Lifetime Fitness 2008 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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Letters of Credit — As of December 31, 2008, the Company had $8.9 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, 2008, no amounts had been
drawn on any of these irrevocable standby letters of credit.
As of December 31, 2008, the Company had posted bonds totaling $18.5 million related to construction activities
and operational licensing.
10. Related Party Transactions
We leased various fitness and office equipment from third party equipment vendors for use at the center in
Bloomingdale, Illinois. We then sublet this equipment to Bloomingdale LLC. The terms of the sublease were such
that Bloomingdale LLC was charged the equivalent of the debt service for the use of the equipment. In 2007, the
equipment was fully paid off and the leases expired, thus we did not charge Bloomingdale LLC in 2008. We charged
Bloomingdale LLC $0.4 million and $0.4 million for the years ended December 31, 2007 and 2006, respectively.
In May 2001, we completed a transaction to sell and simultaneously lease back one of our Minnesota centers. We
did not recognize any material gain or loss on the sale of the center. The purchaser and landlord in such transaction
is an entity composed of four individuals, one of whom was the former president of a wholly owned subsidiary. We
paid rent pursuant to the lease of $0.9 million for each of the years ended December 31, 2008, 2007 and 2006.
In October 2003, we leased a center located within a shopping center that is owned by a general partnership in which
our chairman of the board of directors and chief executive officer has a 50% interest. In December 2003, we and the
general partnership executed an addendum to this lease whereby we leased an additional 5,000 square feet of office
space on a month-to-month basis within the shopping center, which we terminated effective January 1, 2007. We
paid rent pursuant to this lease of $0.7 million, $0.5 million and $0.5 million for the years ended December 31,
2008, 2007 and 2006, respectively.
In May 2008, we hired a construction company to complete an excavation project on the remodel of one of our
centers. Our chairman of the board of directors and chief executive officer owns 100% of the interests in such
construction company. The total cost of the project was $0.7 million, of which $0.3 million was paid by us to the
construction company in 2008, and the balance was paid in 2009.
11. Executive Nonqualified Plan
During fiscal 2006, we implemented the Executive Nonqualified Excess Plan of Life Time Fitness, a non-qualified
deferred compensation plan. This plan was established for the benefit of our highly compensated employees, which
our plan defines as our employees whose projected compensation for the upcoming plan year would meet or exceed
the IRS limit for determining highly compensated employees. This unfunded, non-qualified deferred compensation
plan allows participants the ability to defer and grow income for retirement and significant expenses in addition to
contributions made to our 401(k) Plan.
All highly compensated employees eligible to participate in the Executive Nonqualified Excess Plan of Life Time
Fitness, including but not limited to our executives, may elect to defer up to 50% of their annual base salary and/or
annual bonus earnings to be paid in any coming year. The investment choices available to participants under the
non-qualified deferred compensation plan are of the same type and risk categories as those offered under our 401(k)
Plan and may be modified or changed by the participant or us at any time. Distributions can be paid out as in-service
payments or at retirement. Retirement benefits can be paid out as a lump sum or in annual installments over a term
of up to 10 years. We may, but do not currently plan to, make matching contributions and/or discretionary
contributions to this plan. If we did make contributions to this plan, the contributions would vest to each participant