Fixed Asset Impairment

6 Months Ended

Jun. 30, 2015

Property, Plant and Equipment [Abstract]

Fixed Asset Impairment

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 asset and their fair values is recognized. In the three months ended June 30, 2015, the Company tested 11 underperforming clubs and recorded an impairment charge of $1,014 on leasehold improvements and furniture and fixtures at four of these clubs that experienced decreased profitability and sales levels below expectations during this period. The seven other clubs tested that did not have impairment charges had an aggregate of $2,067 of net leasehold improvements and furniture and fixtures remaining as of June 30, 2015. To the extent the HVLP pricing strategy does not meet the Company's current expectations, the Company may record additional impairment charges.

In the six months endedJune 30, 2015, the Company recorded a total of $2,151 fixed asset impairment charges at nine clubs compared to impairment charges of $4,513 at eight clubs in the six months endedJune 30, 2014. The fixed asset impairment charges are included as a component of operating expenses in a separate line on the condensed consolidated statements of operations.

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 the life of the primary asset in the asset group which is normally the life of leasehold improvements. The most significant assumptions in those budgets and forecasts relate to estimated membership and ancillary revenue, attrition rates, estimated results related to new program launches 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 approach and a cost approach.