other healthy way of life orientated products and services. We cannot assure you that our competitors will not attempt to copy our business model, or portions thereof, and that this will not erode our market share and brand recognition and impair our growth rate and profitability. Competitors, which may have greater name recognition than we have, may compete with us to attract members in our markets. Non-profit and government organizations in our markets may be able to obtain land and construct centers at a lower cost and collect membership fees without paying taxes, thereby allowing them to charge lower prices. Furthermore, due to the increased number of low cost health club and fitness center alternatives, we may face increased competition during periods if we increase our price, discretionary spending declines or unemployment remains high. This competition may limit our ability to attract and retain members.
We may incur significant costs in the development and implementation of new businesses with no guarantee of success.
In order to remain competitive and expand our business, we have developed, and expect to continue to develop, in-center and ancillary businesses. We may incur significant costs in the development of these businesses, some of which may be outside of our core competency. In addition, we cannot guarantee that these businesses will be successful and contribute to earnings.
We may be unable to successfully acquire suitable businesses or, if we do acquire them, the acquisition may disrupt our business, we may be unable to successfully integrate the business into our own, or the acquired assets may be subject to impairment, all of which may have an adverse effect on our performance.
In order to remain competitive and to expand our business, we have acquired, and expect to continue to acquire, complementary businesses and centers. In the future, we may not be able to find suitable acquisition candidates. If we do find suitable candidates, we may not be able to conduct effective due diligence or acquire the businesses on favorable terms or at all. We may also have to incur debt or issue equity securities to pay for any acquisition, which could adversely affect our financial results or dilute our shareholders.
If we do acquire other businesses, integrating the business into our own may place significant demands on our administrative, operational, financial and other resources and may require significant management time, which may disrupt our other businesses. Our ability to acquire and integrate larger or more significant companies is unproven.

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In addition, we cannot provide any assurances that we will be able to successfully integrate any acquired, or to be acquired, business into our own business or achieve any goals relating to the acquisition.
Additionally, as we have acquired other businesses, we have recorded assets, liabilities and intangible assets at fair value at the time of acquisition. If the fair value of the long-lived assets or intangible assets were determined to be lower than the carrying value, the assets would be subject to impairment, which could adversely affect our financial results.
We expect our investments in future centers in high demographic areas to be above historical average. We cannot guarantee the level of return will meet our expectations, and our financial results may be adversely affected.
As we increase our numbers of centers, our current focus is on higher demographic locations, which typically require higher costs of land, increased construction costs, and amenities and features within the new centers that represent the Life Time Athletic centers, which include the Onyx and Diamond membership plans. The higher gross invested capital at these centers will require higher operating margins and higher net income per center to produce the level of return we expect. Failure to provide this level of return could adversely affect our financial results.
If our Chairman, President and Chief Executive Officer leaves our company for any reason, it could have an adverse effect on our business.
Our growth and development to date have been driven by the services of Bahram Akradi, our Chairman of the Board of Directors, President, Chief Executive Officer and founder. We do not have any employment or non-competition agreement with Mr. Akradi. In addition, Mr. Akradi may be able to exert disproportionate influence over us because of the significant consequence of his departure.
If we fail to comply with any of the covenants in our financing documents, we may not be able to access our existing credit facility, and we may face an accelerated obligation to repay our indebtedness.
We have entered into several financing transactions to finance the development of our centers. Certain of the loan documents contain financial and other covenants applicable to us, and certain of these loan documents contain cross-default provisions. If we fail to comply with any of the covenants, it may cause a default under one or more of our loan documents, which could limit our ability to obtain additional financing under our existing credit facility, require us to pay higher levels of interest or accelerate our obligations to repay our indebtedness.
If we are unable to identify and acquire suitable sites for centers, our revenue growth rate and profits may be negatively impacted.
To successfully expand our business, we must identify and acquire sites that meet the site selection criteria we have established. In addition to finding sites with the right demographic and other measures we employ in our selection process, we also need to evaluate the penetration of our competitors in the market. We face significant competition for sites that meet our criteria, and as a result we may lose those sites, our competitors could copy our format or we could be forced to pay significantly higher prices for those sites. If we are unable to identify and acquire sites for new centers, our revenue growth rate and profits may be negatively impacted. Additionally, if our analysis of the suitability of a site is incorrect, we may not be able to recover our capital investment in developing and building the new center.
We may incur rising costs related to construction of new centers and maintenance of our existing centers. If we are not able to pass these cost increases through to our members, our financial results may be adversely affected.
Our centers require significant upfront and ongoing investment. If our investment is higher than we had planned, we may need to outperform our operational plan to achieve our targeted return. Over the longer term, we believe that we can offset cost increases by increasing our membership dues and other fees and improving profitability through cost efficiencies, but higher costs in regions where we are opening new centers may be difficult to offset in the short term.
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.
At March 2, 2015, we operated multiple centers in several metropolitan areas, including 23 in the Minneapolis/St. Paul market, nine in the Chicago market, eight in the Dallas market, seven in the Detroit market, six in each of the

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Atlanta and Houston markets and five in each of the Phoenix and greater New York markets, with future planned expansion in current and new markets. As a result, any prolonged disruption in the operations of our centers in any of these markets, whether due to technical difficulties, power failures or destruction or damage to the centers as a result of a natural disaster, fire or any other reason, could harm our operating results. In addition, our concentration in these markets increases our exposure to adverse developments related to competition, as well as economic and demographic changes in these areas.
If we cannot retain our key employees and hire additional highly qualified employees, we may not be able to successfully manage our businesses and pursue our strategic objectives.
We are highly dependent on the services of our senior management team and other key employees at both our corporate headquarters and our centers, and on our ability to recruit, retain and motivate key employees. Competition for such employees is intense, and the inability to attract and retain the additional qualified employees required to expand our activities, or the loss of current key employees, could adversely affect our operating efficiency and consolidated financial results.
The opening of new centers may negatively impact our operating margins. In addition, the opening of new centers in existing markets may negatively impact our same-center revenues.
A result of opening new centers is that our center operating margins may be lower than they have been historically while the centers build membership base. We expect both the addition of pre-opening expenses and the lower revenue volumes characteristic of newly opened centers to affect our center operating margins at these new centers. We also expect certain operating costs, particularly those related to occupancy, to be higher than in the past in some newly entered geographic regions. As a result of the impact of these rising costs, our total center contribution and operating margins may be lower in future periods than they have been in the past.
We currently operate centers in 25 states and one Canadian province. We plan to open six new large format centers in 2015, three of which are in existing markets. Opening new centers in existing markets may attract some memberships away from other centers in those markets, thereby leading to diminished revenue and profitability. In addition, as a result of new center openings in existing markets, and because older centers will represent an increasing proportion of our center base over time, our same-center revenue increases may be lower in future periods than in the past.
Delays in new center openings could have an adverse effect on our growth.
In order to meet our objectives, it is important that we open new centers on schedule. A significant amount of time and expenditure of capital is required to develop and construct new centers. If we are significantly delayed in opening new centers, our competitors may be able to open new clubs in the same market before we open our centers or improve centers currently open. This change in the competitive landscape could negatively impact our pre-opening sales of memberships and increase our investment costs. In addition, delays in opening new centers could hurt our ability to meet our growth objectives. Our ability to open new centers on schedule depends on a number of factors, many of which are beyond our control. These factors include:
obtaining acceptable financing for construction of new sites;
obtaining entitlements, permits and licenses necessary to complete construction of the new center on schedule;
recruiting, training and retaining qualified employees;
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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We could be subject to claims related to construction or operation of our centers and off-premises activities and events which could have a negative effect on our financial conditions and results of operations.
Use of our centers and participation in off-premises activities and events pose potential health or safety risks to members or guests through exertion and use of our equipment, swimming pools, rock climbing walls, waterslides, endurance events and other facilities and services. Claims may be asserted against us for injury or death suffered by someone using our facilities, services, activities and events, including a minor child. We could also face claims in connection with our construction and remodel of our centers. While we carry insurance generally applicable to such claims, we face exposure for losses within any self-insured retention or for uninsured damages.
We could also face claims for economic or other damages by members, guests or employees, including consumer protection, wage and hour, health club contract, or other statutory or common law claims arising from our business operations. Such claims may be uninsured.
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.
Our operations are subject to various federal and state laws and regulations, including but not limited to the following:
federal and state consumer protection laws related to the advertising, marketing and sale of our products and services;
state statutes that regulate the sale and terms of our membership contracts;
state and local health or safety regulations related to various center operations, such as child centers, LifeCafe, LifeSpa or Aquatics;
federal and state regulation of ancillary health and fitness-related products and services;
state licensing or other regulation of our service providers, such as cosmetologists, massage therapists and registered dietitians;
federal and state laws and regulations governing privacy and security of information; and
federal and state wage and hour or other employment related laws and regulations.
Any changes in such laws or regulations could have an adverse effect on our financial condition and results of operations.
We could be subject to claims related to our ancillary health and fitness-related offerings, and the value of our brand may suffer.
We offer directly or through third parties a variety of ancillary health and fitness-related products and services, such as nutritional products, blood screenings and other fitness assessments, chiropractic services, and medi-spa services. These products and services are, or may be subject to, legal and regulatory requirements. We cannot assure you that there will be no claims against us regarding the ingredients in, manufacture of or results of using our nutritional products, or any claims against us regarding our provision of other health and fitness-related services or our relationships with third parties. Furthermore, we cannot assure you that any rights we have under indemnification provisions and/or insurance policies will be sufficient to cover any losses that might result from such claims. Any publicity surrounding such claims may negatively impact the value of our brand.
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.
We may have disputes with third parties to enforce our intellectual property rights, protect our trademarks, determine the validity and scope of the proprietary rights of others or defend ourselves from claims of infringement, invalidity or unenforceability. We may incur substantial costs and a diversion of resources as a result of such disputes, even if we win. In the event that we do not win, we may have to enter into royalty or licensing agreements, we may be prevented from using the marks within certain markets in connection with goods and services that are material to our

19


business or we may be unable to prevent a third party from using our marks. We cannot assure you that we would be able to reach an agreement on reasonable terms, if at all. In particular, although we own a federal trademark registration for use of the LIFE TIME FITNESS® mark in the field of health and fitness centers, we are aware of entities in certain locations around the country that use LIFE TIME FITNESS, LIFE TIME or other similar marks in connection with goods and services related to health and fitness. The rights of these entities in such marks may predate our rights. Accordingly, if we open any centers in the areas in which these parties operate, we may be required to pay royalties or may be prevented from using the mark in such areas.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters, located in Chanhassen, Minnesota next to our Chanhassen large format center, is a 105,000 square foot, free-standing, three-story building that we own.
As of March 2, 2015, we operated 113 centers in 25 states and one Canadian province. We expect to open six centers in 2015 on sites we own or lease in various markets, all of which are currently under construction. The table below contains information about our open centers as of March 2, 2015:
 
 
Number of
 
Square
 
 
 
Number of
 
Square
 
 
Centers
 
Feet
 
 
 
Centers
 
Feet
United States:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alabama
 
 
1

 
 
103,647

 
Nebraska
 
 
1

 
 
115,030

Arizona
 
 
5

 
 
457,950

 
Nevada
 
 
2

 
 
261,673

California
 
 
1

 
 
127,799

 
New Jersey
 
 
3

 
 
324,668

Colorado
 
 
4

 
 
482,557

 
New York
 
 
2

 
 
248,620

Florida
 
 
2

 
 
129,606

 
North Carolina
 
 
6

 
 
294,369

Georgia
 
 
6

 
 
585,601

 
Ohio
 
 
6

 
 
508,297

Illinois
 
 
9

 
 
1,016,003

 
Oklahoma
 
 
1

 
 
114,441

Indiana
 
 
3

 
 
166,956

 
Tennessee
 
 
1

 
 
112,110

Iowa
 
 
1

 
 
110,376

 
Texas
 
 
18

 
 
1,892,813

Kansas
 
 
2

 
 
222,190

 
Utah
 
 
1

 
 
108,925

Maryland
 
 
2

 
 
177,263

 
Virginia
 
 
4

 
 
384,974

Michigan
 
 
7

 
 
682,638

 
Canada:
 
 
 
 
 
 
Minnesota
 
 
23

 
 
1,944,602

 
Ontario
 
 
1

 
 
146,674

Missouri
 
 
1

 
 
112,110

 
Total
 
 
113

 
 
10,831,892

In a few of our centers, we sublease space to third parties. The square footage figures above include those subleased areas. The square footage figures exclude areas used for tennis courts, outdoor swimming pools and outdoor play areas. These figures are approximations.
In addition to the centers listed in the table above, we also operate five facilities which we classify as satellite locations. These include a 15,640 square foot tennis-only facility that we own in Minnetonka, Minnesota, a 75,450 square foot tennis-only facility that we own in Centennial, Colorado, a 75,444 square foot tennis-only facility that we own in Plano, Texas and two leased yoga centers in the Detroit, Michigan market.

20


Other Property Data:
 
As of December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(Number of centers)
Center age
 
 
 
 
 
 
 
 
 
Open 1 to 12 months (non-mature)
6

 
3

 
4

 
12

 
6

Open 13 to 36 months (non-mature)
7

 
16

 
18

 
9

 
14

Open 37+ months (mature)
100

 
89

 
83

 
80

 
69

Total centers
113

 
108

 
105

 
101

 
89

Center format
 
 
 
 
 
 
 
 
 
Large format - current model
67

 
63

 
60

 
57

 
54

Large format - other
25

 
24

 
24

 
24

 
24

Other format
21

 
21

 
21

 
20

 
11

Total centers
113

 
108

 
105

 
101

 
89

Center ownership
 
 
 
 
 
 
 
 
 
Own
42

 
46

 
48

 
47

 
35

Own/ground lease
9

 
9

 
9

 
7

 
3

Own/mortgaged
32

 
22

 
17

 
17

 
20

Own/ground lease/mortgaged

 

 

 

 
3

Joint venture
1

 
1

 
1

 
1

 
1

Leased
29

 
30

 
30

 
29

 
27

Total centers
113

 
108

 
105

 
101

 
89

Center composition
 
 
 
 
 
 
 
 
 
Company originated centers
91

 
86

 
83

 
80

 
77

Acquired centers
22

 
22

 
22

 
21

 
12

Total centers
113

 
108

 
105

 
101

 
89


Generally, the main differences between our large format centers and those that are of the current model design are that our current model centers generally include an outdoor aquatics park, larger indoor aquatics area, larger gymnasium, up to three additional studios and enhanced LifeSpa and LifeCafe spaces. We believe that all of our large format centers serve as all-in-one sports and athletic, professional fitness, family recreation and spa destinations. The other center format includes smaller or specialty centers.
Excluding renewal options, the terms of leased centers, including ground leases, expire at various dates from 2015 through 2049. The majority of our leases have renewal options and a few give us the right to purchase the property.
Item 3. Legal Proceedings.
TCPA Litigation — On April 17, 2014, a putative class action was filed against LTF Club Operations Company, Inc., a wholly-owned subsidiary of Life Time Fitness, Inc., in the Circuit Court of St. Louis County, Missouri. On June 13, 2014, LTF Club Operations Company, Inc. removed this action to the United States District Court for the Eastern District of Missouri, Eastern Division. On April 23, 2014, a second putative class action was filed against Life Time Fitness, Inc. in the U.S. District Court for the District of Minnesota. On April 23, 2014, a third putative class action was filed against Life Time Fitness, Inc. in the U.S. District Court for the Northern District of Illinois, Eastern Division. On July 1, 2014, a fourth putative class action was filed against Life Time Fitness, Inc. in the United States District Court for the District of Minnesota. On January 26, 2015, a fifth putative class action was filed against Life Time Fitness, Inc. in the U.S. District Court for the Northern District of Illinois, Eastern Division. These actions are collectively referred to as the “TCPA Actions” or "TCPA Litigation."
The TCPA Actions allege that we violated the federal Telephone Consumer Protection Act (“TCPA”) when we, or a third party on our behalf, sent marketing text messages to plaintiffs’ cellular telephones using an automatic telephone dialing system without plaintiffs’ consent. Each plaintiff seeks certification of the class, injunctive relief,

21


reasonable attorneys’ fees and costs, and an award of damages available under the TCPA, which include actual damages and statutory damages of $500 per violation or $1,500 per violation if the violation was willful. We deny the allegations.
On October 15, 2014, the United States Judicial Panel on Multidistrict Litigation granted our motion to transfer four of the TCPA Actions to the United States District Court for the District of Minnesota for coordinated or consolidated pretrial proceedings (“MDL”). We have moved to transfer the fifth action, filed January 26, 2015, for consolidation in the MDL.
The parties have agreed to a class settlement of the TCPA Litigation. On February 25, 2015, plaintiffs filed a motion for preliminary approval of the settlement. The preliminary approval hearing is scheduled for March 5, 2015. We agreed to pay all costs of the settlement, including class notice, claims administration, court-awarded plaintiffs’ attorneys’ fees, court-awarded service awards, and awards to class members. Class members may claim either a cash award of $100 or a membership award that lets them pick either a free three-month single Gold membership or a $250 credit toward any access membership that covers the class member. The total settlement amount, as calculated under the agreement, is subject to a minimum of $10 million and a maximum of $15 million. Depending on the total number of claims submitted and the amount of attorneys’ fees awarded, the amounts of the cash award and membership award may be adjusted up or down to bring the total settlement amount within that range. For purposes of calculating the total settlement amount, every membership award that is timely and validly claimed counts as a payment of $250 (subject to adjustment).
Because our cost to service a membership is less than the membership award, the amount of our reasonably estimable loss does not directly correspond to the amount of the total settlement amount as calculated under the agreement. Further, the amount of attorneys’ fees, the claims rate, and the mix of cash and membership awards all remain unknown at this time, and therefore, we believe our reasonably estimable loss is a range. Based on reasonable estimates of these factors, we have recorded a liability in the fourth quarter of 2014 in the amount of $4.7 million, which we believe represents the minimum amount of the range.
Other Litigation — We are also engaged in other proceedings incidental to the normal course of business. Due to their nature, such legal proceedings involve inherent uncertainties, including but not limited to court rulings, negotiations between affected parties and governmental intervention. We will establish reserves for matters that are probable and estimable in amounts we believe are adequate to cover reasonable adverse judgments. Based upon the information available to us and discussions with legal counsel, it is our opinion that the outcome of the various legal actions and claims that are incidental to our business will not have a material adverse impact on our consolidated financial position, results of operations or cash flows. Such matters are subject to many uncertainties, and the outcomes of individual matters are not predictable with assurance.
Item 4. Mine Safety Disclosures.
None.

22


PART II


Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchaser of Equity Securities.
Market Information
Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol LTM. The following table sets forth, for the periods indicated, the high and low sales prices as reported by the NYSE.
 
High
 
Low
Fiscal Year Ended December 31, 2013:
 
 
 
First Quarter (January 1, 2013 – March 31, 2013)
$52.43
 
$39.10
Second Quarter (April 1, 2013 – June 30, 2013)
$52.17
 
$40.85
Third Quarter (July 1, 2013 – September 30, 2013)
$56.94
 
$47.92
Fourth Quarter (October 1, 2013 – December 31, 2013)
$52.50
 
$43.88
Fiscal Year Ended December 31, 2014:
 
 
 
First Quarter (January 1, 2014 – March 31, 201)
$49.88
 
$40.15
Second Quarter (April 1, 2014 – June 30, 2014)
$56.78
 
$44.64
Third Quarter (July 1, 2014 – September 30, 2014)
$51.47
 
$38.01
Fourth Quarter (October 1, 2014 – December 31, 2014)
$57.60
 
$46.70
Holders
As of February 19, 2015, the number of record holders of our common stock was approximately 472, including 10 record holders with our transfer agent.
Performance Graph
The following graph compares the annual change in the cumulative total shareholder return on our common stock from December 31, 2009 through December 31, 2014 with the cumulative total return on the NYSE Composite Index and Russell 2000 Index. The comparison assumes $100 was invested on December 31, 2009 in Life Time Fitness common stock and in each of the foregoing indices and assumes that dividends were reinvested when and as paid. We have not declared dividends on our common stock. You should not consider shareholder return over the indicated period to be indicative of future shareholder returns.

23


 
12/31/2009
 
12/31/2010
 
12/31/2011
 
12/31/2012
 
12/31/2013
 
12/31/2014
Life Time Fitness
$100
 
$164
 
$188
 
$197
 
$189
 
$227
NYSE Composite Index
100
 
111
 
104
 
118
 
145
 
151
Russell 2000 Index (1)
100
 
125
 
118
 
136
 
186
 
193
(1)
We have provided a comparison against the Russell 2000 because there is no published industry or line-of-business index for our industry and we do not have a readily definable peer group that is publicly traded.

Dividends
We have never declared or paid any cash dividends on our common stock. We currently intend to utilize all future earnings for the operation and expansion of our business or for share repurchases and do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. In addition, the terms of our credit facility limit the amount of dividends we may pay without the consent of the lenders. The payment of any dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions, outstanding indebtedness and other factors deemed relevant by our Board of Directors.
Issuer Purchases of Equity Securities in Fourth Quarter 2014
In June 2006, our Board of Directors authorized the repurchase of 500,000 shares of our common stock from time to time in the open market or otherwise for the primary purpose of offsetting the dilutive effect of shares issued under our employee stock purchase plan ("ESPP") (the "ESPP Authorization"). From June 2006 through December 31, 2014, we repurchased 271,451 shares pursuant to the ESPP Authorization, of which 32,178 shares were repurchased during 2014. There were no shares repurchased in fourth quarter of 2014. As of December 31, 2014, there were 228,549 remaining shares authorized to be repurchased for this purpose. The shares repurchased to date have been purchased in the open market and, upon repurchase, became unissued shares of our common stock.
In August 2011, our Board of Directors authorized the repurchase of up to $60.0 million of our outstanding common stock from time to time (the "Stock Repurchase Authorization"). A total of 1,107,665 shares were repurchased under

24


this program for $50.1 million. This authorization terminated in August 2013 with the authorization of a new share repurchase program.
In August 2013, our Board of Directors authorized the repurchase of up to $200.0 million of our outstanding common stock from time to time. During 2014, we repurchased 3,462,445 shares under this program for $166.9 million. A total of 4,109,146 shares were repurchased under this program for $197.8 million. This authorization terminated on July 22, 2014 with the authorization of a new share repurchase program.
In July 2014, our Board of Directors authorized the repurchase of up to $200.0 million of our outstanding common stock from time to time through open market or privately negotiated transactions. The authorization to repurchase shares terminates when the aggregate repurchase amount totals $200.0 million or at the close of business on June 30, 2016, whichever occurs first. The share repurchase program does not obligate us to repurchase any dollar amount or number of shares of our common stock and the program may be extended, modified, suspended or discontinued at any time. During the year ended December 31, 2014, we did not repurchase any shares under this program. As of December 31, 2014, there was $200.0 million remaining authorized under this program.
The following table presents the repurchases of stock under the Stock Repurchase Authorization in the fourth quarter of 2014:
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Maximum Dollar Value of Shares that May Yet be Purchased
October 1 – 31, 2014
 
 
$—
 
$200,000,000
November 1 – 30, 2014
 
 
$—
 
$200,000,000
December 1 – 31, 2014
 
 
$—
 
$200,000,000
Total
 
 
$—
 
$200,000,000
Equity Compensation Plan Information
Plan Category
 
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
 
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
 
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity Compensation Plans Approved by Security Holders
 
59,110

(1)
 
$
36.24

 
2,241,210

(2)
Equity Compensation Plans Not Approved by Security Holders
 

 
 

 

 
Total
 
59,110

 
 
$
36.24

 
2,241,210

 
(1) This amount includes shares issuable upon the exercise of outstanding stock options granted under the 2004 Plan. This amount does not include 15,459 shares that were subject to purchase under the Life Time Fitness, Inc. Employee Stock Purchase Plan for the purchase period ended December 31, 2014.
(2) This amount includes 1,012,661 shares available for issuance pursuant to equity awards that could be granted in the future under the 2011 Plan and 1,228,549 shares available for issuance under the Life Time Fitness, Inc. Employee Stock Purchase Plan.

25


Item 6. Selected Financial Data.
You should read the selected consolidated financial data below in conjunction with our consolidated financial statements and the related notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The consolidated statement of operations data for the years ended December 31, 2014, 2013 and 2012 and the consolidated balance sheet data as of December 31, 2014 and 2013 are prepared from our audited consolidated financial statements that are included elsewhere in this report. The consolidated statement of operations data for the years ended December 31, 2011 and 2010 and the consolidated balance sheet data as of December 31, 2012, 2011 and 2010 are derived from our audited consolidated financial statements that have been previously filed with the SEC. Historical results are not necessarily indicative of the results of operations to be expected for future periods. See footnote 2 to our consolidated financial statements for a description of the method used to compute basic and diluted net earnings per share.
As noted in footnote 12, "Immaterial Restatement of Prior Year Financial Statements" to our consolidated financial statements, we have corrected prior periods by restating the relevant prior periods during the fourth quarter 2014. Prior period balances included in this section are presented as restated.


26


 
For the Year Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(In thousands, except per share, center and membership data)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
 
 
Center revenue
 
 
 
 
 
 
 
 
 
Membership dues
$
810,707

 
$
766,846

 
$
727,596

 
$
663,439

 
$
603,231

Enrollment fees
12,224

 
13,941

 
15,346

 
18,447

 
24,426

In-center revenue (1)
410,953

 
375,517

 
348,265

 
308,474

 
266,426

Total center revenue
1,233,884

 
1,156,304

 
1,091,207

 
990,360

 
894,083

Other revenue
56,736

 
49,600

 
35,740

 
23,314

 
18,761

Total revenue
1,290,620

 
1,205,904

 
1,126,947

 
1,013,674

 
912,844

Operating expenses
 
 
 
 
 
 
 
 
 
Center operations
744,343

 
689,246

 
648,924

 
607,986

 
554,202

Advertising and marketing
42,853

 
42,712

 
39,931

 
36,318

 
27,098

General and administrative
63,112

 
58,986

 
55,715

 
54,736

 
48,060

Other operating
67,020

 
64,558

 
52,327

 
35,719

 
23,701

Depreciation and amortization
143,931

 
121,843

 
117,887

 
101,714

 
95,184

Total operating expenses (2)
1,061,259

 
977,345

 
914,784

 
836,473

 
748,245

Income from operations
229,361

 
228,559

 
212,163

 
177,201

 
164,599

Interest expense, net
(42,296
)
 
(30,800
)
 
(30,697
)
 
(25,422
)
 
(33,126
)
Equity in earnings of affiliate (3)
1,056

 
1,399

 
1,482

 
1,299

 
1,176

Income before income taxes
188,121

 
199,158

 
182,948

 
153,078

 
132,649

Provision for income taxes
73,751

 
78,181

 
72,191

 
61,270

 
52,854

Net income
$
114,370

 
$
120,977

 
$
110,757

 
$
91,808

 
$
79,795

Basic earnings per common share
$
2.95

 
$
2.93

 
$
2.68

 
$
2.27

 
$
2.00

Weighted average number of common shares outstanding — basic
38,793

 
41,263

 
41,345

 
40,358

 
39,809

Diluted earnings per common share
$
2.94

 
$
2.92

 
$
2.64

 
$
2.24

 
$
1.98

Weighted average number of common shares outstanding — diluted (4)
38,928

 
41,482

 
41,972

 
40,930

 
40,385

Balance Sheet Data (end of period):
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
9,175

 
$
8,334

 
$
16,499

 
$
7,487

 
$
12,227

Working capital
(91,816
)
 
(105,297
)
 
(68,577
)
 
(56,068
)
 
(56,988
)
Total assets
2,681,618

 
2,373,601

 
2,117,521

 
1,963,975

 
1,769,426

Long-term debt, net of current portion
1,178,455

 
824,093

 
691,867

 
679,449

 
605,279

Total debt
1,200,910

 
848,598

 
704,470

 
686,298

 
612,544

Total shareholders’ equity
1,105,124

 
1,143,714

 
1,069,337

 
954,675

 
838,589

Cash Flow Data:
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
260,712

 
$
259,429

 
$
256,557

 
$
228,575

 
$
192,734

Net cash used in investing activities
(444,193
)
 
(359,836
)
 
(251,403
)
 
(232,949
)
 
(149,034
)
Net cash provided by (used in) financing activities
184,467

 
86,309

 
5,006

 
(366
)
 
(37,755
)

27


 
For the Year Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(In thousands, except per share, center and membership data)
Other Data:
 
 
 
 
 
 
 
 
 
Same-center revenue growth (open 13 months or longer) (5)
0.2
%
 
4.0
%
 
4.3
%
 
5.1
%
 
5.0
%
Same-center revenue growth (open 37 months or longer) (5)
(0.3
%)
 
3.2
%
 
3.7
%
 
4.3
%
 
2.3
%
Average center revenue per Access membership (6)
$
1,767

 
$
1,656

 
$
1,567

 
$
1,527

 
$
1,462

Average in-center revenue per Access membership (7)
$
597

 
$
545

 
$
507

 
$
481

 
$
440

Annual attrition rate (8)
35.2
%
 
35.8
%
 
33.5
%
 
31.3
%
 
33.3
%
EBITDA (9)
$
374,348

 
$
351,801

 
$
331,532

 
$
280,214

 
$
260,959

EBITDAR (9)
$
407,955

 
$
385,103

 
$
363,220

 
$
316,061

 
$
296,572

Capital expenditures (10)
$
432,259

 
$
348,948

 
$
224,194

 
$
165,335

 
$
131,671

Operating Data (end of period) (11):
 
 
 
 
 
 
 
 
 
Centers open
113

 
108

 
105

 
101

 
89

Center square footage (12)
10,831,892

 
10,221,759

 
9,901,108

 
9,500,442

 
8,810,507

Employees
24,200

 
22,500

 
21,700

 
20,000

 
19,000

Memberships:
 
 
 
 
 
 
 
 
 
Access memberships
683,530

 
678,619

 
682,621

 
676,054

 
612,556

Non-Access memberships
125,915

 
110,871

 
104,382

 
92,806

 
70,302

Total memberships
809,445

 
789,490

 
787,003

 
768,860

 
682,858

Margins:
 
 
 
 
 
 
 
 
 
Center operations
42.3
%
 
42.8
%
 
42.4
%
 
40.0
%
 
39.3
%
EBITDA (13)
29.0
%
 
29.2
%
 
29.4
%
 
27.6
%
 
28.6
%
EBITDAR (14)
31.6
%
 
31.9
%
 
32.2
%
 
31.2
%
 
32.5
%
Operating income
17.8
%
 
19.0
%
 
18.8
%
 
17.5
%
 
18.0
%
Net Income
8.9
%
 
10.0
%
 
9.8
%
 
9.1
%
 
8.7
%
Stock Information:
 
 
 
 
 
 
 
 
 
Total common shares outstanding
39,016

 
42,116

 
43,149

 
42,428

 
41,925

Market price per share – high
$
57.60

 
$
56.94

 
$
52.68

 
$
48.42

 
$
42.99

Market price per share – close
$
56.62

 
$
47.00

 
$
49.21

 
$
46.75

 
$
40.99

Market price per share – low
$
38.01

 
$
39.10

 
$
40.40

 
$
33.15

 
$
22.05

Price/earnings ratio at year-end – diluted
19.3

 
16

 
18.5

 
20.7

 
20.5

Market capitalization (15)
$
2,209,086

 
$
1,979,452

 
$2,123,362
 
$
1,983,509

 
$
1,718,505


(1)
In-center revenue includes revenue generated at our centers from fees for personal training, group fitness training and other member activities, sales of products offered at our cafés, sales of products and services offered at our spas, tennis and renting space in certain of our centers.
(2)
Total operating expenses in 2010 includes $5.6 million (pretax) associated with performance-based restricted stock compensation expense. In June 2009, we granted performance-based restricted stock to our senior management team. In fourth quarter 2010, we determined that achieving the 2011 diluted earnings per share performance criteria required for vesting of 50% of the stock (representing 453,500 shares of restricted stock) was probable. As a result, we recognized a cumulative, non-cash performance share-based compensation expense of $5.6 million (pretax) in the quarter. Of this amount, approximately $1.2 million is reflected in center operations expense and approximately $4.4 million is reflected in general and administrative expense.
Total operating expenses in 2011 include $10.6 million (pretax) associated with non-cash performance-based restricted stock compensation expense. In fourth quarter 2011, we determined that achieving the

28


2012 diluted earnings per share performance criteria required for vesting of the final 50% of the stock (representing 448,000 shares of restricted stock) was probable. As a result, we recognized a cumulative, non-cash performance share-based compensation expense of $6.8 million (pretax) in the quarter, in addition to the $3.8 million (pretax) of share-based compensation expense we recognized in 2011 on the initial 50% of the grant. Of the $10.6 million amount, approximately $2.5 million is reflected in center operations expense and approximately $8.1 million is reflected in general and administrative expense.
Total operating expenses in 2012 include $2.6 million associated with performance-based restricted stock compensation expense. Of the $2.6 million, approximately $0.5 million is reflected in center operations expense and approximately $2.1 million is reflected in general and administrative expense.
Total operating expenses in 2014 include: a $4.1 million reduction of a contingent consideration liability associated with a prior acquisition and a legal accrual of $4.7 million associated with estimated damages from a Telephone Consumer Protection Act ("TCPA") action, both of which are reflected in other operating expenses; and a $3.5 million expense associated with our exploration of a conversion of our real estate assets into a Real Estate Investment Trust ("REIT") which is reflected in general and administrative expenses.
(3)
In 1999, we formed Bloomingdale LIFE TIME Fitness, L.L.C. (“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 using the equity method.
(4)
The diluted weighted average number of common shares outstanding is the weighted average number of common shares plus the assumed weighted average exercise of dilutive stock options using the treasury stock method and unvested restricted stock awards using the treasury stock method.
The following table summarizes the weighted average number of common shares for basic and diluted earnings per share computations:
 
December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(In thousands)
Weighted average number of common shares outstanding – basic
38,793

 
41,263

 
41,345

 
40,358

 
39,809

Effect of dilutive stock options
11

 
85

 
116

 
132

 
156

Effect of dilutive restricted stock awards
124

 
134

 
511

 
440

 
420

Weighted average number of common shares outstanding – diluted
38,928

 
41,482

 
41,972

 
40,930

 
40,385

(5)
Membership dues, enrollment fees and in-center revenue for a center are included in same center revenue growth – 13 month beginning on the first day of the thirteenth full calendar month of the center’s operation and are included in same center revenue growth – 37 month beginning on the first day of the thirty-seventh full calendar month of the center’s operation.
(6)
Average center revenue per Access membership is total center revenue derived from Access memberships for the period divided by the average number of Access memberships for the period, where the average number of Access memberships for the period is an average derived from dividing the sum of the total Access memberships outstanding at the beginning of the period and at the end of each month during the period by one plus the number of months in each period. Our calculation methodology changed in 2013 to include Access memberships only, and the 2010 through 2012 numbers above are recalculated under the new methodology.
(7)
Average in-center revenue per Access membership is total in-center revenue for the period divided by the average number of Access memberships for the period, where the average number of Access memberships for the period is an average derived from dividing the sum of the total Access memberships outstanding at

29


the beginning of the period and at the end of each month during the period by one plus the number of months in each period.
(8)
Annual attrition rate (or trailing 12 month attrition rate) is calculated as follows: total membership terminations for the trailing 12 months divided into the average beginning month total membership balance for the trailing 12 months. The annual attrition rate for the years ended December 31, 2010 and 2011 includes a small positive impact due to a change in calculation methodology adopted April 1, 2010 in which we exclude potential memberships who elect to cancel during their 14-day trial as members. Our calculation methodology changed in 2013 to better reflect our business by redefining membership as either Non-Access or Access. Our attrition calculation then had total terminations in the numerator and total memberships in the denominator, and the 2010 through 2012 numbers above are recalculated under the new methodology.
(9)
EBITDA is a non-GAAP, non-cash measure which consists of net income plus interest expense, net, provision for income taxes and depreciation and amortization. EBITDAR adds rent expense to EBITDA. These terms, as we define them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with GAAP. We use EBITDA and EBITDAR as measures of operating performance. EBITDA or EBITDAR 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 and EBITDAR 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 and EBITDAR are provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures.”
The following table provides a reconciliation of net income, the most directly comparable GAAP measure, to EBITDA and EBITDAR:
 
For the Year Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(In thousands)
Net income
$
114,370

 
$
120,977

 
$
110,757

 
$
91,808

 
$
79,795

Interest expense, net
42,296

 
30,800

 
30,697

 
25,422

 
33,126

Provision for income taxes
73,751

 
78,181

 
72,191

 
61,270

 
52,854

Depreciation and amortization
143,931

 
121,843

 
117,887

 
101,714

 
95,184

EBITDA
$
374,348

 
$
351,801

 
$
331,532

 
$
280,214

 
$
260,959

Rent expense
33,607

 
33,302

 
31,688

 
35,847

 
35,613

EBITDAR
$
407,955

 
$
385,103

 
$
363,220

 
$
316,061

 
$
296,572

(10)
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, property and equipment purchases financed through notes payable and capital lease obligations, and non-cash share-based compensation capitalized to projects under development.
(11)
The operating data 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.
(12)
The square footage presented in this table reflects fitness square footage which we believe is the best metric for the efficiencies of a facility. We exclude outdoor swimming pools, outdoor play areas, tennis courts and satellite facility square footage. These figures are approximations.
(13)
EBITDA margin is the ratio of EBITDA to total revenue.
(14)
EBITDAR margin is the ratio of EBITDAR to total revenue.

30


(15)
Market capitalization is calculated by multiplying the year-end total common shares outstanding by the year-end stock price.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As noted in footnote 12, "Immaterial Restatement of Prior Year Financial Statements" to our consolidated financial statements, we have corrected prior periods by restating the relevant prior periods during the fourth quarter 2014. Prior period balances included in this section are presented as restated.
Overview
We operate distinctive and large, multi-use sports and athletic, professional fitness, family recreation and spa centers in a resort-like environment. As of March 2, 2015, we operated 113 centers primarily in residential locations across 25 states and one Canadian province under the LIFE TIME FITNESS® and LIFE TIME ATHLETIC® brands.
We compare the results of our centers based on how long the centers have been open at the most recent measurement period. We include a center for same center revenue purposes beginning on the first day of the thirteenth full calendar month of the center’s operation, prior to which time we refer to the center as a new center. We include an acquired center for same center revenue purposes beginning on the first day of the thirteenth full calendar month after we assumed the center’s operations.
Our new center expansion focuses on strategic locations which we believe will generate higher average dues, higher in-center revenue per membership and higher revenue per square foot. These locations typically represent our Life Time Athletic centers, which includes all centers under our Onyx and Diamond membership plans, and will be located in areas with higher demographic profiles. Of the six new current format centers we plan to open in 2015, five are Life Time Athletic centers, and two of these five centers are in existing markets.
As we grow our presence in existing markets by opening new centers, we anticipate attracting some memberships away from our other existing centers in those markets, reducing revenue and initially lowering the memberships of those existing centers. However, based on the strategic locations of the new Life Time Athletic centers in existing markets, we expect most of the new Athletic center memberships will be new Life Time members.
As a result of new center openings in existing markets, and because older centers will represent an increasing proportion of our center base over time, our same center revenue may be lower in future periods than in the past. Of the six new centers we plan to open in 2015, three will be in existing markets. We do not expect operating costs of our planned new centers to be significantly higher than current centers, and we also do not expect the new centers to have a material adverse effect on the overall financial condition or results of operations of existing centers.
After two years of improved operating margins, we saw a decrease in 2014 due primarily to lower membership dues at certain of our mature centers. Although our overall membership growth rate may be less than in prior years, we expect our average dues and in-center revenue per membership to increase as a result of our focus on increasing our number of Life Time Athletic centers. We also expect center operating margin leverage at these centers.
Our categories of new centers and existing centers do not include the center owned by Bloomingdale, LLC because it is accounted for as an investment in an unconsolidated affiliate and is not consolidated in our financial statements.
We measure performance using such key operating statistics as member satisfaction ratings, return on invested capital, average revenue per membership, average in-center revenue per membership and center operating expenses, with an emphasis on payroll, as a percentage of sales and same center revenue growth. We use center revenue, EBITDA and EBITDA margins to evaluate overall performance and profitability on an individual center basis. In addition, we focus on several membership statistics on a center-level and system-wide basis. These metrics include change in center Access membership levels and growth of system-wide memberships; percentage center Access membership to target capacity; center Access membership usage; center Access membership mix among individual, couple and family memberships; Non-Access memberships and center attrition rates.
During the years ended December 31, 2012, 2013 and 2014, our annual attrition rate fluctuated between 31.3% and 35.8%, resulting in the estimated average membership life remaining at 33 months during those periods. At December 31, 2014, our annual attrition rate was 35.2%, which reflects our efforts around member retention in all club types as well as our increase in the number of Diamond and Onyx level clubs we have opened in the last couple

31


years. Our focus on new centers has been targeted at a higher-income customer which has translated into a better retention.
We have three primary sources of revenue:
First, our largest source of revenue is membership dues (62.8%, 63.6% and 64.6% of total revenue for the years ended December 31, 2014, 2013 and 2012, respectively) and enrollment fees (0.9%, 1.2% and 1.4% of total revenue for the years ended December 31, 2014, 2013 and 2012, respectively). We recognize revenue from monthly membership dues in the month to which they pertain.
Second, we generate revenue within a center, which we refer to as in-center revenue or in-center businesses (31.9%, 31.1% and 30.8% of total revenue for the years ended December 31, 2014, 2013 and 2012, respectively), including fees for personal training, registered dietitians, group fitness training and other member activities, sales of products at our cafés, sales of products and services offered at our spas and tennis programs.
Third, we have expanded the LIFE TIME FITNESS® brand into two other offerings: health, and events and media. These offerings generate revenue, which we refer to as other revenue or ancillary businesses (4.4%, 4.1% and 3.2% of total revenue for the years ended December 31, 2014, 2013 and 2012, respectively). Our health offering includes health promotion programs for members, non-members and corporations. Our events and media offerings include athletic events and related services, which includes our race registration and timing businesses, and media which includes our magazine, Experience Life®.
We have five primary sources of operating expenses:
Center operations expenses (57.7%, 57.1% and 57.7% of total revenue for the years ended December 31, 2014, 2013 and 2012, respectively) consist primarily of salaries, commissions, payroll taxes, benefits, real estate taxes and other occupancy costs, utilities, repairs and maintenance, supplies, administrative support and communications to operate our centers.
Advertising and marketing expenses (3.3%, 3.5% and 3.5% of total revenue for the years ended December 31, 2014, 2013 and 2012, respectively) consist of our marketing department costs and media and advertising costs to support and grow center membership levels, in-center businesses, new center openings and our ancillary businesses.
General and administrative expenses (4.9%, 4.9% and 4.9% of total revenue for the years ended December 31, 2014, 2013 and 2012, respectively) include costs relating to our centralized support functions, such as accounting, information systems, procurement, real estate and development and member relations.
Other operating expenses (5.2%, 5.4% and 4.6% of total revenue for the years ended December 31, 2014, 2013 and 2012, respectively) include the costs associated with our health and our events and media businesses and other corporate expenses, as well as gains or losses on our disposal of assets.
Depreciation and amortization (11.1%, 10.1% and 10.5% of total revenue for the years ended December 31, 2014, 2013 and 2012, respectively) are computed primarily using the straight-line method over estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the improvement.
Our total operating expenses may vary from period to period depending on the number of new centers opened during that period, the number of centers engaged in presale activities and the performance of our in-center and ancillary businesses.
Our primary capital expenditures relate to the construction of new centers and updating and maintaining our existing centers. The land acquisition, construction and equipment costs for a current model center can vary considerably based on location, variability in land cost, the cost of construction labor and the size or amenities of the center, including the addition of tennis facilities, an expanded gymnasium or other facilities. We perform maintenance and make improvements on our centers and equipment throughout each year.

32


Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S., or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate results could differ from those estimates. In recording transactions and balances resulting from business operations, we use estimates based on the best information available. We use estimates for such items as depreciable lives, probability of meeting certain performance targets, tax provisions and deferred personal training revenue. We also use estimates for calculating the amortization period for deferred enrollment fee revenue and associated direct costs, which are based on the historical estimated average membership life. We revise the recorded estimates when better information is available, facts change or we can determine actual amounts. These revisions can affect operating results. We have identified below the following accounting policies that we consider to be critical.
Revenue recognition. We receive a one-time enrollment fee at the time a member joins and monthly membership dues for usage from our members. The enrollment fees are non-refundable after 14 days. Enrollment fees and related direct expenses, primarily sales commissions, are deferred and recognized on a straight-line basis over an estimated average membership life of 33 months, which is based on historical membership experience. We review the estimated average membership life on a quarterly basis, or more frequently if circumstances change. Changes in member behavior, competition, economic conditions and our performance may cause attrition levels to change, which could impact the estimated average membership life. During the years ended December 31, 2012, 2013 and 2014, our annual attrition rate fluctuated between 31.3% and 35.8%, resulting in the estimated average membership life remaining at 33 months during those periods. If the estimated average membership life had been 36 months or 30 months for the entire year ended December 31, 2014, the impact of this change in accounting estimate on our income from continuing operations and net income would have been less than $0.1 million, and the change in accounting estimate would have had no impact on our basic and diluted earnings per common share. If the direct expenses related to the enrollment fees exceed the enrollment fees for any center, the amount of direct expenses in excess of the enrollment fees are expensed in the current period instead of deferred over the average membership life. The amount of direct expenses in excess of enrollment fees totaled $28.7 million, $26.2 million and $20.7 million for the years ended December 31, 2014, 2013 and 2012, respectively. Monthly membership dues paid in advance of a center opening are deferred until the center opens. We only offer members month-to-month memberships and recognize as revenue the monthly membership dues in the month to which they pertain.
We provide services at each of our centers, including personal training, spa, café and other member services. Revenue from spa and café services and products is recognized at the point of sale to the customer. Personal training revenue received in advance of training sessions and the related commissions are deferred and recognized based on historical member usage.
Other revenue includes revenue from our health, events and media businesses. Health revenue is recognized primarily at the time the service is performed. For athletic events, revenue is generated primarily through sponsorship sales and race registration fees. Athletic event revenue and race registration revenue is recognized upon the completion of the event. Race timing revenue is recognized at the time of delivery to the customer. Media advertising revenue is recognized over the duration of the advertising placement.
Share-based compensation. We maintain share-based incentive plans, which include nonvested share awards, stock options and an ESPP. See footnote 7, Share-Based Compensation to our consolidated financial statements for a complete discussion of our share-based compensation plans.
We determine the fair value of our nonvested share awards at the date of grant using the closing market price of our stock. Performance-based restricted share awards require management to make assumptions regarding the likelihood of achieving performance goals.
In 2012, the Compensation Committee approved the grant of a total of 658,500 shares of long-term performance-based restricted stock to serve as an incentive to our management team to achieve certain cumulative diluted EPS and return on invested capital (“ROIC”) targets during performance periods that end on December 31, 2015 and December 31, 2016. The cumulative diluted EPS target measures cumulative diluted EPS for each quarter during the period from April 1, 2012 to the end of the applicable performance period. These targets are $13.68 cumulative diluted EPS through 2015 and $18.96 cumulative diluted EPS through 2016. The ROIC target is measured in the last year of the applicable performance period. These targets are 8.9% for 2015 and 9.0% for 2016. If the specified

33


cumulative diluted EPS and ROIC targets are met or exceeded for the performance period ending December 31, 2015, 50% of the restricted shares will vest. If the specified cumulative diluted EPS and ROIC targets are met or exceeded for the performance period ending December 31, 2016, then all of the restricted shares will vest. In the event that we do not achieve the specified cumulative diluted EPS and ROIC targets for the performance period ending December 31, 2016, the restricted shares will be forfeited. At December 31, 2014, 565,500 shares remained outstanding under this grant and a maximum of $26.0 million could be recognized as compensation expense with respect to this grant if all cumulative diluted EPS and ROIC targets are met.
We currently do not believe that achievement of either the cumulative diluted EPS or the ROIC targets is currently probable, and, therefore, we did not recognize any compensation expense associated with the grant during the year ended December 31, 2014. If all of the targets had been considered probable at December 31, 2014, we would have recognized $16.8 million of non-cash performance share-based compensation expense during the year ended December 31, 2014. If it becomes probable that the cumulative diluted EPS and ROIC performance targets will be achieved, a cumulative adjustment will be recorded and the remaining compensation expense will be recognized over the remaining performance period. The probability of reaching the targets is evaluated each reporting period.
Our ESPP provides for the sale of shares of our common stock to our employees at discounted purchase prices. The cost per share under this plan is 90% of the fair market value of our common stock on the last day of the purchase period, as defined. Compensation expense under the ESPP is based on the discount of 10% at the end of the purchase period.
A 10% change in our share-based compensation expense for the year ended December 31, 2014 would have affected net income by approximately $0.8 million in fiscal 2014. This change would have no effect on our basic or diluted earnings per common share.
Impairment of Long-lived Assets. The carrying value of long-lived assets is reviewed annually and whenever events or changes in circumstances indicate that such carrying values may not be recoverable. We consider a history of consistent and significant operating losses, or the inability to recover net book value over the remaining useful life, to be our primary indicator of potential impairment. Judgments regarding existence of impairment indicators are based on factors such as operational performance (including revenue and expense growth rates), market conditions, and expected holding period of each asset. We evaluate assets for impairment at the lowest levels for which there are identifiable cash flows, which is generally at an individual center level or ancillary business. The determination of whether impairment has occurred is based on an estimate of undiscounted future cash flows directly related to that center, compared to the carrying value of these assets. If impairment has occurred, the amount of impairment recognized is determined by estimating the fair value of these assets and recording a loss if the carrying value is greater than the fair value. Worsening operational performance, market conditions or change in expected holding periods of each asset may cause us to re-evaluate the assumptions used in management's analysis. If the estimate of our undiscounted future cash flows at our center level had decreased by 5%, the impact of this change in accounting estimate would not have resulted in impairment, and the change in accounting estimate would have had no impact on our net income or basic and diluted earnings per common share. Based upon our review and analysis, no impairments on long-lived assets were deemed to have occurred during 2014, 2013 or 2012.
Impairment of Goodwill and Intangible Assets. We assess the recoverability of goodwill and intangible assets on an annual basis on September 30, or more often if indicators warrant, by determining whether the fair value of each reporting unit supports its carrying value. The valuation of goodwill and intangible assets requires assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows and discount rates. A significant change in the factors noted above could cause us to reduce the estimated fair value of some or all of our reporting units and recognize a corresponding impairment of our goodwill or other intangible assets in connection with a future impairment test. Adverse changes in strategy, market conditions or assumed market capitalization may result in an impairment of goodwill or intangible assets. Based upon our review and analysis, no material impairments on goodwill or intangible assets were deemed to have occurred during 2014, 2013 or 2012.

34


Results of Operations
The following table sets forth our consolidated statements of operations data as a percentage of total revenue for the periods indicated:
 
For the Year Ended December 31,
 
2014
 
2013
 
2012
REVENUE:
 
 
 
 
 
Membership dues    
62.8
 %
 
63.6
 %
 
64.6
 %
Enrollment fees    
0.9

 
1.2

 
1.4

In-center revenue    
31.9

 
31.1

 
30.8

Total center revenue    
95.6

 
95.9

 
96.8

Other revenue    
4.4

 
4.1

 
3.2

Total revenue    
100.0

 
100.0

 
100.0

OPERATING EXPENSES:
 
 
 
 
 
Center operations
57.7

 
57.1

 
57.7

Advertising and marketing    
3.3

 
3.5

 
3.5

General and administrative    
4.9

 
4.9

 
4.9

Other operating
5.2

 
5.4

 
4.6

Depreciation and amortization
11.1

 
10.1

 
10.5

Total operating expenses
82.2

 
81.0

 
81.2

Income from operations
17.8

 
19.0

 
18.8

OTHER INCOME (EXPENSE):
 
 
 
 
 
Interest expense, net
(3.3
)
 
(2.5
)
 
(2.7
)
Equity in earnings of affiliate    
0.1

 
0.1

 
0.1

Total other income (expense)
(3.2
)
 
(2.4
)
 
(2.6
)
INCOME BEFORE INCOME TAXES
14.6

 
16.6

 
16.2

PROVISION FOR INCOME TAXES
5.7

 
6.6

 
6.4

NET INCOME
8.9
 %
 
10.0
 %
 
9.8
 %

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Total revenue. Total revenue increased $84.7 million, or 7.0%, to $1,290.6 million for the year ended December 31, 2014 from $1,205.9 million for the year ended December 31, 2013.
Total center revenue grew $77.6 million, or 6.7%, to $1,233.9 million for the year ended December 31, 2014, from $1,156.3 million for the year ended December 31, 2013. Of the $77.6 million increase in total center revenue,
56.5% was from membership dues, which increased $43.9 million, or 5.7%, due to higher average dues. Our number of Access memberships increased 0.7% to 683,530 at December 31, 2014 from 678,619 at December 31, 2013.
45.7% was from in-center revenue, which increased $35.4 million, or 9.4%, primarily as a result of a $17.0 million increase in personal training revenue, a $9.8 million increase in sales of our spa and café products and services and a $5.3 million increase in our member activities revenue. Average in-center revenue per Access membership increased from $545 for the year ended December 31, 2013 to $597 for the year ended December 31, 2014.
(2.2)% was from enrollment fees, which are deferred until a center opens and recognized on a straight-line basis over our estimated average membership life. Since 2010, the estimated average membership life has been 33 months. Enrollment fees decreased $1.7 million for the year ended December 31, 2014 to $12.2 million. The revenue recognized from enrollment fees was lower in 2014 as compared to 2013 primarily due to lower average enrollment fees over the deferral period.

35


Other revenue increased $7.1 million, or 14.4%, to $56.7 million for the year ended December 31, 2014. This increase was primarily due to athletic events acquired in the first quarter of 2014.
Center operations expenses. Center operations expenses totaled $744.3 million, or 60.3% of total center revenue (or 57.7% of total revenue), for the year ended December 31, 2014, compared to $689.2 million, or 59.6% of total center revenue (or 57.1% of total revenue), for the year ended December 31, 2013. This $55.1 million increase primarily consisted of an increase of $36.7 million in additional payroll-related costs, primarily for the three centers which opened in 2013 and the six centers which opened in 2014. The increase in center operations expenses as a percent of total revenue was due primarily to centers under one year old operating at lower margins as they build their membership base coupled with lower membership dues at certain mature centers.
Advertising and marketing expenses. Advertising and marketing expenses were $42.9 million, or 3.3% of total revenue, for the year ended December 31, 2014, compared to $42.7 million, or 3.5% of total revenue, for the year ended December 31, 2013.
General and administrative expenses. General and administrative expenses were $63.1 million, or 4.9% of total revenue, for the year ended December 31, 2014, compared to $59.0 million, or 4.9% of total revenue, for the year ended December 31, 2013. This increase is primarily due to costs of $3.5 million associated with our exploration of a conversion of our real estate assets into a REIT incurred in the second half of 2014.
Other operating expenses. Other operating expenses were $67.0 million for the year ended December 31, 2014, compared to $64.6 million for the year ended December 31, 2013. This increase is primarily due to a $5.1 million increase in costs to support the athletic events acquired during the first quarter of 2014 and a legal accrual of $4.7 million associated with estimated damages from a TCPA action, partially offset by a $4.1 million reduction of a contingent consideration liability associated with a prior acquisition taken in the third quarter of 2014.
Depreciation and amortization. Depreciation and amortization was $143.9 million for the year ended December 31, 2014, compared to $121.8 million for the year ended December 31, 2013. This increase was primarily due to the depreciation on the three new facilities opened during 2013 and the six new facilities opened in 2014.
Interest expense, net. Interest expense, net of interest income, was $42.3 million for the year ended December 31, 2014, compared to $30.8 million for the year ended December 31, 2013. This increase of $11.5 million was primarily a result of an increase in debt levels during 2013 and 2014 to fund future center expansion, other growth initiatives and share repurchases.
Provision for income taxes. The provision for income taxes was $73.8 million for the year ended December 31, 2014, compared to $78.2 million for the year ended December 31, 2013. This $4.4 million decrease was due to a decrease in income before income taxes of $11.0 million. The effective income tax rate was 39.2% for the year ended December 31, 2014, compared to 39.3% for the year ended December 31, 2013.
Net income. As a result of the factors described above, net income was $114.4 million, or 8.9% of total revenue, for the year ended December 31, 2014, compared to $121.0 million, or 10.0% of total revenue, for the year ended December 31, 2013.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Total revenue. Total revenue increased $79.0 million, or 7.0%, to $1,205.9 million for the year ended December 31, 2013 from $1,126.9 million for the year ended December 31, 2012.
Total center revenue grew $65.1 million, or 6.0%, to $1,156.3 million for the year ended December 31, 2013, from $1,091.2 million for the year ended December 31, 2012. Of the $65.1 million increase in total center revenue,
60.3% was from membership dues, which increased $39.3 million, or 5.4%, due to higher average dues and increased memberships, primarily at centers open less than 37 months. Our number of Access memberships decreased 0.6% to 678,619 at December 31, 2013 from 682,621 at December 31, 2012 primarily due to our strategy to emphasize dues growth through price optimization.
41.9% was from in-center revenue, which increased $27.3 million, or 7.8%, primarily as a result of a $15.4 million increase in personal training revenue, a $6.6 million increase in sales of our spa and café products

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and services and a $4.7 million increase in our member activities revenue. Average in-center revenue per Access membership increased from $507 for the year ended December 31, 2012 to $545 for the year ended December 31, 2013.
(2.2)% was from enrollment fees, which are deferred until a center opens and recognized on a straight-line basis over our estimated average membership life. Since 2010, the estimated average membership life has been 33 months. Enrollment fees decreased $1.4 million for the year ended December 31, 2013 to $13.9 million. The revenue recognized from enrollment fees was lower in 2013 as compared to 2012 primarily caused by membership sales promotions.
Other revenue increased $13.9 million, or 38.8%, to $49.6 million for the year ended December 31, 2013. This increase was primarily due to a $12.1 million increase in athletic events and related businesses revenue.
Center operations expenses. Center operations expenses totaled $689.2 million, or 59.6% of total center revenue (or 57.1% of total revenue), for the year ended December 31, 2013, compared to $648.9 million, or 59.5% of total center revenue (or 57.7% of total revenue), for the year ended December 31, 2012. This $40.3 million increase primarily consisted of an increase of $24.7 million in additional payroll-related costs to support increased memberships and in-center revenue growth at our centers. Center operations expenses decreased as a percent of total revenue due primarily to leverage provided by dues growth.
Advertising and marketing expenses. Advertising and marketing expenses were $42.7 million, or 3.5% of total revenue, for the year ended December 31, 2013, compared to $39.9 million, or 3.5% of total revenue, for the year ended December 31, 2012. These expenses increased primarily due to increased marketing activity to drive memberships and in-center businesses.
General and administrative expenses. General and administrative expenses were $59.0 million, or 4.9% of total revenue, for the year ended December 31, 2013, compared to $55.7 million, or 4.9% of total revenue, for the year ended December 31, 2012. This increase of $3.3 million is primarily related to information technology initiatives to support our continued growth.
Other operating expenses. Other operating expenses were $64.6 million for the year ended December 31, 2013, compared to $52.3 million for the year ended December 31, 2012. This increase is primarily due to growth in infrastructure and operating costs to support the $13.9 million, or 38.8%, increase in other revenue.
Depreciation and amortization. Depreciation and amortization was $121.8 million for the year ended December 31, 2013, compared to $117.9 million for the year ended December 31, 2012. This increase was primarily due to the depreciation on the three new facilities opened during 2013.
Interest expense, net. Interest expense, net of interest income, was $30.8 million for the year ended December 31, 2013, compared to $30.7 million for the year ended December 31, 2012.
Provision for income taxes. The provision for income taxes was $78.2 million for the year ended December 31, 2013, compared to $72.2 million for the year ended December 31, 2012. This $6.0 million increase was due to an increase in income before income taxes of $16.3 million. The effective income tax rate for the year ended December 31, 2013 was 39.3% compared to 39.5% for the year ended December 31, 2012.
Net income. As a result of the factors described above, net income was $121.0 million, or 10.0% of total revenue, for the year ended December 31, 2013, compared to $110.8 million, or 9.8% of total revenue, for the year ended December 31, 2012.
Interest in an Unconsolidated Affiliated Entity
In 1999, we formed Bloomingdale LIFE TIME FITNESS, L.L.C. ("Bloomingdale LLC") with two unrelated organizations for the purpose of constructing, owning and operating a center in Bloomingdale, Illinois, which opened in February 2001. The terms of the relationship among the members are governed by an operating agreement, which expires on the earlier of December 2039 or the liquidation of Bloomingdale LLC. In December 1999, Bloomingdale LLC entered into a management agreement with us, pursuant to which we agreed to manage the day-to-day operations of the center, subject to the overall supervision by the Management Committee of Bloomingdale LLC, which is comprised of six members, two from each of the three members of the joint venture.

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We have no unilateral control of the center, as all decisions essential to the accomplishments of the purpose of the joint venture require the approval of a majority of the members. Bloomingdale LLC is accounted for as an investment in an unconsolidated affiliate and is not consolidated in our financial statements. Additional details related to our interest in Bloomingdale LLC are provided in footnote 3 to our consolidated financial statements.
Non-GAAP Financial Measures
We use EBITDA and EBITDAR as measures of operating performance.
EBITDA and EBITDAR should not be considered substitutes 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 and EBITDAR are not necessarily available for discretionary use if they are reserved for particular capital purposes, to maintain compliance with debt covenants, to service debt or to pay taxes.
We believe EBITDA and EBITDAR are useful to an investor in evaluating our operating performance because:
both are widely accepted financial indicators 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 and EBITDAR in certain of our financing documents; and
both are 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.
Our management uses EBITDA and/or EBITDAR:
as measurements of operating performance because they assist us in comparing our performance on a consistent basis;
in presentations to the members of our Board of Directors to enable our Board of Directors to have the same consistent measurement basis of operating performance used by management; and
as the basis for incentive bonuses paid to selected members of senior and center-level management.
We have provided reconciliations of EBITDA and EBITDAR to net income in the “Selected Financial Data” section.
Liquidity and Capital Resources
Liquidity
Historically, we have satisfied our liquidity needs through cash flow provided by operations, various debt arrangements and sales of equity. Our principal liquidity needs have included the development of new centers, debt service requirements, share repurchases and expenditures necessary to maintain and update our existing centers and associated fitness equipment and may include the acquisition and remodeling of centers we acquire from time to time, as well as acquisitions to support our in-center and ancillary businesses. We believe that we can satisfy our current and longer-term debt service obligations and capital expenditure requirements primarily with cash flow from operations, with existing available capacity of our revolver, by the extension of the terms of or refinancing our existing debt facilities, through sale-leaseback transactions and by continuing to raise long-term debt or equity capital, although there can be no assurance that such actions can or will be completed.
In January 2014, we obtained a mortgage loan in the original principal amount of $80.0 million on five of our facilities. In May 2014, we amended, enlarged and extended our credit facility, from $860.0 million to $1.2 billion, previously scheduled to mature in July 2018, now scheduled to mature in May 2019. In July 2014, we obtained a mortgage loan in the original principal amount of $78.0 million on five of our facilities. We expect to use the proceeds from the amended credit facility and the mortgage financings for general corporate purposes, future center expansion and to help fund other growth initiatives.
Our business model operates with negative working capital primarily for two reasons. First, we carry minimal accounts receivable due to our members' monthly membership dues paid by electronic draft. Second, we fund the

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construction of our new centers under standard arrangements with our vendors that are paid with cash flows from operations or the credit facility.
As of December 31, 2014, we had total cash and cash equivalents of $9.2 million. We also had $448.7 million available under the terms of our credit facility as of December 31, 2014.
Credit Rating. We have never had public debt. We have never requested or received a credit rating from Standard and Poor’s Rating Services or Moody’s Investor Service.
The following table summarizes our capital structure.
 
December 31,
 
2014
 
2013
 
(In thousands)
Long-term debt
$
1,178,455

 
$
824,093

Current maturities of long-term debt
22,455

 
24,505

Total debt
1,200,910

 
848,598

Financing lease obligation
54,491

 
55,966

Current portion of financing lease obligation
1,474

 
1,231

Total financing lease obligation
55,965

 
57,197

Total shareholders’ equity
1,105,124

 
1,143,714

Total capitalization
$
2,361,999

 
$
2,049,509

Operating Activities
Net cash provided by operating activities was $260.7 million for 2014, compared to $259.4 million for 2013. This change is primarily due to a $22.1 million increase in depreciation and amortization expense, partially offset by a decrease of $6.6 million in net income, a decrease of $6.6 million in deferred income taxes and a decrease of $9.3 million in working capital.
Net cash provided by operating activities was $259.4 million for 2013, compared to $256.6 million for 2012, driven primarily by a $10.2 million, or 9.2%, improvement in net income and a $9.2 million increase in deferred income taxes, partially offset by a $20.2 million change in operating assets caused primarily by a $14.1 million increase in accounts payable.
Investing Activities
Investing activities consist primarily of purchasing real property, constructing new centers, acquisitions and purchasing new fitness equipment. In addition, we invest in capital expenditures to maintain and update our existing centers. We finance the purchase of our property and equipment by cash payments or by financing through notes payable or capital lease obligations.
Net cash used in investing activities was $444.2 million for 2014, compared to $359.8 million for 2013. The increase of $84.4 million was primarily due to an $83.3 million increase in capital expenditures, most of which relates to the purchase of two of our centers previously sold in a sale leaseback transaction in 2003.
Net cash used in investing activities was $359.8 million for 2013, compared to $251.4 million for 2012. The increase of $108.4 million was primarily due to a $124.8 million increase in capital expenditures as a result of our increasing center construction activity, partially offset by a decrease of $17.4 million in acquisitions.

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Our total capital expenditures were as follows:
 
For the Year Ended December 31,
 
2014
 
2013
 
2012
 
(In thousands)
Cash purchases of property and equipment
$
432,259

 
$
348,948

 
$
224,194

Non-cash change in construction accounts payable
(15,370
)
 
22,134

 
3,316

Other non-cash changes to property and equipment
(2,708
)
 
(5,964
)
 
5,604

Total capital expenditures
$
414,181

 
$
365,118

 
$
233,114


The following schedule reflects capital expenditures by type of expenditure:
 
For the Year Ended December 31,
 
2014
 
2013
 
2012
 
(In thousands)
New center land and construction, growth initiatives, major remodels of acquired centers and the purchase of previously leased centers
$
321,637

 
$
280,176

 
$
152,215

Maintenance of existing facilities, corporate initiatives implemented in existing centers and corporate capital expenditures
92,544

 
84,942

 
80,899

Total capital expenditures
$
414,181

 
$
365,118

 
$
233,114

Beginning in 2013 and continuing in 2014, we started incremental investments in space conversions or additions within existing centers designed to enhance existing members’ experiences, driving retention, and attracting new members interested in increased specialization of programming and services that align with their areas of interest.
At December 31, 2014, we had purchased the real property for four current model centers that we plan to open in 2015 and two current model centers that we plan to open after 2015, entered into ground leases for two current model centers that we plan to open in 2015 and entered into a ground lease for one current model center that we plan to open after 2015.
In 2014, we spent approximately $16.0 million in business acquisition related costs, including costs related to several major-market athletic events.
In 2013, we spent approximately $13.2 million in business acquisition related costs, including costs related to several major-market athletic events.
In 2012, we spent approximately $30.6 million in business acquisition related costs, including costs related to a race timing company that developed a radio frequency identification timing system for athletic and endurance events including run, bike and multi-sport races. We also acquired a tennis center in the Atlanta, Georgia market which we rebranded Life Time Athletic Peachtree Corners. Additionally in 2012, we acquired certain athletic events which complement our existing portfolio of athletic events.
We expect our capital expenditures to be approximately $325 to $375 million in 2015, of which we expect to incur approximately $245 to $275 million for new center construction, expansion or remodel of existing or acquired centers and other growth initiatives and approximately $80 to $100 million for maintaining existing centers and corporate initiatives. We plan to fund these capital expenditures primarily with cash flow from operations and our credit facility.
Financing Activities
Financing activities consist primarily of proceeds from long-term debt, repayments of and proceeds from our credit facility, payments on debt obligations and repurchases of common stock.
Net cash provided by financing activities was $184.5 million for the year ended December 31, 2014, compared to $86.3 million provided by financing activities for the year ended December 31, 2013. The change of $98.2 million

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was primarily due to an increase of $168.0 million in proceeds from our credit facility, net and an increase of $36.8 million in mortgage financing, partially offset by an increase of $104.9 million in share repurchases.
Net cash provided by financing activities was $86.3 million for 2013, compared to $5.0 million for 2012. The change of $81.3 million was primarily due to $125.0 million in mortgage financing obtained during 2013, offset by an increase of $42.9 million in share repurchases.
See footnote 4, “Long-Term Debt,” to our consolidated financial statements for a description of all of our outstanding financing arrangements.
Debt Covenants
We were in compliance in all material respects with all restrictive and financial covenants under our credit facility and loan agreements as of December 31, 2014.
Our primary financial covenants are:
Covenant