Lifetime Fitness 2012 Annual Report Download - page 44

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presented in accordance with GAAP. The funds depicted by free cash flow are not necessarily available for
discretionary use if they are reserved for particular capital purposes, to maintain debt covenants, to service debt or to
pay taxes. We use free cash flow as a measure of cash generated after spending on property and equipment. Free
cash flow should not be considered as a substitute for net cash provided by operating activities prepared in
accordance with GAAP. Additional details related to free cash flow are provided in the "Selected Financial Data"
section.
We believe free cash flow is useful to an investor in understanding our cash flow generation and liquidity because:
• free cash flow allows us to evaluate the cash generated by operations and the ability of our operations to
fund investment items related to purchases of property and equipment, repay indebtedness, add to our cash
balance, or to use in other discretionary activities; and
• if negative, free cash flow reflects the need for incremental financing activities or use of existing cash
balances.
Our management uses the measure of free cash flow:
• to monitor cash available for repayment of indebtedness; and
• in discussions with the investment community.
We have provided reconciliations of free cash flow to cash flows from operations in the “Selected Financial Data”
section.
Seasonality of Business
Seasonal trends have an effect on our overall business. Generally, we have experienced greater membership growth
at the beginning of the year. We also experience increased membership in certain centers during the summer pool
season. During the summer months, we also experience a slight increase in in-center business activity with summer
programming and operating expenses due to our outdoor aquatics operations. We experience an increased level of
membership attrition during the third and fourth quarters as the summer pool season ends and we enter the holiday
season. This can lead to a sequential decline in memberships during those quarters.
Liquidity and Capital Resources
Liquidity
Historically, we have satisfied our liquidity needs through various debt arrangements, sales of equity and cash flow
provided by operations. Our principal liquidity needs have included the development of new centers, debt service
requirements and expenditures necessary to maintain and update our existing centers and associated fitness
equipment and may include the acquisition and remodeling of centers we acquire from time to time, as well as
acquisitions to support our in-center and ancillary businesses. We believe that we can satisfy our current and longer-
term debt service obligations and capital expenditure requirements primarily with cash flow from operations, by the
extension of the terms of or refinancing our existing debt facilities, through sale-leaseback transactions and by
continuing to raise long-term debt or equity capital, although there can be no assurance that such actions can or will
be completed.
In the second quarter of 2011, we retired mortgage debt scheduled to mature in July 2011. We also amended,
enlarged and extended our revolving credit facility, previously scheduled to mature in May 2012, now scheduled to
mature on June 30, 2016. We expect to use the proceeds from the amended revolving credit facility for general
corporate purposes, future center expansion and to help fund other growth initiatives.
Our business model operates with negative working capital primarily for two reasons. First, we carry minimal
accounts receivable due to our ability to have monthly membership dues paid by electronic draft. Second, we fund
the construction of our new centers under standard arrangements with our vendors that are paid with cash flows
from operations or the revolving credit facility.
Credit Rating. We have never had public debt. We have never requested or received a credit rating from Standard
and Poor’s Rating Services or Moody’s Investor Service.