Lifetime Fitness 2009 Annual Report Download - page 43

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Interest expense, net. Interest expense, net of interest income, was $29.6 million for the year ended December 31,
2008, compared to $25.4 million for the year ended December 31, 2007. This $4.2 million increase was primarily
the result of increased average debt balances on floating rate debt.
Provision for income taxes. The provision for income taxes was $47.2 million for the year ended December 31,
2008, compared to $45.2 million for the year ended December 31, 2007. This $2.0 million increase was due to an
increase in income before income taxes of $5.8 million. The effective income tax rate for the year ended December
31, 2008 was 39.7% compared to 39.9% for the year ended December 31, 2007.
Net income. As a result of the factors described above, net income was $71.8 million, or 9.3% of total revenue, for
the year ended December 31, 2008 compared to $68.0 million, or 10.4% of total revenue, for the year ended
December 31, 2007.
Interest in an Unconsolidated Affiliated Entity
In 1999, we formed Bloomingdale LLC with two unrelated organizations for the purpose of constructing, owning
and operating a center in Bloomingdale, Illinois, which opened in February, 2001. The terms of the relationship
among the members are governed by an operating agreement, which expires on the earlier of December 2039 or the
liquidation of Bloomingdale LLC. In December 1999, Bloomingdale LLC entered into a management agreement
with us, pursuant to which we agreed to manage the day-to-day operations of the center, subject to the overall
supervision by the Management Committee of Bloomingdale LLC, which is comprised of six members, two from
each of the three members of the joint venture. We have no unilateral control of the center, as all decisions essential
to the accomplishments of the purpose of the joint venture require the approval of a majority of the members.
Bloomingdale LLC is accounted for as an investment in an unconsolidated affiliate and is not consolidated in our
financial statements. Additional details related to our interest in Bloomingdale LLC are provided in Note 3 to our
consolidated financial statements.
Non-GAAP Financial Measures
We use EBITDA, EBITDAR and free cash flow as measures of operating performance.
EBITDA and EBITDAR should not be considered substitutes for net income, cash flows provided by operating
activities, or other income or cash flow data prepared in accordance with GAAP. The funds depicted by EBITDA
and EBITDAR are not necessarily available for discretionary use if they are reserved for particular capital purposes,
to maintain compliance with debt covenants, to service debt or to pay taxes.
We believe EBITDA and EBITDAR are useful to an investor in evaluating our operating performance and liquidity
because:
xboth are widely accepted financial indicators of a company’s ability to service its debt and we are required to
comply with certain covenants and borrowing limitations that are based on variations of EBITDA and
EBITDAR in certain of our financing documents; and
xboth are widely used to measure a company’s operating performance without regard to items such as
depreciation and amortization, which can vary depending upon accounting methods and the book value of
assets, and to present a meaningful measure of corporate performance exclusive of our capital structure and
the method by which assets were acquired.
Our management uses EBITDA and/or EBITDAR:
xas measurements of operating performance because they assists us in comparing our performance on a
consistent basis;
xin presentations to the members of our board of directors to enable our board to have the same consistent
measurement basis of operating performance used by management; and
xas the basis for incentive bonuses paid to selected members of senior and center-level management.