Life Time Group Holdings, Inc. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) F- 2 Consolidated Financial Statements Consolidated Balance Sheets F- 4 Consolidated Statements of Operations F- 5 Consolidated Statements of Comprehensive Los s (Income) F- 6 Consolidated Statement s of Stockholders’ Equity F- 7 Consolidated Statements of Cash Flows F- 8 Notes to Consolidated Financial Statements F- 9 F-1 Table of Content s REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Life Time Group Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Life Time Group Holdings, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive (loss) income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Sale-Leaseback Transactions—Refer to Notes 2 and 9 to the financial statements Critical Audit Matter Description As described in Note 9 to the Company’s consolidated financial statements, the Company entered into two sale-leaseback transactions, involving two properties, with unrelated third parties during the year ended December 31, 2021. Under these transactions, the Company sold property with a net book value of $85.8 million for cash proceeds of $76.0 million, which was reduced by transactions costs of $2.0 million, for net cash proceeds of $74.0 million. The estimated fair value of the properties sold was $85.5 million. Accordingly, the aggregate sales price associated with these arrangements was increased, for accounting purposes, by a total of $9.5 million, which resulted in the recognition of an aggregate loss of $2.3 million on these transactions. The Company determined that the transactions qualified as sale-leaseback transactions in accordance with Accounting Standards Codification (“ASC”) Topic 842, Leases . We identified management’s evaluation of whether the sale-leaseback transactions transferred control, was recognized timely, and at fair value, as a critical audit matter. Management applies judgment in assessing relevant lease terms, provisions, and other conditions, including repurchase rights, included in the Company’s sale and lease agreements to determine whether or not F-2 Table of Content s the control of the real estate property has transferred from the Company, the timing of the transaction, and the determination of fair value. Auditing these assessments made by management involved challenging auditor judgment due to the extent of specialized skills or knowledge required. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to sale-leaseback transactions included the following, among others: • Utilizing professionals with skills and knowledge to assist in: (i) assessing management’s application of ASC Topic 842 and (ii) evaluating relevant lease terms, provisions and other conditions included in the Company’s sale-leaseback agreements to assess the appropriateness of the conclusion that a transfer of control has occurred. • Evaluating whether the Company appropriately accounted for the sale by recognizing the transaction price for the sale at the time control is transferred, derecognizing the carrying amount of the asset, and accounting for the lease in accordance with ASC Topic 842. • Utilizing professionals with specialized skills and knowledge in valuation to assist, for certain transactions, with assessing whether the overall transaction was at fair value. • Recalculating the operating lease right-of-use asset and liability based on the terms of the agreement and calculated incremental borrowing rate. /s/ DELOITTE & TOUCHE LLP Minneapolis, Minnesota March 10, 2022 We have served as the Company’s auditor since 2002. F-3 Table of Content s LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) December 31, 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 31,637 $ 33,195 Accounts receivable, net 6,464 4,805 Center operating supplies and inventories 41,007 36,276 Prepaid expenses and other current assets 48,883 87,231 Income tax receivable 3,533 4,192 Total current assets 131,524 165,699 Property and equipment, net 2,791,464 2,692,712 Goodwill 1,233,176 1,233,176 Operating lease right-of-use assets 1,864,528 1,708,597 Intangible assets, net 174,241 164,419 Other assets 61,742 52,955 Total assets $ 6,256,675 $ 6,017,558 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 71,308 $ 54,104 Construction accounts payable 83,311 39,936 Deferred revenue 33,871 42,274 Accrued expenses and other current liabilities 147,920 117,675 Current maturities of debt 23,527 139,266 Current maturities of operating lease liabilities 46,315 49,877 Total current liabilities 406,252 443,132 Long-term debt, net of current portion 1,775,719 2,133,330 Operating lease liabilities, net of current portion 1,909,883 1,738,393 Deferred income taxes 55,213 195,122 Other liabilities 18,216 26,168 Total liabilities 4,165,283 4,536,145 Commitments and contingencies (Note 12) Stockholders’ equity: Common stock, $ 0.01 par value per share, 500,000 and 170,000 shares authorized, respectively; 193,060 and 145,196 shares issued and outstanding, respectively 1,931 1,452 Additional paid-in capital 2,743,560 1,569,905 Stockholder note receivable — ( 15,000 ) Accumulated deficit ( 651,083 ) ( 71,714 ) Accumulated other comprehensive loss ( 3,016 ) ( 3,230 ) Total stockholders’ equity 2,091,392 1,481,413 Total liabilities and stockholders’ equity $ 6,256,675 $ 6,017,558 See notes to consolidated financial statements. F-4 Table of Content s LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) For the Year Ended December 31, 2021 2020 2019 Revenue: Center revenue $ 1,286,634 $ 929,966 $ 1,851,345 Other revenue 31,419 18,413 49,026 Total revenue 1,318,053 948,379 1,900,371 Operating expenses: Center operations 844,098 660,046 1,041,133 Rent 209,823 186,257 165,965 General, administrative and marketing 480,543 149,898 227,684 Depreciation and amortization 235,124 247,693 220,468 Other operating 43,653 63,634 76,842 Total operating expenses 1,813,241 1,307,528 1,732,092 (Loss) income from operations ( 495,188 ) ( 359,149 ) 168,279 Other (expense) income: Interest expense, net of interest income ( 224,516 ) ( 128,394 ) ( 128,955 ) Equity in (loss) earnings of affiliate ( 9 ) ( 187 ) 805 Total other expense ( 224,525 ) ( 128,581 ) ( 128,150 ) (Loss) income before income taxes ( 719,713 ) ( 487,730 ) 40,129 (Benefit from) provision for income taxes ( 140,344 ) ( 127,538 ) 10,080 Net (loss) income ( 579,369 ) ( 360,192 ) 30,049 Less: Net income attributable to noncontrolling interest — — 24 Net (loss) income attributable to Life Time Group Holdings, Inc. $ ( 579,369 ) $ ( 360,192 ) $ 30,025 (Loss) earnings per common share – basic and diluted $ ( 3.73 ) $ ( 2.48 ) $ 0.22 Weighted-average common shares outstanding – basic and diluted 155,470 145,137 139,405 See notes to consolidated financial statements. F-5 Table of Content s LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (In thousands) For the Year Ended December 31, 2021 2020 2019 Net (loss) income $ ( 579,369 ) $ ( 360,192 ) $ 30,049 Foreign currency translation adjustments, net of tax of $ 0 214 1,422 4,794 Comprehensive (loss) income ( 579,155 ) ( 358,770 ) 34,843 Less: Comprehensive income attributable to noncontrolling interest — — 24 Comprehensive (loss) income attributable to Life Time Group Holdings, Inc. $ ( 579,155 ) $ ( 358,770 ) $ 34,819 See notes to consolidated financial statements. F-6 Table of Content s LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) Common Stock Additional Paid-in Capital Stockholder Note Receivable Retained Earnings/ (Accumulated Deficit) Accumulated Other Comprehensive Loss Noncontrolling Interest Total Equity Shares Amount Balance at December 31, 2018 137,250 $ 1,373 $ 1,376,880 $ ( 20,000 ) $ 250,517 $ ( 9,446 ) $ 554 $ 1,599,878 Adoption of ASC 842 — — — — 7,936 — — 7,936 Net income — — — — 30,025 — 24 30,049 Other comprehensive income — — — — — 4,794 — 4,794 Share-based compensation — — 24,152 — — — — 24,152 Partial forgiveness of stockholder note receivable — — ( 3,737 ) 5,000 — — — 1,263 Issuance of common stock, net of issuance costs 4,346 43 105,223 — — — — 105,266 Purchases of stock options — — ( 23,155 ) — — — — ( 23,155 ) Acquisition of noncontrolling interest — — 578 — — — ( 578 ) — Balance at December 31, 2019 141,596 1,416 1,479,941 ( 15,000 ) 288,478 ( 4,652 ) — 1,750,183 Net loss — — — — ( 360,192 ) — — ( 360,192 ) Other comprehensive income — — — — — 1,422 — 1,422 Issuance of common stock 3,600 36 89,964 — — — — 90,000 Balance at December 31, 2020 145,196 1,452 1,569,905 ( 15,000 ) ( 71,714 ) ( 3,230 ) — 1,481,413 Net loss — — — — ( 579,369 ) — — ( 579,369 ) Other comprehensive income — — — — — 214 — 214 Share-based compensation — — 334,339 — — — — 334,339 Settlement of accrued compensation liabilities through the issuance of share-based compensation awards — — 3,843 — — — — 3,843 Issuance of common stock in connection with the IPO and over-allotment exercise, net of offering costs 40,582 406 700,961 — — — — 701,367 Issuance of common stock in connection with Series A Preferred Stock conversion 6,687 67 149,518 — — — — 149,585 Issuance of restricted stock in connection with restricted Series A Preferred Stock conversion 595 6 ( 6 ) — — — — — Cancellation of stockholder note receivable — — ( 15,000 ) 15,000 — — — — Balance at December 31, 2021 193,060 $ 1,931 $ 2,743,560 $ — $ ( 651,083 ) $ ( 3,016 ) $ — $ 2,091,392 See notes to consolidated financial statements. F-7 Table of Content s LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Year Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net (loss) income $ ( 579,369 ) $ ( 360,192 ) $ 30,049 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 235,124 247,693 220,468 Deferred income taxes ( 139,941 ) ( 99,910 ) 3,436 Share-based compensation 334,339 — 24,152 Non-cash rent expense 22,602 37,105 22,521 Impairment charges associated with long-lived assets 2,076 37,754 7,218 Loss (gain) on disposal of property and equipment, net 2,746 ( 7,130 ) ( 653 ) Loss on debt extinguishment 40,993 — — Write-off of discounts and debt issuance costs 28,568 — — Amortization of debt issuance costs 9,590 12,033 11,796 Changes in operating assets and liabilities 26,717 37,517 36,559 Other ( 3,474 ) ( 851 ) 3,172 Net cash (used in) provided by operating activities ( 20,029 ) ( 95,981 ) 358,718 Cash flows from investing activities: Capital expenditures ( 328,909 ) ( 265,617 ) ( 624,017 ) Acquisitions, net of cash acquired ( 9,529 ) ( 100 ) ( 50,631 ) Proceeds from sale-leaseback transactions 73,981 235,660 194,838 Proceeds from the sale of land held for sale — 22,971 — Other ( 5,462 ) 971 1,996 Net cash used in investing activities ( 269,919 ) ( 6,115 ) ( 477,814 ) Cash flows from financing activities: Proceeds from borrowings 1,907,577 116,583 — Repayments of debt ( 2,178,004 ) ( 36,385 ) ( 35,174 ) Proceeds from senior secured credit facility 159,000 573,902 411,000 Repayments on senior secured credit facility ( 253,000 ) ( 654,902 ) ( 323,000 ) Repayments of finance lease liabilities ( 1,514 ) ( 1,343 ) ( 1,621 ) Proceeds from the issuance of common stock, net of issuance costs 701,926 90,000 105,266 Purchases of stock options — — ( 23,155 ) Increase in debt discounts and issuance costs ( 47,586 ) ( 460 ) — Net cash provided by financing activities 288,399 87,395 133,316 Effect of exchange rate on cash and cash equivalents ( 9 ) ( 55 ) 208 (Decrease) increase in cash and cash equivalents ( 1,558 ) ( 14,756 ) 14,428 Cash and cash equivalents – beginning of period 33,195 47,951 33,523 Cash and cash equivalents – end of period $ 31,637 $ 33,195 $ 47,951 See notes to consolidated financial statements. F-8 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) 1. Nature of Business and Basis of Presentation Nature of Business Life Time Group Holdings, Inc. (collectively with its direct and indirect subsidiaries, “Life Time,” “We,” “Our,” or “the Company”) is a holding company incorporated in the state of Delaware. Life Time Group Holdings, Inc. changed its name from LTF Holdings, Inc. effective on June 21, 2021. As a holding company, Life Time Group Holdings, Inc. does not have its own independent assets or business operations, and all of our assets and business operations are through Life Time, Inc. and its direct and indirect subsidiaries. We are primarily dedicated to providing premium health, fitness and wellness experiences at our athletic resort destinations and via our comprehensive digital platform and portfolio of iconic athletic events – all with the objective of inspiring healthier, happier lives. We design, build and operate our athletic resort destinations that are distinctive and large, multi-use sports and athletic, professional fitness, family recreation and spa centers in a resort-like environment. As of December 31, 2021, we operated 151 centers in 29 states and one Canadian province. COVID-19 Impact On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic and recommended containment and mitigation measures worldwide. On March 13, 2020, the United States declared a National Public Health Emergency with respect to COVID-19. On March 16, 2020, we closed all of our centers based on orders and advisories from federal, state and local governmental authorities regarding COVID-19, during which time we did not draft or collect monthly access membership dues or recurring product charges from our members. We re-opened our first center on May 8, 2020 and continued to re-open our centers as state and local governmental authorities permitted. As of December 31, 2021, all of our 151 centers were open. W e are collecting monthly access membership dues and recurring product charges from active members associated with all of our centers. Whether we will need to close any of our centers, and the duration of any such future center closures that may occur, remains uncertain and is dependent on future developments that cannot be accurately predicted at this time. Initial Public Offering On October 12, 2021, Life Time Group Holdings, Inc. consummated its initial public offering (“IPO”) of 39.0 million shares of its common stock at a public offering price of $ 18.00 per share, resulting in total gross proceeds of $ 702.0 million, which was r educed by underwriting discounts and other offering and issuance expenses of $ 27.7 million, for net proceeds of $ 674.3 million. The shares of the Company's common stock began trading on the New York Stock Exchange (the “NYSE”) under the symbol “LTH” on October 7, 2021. A registration statement on Form S-1 relating to the offering of these securities was declared effective by the Securities and Exchange Commission (the “SEC”) on October 6, 2021. Upon consummation of the IPO, the 5.4 million shares of Series A Preferred Stock (as defined in Note 10, Stockholders’ Equity) then outstanding automatically converted into approximately 6.7 million shares of common stock of Life Time Group Holdings, Inc. Also upon consummation of the IPO, the 0.5 million shares of restricted Series A Preferred Stock then outstanding converted into approximately 0.6 million restricted shares of common stock of Life Time Group Holdings, Inc. For more information regarding the Series A Preferred Stock, see Note 10, Stockholders’ Equity. On October 13, 2021, we used a portion of the $ 674.3 million of net proceeds we received in connection with the IPO to pay down $ 575.7 million (including a $ 5.7 million prepayment penalty) of our Term Loan Facility (as defined in Note 8, Debt). For more information regarding our Term Loan Facility, see Note 8, Debt. On November 1, 2021, Life Time Group Holdings, Inc. consummated the sale of nearly 1.6 million additional shares of its common stock at the IPO price of $ 18.00 per share pursuant to the partial exercise by the underwriters of their over-allotment option, resulting in total gross proceeds of approximately $ 28.4 million, which was reduced by underwriting discounts and other offering expenses of $ 1.3 million , for net proceeds of $ 27.1 million. We intend to use these net proceeds, as well as the remaining portion of the net proceeds we received in connection with the IPO after the partial pay down of our Term Loan Facility, for general corporate purposes. F-9 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Basis of Presentation The consolidated financial statements include the accounts of Life Time Group Holdings, Inc. and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In December 2019, we formed both a Delaware limited liability company named Dallas-Montfort Holdings, LLC (“D-M Holdings”) and a Delaware limited liability company named Dallas-Montfort Property, LLC, which is a wholly owned subsidiary of D-M Holdings. Also in December 2019, we and an unrelated organization each became a holder of 50 % of the membership interests in D-M Holdings in exchange for a cash capital contribution of approximately $ 16.2 million . These capital contributions were made in connection with the acquisition of a property in Texas. See “Other Assets” within Note 2 below for additional information. In 1999, we, together with two unrelated organizations, formed an Illinois limited liability company named Bloomingdale LIFE TIME Fitness L.L.C. (“Bloomingdale LLC”) for the purpose of constructing and operating a center in Bloomingdale, Illinois. We account for our interest in Bloomingdale LLC using the equity method. S ee “Other Assets” within Note 2 below for additional information. Effective March 30, 2018, we acquired a 50.01 % voting equity interest in Massage Retreat & Spa, Inc. (“MR&S”). Our consolidated financial statements include the operations of MR&S beginning after March 30, 2018. Effective April 30, 2019, we acquired the remaining 49.99 % voting equity interest in MR&S from our Founder, Chairman and Chief Executive Officer (“CEO”). During the fourth quarter of 2019, we made the decision to close the business operations of MR&S. 2. Summary of Significant Accounting Policies Segment Reporting Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is our Founder, Chairman and CEO . Our CODM assesses financial performance and allocates resources based on the consolidated financial results at the total entity level. Accordingly, we have determined that we have one operating segment and one reportable segment. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In recording transactions and balances resulting from business operations, we use estimates based on the best information available. We revise the recorded estimates when better information is available, facts change or we can determine actual amounts. These revisions can affect our consolidated operating results. Recently Adopted Accounting Pronouncements Leases In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02, “Leases,” as a new topic, ASC 842 (“ASC 842”). The new guidance supersedes previous lease accounting guidance and requires the recognition of right-of-use assets and lease liabilities for all leases with lease terms greater than one year. Effective January 1, 2019, we adopted ASC 842 using the “Comparatives Under 840 Option” approach to transition. Under this method, financial information related to periods prior to adoption are reported under the previous standard - ASC 840, “Leases.” The effects of adopting ASC 842 were recognized as a cumulative-effect adjustment to retained earnings as of January 1, 2019. We elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019, including not needing to reassess whether existing contracts are (or contain) leases, whether the lease classification for existing leases would differ under ASC 842 or whether initial direct costs associated with any expired or existing leases qualify for capitalization under ASC 842. We did not elect the hindsight practical expedient in determining the lease term for existing leases as of January 1, 2019. The adoption of ASC 842 did not materially impact our results of operations and had no impact on our consolidated cash flows. Upon our adoption of ASC 842, we elected the short-term lease recognition exemption, whereby F-10 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) leases with an initial term of 12 months or less are not recognized on our consolidated balance sheet. In addition, for all lease agreements entered into or reassessed after January 1, 2019, we have elected not to separate (and allocate consideration to) lease and non-lease components. Instead, we have chosen to combine lease and non-lease components and account for them as a single lease component. In April 2020, the FASB staff issued a question-and-answer document (the “Lease Modification Q&A”) that focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under ASC 842, economic relief that is agreed to or negotiated outside of the original lease agreement is typically considered a lease modification, in which case both the lessee and lessor are required to apply the respective lease modification framework, in order to determine how to account for the relief. However, if the lessee is entitled to the economic relief because of either contractual or legal rights that explicitly exist within the original lease agreement, the relief is to be accounted for outside of the lease modification framework. The Lease Modification Q&A established a different framework to account for certain lease concessions granted in response to the COVID-19 pandemic. For lease concessions related to the effects of the COVID-19 pandemic that result in the total payments required by the modified contract being substantially the same as or less than the total payments required by the original contract, the Lease Modification Q&A allows an entity to make an accounting policy election to account for these lease concessions consistent with how those concessions would be accounted for under ASC 842 as though enforceable rights and obligations for those concessions exist within the original lease agreement (regardless of whether those enforceable rights and obligations for the concessions explicitly exist within the original lease agreement). Such accounting policy election is required to be applied consistently to leases with similar characteristics and similar circumstances. Beginning in the second quarter of 2020, due to the disruption caused by the COVID-19 pandemic, we began negotiating lease concessions with many of our landlords. The concessions we were able to obtain from these landlords primarily consisted of full or partial rent payment deferrals, with scheduled repayments due at various dates through December 2021. Although these rent deferrals affect the timing of lease payments, the total amount of consideration we are required to pay under the terms of each of the renegotiated lease agreements is substantially the same as that required under the applicable original lease agreement. Consistent with the guidance provided in the Lease Modification Q&A, we made an accounting policy election to account for each of these lease concessions as if no changes had been made to the original lease agreement. Accordingly, as it relates to each of these leases, we continued to recognize rent expense each month during the deferral period in an amount equal to that which was recognized in accordance with the original lease agreement. For more information regarding leases, see “—Leases” within this footnote as well as Note 9, Leases. Other Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The guidance requires companies to record an allowance for expected credit losses over the contractual term of certain financial assets, including trade receivables and contract assets. We adopted ASU 2016-13 as of January 1, 2020. The adoption of this guidance did not materially impact our results of operations and financial position and had no impact on our cash flows. In December 2019, the FASB issued ASU 2019-12, “ Simplifying the Accounting for Income Taxes (Topic 740).” This ASU simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This ASU was effective for us effective January 1, 2021. The adoption of this ASU did not have any impact on our financial position, results of operations or cash flows. In January 2020, the FASB issued ASU 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815).” The amendments in this ASU clarify the interaction between the accounting for investments in equity securities, investment in equity method and certain derivatives instruments. The ASU is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. The Company adopted the new standard effective January 1, 2021. The adoption of this ASU did not have any impact on our financial position, results of operations or cash flows. F-11 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) New Accounting Pronouncements Not Yet Adopted In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable, or transaction based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope,” which provides implementation guidance associated with ASU 2020-04 and clarifies certain optional expedients in Topic 848. This guidance in ASU 2020-04 is effective for all entities as of March 12, 2020 and may be applied through December 31, 2022. We are currently evaluating the effect the adoption of ASU 2020-04 may have on our consolidated financial statements. In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance,” to increase the transparency of government assistance including the disclosure of the types of assistance an entity receives, an entity’s method of accounting for government assistance, and the effect of the assistance on an entity’s financial statements. The guidance in this ASU will be effective for annual periods beginning after December 15, 2021, with early adoption permitted. The amendments are to be applied prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application or, retrospectively to those transactions. We are currently evaluating the effect the adoption of this ASU may have on our disclosures. Revenue Recognition Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the transaction price consideration that we expect to receive in exchange for those goods or services. We defer the revenue associated with any unsatisfied performance obligation until the obligation is satisfied (i.e., when control of the product is transferred to the customer or a service has been completed). Center Revenue Center revenue consists of center membership and digital membership dues, enrollment fees and revenue generated within a center, which we refer to as in-center revenue. In-center revenue includes fees for personal training, aquatics, and kids programming, as well as sales of products at our cafés, and sales of products and services offered at our spas and tennis programs. Revenue from product sales is generally recognized at the point of sale to the customer; however, revenue from our various service offerings received in advance of service delivery is deferred and subsequently recognized when the services are provided. Personal training revenue received in advance of training sessions, as well as the related sales commissions, are initially deferred and subsequently recognized when the sessions are delivered. Upon recognition, sales commissions associated with personal training sessions are included in Center operations in our consolidated statements of operations. Throughout the estimated redemption period associated with prepaid sessions, we also recognize personal training breakage revenue and the related commissions, using a method that is proportionate to the pattern of redemptions. We estimate breakage based on historical redemption patterns. Generally, we receive a one-time enrollment fee at the time a member joins. The enrollment fees are nonrefundable after seven days. Enrollment fees and related direct expenses are deferred and recognized on a straight-line basis over an estimated average membership life, which is based on historical membership experience. If the direct expenses related to the enrollment fees exceed the enrollment fees for any center in a month, the amount of direct expenses in excess of the enrollment fees are expensed in the current period instead of deferred over the estimated average membership life. F-12 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Other Revenue Other revenue includes revenue generated outside of our centers, which are primarily media, athletic events and related services. Our media revenue includes our magazine, Experience Life ® , and the related advertising revenue is recognized over the duration of the advertising placement. Our athletic events revenue includes endurance activities such as running, cycling and triathlons, and our related services revenue includes revenue from our race registration and timing businesses. Athletic event revenue and race registration revenue is recognized upon the completion of the event. Other revenue also includes revenue generated from our digital memberships and our Life Time Work locations. For more information regarding revenue, see Note 6, Revenue. Cash and Cash Equivalents We classify all unrestricted cash accounts and highly liquid debt instruments purchased with original maturities of three months or less as cash and cash equivalents. Accounts Receivable Accounts receivable is presented net of allowance for doubtful accounts. The allowance for doubtful accounts was $ 0.9 million and $ 0.9 million at December 31, 2021 and 2020, respectively. Inventories Inventories are stated at the lower of cost or net realizable value and are removed from the balance on a first-in-first-out basis. The reserve for obsolescence was approximately $ 1.3 million and $ 1.1 million at December 31, 2021 and 2020, respectively. Property and Equipment Property, equipment and leasehold improvements are recorded at cost. Improvements are capitalized while repair and maintenance costs are charged to operations when incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the improvement. Accelerated depreciation methods are used for tax reporting purposes. Site development capitalization commences when acquisition of a particular property is deemed probable by management. Should a specific project be subsequently deemed not viable for construction, any capitalized costs related to that project are charged to operations at the time of that determination. Upon completion of a project, the site development costs are classified as property and depreciated over the useful life of the asset. We capitalize interest during the construction period of our centers and this capitalized interest is included in the cost of the building. Unpaid construction costs are included in Construction accounts payable on our consolidated balance sheets. Business Combinations and Asset Acquisitions We account for business combinations in accordance with ASC 805, “Business Combinations” (“ASC 805”). ASC 805 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. T he total consideration transferred in a business combination is allocated to the assets acquired and liabilities assumed, including amounts attributable to non-controlling interests, when applicable, based on their respective estimated fair values as of the date of acquisition. Goodwill recognized in a business combination represents the excess of consideration transferred over the estimated fair value of the net assets acquired in a business combination. Certain provisions within ASC 805 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. When an acquisition does not meet the definition of a business combination because either: (i) substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset, or group of similar identified assets, or (ii) the acquired entity does not have an input and a substantive process that together significantly contribute to the ability to create outputs, we F-13 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) account for the acquisition as an asset acquisition. In an asset acquisition, goodwill is not recognized, but rather, any excess purchase consideration over the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable net assets as of the acquisition date and any direct acquisition-related transaction costs are capitalized as part of the purchase consideration. For more information on the outdoor enthusiast and bicycling event that we acquired during the year ended December 31, 2021, which we accounted for as an asset acquisition, see Note 5, Goodwill and Intangibles. Impairment of Long-Lived Assets We test long-lived asset groups for impairment when events or circumstances indicate that the net book value of the asset group 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 indicators of potential impairment. Assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows, which is generally at an individual center or ancillary business level. The determination of whether impairment has occurred is based on an estimate of undiscounted future cash flows directly related to that center or ancillary business, compared to the carrying value of these assets. If an impairment has occurred, the amount of impairment recognized is determined by estimating the fair value of these assets and recording a loss if the carrying value is greater than the fair value. The temporary closure of our centers during 2020 due to COVID-19, as well as the continued uncertainty of the extent of the impact of COVID-19 on our business, is an impairment trigger. As a result of the impact of COVID-19 on our business during 2021 and 2020, and for other reasons during 2019, we determined that certain projects were no longer deemed viable for construction, and that the previously capitalized site development costs associated with these projects were impaired. During 2020, we also determined that the operating lease right-of-use assets and certain of the fixed assets associated with some of our leased centers and some of our ancillary businesses were also impaired. During 2019, we also determined that the operating lease right-of-use assets and fixed assets associated with the business operations of MR&S were impaired. Accordingly, we recognized impairment charges of $ 2.1 million, $ 37.8 million and $ 3.9 million associated with these long-lived assets during the years ended December 31, 2021, 2020 and 2019, respectively, which are included in Other operating in our consolidated statements of operations. Goodwill We test goodwill for impairment on an annual basis, or more often if circumstances warrant, by estimating the fair value of the reporting unit to which the goodwill relates and comparing this fair value to the net book value of the reporting unit. Our policy is to test goodwill for impairment on October 1 of each year. If fair value of a reporting unit is less than its carrying value, we reduce the carrying value accordingly and record a corresponding impairment loss. We have two reporting units: Centers and Corporate Businesses. At both December 31, 2021 and 2020, out of the total goodwill balance of $ 1,233.2 million recognized on our consolidated balance sheets, $ 1,230.9 million has been allocated to our Centers reporting unit and $ 2.3 million has been allocated to our Corporate Businesses reporting unit. At December 31, 2021, the estimated fair value of our Centers reporting unit is substantially in excess of its carrying value. Based upon our review and analysis, no goodwill impairments were deemed to have occurred during the years ended December 31, 2021 and 2020. During the year ended December 31, 2019, we determined that the goodwill associated with the business operations of MR&S was impaired. Accordingly, we recognized a $ 3.3 million goodwill impairment charge during the year ended December 31, 2019, which is included in Other operating in our consolidated statement of operations for the year ended December 31, 2019. For more information on goodwill, see Note 5, Goodwill and Intangibles. Leases We lease some of our centers, offices and other facilities, as well as some office and other equipment. Excluding renewal options that are not reasonably certain to be exercised, our leases have remaining contractual terms that primarily range from one year to 28 years. Most of the leases contain renewal options and escalation clauses, and certain of them include contingent rental payments, determined based on a percentage of center-specific revenue and/or other center-specific financial metrics over contractually specified levels. Our property leases require payment of real estate taxes, insurance and common area maintenance, in addition to rent. Our lease agreements do not contain any material residual value guarantees. F-14 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Lease Cost Lease cost associated with operating leases and short-term leases is recognized on a straight-line basis from the date we take possession of the property through the end of the lease term. Finance lease right-of-use assets are amortized on a straight-line basis over the shorter of the estimated useful life of the underlying assets or the lease term. Interest associated with finance lease liabilities is recognized using the effective interest rate method. Variable lease payments not recognized in the measurement of operating and finance lease liabilities are expensed as incurred. For more information regarding lease cost included in our consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019, see Note 9, Leases. Operating Lease Right-of-Use Assets and Liabilities Upon our adoption of ASC 842 effective on January 1, 2019, we recognized operating lease right-of-use assets and liabilities of $ 1,235.1 million and $ 1,300.5 million, respectively, on our consolidated balance sheet. The measurement of each operating lease liability we recognized upon our adoption of ASC 842 represents the present value of the remaining minimum lease payments over the remaining lease term, discounted using an appropriate incremental borrowing rate, determined as of the ASC 842 adoption date. The measurement of each operating lease liability associated with leases commencing during the years ended December 31, 2021 and 2020 represents the present value of the full amount of the remaining lease payments over the remaining lease term, discounted using an appropriate incremental borrowing rate, determined as of the lease commencement date. The measurement of each operating lease right-of-use asset we recognized upon our adoption of ASC 842 represents the related operating lease liability measurement increased by, as applicable, prepaid rent, leasehold right and favorable lease asset balances and decreased by, as applicable, unfavorable lease liability and deferred rent balances, as well as tenant allowances previously received or due from landlords. In addition, certain operating lease right-of-use assets were reduced by pre-tax impairment charges, which were recognized as a cumulative effect adjustment to beginning retained earnings. The measurement of each operating lease right-of-use asset associated with leases that commenced during the years ended December 31, 2021 and 2020 represents the related operating lease liability measurement increased by, as applicable, prepaid rent and decreased by, as applicable, lease incentives. For more information regarding the operating lease right-of-use assets and liabilities that are recognized on our December 31, 2021 and 2020 consolidated balance sheets, see Note 9, Leases. Finance Lease Right-of-Use Assets and Liabilities The measurement of each finance lease right-of-use asset we recognized upon our adoption of ASC 842 represents the aggregate of the carrying value of the related capital lease asset that we recognized under previous lease accounting rules. The measurement of each finance lease liability we recognized upon our adoption of ASC 842 represents the carrying value of the related capital lease obligation we recognized under previous lease accounting rules. The measurement of each finance lease right-of-use asset and liability associated with leases that commenced during the years ended December 31, 2021, 2020 and 2019 represents the present value of the full amount of the remaining payments associated with the arrangement (i.e., lease and non-lease components are combined and accounted for as a single lease component) over the remaining lease term, discounted using an appropriate incremental borrowing rate, determined as of the lease commencement date. Finance lease right-of-use assets and liabilities are included in Prepaid expenses and other current assets and Accrued expenses and other current liabilities, respectively, on our consolidated balance sheets. For more information regarding the finance lease right-of-use assets and liabilities that are recognized on our December 31, 2021 and 2020 consolidated balance sheets, see Note 9, Leases. Sale-Leaseback Transactions Under lease accounting guidance in effect prior to our adoption of ASC 842, we assessed each sale-leaseback transaction to determine if each such transaction qualified as a sale or if it was required to be treated as a financing transaction. Prior to our adoption of ASC 842, a sale-leaseback transaction associated with one of our constructed centers qualified as a sale and we initially deferred a gain on that successful sale. Upon our adoption of ASC 842, this deferred gain was recognized as a cumulative pre-tax increase in beginning retained earnings. F-15 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Prior to our adoption of ASC 842, we also had several sale-leaseback transactions that we were required to account for as financing transactions due to a prohibited form of continuing involvement with the applicable property. Upon our adoption of ASC 842, we reassessed each of these sale-leaseback transactions and determined that each of them qualified as a sale under the new lease guidance. As a result, financing accounting was discontinued, and we began accounting for each arrangement as an operating lease. Accordingly, the carrying value of the property and the related financing obligation associated with each of these arrangements was derecognized and an operating lease right-of-use asset and a related operating lease liability was recognized. Upon derecognition of the property and related financing obligations, we recognized a cumulative pre-tax increase in beginning retained earnings. Since our adoption of ASC 842, we account for sale-leaseback transactions with unrelated third parties at fair value and we account for sale-leaseback transactions with related parties at their contractually stated terms. We typically engage third-party appraisal firms to assist us in determining the estimated fair value of each property sold. Property valuations generally involve the use of the cost approach, the sales comparison approach and the income approach, each of which requires management to make assumptions and to apply judgment to determine the estimated fair value of the property. These assumptions and judgments include , but are not limited to, replacement cost estimates, comparable sales adjustments, projected net operating income estimates and capitalization rates. For more information regarding sale-leaseback transactions that occurred during the years ended December 31, 2021, 2020 and 2019, see Note 9, Leases. Build-to-Suit Lease Arrangements For some of our centers, we enter into build-to-suit lease arrangements related to the design and construction of a new center on the property. Under lease accounting guidance in effect prior to our adoption of ASC 842, due to our involvement with the property, we were considered the owner of some construction projects associated with build-to-suit lease arrangements. As a result, we were required to account for each of these arrangements as a financing transaction. Upon our adoption of ASC 842, we reassessed each of these build-to-suit lease arrangements and determined that we did not control any of the underlying assets that were either already constructed or under construction. As a result, financing accounting was discontinued, and we began accounting for each arrangement as an operating lease. Accordingly, the carrying value of the assets that we did not own and the related financing obligation associated with each of these arrangements was derecognized and an operating lease right-of-use asset and related operating lease liability was recognized. Since our adoption of ASC 842, we evaluate build-to-suit lease arrangements by first determining whether or not we control the underlying asset being constructed prior to the commencement date of the lease. If we determine that we do not control the underlying asset during the construction period, we account for the arrangement as either an operating lease or a finance lease. If we determine that we control the underlying asset during the construction period, we initially account for the arrangement as a financing transaction. For each build-to-suit arrangement that we have entered into since our adoption of ASC 842, we have determined that we either: (1) do not control the underlying asset currently under construction as of December 31, 2021; or (2) we did not control the underlying constructed asset prior to the commencement date of the lease. Accordingly, we have accounted for each build-to-suit arrangement that we have entered into since our adoption of ASC 842 as an operating lease. Intangible Assets Intangible assets at December 31, 2021 and 2020 include trade names, member relationships, customer relationships and a facility license associated with an outdoor enthusiast and bicycling event . For more information on intangible assets, see Note 5, Goodwill and Intangibles. Indefinite-Lived Intangible Assets Intangible assets that are determined to have an indefinite useful life, such as trade names, are not amortized but instead tested for impairment at least annually. Our policy is to test indefinite-lived intangible assets for impairment on October 1 of each year. We also evaluate these assets for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of an indefinite-lived intangible asset below its carrying amount. If such a review should indicate that the carrying amount of indefinite-lived intangible assets is not recoverable, we reduce the carrying amount of such assets to fair value. Based upon our review and analysis, no indefinite-lived intangible asset impairments were deemed to have occurred during any of the periods presented. F-16 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Finite-Lived Intangible Assets Finite-lived intangible assets are stated at cost, net of accumulated amortization, which is recorded on a straight-line or accelerated basis over the life of the asset. We review finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If such a review should indicate that the carrying amount of finite-lived intangible assets is not recoverable, we reduce the carrying amount of such assets to fair value. Based upon our review and analysis, no finite-lived intangible asset impairments were deemed to have occurred during any of the periods presented. Other Assets Other assets at December 31, 2021 and 2020 primarily consists of ou r executive nonqualified plan assets, o ur investment in Bloomingdale LLC, our investment in D-M Holdings, rent deposits and unamortized debt issuance costs associated with the revolving portion of our senior secured credit facility. Investment in Unconsolidated Subsidiary In December 2019, we formed both D-M Holdings and a Delaware limited liability company named Dallas-Montfort Property, LLC, which is a wholly owned subsidiary of D-M Holdings. Also in December 2019, we and an unrelated organization each became a holder of 50 % of the membership interests in D-M Holdings in exchange for a cash capital contribution of approximately $ 16.2 million. These capital contributi ons were made in connection with the acquisition of a property in Texas. Other than incurring $ 0.4 million and $ 0.1 million of expenditures, which we have recognized as additional capital contributions during the years ended December 31, 2021 and 2020, respectively, there was no activity associated with D-M Holdings during the years ended December 31, 2021 and 2020. We account for our investment in D-M Holdings using the equity method. The capital contributions we have made in connection with our 50 % membership interest in D-M Holdings are reported in Acquisitions, net of cash acquired within the investing section in our consolidated cash flow statements. Debt Discounts and Issuance Costs Debt discounts and issuance costs are amortized over the periods of the related debt financing. We recognize and present issuance costs associated with revolving debt arrangements as an asset and include the unamortized costs in Other assets on our consolidated balance sheets. We recognize and present unamortized discounts and issuance costs associated with non-revolving debt as a deduction from the face amount of related indebtedness. For more information on debt discounts and issuance costs, see Note 8, Debt. Fair Value Measurements The accounting guidance establishes a framework for measuring fair value and expanded disclosures about fair value measurements. The guidance applies to all assets and liabilities that are measured and reported on a fair value basis. This enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The guidance requires that each asset and liability carried at fair value be classified into one of the following categories: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs that are not corroborated by market data. The carrying amounts related to cash and cash equivalents, accounts receivable, income tax receivable, accounts payable and accrued liabilities approximate fair value. Fair Value Measurements on a Recurring Basis. We had no material remeasurements of such assets or liabilities to fair value during the years ended December 31, 2021 and 2020. Financial Assets and Liabilitie s . At December 31, 2021, the fair value of our outstanding Term Loan Facility, Secured Notes and Unsecured Notes was approximately $ 277.0 million, $ 957.4 million and $ 494.0 million, respectively. The carrying amount of our outstandin g mortgage notes at December 31, 2021 approximates fair value. At December 31, 2020, the carrying amount F-17 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) of our outstandin g debt, excluding debt discounts and issuance costs, approximates fair value. The f air value of our debt is based on the amount of future cash flows discounted using rates we would currently be able to realize for similar instruments of comparable maturity. If our long-term debt were recorded at fair value, it would be classified as Level 2 in the fair value hierarchy. For more information regarding our debt, see Note 8, Debt. Fair Value Measurements on a Nonrecurring Basis. Assets and liabilities that are measured at fair value on a nonrecurring basis primarily relate to our long-lived assets, goodwill and intangible assets, which are remeasured when the derived fair value is below carrying value on our consolidated balance sheets. For these assets, we do not periodically adjust carrying value to fair value except in the event of impairment. If we determine that impairment has occurred, the carrying value of the asset would be reduced to fair value and the difference would be recorded as a loss within operating income in our consolidated statements of operations. For information regarding impairment charges associated with our long-lived assets and goodwill that we recognized during each of the periods presented, see the Impairment of Long-Lived Assets and Goodwill sections within this footnote. Marketing Expenses Marketing expenses, which are included in General, administrative and marketing in our consolidated statements of operations, primarily consist of marketing department costs and media and advertising costs to support and grow our Center membership levels, in-center businesses, new center openings and our ancillary businesses. Marketing expenses are recognized as incurred. Marketing expenses for the years ended December 31, 2021, 2020 and 2019 were $ 37.1 million, $ 31.4 million and $ 54.1 million, respectively. Litigation We are currently engaged in a material litigation matter with an insurance provider involving a complaint we filed seeking declaratory relief and damages associated with a business interruption insurance claim. We are also engaged in various other legal matters incidental to the normal course of business. Due to their nature, such legal proceedings involve inherent uncertainties, including but not limited to court rulings, negotiations between affected parties and governmental intervention. We establish reserves for matters that are probable and estimable in amounts we believe are adequate to cover reasonable adverse outcomes. A gain contingency is an uncertain situation that will be resolved in the future, possibly resulting in a gain. We do not allow the recognition of a gain contingency prior to settlement of the underlying event. If we were to have a gain contingency, we would disclose it in the notes to the financial statements. Based upon the information available to us and discussions with legal counsel, it is our opinion that the outcome of the various legal actions and claims that are incidental to our business will not have a material adverse impact on our consolidated financial position, results of operations or cash flows. Such matters are subject to many uncertainties, and the outcomes of individual matters are not predictable with assurance. For more information on our legal matters, see Note 12, Commitments and Contingencies. Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance, which would reduce the provision for income taxes. Our income tax returns are periodically audited by U.S. federal, state and local and Canadian tax authorities . At any given time, multiple tax years may be subject to audit by various tax authorities. In evaluating the exposures associated with our various tax filing positions, we may record a liability for such exposures. We recognize, measure, present and disclose a liability for unrecognized tax benefits related to certain tax positions that we have taken or expect to take in our income tax returns. We recognize a tax position when it is more likely than not that the position will be sustained upon examination, including F-18 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) resolutions of any related appeals or litigation processes, based on the technical merits. We adjust our liability for unrecognized tax benefits in the period in which an uncertain tax position is effectively settled, that statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Our liability for unrecognized tax benefits, including penalties and interest, is included in Other liabilities on our consolidated balance sheets. We recognize adjustments to our liability for unrecognized tax benefits, including penalties and interest, within (Benefit from) provision for income taxes in our consolidated statements of operations. For more information on income taxes, see Note 7, Income Taxes. Share-Based Compensation We account for share-based compensation related to instruments issued to employees and non-employees in accordance with ASC 718, “Compensation - Stock Compensation” (“ASC 718”). We recognize compensation expense associated with each share-based award over the requisite service period based on the estimated grant-date fair value of the award. W e have estimated the fair value of the majority of the stock options to purchase shares of the Company’s common stock using the Black-Scholes option pricing model. This pricing model requires management to make assumptions and to apply judgment to determine the fair value of equity awards. These assumptions and judgments include the expected term of stock options, expected stock price volatility and future stock option exercise behaviors. Share-based compensation expense related to restricted stock units is recorded based on the market value of our common stock on the date of grant. We have elected to account for forfeitures as they occur. For more information on share-based compensation, see Note 10, Stockholders’ Equity. (Loss) Earnings per Share Basic (loss) earnings per share is computed by dividing (loss) income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. The numerator in the diluted (loss) income per share calculation is derived by adding the effect of assumed common stock conversions to (loss) income available to common stockholders. The denominator in the diluted (loss) income per share calculation is derived by adding shares of common stock deemed to be potentially dilutive to the weighted average number of shares of common stock outstanding during the period. Potentially dilutive securities that are subject to performance or market conditions are considered contingently issuable shares for purposes of calculating diluted (loss) earnings per share. Accordingly, these contingently issuable shares are excluded from the computation of diluted (loss) earnings per share until the performance or market conditions have been met. Other potentially dilutive securities that do not involve contingently issuable shares are also excluded from the computation of diluted (loss) earnings per share if their effect is antidilutive . Changes in Accumulated Other Comprehensive Loss The changes in accumulated other comprehensive loss during the years ended December 31, 2021 and 2020 is related to foreign currency translation adjustments associated with our Canadian operations. 3. Supplemental Balance Sheet and Cash Flow Information Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: December 31, 2021 2020 Property held for sale $ — $ 49,686 Construction contract receivables 14,949 12,398 Deferred membership origination costs 3,150 7,212 Prepaid expenses 30,784 17,935 Prepaid expenses and other current assets $ 48,883 $ 87,231 F-19 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Of the $ 49.7 million balance in Property held for sale at December 31, 2020, $ 43.7 million represents the carrying value of a property that was associated with a sale-leaseback agreement that we entered into with an unrelated third party on December 16, 2020, and the remaining $ 6.0 million represents excess land purchased as part of our original center site acquisitions. This sale-leaseback transaction closed in March 2021. If property held for sale is currently under contract for sale, the cost is reflected as a current asset and is included in Prepaid expenses and other current assets on our consolidated balance sheet. Property held for sale is stated at the lower of cost or fair value less estimated costs to sell. Property is not depreciated during the period in which it is classified as held for sale. For more information regarding sale-leaseback transactions with unrelated third parties that were consummated during the years ended December 31, 2021 and 2020, see Note 9, Leases. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: December 31, 2021 2020 Real estate taxes $ 32,955 $ 31,015 Accrued interest 35,006 15,010 Payroll liabilities 23,243 17,136 Utilities 7,022 5,379 Self-insurance accruals 18,921 22,444 Corporate accruals 24,741 24,123 Current maturities of finance lease liabilities 1,374 1,171 Other 4,658 1,397 Accrued expenses and other current liabilities $ 147,920 $ 117,675 Supplemental Cash Flow Information Decreases (increases) in operating assets and increases (decreases) in operating liabilities are as follows: Year Ended December 31, 2021 2020 2019 Accounts receivable $ ( 1,736 ) $ 11,645 $ ( 7,048 ) Center operating supplies and inventories ( 4,729 ) 8,044 ( 2,591 ) Prepaid expenses and other current assets ( 8,050 ) 12,545 640 Income tax receivable 660 4,768 31,786 Other assets 2,363 6,010 1,537 Accounts payable 17,189 397 ( 3,549 ) Accrued expenses 38,299 ( 20,585 ) 24,055 Deferred revenue ( 10,950 ) ( 8,028 ) ( 8,137 ) Other liabilities ( 6,329 ) 22,721 ( 134 ) Changes in operating assets and liabilities $ 26,717 $ 37,517 $ 36,559 F-20 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Additional supplemental cash flow information is as follows: Year Ended December 31, 2021 2020 2019 Net cash received from income tax refunds, net of taxes paid $ ( 885 ) $ ( 32,447 ) $ ( 25,319 ) Cash payments for interest, net of capitalized interest 125,411 111,696 120,880 Capitalized interest 3,749 4,942 9,091 Issuance of Series A Preferred Stock in connection with the extinguishment of secured loan — related parties 108,591 — — Conversion of Series A Preferred Stock to common stock 149,585 — — See Note 9, Leases for supplemental cash flow information associated with our lease arrangements for the years ended December 31, 2021, 2020 and 2019. 4. Property and Equipment Property and equipment, net consisted of the following: Depreciable December 31, Lives 2021 2020 Land $ 373,519 $ 353,545 Buildings and related fixtures 3 - 44 years 1,988,156 1,994,985 Leasehold improvements 1 - 25 years 397,242 279,526 Construction in progress 402,803 297,598 Equipment and other 1 - 15 years 807,842 731,250 Property and equipment, gross 3,969,562 3,656,904 Less accumulated depreciation ( 1,178,098 ) ( 964,192 ) Property and equipment, net $ 2,791,464 $ 2,692,712 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 projects. Equipment and other includes exercise equipment, capitalized software, computers, audio visual equipment, furniture and fixtures, decor and signage, as well as café, spa, playground and laundry equipment. Depreciation expense, which is included in Depreciation and amortization in our consolidated statements of operations, for the years ended December 31, 2021, 2020 and 2019 was $ 232.4 million, $ 241.6 million, and $ 210.3 million, respectively. F-21 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) 5. Goodwill and Intangibles Goodwill The goodwill balance was $ 1,233.2 million at both December 31, 2021 and December 31, 2020 . There were no changes in the carrying amount of goodwill during the years ended December 31, 2021 and December 31, 2020. Intangibles Intangible assets consisted of the following: December 31, 2021 Gross Accumulated Amortization Net Intangible Assets: Trade name $ 163,000 $ — $ 163,000 Member relationships 62,100 ( 62,100 ) — Other 16,327 ( 5,086 ) 11,241 Total intangible assets $ 241,427 $ ( 67,186 ) $ 174,241 December 31, 2020 Gross Accumulated Amortization Net Intangible Assets: Trade name $ 163,000 $ — $ 163,000 Member relationships 62,100 ( 62,100 ) — Other 5,252 ( 3,833 ) 1,419 Total intangible assets $ 230,352 $ ( 65,933 ) $ 164,419 Other intangible assets at December 31, 2021 includes a facility license as well as trade names and customer relationships associated with our race registration and timing businesses. Other intangible assets at December 31, 2020 c onsists solely of the trade names and customer relationships associated with our race registration and timing businesses. During the year ended December 31, 2021, we acquired a facility license associated with an outdoor enthusiast and bicycling event for approximately $ 10.2 million, of which approximately $ 1.1 million had yet to be paid as of December 31, 2021 and is included in Other liabilities on our consolidated balance sheets. This license expires in April 2031. The transaction was accounted for as an asset acquisition. The facility license costs are being amortized on a straight-line basis over its estimated useful life of 9.8 years. Amortization expense associated with intangible assets for the years ended December 31, 2021, 2020 and 2019 was $ 1.3 million, $ 3.8 million and $ 7.9 million, respecti vely. Amortization of intangible assets is included in Depreciation and amortization in our consolidated statements of operations. As of December 31, 2021, the expected remaining amortization associated with intangible assets for the next five years was as follows: 2022 $ 1,497 2023 1,362 2024 1,114 2025 1,114 2026 1,114 F-22 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) 6. Revenue Revenue associated with our membership dues, enrollment fees, and certain services from our in-center businesses is recognized over time as earned. Revenue associated with products and services offered in our cafes and spas, as well as through e-commerce, is recognized at a point in time. The following is a summary of revenue, by major revenue stream, that we recognized during the years ended December 31, 2021, 2020 and 2019: Year Ended December 31, 2021 2020 2019 Membership dues and enrollment fees $ 907,111 $ 651,116 $ 1,208,365 In-center revenue 379,523 278,850 642,980 Total center revenue 1,286,634 929,966 1,851,345 Other revenue 31,419 18,413 49,026 Total revenue $ 1,318,053 $ 948,379 $ 1,900,371 The timing associated with the revenue we recognized during the years ended December 31, 2021 and 2020 is as follows: For the Year Ended December 31, 2021 For the Year Ended December 31, 2020 Center Revenue Other Revenue Total Revenue Center Revenue Other Revenue Total Revenue Goods and services transferred over time $ 1,121,717 $ 31,419 $ 1,153,136 $ 815,036 $ 18,413 $ 833,449 Goods and services transferred at a point in time 164,917 — 164,917 114,930 — 114,930 Total revenue $ 1,286,634 $ 31,419 $ 1,318,053 $ 929,966 $ 18,413 $ 948,379 Contract liabilities represent payments or consideration received in advance for goods or services that the Company has not yet transferred to the customer. Contract liabilities consist primarily of deferred revenue for fees collected in advance for membership dues, enrollment fees, personal training and other center services offerings, as well as our media and athletic events. Contract liabilities at December 31, 2021 and 2020 were $ 35.9 million and $ 46.1 million, respectively. Contract liabilities that will be recognized within one year are classified as deferred revenue in our consolidated balance sheets. Deferred revenue at December 31, 2021 and 2020 was $ 33.9 million and $ 42.3 million, respectively, and consists primarily of prepaid membership dues, personal training and other in-center services, and enrollment fees. The $ 8.4 million decrease was primarily driven by the usage of membership dues credits that we gave to members during 2020 as a result of center closures. Also, deferred revenue associated with enrollment fees and center services offerings decreased as a result of our center closures in 2020. Contract liabilities that will be recognized in a future period greater than one year are classified as a component of Other liabilities in our consolidated balance sheets. Long-term contract liabilities at December 31, 2021 and 2020 were $ 2.0 million and $ 3.8 million, respectively, and consist primarily of deferred enrollment fees. The $ 1.8 million decrease was primarily related to fewer enrollment fees due to center closures during 2020. F-23 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) 7. Income Taxes The (benefit from) provision for income taxes is comprised of: For the Year Ended December 31, 2021 2020 2019 Current tax (benefit) expense Federal $ ( 528 ) $ ( 28,872 ) $ 1,358 State and local 309 1,264 5,328 Foreign — 178 149 Total current tax (benefit) expense ( 219 ) ( 27,430 ) 6,835 Deferred tax (benefit) expense Federal ( 135,789 ) ( 82,700 ) 8,040 State and local ( 8,252 ) ( 17,181 ) ( 4,258 ) Foreign 4,100 ( 29 ) ( 346 ) Total deferred tax (benefit) expense ( 139,941 ) ( 99,910 ) 3,436 Non-current benefit ( 184 ) ( 198 ) ( 191 ) (Benefit from) provision for income taxes $ ( 140,344 ) $ ( 127,538 ) $ 10,080 The amount of deferred tax (benefit) expense differs from the change in the year-end deferred tax balances due to the tax effect of other comprehensive income, additional paid-in capital items or change in state effective tax rates and foreign currency exchange rates. On March 27, 2020, Congress enacted the CARES Act to provide certain relief as a result of the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits for employee retention, deferment of the employer’s portion of social security tax payments, net operating loss carrybacks, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. An income tax benefit of $ 13.4 million was recognized as a result of the favorable federal tax rate differential from the net operating loss carrybacks under the CARES Act. The favorable federal tax rate differential is due to net operating losses generated in tax years with a federal tax rate of 21% whereas the losses were carried back to tax years with a federal tax rate of 35%. The reconciliation between our effective tax rate on income before income taxes and the statutory tax rate is as follows: For the Year Ended December 31, 2021 2020 2019 Income tax (benefit) provision at federal statutory rate $ ( 151,582 ) $ ( 102,424 ) $ 8,427 State and local income taxes, net of federal tax benefit ( 20,575 ) ( 23,357 ) 880 Goodwill impairment — — 688 CARES Act ( 1,283 ) ( 12,157 ) — Loss on debt extinguishment 8,609 — — Change in valuation allowance 16,933 9,538 65 Other, net 7,554 862 20 (Benefit from) provision for income taxes $ ( 140,344 ) $ ( 127,538 ) $ 10,080 F-24 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Deferred income taxes are the result of provisions of the tax laws that either require or permit certain items of income or expense to be reported for tax purposes in different periods than they are reported for financial reporting. The tax effect of temporary differences that gives rise to the net deferred tax liability are as follows: December 31, 2021 2020 Deferred tax assets: Lease-related liabilities $ 504,049 $ 457,882 Accrued equity compensation 76,603 75 Accrued expenses 14,221 14,114 Deferred revenue 1,491 4,147 Net operating loss 147,478 125,379 Business interest 34,185 765 Other 7,914 7,835 Valuation allowance ( 29,994 ) ( 12,957 ) Total deferred tax assets 755,947 597,240 Deferred tax liabilities: Property and equipment ( 280,816 ) ( 304,900 ) Intangibles ( 41,053 ) ( 39,136 ) Operating and finance lease right-of-use assets ( 477,414 ) ( 435,681 ) Partnership interest ( 1,710 ) ( 1,694 ) Debt issuance costs — ( 2,410 ) Prepaid expenses ( 9,002 ) ( 5,638 ) Costs related to deferred revenue ( 1,046 ) ( 2,526 ) Other ( 119 ) ( 377 ) Total deferred tax liabilities ( 811,160 ) ( 792,362 ) Net deferred tax liability $ ( 55,213 ) $ ( 195,122 ) We recognize a tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. We adjust our liability for unrecognized tax benefits in the period in which an uncertain tax position is effectively settled, that statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Unrecognized tax benefits were not significant in any of the periods presented. We are subject to taxation in the U.S., Canada and various states. Our tax years 2020, 2019, and 2018 are subject to examination by the tax authorities. With few exceptions, we are no longer subject to U.S. federal, state or local examinations by tax authorities for years before 2018. As of December 31, 2021, we had a federal income tax net operating loss carryforward related to our U.S. operations of approximately $ 554.4 million ($ 116.4 million tax effected), of which approximately $ 75.8 million ($ 15.9 million tax effected) expires in 2038 and approximately $ 478.6 million ($ 100.5 million tax effected) can be carried forward indefinitely. As of December 31, 2021, we also had state net operating loss carryforwards totaling approximately $ 436.1 million ($ 25.4 million tax effected), of which approximately $ 356.4 million ($ 19.8 million tax effected) expires between 2026 and 2042 and approximately $ 79.7 million ($ 5.6 million tax effected) can be carried forward indefinitely. As it relates to our Canada operations, we had an income tax net operating loss carryforward of approximately $ 21.4 million ($ 5.7 million tax effected) as of December 31, 2021, which is subject to expiration between tax years 2032 and 2042. As of December 31, 2020, we had a federal income tax net operating loss carryforward related to our U.S. operations of approximately $ 481.7 million ($ 101.1 million tax effected), of which approximately $ 75.8 million ($ 15.9 million tax effected) expires in 2038 and approximately $ 405.9 million ($ 85.2 million tax effected) can be carried forward indefinitely. As of December 31, 2020, we also had state net operating loss carryforwards totaling approximately $ 311.1 million ($ 18.1 million tax effected), of which approximately $ 242.0 million ($ 15.1 million tax effected) expires between 2026 and 2041 and F-25 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) approximately $ 69.1 million ($ 3.0 million tax effected) can be carried forward indefinitely. As it relates to our Canada operations, we had an income tax net operating loss carryforward of approximately $ 23.0 million ($ 6.1 million tax effected) as of December 31, 2020, which was subject to expiration between tax years 2032 and 2041. As of December 31, 2021 , we had a business interest carryforward of approximately $ 133.5 million ($ 34.2 million tax effected) that can be carried forward indefinitely. As of December 31, 2021 , we also had a general business credit carryforward of approximately $ 2.0 million that can be used to offset future U.S. federal tax liabilities and expires between tax years 2036 and 2041. As of December 31, 2020, we had a business interest carryforward of approximately $ 3.1 million ($ 0.8 million tax effected) that can be carried forward indefinitely. As of December 31, 2020, we also had a general business credit carryforward of approximately $ 1.6 million that can be used to offset future U.S. federal tax liabilities and expires between tax years 2036 and 2040. We considered all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations to determine the extent to which we believe net deferred tax assets will more likely than not be realized. Based on this assessment, as of December 31, 2021, a valuation allowance of $ 20.4 million has been recorded to reduce the deferred tax asset associated with the state net operating loss carryforwards and other deferred tax assets. As of December 31, 2021, a valuation allowance of approximately $ 8.4 million has been recorded to reduce the deferred tax asset associated with the Canadian net operating loss carryforward and other deferred tax assets. As of December 31, 2021, we had a foreign tax credit carryforward of approximately $ 1.1 million that can be used to offset future U.S. federal tax liabilities on foreign-sourced income. We project that our foreign sourced income will not be sufficient to fully utilize the credit carryforward. As a result, a valuation allowance of $ 1.1 million has been recorded as of December 31, 2021 to reduce the deferred tax asset associated with the foreign tax credit carryforward. As of December 31, 2020 , a valuation allowance of $ 7.2 million was recorded to reduce the deferred tax asset associated with the state net operating loss carryforwards and other deferred tax assets. As of December 31, 2020 , a valuation allowance of approximately $ 4.1 million was recorded to reduce the deferred tax asset associated with the Canadian net operating loss carryforward and other deferred tax assets. As of December 31, 2020 , we had a foreign tax credit carryforward of approximately $ 1.7 million that can be used to offset future U.S. federal tax liabilities on foreign-sourced income. We project that our foreign sourced income will not be sufficient to fully utilize the credit carryforward. As a result, a valuation allowance of $ 1.7 million has been recorded as of December 31, 2020 , in order to reduce the deferred tax asset associated with the foreign tax credit carryforward. We consider the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. We have not recorded a deferred tax liability related to the U.S. federal and state income taxes and foreign withholding taxes on undistributed earnings of foreign subsidiaries indefinitely invested outside the United States. F-26 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) 8. Debt Debt consisted of the following: December 31, 2021 2020 Term Loan Facility, maturing December 2024 $ 273,625 $ — Prior Term Loan Facility, retired January 2021 — 1,471,584 Prior Revolving Credit Facility, retired January 2021 — 94,000 Secured Notes, maturing January 2026 925,000 — Unsecured Notes, maturing April 2026 475,000 — 2023 Notes, retired February 2021 — 450,000 Secured loan—related parties, retired January 2021 — 101,503 Mortgage notes, various maturities 145,572 167,872 Other debt 4,122 4,289 Fair value adjustment 1,818 2,469 Total debt 1,825,137 2,291,717 Less unamortized debt discounts and issuance costs ( 25,891 ) ( 19,121 ) Total debt less unamortized debt discounts and issuance costs 1,799,246 2,272,596 Less current maturities ( 23,527 ) ( 139,266 ) Long-term debt, less current maturities $ 1,775,719 $ 2,133,330 Refinancing Transactions During the year ended December 31, 2021, Life Time, Inc., an indirect, wholly-owned subsidiary of Life Time Group Holdings, Inc., as the borrower and issuer, as applicable, together with certain other wholly-owned subsidiaries: (i) refinanced in full the then outstanding balances associated with our previous term loan facility (the “Prior Term Loan Facility”) and our prior revolving credit facility (the “Prior Revolving Credit Facility”) through net cash proceeds Life Time, Inc. received from a new term loan facility (the “Term Loan Facility”) that matures in December 2024 as well as the issuance of senior secured notes (the “Secured Notes”) that mature in January 2026; (ii) refinanced in full our previous senior unsecured notes (the “2023 Notes”) through proceeds Life Time, Inc. received from the issuance of new senior unsecured notes (the “Unsecured Notes”) that mature in April 2026; (iii) converted our then existing related party secured loan into Series A Preferred Stock; and (iv) increased the commitments under the revolving portion of our senior secured credit facility (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Credit Facilities”) and extended their maturity. Senior Secured Credit Facility In June 2015, Life Time, Inc. and certain of our other wholly-owned subsidiaries entered into a senior secured credit facility with a group of lenders led by Deutsche Bank AG as the administrative agent. On January 22, 2021, Life Time, Inc. and certain of our other wholly-owned subsidiaries entered into an eighth amendment to the credit agreement governing our senior secured credit agreement (the “Credit Agreement”). Pursuant to such eighth amendment to the Credit Agreement, Life Time, Inc. and such other subsidiaries: (i) entered into the Term Loan Facility and incurred new term loans in an aggregate principal amount of $ 850.0 million; (ii) paid off the then outstanding balances associated with the Prior Term Loan Facility and the Prior Revolving Credit Facility; and (iii) extended the maturity of $ 325.2 million of the $ 357.9 million Prior Revolving Credit Facility to September 2024. On December 2, 2021, Life Time, Inc. and certain of our other wholly-owned subsidiaries entered into a ninth amendment to the Credit Agreement. Pursuant to such ninth amendment, Life Time, Inc. and such other subsidiaries increased the commitments under the Revolving Credit Facility to $ 475.0 million and extended the maturity of the Revolving Credit Facility to December 2, 2026, except that the maturity will be: (a) September 22, 2024 if we have not refinanced or amended in a manner set forth in such amendment the Term Loan Facility by such date; (b) October 16, 2025 if we have at least $ 100.0 F-27 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) million remaining outstanding on the Secured Notes on such date; and (c) January 14, 2026 if we have at least $ 100.0 million remaining outstanding on the Unsecured Notes on such date. Upon the exercise of an accordion feature and subject to certain conditions, borrowings under the Credit Facilities may be increased subject, in certain cases, to meeting a first lien net leverage ratio. The Credit Facilities are secured by a first priority lien (on a pari-passu basis with the Secured Notes described below) on substantially all of our assets. The net cash proceeds Life Time, Inc. received under the Term Loan Facility, as well as from the Secured Notes, were used to: (i) refinance in full the then outstanding balances associated with the Prior Term Loan Facility and the Prior Revolving Credit Facility (details of which are described under “—Term Loan Facility” and “—Revolving Credit Facility,” respectively); (ii) pay debt issuance and original issue discount costs associated with each of these financing transactions (details of which are described in “—Debt Discounts and Issuance Costs” below); and (iii) strengthen our balance sheet by adding to our cash position. Term Loan Facility At both December 31, 2020 and January 22, 2021 (the effective date of the refinancing), the Prior Term Loan Facility balance was $ 1,471.6 million . Under the Term Loan Facility, Life Time, Inc. incurred new term loans in an aggregate principal amount of $ 850.0 million , of which $ 507.6 million represents cash proceeds received and $ 342.4 million represents the cashless portion of the Prior Term Loan Facility that was rolled over into the Term Loan Facility. On January 22, 2021, we used the net cash proceeds received from the Term Loan Facility, as well as a portion of the net proceeds received from the Secured Notes, to pay off the remaining $ 1,129.2 million Prior Term Loan Facility balance. The $ 850.0 million Term Loan Facility, which matures in December 2024, initially amortized at 0.25 % quarterly, which required us to make three mandatory quarterly principal repayments of approximately $ 2.1 million during the year ended December 31, 2021. On October 13, 2021, we used a portion of net proceeds we received in connection with the IPO to pay down $ 575.7 million (including a $ 5.7 million prepayment penalty) of our Term Loan Facility. As a result of the pay down, we are no longer required to make quarterly principal payments on the Term Loan Facility prior to its maturity. At December 31, 2021, the Term Loan Facility loan balance was $ 273.6 million, with interest due at intervals ranging from 30 to 180 days at interest rates ranging from LIBOR plus 4.75 % or base rate plus 3.75 %, in either case subject to a 1.00 % rate floor. Revolving Credit Facility The Prior Revolving Credit Facility provided for a $ 357.9 million revolver. At December 31, 2020 and January 22, 2021 (the effective date of the refinancing), the Prior Revolving Credit Facility balance was $ 94.0 million and $ 109.0 million, respectively. Under the Revolving Credit Facility, we extended the maturity of $ 325.2 million of the $ 357.9 million revolver to September 2024. The remaining $ 32.7 million non-extended portion of our Revolving Credit Facility was set to mature in August 2022. On January 22, 2021, we used a portion of the net proceeds we received from the Secured Notes to pay off the then outstanding $ 109.0 million balance under the Prior Revolving Credit Facility. On December 2, 2021, we increased the commitments under the Revolving Credit Facility to $ 475.0 million and extended the maturity to December 2026, as detailed above under “—Senior Secured Credit Facility.” At December 31, 2021, there were no outstanding borrowings on the Revolving Credit Facility and there were $ 33.5 million of outstanding letters of credit, resulting in total revolver availability, subject to a $ 100.0 million minimum liquidity requirement that ended on December 31, 2021 (see “—Debt Covenants” below), of $ 341.5 million , which was available at intervals ranging from 30 to 180 days at interest rates ranging from LIBOR plus 4.25 % or base rate plus 3.25 %. The weighted average interest rate and debt outstanding under the Revolving Credit Facility for the year ended December 31, 2021 wa s 3.85 % and $ 9.3 million, respectively. The highest month-end balance during the year was $ 40.0 million. Secured Notes On January 22, 2021, Life Time, Inc. issued Secured Notes in an aggregate principal amount of $ 925.0 million. These notes mature in January 2026 and interest only payments are due semi-annually in arrears at 5.75 %. Life Time, Inc. has the option to call the Secured Notes, in whole or in part, on one or more occasions, beginning on January 15, 2023, subject to the payment of a redemption price that includes a call premium that varies depending on the year of redemption. In addition, at any time prior to January 15, 2023, Life Time, Inc. may redeem up to 40.00 % of the aggregate principal amount of the Secured Notes F-28 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) outstanding with the net proceeds of certain equity offerings by us at a redemption price equal to 105.75 % of the principal amount of the Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date. The Secured Notes and the related guarantees are our senior secured obligations and are secured on a first-priority basis by security interests in substantially all of our assets. Unsecured Notes In June 2015, Life Time, Inc. issued the 2023 Notes in the original principal amount of $ 450.0 million, which were scheduled to mature in June 2023. At both December 31, 2020 and February 5, 2021, $ 450.0 million remained outstanding on the notes. On February 5, 2021, Life Time, Inc. refinanced the 2023 Notes through the issuance by Life Time, Inc. of the Unsecured Notes in the original principal amount of $ 475.0 million. The Unsecured Notes mature in April 2026 and interest only payments are due semi-annually in arrears at 8.00 %. The proceeds from the Unsecured Notes were used to: (i) redeem in full the then outstanding 2023 Notes balance of $ 450.0 million and satisfy and discharge our obligations thereunder; (ii) pay debt issuance costs associated with the issuance of the Unsecured Notes (details of which are described in “—Debt Discounts and Issuance Costs” below); and (iii) strengthen our balance sheet by adding to our cash position. Life Time, Inc. has the option to redeem the Unsecured Notes, in whole or in part, on one or more occasions, beginning on February 1, 2023, subject to the payment of a redemption price that includes a call premium that varies depending on the year of redemption. In addition, at any time prior to February 1, 2023, Life Time, Inc. may redeem up to 40.00 % of the aggregate principal amount of the Unsecured Notes outstanding with the net proceeds of certain equity offerings by us at a redemption price equal to 108.00 % of the principal amount of the Unsecured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date. The Unsecured Notes and the related guarantees are our general senior unsecured obligations and will rank equally in right of payment with all of our existing and future senior indebtedness without giving effect to collateral arrangements. Secured Loan - Related Parties On June 24, 2020, we closed on an approximate $ 101.5 million secured loan (the “Related Party Secured Loan”) from an investor group that was comprised solely of our stockholders or their affiliates. The Related Party Secured Loan was scheduled to mature in June 2021. During the year ended December 31, 2021, interest expense of approximately $ 0.7 million was recognized on this secured loan. On January 11, 2021, Life Time Group Holdings, Inc. and certain of its subsidiaries and the investor group associated with the Related Party Secured Loan (or their assignees) entered into a contribution agreement (the “Contribution Agreement”) pursuant to which we converted the total amount of outstanding principal and accrued interest (up though and including January 22, 2021) under the Related Party Secured Loan into Series A Preferred Stock. Effective January 22, 2021, the total outstanding principal and accrued interest balance of approximately $ 108.6 million was conveyed by the investor group to us and we issued, on a dollar-for-dollar basis, to the investor group approximately 5.4 million shares of Series A Preferred Stock with an estimated fair value of $ 149.6 million. Because the fair value of the Series A Preferred Stock that was issued exceeded the carrying value of the outstanding principal and accrued interest balance associated with the Related Party Secured Loan that was extinguished, we recognized a $ 41.0 million debt extinguishment loss, which is included in Interest expense, net of interest income in our consolidated statement of operations for the year ended December 31, 2021. Upon the consummation of the IPO on October 12, 2021, the 5.4 million then outstanding shares of Series A Preferred Stock automatically converted into 6.7 million shares of the Company’s common stock. For more information regarding the Series A Preferred Stock that was issued in connection with this transaction, as well as the subsequent conversion to the Company’s common stock, see Note 10, Stockholders’ Equity. Mortgage Notes Certain of our subsidiaries have entered into mortgage facilities with various financial institutions (collectively, the “Mortgage Notes”), which are collateralized by certain of our related real estate and buildings, including one of our corporate headquarters properties. The Mortgage Notes have varying maturity dates from March 2023 through August 2027 and carried a weighted average interest rate of 4.70 % and 4.68 % at December 31, 2021 and 2020, respectively. Payments of principal and interest on each of the Mortgage Notes are payable monthly on the first business day of each month. The Mortgage Notes contain customary affirmative covenants, including but not limited to, payment of property taxes, granting of lender access to inspect the properties, maintenance of the properties, providing financial statements, providing estoppel certificates and lender consent to leases. The Mortgage Notes also contain various customary negative covenants, including, but not limited to, restrictions on F-29 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) transferring the property, change in control of the borrower and changing the borrower’s business or principal place of business. As of December 31, 2021, we were either in compliance in all material respects with the covenants associated with the Mortgage Notes or the covenants were not applicable. Debt Discounts and Issuance Costs In connection with the Term Loan Facility, Secured Notes and Unsecured Notes, we incurred debt discounts and issuance costs totaling approximately $ 44.4 million during the year ended December 31, 2021. Unamortized debt discounts and issuance costs of $ 25.9 million and $ 19.1 million are included in Long-term debt, net of current portion on our consolidated balance sheets at December 31, 2021 and 2020. During the year ended December 31, 2021, in connection with the pay down of our Term Loan Facility, as well as the extinguishment of the Prior Term Loan Facility, the 2023 Notes and the Related Party Secured Loan, we recognized $ 28.6 million of debt discount and issuance cost write-offs, which are included in Interest expense, net of interest income in our consolidated statement of operations. In connection with both the Revolving Credit Facility and the Prior Revolving Credit Facility, we have incurred total debt issuance costs of $ 9.8 million, of which $ 3.2 million were incurred during the year ended December 31, 2021. As of the January 22, 2021 effective date associated with the Credit Facilities, the borrowing capacity (i.e., the product of the remaining term and the maximum available credit) associated with the Revolving Credit Facility was greater than the borrowing capacity associated with the Prior Revolving Credit Facility. Also, as of the effective date associated with the ninth amendment to the Credit Agreement ( as described above under “—Senior Secured Credit Facility”), the borrowing capacity associated with the Revolving Credit Facility was greater than that in effect prior to the amendment. Accordingly, the debt issuance costs incurred in connection with the Revolving Credit Facility, as well as the unamortized portion of the debt issuance costs associated with the Prior Revolving Credit Facility, will be amortized over the remaining term of the Revolving Credit Facility. Unamortized revolver-related debt issuance costs of $ 4.0 million and $ 1.3 million, respectively, are included in Other assets on our consolidated balance sheets at December 31, 2021 and 2020, respectively. Debt Covenants We are required to comply with certain affirmative and restrictive covenants under our Credit Facilities, Secured Notes and Unsecured Notes. We are also required to comply with a first lien net leverage ratio covenant under the Revolving Credit Facility. However, the Credit Agreement includes a covenant modification period (the “Covenant Modification Period”) that ended on January 1, 2022. During the Covenant Modification Period, we were not obligated to comply with the first lien net leverage ratio covenant, however, we were required to maintain a minimum liquidity balance of $ 100.0 million. Effective as of the end of the first fiscal quarter following the Covenant Modification Period and continuing throughout the remaining term of our Revolving Credit Facility, we will be required to maintain a first lien net leverage ratio, if 30.00 % or more of the Revolving Credit Facility commitments are outstanding shortly after the end of any fiscal quarter (excluding all cash collateralized undrawn letters of credit and other undrawn letters of credit up to $ 20.0 million). During the first three quarterly test periods following the Covenant Modification Period, certain financial measures used in the calculation of the first lien net leverage ratio will be calculated on a pro forma basis by annualizing the respective financial measures recognized during those test periods. As of December 31, 2021, we were either in compliance in all material respects with the covenants under the Credit Facilities or the covenants were not applicable. F-30 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Future Maturities of Long-Term Debt Aggregate annual future maturities of long-term debt, excluding unamortized issuance costs and fair value adjustments, at December 31, 2021 were as follows: 2022 $ 23,527 2023 17,533 2024 336,873 2025 12,634 2026 1,411,966 Thereafter 20,786 Total future maturities of long-term debt $ 1,823,319 9. Leases Lease Cost Lease cost included in our consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019 consisted of the following: Year Ended December 31, 2021 2020 2019 Classification in Consolidated Statement of Operations Lease cost: Operating lease cost $ 204,165 $ 183,908 $ 164,876 Rent Short-term lease cost 1,049 1,007 1,028 Rent Variable lease cost 4,609 1,342 61 Rent Finance lease cost: Amortization of right-of-use assets 1,493 2,228 2,312 Depreciation and amortization Interest on lease liabilities 177 65 188 Interest expense, net of interest income Total lease cost $ 211,493 $ 188,550 $ 168,465 F-31 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Operating and Finance Lease Right-of-Use Assets and Liabilities Operating and finance lease right-of-use assets and lease liabilities were as follows: December 31, Classification on Consolidated Balance Sheet 2021 2020 Lease right-of-use assets: Operating leases $ 1,864,528 $ 1,708,597 Operating lease right-of-use assets Finance leases (1) 2,073 2,295 Other assets Total lease right-of-use assets $ 1,866,601 $ 1,710,892 Lease liabilities: Current Operating leases $ 46,315 $ 49,877 Current maturities of operating lease liabilities Finance leases 1,374 1,171 Accrued expenses and other current liabilities Noncurrent Operating leases 1,909,883 1,738,393 Operating lease liabilities, net of current portion Finance leases 757 1,202 Other liabilities Total lease liabilities $ 1,958,329 $ 1,790,643 (1) Finance lease right-of-use assets were reported net of accumulated amortization of $ 2.4 million and $ 1.2 million at December 31, 2021 and 2020, respectively. Operating Lease Right-of-Use Assets and Liabilities Associated with Unrelated Third-Party Leases New Leases and Modifications of Existing Leases In connection with leases with unrelated third parties that commenced during the year ended December 31, 2021, we recognized operating lease right-of-use assets and lease liabilities of $ 220.2 million and $ 210.5 million, respectively, on our consolidated balance sheet. In connection with modified leases that were remeasured during the year ended December 31, 2021, we recognized a net decrease in both operating lease right-of-use assets and lease liabilities of $ 6.3 million on our consolidated balance sheet. In connection with leases with unrelated third parties that commenced during the year ended December 31, 2020, we recognized operating lease right-of-use assets and lease liabilities of $ 241.3 million and $ 196.8 million, respectively, on our consolidated balance sheet. In connection with modified leases that were remeasured during the year ended December 31, 2020, we recognized a net increase in operating lease right-of-use assets and lease liabilities of $ 32.1 million and $ 33.0 million, respectively, on our consolidated balance sheet. Impairment of Right-of-Use Assets During the year ended December 31, 2020, we determined that the operating lease right-of-use assets associated with some of our leased centers and some of our ancillary businesses were impaired. Accordingly, we recognized $ 2.0 million of impairment charges associated with these right-of-use assets, which are included in Other operating in our consolidated statement of operations for the year ended December 31, 2020. During the year ended December 31, 2019, we determined that the operating lease right-of-use assets associated with the business operations of MR&S were impaired. Accordingly, we recognized $ 1.3 million of impairment charges associated with these right-of-use assets, which are included in Other operating in our consolidated statement of operations for the year ended December 31, 2019. For more information regarding impairment charges associated with our long-lived assets, see Note 2, Summary of Significant Accounting Policies. F-32 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Finance Lease Right-of-Use Assets and Liabilities Associated with Unrelated Third-Party Leases In connection with leases with unrelated third parties that commenced during the year ended December 31, 2021 and 2020, we recognized finance lease right-of-use assets and lease liabilities, each of which totaled $ 1.3 million and $ 2.6 million, respectively, on our consolidated balance sheets. Operating and Finance Lease Right-of-Use Assets and Liabilities Associated with Related Party Leases For information on related party leases, see Note 13, Related Party Transactions. Remaining Lease Terms and Discount Rates The weighted-average remaining lease terms and discount rates associated with our operating and finance lease liabilities at December 31, 2021 were as follows: December 31, 2021 Weighted-average remaining lease term (1) Operating leases 17.7 years Finance leases 2.0 years Weighted-average discount rate Operating leases 7.97 % Finance leases 6.32 % (1) The weighted-average remaining lease term associated with our operating and finance lease liabilities does not include all of the optional renewal periods available to us under our current lease arrangements. Rather, the weighted-average remaining lease term only includes periods covered by an option to extend a lease if we are reasonably certain to exercise that option. Sale-Leaseback Transactions Sale-Leaseback Transactions with Unrelated Third Parties Duri ng the year ended December 31, 2021, we closed on two sale-leaseback transactions involving two properties with unrelated third parties, one of which was associated with an agreement we entered into o n December 16, 2020 . Under these transactions, we sold assets with a combined net book value of $ 85.8 million for $ 76.0 million, which was reduced by transaction costs of $ 2.0 million, for net cash proceeds of $ 74.0 million. The estimated fair value of the properties sold was $ 85.5 million. Accordingly, the aggregate sales price associated with these arrangements was increased by a total of $ 9.5 million, which resulted in the recognition of an aggregate loss of $ 2.3 million on these transactions, which is included in Other operating in our consolidated statement of operations for the year ended December 31, 2021 . During the year ended December 31, 2020, we entered into sale-leaseback transactions involving five properties with unrelated third parties. Under these agreements, we sold assets with a combined net book value of $ 237.7 million for $ 199.2 million, which was reduced by transaction costs of $ 0.5 million, for net cash proceeds of $ 198.7 million. The estimated fair value of the five properties sold totaled $ 243.1 million. Accordingly, the aggregate sales price associated with these arrangements was increased by a total of $ 43.9 million, which resulted in the recognition of a net gain of $ 4.9 million on these transactions, which is included in Other operating in our consolidated statement of operations for the year ended December 31, 2020. During the year ended December 31, 2019, we entered into sale-leaseback transactions involving four properties with unrelated third parties. Under these agreements, we sold assets with a combined net book value of $ 178.5 million for $ 164.0 million, which was reduced by transaction costs of $ 1.0 million, for net cash proceeds of $ 163.0 million. The estimated fair value of the four properties sold totaled $ 185.3 million. The aggregate sales price associated with these arrangements was increased by a total of $ 21.3 million, which resulted in the recognition of a net gain of $ 5.8 million on these transactions, which is included in Other operating in our consolidated statement of operations for the year ended December 31, 2019. F-33 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Related Party Sale-Leaseback Transactions For information on sale-leaseback transactions with related parties, see Note 13, Related Party Transactions. Supplemental Cash Flow Information Supplemental cash flow information associated with our operating and finance leases is as follows: Year Ended December 31, 2021 2020 2019 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 182,644 $ 131,617 $ 144,744 Operating cash flows from finance leases 177 208 288 Financing cash flows from finance leases 1,514 1,343 1,621 Non-cash information: Right-of-use assets obtained in exchange for initial lease liabilities Operating leases 210,541 241,810 237,258 Finance leases 1,272 2,576 751 Right-of-use asset adjustments recognized as a result of the remeasurement of existing lease liabilities Operating leases ( 6,345 ) 33,028 2,086 Non-cash increase in operating lease right-of-use assets associated with below-market sale-leaseback transactions 9,500 43,910 21,250 Impairment charges associated with operating lease right-of-use assets — ( 1,962 ) ( 1,343 ) Maturities of Operating and Finance Lease Liabilities The maturities associated with our operating and finance lease liabilities at December 31, 2021 are as follows: Operating Leases Finance Leases Total 2022 $ 187,000 $ 1,466 $ 188,466 2023 198,866 698 199,564 2024 205,276 84 205,360 2025 208,300 — 208,300 2026 210,163 — 210,163 Thereafter 2,774,640 — 2,774,640 Total lease payments 3,784,245 2,248 3,786,493 Less: Imputed interest 1,828,047 117 1,828,164 Present value of lease liabilities $ 1,956,198 $ 2,131 $ 1,958,329 F-34 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) 10. Stockholders’ Equity Authorization and Designation On January 11, 2021, our board of directors adopted and approved an amendment to the Certificate of Incorporation for Life Time Group Holdings, Inc., which (i) increased the amount of authorized shares of common stock, $ 0.01 par value per share, from 170.0 million to 200.0 million; and (ii) authorized 25.0 million shares of preferred stock, $ 0.01 par value per share. Also on January 11, 2021, our board of directors authorized 12.0 million shares of Series A convertible participating preferred stock (“Series A Preferred Stock”) of Life Time Group Holdings, Inc., $ 0.01 par value per share. The rights, preferences, privileges, qualifications, restrictions and limitations relating to the Series A Preferred Stock were set forth in the Certificate of Designations (“COD”), which the Company filed with the Secretary of State of the State of Delaware on January 22, 2021. On October 12, 2021, in connection with the consummation of the IPO, we adopted an amended and restated Certificate of Incorporation for Life Time Group Holdings, Inc. under which the Company’s authorized share total was increased to 500.0 million shares of common stock, par value $ 0.01 per share, an d 10.0 million shares of preferred stock, par value $ 0.01 per sha re, and the Series A Preferred Stock became no longer authorized. Series A Preferred Stock Series A Preferred Stock Issuance On January 11, 2021, Life Time Group Holdings, Inc. and certain of its subsidiaries and the investor group associated with our then existing related party secured loan (or their assignees) entered into an agreement to convert the total amount of outstanding principal and accrued interest (up though and including January 22, 2021) of approximately $ 108.6 million under the related party secured loan into 5.4 million shares of Series A Preferred Stock of Life Time Group Holdings, Inc. Accordingly, we recognized a $ 41.0 million debt extinguishment loss associated with this transaction during the year ended December 31, 2021, which is included in Interest expense, net of interest income in our consolidated statement of operations. Restricted Series A Preferred Stock Award During the second quarter of 2021, in lieu of the vast majority of cash compensation for our CEO for 2021, the Company granted an award of 0.5 million shares of restricted Series A Preferred Stock to our CEO. The total grant date fair value of this award was approximately $ 13.8 million. Effective as of the grant date, our CEO had all of the rights of a stockholder with respect to these shares of restricted Series A Preferred Stock, including the right to receive PIK share or cash dividends. Prior to the granting of this equity award, we had recognized an accrued compensation liability of approximately $ 1.6 million associ ated with the portion of our CEO’s 2021 compensation that had been earned as of the grant date. The settlement of this accrued compensation liability through issuance of the restricted Series A Preferred Stock award was recognized as a decrease in Accrued expenses and other current liabilities and an increase in Additional paid-in capital on our consolidated balance sheet. Fair Value of Series A Preferred Stock and Restricted Series A Preferred Stock The fair value of the Series A Preferred Stock and the restricted Series A Preferred Stock award was estimated using an as-converted value plus risky put option model. The put option value was estimated using the Black-Scholes option pricing model. Primary assumptions used in determining the estimated issuance date fair value of the Series A Preferred Stock include: the estimated equity value associated with the then outstanding common stock of Life Time Group Holdings, Inc., a strike price of $ 20.00 per share, PIK dividend yield rate of 15.0 %, expected term of 1.0 year, volatility rate of 65.00 % and a risk-free rate of 0.08 %. Conversion of Series A Preferred Stock to Common Stock and Conversion of Restricted Series A Preferred Stock to Restricted Common Stock Upon the consummation of the IPO, the 5.4 million then outstanding shares of Series A Preferred Stock automatically converted into 6.7 million shares of the Company’s common stock. Upon the consummation of the IPO, the 0.5 million then outstanding shares of restricted Series A Preferred Stock automatically converted into 0.6 million shares of the Company’s restricted common stock. F-35 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Share-Based Compensation Expense Associated with Restricted Series A Preferred Stock and Restricted Common Stock Restricted Series A Preferred Stock Prior to the conversion of the shares of restricted Series A Preferred Stock to shares of the Company’s restricted common stock on October 12, 2021, we recognized $ 2.9 million of share-based compensation expense associated with the restricted Series A Preferred Stock award, which is included in General, administrative and marketing in our consolidated statement of operations for the year ended December 31, 2021. Restricted Common Stock During the period from October 12, 2021 through December 31, 2021, we recognized $ 4.3 million of share-based compensation expense associated with the restricted common stock award, which is included in General, administrative and marketing in our consolidated statement of operations for the year ended December 31, 2021. Share-based compensation expense associated with the restricted common stock award is being recognized over the remaining vesting period based on the grant date fair value of the original restricted Series A Preferred Stock award, reduced by the $ 1.6 million of compensation expense associated with the accrued compensation liability that had previously been recognized. As of December 31, 2021, unrecognized share-based compensation expense related to this restricted common stock award was approxim ately $ 5.0 million, which is expected to be recognized over a remaining period of 0.3 years . Common Stock Common Stock Issued in Connection with the IPO and Over-Allotment Exercise During the year ended December 31, 2021, in connection with the IPO, including the partial exercise by the underwriters of their over-allotment option, we received total net proceeds of $ 701.4 million from the issuance of 40.6 million shares of the Company’s common stock. For more information on these sales of the Company’s common stock during the year ended December 31, 2021, see Note 1, Nature of Business and Basis of Presentation. Common Stock Issued in Connection with Stock Purchase Agreements During the year ended December 31, 2020, we received proceeds totaling $ 90.0 million from the sale of 3.6 million shares of the Company’s common stock, which consists of primary equity proceeds (i.e., proceeds associated with the sale of newly issued shares of our common stock) associated with a stock purchase agreement. During the year ended December 31, 2019, we received net proceeds totaling $ 105.3 million from the sale of 4.3 million shares of the Company’s common stock, which consist of $ 108.7 million of primary equity proceeds associated with a stock purchase agreement, reduced by $ 3.2 million in costs associated with such issuance of primary (i.e., newly-issued) shares of our common stock and $ 0.2 million in costs associated with an issuance of primary shares of our common stock that was consummated during the year ended December 31, 2020. Equity Incentive Plans 2015 Equity Plan On October 6, 2015, our board of directors adopted the LTF Holdings, Inc. 2015 Equity Incentive Plan (as amended, the “2015 Equity Plan”). During the year ended December 31, 2021, our board of directors and stockholders approved an amendment to the 2015 Equity Plan to increase the number of shares of our common stock that are reserved for issuance under the 2015 Equity Plan to approximately 30.6 million shares of our common stock, plus an annual increase on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2025; provided, that no annual increase shall occur on or after the Company (or its successor) becomes a publicly listed company. Effective with the IPO, no further grants have been or will be made, and no annual increase shall occur, under the 2015 Equity Plan. Approximately 1.0 million shares that were reserved and available for issuance under the 2015 Equity Plan are now available for issuance under the 2021 Equity Plan as detailed below. F-36 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) 2021 Equity Plan In connection with the IPO and effective October 6, 2021, we adopted the 2021 Incentive Award Plan (the “2021 Equity Plan”), under which we may grant cash and equity-based incentive awards to our employees, consultants and directors. The maximum number of shares of our common stock available for issuance under the 2021 Equity Plan is equal to the sum of (i) approximately 14.5 million shares of our common stock, (ii) an annual increase on the first day of each year beginning in 2022 and ending in and including 2031, equal to the lesser of (A) 4 % of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year and (B) such lesser amount as determined by our board of directors, and (iii) the approximately 1.0 million shares of our common stock that were available for issuance under the 2015 Equity Plan as of October 6, 2021 or that are subject to awards under the 2015 Equity Plan and any other prior equity incentive plans of the Company or its predecessor which are forfeited or lapse unexercised and which following the effective date of the 2021 Equity Plan are not issued under such prior plan; provided, however, no more than 14.5 million shares may be issued upon the exercise of incentive stock options, or ISOs. The share reserve formula under the 2021 Equity Plan is intended to provide us with the continuing ability to grant equity awards to eligible employees, directors and consultants for the ten-year term of the 2021 Equity Plan. As of December 31, 2021, approximately 13.8 million shares were available for future awards to employees and other eligible participants under the 2021 Equity Plan. 2021 Employee Stock Purchase Plan In connection with the IPO and effective October 6, 2021, we adopted the 2021 Employee Stock Purchase Plan (the “ESPP”). The ESPP is designed to allow our eligible employees to purchase shares of our common stock, at periodic intervals, with their accumulated payroll deductions. The ESPP consists of two components: an Internal Revenue Service (“IRS”) Code section 423 (“Section 423”) component, which is intended to qualify under Section 423 of the IRS Code and a non-Section 423 component, which need not qualify under Section 423 of the IRS Code. The aggregate number of shares of our common stock that has initially been reserved for issuance under the ESPP is equal to (i) approximately 2.9 million shares of our common stock, and (ii) an annual increase on the first day of each year beginning in 2022 and ending in and including 2031, equal to the lesser of (A) 1 % of the aggregate number of shares of our common stock outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of our shares of common stock as determined by our board of directors; provided that in no event will more than 29.0 million shares of our common stock be available for issuance under the Section 423 component of the ESPP. Our board of directors or the compensation committee will have authority to interpret the terms of the ESPP and determine eligibility of participants. The ESPP will permit participants to purchase common stock through payroll deductions of up to a percentage of their eligible compensation, which includes a participant’s gross base compensation for services to us. On the first trading day of each offering period, each participant will automatically be granted an option to purchase shares of our common stock. The option will expire at the end of the applicable offering period and will be exercised on each purchase date during such offering period to the extent of the payroll deductions accumulated during the offering period. The purchase price will be the lower of 85 % of the fair market value of a share on the first day of an offering period in which a participant is enrolled or 85 % of the fair market value of a share on the purchase date, which will occur on the last day of each purchase period. Participants may voluntarily end their participation in the ESPP prior to the end of the applicable offering period and will be paid their accrued payroll deductions that have not yet been used to purchase shares of common stock. Upon exercise, the participant will purchase the number of whole shares that his or her accumulated payroll deductions will buy at the option purchase price, subject to the certain participation limitations. Participation will end automatically upon a participant’s termination of employment. No offering periods commenced under the ESPP during the year ended December 31, 2021. F-37 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Stock Options Summary of Stock Option Activity Activity associated with stock options during the year ended December 31, 2021 is as follows: Stock Options Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Outstanding at December 31, 2020 21,119 $ 11.00 Granted 3,754 $ 19.12 Forfeited ( 276 ) $ 18.08 Outstanding at December 31, 2021 24,597 $ 12.16 5.2 $ 137,220 Exercisable as of December 31, 2021 9,388 $ 10.00 3.8 $ 67,687 Options Granted During the Year Ended December 31, 2021 During the year ended December 31, 2021 , the Company granted approximately 3.8 million stock options, of which approximately 3.2 million were granted under the 2015 Equity Plan and approximately 0.6 million were granted under the 2021 Equity Plan. These options have a 10-year contractual term from the date of grant. The exercise prices and terms of these awards were determined and approved by our board of directors or a committee thereof. The exercise price associated with each of these awards is not less than the fair market value per share of our common stock, as determined by our board of directors or a committee thereof, at the time of grant. Of the 3.8 million total stock options granted during the year ended December 31, 2021 , approximately 3.3 million are time vesting options and approximately 0.5 million are performance vesting options. The time vesting options vest in four ratable annual installments on each of the first four anniversaries of the grant date, subject to continuous employment or service from the grant date through the applicable vesting date. All or a portion of the performance vesting options shall vest only upon the attainment of certain targets for the twelve-month period commencing on January 1, 2021 and ending on December 31, 2021 , as defined in the underlying option agreements, subject to continuous employment from the grant date through the membership dues revenue determination date. Both the time vesting and performance vesting options bec ome exercisable (but not vested) o n April 4, 2022, which is the first date following the expiration of the 180-day lock-up period applicable to the optionee related to the IPO, or death or disability, all as defined and subject to the terms and conditions in the underlying option agreements. Unless otherwise determined by the administrator of the 2015 Equity Plan and the 2021 Equity Plan, with respect to the stock options granted during the year ended December 31, 2021 : (i) upon an option holder’s termination of services for any reason, any portion of an option that has not become vested on or prior to the termination date shall be forfeited on such date and shall not thereafter become vested or exercisable, and (ii) upon an involuntary termination by the Company for cause (as defined in the underlying option agreement), any portion of an option that has become vested on or prior to the termination date shall be forfeited on such date and shall not thereafter become exercisable. At December 31, 2021, as it relates to options granted during 2021, options to purchase approximately 3.7 million shares of our common stock were outstanding and none were exercisable. Options Granted Prior to 2021 At December 31, 2021, as it relates to options granted prior to 2021, options to purchase approximately 20.9 million shares of our common stock were outstanding, of which approximately 9.4 million were held by our CEO. At December 31, 2021, the 9.4 million outstanding options held by our CEO were fully vested and exercisable. As it relates to the other 11.5 million outstanding options at December 31, 2021 , all of the options were fully vested; however, none of the options were exercisable as the 180-day lock-up period applicable to the each optionee related to the IPO had yet to expire. Prior to July 3, 2019, the vesting and exercisability of outstanding options for our CEO and the exercisability of outstanding options for non-CEO option holders were subject to our principal stockholders’ achievement of certain internal rates of return (“IRR”) on investment or a multiple of invested capital. On May 23, 2019, in connection with transactions that were F-38 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) consummated pursuant to a stock purchase agreement, our board of directors approved that 100 % of all stock options outstanding as of July 3, 2019 (the date the transactions under the stock agreement were consummated) or granted thereafter would become exercisable on the first measurement date, which is generally defined to include a change in control, an expiration of a lock-up associated with an initial public offering (or the effectiveness of an initial public offering with respect to the options held by our CEO), or the death or disability of our CEO (herein referred to as a “Measurement Date”) without continued measurement of the performance metrics. In accordance with ASC 718, the approval by our board of directors represented, for accounting purposes, a modification of the original market conditions associated with each of the approximately 21.2 million outstanding options that were held by continuing employees and continuing service providers as of July 3, 2019. Accordingly, we were required to determine the estimated fair value of these options as of July 3, 2019. Since the occurrence of a Measurement Date was deemed at that time, for accounting purposes, improbable of occurring both before and after the modification, no incremental share-based compensation expense was required to be recognized on the modification date. For further information on the weighted average assumptions used to estimate the fair value, see “—Fair Value of Stock Option Awards” within this footnote. Stock Option Purchase Offer On June 6, 2019, we launched a voluntary stock option purchase offer (the “Offer”) whereby, subject to certain conditions and limitations, we offered eligible holders (not including our CEO) of qualifying stock options under the 2015 Equity Plan (“Covered Options”) the right to sell up to a certain number of vested Covered Options back to us. In connection with the Offer, approximately 1.6 million Covered Options were purchased for an aggregate price of $ 23.2 million. Of the aggregate purchase price, $ 22.4 million was paid to purchase approximately 1.5 million Covered Options from continuing employees and continuing service providers and $ 0.8 million was paid to purchase approximately 0.1 million Covered Options from former employees and former service providers. Effective with the purchase date associated with each underlying Covered Option, the $ 23.2 million aggregate stock option purchase payments we made, which are recognized as a decrease in Additional paid-in capital on our consolidated balance sheet, are reported in Purchases of stock options within the financing section in our consolidated statement of cash flows for the year ended December 31, 2019. As it relates to the approximately 1.5 million Covered Options associated with continuing employees and continuing service providers, no share-based compensation expense had been recognized prior to them being purchased, since the occurrence of a Measurement Date was deemed, for accounting purposes, improbable of occurring. Therefore, effective with the purchase date associated with each of these Covered Options, we recognized $ 22.4 million of incremental share-based compensation expense, which is included in General, administrative and marketing in our consolidated statement of operations for the year ended December 31, 2019. The offset to this incremental share-based compensation expense amount was recognized as an increase in Additional paid-in capital on our consolidated balance sheet. As it relates to the approximately 0.1 million Covered Options associated with former employees and former service providers, $ 0.1 million of share-based compensation expense had been recognized prior to them being purchased. Therefore, effective with the purchase date associated with each of these Covered Options, we recognized $ 0.7 million of incremental share-based compensation expense, which is included in General, administrative and marketing in our consolidated statement of operations for the year ended December 31, 2019. The offset to this incremental share-based compensation expense amount was recognized as an increase in Additional paid-in capital on our consolidated balance sheet. Fair Value of Stock Option Awards Granted The fair value of the options granted during the years ended December 31, 2021 and 2020 was calculated using the Black-Scholes option pricing model. The fair value of the 21.2 million stock options that were deemed, for accounting purposes, to have been modified as of July 3, 2019, as well as the approximately 0.6 million stock option awards that were granted during F-39 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) the period from July 3, 2019 through December 31, 2019, was also calculated using the Black-Scholes option pricing model. The following weighted average assumptions were used in determining the fair value of stock options granted: Year Ended December 31, Period from July 3 through December 31, 2019 2021 2020 Dividend yield 0.00 % 0.00 % 0.00 % Risk-free interest rate (1) 0.97 % 1.58 % 1.73 % Expected volatility (2) 58.50 % 27.60 % 28.76 % Expected term of options (in years) (3) 6.1 6.1 4.7 Fair Value $ 10.42 $ 7.58 $ 15.40 (1) The risk-free rate is based on the U.S. treasury yields, in effect at the time of grant or modification, corresponding with the expected term of the options. (2) Expected volatility is based on historical volatilities for a time period similar to that of the expected term of the options. (3) Expected term of the options is based on probability and expected timing of market events leading to option exercise. For more information on the options that were modified during the year ended December 31, 2019, see “—Options Granted Prior to 2021” within this footnote. Share-Based Compensation Expense Associated with Stock Options Share-based compensation expense related to stock options for the year ended December 31, 2021 was $ 320.5 million, of which $ 12.7 million, $ 303.3 million and $ 4.5 million is included in Center operations, General, administrative and marketing and Other operating, respectively, in our consolidated statement of operations. Share-based compensation expense related to stock options for the year ended December 31, 2019 was $ 24.2 million, all of which is included in General, administrative and marketing in our consolidated statement of operations. No share-based compensation expense related to stock options was recognized during the year ended December 31, 2020. A significant portion of the share-based compensation expense that we recognized during the year ended December 31, 2021 is associated with stock options that were granted prior to 2021. As of the effective date of the IPO, these stock options became fully vested, and they either became immediately exercisable or they will become exercisable no later than April 4, 2022, subject to continued service through such date. Accordingly, during the period from the effective date of the IPO through December 31, 2021 , we have recognized share-based compensation expense associated with these stock options in an amount equal to the proportion of the total service period that has passed from the respective grant date associated with each of these stock option awards through December 31, 2021. Because the vesting and exercisability of these stock options was contingent upon the occurrence of a change of control or an initial public offering, no share-based compensation expense associated with these stock options was recognized prior to the IPO. As of December 31, 2021, unrecognized share-based compensation expense related to stock options was approximately $ 31.3 million, which is expected to be recognized over a weighted average remaining period of 2.6 years. F-40 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Restricted Stock Units Summary of Restricted Stock Unit Activity Activity associated with restricted stock units during the year ended December 31, 2021 is as follows: Restricted Stock Units Shares Weighted Average Grant Date Fair Value Nonvested at January 1, 2021 — $ — Granted 1,863 $ 18.01 Forfeited ( 9 ) $ 17.27 Nonvested at December 31, 2021 1,854 $ 18.01 During the year ended December 31, 2021 , the Company granted approximately 1.9 million restricted stock unit awards, of which approximately 0.6 million were granted under the 2015 Equity Plan and approximately 1.3 million were granted under the 2021 Equity Plan. Of the 0.6 million restricted stock unit awards granted under the 2015 Equity Plan during the year end December 31, 2021 , approximately 0.5 million were granted to our CEO and approximately 0.1 million were granted to non-CEO executives and a director. All of the 1.3 million restricted stock units granted under the 2021 Equity Plan during the year ended December 31, 2021 were granted to non-CEO holders. We did no t grant any restricted stock unit awards during the year ended December 31, 2020. Restricted Stock Unit Awards Granted under the 2015 Equity Plan Beginning on March 15, 2020, our CEO decided to forego 100 % of his base salary for the remainder of 2020. During the second quarter of 2021, our compensation committee, in consultation with our CEO and our board of directors, established a new compensation program for our CEO. Under the new program, in light of the foregone salary and bonuses in 2020, the compensation c ommittee determined to grant our CEO an equity award of approximately 0.5 million restricted stock units under the 2015 Equity Plan, 50 % of which vest on each anniversary of the grant date with 100 % full vesting on the date that is 180 days after the effective date associated with an underwritten IPO. Accordingly, this award will be 100 % vested on April 4, 2022. At December 31, 2020, we had recognized an accrued compensation liability of approximately $ 2.2 million associated with our CEO’s 2020 compensation. For accounting purposes, the settlement of this $ 2.2 million accrued compensation liability through the issuance of the restricted stock units was recognized as a decrease in Accrued expenses and other current liabilities and an increase in Additional paid-in capital on our consolidated balance sheet. Also during the second quarter of 2021, our compensation committee granted approximately 0.1 million restricted stock units under the 2015 Equity Plan to certain of our non-CEO executives and a new director, 50 % of which vests on each anniversary of the grant date and, for the grants to our non-CEO executives, 100 % full vesting occurs effective on the date that is 180 days after an initial underwritten public offering. Accordingly, the portion of these awards that were granted to our non-CEO executives will be 100 % vested on April 4, 2022. Restricted Stock Unit Awards Granted under the 2021 Equity Plan With respect to the restricted stock units totaling approximately 1.3 million that were granted under the 2021 Equity Plan during the year ended December 31, 2021, nearly all will vest in four ratable annual installments on each of the first four anniversaries of the grant date, subject to continued service through the applicable vesting dates. Less than 0.1 million of these restricted stock units will vest on April 4, 2022. Share-Based Compensation Expense Associated with Restricted Stock Units Share-based compensation expense related to restricted stock units for the year ended December 31, 2021 was $ 6.6 million. No share-based compensation expense related to restricted stock units was recognized during the years ended December 31, 2020 and 2019. Of the $ 6.6 million total share-based compensation expense related to restricted stock units for the year ended December 31, 2021, $ 0.2 million, $ 6.3 million and $ 0.1 million is included in Center operations, General, administrative and marketing and Other operating, respectively, in our consolidated statement of operations. As of December 31, 2021, F-41 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) unrecognized share-based compensation expense related to restricted stock units was approximately $ 24.5 million, which is expected to be recognized over a weighted average remaining period of 3.2 years. Stockholder Note Receivable On August 27, 2018, Life Time, Inc. entered into a loan agreement with our CEO, who is also one of our stockholders, pursuant to which we loaned him $ 20.0 million. As security for repayment of the loan, our CEO granted to Life Time, Inc. a security interest in 5.0 million shares of our common stock which are held by our CEO. The loan bore interest equal to the highest interest rate associated with the revolving portion of our senior secured credit facility or, if there were no outstanding revolving borrowings, the highest interest rate associated with outstanding borrowings under the term loans portion of our senior secured credit facility. The loan was scheduled to mature at the earlier of August 2023 or upon the occurrence of certain events, including in connection with an initial public offering or a change of control, as well as the period immediately following the officer’s termination of employment. On July 3, 2019, we amended the loan agreement to reflect our forgiveness of an aggregate principal amount of $ 5.0 million. All other terms and conditions associated with the initial loan agreement remained unchanged. The principal forgiveness was accounted for as an equity transaction, whereby the Stockholder note receivable and Additional paid-in capital balances recognized on our consolidated balance sheet were each reduced by $ 5.0 million. The income tax benefit of approximately $ 1.3 million associated with the principal forgiveness was recognized as an increase in both Income tax receivable and Additional paid-in capital on our consolidated balance sheet. At December 31, 2020 the outstanding stockholder loan balance was $ 15.0 million, which was recognized as a reduction of stockholders’ equity on our December 31, 2020 consolidated balance sheet. In August 2021, we entered into an agreement pursuant to which the outstanding balance owed under the stockholder note receivable was cancelled. The cancellation of the $ 15.0 million outstanding principal balance associated with the loan was accounted for as an equity transaction, and the Stockholder note receivable and Additional paid-in capital balances recognized on our consolidated balance sheet were each reduced by $ 15.0 million . 11. (Loss) Earnings Per Share For the year ended December 31, 2021, o ur potentially dilutive securities include stock options, restricted stock units and restricted stock. Due to the net loss that we recognized during the year ended December 31, 2021 , the potentially dilutive shares of common stock associated with our stock options, restricted stock units and restricted stock were determined to be antidilutive and, therefore, are excluded from the computation of diluted loss per share for the year ended December 31, 2021 . For the years ended December 31, 2020 and 2019, our potentially dilutive securities include stock options, all of which were subject to performance conditions that were not met as of the end of each respective period. Accordingly, the contingently issuable shares associated with our stock options are excluded from the computation of diluted (loss) earnings per share for the years ended December 31, 2020 and 2019. The following table sets forth the calculation of basic and diluted (loss) earnings per share for the years ended December 31, 2021, 2020 and 2019: Year Ended December 31, 2021 2020 2019 Net (loss) income attributable to Life Time Group Holdings, Inc. $ ( 579,369 ) $ ( 360,192 ) $ 30,025 Weighted average common shares outstanding – basic and diluted 155,470 145,137 139,405 (Loss) earnings per share – basic and diluted $ ( 3.73 ) $ ( 2.48 ) $ 0.22 F-42 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) The following is a summary of potential shares of common stock that were excluded from the computation of diluted (loss) earnings per share for the years ended December 31, 2021, 2020 and 2019 : Year Ended December 31, 2021 2020 2019 Stock options 24,597 21,119 21,291 Restricted stock units 1,854 — — Restricted stock 595 — — Potential common shares excluded from diluted (loss) earnings per share 27,046 21,119 21,291 For more information regarding our stock options, restricted stock units and restricted stock, see Note 10, Stockholders’ Equity. 12. Commitments and Contingencies Purchase Commitments We ha ve entered into various unconditional purchase obligations that primarily include software licenses and support, and marketing services. As of December 31, 2021, these purchase obligations totaled approximately $ 20.5 million, the majority of which are expected to be settled within the next four years . These unconditional purchase obligations are in addition to the current and long-term liabilities recorded on our December 31, 2021 consolidated balance sheet and exclude agreements that are cancellable at any time without penalty. Legal Matters Bartell et al. v. LTF Club Operations Company, Inc. We defended a putative class action asserting that Life Time failed to honor cancellation requests and refund payments made by former members of Life Time’s Ohio health clubs under membership agreements that allegedly violate the Ohio Prepaid Entertainment Contract Act (“PECA”) and the Ohio Consumer Sales Practices Act (“CSPA”). The case is Laurence Bartell, et al. v. LTF Club Operations Company, Inc., Case No. 2:14-cv-401, in the United States District Court, Southern District of Ohio, Eastern Division. LTF Club Operations Company, Inc. is a wholly-owned subsidiary of Life Time, Inc. The District Court granted final approval to the parties’ settlement of this case on August 7, 2020. Under the terms of the settlement, we agreed to contribute to a settlement fund of $ 14.0 million from which all costs of settlement would be paid, including awards to the class, settlement administration expenses, and court-awarded service awards and attorneys’ fees. Class members were allowed to claim either (1) a cash award of dues they paid to Life Time after providing notice of cancellation of their membership (“Cash Award”) or (2) a membership award of a dues credit with a face value of three times the Cash Award toward any access membership with Life Time (“Membership Award”). The period for the class members to make this election ended on July 8, 2020. Based on the Cash Awards and Membership Awards claimed by the class members and the amount awarded for plaintiff’s attorneys’ fees and costs and a class representative service award, we paid $ 13.3 million during the quarter ended September 30, 2020. Because our cost to service a membership is less than the Membership Award, the amount of our loss did not ultimately directly correspond to the total settlement amount of $ 14.0 million. Life Time, Inc. et al. v. Zurich American Insurance Company On August 19, 2020, Life Time, Inc., several of its subsidiaries, and a joint venture entity, Bloomingdale Life Time Fitness LLC (collectively, the “Life Time Parties”) filed a complaint against Zurich American Insurance Company (“Zurich”) in the Fourth Judicial District of the State of Minnesota, County of Hennepin (Case No. 27-CV-20-10599) (the “Action”) seeking declaratory relief and damages with respect to Zurich’s failure under a property/business interruption insurance policy to provide certain coverage to the Life Time Parties related to the closure or suspension by governmental authorities of their business activities due to the spread or threat of spread of COVID-19. On March 15, 2021, certain of the Life Time Parties filed a First Amended Complaint in the Action adding claims against Zurich under a Builders’ Risk policy related to the suspension of multiple construction projects. The parties are currently in discovery. The Action is subject to many uncertainties, and the outcome of the matter is not predictable with any assurance. F-43 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Other We are also engaged in other proceedings incidental to the normal course of business. Due to their nature, such legal proceedings involve inherent uncertainties, including but not limited to court rulings, negotiations between affected parties and governmental intervention. We establish reserves for matters that are probable and estimable in amounts we believe are adequate to cover reasonable adverse judgments. Based upon the information available to us and discussions with legal counsel, it is our opinion that the outcome of the various legal actions and claims that are incidental to our business will not have a material adverse impact on our consolidated financial position, results of operations or cash flows. Such matters are subject to many uncertainties, and the outcomes of individual matters are not predictable with assurance. 401(k) Savings and Investment Plan We offer a 401(k) savings and investment plan (the “401(k) Plan”) to substantially all full-time employees who have at least six months of service and are at least 21 years of age. The cost associated with the Company’s discretionary contributions to the 401(k) Plan during the years ended December 31, 2021, 2020 and 2019 were not material. Letters of Credit and Posted Bonds As of December 31, 2021 and 2020, we had $ 33.5 million and $ 22.6 million, respectively, in irrevocable standby letters of credit outstanding, which were issued primarily to municipalities, for sites under construction, as well as certain insurance carriers to guarantee payments of deductibles for various insurance programs, such as workers’ compensation and commercial liability insurance. Such letters of credit are secured by the collateral under our senior secured credit facility. As of both December 31, 2021 and 2020, no amounts had been drawn on any of these irrevocable standby letters of credit. As of December 31, 2021 and 2020, we had posted bonds totaling $ 36.4 million and $ 37.1 million, respectively, related to construction activities and operational licensing. 13. Related Party Transactions Related Party Leases We did not enter into any related party leases, including related party sale-leaseback transactions, during the year ended December 31, 2021. Sale-Leaseback Transactions During the year ended December 31, 2020, we consummated a sale-leaseback transaction involving one property with a subsidiary of a limited liability company jointly owned by our CEO, a former executive of the Company, and another member of our board of directors, among other investors (“LTRE”). Under this agreement, we sold assets with a net book value of $ 35.1 million for $ 37.0 million, which was reduced by transaction costs totaling approximately $ 0.1 million, for net proceeds of $ 36.9 million . Ac cordingly, we recognized a gain of $ 1.8 million, which is included in Other operating in our consolidated statement of operations for the year ended December 31, 2020. In connection with this lease, we recognized an operating lease right-of-use asset and lease liability of $ 31.7 million and $ 31.4 million, respectively. During the years ended December 31, 2021 and 2020, we paid rent associated with this lease of $ 2.5 million and $ 0.3 million, respectively, and rent expense associated with this lease was $ 3.0 million and $ 0.5 million, respectively. During the year ended December 31, 2019, we entered into a sale-leaseback transaction involving one property with a limited liability company jointly owned by our CEO and another member of our board of directors. Under this agreement, we sold assets with a net book value of $ 37.5 million for $ 32.0 million, which was reduced by transaction costs totaling approximately $ 0.2 million, for net cash proceeds of $ 31.8 million. Upon consummation of this transaction, we recognized a loss of $ 5.7 million, which is included in Other operating in our consolidated statement of operations for the year ended December 31, 2019. During the years ended December 31, 2021, 2020 and 2019, we paid rent associated with this lease of $ 2.8 million, $ 1.5 million, and $ 2.2 million, respectively, and rent expense associated with this lease was $ 2.6 million, $ 2.6 million and $ 2.4 million, respectively. During the year ended December 31, 2018, we entered into a sale-leaseback transaction involving one property with a limited liability company in which our CEO owns a 33 % interest. During the years ended December 31, 2021, 2020 and 2019, we paid F-44 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) rent associated with this lease of $ 1.5 million, $ 0.8 million, and $ 1.2 million, respectively, and rent expense associated with this lease was $ 1.4 million, $ 1.4 million and $ 1.4 million, respectively. During the year ended December 31, 2017, we entered into sale-leaseback transactions involving two properties with a limited liability company that is a related party to one of our existing stockholders. During the years ended December 31, 2021, 2020 and 2019, we paid rent associated with these leases of $ 6.0 million, $ 4.5 million, and $ 6.0 million, respectively, and rent expense associated with these leases was $ 7.4 million, $ 7.4 million and $ 7.4 million, respectively. Other Property Leases In September 2015, our CEO, through two limited liability companies in which he had a 100 % interest, acquired the Woodbury, Minnesota facility that we have occupied and operated as a tenant since 1995. The terms of the existing lease were unchanged upon the change in ownership. On September 29, 2020, our CEO contributed his ownership of our center in Woodbury, Minnesota to LTRE. Following this contribution, we terminated our existing lease with the entities owned by our CEO and entered into a new lease for the Woodbury center with subsidiaries of LTRE. The new Woodbury lease, which we are currently accounting for as an operating lease, has an initial term of 20 years, and includes four renewal options of five years each. In connection with this lease, we recognized an operating lease right-of-use asset and lease liability, each of which totaled $ 13.6 million, on our December 31, 2020, consolidated balance sheet. Upon termination of the previous Woodbury lease, which was previously accounted for as a finance lease, the finance lease right-of-use asset and lease liability balances that we derecognized were $ 0.9 million and $ 1.1 million, respectively. During the years ended December 31, 2021 and 2020, rent payments associated with the new Woodbury lease were $ 1.2 million and $ 0.3 million, respectively, and rent expense associated with the new Woodbury lease was $ 1.3 million and $ 0.3 million, respectively. As it relates to the previous Woodbury lease, we paid rent during the years ended December 31, 2020 and 2019 of $ 0.2 million and $ 1.0 million, respectively. In October 2003, we leased a center located within a shopping center that is owned by a general partnership in which our CEO has a 100 % interest. During the years ended December 31, 2021 , 2020 and 2019, we paid rent associated with this lease of $ 1.1 million, $ 0.5 million, and $ 0.8 million, respectively, and rent expense associated with this lease was $ 0.9 million, $ 0.9 million and $ 0.9 million, respectively. Stockholder Note Receivable For information on the stockholder note receivable, see Note 10, Stockholders’ Equity. Arrangements with our Investors and Management Stockholders For information on the sale of our common stock with certain of our stockholders and on the voluntary stock option purchase offer, see Note 10, Stockholders’ Equity. Related Party Secured Loan For information on the secured loan from an investor group comprised of our stockholders or their affiliates, see Note 8, Debt. Unsecured Notes Offering An affiliate of one of our stockholders was one of the initial purchasers in Life Time, Inc.’s offering of the Unsecured Notes and received customary initial purchaser discounts and commissions. Other Life Time, Inc. and an entity owned by our President and Chief Financial Officer, Mr. Bergmann, jointly own an aircraft. In connection with this joint ownership, Life Time, Inc. and Mr. Bergmann’s entity entered into certain co-ownership, maintenance and personnel agreements under which the entity owned by Mr. Bergmann contributes approximately $ 0.1 million per year to an operations fund for the fixed costs for the aircraft. Life Time, Inc. and the entity owned by Mr. Bergmann have agreed to pay for the costs associated with their respective trips. F-45 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) The daughter of our CEO currently serves as a director of real estate development for Life Time, Inc. During the years ended December 31, 2021, 2020 and 2019, we paid total compensation of approximately $ 0.2 million, $ 0.2 million and $ 0.1 million, respectively, for her services. 14. Executive Nonqualified Plan During 2006, we implemented the Executive Nonqualified Excess Plan of Life Time Fitness, a non-qualified deferred compensation plan. This plan was established for the benefit of our highly compensated employees, which our plan defines as our employees whose projected compensation for the upcoming plan year would meet or exceed the IRS limit for determining highly compensated employees. This unfunded, non-qualified deferred compensation plan allows participants the ability to defer and grow income for retirement and significant expenses in addition to contributions made to our 401(k) Plan. All highly compensated employees eligible to participate in the Executive Nonqualified Excess Plan of Life Time Fitness, including but not limited to our executives, may elect to defer up to 50 % of their annual base salary and/or annual bonus earnings to be paid in any coming year. The investment choices available to participants under the non-qualified deferred compensation plan are of the same type and risk categories as those offered under our 401(k) Plan and may be modified or changed by the participant or us at any time. Distributions can be paid out as in-service payments or at retirement. Retirement benefits can be paid out as a lump sum or in annual installments over a term of up to 10 years. We made matching contributions to this plan of less than $ 0.1 million during the year ended December 31, 2019. We did no t make a matching contribution to this plan during the years ended December 31, 2021 and 2020. Any contributions to this plan vest to each participant according to their years of service with us. At December 31, 2021 and 2020, $ 13.2 million and $ 11.9 million, respectively, had been deferred and is being held on behalf of the employees. These amounts are included in Other liabilities on our consolidated balance sheets. 15. Subsequent Events In March 2022, the Company entered into definitive agreements for the sale-leaseback of four properties with an aggregate sales price of approximately $ 175 million. The closing on two of these properties is expected to be completed on or before March 31, 2022 for approximately $ 80 million in gross proceeds to Life Time. The closing on the remaining two properties is expected to be completed on or before September 30, 2022 for approximately $ 95 million in gross proceeds to Life Time. We have evaluated all subsequent events through the date of the consolidated financial statements were issued and determined that there have been no other such events or transactions which would have a material effect on the consolidated financial statements and therefore would require recognition or disclosure. 16. Condensed Financial Information of Registrant (Parent Company Only) Life Time Group Holdings, Inc. is a holding company with no material operations of its own that conducts substantially all of its activities through its subsidiaries. Life Time Group Holdings, Inc. has no cash and, as a result, all expenditures and obligations of the Company are allocated to and paid by its subsidiaries. Life Time, Inc. is the borrower under our senior secured credit facility and the indentures governing our Secured Notes and our Unsecured Notes, the terms and conditions of which limit Life Time, Inc.’s ability to declare dividends or make any payment on equity to, directly or indirectly, fund a dividend or other distribution to Life Time Group Holdings, Inc. in connection with those borrowings. Dividends, redemptions and other payments on equity (restricted payments) are limited to those permitted under the senior secured credit facility and the indentures governing our Secured Notes and Unsecured Notes. Due to the aforementioned restrictions, substantially all of the net assets of our subsidiaries are restricted. For information regarding our senior secured credit facility, Secured Notes and Unsecured Notes, see Note 8, Debt. The following condensed financial statements have been presented on a “parent-only” basis. Under a parent-only presentation, our investment in our subsidiaries is presented under the equity method of accounting. During the year ended December 31, 2021, we recognized share-based compensation expense related to stock options, restricted stock and restricted stock units of $ 334.3 million, of which $ 12.9 million, $ 316.8 million and $ 4.6 million is included in Center operations, General, administrative and marketing and Other operating, respectively, in our parent-only condensed statement of operations. Also during the year ended December 31, 2021, we recognized a $ 41.0 million debt extinguishment loss related to the conversion of the Related Party Secured Loan to Series A Preferred Stock, which is included in Interest expense, net of interest income in our parent-only condensed statement of operations. This debt extinguishment loss is not recognized for tax purposes. During the F-46 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) year ended December 31, 2019, we recognized share-based compensation expense related to stock options of $ 24.2 million, which is included in General, administrative and marketing expenses in our parent-only condensed statement of operations. No share-based compensation expense was recognized during the year ended December 31, 2020. A condensed statement of cash flows is not presented because Life Time Group Holdings, Inc. has no cash, and, therefore, no material operating, investing, or financing cash flow activities for years ended December 31, 2021, 2020 and 2019. The financing cash flow activities associated with the proceeds we received from the issuance of our common stock during the years ended December 31, 2021, 2020 and 2019, as well as the payments we made to purchase stock options during the year ended December 31, 2019, were non-cash transactions for Life Time Group Holdings, Inc., as the cash inflows and outflows associated with those transactions occurred at our subsidiary, Life Time, Inc and were accounted for as our equity contributions to Life Time, Inc. For more information regarding these transactions, see Note 10, Stockholders’ Equity. LIFE TIME GROUP HOLDINGS, INC. (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS (In thousands, except per share data) December 31, 2021 2020 ASSETS Current assets $ — $ — Noncurrent assets: Investment in subsidiaries 2,091,392 1,496,413 Total noncurrent assets 2,091,392 1,496,413 Total assets $ 2,091,392 $ 1,496,413 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities $ — $ — Noncurrent liabilities — — Total liabilities — — Stockholders’ equity: Common stock, $ 0.01 par value, 500,000 and 170,000 shares authorized, respectively; 193,060 and 145,196 shares issued and outstanding, respectively 1,931 1,452 Additional paid-in capital 2,743,560 1,569,905 Accumulated deficit ( 654,099 ) ( 74,944 ) Total stockholders’ equity 2,091,392 1,496,413 Total liabilities and stockholders’ equity $ 2,091,392 $ 1,496,413 F-47 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) LIFE TIME GROUP HOLDINGS, INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF OPERATIONS (In thousands) For the Year Ended December 31, 2021 2020 2019 Total Revenue $ — $ — $ — Operating expenses: Center operations 12,934 — — General, administrative and marketing 316,836 — 24,152 Other operating 4,569 — — Total operating expenses 334,339 — 24,152 Loss from operations ( 334,339 ) — ( 24,152 ) Other (expense) income: Interest expense, net of interest income ( 40,993 ) — — Total other expense ( 40,993 ) — — Loss before income taxes ( 375,332 ) — ( 24,152 ) Benefit from income taxes ( 81,579 ) — ( 7,004 ) Net loss before equity in net (loss) income of subsidiaries ( 293,753 ) — ( 17,148 ) Net (loss) income of subsidiaries attributable to Life Time Group Holdings, Inc. ( 285,616 ) ( 360,192 ) 47,173 Net (loss) income attributable to Life Time Group Holdings, Inc. $ ( 579,369 ) $ ( 360,192 ) $ 30,025 F-48 Table of Contents Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.