Lifetime Fitness 2009 Annual Report Download - page 44

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We have provided reconciliations of EBITDA and EBITDAR to net income in the section “Quarterly Results
(Unaudited),” located immediately following the Report of Independent Registered Public Accounting Firm and in
the “Selected Financial Data” section.
Free cash flow is a non-GAAP measure consisting of net cash provided by operating activities, less purchases of
property and equipment. This term, as we define it, may not be comparable to a similarly titled measure used by
other companies and does not represent the total increase or decrease in the cash balance presented in accordance
with GAAP. We use free cash flow as a measure of cash generated after spending on property and equipment. Free
cash flow should not be considered as a substitute for net cash provided by operating activities prepared in
accordance with GAAP. Additional details related to free cash flow are provided in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures.”
We believe free cash flow is useful to an investor in understanding our cash flow generation because:
xfree cash flow allows us to evaluate the cash generated by operations and the ability of our operations to
fund investment items related to purchases of property and equipment, repay indebtedness, add to our cash
balance, or to use in other discretionary activities; and
xif negative, free cash flow reflects the need for incremental financing activities or use of existing cash
balances.
Our management uses free cash flow:
xto monitor cash available for repayment of indebtedness; and
xin discussions with the investment community.
We have provided reconciliations of free cash flow to cash flows from operations in the section “Quarterly Results
(Unaudited),” located immediately following the Report of Independent Registered Public Accounting Firm and in
the “Selected Financial Data” section.
Seasonality of Business
Seasonal trends have a limited effect on our overall business. Generally, we have experienced greater membership
growth at the beginning of the year. We also experience increased membership in certain centers during the summer
pool season. During the summer months, we also experience a slight increase in in-center business activity with
summer programming and operating expenses due to our outdoor aquatics operations. We experience an increased
level of membership attrition during the third and fourth quarters as the summer pool season ends and we enter the
holiday season. This can lead to a sequential decline in memberships during those quarters.
Liquidity and Capital Resources
Liquidity
Historically, we have satisfied our liquidity needs through various debt arrangements, sales of equity and cash flow
provided by operations. Principal liquidity needs have included the development of new centers, debt service
requirements and expenditures necessary to maintain and update our existing centers and associated fitness
equipment. We believe that we can satisfy our current and longer-term debt service obligations and capital
expenditure requirements primarily with cash flow from operations, by the extension of the terms of or refinancing
our existing debt facilities, through sale-leaseback transactions and by continuing to raise long-term debt or equity
capital, although there can be no assurance that such actions can or will be completed.
In 2009, we slowed our growth plans and began to generate free cash flow that allowed us to pay down a portion of
our existing debt. We plan to pay off or refinance debt scheduled to mature in 2011 and 2012, including mortgage
notes payable to Teachers Insurance and Annuity Association of America in July 2011 and our revolving credit
facility in May 2012, through cash flow from operations, refinancing existing debt facilities or issuing new debt.
Our business model operates with negative working capital because we carry minimal accounts receivable due to
our ability to have monthly membership dues paid by electronic draft, we defer enrollment fee revenue and we fund
the construction of our new centers under standard arrangements with our vendors that are paid with proceeds from
long-term debt.