Lifetime Fitness 2009 Annual Report Download - page 74

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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party appraiser. The lease is a “triple net” lease requiring our subsidiary to maintain the Properties and to pay all
operating expenses including real estate taxes and insurance for the benefit of Senior Housing. Pursuant to the terms
of a Guaranty Agreement, we have guaranteed our subsidiary’s obligations under the Lease. We, or a substitute
guarantor, must maintain a tangible net worth of at least $200.0 million. At December 31, 2009, the future minimum
lease payments due under the lease amounted to $198.9 million.
On September 26, 2008, a wholly owned subsidiary sold certain properties to LT FIT (AZ-MD) LLC, an affiliate of
W.P. Carey & Co., LLC (“W.P. Carey”). The properties are located in Scottsdale, Arizona and Columbia, Maryland
(the “Properties”), and were sold to W.P. Carey for approximately $60.5 million. Pursuant to the terms of a Lease
Agreement (the “Lease”) between our subsidiary and W.P. Carey, our subsidiary will Lease the Properties from
W.P. Carey. The Lease has a total term of 40 years, including an initial term of 20 years and four consecutive
automatic renewal terms of five years each. Renewal options may only be exercised for all the Properties combined,
and are automatically exercised if notice is not provided to W.P. Carey 18 months before the lease term ends. The
initial rent will be approximately $5.7 million per year, increased after every year during the initial term and each
year of any renewal option, if exercised, by an amount equal to 2% of the rent paid in the calendar year immediately
before the effective date of the rent increase. The Lease is an “absolute net” lease requiring our subsidiary to
maintain the Properties and to pay all operating expenses including real estate taxes and insurance for the benefit of
W.P. Carey. Pursuant to the terms of a Guaranty and Suretyship Agreement, we have guaranteed the subsidiary’s
obligations under the Lease. At December 31, 2009, the future minimum lease payments due under the lease
amounted to $130.9 million.
We account for the sale-leaseback transactions as operating leases in accordance with the applicable accounting
guidance.The gains we recognized upon completion of the sale-leaseback transactions, a total of $7.4 million, have
been deferred and are being recognized over the lease term.
Purchase Commitments — We contract in advance for land purchases and construction services and materials,
among other things. The purchase commitments were $44.6 million, $86.7 million and $156.4 million at December
31, 2009, 2008 and 2007, respectively.
Litigation — We are engaged in 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 $1.6 million, $1.5 million and $1.5 million for
the years ended December 31, 2009, 2008 and 2007, respectively.
Letters of Credit — As of December 31, 2009, the Company had $10.9 million in irrevocable standby letters of
credit outstanding, which were issued primarily to certain insurance carriers to guarantee payments of deductibles
for various insurance programs, such as workers’ compensation, commercial liability insurance, and as security for
our indebtedness to Teachers Insurance and Annuity Association of America. Such letters of credit are secured by
the collateral under the Company’s senior secured credit facility. As of December 31, 2009, no amounts had been
drawn on any of these irrevocable standby letters of credit.
As of December 31, 2009, the Company had posted bonds totaling $27.4 million related to construction activities
and operational licensing.