Lifetime Fitness 2012 Annual Report Download - page 43

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Provision for income taxes. The provision for income taxes was $61.8 million for the year ended
December 31, 2011, compared to $53.4 million for the year ended December 31, 2010. This $8.4 million increase
was due to an increase in income before income taxes of $20.3 million and a higher effective income tax rate in
2011. The effective income tax rate for the year ended December 31, 2011 was 40.0%, compared to 39.8% for the
year ended December 31, 2010.
Net income. As a result of the factors described above, net income was $92.6 million, or 9.1% of total revenue, for
the year ended December 31, 2011, compared to $80.7 million, or 8.8% of total revenue, for the year ended
December 31, 2010.
Interest in an Unconsolidated Affiliated Entity
In 1999, we formed Bloomingdale LIFE TIME FITNESS, L.L.C. ("Bloomingdale LLC") with two unrelated
organizations for the purpose of constructing, owning and operating a center in Bloomingdale, Illinois, which
opened in February 2001. The terms of the relationship among the members are governed by an operating
agreement, which expires on the earlier of December 2039 or the liquidation of Bloomingdale LLC. In December
1999, Bloomingdale LLC entered into a management agreement with us, pursuant to which we agreed to manage the
day-to-day operations of the center, subject to the overall supervision by the Management Committee of
Bloomingdale LLC, which is comprised of six members, two from each of the three members of the joint venture.
We have no unilateral control of the center, as all decisions essential to the accomplishments of the purpose of the
joint venture require the approval of a majority of the members. Bloomingdale LLC is accounted for as an
investment in an unconsolidated affiliate and is not consolidated in our financial statements. Additional details
related to our interest in Bloomingdale LLC are provided in Note 3 to our consolidated financial statements.
Non-GAAP Financial Measures
We use EBITDA and EBITDAR as measures of operating performance and free cash flow as a measure of operating
performance and liquidity.
EBITDA and EBITDAR should not be considered substitutes for net income, cash flows provided by operating
activities, or other income or cash flow data prepared in accordance with GAAP. The funds depicted by EBITDA
and EBITDAR are not necessarily available for discretionary use if they are reserved for particular capital purposes,
to maintain compliance with debt covenants, to service debt or to pay taxes.
We believe EBITDA and EBITDAR are useful to an investor in evaluating our operating performance because:
• both are widely accepted financial indicators of a company’s ability to service its debt and we are required
to comply with certain covenants and borrowing limitations that are based on variations of EBITDA and
EBITDAR in certain of our financing documents; and
• both are widely used to measure a company’s operating performance without regard to items such as
depreciation and amortization, which can vary depending upon accounting methods and the book value of
assets, and to present a meaningful measure of corporate performance exclusive of our capital structure and
the method by which assets were acquired.
Our management uses EBITDA and/or EBITDAR:
• as measurements of operating performance because they assist us in comparing our performance on a
consistent basis;
• in presentations to the members of our board of directors to enable our board to have the same consistent
measurement basis of operating performance used by management; and
• as the basis for incentive bonuses paid to selected members of senior and center-level management.
We have provided reconciliations of EBITDA and EBITDAR to net income in the “Selected Financial Data” section.
Free cash flow is a non-GAAP measure consisting of net cash provided by operating activities, less purchases of
property and equipment, excluding acquisitions. This term, as we define it, may not be comparable to a similarly
titled measure used by other companies and does not represent the total increase or decrease in the cash balance