Lifetime Fitness 2013 Annual Report Download - page 57

LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
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At December 31, 2013, we had six centers under construction which we plan to open in 2014. Construction in
progress, including land for future development, totaled $202.8 million at December 31, 2013 and $100.3 million at
December 31, 2012.
Included in the construction in progress balances are site development costs which consist of legal, engineering,
architectural, environmental, feasibility and other direct expenditures incurred for certain new center projects.
Capitalization commences when acquisition of a particular property is deemed probable by management. Should a
specific project be deemed not viable for construction, any capitalized costs related to that project are charged to
operations at the time of that determination. Costs incurred prior to the point at which the acquisition is deemed
probable are expensed as incurred. Upon completion of a project, the site development costs are classified as
property and depreciated over the useful life of the asset. Site development costs were $1.5 million and $2.6 million
at December 31, 2013 and 2012, respectively.
Capitalized software includes our internally developed web-based systems to facilitate member enrollment and
management, marketing-based website development, as well as point of sale system enhancements and our payroll,
human resources and procure-to-pay software.
We capitalize interest during the construction period of our centers and this capitalized interest is included in the cost
of the building. We capitalized interest of $3.3 million and $1.1 million for the years ended December 31, 2013 and
2012, respectively.
Other equipment consists primarily of café, spa, playground and laundry equipment.
Acquisitions — We account for business acquisitions in accordance with the Financial Accounting Standards Board
("FASB") Accounting Standards Codification Topic 805, Business Combinations. This standard requires the
acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the
transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and
liabilities assumed in a business combination. Certain provisions of this standard prescribe, among other things, the
determination of acquisition-date fair value of consideration paid in a business combination (including contingent
consideration) and the exclusion of transaction and acquisition-related restructuring costs from acquisition
accounting.
In 2013, we spent approximately $13.2 million in business acquisition related costs, including several major-market
athletic events. We are currently in the process of finalizing the valuation of the assets acquired and liabilities
assumed. Our preliminary purchase price allocations are as follows: $3.2 million of identifiable assets, $4.6 million
of deferred revenue, $9.4 million of goodwill and $5.4 million of identifiable intangible assets. Additionally in 2013,
we finalized the valuation on our 2012 acquisitions which resulted in an increase of $2.6 million of goodwill.
In 2012, we spent approximately $30.6 million in acquisition related costs, including a race timing company that
developed a radio frequency identification timing system for athletic and endurance events including run, bike and
multi-sport races. Simultaneous with that acquisition, we merged a race registration business, in which we
previously owned a majority equity interest, with the race timing business. The fair values assigned to the race
timing company were approximately $11.2 million of identifiable intangible assets, $2.3 million of identifiable
assets and $5.7 million to goodwill. We also acquired a tennis center in the Atlanta, Georgia market which we
rebranded Life Time Athletic Peachtree Corners. The fair value assigned to this acquired business was
approximately $4.0 million of identifiable intangible assets. We also acquired certain athletic events which
complement our existing portfolio of athletic events. The fair values assigned to the athletic events was
approximately $3.9 million aggregate identifiable intangible assets.
In December 2011, we acquired nine centers from Lifestyle Family Fitness ("LFF"). The centers are located in or
near our existing markets, and while smaller than our typical centers, they complement our current locations in these
markets and allow us to reach key demographics in areas we don't cover with our current centers, in addition to