Lifetime Fitness 2013 Annual Report Download - page 39

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advance of a center opening are deferred until the center opens. We only offer members month-to-month
memberships and recognize as revenue the monthly membership dues in the month to which they pertain.
We provide services at each of our centers, including personal training, spa, café and other member services.
Revenue from spa and café services and products is recognized at the point of sale to the customer. Personal training
revenue received in advance of training sessions and the related commissions are deferred and recognized based on
historical member usage.
Other revenue includes revenue from our health, events and media businesses. Health revenue is recognized
primarily at the time the service is performed. For athletic events, revenue is generated primarily through
sponsorship sales and race registration fees. Athletic event revenue and race registration revenue is recognized upon
the completion of the event. Race timing revenue is recognized at the time of delivery to the customer. Media
advertising revenue is recognized over the duration of the advertising placement.
Share-based compensation. We maintain share-based incentive plans, which include nonvested share awards, stock
options and an employee stock purchase plan ("ESPP"). See footnote 7, Share-Based Compensation to the Notes to
Consolidated Financial Statements for a complete discussion of our share-based compensation plans.
We determine the fair value of our nonvested share awards at the date of grant using the closing market price of our
stock. Performance-based restricted share awards require management to make assumptions regarding the likelihood
of achieving performance goals.
In 2012, the Compensation Committee approved the grant of a total of 658,500 shares of long-term performance-
based restricted stock to serve as an incentive to our management team to achieve certain cumulative diluted EPS
and return on invested capital (“ROIC”) targets during performance periods that end on December 31, 2015 and
December 31, 2016. 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. These targets are $13.68 cumulative
diluted EPS through 2015 and $18.96 cumulative diluted EPS through 2016. The ROIC target is measured in the last
year of the applicable performance period. These targets are 8.9% for 2015 and 9.0% for 2016. 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. 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 $28.8 million could be recognized
as compensation expense with respect to this grant if all cumulative diluted EPS and ROIC targets are met.
We currently 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, 2013. If all of the targets had been considered probable at December 31, 2013, we would have
recognized $11.6 million of non-cash performance share-based compensation expense during the year ended
December 31, 2013. 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.
Our ESPP provides for the sale of shares of our common stock to our employees at discounted purchase prices. The
cost per share under this plan is 90% of the fair market value of our common stock on the last day of the purchase
period, as defined. Compensation expense under the ESPP is based on the discount of 10% at the end of the
purchase period.
A 10% change in our share-based compensation expense for the year ended December 31, 2013 would have affected
net income by approximately $0.7 million in fiscal 2013. This change would have no effect on our basic or diluted
earnings per common share.
Impairment of Long-lived Assets. The carrying value of long-lived assets is reviewed annually and whenever events
or changes in circumstances indicate that such carrying values may not be recoverable. We consider a history of
consistent and significant operating losses, or the inability to recover net book value over the remaining useful life,
to be our primary indicator of potential impairment. Judgments regarding existence of impairment indicators are
based on factors such as operational performance (including revenue and expense growth rates), market conditions,
and expected holding period of each asset. We evaluate assets for impairment at the lowest levels for which there are