Lifetime Fitness 2013 Annual Report Download - page 43

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infrastructure and operating costs to support the $12.4 million increase in other revenue. This includes costs of $8.5
million associated with the acquisition of race registration and timing businesses which was acquired in the second
quarter and $2.4 million associated with launch of Commitment Day in the fourth quarter.
Depreciation and amortization. Depreciation and amortization was $115.0 million for the year ended December 31,
2012, compared to $98.8 million for the year ended December 31, 2011. This increase was primarily due to the
depreciation on the six formerly leased facilities which we acquired in December 2011 and the three new facilities
opened during 2012.
Interest expense, net. Interest expense, net of interest income, was $25.5 million for the year ended December 31,
2012, compared to $20.1 million for the year ended December 31, 2011. This $5.4 million increase was primarily
the result of an increase in debt levels during 2012. The increase in debt levels in 2012 was to help fund future
center expansion, other growth initiatives and for the December 2011 purchase of six formerly leased centers.
Provision for income taxes. The provision for income taxes was $72.7 million for the year ended December 31,
2012, compared to $61.8 million for the year ended December 31, 2011. This $10.9 million increase was due to an
increase in income before income taxes of $29.8 million partially offset by a lower effective income tax rate in 2012.
The effective income tax rate for the year ended December 31, 2012 was 39.5% compared to 40.0% for the year
ended December 31, 2011.
Net income. As a result of the factors described above, net income was $111.5 million, or 9.8% of total revenue, for
the year ended December 31, 2012, compared to $92.6 million, or 9.1% of total revenue, for the year ended
December 31, 2011.
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.