Lifetime Fitness 2008 Annual Report Download - page 42

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(2) In 2007, we incurred approximately $98.4 million of capital expenditures related to acquisitions, updating existing
centers and corporate infrastructure. This was comprised of approximately $22.2 for the regular maintenance of
our existing center base, $28.0 million for the remodels of the seven centers leased in July 2006, $23.4 million for
the construction of our corporate office building which we moved into in December 2007, and $24.8 million for
acquisitions and general corporate purposes.
At December 31, 2008 we had purchased the real property for eight centers and entered into ground leases for two
centers.
We expect our capital expenditures to be approximately $150 to $200 million in 2009, of which we expect to incur
approximately $120 to $160 million for new center construction and approximately $30 to $40 million for the
updating of existing centers and corporate infrastructure. We plan to fund these capital expenditures with cash from
operations and our existing revolving credit facility. In addition, we will continue to pursue appropriately-priced
long-term financing, mainly in the forms of mortgages and sale leaseback transactions. Our specific expected capital
expenditures will be dependent on our cash flow from operations and our availability of additional financing.
Financing Activities
Term Notes Payable to Insurance Company
We have financed 13 of our centers with Teachers Insurance and Annuity Association of America pursuant to the
terms of individual notes. The obligations under these notes are due in full in June 2011, at which time we will owe
approximately $100 million. These notes are secured by mortgages on each of the centers specifically financed, and
we maintain a letter of credit in the amount of $5.0 million in favor of the lender. The obligations related to 10 of the
notes are amortized over a 20-year period, while the obligations related to the other three notes are being amortized
over a 15-year period. The interest rate payable under these notes has been fixed at 8.25%. The loan documents
provide that we will be in default if our Chief Executive Officer, Mr. Akradi, ceases to be Chairman of the Board of
Directors and Chief Executive Officer for any reason other than due to his death or incapacity or as a result of his
removal pursuant to our articles of incorporation or bylaws. On November 10, 2008, we entered into an Omnibus
Amendment with Teachers Insurance and Annuity Association of America (TIAA) with respect to the terms of the
mortgages that secure our obligations to TIAA. Pursuant to the terms of the Omnibus Amendment, the equity
interest requirement applicable to our Chief Executive Officer was amended such that he must, at all times during
the loan, retain at least 1.8 million shares of our common stock (subject to appropriate adjustment for stock splits
and similar readjustments), which shares on and after November 30, 2008 must be owned unencumbered, and the
equity interest requirement applicable to our other employees was amended such that our employees must, in the
aggregate, hold shares or options representing at least 3% of our outstanding common stock.
Revolving Credit Facility
On April 15, 2005, we entered into a Credit Agreement, with U.S. Bank National Association, as administrative agent and
lead arranger, J.P. Morgan Securities, Inc., as syndication agent, and the banks party thereto from time to time (the “U.S.
Bank Facility”). On May 31, 2007, we entered into a Second Amended and Restated Credit Agreement effective May 31,
2007 to amend and restate our U.S. Bank Facility. The material changes to the U.S. Bank Facility at that time were to
increase the amount of the facility from $300.0 million to $400.0 million, establish a $25.0 million accordion feature, and
extend the term of the facility by a little over one year to May 31, 2012. Interest on the amounts borrowed under the U.S.
Bank Facility continues to be based on (i) a base rate, which is the greater of (a) U.S. Bank’s prime rate and (b) the federal
funds rate plus 50 basis points, or (ii) an adjusted Eurodollar rate, plus, in either case (i) or (ii), the applicable margin within
a range based on our consolidated leverage ratio. In connection with the amendment and restatement of the U.S. Bank
Facility, the applicable margin ranges were reduced to zero at all times (from zero to 25 basis points) for base rate
borrowings and decreased to 62.5 to 150 basis points (from 75 to 175 basis points) for Eurodollar borrowings.
On September 17, 2007, we fixed $125.0 million of our revolver with an interest rate swap contract.
On January 24, 2008, we amended the facility to increase the amount of the accordion feature from $25.0 million to
$200.0 million and increase the senior secured operating company leverage ratio from not more than 2.50 to 1.00 to
not more than 3.25 to 1.00. The amendment also allows for the issuance of additional senior debt and sharing of
related collateral with lenders other than the existing bank syndicate. In the second quarter of 2008, we exercised
$70.0 million of the accordion feature with commitments from certain of our bank lenders, increasing the amount of
the facility from $400.0 million to $470.0 million. Under the terms of the amended credit facility, we may increase
the total amount of the facility up to $600.0 million through further exercise of the accordion feature by us and if
one or more lenders commit the additional $130.0 million. As of December 31, 2008, $414.6 million was outstanding
on the U.S. Bank Facility, plus $8.9 million related to letters of credit.