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Fixed Asset Impairment
9 Months Ended
Sep. 30, 2012
Asset Impairment Charges [Abstract]  
Fixed Asset Impairment

8. Fixed Asset Impairment

 

Fixed assets are evaluated for impairment periodically whenever events or changes in circumstances indicate that related carrying amounts may not be recoverable from undiscounted cash flows in accordance with FASB released guidance. The Company's long-lived assets and liabilities are grouped at the individual club level, which is the lowest level for which there is identifiable cash flow. To the extent that estimated future undiscounted net cash flows attributable to the asset groups are less than the carrying amount, an impairment charge equal to the difference between the carrying value of such asset groups and its fair value, calculated using discounted cash flows, is recognized. In the three months ended September 30, 2012, the Company tested eight underperforming clubs and recorded an impairment loss of $239 on leasehold improvements and furniture and fixtures at one of these clubs that experienced decreased profitability and sales levels below expectations and were therefore written down to their fair value of zero. The seven other clubs tested that did not have impairment charges had an aggregate of $15,278 of net leasehold improvements and furniture and fixtures remaining as of September 30, 2012. The Company will continue to monitor the results and changes in expectations of these clubs closely during the remainder of 2012 to determine if fixed asset impairment will be necessary. The fixed asset impairment loss is included as a component of operating expenses in a separate line on the condensed consolidated statements of income. The Company did not incur any fixed asset impairment charges during the three and nine months ended September 30, 2011.

 

The fair values of fixed assets evaluated for impairment were calculated using Level 3 inputs using discounted cash flows, which are based on internal budgets and forecasts through the end of each respective lease. The most significant assumptions in those budgets and forecasts relate to estimated membership and ancillary revenue, attrition rates, and maintenance capital expenditures, which are estimated at approximately 3% of total revenues.