Lifetime Fitness 2011 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
Included in the construction in progress balances are site development costs which consist of legal, engineering,
architectural, environmental, feasibility and other direct expenditures incurred for certain new center projects.
Capitalization commences when acquisition of a particular property is deemed probable by management. Should a
specific project be deemed not viable for construction, any capitalized costs related to that project are charged to
operations at the time of that determination. Costs incurred prior to the point at which the acquisition is deemed
probable are expensed as incurred. Upon completion of a project, the site development costs are classified as
property and depreciated over the useful life of the asset. Site development costs were $5.9 million and $0.2 million
at December 31, 2011 and 2010, respectively. This $5.7 million increase is due primarily to site development, civil
engineering and zoning costs on sites that are under contract and probable of acquisition at December 31, 2011.
In 2011, we spent approximately $70.3 million in acquisition related costs including several athletic events related
businesses and a yoga business in Michigan. In addition, in late 2011, we acquired six facilities which we had
previously leased with borrowings from our credit facility plus the assumption of $72.1 million of long-term debt.
Also, in late 2011, we acquired nine centers from Lifestyle Family Fitness ("LFF"); eight of the centers we leased
and one we purchased.
Capitalized software includes our internally developed web-based systems to facilitate member enrollment and
management, marketing-based website development, as well as point of sale system enhancements and our payroll
and human resources software. Costs related to these projects have been capitalized in accordance with accounting
guidance.
We capitalize interest during the construction period of our centers and in accordance with accounting guidance on
the capitalization of interest costs, this capitalized interest is included in the cost of the building. We capitalized
interest of $1.2 million and $2.8 million for the years ended December 31, 2011 and 2010, respectively.
Other equipment consists primarily of café, spa, playground and laundry equipment.
Acquisitions — We account for business acquisitions in accordance with ASC 805, Business Combinations. This
standard requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities
assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets
acquired and liabilities assumed in a business combination. Certain provisions of this standard prescribe, among
other things, the determination of acquisition-date fair value of consideration paid in a business combination
(including contingent consideration) and the exclusion of transaction and acquisition-related restructuring costs from
acquisition accounting.
In December 2011, we acquired nine centers from LFF. The centers are located in or near our existing markets, and
while smaller than our typical centers, they complement our current locations in these markets and allow us to reach
key demographics in areas we don't cover with our current centers, in addition to taking advantage of our brand in
these markets. We lease eight of the centers and acquired the property of one center. The centers are located in or
near our existing markets. The fair values assigned to the acquired entity were approximately $1.0 million of
member relationship identifiable intangibles, $9.4 million of goodwill and the remainder of the purchase price was
related to identifiable assets.
In December 2011, we acquired the land and building of six of our existing centers we had previously leased. The
acquisition was financed by borrowings from our credit facility and the assumption of a securitized commercial
mortgage-backed loan of approximately $72.1 million (see note 4), which approximates fair value, based on an
independent assessment. Since we previously operated these centers, this acquisition was accounted for as an
acquisition of an asset group. We allocated the purchase price to land and buildings acquired based on relative fair
values as determined by independent appraisals. Previously recorded deferred rent related to these properties was
treated as a reduction of the purchase price. Additionally, we reclassified unamortized leasehold improvements on
these properties to the acquired assets.