Lifetime Fitness 2010 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)
50
Impairment of Long-lived Assets — The carrying value of long-lived assets is reviewed annually and whenever
events or changes in circumstances indicate that such carrying values may not be recoverable. We consider a history
of consistent and significant operating losses to be our primary indicator of potential impairment. Assets are grouped
and evaluated for impairment at the lowest level for which there are identifiable cash flows, which is generally at an
individual center level or corporate business. The determination of whether impairment has occurred is based on an
estimate of undiscounted future cash flows directly related to that center or corporate business, compared to the
carrying value of these assets. If an impairment has occurred, the amount of impairment recognized is determined by
estimating the fair value of these assets and recording a loss if the carrying value is greater than the fair value. Based
upon our review and analysis, no impairments on operating assets were deemed to have occurred during 2010, 2009
or 2008.
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 depended 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 was designated a cash flow hedge against interest rate volatility. On October 10, 2010, our
interest rate swap contract expired without renewal.
On an ongoing basis, we assessed whether the interest rate swap used in this hedging transaction was “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 continued 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 was determined that the derivative was 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 have been recognized in earnings. No amounts related to
ineffectiveness have been recognized in earnings for the years ended December 31, 2010, 2009 or 2008.
Goodwill — The goodwill acquired during the year ended December 31, 2010 is primarily from the purchase of
certain athletic events. The changes in the carrying amount of goodwill are as follows:
Balance at December 31, 2009 ............................................................................................................. $ 5,690
Goodwill acquired ................................................................................................................................ 7,632
Balance at December 31, 2010 ............................................................................................................. $13,322
In accordance with accounting guidance, goodwill is determined to have an indefinite useful life and is not
amortized but instead tested for impairment annually at September 30.