Lifetime Fitness 2009 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)
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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.
We follow the applicable accounting guidance related to income taxes to recognize, measure, present and disclose
uncertain tax positions that we have taken or expect to take in our income tax returns. In accordance with this
guidance we recognize a tax position 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.
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
than the average market price of the common share were 435,128 and 136,003 for the years ended December 31,
2009 and 2008, respectively. No stock options were excluded from the calculation of diluted EPS for the year ended
December 31, 2007.
The basic and diluted earnings per share calculations are shown below:
For the Year Ended December 31,
2009 2008 2007
Net income .................................................................................................... $72,384 $71,821 $68,019
Weighted average number of common shares outstanding – basic ............... 39,297 39,002 37,518
Effect of dilutive stock options ................................................................. 69 164 476
Effect of dilutive restricted stock awards ................................................. 504 176 133
Weighted average number of common shares outstanding – diluted ....... 39,870 39,342 38,127
Basic earnings per common share ................................................................. $ 1.84 $ 1.84 $ 1.81
Diluted earnings per common share .............................................................. $ 1.82 $ 1.83 $ 1.78
The number of total common shares outstanding at December 31, 2009 was 41,410,367.
Dividends — We have not declared or paid any cash dividends on our common stock in the past. As discussed in
Note 4, the terms of our revolving credit facility and certain debt financing agreements prohibit us from paying
dividends without the consent of the lenders.