Lifetime Fitness 2006 Annual Report Download - page 66

LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
60
Rent expense under operating leases was $13,724, $10,200 and $10,871 for the years ended December 31, 2006,
2005 and 2004, respectively. Certain lease agreements call for escalating lease payments over the term of the lease,
which result in a deferred rent liability due to recognizing the expense on the straight-line basis over the life of the
lease.
Effective July 26, 2006, our subsidiary LTF Real Estate Company, Inc., entered into a lease agreement with an affiliate of
W.P. Carey & Co. LLC (W.P. Carey), a global real estate investment firm, to operate five health and fitness facilities
located in Minneapolis/St. Paul, Minnesota, and one facility in Boca Raton, Florida, as Life Time Fitness centers. We
entered into a guarantee and suretyship agreement to guarantee the obligations of our subsidiary under the lease. W.P. Carey
agreed to provide partial funding for tenant improvements and transferred certain assets, including other health and fitness
facilities, to us in consideration for our plans to invest at least $25 million in capital improvements over the next two years
among the six leased centers. Our subsidiary also entered into a purchase agreement on July 26, 2006 with Well Prop
(Multi) LLC under which four additional properties were transferred to us in consideration for us to make the capital
improvements described above. Two of these properties consist of land and building held for sale and are classified as Other
Assets in the accompanying consolidated balance sheet. The other two properties are a satellite tennis facility and an
operating presale health and fitness facility. In a separate transaction, we entered into a lease agreement with the City of
Minneapolis on July 26, 2006, under which we will operate a health and fitness facility located in Minneapolis, Minnesota
as a Life Time Fitness center. The partial funding of the tenant improvements, the transfer of the four additional properties
in consideration for future capital improvements, and the corresponding deferred rent liability represent a non-cash
transaction, and accordingly, are not reflected in the accompanying consolidated statement of cash flows.
Litigation — We are engaged in legal proceedings incidental to the normal course of business. Due to their nature,
such legal proceedings involve inherent uncertainties, including but not limited to, court rulings, negotiations
between affected parties and governmental intervention. We have established reserves for matters that are probable
and estimable in amounts we believe are adequate to cover reasonable adverse judgments not covered by insurance.
Based upon the information available to us and discussions with legal counsel, it is our opinion that the outcome of
the various legal actions and claims that are incidental to the our business will not have a material adverse impact on
the consolidated financial position, results of operations or cash flows; however, such matters are subject to many
uncertainties, and the outcome of individual matters are not predictable with assurance.
401(k) Savings and Investment Plan — We offer a 401(k) savings and investment plan (the 401(k) Plan) to
substantially all full-time employees who have at least six months of service and are at least 21 years of age. We
made discretionary contributions to the 401(k) Plan in the amount of $1,117, $844 and $838 for the years ended
December 31, 2006, 2005 and 2004.
11. Related Party Transactions
We leased a jet until June 2003 from an aviation company that was wholly owned by our chief executive officer and
the former president of a wholly owned subsidiary. Each month we were charged the equivalent of the debt service
for the exclusive use of the jet. We also paid an hourly fee for the periodic use of other aircraft owned by the
aviation company. Beginning in July 2003, we paid an hourly rate for the periodic use of the jet. We were charged
$0, $0 and $6 for the use of this aircraft for the years ended December 31, 2006, 2005 and 2004. We purchased one
jet from the aviation company for fair market value of $3,950 in January 2004.
We reimburse a general contractor that is primarily owned by the former president of a wholly owned subsidiary for
a car allowance, car insurance premiums, executive medical benefits and life insurance premiums provided by the
general contractor to such person. Such former president incurred expenses totaling $38, $45 and $44 during the
years ended December 31, 2006, 2005 and 2004, respectively. We made payments to the general contractor in the
amounts of $48, $94 and $21 during the years ended December 31, 2006, 2005 and 2004, respectively, for expenses
incurred during these and certain prior years.
We lease various fitness and office equipment from third party equipment vendors for use at the center in
Bloomingdale, Illinois. We then sublease this equipment to Bloomingdale LLC. The terms of the sublease are such