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LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
47
Had compensation cost for these plans been determined consistent with SFAS 123(R) for the years ended December
31, 2005 and 2004, our net income applicable to common shareholders, basic EPS and diluted EPS would have been
reduced to the following pro forma amounts:
For the Year Ended
December 31,
2005 2004
Net income applicable to common shareholders — basic:
As reported.......................................................................... $41,213 $25,338
Pro forma ............................................................................ $35,870 $23,463
Basic earnings per common share:
As reported.......................................................................... $ 1.19 $ 1.02
Pro forma ............................................................................ $ 1.04 $ 0.95
Net income applicable to common shareholders — diluted:
As reported.......................................................................... $41,213 $28,908
Pro forma ............................................................................ $35,870 $27,033
Diluted earnings per common share:
As reported.......................................................................... $ 1.13 $ 0.87
Pro forma ............................................................................ $ 0.99 $ 0.82
The pro forma net income applicable to common shareholders, basic and diluted, for the year ended December 31,
2005, includes the compensation cost related to the vesting of certain stock options that were granted to certain
members of management at or around the time of our initial public offering. Upon meeting specific market
performance criteria governing these stock options, sixty percent of these shares had vested as of December 31,
2005. The remaining forty percent of the shares, upon meeting additional specific market performance criteria,
vested during the second quarter of 2006.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions used:
December 31,
2006 2005 2004
Risk-free interest rate........................................................................... 4.8% 4.0% 3.8%
Expected dividend yield....................................................................... — — —
Expected life in years........................................................................... 5 6 6
Volatility .............................................................................................. 35.9% 42.7% 50.5%
The volatility and expected life assumptions presented are based on an average of the volatility assumptions reported
by a peer group of publicly traded companies.
For more information on our share-based compensation plans, see Note 8.
Dividends — We have not declared or paid any cash dividends on our common stock in the past. As discussed in
Note 4, the terms of our revolving credit facility and certain debt financing agreements prohibit us from paying
dividends without the consent of the lenders.