UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-51064

 

GREAT WOLF RESORTS, INC.

Delaware (State or other jurisdiction of incorporation or organization)		51-0510250 (I.R.S. Employer Identification No.)
525 Junction Road, Suite 6000 South Madison, Wisconsin 53717 (Address of principal executive offices)		53717 (Zip Code)

(608) 662-4700
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the issuer’s common stock was 32,471,526 as of May 5, 2011.

 

 

Great Wolf Resorts, Inc.

Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2011

INDEX

		Page
		No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010			4
Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010			5
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
Item 3. Quantitative and Qualitative Disclosures About Market Risk			51
Item 4. Controls and Procedures			52
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			53
Item 1A. Risk Factors			53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			53
Item 3. Defaults Upon Senior Securities			53
Item 4. [Removed and Reserved]			53
Item 5. Other Information			53
Item 6. Exhibits			53
Signatures			55
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

FORWARD-LOOKING STATEMENTS

     Some of the statements contained or that may be included in this report or in information we file with the Securities and Exchange Commission, or the SEC, are or may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by the Private Securities Litigation Act of 1995. All statements, other than statements of historical facts, including, among others, statements regarding our future financial results or position, business strategy, projected levels of growth, projected costs and projected financing needs, are forward-looking statements. Those statements include statements regarding our intent, belief or current expectations and those of the members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “might,” “will,” “could,” “plan,” “objective,” “predict,” “project,” “potential,” “continue,” “ongoing,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, competition in our market, changes in family vacation patterns and consumer spending habits, regional or national economic downturns, our ability to attract a significant number of guests from our target markets, economic conditions in our target markets, the impact of fuel costs and other operating costs, our ability to develop new resorts in desirable markets or further develop existing resorts on a timely and cost efficient basis, our ability to manage growth, including the expansion of our infrastructure and systems necessary to support growth, our ability to manage cash and obtain additional cash required for growth, the general tightening in the U.S. lending markets, potential accidents or injuries at our resorts, decreases in travel due to pandemic or other widespread illness, our ability to achieve or sustain profitability, downturns in our industry segment and extreme weather conditions, reductions in the availability of credit to indoor waterpark resorts generally or to us and our subsidiaries, increases in operating costs and other expense items and costs, uninsured losses or losses in excess of our insurance coverage, our ability to protect our intellectual property, trade secrets and the value of our brands, and current and possible future legal restrictions and requirements. Further descriptions of these risks, uncertainties, and other matters can be found in our annual report and other reports filed from time to time with the SEC, including but not limited to our Annual Report on Form 10-K for the year ended December 31, 2010. We caution that the foregoing list of important factors is not complete and assumes no obligation to update any forward-looking statement that it may make.

     We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless otherwise required by law. Past financial or operating performance is not necessarily a reliable indicator of future performance and you should not use our historical performance to anticipate results or future period trends.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GREAT WOLF RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)

		March 31,				December 31,
		2011				2010
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	46,903			$	36,988
Escrows			2,247				1,283
Accounts receivable, net of allowance for doubtful accounts of $11 and $13			2,751				3,278
Accounts receivable — affiliates			3,872				3,764
Inventory			7,728				6,871
Other current assets			9,629				4,619
Total current assets			73,130				56,803
Property and equipment, net			605,811				623,958
Investments in and advances to affiliates			24,472				25,131
Other assets			31,496				38,649
Intangible assets			26,716				26,697
Total assets		$	761,625			$	771,238
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt		$	70,561			$	70,083
Accounts payable			3,536				8,499
Accounts payable — affiliates			5				4
Accrued interest payable			13,989				8,085
Accrued expenses			21,835				20,434
Advance deposits			14,758				7,472
Other current liabilities			5,922				7,416
Total current liabilities			130,606				121,993
Mortgage debt			388,868				390,289
Other long-term debt			80,551				91,926
Deferred compensation liability			1,630				1,260
Total liabilities			601,655				605,468
Commitments and contingencies
Great Wolf Resorts stockholders’ equity:
Common stock, $0.01 par value; 250,000,000 shares authorized; 32,428,131 and 32,339,125 shares issued and outstanding			324				323
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding			—				—
Additional paid-in-capital			403,139				402,952
Accumulated deficit			(243,270	)			(237,296	)
Deferred compensation			(200	)			(200	)
Total Great Wolf Resorts stockholders’ equity			159,993				165,779
Noncontrolling interest			(23	)			(9	)
Total equity			159,970				165,770
Total liabilities and equity		$	761,625			$	771,238

See accompanying notes to the condensed consolidated financial statements.

GREAT WOLF RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; dollars in thousands, except share and per share data)

		Three months ended
		March 31,
		2011				2010
Revenues:
Rooms		$	42,187			$	40,771
Food and beverage			11,202				11,267
Other			11,179				9,739
Management and other fees			753				635
Management and other fees — affiliates			1,003				1,020
			66,324				63,432
Other revenue from managed properties			2,837				2,717
Other revenue from managed properties — affiliates			2,724				2,694
Total revenues			71,885				68,843
Operating expenses by department:
Rooms			6,047				5,786
Food and beverage			8,460				8,227
Other			9,417				8,050
Other operating expenses:
Selling, general and administrative			16,981				18,177
Property operating costs			8,424				8,624
Depreciation and amortization			13,248				14,146
Loss on disposition of property			—				10
			62,577				63,020
Other expenses from managed properties			2,837				2,717
Other expenses from managed properties — affiliates			2,724				2,694
Total operating expenses			68,138				68,431
Net operating income			3,747				412
Investment income — affiliates			(242	)			(289	)
Interest income			(55	)			(252	)
Interest expense			12,097				9,107
Loss from continuing operations before income taxes and equity in income of unconsolidated affiliates			(8,053	)			(8,154	)
Income tax expense			5,002				181
Equity in income of unconsolidated affiliates, net of tax			(151	)			(233	)
Net loss from continuing operations			(12,904	)			(8,102	)
Discontinued operations, net of tax			(6,916	)			(37	)
Net loss			(5,988	)			(8,065	)
Net loss attributable to noncontrolling interest, net of tax			(14	)			—
Net loss attributable to Great Wolf Resorts, Inc.		$	(5,974	)		$	(8,065	)
Basic loss per common share		$	(0.19	)		$	(0.26	)
Diluted loss per common share		$	(0.19	)		$	(0.26	)
Weighted average common shares outstanding:
Basic			31,194,900				30,837,867
Diluted			31,194,900				30,837,867

See accompanying notes to the condensed consolidated financial statements.

GREAT WOLF RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; dollars in thousands)

		Three months ended
		March 31,
		2011				2010
Operating activities:
Net loss		$	(5,988	)		$	(8,065	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			13,349				14,020
Bad debt expense			14				134
Non-cash employee compensation and professional fees expense			583				544
Loss on disposition of property			—				10
Gain on disposition of property included in discontinued operations			(6,667	)			—
Equity in income of unconsolidated affiliates			(147	)			(228	)
Deferred tax expense (benefit)			4,562				(220	)
Changes in operating assets and liabilities:
Accounts receivable and other assets			(2,049	)			(2,726	)
Accounts payable, accrued expenses and other liabilities			5,311				9,326
Net cash provided by operating activities			8,968				12,795
Investing activities:
Capital expenditures for property and equipment			(701	)			(3,781	)
Loan repayment from unconsolidated affiliates			807				490
Proceeds from the sale of a discontinued operation			4,200				—
Investment in development			(67	)			(162	)
(Increase) decrease in restricted cash			(2,412	)			1,537
Net cash provided by (used in) investing activities			1,827				(1,916	)
Financing activities:
Principal payments on long-term debt			(756	)			(3,931	)
Proceeds from issuance of long-term debt			—				39
Payment of loan costs			(124	)			(705	)
Net cash used in financing activities			(880	)			(4,597	)
Net increase in cash and cash equivalents			9,915				6,282
Cash and cash equivalents, beginning of period			36,988				20,913
Cash and cash equivalents, end of period		$	46,903			$	27,195
Supplemental Cash Flow Information:
Cash paid for interest, net of capitalized interest		$	6,269			$	9,146
Cash paid for income taxes, net of refunds		$	111			$	104
Non-cash items:
Loan cost accruals		$	—			$	2,947
Transfer of fixed assets to inventory		$	908			$	—

See accompanying notes to the condensed consolidated financial statements.

GREAT WOLF RESORTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; dollars in thousands, except share and per share amounts)

1. ORGANIZATION

     The terms “Great Wolf Resorts,” “us,” “we” and “our” are used in this report to refer to Great Wolf Resorts, Inc. and its consolidated subsidiaries.

Business Summary

     We are a family entertainment resort company that provides our guests with a high quality vacation at an affordable price. We are the largest owner, licensor, operator and developer in North America of drive-to, destination family resorts featuring indoor waterparks and other family-oriented entertainment activities based on the number of resorts in operation. Each of our resorts features approximately 300 to 600 family suites, each of which sleeps from six to ten people and includes a wet bar, microwave oven, refrigerator and dining and sitting area. We provide a full-service entertainment resort experience to our target customer base: families with children ranging in ages from 2 to 14 years old that live within a convenient driving distance of our resorts. We operate and license resorts under our Great Wolf Lodge^® brand name. We have entered into licensing-and-management arrangements with third parties relating to the operation of resorts under the Great Wolf Lodge brand name. Our resorts are open year-round and provide a consistent, comfortable environment where our guests can enjoy our various amenities and activities.

     We provide our guests with a self-contained vacation experience and focus on capturing a significant portion of their total vacation spending. We earn revenues through the sale of rooms (which includes admission to our indoor waterpark), and other revenue-generating resort amenities. Each of our resorts features a combination of the following revenue-generating amenities: themed restaurants, ice cream shop and confectionery, full-service adult spa, kid spa, game arcade, gift shop, miniature golf, interactive game attraction, family tech center and meeting space. We also generate revenues from licensing fees, management fees and other fees with respect to our operation or development of properties owned in whole or in part by third parties.

     The following table presents an overview of our portfolio of resorts. As of March 31, 2011, we operate, manage and/or have entered into licensing arrangements relating to the operation of 11 Great Wolf Lodge resorts (our signature Northwoods-themed resorts). We anticipate that most of our future resorts will be licensed and/or developed under our Great Wolf Lodge brand, but we may operate and/or enter into licensing arrangements with other resorts using different brands in appropriate markets.

														Number
										Number of				of				Indoor
		Ownership								Guest				Condo				Entertainment
		Percentage				Opened				Suites				Units (1)				Area (2)
																		(approx. sq. ft.)
Wisconsin Dells, WI (3)			—				1997				308				77				102,000
Sandusky, OH (3)			—				2001				271				—				41,000
Traverse City, MI			100	%			2003				280				—				57,000
Kansas City, KS			100	%			2003				281				—				57,000
Williamsburg, VA (4)			100	%			2005				405				—				87,000
Pocono Mountains, PA (4)			100	%			2005				401				—				101,000
Niagara Falls, ONT (5)			—				2006				406				—				104,000
Mason, OH (4)			100	%			2006				401				—				105,000
Grapevine, TX (4)			100	%			2007				605				—				110,000
Grand Mound, WA (6)			49	%			2008				398				—				74,000
Concord, NC (4)			100	%			2009				402				—				97,000

     On March 24, 2011 we sold our Blue Harbor Resort in Sheboygan, WI. We continue to license the Blue Harbor Resort and related trade names to the buyer at no fee. As of March 31, 2011, we no longer operate this resort or manage the condominium units there.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     General — We have prepared these unaudited condensed consolidated interim financial statements according to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, we have omitted certain information and footnote disclosures that are normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP). The December 31, 2010 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. These interim financial statements should be read in conjunction with the financial statements, accompanying notes and other information included in our Annual Report on Form 10-K for the year ended December 31, 2010.

     The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the financial condition and results of operations and cash flows for the periods presented. The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, as well as the 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. Our actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year.

Certain 2010 amounts have been reclassified to conform to the 2011 presentation. A reclassification of the change in escrows which was presented separately on the condensed consolidated statements of cash flows has now been combined with the change in restricted cash. A reclassification of accrued interest from accrued expenses has been presented separately on the condensed consolidated balance sheets. As a result of the sale of our Blue Harbor Resort, we have included the operations and gain on sale of this resort in discontinued operations.

     Principles of Consolidation — The accompanying condensed consolidated financial statements include all of the accounts of Great Wolf Resorts and our consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.

     Goodwill — The excess of the purchase price of entities that are considered to be purchases of businesses over the estimated fair value of tangible and identifiable intangible assets acquired is recorded as goodwill. We are required to assess goodwill for impairment annually, or more frequently if circumstances indicate impairment may have occurred. We assess goodwill for such impairment by comparing the carrying value of our reporting units to their fair values. We determine our reporting units’ fair values using a discounted cash flow model.

		March 31,				December 31,
		2011				2010
Goodwill related to the acquisition of the majority interest in CK		$	1,366			$	1,366
		$	1,366			$	1,366

     In connection with the acquisition of the majority interest in Creative Kingdoms, LLC (CK) in 2010 we have recorded $1,366 of goodwill. Goodwill is included within intangible assets on our condensed consolidated balance sheet.

     Noncontrolling Interests — We record the non-owned equity interests of our consolidated subsidiaries as a separate component of our consolidated equity on our condensed consolidated balance sheet. The net earnings attributable to the controlling and noncontrolling interests are included on the face of our statements of operations. Due to our acquisition of CK in 2010 we have a consolidated subsidiary with a noncontrolling interest.

     Discontinued Operations — We record the results of the operations of an entity that has been disposed of as a discontinued operation in the consolidated statements of operations when the operations and cash flows of the entity have been eliminated from the ongoing operations and we do not have any significant continuing involvement in the operations of the entity after the disposal transaction. During the three months ended March 31, 2011 we disposed of our Blue Harbor Resort property and have included that property’s operations and gain on sale in discontinued operations for all periods presented. The operations of Blue Harbor Resort were formerly included in our Resort Ownership/Operation segment.

     Income Taxes — At the end of each interim reporting period, we estimate the effective tax rate expected to be applicable for the full fiscal year. We use that estimated effective tax rate in providing for income taxes on a year-to-date basis. We account for the tax effect of significant unusual or extraordinary items in the period in which they occur. We account for major changes in our valuation allowance within continuing operations in the period in which they occur. As of March 31, 2011, we increased our valuation allowance by $4,772 as a result of the sale of our Blue Harbor Resort in Sheboygan, Wisconsin. The increase was due to uncertainties related to our ability to utilize some of our deferred tax assets generated as a result of that sale, primarily consisting of certain net operating loss carryforwards, before they expire.

     Segments — We are organized into a single operating division. Within that operating division, we have two reportable segments:

	•		Resort ownership/operation-revenues derived from our consolidated owned resorts; and
	•		Resort third-party management/licensing-revenues derived from management, license and other related fees from unconsolidated managed resorts.

The following summarizes significant financial information regarding our segments:

						Resort
		Resort				Third-Party								Totals per
		Ownership/				Management								Financial
		Operation				/License				Other				Statements
Three months ended March 31, 2011
Revenues		$	63,253			$	7,317			$	1,315			$	71,885
Depreciation and amortization			(12,484	)			—				(764	)			(13,248	)
Net operating income (loss)			4,237				1,756				(2,246	)			3,747
Investment income — affiliates			—				—				—				(242	)
Interest income			—				—				—				(55	)
Interest expense			—				—				—				12,097
Loss from continuing operations before income taxes and equity in income of unconsolidated affiliates			—				—				—			$	(8,053	)
Additions to long-lived assets			595				—				106			$	701
Total assets			627,210				1,984				132,431			$	761,625

						Resort
		Resort				Third-Party								Totals per
		Ownership/				Management								Financial
		Operation				/License				Other				Statements
Three months ended March 31, 2010
Revenues		$	61,777			$	7,066			$	—			$	68,843
Depreciation and amortization			(13,981	)			—				(165	)			(14,146	)
Net operating income (loss)			926				1,656				(2,170	)			412
Investment income — affiliates			—				—				—				(289	)
Interest income			—				—				—				(252	)
Interest expense			—				—				—				9,107
Loss from continuing operations before income taxes and equity in income of unconsolidated affiliates			—				—				—			$	(8,154	)
Additions to long-lived assets			3,629				—				152			$	3,781
Total assets			698,089				3,032				105,464			$	806,585

     The Other column in the table includes items that do not constitute a reportable segment and represent corporate-level activities and the activities of other operations not included in the Resort Ownership/Operation or Resort Third-Party Management/License segments. Total assets at the corporate level primarily consist of cash, our investment in affiliates, and intangibles.

     Recent Accounting Pronouncements — In July 2010, the FASB issued guidance on disclosures about the credit quality of financing receivables and the allowance for credit losses. The guidance requires new disclosures that will require companies to provide more information about the credit quality of their financing receivables in the disclosures to the financial statements including, but not limited to, significant purchases and sales of financing receivables, aging information and credit quality indicators. This guidance is effective for interim or annual financial reporting periods beginning after December 15, 2010. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

     In December 2010, the FASB issued guidance which (1) does not prescribe a specific method of calculating the carrying value of a reporting unit in the performance of step 1 of the goodwill impairment test and (2) requires entities

with a zero or negative carrying value to assess, considering certain qualitative factors, whether it is more likely than not that a goodwill impairment exists. If an entity concludes that it is more likely than not that a goodwill impairment exists, the entity must perform step 2 of the goodwill impairment test. This guidance is effective for impairment tests performed during fiscal years (and interim periods within those years) that begin after December 15, 2010. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

     In December 2010, the FASB issued guidance to address differences in the ways entities have interpreted disclosures about pro forma revenue and earnings in a business combination. This guidance states that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This guidance is effective prospectively for business combinations whose acquisition date is at or after the beginning of the first annual reporting period on or after December 15, 2010. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

3. INVESTMENT IN AFFILIATES

  Grand Mound Joint Venture

     Our joint venture with The Confederated Tribes of the Chehalis Reservation owns the Great Wolf Lodge resort and conference center on a 39-acre land parcel in Grand Mound, Washington. This resort opened in March 2008. This joint venture is a limited liability company. We are a member of that limited liability company with a 49% ownership interest. At March 31, 2011, the joint venture had aggregate outstanding indebtedness to third parties of $97,486. As of March 31, 2011, we have made combined loan and equity contributions, net of loan repayments, of $27,179 to the joint venture to fund a portion of construction costs of the resorts.

     Summary financial data for this joint venture is as follows:

		March 31,				December 31,
		2011				2010
Balance sheet data:
Total assets		$	141,678			$	142,329
Total liabilities		$	111,304			$	112,307
		Three months ended
		March 31,
		2011				2010
Operating data:
Revenue		$	11,225			$	11,213
Operating expenses		$	(9,687	)		$	(9,424	)
Net income		$	353			$	517

     We have a receivable from the joint venture of $3,872 and $3,764 that relates primarily to accrued preferred equity returns and management fees as of March 31, 2011 and December 31, 2010, respectively. We had a payable to the joint venture of $5 and $4 as of March 31, 2011 and December 31, 2010, respectively.

4. VARIABLE INTEREST ENTITIES

          In accordance with the guidance for the consolidation of variable interest entities, we analyze our variable interests, including equity investments and management agreements, to determine if an entity in which we have a variable interest, is a variable interest entity. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on the forecasted cash flows of the entity, and our qualitative analysis on our review of the design of the entity, its organization structure including decision-making ability, and relevant financial agreements. We also use our qualitative analyses to determine if we must consolidate a variable interest entity as the primary beneficiary.

          The following summarizes our analyses of entities in which we have a variable interest and that we have concluded are variable interest entities:

	•		We have equity investments in and a loan to the joint venture that owns the Great Wolf Lodge resort in Grand Mound, Washington. We manage that resort and we have concluded that the joint venture is a variable interest entity because the management fees we receive represent a variable interest. The management contract, however, does not provide us with power to direct the activities that most significantly impact the economic performance of the joint venture. As we lack the ability to direct the activities that most significantly affect the resort’s performance, we are not the primary beneficiary of the joint venture and, therefore, we do not consolidate this entity at March 31, 2011. During the three months ended March 31, 2011 and 2010, we did not provide any support to this entity that we were not contractually obligated to do so. Our maximum exposure to loss related to our involvement with this entity as of March 31, 2011 is limited to the carrying value of our equity investments in and loans to the joint venture as of that date. The total carrying values of those items on our balance sheet as of March 31, 2011 is $24,472.
	•		We have equity investments in two subsidiaries which are Delaware statutory trusts, both of which were used to issue trust preferred securities through private offerings. We have concluded that both of these trusts are variable interest entities. As we lack the ability to direct the activities that most significantly impact the trusts’ performance, however, we are not the primary beneficiary and therefore, we do not consolidate these entities at March 31, 2011. During the three months ended March 31, 2011 and 2010, we did not provide any support to these entities that we were not contractually obligated to do so. Our maximum exposure to loss related to our involvement with these entities as of March 31, 2011 is limited to the carrying value of our equity investments in the entities as of that date. The total carrying values of those items on our balance sheet as of March 31, 2011 is $2,420.

5. ACQUISITION OF CREATIVE KINGDOMS

     In June, 2010, we acquired a 62.4% equity interest in Creative Kingdoms (CK) in exchange for all of the convertible indebtedness owed to us by CK. CK is a developer of experiential gaming products including MagiQuest^®, an interactive game attraction available at nine of our resorts. CK also owns or has sold to other parties several stand-alone MagiQuest facilities or similar attractions.

     We have consolidated CK as we have a majority ownership interest in CK. We accounted for this business combination using the acquisition method of accounting, which requires us to measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest at the acquisition-date fair value. We have recorded the identifiable assets acquired, the liabilities assumed and the noncontrolling interest at amounts that approximate fair value. We have recorded $1,366 of goodwill, which represents the excess of (a) the consideration transferred and the fair value of any noncontrolling interest in the acquiree over (b) the net of the acquisition date fair values of the assets acquired and the liabilities assumed, less amounts established as a deferred tax asset.

6. SHARE-BASED COMPENSATION

     We recognized share-based compensation expense of $583 and $545, net of estimated forfeitures, for the three months ended March 31, 2011 and 2010, respectively. The total income tax expense recognized related to share-based compensation was $15 and $12 for the three months ended March 31, 2011 and 2010, respectively.

     We recognize compensation expense on grants of share-based compensation awards on a straight-line basis over the requisite service period of each award recipient. As of March 31, 2011, total unrecognized compensation cost related to

share-based compensation awards was $2,605, which we expect to recognize over a weighted average period of approximately 2.5 years.

     The Great Wolf Resorts 2004 Incentive Stock Plan (the Plan) authorizes us to grant up to 3,380,740 options, stock appreciation rights or shares of our common stock to employees and directors. At March 31, 2011, there were 464,493 shares available for future grants under the Plan.

     We anticipate having to issue new shares of our common stock for stock option exercises.

Stock Options

     We have granted non-qualified stock options to purchase our common stock under the Plan at prices equal to the fair market value of the common stock on the grant dates. The exercise price for options granted under the plans may be paid in cash, shares of common stock or a combination of cash and shares. Stock options expire ten years from the grant date and vest ratably over three years.

     We recorded no stock option expense for the three months ended March 31, 2011 or 2010. There were no stock options granted during the three months ended March 31, 2011 or 2010. During the three months ended March 31, 2011, certain employees surrendered and cancelled 5,500 previously granted stock options.

     A summary of stock option activity during the three months ended March 31, 2011 is:

										Weighted
						Weighted				Average
						Average				Remaining
						Exercise				Contractual
		Shares				Price				Life
Number of shares under option:
Outstanding at beginning of period			36,000			$	19.03			4.15 years
Exercised			—
Forfeited			(5,500	)		$	18.17
Outstanding at end of period			30,500			$	19.19			3.93 years
Exercisable at end of period			30,500			$	19.19			3.93 years

     At March 31, 2011 and 2010, the exercise prices of all of our outstanding and exercisable options were above our stock price. Therefore, there was no intrinsic value for our outstanding or exercisable shares at March 31, 2011 or 2010.

Market Condition Share Awards

     Certain employees are eligible to receive shares of our common stock in payment of market condition share awards granted to them in accordance with the terms thereof.

     We granted 444,002 and 515,986 market condition share awards during the three months ended March 31, 2011 and 2010, respectively. We recorded share-based compensation expense of $205 and $209 for the three months ended March 31, 2011 and 2010, respectively.

     Of the 2011 market condition shares granted:

•

277,894 were based on our common stock’s performance in 2011 relative to a stock index, as designated by the Compensation Committee of the Board of Directors. These shares vest ratably over a three-year period, 2011-2013. The per share fair value of these market condition shares was $2.35 as of the grant date.

     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			0.25	%
Expected stock price volatility			64.73	%
Expected stock price volatility (small-cap stock index)			29.39	%

     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the 10.6-month treasury constant maturity. Our expected stock price volatility and the expected stock price volatility for the small cap stock index was estimated using daily returns data of our stock and the index for the period February 11, 2009 through February 10, 2011.

•

83,054 were based on our common stock’s absolute performance during the three-year period 2010-2012. For shares that are earned, half of the shares vest on December 31, 2012, and the other half vest on December 31, 2013. The per share fair value of these market condition shares was $2.15 as of the grant date.

     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			0.58	%
Expected stock price volatility			64.73	%

     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the 1.89-year treasury constant maturity. Our expected stock price volatility was estimated using daily returns data of our stock for the period February 11, 2009 through February 10, 2011.

•

83,054 were based on our common stock’s performance in 2010-2012 relative to a stock index, as designated by the Compensation Committee of the Board of Directors. For shares that are earned, half of the shares vest on December 31, 2012, and the other half vest on December 31, 2013. The per share fair value of these market condition shares was $2.19 as of the grant date.

     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			0.58	%
Expected stock price volatility			64.73	%
Expected stock price volatility (small-cap stock index)			29.39	%

     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the 1.89-year treasury constant maturity. Our expected stock price volatility and the expected stock price volatility for the small cap stock index was estimated using daily returns data of our stock and the index for the period February 11, 2009 through February 10, 2011.

Of the 2010 market condition shares granted:

•

333,060 were based on our common stock’s performance in 2010 relative to a stock index, as designated by the Compensation Committee of the Board of Directors. These shares vest ratably over a three-year period, 2010-2012. The per share fair value of these market condition shares was $2.43 as of the grant date.

     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			0.26	%
Expected stock price volatility			108.06	%
Expected stock price volatility (small-cap stock index)			40.92	%

     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the 9-month treasury constant maturity. Our expected stock price volatility was estimated using daily returns data of our stock for a two-year period ending on the grant date. The expected stock price volatility for the small cap stock index was estimated using daily returns data for a two-year period ending on the grant date.

The market condition for these shares was not met and therefore no shares related to this grant were issued.

•

91,463 were based on our common stock’s absolute performance during the three-year period 2010-2012. For shares that are earned, half of the shares vest on December 31, 2012, and the other half vest on December 31, 2013. The per share fair value of these market condition shares was $2.53 as of the grant date.

     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			1.27	%
Expected stock price volatility			95.21	%

     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the 2.75-year treasury constant maturity. Our expected stock price volatility was estimated using daily returns data of our stock for the period June 29, 2007 through March 30, 2010.

•

91,463 were based on our common stock’s performance in 2010-2012 relative to a stock index, as designated by the Compensation Committee of the Board of Directors. For shares that are earned, half of the shares vest on December 31, 2012, and the other half vest on December 31, 2013. The per share fair value of these market condition shares was $2.61 as of the grant date.

     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			1.27	%
Expected stock price volatility			95.21	%
Expected stock price volatility (small-cap stock index)			37.51	%

     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the 2.75-year treasury constant maturity. Our expected stock price volatility and the expected stock price volatility for the small cap stock index was estimated using daily returns data of our stock for the period June 29, 2007 through March 30, 2010.

Of the 2009 market condition shares granted:

•

541,863 were based on our common stock’s performance in 2009 relative to a stock index, as designated by the Compensation Committee of the Board of Directors. These shares vest ratably over a three-year period, 2009-2011. The per share fair value of these market condition shares was $1.26 as of the grant date.

     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			0.62	%
Expected stock price volatility			96.51	%
Expected stock price volatility (small-cap stock index)			37.89	%

     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the one-year T-bill rate. Our expected stock price volatility was estimated using daily returns data of our stock for a two-year period ending on the grant date. The expected stock price volatility for the small cap stock index was estimated using daily returns data for a two-year period ending on the grant date.

     Based on our common stock performance in 2009, employees earned all of these market condition shares.

Performance Share Awards

     Certain employees are eligible to receive shares of our common stock in payment of performance share awards granted to them. Grantees of performance shares are eligible to receive shares of our common stock based on the achievement of certain individual and departmental performance criteria during the calendar year in which the shares were granted. We granted 92,633 and 111,020 performance shares during the three months ended March 31, 2011 and 2010, respectively. Shares granted in 2011 vest over a three year period, 2011-2013; and shares granted in 2010 vest over a three year period, 2010-2012.

     The per share fair value of performance shares granted during the three months ended March 31, 2011 and 2010 was $3.23 and $3.18, respectively, which represents the fair value of our common stock on the grant date. We recorded share-based compensation expense of $71 and $61 for the three months ended March 31, 2011 and 2010, respectively. Since all shares originally granted were not earned, we recorded a reduction in expense of $16 and $9 during the three months ended March 31, 2011 and 2010, respectively, related to the shares not issued.

     Based on their achievement of certain individual and departmental performance goals:

	•		Employees earned and were issued 96,305 performance shares in February 2011 related to the 2010 grants and
	•		Employees earned and were issued 162,559 performance shares in March 2010 related to 2009 grants.

Deferred Compensation Awards

     Pursuant to their employment arrangements, certain executives received bonuses upon completion of our initial public offering. Executives receiving bonus payments totaling $2,200 elected to defer those payments pursuant to our deferred

compensation plan. To satisfy this obligation, we contributed 129,412 shares of our common stock to the trust that holds the assets to pay obligations under our deferred compensation plan. The fair value of that stock at the date of contribution was $2,200. We have recorded the fair value of the shares of common stock, at the date the shares were contributed to the trust, as a reduction of our stockholders’ equity. In 2008, one of the executives who had deferred a bonus payment resigned from our company. As a result, we have reclassified $2,000 previously recorded as deferred compensation to additional paid-in-capital.

     We account for the change in fair value of the shares held in the trust as a charge to compensation cost. We recorded share-based compensation (income) expense of $(6) and $10, for the three months ended March 31, 2011 and 2010, respectively.

Non-vested Shares

We have granted non-vested shares as follows:

	•		We have granted non-vested shares to certain employees and our directors. These shares vest over time periods between three and five years. We valued these non-vested shares at the closing market value of our common stock on the date of grant.
	•		We have granted non-vested shares to certain employees for shares earned under the Market Condition Share Awards as described above. These shares vest ratably over a three-year period. We valued the non-vested shares related to Market Condition Shares using a Monte Carlo simulation as described above.
	•		We have granted non-vested shares to certain employees for shares earned under the Performance Share Awards as described above. These shares vest ratably over a three-year period. We valued the non-vested shares related to Performance Share Awards at the closing market value of our common stock on the date of grant of the Performance Share Awards.

     A summary of non-vested shares activity for the three months ended March 31, 2011 is as follows:

						Weighted
						Average
						Grant Date
		Shares				Fair Value
Non-vested shares balance at beginning of period			1,163,379			$	3.12
Granted			96,305			$	2.12
Forfeited			(15,000	)		$	6.21
Vested			(37,102	)		$	1.52
Non-vested shares balance at end of period			1,207,582			$	3.05

     We recorded share-based compensation expense related to non-vested shares of $328 and $254 for the three ended March 31, 2011 and 2010, respectively.

     Our non-vested shares had an intrinsic value of $184 and $1,027 at March 31, 2011 and 2010, respectively.

     Vested Shares

     We have an annual short-term incentive plan for certain employees, in which they are provided the potential to earn cash bonus payments. In 2010 and 2009, certain of these employees had the option to elect to have some or all of their annual bonus compensation paid in the form of shares of our common stock rather than cash. Employees making this

election received shares having a market value equal to 125% of the cash they would otherwise receive. Shares issued in lieu of cash bonus payments are fully vested upon issuance.

	•		In connection with the elections related to 2010 bonus amounts, we issued 33,545 shares in February 2011. We valued these shares at $96 based on the closing market value of our common stock on the date of the grant.
	•		There were no shares issued in the three months ended March 31, 2010 related to 2009 bonus amounts.

     In 2010 and 2009, our directors had the option to elect to have some or the entire cash portion of their annual fees paid in the form of shares of our common stock rather than cash. Directors making this election received shares having a market value equal to 125% of the cash they would otherwise receive. Shares issued in lieu of cash fee payments are fully vested upon issuance. There was no non-cash professional fee expense recorded nor any shares issued related to these elections to receive shares in lieu of cash during the three months ended March 31, 2011. We recorded non-cash professional fees expense of $20 for the three months ended March 31, 2010, related to these elections to receive shares in lieu of cash. We issued 7,574 shares in the three months ended March 31, 2010.

7. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

		March 31,				December 31,
		2011				2010
Land and improvements		$	57,665			$	57,665
Building and improvements			417,086				420,316
Furniture, fixtures and equipment			338,417				341,741
Construction in process			741				623
			813,909				820,345
Less accumulated depreciation			(208,098	)			(196,387	)
Property and equipment, net		$	605,811			$	623,958

Depreciation expense for continuing operations was $12,163 and $12,320 for the three months ended March 31, 2011 and 2010, respectively.

8. LONG-TERM DEBT

     Long-term debt consists of the following:

		March 31,				December 31,
		2011				2010
Long-Term Debt:
Traverse City/Kansas City mortgage loan		$	66,819			$	67,236
Pocono Mountains mortgage loan			93,948				94,274
Concord mortgage loan			77,824				78,147
First mortgage notes (net of discount of $9,195 and $9,578)			220,805				220,422
Junior subordinated debentures			80,545				80,545
Other Long-Term Debt:
City of Sheboygan bonds			—				8,573
City of Sheboygan loan			—				3,054
Other			39				47
			539,980				552,298
Less current portion of long-term debt			(70,561	)			(70,083	)
Total long-term debt		$	469,419			$	482,215

     Traverse City/Kansas City Mortgage Loan — This non-recourse loan is secured by our Traverse City and Kansas City resorts. The loan bears interest at a fixed rate of 6.96%, is subject to a 25-year principal amortization schedule, and matures in January 2015. The loan has customary financial and operating debt compliance covenants. The loan also has customary restrictions on our ability to prepay the loan prior to maturity. We were in compliance with all covenants under this loan at March 31, 2011.

     While recourse under the loan is limited to the property owner’s interest in the mortgaged property, we have provided limited guarantees with respect to certain customary non-recourse provisions and environmental indemnities relating to the loan.

     The loan also contains limitations on our ability, without lender’s consent, to (i) make payments to our affiliates if a default exists; (ii) enter into transactions with our affiliates; (iii) make loans or advances; or (iv) assume, guarantee or become liable in connection with any other obligations.

     The loan requires us to maintain a minimum debt service coverage ratio (DSCR) of 1.35, calculated on a quarterly basis. This ratio is defined as the two collateral properties’ combined trailing twelve-month net operating income divided by the greater of (i) the loan’s twelve-month debt service requirements and (ii) 8.5% of the amount of the outstanding principal indebtedness under the loan. Failure to meet the minimum DSCR is not an event of default and does not accelerate the due date of the loan. Not meeting the minimum DSCR, however, subjects the two properties to a lock-box cash management arrangement, at the discretion of the loan’s servicer. The loan also contains a similar lock-box requirement if we open any Great Wolf Lodge or Blue Harbor Resort within 100 miles of either resort, and the two collateral properties’ combined trailing twelve-month net operating income is not at least equal to 1.8 times 8.5% of the amount of the outstanding principal indebtedness under the loan. For the twelve-month period ended March 31, 2011, the DSCR for this loan was 1.01, and the DSCR for this loan has been below 1.35 since the second quarter of 2007.

     In September 2010 the loan’s master servicer implemented the lock-box cash management arrangement. That lock-box cash management arrangement currently requires substantially all cash receipts for the two resorts to be moved each day to a lender-controlled bank account, which the loan servicer then uses monthly to fund debt service and operating expenses for the two resorts, with excess cash flow being deposited in a reserve account and held as additional collateral for the loan. We believe that this arrangement currently constitutes a traditional lock-box arrangement as discussed in authoritative accounting guidance. Based on that guidance, since the loan’s master servicer has now established the traditional lock-box arrangement currently permitted under the loan, we have classified the entire outstanding principal balance of the loan as a current liability as of March 31, 2011, since the lock-box arrangement requires us to use the properties’ working capital to service the loan, and we do not presently have the ability to refinance this loan to a new, long-term loan. Although the entire principal balance of the loan is classified as a current liability as of March 31, 2011, the loan is not in default and the entire principal balance is not due currently.

     At our request, in October 2010 the loan was transferred to its special servicer. We informed the special servicer that, given the current and expected performance at that time of the two properties securing this loan, we might elect to cease the subsidization of debt service on this non-recourse loan. If we were to elect to cease the subsidization of debt service, that may result in a default under the loan agreement. We believe the combined market value of the two properties securing this loan is now significantly less than the principal amount of the loan. The properties had a combined net book value of $42,010 as of March 31, 2011, which includes the effect of an impairment charge we recorded in 2010 to adjust the carrying value of the properties to their estimated fair value, and the amount of debt outstanding under the loan was $66,819 as of March 31, 2011.

     Through March 2011, we worked with the special servicer to discuss a potential modification of this loan. Those discussions proved unsuccessful and the special servicer has transferred the loan back to the master servicer, where the lock-box arrangement as described above remains in place.

     Since we did not achieve a satisfactory modification of this loan, we expect to choose among several possible courses of action, including:

	•		electing to continue the subsidization of debt service on this loan, if the cash flow provided by the properties to us through the lock-box arrangement is less than the debt service requirements of the loan;
	•		attempting to refinance the existing loan, a step that we believe would result in materially lower proceeds than the current loan balance, thus requiring a significant paydown on the existing loan balance; or
	•		continuing to operate the properties for some period of time, with the possibility of surrendering the two properties at some future date to the lender or a lender-appointed receiver in satisfaction of the loan balance.

     Given improved operating trends and performance at the properties during the three months ended March 31, 2011, we currently expect the properties to generate sufficient cash flow so that our subsidization of debt service, if any, for 2011 will be insignificant to our overall operations. As a result, we currently believe the most likely course of action for 2011 is to continue to operate these properties, assuming these trends continue.

     Pocono Mountains Mortgage Loan — This loan is secured by a mortgage on our Pocono Mountains resort. The loan bears interest at a fixed rate of 6.10% and matures in January 2017. The loan is currently subject to a 30-year principal amortization schedule. The loan has customary covenants associated with an individual mortgaged property. The loan also has customary restrictions on our ability to prepay the loan prior to maturity. We were in compliance with all covenants under this loan at March 31, 2011.

     The loan requires us to maintain a minimum DSCR of 1.25, calculated on a quarterly basis. Subject to certain exceptions, the DSCR is increased to 1.35 if we open up a waterpark resort within 75 miles of the property or incur mezzanine debt secured by the resort. This ratio is defined as the property’s combined trailing twelve-month net operating income divided by the greater of (i) the loan’s twelve-month debt service requirements and (ii) 7.25% of the amount of the outstanding principal indebtedness under the loan. Failure to meet the minimum DSCR is not an event of default and does not accelerate the due date of the loan. Not meeting the minimum DSCR, however, subjects the property to a lock-box cash management arrangement, at the discretion of the loan’s servicer. We believe that lock-box arrangement would require substantially all cash receipts for the resort to be moved each day to a lender-controlled bank account, which the loan servicer would then use to fund debt service and operating expenses for the resort, with excess cash flow being deposited in a reserve account and held as additional collateral for the loan. While recourse under the loan is limited to the property owner’s interest in the mortgage property, we have provided limited guarantees with respect to certain customary non-recourse provisions and environmental indemnities relating to the loan.

     The loan also contains limitations on our ability, without lender’s consent, to (i) make payments to our affiliates if a default exists; (ii) enter into transactions with our affiliates; (iii) make loans or advances; or (iv) assume, guarantee or become liable in connection with any other obligations.

     Concord Mortgage Loan — This loan is secured by our Concord resort. The loan bears interest at a floating annual rate of LIBOR plus a spread of 310 basis points, with a minimum rate of 6.50% per annum (effective rate of 6.50% as of March 31, 2011). This loan matures in April 2012 and requires interest only payments until the one-year anniversary of the conversion date of the property and then requires monthly principal payments based on a 25-year amortization schedule. However, if the resort owner’s net income available to pay debt service on this loan for four consecutive quarters is less than $10,000, or if maximum principal amount of the loan exceeds 75% of the fair market value of the property, then the lender may require us to post cash collateral or partially repay the loan in an amount sufficient to remedy such deficiency. This loan has customary financial and operating debt compliance covenants associated with an individual mortgaged property, including a minimum consolidated tangible net worth provision. We were in compliance with all covenants under this loan at March 31, 2011.

     Great Wolf Resorts has provided a full payment guarantee of the Concord mortgage loan and a customary environmental indemnity. The loan also contains restrictions on our ability to make loans or capital contributions or any other investments in affiliates.

     First Mortgage Notes — In April 2010, we completed a private placement of $230,000 in aggregate principal amount of our 10.875% first mortgage notes (the Notes) due April 2017. The Notes were sold at a discount that provides an effective yield of 11.875% before transaction costs. We are amortizing the discount over the life of the Notes using the straight-line method, which approximates the effective interest method. The proceeds of the Notes were used to retire the outstanding mortgage debt on our Mason, Williamsburg, and Grapevine properties and for general corporate purposes.

     The Notes are senior obligations of GWR Operating Partnership, LLLP and Great Wolf Finance Corp (Issuers). The Notes are guaranteed by Great Wolf Resorts, Inc. and by our subsidiaries that own three of our resorts and those guarantees are secured by first priority mortgages on those three resorts. The Notes are also guaranteed by certain of our other subsidiaries on a senior unsecured basis.

     The Notes require that we satisfy certain tests in order to: (i) incur additional indebtedness except to refinance maturing debt with replacement debt, as defined under our indentures; (ii) pay dividends; (iii) repurchase capital stock; (iv) make investments or (v) merge. We are currently restricted from these activities with certain carve-outs as defined under our indentures.

     Junior Subordinated Debentures — In March 2005 we completed a private offering of $50,000 of trust preferred securities (TPS) through Great Wolf Capital Trust I (Trust I), a Delaware statutory trust which is our subsidiary. The securities pay holders cumulative cash distributions at an annual rate which is fixed at 7.80% through March 2015 and then floats at LIBOR plus a spread of 310 basis points thereafter. The securities mature in March 2035 and are callable at no premium after March 2010. In addition, we invested $1,500 in Trust I’s common securities, representing 3% of the total capitalization of Trust I.

     Trust I used the proceeds of the offering and our investment to purchase from us $51,550 of junior subordinated debentures with payment terms that mirror the distribution terms of the TPS. The indenture governing the debentures contains limitations on our ability, without the consent of the holders of the debentures to make payments to our affiliates or for our affiliates to make payments to us, if a default exists. The costs of the TPS offering totaled $1,600, including $1,500 of underwriting commissions and expenses and $100 of costs incurred directly by Trust I. Trust I paid these costs utilizing an investment from us. These costs are being amortized over a 30-year period. The proceeds from our debentures sale, net of the costs of the TPS offering and our investment in Trust I, were $48,400. We used the net proceeds to retire a construction loan.

     In June 2007 we completed a private offering of $28,125 of TPS through Great Wolf Capital Trust III (Trust III), a Delaware statutory trust which is our subsidiary. The securities pay holders cumulative cash distributions at an annual rate which is fixed at 7.90% through June 2012 and then floats at LIBOR plus a spread of 300 basis points thereafter. The securities mature in June 2017 and are callable at no premium after June 2012. In addition, we invested $870 in the Trust’s common securities, representing 3% of the total capitalization of Trust III.

     Trust III used the proceeds of the offering and our investment to purchase from us $28,995 of junior subordinated debentures with payment terms that mirror the distribution terms of the trust securities. The costs of the TPS offering totaled $932, including $870 of underwriting commissions and expenses and $62 of costs incurred directly by Trust III. Trust III paid these costs utilizing an investment from us. These costs are being amortized over a 10-year period. The proceeds from these debentures sales, net of the costs of the TPS offering and our investment in Trust III, were $27,193. We used the net proceeds for development costs.

     Issue trusts, like Trust I and Trust III (collectively, the Trusts), are generally variable interests. We have determined that we are not the primary beneficiary under the Trusts, and accordingly we do not include the financial statements of the Trusts in our consolidated financial statements.

     Based on the foregoing accounting authority, our consolidated financial statements present the debentures issued to the Trusts as long-term debt. Our investments in the Trusts are accounted as cost investments and are included in other assets on our consolidated balance sheets. For financial reporting purposes, we record interest expense on the corresponding notes in our condensed consolidated statements of operations.

     City of Sheboygan Bonds —The City of Sheboygan bonds represented the face amount of bond anticipation notes (BANs) issued by the City in November 2003 in conjunction with the construction of the Blue Harbor Resort in Sheboygan, Wisconsin. In March 2011, we sold the Blue Harbor Resort. In connection with the sale of the property, we were released from our obligations under the BANs.

     City of Sheboygan Loan — The City of Sheboygan loan amount represented a loan made by the City in 2004 in conjunction with the construction of the Blue Harbor Resort in Sheboygan, Wisconsin. In March 2011, we sold the Blue Harbor Resort. In connection with the sale of the property, we were released from our obligations under the loan.

     Future Maturities — Future principal requirements on long-term debt are as follows:

Through
March 31,
2012		$	5,401
2013			78,534
2014			3,359
2015			62,994
2016			1,620
Thereafter			397,267
Total		$	549,175

     As discussed above, the Traverse City/Kansas City mortgage loan is classified as a current liability as of March 31, 2011, due to the implementation of a traditional lock-box arrangement, although the loan is not in default and the full principal balance of the loan is not due currently. The future maturities table above reflects future cash principal repayments currently required under the provisions of that loan of $1,659 in 2012, $1,789 in 2013, $1,914 in 2014, $61,457 in 2015.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

     Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). GAAP outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Certain assets and liabilities must be measured at fair value, and disclosures are required for items measured at fair value.

     We measure our financial instruments using inputs from the following three levels of the fair value hierarchy. The three levels are as follows:

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset

or liability (that is, interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 includes unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.

     As of March 31, 2011, we estimate the total fair value of our long-term debt to be $61,275 less than its total carrying value due to the terms of the existing debt being different than those terms currently available to us for indebtedness with similar risks and remaining maturities. These fair value estimates have not been comprehensively revalued for purposes of these consolidated financial statements since that date, and current estimates of fair values may differ significantly.

     The carrying amounts for cash and cash equivalents, other current assets, escrows, accounts payable, gift certificates payable and accrued expenses approximate fair value because of the short-term nature of these instruments.

10. EARNINGS PER SHARE

     We calculate our basic earnings per common share by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding excluding non-vested shares. Our diluted earnings per common share assume the issuance of common stock for all potentially dilutive stock equivalents outstanding using the treasury stock method. In periods in which we incur a net loss, we exclude potentially dilutive stock equivalents from the computation of diluted weighted average shares outstanding as the effect of those potentially dilutive items is anti-dilutive.

     The trust that holds the assets to pay obligations under our deferred compensation plan has 11,765 shares of our common stock. We treat those shares of common stock as treasury stock for purposes of our earnings per share computations and therefore we exclude them from our basic and diluted earnings per share calculations.

     Options to purchase 30,500 shares of common stock were not included in the computations of diluted earnings per share for the three months ended March 31, 2011, because the exercise prices of the options were greater than the average market price of the common shares during that period. There were 719,561 shares of common stock that were not included in the computation of diluted earnings per share for the three months ended March 31, 2011, because the market and/or performance criteria related to these shares had not been met at March 31, 2011.

     Basic and diluted earnings per common share are as follows:

		Three months ended
		March 31,
		2011				2010
Net loss attributable to Great Wolf Resorts, Inc.		$	(5,974	)		$	(8,065	)
Weighted average common shares outstanding — basic			31,194,900				30,837,867
Weighted average common shares outstanding — diluted			31,194,900				30,837,867
Net loss attributable to Great Wolf Resorts, Inc. per share — basic		$	(0.19	)		$	(0.26	)
Net loss attributable to Great Wolf Resorts, Inc. per share — diluted		$	(0.19	)		$	(0.26	)

11. DISCONTINUED OPERATIONS

     On March 24, 2011, we sold our Blue Harbor Resort in Sheboygan, Wisconsin to Claremont New Frontier Resort LLC (Claremont) for a purchase price of $4,200, less a $540 credit for purposes of real estate property tax payments to be made by Claremont for periods after the closing. We paid $2,000 to the City of Sheboygan with respect to real estate taxes relating to the Sheboygan property and contributed $300 toward a lease termination fee payable to a tenant at the property.

     In connection with the construction of the Blue Harbor Resort, we had entered into agreements with the City of Sheboygan and the Redevelopment Authority of the City of Sheboygan whereby the City funded certain costs of construction. In exchange, we guaranteed certain levels of real and personal property tax payments, as well as room tax payments, from Blue Harbor Resort.

     In connection with the closing, the existing agreements with the City of Sheboygan and the Redevelopment Authority were terminated and we were released from all of our obligations under these agreements.

     As a result of the sale, we have included the operations of the Blue Harbor Resort in discontinued operations for all periods presented.

     A summary of balance sheet data and operating activity related to discontinued operations is as follows:

		March 23,				December 31,
		2011				2010
Balance sheet data:
Total assets		$	6,463			$	8,742
Total liabilities		$	13,587			$	14,121

     Included in total assets at December 31, 2010 is $5,775 of property and equipment. Included in total liabilities at December 31, 2010 is $11,627 of other long-term debt. As part of the sales transaction on March 23, 2011, we wrote off $5,699 of property and equipment and $11,563 of other long-term debt.

						Three months
		January 1 -				ended
		March 23,				March 31,
		2011				2010
Revenues		$	1,578			$	1,836
Operating expenses			(1,424	)			(1,709	)
Gain on sale			6,667				—
Interest expense, net of interest income			(76	)			(91	)
Income tax benefit			171				1
Income from discontinued operations, net of tax		$	6,916			$	37

12. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

     In April 2010, our subsidiaries, GWR Operating Partnership, LLLP and Great Wolf Finance Corp. were co-issuers (the Issuer) with respect to $230,000 in principal amount of 10.875% first mortgage notes. In connection with the issuance, certain of our subsidiaries (the Subsidiary Guarantors) have guaranteed the first mortgage notes. Certain of our other subsidiaries (the Non-Guarantor Subsidiaries) have not guaranteed the first mortgage notes.

     The following tables present the condensed consolidating balances sheets of the Company (Parent), the Issuers, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries as of March 31, 2011 and December 31, 2010, the condensed consolidating statements of operations for the three months ended March 31, 2011 and 2010 and the condensed consolidating statements of cash flows for the three months ended March 31, 2011 and 2010.

     The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10, Financial statements of guarantors and issuers of guaranteed securities registered or being registered. Each of the Subsidiary Guarantors is 100% owned, directly or indirectly, by Great Wolf Resorts, Inc. There are significant restrictions on the Subsidiary Guarantors’ ability to pay dividends or obtain loans or advances. The Company’s and the Issuers’ investments in their consolidated subsidiaries are presented under the equity method of accounting.

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2011
(Dollars in thousands)

										Subsidiary				Non Guarantor				Consolidating
		Parent				Issuers				Guarantors				Subsidiaries				Adjustments				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	10,031			$	36,100			$	(3,243	)		$	4,015			$	—			$	46,903
Escrows			—				—				—				2,247				—				2,247
Accounts receivable			59				—				1,750				942				—				2,751
Accounts receivable — affiliates			—				—				1,257				2,615				—				3,872
Accounts receivable — consolidating entities			10,927				464,500				382,908				174,470				(1,032,805	)			—
Inventory			—				—				2,949				4,779				—				7,728
Other current assets			1,187				—				2,220				6,222				—				9,629
Total current assets			22,204				500,600				387,841				195,290				(1,032,805	)			73,130
Property and equipment, net			—				—				346,734				259,077				—				605,811
Investments in consolidating entities			211,429				265,216				—				—				(476,645	)			—
Investments in and advances to affiliates			—				—				—				24,472				—				24,472
Other assets			12,615				7,725				7,601				3,555				—				31,496
Intangible assets			1,365				—				4,668				20,683				—				26,716
Total assets		$	247,613			$	773,541			$	746,844			$	503,077			$	(1,509,450	)		$	761,625
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt		$	—			$	—			$	33			$	70,528			$	—			$	70,561
Accounts payable			89				—				1,393				2,054				—				3,536
Accounts payable — affiliates			—				—				—				5				—				5
Accounts payable — consolidating entities			2,517				328,685				577,217				124,386				(1,032,805	)			—
Accrued interest payable			717				12,506				—				766				—				13,989
Accrued expenses			515				116				12,227				8,977				—				21,835
Advance deposits			—				—				6,902				7,856				—				14,758
Other current liabilities			3,237				—				1,023				1,662				—				5,922
Total current liabilities			7,075				341,307				598,795				216,234				(1,032,805	)			130,606
Mortgage debt			—				220,805				—				168,063				—				388,868
Other long-term debt			80,545				—				6				—				—				80,551
Deferred compensation liability			—				—				1,630				—				—				1,630
Total liabilities			87,620				562,112				600,431				384,297				(1,032,805	)			601,655
Commitments and contingencies
Great Wolf Resorts stockholders’ equity:
Common stock			324				—				—				—				—				324
Preferred stock			—				—				—				—				—				—
Additional paid-in-capital			403,139				456,693				163,514				293,179				(913,386	)			403,139
Accumulated deficit			(243,270	)			(245,264	)			(17,101	)			(174,376	)			436,741				(243,270	)
Deferred compensation			(200	)			—				—				—				—				(200	)
Total Great Wolf Resorts stockholders’ equity			159,993				211,429				146,413				118,803				(476,645	)			159,993
Noncontrolling interest			—				—				—				(23	)			—				(23	)
Total equity			159,993				211,429				146,413				118,780				(476,645	)			159,970
Total liabilities and equity		$	247,613			$	773,541			$	746,844			$	503,077			$	(1,509,450	)		$	761,625

CONSOLIDATING BALANCE SHEET
December 31, 2010
(Dollars in thousands)

										Subsidiary				Non Guarantor				Consolidating
		Parent				Issuers				Guarantors				Subsidiaries				Adjustments				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	10,047			$	24,168			$	(328	)		$	3,101			$	—			$	36,988
Escrows			—				—				—				1,283				—				1,283
Accounts receivable			88				—				1,615				1,575				—				3,278
Accounts receivable — affiliates			—				—				1,369				2,395				—				3,764
Accounts receivable — consolidating entities			12,747				462,941				304,775				151,770				(932,233	)			—
Inventory			—				—				2,593				4,278				—				6,871
Other current assets			192				—				1,512				2,915				—				4,619
Total current assets			23,074				487,109				311,536				167,317				(932,233	)			56,803
Property and equipment, net			—				—				352,689				271,269				—				623,958
Investments in consolidating entities			210,356				257,151				—				—				(467,507	)			—
Investments in and advances to affiliates			—				—				—				25,131				—				25,131
Other assets			17,274				7,948				7,070				6,357				—				38,649
Intangible assets			1,365				—				4,668				20,664				—				26,697
Total assets		$	252,069			$	752,208			$	675,963			$	490,738			$	(1,399,740	)		$	771,238
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt		$	—			$	—			$	33			$	70,050			$	—			$	70,083
Accounts payable			151				—				5,543				2,805				—				8,499
Accounts payable — affiliates			—				—				1				3				—				4
Accounts payable — consolidating entities			423				314,488				510,186				107,136				(932,233	)			—
Accrued interest payable			723				6,253				—				1,109				—				8,085
Accrued expenses			287				689				11,534				7,924				—				20,434
Advance deposits			—				—				2,522				4,950				—				7,472
Other current liabilities			4,161				—				1,111				2,144				—				7,416
Total current liabilities			5,745				321,430				530,930				196,121				(932,233	)			121,993
Mortgage debt			—				220,422				—				169,867				—				390,289
Other long-term debt			80,545				—				14				11,367				—				91,926
Deferred compensation liability			—				—				1,260				—				—				1,260
Total liabilities			86,290				541,852				532,204				377,355				(932,233	)			605,468
Commitments and contingencies
Great Wolf Resorts stockholders’ equity:
Common stock			323				—				—				—				—				323
Preferred stock			—				—				—				—				—				—
Additional paid-in-capital			402,952				456,693				163,514				293,179				(913,386	)			402,952
Accumulated deficit			(237,296	)			(246,337	)			(19,755	)			(179,787	)			445,879				(237,296	)
Deferred compensation			(200	)			—				—				—				—				(200	)
Total Great Wolf Resorts stockholders’ equity			165,779				210,356				143,759				113,392				(467,507	)			165,779
Noncontrolling interest			—				—				—				(9	)			—				(9	)
Total equity			165,779				210,356				143,759				113,383				(467,507	)			165,770
Total liabilities and equity		$	252,069			$	752,208			$	675,963			$	490,738			$	(1,399,740	)		$	771,238