Lifetime Fitness 2012 Annual Report Download - page 77

LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
71
Special 2012 Restricted Stock Grant
In May 2012, the Compensation Committee of our Board of Directors approved the grant of 598,000 shares of long-
term performance-based restricted stock to serve as an incentive to our senior management team to achieve certain
cumulative diluted EPS and ROIC targets during performance periods that end on December 31, 2015 and
December 31, 2016. In August 2012, an additional 20,000 shares of long-term performance-based restricted stock
were granted to a new member of senior management using the same cumulative diluted EPS and ROIC targets and
vesting schedule. These shares are included in the overall number of 1,052,466 restricted shares granted during the
year ended December 31, 2012. The cumulative diluted EPS target measures cumulative diluted EPS for each
quarter during the period from April 1, 2012 to the end of the applicable performance period. The ROIC target is
measured in the last year of the applicable performance period. If the specified cumulative diluted EPS and ROIC
targets are met or exceeded for the performance period ending December 31, 2015, 50% of the restricted shares will
vest. If the specified cumulative diluted EPS and ROIC targets are met or exceeded for the performance period
ending December 31, 2016, then all of the restricted shares will vest. For example, if the 2015 performance targets
were satisfied and 50% of the shares vested, the remaining 50% of the restricted shares will vest in 2016 if the 2016
performance targets were satisfied. If the 2015 performance targets were not satisfied, but the 2016 performance
targets are met, 100% of the restricted shares will vest. In the event that we do not achieve the specified cumulative
diluted EPS and ROIC targets for the performance period ending December 31, 2016, the restricted shares will be
forfeited. A maximum of $28.5 million could be recognized as compensation expense under this grant if all
cumulative diluted EPS and ROIC targets are met.
We consider the specific cumulative diluted EPS and ROIC targets to be competitively sensitive information during
the performance period. However, the Compensation Committee set the cumulative diluted EPS targets at 1.5 times
the compound annual growth rate under our current long range plan and the ROIC targets at 1.1 times the ROIC
under our current long range plan. We do not believe that achievement of either the cumulative diluted EPS or the
ROIC targets is currently probable, and, therefore, we did not recognize any compensation expense associated with
the grant during the year ended December 31, 2012. If all of the targets had been considered probable at
December 31, 2012, we would have recognized $4.6 million of non-cash performance share-based compensation
expense during the year ended December 31, 2012. If it becomes probable that the cumulative diluted EPS and
ROIC performance targets will be achieved, a cumulative adjustment will be recorded and the remaining
compensation expense will be recognized over the remaining performance period. The probability of reaching the
targets is evaluated each reporting period. If we later determine that it is no longer probable that the minimum
cumulative diluted EPS and ROIC performance targets for the grants will be met, no further compensation expense
will be recognized and any previously recognized compensation expense will be reversed. In accordance with the
related accounting guidance, none of these shares were included in our total diluted share count at December 31,
2012.