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Fixed Asset Impairment
3 Months Ended
Mar. 31, 2014
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 guidance. The Company's long-lived assets and liabilities are grouped at the individual club level, which is the lowest level for which there are identifiable cash flows. To the extent that estimated future undiscounted net cash flows attributable to the assets are less than the carrying amount, an impairment charge equal to the difference between the carrying value of such assets and their fair values, calculated using discounted cash flows, is recognized. In the three months ended March 31, 2014, the Company tested 12 underperforming clubs and recorded an impairment loss of $3,623 on leasehold improvements and furniture and fixtures at three of these clubs that experienced decreased profitability and sales levels below expectations during this period. The nine other clubs tested that did not have impairment charges had an aggregate of $19,603 of net leasehold improvements and furniture and fixtures remaining as of March 31, 2014. The Company will continue to monitor the results and changes in expectations of these clubs closely during the remainder of 2014 to determine if fixed asset impairment charges 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 operations. The Company did not incur any fixed asset impairment charges during the three months ended March 31, 2013.

 

In determining the recoverability of fixed assets Level 3 inputs were used in determining undiscounted 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 generally estimated at approximately 3% to 5% of total revenues depending upon the conditions and needs of a given club. The fair value of fixed assets evaluated for impairment is determined considering a combination of a market participant approach and a cost approach. The remaining carrying value of the impaired assets was immaterial.