Lifetime Fitness 2009 Annual Report Download - page 56

LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
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Derivative Instruments and Hedging Activities — As part of our risk management program, we may periodically use
interest rate swaps to manage known market exposures. Terms of derivative instruments are structured to match the
terms of the risk being managed and are generally held to maturity.
In 2007, we entered into an interest rate swap contract that effectively fixed the rates paid on a total of $125.0
million of variable rate borrowings at 4.825% plus the applicable spread (which depends on our cash flow leverage
ratio) until October 2010. In May 2009, we amended the interest swap contract to effectively fix the rates paid on
the $125.0 million of variable rate borrowings at 4.715% plus the applicable spread from July 2009 until October
2010. The contract has been designated a cash flow hedge against interest rate volatility. In accordance with
applicable accounting guidance, changes in the fair market value of the swap contract are recorded in accumulated
other comprehensive income (loss). As of December 31, 2009, the $2.6 million fair market value loss, net of tax, of
the swap contract was recorded as accumulated other comprehensive loss in the shareholders’ equity section of our
consolidated balance sheets and the $4.2 million gross fair market value of the swap contract was included in long-
term debt.
On an ongoing basis, we assess whether the interest rate swap used in this hedging transaction is “highly effective”
in offsetting changes in the fair value or cash flow of the hedged item by comparing the current terms of the swap
and the debt to assure they continue to coincide and through an evaluation of the continued ability of the
counterparty to the swap to honor its obligations under the swap. If it is determined that the derivative is not highly
effective as a hedge or hedge accounting is discontinued, any change in fair value of the derivative since the last date
at which it was determined to be effective would be recognized in earnings. Since there is no ineffective portion, no
amount was reclassified into earnings for the years ended December 31, 2007, 2008 or 2009.
Other Assets — We record other assets at cost. Amortization of financing costs is computed over the periods of the
related debt financing. Other assets consist of the following:
December 31,
2009 2008
Financing costs, net .................................................................................................... $ 8,535 $ 9,988
Investment in unconsolidated affiliate (see Note 3) .................................................... 3,148 2,865
Site development costs ................................................................................................ 40 618
Intangible assets .......................................................................................................... 8,596 8,596
Land held for sale ....................................................................................................... 21,346 21,105
Other ........................................................................................................................... 6,405 6,617
Total other assets ........................................................................................................ $48,070 $49,789
Site development costs consist of legal, engineering, architectural, environmental, feasibility and other direct
expenditures incurred for certain new center projects. Capitalization commences when acquisition of a particular
property is deemed probable by management. Should a specific project be deemed not viable for construction, any
capitalized costs related to that project are charged to operations at the time of that determination. Costs incurred
prior to the point at which the acquisition is deemed probable are expensed as incurred. Upon completion of a
project, the site development costs are classified as property and depreciated over the useful life of the asset.
Land held for sale consists of excess land purchased as part of our original center site acquisitions. All land held for
sale is currently being marketed for sale. If the excess land is currently under contract for sale, the cost is reflected as
current and listed within prepaid expenses and other current assets. We had $21.3 million and $21.1 million of land
held for sale, long-term, at December 31, 2009 and 2008, respectively. We had $0.0 million and $0.6 million of land
held for sale, short-term, at December 31, 2009 and 2008, respectively.