Lifetime Fitness 2008 Annual Report Download - page 58

LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
52
Accrued Expenses — Accrued expenses consist of the following:
December 31,
2008 2007
Payroll related ................................................................................................. $ 9,063 $ 8,129
Real estate taxes .............................................................................................. 13,557 9,395
Center operating costs ..................................................................................... 11,167 17,032
Insurance ......................................................................................................... 2,659 2,692
Interest ............................................................................................................. 3,357 3,185
Other ................................................................................................................ 6,427 6,619
Total accrued expenses .................................................................................... $46,230 $47,052
Income Taxes — We account for income taxes under the asset and liability method, which requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the
financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences
between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities
is recognized in income in the period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In
making such determination, we consider all available positive and negative evidence, including scheduled reversals
of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In
the event we were to determine that we would be able to realize our deferred income tax assets in the future in
excess of their net recorded amount, we would record a valuation allowance, which would reduce the provision for
income taxes.
In July 2006, the FASB issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
(“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in
accordance with SFAS 109, “Accounting for Income Taxes.” FIN 48 provides that a tax benefit from an uncertain
tax position may be recognized when it is more likely than not that the position will be sustained upon examination,
including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax
positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the
adoption of FIN 48 and in subsequent periods. This interpretation also provides guidance on measurement,
derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
We adopted the provisions of FIN 48, on January 1, 2007. No cumulative effect upon adoption of FIN 48 was
recorded; however, certain amounts have been presented in the consolidated balance sheet in conformance with the
requirements of the statement.
We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the
accompanying consolidated statement of operations. Accrued interest and penalties are included within the related
tax liability line in the consolidated balance sheet.
Earnings per Common Share — Basic earnings per common share (“EPS”) is computed by dividing net income
applicable to common shareholders by the weighted average number of shares of common stock outstanding for
each year. Diluted EPS is computed similarly to basic EPS, except that the denominator is increased for the
conversion of any dilutive common stock equivalents, such as redeemable preferred stock, the assumed exercise of
dilutive stock options using the treasury stock method and unvested restricted stock awards using the treasury stock
method. Stock options excluded from the calculation of diluted EPS because the option exercise price was greater