Total U.S. fitness club industry revenues increased at a compound annual growth rate, or CAGR, of 7.7% from $6.5 billion in 1993 to $14.8 billion in 2004, according to the International Health, Racquet and Sportsclub Association, or IHRSA. Total U.S. fitness club memberships increased at a compound annual growth rate of 5.5% from 22.9 million in 1993 to 41.3 million in 2004, according to IHRSA.

Demographic trends have helped drive the growth experienced by the fitness industry over the past decade. The industry has benefited from the aging of the “baby boomer” generation and the coming of age of their offspring, the “echo boomers” (ages eight to 26). Government-sponsored reports, such as the Surgeon General’s Report on Physical Activity & Health (1996) and the Call to Action to Prevent and Decrease Overweight and Obesity (2001), have helped to increase the general awareness of the benefits of physical exercise to these demographic segments over those of prior generations. Membership penetration (defined as club members as a percentage of the total U.S. population over the age of six) has increased significantly from 7.4% in 1990 to 14.0% in 2003, according to the IHRSA American Sports Data Health Club Trend Report.

The Company’s business is divided into regional operating lines in which its regional vice presidents of operations oversee the profit responsibility of a defined group, or cluster, of clubs. Corporate functional departments have been established to compliment each specific area of the Company’s clubs’ services, such as sales, training, group exercise programs, fitness equipment, programming, personal training, facility and equipment maintenance, housekeeping and laundry.

All of the Company’s fitness clubs offer one-on-one personal training, which is sold by the single session or in multi-session packages. The Company has implemented a comprehensive staff education curriculum, which progresses from basic knowledge and practical skills to advanced concepts and training techniques. The Company’s education program provides professional standards to ensure that its trainers provide superior service and fitness expertise to the members. There are four levels of professional competency for which different levels of compensation are paid, with mandatory requirements trainers must meet in order to achieve and maintain such status.

The Company employs program instructors, who teach aerobics, cycling, strength conditioning, boxing, yoga, Pilates and step aerobics classes, among others. All program instructors report to a centralized management structure, headed by the Vice President of Programs and Services whose department is responsible for overseeing auditions and providing in-house training to keep instructors current in the latest training techniques and program offerings. The Company also provides Group Exclusive offerings to its members, which are for-fee based programs that have smaller groups and provide more focused, and typically more advanced, training classes. Some examples of these offerings include Pilates, boxing camps and cycling camps.

Operating expenses increased $2.8 million, or 3.4%, to $84.3 million in the quarter ended March 31, 2005, from $81.5 million in the quarter ended March 31, 2004.

Club operating expenses increased by $3.6 million, or 12.9%, to $31.5 million in the quarter ended March 31, 2005, from $27.9 million in the quarter ended March 31, 2004.

Interest expense increased $1.3 million to $10.1 million during the quarter ended March 31, 2005, from $8.8 million in the quarter ended March 31, 2004.