e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-51064
GREAT WOLF RESORTS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation or organization)
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51-0510250
(I.R.S. Employer Identification No.) |
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525 Junction Road, Suite 6000 South
Madison, Wisconsin 53717
(Address of principal executive offices)
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53717
(Zip Code) |
(608) 662-4700
(Registrants 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):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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 issuers common stock was 32,458,808 as of November 4, 2010.
Great Wolf Resorts, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2010
INDEX
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. 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,
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. Important factors currently known to our management that could cause actual
results to differ materially from those in forward-looking statements include those set forth
below under the section entitled Risk Factors and in our other periodic SEC filings.
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 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.
You should read this report and the documents that we reference in this report completely
and with the understanding that our actual future results may be materially different from what
we expect. We qualify all of our forward-looking statements by each of these cautionary
statements.
3
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 amounts)
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September 30, |
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December 31, |
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2010 |
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2009 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
43,103 |
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$ |
20,913 |
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Escrows |
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1,228 |
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5,938 |
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Accounts receivable, net of allowance for doubtful accounts of $107 and $101 |
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3,383 |
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2,192 |
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Accounts receivable affiliates |
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3,302 |
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2,614 |
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Inventory |
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6,001 |
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4,791 |
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Other current assets |
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5,074 |
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4,252 |
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Total current assets |
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62,091 |
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40,700 |
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Property and equipment, net |
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653,968 |
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676,405 |
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Investments in and advances to affiliates |
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26,445 |
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27,484 |
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Notes receivable |
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8,268 |
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Other assets |
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33,210 |
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29,058 |
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Intangible assets |
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27,638 |
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23,829 |
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Total assets |
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$ |
803,352 |
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$ |
805,744 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Current portion of long-term debt |
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$ |
70,450 |
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$ |
16,126 |
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Accounts payable |
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2,343 |
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5,078 |
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Accounts payable affiliates |
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522 |
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Accrued expenses |
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36,260 |
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21,970 |
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Advance deposits |
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9,373 |
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7,114 |
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Other current liabilities |
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5,559 |
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5,946 |
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Total current liabilities |
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124,507 |
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56,234 |
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Mortgage debt |
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390,555 |
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441,724 |
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Other long-term debt |
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91,991 |
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92,221 |
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Deferred compensation liability |
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1,161 |
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809 |
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Other long-term liabilities |
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1,048 |
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Total liabilities |
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609,262 |
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590,988 |
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Commitments and contingencies |
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Great Wolf Resorts stockholders equity: |
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Common stock, $0.01 par value; 250,000,000 shares authorized;
32,458,808 and 31,278,889 shares issued and outstanding |
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325 |
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313 |
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Preferred stock, $0.01 par value, 10,000,000 shares authorized, no
shares issued or outstanding |
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Additional paid-in-capital |
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402,095 |
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400,930 |
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Accumulated deficit |
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(208,105 |
) |
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(186,287 |
) |
Deferred compensation |
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(200 |
) |
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(200 |
) |
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Total Great Wolf Resorts stockholders equity |
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194,115 |
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214,756 |
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Noncontrolling interest |
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(25 |
) |
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Total equity |
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194,090 |
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214,756 |
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Total liabilities and equity |
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$ |
803,352 |
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$ |
805,744 |
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See accompanying notes to condensed consolidated financial statements.
4
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; dollars in thousands, except share and per share data)
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Three months ended |
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Nine months ended |
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September 30, |
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September 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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Revenues: |
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Rooms |
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$ |
47,559 |
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$ |
46,214 |
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$ |
128,807 |
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$ |
122,869 |
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Food and beverage |
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12,498 |
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11,877 |
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35,571 |
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33,084 |
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Other |
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13,536 |
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11,333 |
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34,123 |
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30,458 |
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Management and other fees |
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916 |
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626 |
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2,111 |
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1,617 |
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Management and other fees affiliates |
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900 |
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1,202 |
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2,880 |
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3,636 |
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75,409 |
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71,252 |
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203,492 |
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191,664 |
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Other revenue from managed properties affiliates |
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2,725 |
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3,966 |
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8,178 |
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|
14,486 |
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Other revenue from managed properties |
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|
2,984 |
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|
1,609 |
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|
8,555 |
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|
1,609 |
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Total revenues |
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81,118 |
|
|
|
76,827 |
|
|
|
220,225 |
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207,759 |
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Operating expenses by department: |
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Rooms |
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6,488 |
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|
|
6,332 |
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|
|
18,561 |
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|
|
17,309 |
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Food and beverage |
|
|
9,005 |
|
|
|
9,226 |
|
|
|
26,271 |
|
|
|
25,506 |
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Other |
|
|
9,693 |
|
|
|
8,926 |
|
|
|
26,635 |
|
|
|
24,618 |
|
Other operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Selling, general and administrative |
|
|
16,560 |
|
|
|
14,911 |
|
|
|
49,788 |
|
|
|
46,542 |
|
Property operating costs |
|
|
8,926 |
|
|
|
8,201 |
|
|
|
26,130 |
|
|
|
29,657 |
|
Depreciation and amortization |
|
|
13,806 |
|
|
|
15,136 |
|
|
|
44,936 |
|
|
|
42,352 |
|
Loss on disposition of property |
|
|
|
|
|
|
11 |
|
|
|
19 |
|
|
|
202 |
|
Asset impairment loss |
|
|
|
|
|
|
24,000 |
|
|
|
|
|
|
|
24,000 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,478 |
|
|
|
86,743 |
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|
|
192,340 |
|
|
|
210,186 |
|
Other expenses from managed properties affiliates |
|
|
2,725 |
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|
|
3,966 |
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|
|
8,178 |
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|
|
14,486 |
|
Other expenses from managed properties |
|
|
2,984 |
|
|
|
1,609 |
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|
|
8,555 |
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|
|
1,609 |
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|
|
|
|
|
|
|
|
|
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Total operating expenses |
|
|
70,187 |
|
|
|
92,318 |
|
|
|
209,073 |
|
|
|
226,281 |
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|
|
|
|
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|
|
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|
|
|
|
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Net operating income (loss) |
|
|
10,931 |
|
|
|
(15,491 |
) |
|
|
11,152 |
|
|
|
(18,522 |
) |
Gain on sale of unconsolidated affiliates |
|
|
|
|
|
|
(962 |
) |
|
|
|
|
|
|
(962 |
) |
Investment income affiliates |
|
|
(267 |
) |
|
|
(310 |
) |
|
|
(832 |
) |
|
|
(1,030 |
) |
Interest income |
|
|
(59 |
) |
|
|
(131 |
) |
|
|
(492 |
) |
|
|
(467 |
) |
Interest expense |
|
|
12,313 |
|
|
|
9,671 |
|
|
|
33,971 |
|
|
|
24,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and equity in
(income) loss of unconsolidated affiliates |
|
|
(1,056 |
) |
|
|
(23,759 |
) |
|
|
(21,495 |
) |
|
|
(40,778 |
) |
Income tax expense |
|
|
48 |
|
|
|
13,163 |
|
|
|
417 |
|
|
|
6,380 |
|
Equity in (income) loss of unconsolidated affiliates,
net of tax |
|
|
(46 |
) |
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|
1 |
|
|
|
(69 |
) |
|
|
1,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net loss |
|
|
(1,058 |
) |
|
|
(36,923 |
) |
|
|
(21,843 |
) |
|
|
(48,274 |
) |
Net loss attributable to noncontrolling interest, net
of tax |
|
|
(65 |
) |
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Great Wolf Resorts, Inc. |
|
$ |
(993 |
) |
|
$ |
(36,923 |
) |
|
$ |
(21,818 |
) |
|
$ |
(48,274 |
) |
|
|
|
|
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|
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|
|
|
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|
Basic loss per common share |
|
$ |
(0.03 |
) |
|
$ |
(1.18 |
) |
|
$ |
(0.70 |
) |
|
$ |
(1.55 |
) |
|
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|
|
|
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|
|
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|
|
|
Diluted loss per common share |
|
$ |
(0.03 |
) |
|
$ |
(1.18 |
) |
|
$ |
(0.70 |
) |
|
$ |
(1.55 |
) |
|
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|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Basic |
|
|
31,035,048 |
|
|
|
31,291,004 |
|
|
|
30,957,698 |
|
|
|
31,179,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
31,035,048 |
|
|
|
31,291,004 |
|
|
|
30,957,698 |
|
|
|
31,179,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
5
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(21,843 |
) |
|
$ |
(48,274 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
44,936 |
|
|
|
42,352 |
|
Bad debt expense |
|
|
205 |
|
|
|
642 |
|
Non-cash employee compensation and professional fees expense |
|
|
1,606 |
|
|
|
829 |
|
Loss on disposition of property |
|
|
19 |
|
|
|
202 |
|
Asset impairment loss |
|
|
|
|
|
|
24,000 |
|
|
Gain on sale of unconsolidated affiliates |
|
|
|
|
|
|
(962 |
) |
Equity in (income) losses of unconsolidated affiliates |
|
|
(68 |
) |
|
|
965 |
|
Deferred tax expense (benefit) |
|
|
(366 |
) |
|
|
6,535 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable and other assets |
|
|
(1,905 |
) |
|
|
(7,711 |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
9,929 |
|
|
|
(4,522 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
32,513 |
|
|
|
14,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures for property and equipment |
|
|
(7,626 |
) |
|
|
(48,206 |
) |
Loan repayment from unconsolidated affiliates |
|
|
1,225 |
|
|
|
8,833 |
|
Investment in affiliate |
|
|
(8 |
) |
|
|
|
|
Investment in unconsolidated affiliates |
|
|
|
|
|
|
(303 |
) |
Proceeds from sale of interest in unconsolidated affiliate |
|
|
|
|
|
|
6,000 |
|
Investment in development |
|
|
(498 |
) |
|
|
978 |
|
Proceeds from sale of assets |
|
|
15 |
|
|
|
66 |
|
Cash acquired in acquisition of Creative Kingdoms, LLC |
|
|
324 |
|
|
|
|
|
(Increase) decrease in restricted cash |
|
|
(487 |
) |
|
|
161 |
|
Decrease (increase) in escrows |
|
|
4,710 |
|
|
|
(1,866 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(2,345 |
) |
|
|
(34,337 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Principal payments on long-term debt |
|
|
(216,414 |
) |
|
|
(5,151 |
) |
Proceeds from issuance of long-term debt |
|
|
219,337 |
|
|
|
51,051 |
|
Payment of loan costs |
|
|
(10,901 |
) |
|
|
(11,856 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(7,978 |
) |
|
|
34,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
22,190 |
|
|
|
13,763 |
|
Cash and cash equivalents, beginning of period |
|
|
20,913 |
|
|
|
14,231 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
43,103 |
|
|
$ |
27,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid for interest, net of capitalized interest |
|
$ |
22,508 |
|
|
$ |
24,254 |
|
Cash paid for income taxes, net of refunds |
|
$ |
523 |
|
|
$ |
379 |
|
Non-cash items: |
|
|
|
|
|
|
|
|
Construction in process accruals |
|
$ |
|
|
|
$ |
15 |
|
Loan cost accruals |
|
$ |
1,238 |
|
|
$ |
|
|
Conversion of note receivable and accrued interest to equity investment |
|
$ |
9,963 |
|
|
$ |
|
|
See accompanying notes to the condensed consolidated financial statements.
6
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 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® and Blue Harbor Resorttm brand
names and have entered into licensing 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 guest 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. Our resorts 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 arrangements, management fees and other fees with
respect to our operation or development of properties owned in whole or in part by third parties.
Each of our Great Wolf Lodge resorts has a Northwoods lodge theme, designed in a Northwoods
cabin motif with exposed timber beams, a massive stone fireplace, Northwoods creatures, including
mounted wolves, and an animated two-story Clock Tower that provides theatrical entertainment for
younger guests. All of our guest suites are themed luxury suites, ranging in size from
approximately 385 square feet to 1,970 square feet.
The indoor waterparks in our Great Wolf Lodge resorts range in size from approximately 34,000
to 84,000 square feet and are decorated consistent with our resort motif. The focus of each Great
Wolf Lodge waterpark is our signature 12-level treehouse waterfort, an interactive water experience
for the entire family that features over 60 water effects and is capped by an oversized bucket that
dumps between 700 to 1,000 gallons of water every five minutes. Our waterparks also feature a
combination of high-speed body slides and inner tube waterslides, smaller slides for younger
children, zero-depth water activity pools with geysers, a water curtain, fountains and tumble
buckets, a lazy river, additional activity pools for basketball, open swimming and other water
activities and large free form hot tubs, including hot tubs for adults only.
On January 13, 2010, we announced that we had signed a non-binding letter of intent related to
the proposed development of a Great Wolf Lodge resort adjacent to The Galleria at Pittsburgh Mills
in Tarentum, Pennsylvania, outside of Pittsburgh. The resort will be developed by Zamias Services,
Inc., a real estate developer and services provider. The proposed development is subject to the
execution of definitive documentation. If we enter into definitive agreements with regard to this
proposed development, it is expected that we will receive license fees for use of the Great Wolf
Lodge brand name and other intellectual property at the proposed resort, and will receive
management fees to operate the resort on behalf of Zamias as the owner. We will also advise on
certain development-related matters. The proposed resort will be
7
owned by a joint venture and we expect to own a small ownership percentage in this joint
venture. The Pittsburgh resort will be our fourth licensed and managed resort under our
licensing-based business model.
On June 7, 2010, we acquired a 62.4% equity interest in Creative Kingdoms, LLC in exchange for
all of the $8.7 million principal balance, plus accrued interest of approximately $1.3 million, of
convertible indebtedness owed to us by Creative Kingdoms. Creative Kingdoms is a developer of
experiential gaming products including MagiQuest, an interactive game attraction available at nine
of our resorts. Creative Kingdoms also licenses or has sold to other parties several stand-along
MagiQuest facilities or similar attractions.
On June 28, 2010, we announced that we have executed license and management agreements related
to the development of a new 600-suite Great Wolf Lodge resort in Garden Grove, Californias world
famous International West Resort. The new resort will be located less than two miles from
Disneyland, near Anaheim and Los Angeles, and will be developed by McWhinney, a diversified real
estate company. We will receive license fees for use of the Great Wolf Lodge brand name and other
intellectual property at the resort, and will receive management fees to operate the resort on
behalf of the owner. The resort will be owned by a joint-venture, with Great Wolf Resorts receiving
a minority equity interest for its development-related services. Additionally, the City of Garden
Grove will contribute cash and bond proceeds to the resort, as well as establish a financing
district to develop an adjacent parking structure.
On July 14, 2010, we announced the opening of the first Scooops Kid Spa outside of a Great
Wolf Resorts property. The first freestanding Scooops Kid Spa opened in August 2010 at Mall of
America, a popular retail destination and entertainment complex in Bloomington, Minnesota. As the
nations largest retail and entertainment complex, Mall of America welcomes more than 40 million
visitors each year.
The following table presents an overview of our portfolio of resorts. As of September 30,
2010, we operated, managed and/or have entered into licensing arrangements relating to the
operation of 11 Great Wolf Lodge resorts (our signature Northwoods-themed resorts) and one Blue
Harbor Resort (a nautical-themed property). 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 regard to additional nautical-themed resorts under our Blue Harbor
Resort brand or other resorts in appropriate markets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indoor |
|
|
|
Ownership |
|
|
|
|
Number of |
|
Number of |
|
Entertainment |
|
|
|
Percentage |
|
|
Opened |
|
Guest Suites |
|
Condo 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 |
|
Sheboygan, WI |
|
|
100 |
% |
|
2004 |
|
182 |
|
64 |
|
|
54,000 |
|
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 |
|
|
|
|
(1) |
|
Condominium units are individually owned by third parties and are managed by us. |
|
(2) |
|
Our indoor entertainment areas generally include our indoor waterpark, game
arcade, childrens activity room, family tech center, MagiQuest and fitness
room, as well as our spa in the resorts that have such amenities. |
8
|
|
|
(3) |
|
These properties are owned by CNL Lifestyle Properties, Inc. (CNL), a real
estate investment trust focused on leisure and lifestyle properties. Prior to
August 2009, these properties were owned by a joint venture between CNL and us.
In August 2009, we sold our 30.26% joint venture interest to CNL for $6,000.
We currently manage both properties and license the Great Wolf Lodge brand to
these resorts. |
|
(4) |
|
Five of our properties (Great Wolf Lodge resorts in Williamsburg, VA; Pocono
Mountains, PA; Mason, OH; Grapevine, TX and Concord, NC) each had a book value
of fixed assets equal to ten percent or more of our total assets as of
September 30, 2010 and each of those five properties had total revenues equal
to ten percent or more of our total revenues for the three and nine months
ended September 30, 2010. |
|
(5) |
|
An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this
resort. We have granted Ripley a license to use the Great Wolf Lodge name for
this resort through April 2016. We managed the resort on behalf of Ripley
through April 2009. |
|
(6) |
|
This property is owned by a joint venture. The Confederated Tribes of the
Chehalis Reservation (Chehalis) owns a 51% interest in the joint venture, and
we own a 49% interest. We operate the property and license the Great Wolf Lodge
brand to the joint venture under long-term agreements through April 2057,
subject to earlier termination in certain situations. The joint venture leases
the land for the resort from the United States Department of the Interior,
which is trustee for Chehalis. |
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, 2009 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, 2009.
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.
Principles of Consolidation Our condensed consolidated financial statements include our
accounts and the accounts of our majority-owned and controlled subsidiaries. As part of our
consolidation process, we eliminate all significant intercompany balances and transactions.
Acquisition Accounting We follow acquisition accounting for all acquisitions that meet the
business combination definition. Acquisition accounting requires us to measure the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest at the acquisition-date
fair value. While we use our best estimates and assumptions as a part of the purchase price
allocation process to accurately value assets acquired and liabilities assumed at the acquisition
date, our estimates are inherently uncertain and subject to refinement. As a result, during the
measurement period, which may be up to one year from the acquisition date, we record adjustments to
the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the
conclusion of the measurement period or final determination of the values of assets acquired or
liabilities assumed, whichever comes first, any subsequent adjustments are record to our
consolidated statements of operations.
Goodwill Goodwill is measured at an acquisition date as 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
9
acquired and the liabilities assumed. 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.
In connection with the acquisition of the majority interest in CK we have recorded $2,276 of
goodwill that is included within Intangible Assets on our condensed consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Goodwill |
|
$ |
2,276 |
|
|
|
130,496 |
|
Accumulated impairment losses |
|
|
|
|
|
|
(68,405 |
) |
Goodwill related to sale of affiliate |
|
|
|
|
|
|
(62,091 |
) |
|
|
|
|
|
|
|
|
|
$ |
2,276 |
|
|
$ |
|
|
|
|
|
|
|
|
|
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 June 2010 we
have a consolidated subsidiary with a noncontrolling interest as of September 30, 2010.
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. The rate determined is used in providing
for income taxes on a year-to-date basis.
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 resorts. |
The following summarizes significant financial information regarding our segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals per |
|
|
|
Resort Ownership/ |
|
|
Resort Third-Party |
|
|
|
|
|
|
Financial |
|
|
|
Operation |
|
|
Management/License |
|
|
Other |
|
|
Statements |
|
Three months ended September
30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
71,147 |
|
|
$ |
7,525 |
|
|
$ |
2,446 |
|
|
$ |
81,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(12,726 |
) |
|
|
|
|
|
|
(1,080 |
) |
|
|
(13,806 |
) |
Net operating income (loss) |
|
|
9,531 |
|
|
|
1,816 |
|
|
|
(416 |
) |
|
|
10,931 |
|
Investment income affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(267 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
equity in (income) loss of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets |
|
|
911 |
|
|
|
|
|
|
|
486 |
|
|
$ |
1,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals per |
|
|
|
Resort Ownership/ |
|
|
Resort Third-Party |
|
|
|
|
|
|
Financial |
|
|
|
Operation |
|
|
Management/License |
|
|
Other |
|
|
Statements |
|
Nine months ended September
30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
195,188 |
|
|
$ |
21,724 |
|
|
$ |
3,313 |
|
|
$ |
220,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(42,997 |
) |
|
|
|
|
|
|
(1,939 |
) |
|
|
(44,936 |
) |
Net operating income (loss) |
|
|
8,822 |
|
|
|
4,991 |
|
|
|
(2,661 |
) |
|
|
11,152 |
|
Investment income affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(832 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(492 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
equity in (income) loss of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(21,495 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets |
|
|
6,701 |
|
|
|
|
|
|
|
925 |
|
|
$ |
7,626 |
|
Total assets |
|
|
676,400 |
|
|
|
1,863 |
|
|
|
125,089 |
|
|
$ |
803,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals per |
|
|
|
Resort Ownership/ |
|
|
Resort Third-Party |
|
|
|
|
|
|
Financial |
|
|
|
Operation |
|
|
Management/License |
|
|
Other |
|
|
Statements |
|
Three months ended September
30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
69,424 |
|
|
$ |
7,403 |
|
|
$ |
|
|
|
$ |
76,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(14,932 |
) |
|
|
|
|
|
|
(204 |
) |
|
|
(15,136 |
) |
Asset impairment loss |
|
|
(24,000 |
) |
|
|
|
|
|
|
|
|
|
|
(24,000 |
) |
Net operating (loss) income |
|
|
(17,757 |
) |
|
|
1,828 |
|
|
|
438 |
|
|
|
(15,491 |
) |
Gain on sale of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
(962 |
) |
|
|
(962 |
) |
Investment income affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(310 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
equity in (income) loss of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(23,759 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets |
|
|
2,215 |
|
|
|
|
|
|
|
145 |
|
|
$ |
2,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals per |
|
|
|
Resort Ownership/ |
|
|
Resort Third-Party |
|
|
|
|
|
|
Financial |
|
|
|
Operation |
|
|
Management/License |
|
|
Other |
|
|
Statements |
|
Nine months ended September
30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
186,411 |
|
|
$ |
21,348 |
|
|
$ |
|
|
|
$ |
207,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(41,776 |
) |
|
|
|
|
|
|
(576 |
) |
|
|
(42,352 |
) |
Asset impairment loss |
|
|
(24,000 |
) |
|
|
|
|
|
|
|
|
|
|
(24,000 |
) |
Net operating (loss) income |
|
|
(21,416 |
) |
|
|
5,253 |
|
|
|
(2,359 |
) |
|
|
(18,522 |
) |
Gain on sale of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
(962 |
) |
|
|
(962 |
) |
Investment income affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,030 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(467 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
equity in (income) loss of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(40,778 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets |
|
|
47,834 |
|
|
|
|
|
|
|
372 |
|
|
$ |
48,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (as of December
31, 2009) |
|
|
707,472 |
|
|
|
2,942 |
|
|
|
95,330 |
|
|
$ |
805,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 2009, the FASB issued guidance which changes how a
reporting entity determines when an entity that is insufficiently capitalized or is not controlled
through voting (or similar rights) should be consolidated. The determination of whether a reporting
entity is required to consolidate another entity is based on, among other things, the other
entitys purpose and design and the reporting entitys ability to direct the activities of the
other entity that most significantly impact the other entitys economic performance. The guidance
requires a reporting entity to provide additional disclosures about its involvement with variable
interest entities and any significant changes in risk exposure due to that involvement. A reporting
entity will be required to disclose how its involvement with a variable interest entity affects the
reporting entitys financial statements. The adoption of this guidance is effective for fiscal
years beginning after November 15, 2009, and interim periods within those fiscal years. We adopted
this guidance on January 1, 2010. The adoption of this guidance did not have a material impact on
our condensed consolidated financial statements.
In October 2009, the FASB issued guidance for revenue recognition with multiple deliverables.
This guidance eliminates the residual method under the current guidance and replaces it with the
relative selling price method when allocating revenue in a multiple deliverable arrangement. The
selling price for each deliverable shall be determined using vendor specific objective evidence of
selling price, if it exists, otherwise third-party evidence of selling price shall be used. If
neither exists for a deliverable, the vendor shall use its best estimate of the selling price for
that deliverable. After adoption, this guidance will also require expanded qualitative and
quantitative disclosures. The guidance is effective for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, although early adoption is
permitted. We do not expect the adoption of this guidance to have a material impact on our
condensed consolidated financial statements.
In January 2010, the FASB issued updated guidance related to fair value measurement and
disclosures, which requires a reporting entity to disclose separately the amounts of significant
transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for
the transfers. The updated guidance also requires that an entity should provide fair value
measurement disclosures for each class of assets and liabilities and disclosures about the
valuation techniques and inputs used to measure fair value for both recurring and non-recurring
fair value measurements for Level 2 and Level 3 fair value measurements. This updated guidance
became effective for interim or annual financial reporting
12
periods beginning after December 15, 2009. We adopted this guidance on
January 1, 2010. The adoption of this guidance did not have a material impact on our condensed
consolidated financial statements.
3. INVESTMENT IN AFFILIATES
CNL Joint Venture
On August 6, 2009, we sold our 30.26% joint venture interest to CNL for $6,000. We recognized
a $962 gain on this sale.
Summary financial data for this joint venture for periods where we still maintained an
ownership interest is as follows:
|
|
|
|
|
|
|
|
|
|
|
Period July 1 through |
|
|
Period January 1 through |
|
|
|
August 5, |
|
|
August 5, |
|
|
|
2009 |
|
|
2009 |
|
Operating data: |
|
|
|
|
|
|
|
|
Revenue |
|
$ |
5,100 |
|
|
$ |
19,750 |
|
Operating expenses |
|
$ |
(4,383 |
) |
|
$ |
(24,213 |
) |
Net income (loss) |
|
$ |
717 |
|
|
$ |
(4,463 |
) |
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 September 30, 2010, the joint
venture had aggregate outstanding indebtedness to third parties of $98,934. As of September 30,
2010, we have made combined loan and equity contributions, net of loan repayments, of $28,475 to
the joint venture to fund a portion of construction costs of the resorts.
Summary financial data for this joint venture is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Balance sheet data: |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
142,919 |
|
|
$ |
145,247 |
|
Total liabilities |
|
$ |
111,507 |
|
|
$ |
114,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
Operating data: |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenue |
|
$ |
10,531 |
|
|
$ |
11,170 |
|
|
$ |
32,307 |
|
|
$ |
31,303 |
|
Operating expenses |
|
$ |
(9,120 |
) |
|
$ |
(9,165 |
) |
|
$ |
(28,186 |
) |
|
$ |
(26,467 |
) |
Net income |
|
$ |
146 |
|
|
$ |
634 |
|
|
$ |
295 |
|
|
$ |
448 |
|
We have a receivable from the joint venture of $3,302 and $2,614 that relates primarily to
accrued preferred equity returns as of September 30, 2010 and December 31, 2009, respectively.
13
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 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 over 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 resorts performance, we
are not the primary beneficiary of the joint venture and, therefore, we do not
consolidate this entity at September 30, 2010. During the three and nine months
ended September 30, 2010 and 2009, 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 September 30, 2010 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
September 30, 2010 is $26,328. |
|
|
|
|
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 September 30, 2010. During the
three and nine months ended September 30, 2010 and 2009, 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
September 30, 2010 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 September 30, 2010 is $2,420. |
5. ACQUISTION OF CREATIVE KINGDOMS
On June 7, 2010, we acquired a 62.4% equity interest in Creative Kingdoms (CK) in exchange for
all of the $8,700 principal balance, plus accrued interest of $1,263, of 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
$2,276 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.
14
6. SHARE-BASED COMPENSATION
We recognized share-based compensation expense of $545 and $1,606, net of estimated
forfeitures, for the three months and nine months ended September 30, 2010, respectively. The
total income tax expense recognized related to share-based compensation was $10 and $31 for the
three and nine months ended September 30, 2010, respectively.
We recognized share-based compensation expense of $360 and $828, net of estimated forfeitures,
for the three and nine months ended September 30, 2009, respectively. The total income tax expense
recognized related to share-based compensation was $56 and $129 for the three and nine months ended
September 30, 2009, 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 September 30,
2010, total unrecognized compensation cost related to share-based compensation awards was $3,158,
which we expect to recognize over a weighted average period of approximately 3.1 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 September 30, 2010, there were 115,872 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 stock option expense of $8 and $22 for the three and nine months ended September
30, 2009, respectively. We recorded no stock option expense for the three and nine months ended
September 30, 2010. We have not granted any stock options in 2010 or 2009.
A summary of stock option activity during the nine months ended September 30, 2010 is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
|
Shares |
|
|
Price |
|
|
Life |
|
Number of shares under option: |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period |
|
|
441,000 |
|
|
$ |
17.53 |
|
|
4.34 years |
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
441,000 |
|
|
$ |
17.53 |
|
|
4.34 years |
Exercisable at end of period |
|
|
441,000 |
|
|
$ |
17.53 |
|
|
4.34 years |
Our outstanding or exercisable stock options had no intrinsic value at September 30, 2010 or
2009.
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.
15
We granted 515,986 and 541,863 market condition share awards during the nine months ended
September 30, 2010 and 2009, respectively. We recorded share-based compensation expense of $159
and $546 for the three and nine months ended September 30, 2010, respectively. We recorded
share-based compensation expense of $82 and $285 for the three and nine months ended September 30,
2009, respectively.
Of the 2010 market condition shares granted:
|
|
|
333,060 were based on our common stocks 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.
|
|
|
91,463 were based on our common stocks 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 stocks 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 |
% |
16
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 stocks 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.
Of the 2007 market condition shares awards granted:
|
|
|
81,293 are based on our common stocks absolute performance during the three-year period
2007-2009. Half of these shares vested on December 31, 2009, and the other half vest on
December 31, 2010. The per share fair value of these market condition shares was $6.65. |
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 |
|
|
4.73 |
% |
Expected stock price volatility |
|
|
42.13 |
% |
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 is based on the four-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. Due to the
resignation of two senior officers in 2008, 58,628 shares were forfeited.
In March 2010, our Compensation Committee of the board of directors determined that based on
our common stock performance during the three year period 2007-2009, employees did not earn any
of these market condition shares. Therefore, the remaining unamortized expense related to these
shares of $19 was expensed in the nine months ended September 30, 2010.
17
|
|
|
81,293 were based on our common stocks performance in 2007-2009 relative to a stock
index, as designated by the Compensation Committee of the Board of directors. Half of these
shares vested December 31, 2009, and the other half vest on December 31, 2010. The per share
fair value of these market condition shares was $8.24. |
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 |
|
|
4.73 |
% |
Expected stock price volatility |
|
|
42.13 |
% |
Expected stock price volatility (small-cap stock index) |
|
|
16.64 |
% |
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 is based on the four-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. Due to the resignation of two senior
officers in 2008, 58,628 shares were forfeited.
In March 2010, our Compensation Committee of the board of directors determined that based on
our common stock performance during the three year period 2007-2009, employees did not earn any
of these market condition shares. Therefore, the remaining unamortized expense related to these
shares of $23 was expensed in the nine months ended September 30, 2010.
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 111,020 and 180,622
performance shares during the nine months ended September 30, 2010 and 2009, respectively. Shares
granted in 2010 vest over a three year period, 2010-2012; and shares granted in 2009 vest over a
three year period, 2009-2011.
The per share fair value of performance shares granted during the nine months ended September
30, 2010 and 2009 was $3.18 and $1.54, respectively, which represents the fair value of our common
stock on the grant date. We recorded share-based compensation expense of $61 and $183 for the three
and nine months ended September 30, 2010, respectively. We recorded share-based compensation
expense of $46 and $138 for the three and nine months ended September 30, 2009, respectively.
Since all shares originally granted were not earned, we recorded a reduction in expense of $9 and
$2 during the nine months ended September 30, 2010 and 2009, respectively.
Based on their achievement of certain individual and departmental performance goals:
|
|
|
Employees earned and were issued 162,559 performance shares in March 2010 related to
2009 grants and |
|
|
|
|
Employees earned and were issued 18,084 performance shares in February 2009 related to
the 2008 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
18
trust, as a reduction of our stockholders equity. We account for the change in fair value of
the shares held in the trust as a charge to compensation cost. We recorded negative share-based
compensation expense of $2 and $5, for the three and nine months ended September 30, 2010,
respectively. We recorded share-based compensation expense of $18 and $(334), for the three and
nine months ended September 30, 2009, respectively.
In 2008, one of the executives who had deferred a bonus payment as discussed above resigned
from our company. As a result, we have reclassified $2,000 previously recorded as deferred
compensation to additional paid-in-capital.
Non-vested Shares
We have granted non-vested shares to certain employees and our directors. Shares vest over
time periods between three and five years. We valued the non-vested shares at the closing market
value of our common stock on the date of grant.
A summary of non-vested shares activity for the nine months ended September 30, 2010 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
Non-vested shares balance at beginning of period |
|
|
483,468 |
|
|
$ |
5.13 |
|
Granted |
|
|
1,306,653 |
|
|
$ |
2.10 |
|
Forfeited |
|
|
(11,400 |
) |
|
$ |
4.47 |
|
Vested |
|
|
(366,952 |
) |
|
$ |
2.98 |
|
|
|
|
|
|
|
|
|
Non-vested shares balance at end of period |
|
|
1,411,769 |
|
|
$ |
2.73 |
|
|
|
|
|
|
|
|
|
We recorded share-based compensation expense of $290 and $833 for the three and nine months
ended September 30, 2010, respectively, related to these shares. We recorded share-based
compensation expense of $186 and $645 for the three and nine months ended September 30, 2009,
respectively, related to these shares.
Our non-vested shares had an intrinsic value of $268 and $280 at September 30, 2010 and 2009,
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 2008 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 2008 bonus amounts, we issued 17,532 shares
in February 2009. We valued these shares at $32 based on the closing market value of our
common stock on the date of the grant. |
|
|
|
|
There were no shares issued in the nine months ended September 30, 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.
We recorded non-cash professional fees expense of $38 and $58 for the three and nine months ended
September 30, 2010, respectively, related to these elections to receive shares in lieu of cash. We
issued 19,119 and 26,693 shares in the three and nine months ended September 30, 2010,
respectively. We recorded non-cash professional fees expense of $20 and $74 for the three and nine
months ended September 30, 2009, respectively, related to these
19
elections to receive shares in lieu of cash. We issued 9,061 and 31,347 shares in the three
and nine months ended September 30, 2009, respectively.
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December |
|
|
|
2010 |
|
|
31, 2009 |
|
Land and improvements |
|
$ |
60,718 |
|
|
$ |
60,718 |
|
Building and improvements |
|
|
430,669 |
|
|
|
427,602 |
|
Furniture, fixtures and equipment |
|
|
359,950 |
|
|
|
341,529 |
|
Construction in process |
|
|
176 |
|
|
|
327 |
|
|
|
|
|
|
|
|
|
|
|
851,513 |
|
|
|
830,176 |
|
Less accumulated depreciation |
|
|
(197,545 |
) |
|
|
(153,771 |
) |
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
653,968 |
|
|
$ |
676,405 |
|
|
|
|
|
|
|
|
Depreciation expense was $12,633 and $37,141 for the three months and nine months ended September
30, 2010, respectively. Depreciation expense was $13,001 and $37,481 for the three and nine months
ended September 30, 2009, respectively.
8. LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Long-Term Debt: |
|
|
|
|
|
|
|
|
Traverse City/Kansas City mortgage loan |
|
$ |
67,633 |
|
|
$ |
68,773 |
|
Mason mortgage loan |
|
|
|
|
|
|
73,800 |
|
Pocono Mountains mortgage loan |
|
|
94,583 |
|
|
|
95,458 |
|
Williamsburg mortgage loan |
|
|
|
|
|
|
63,125 |
|
Grapevine mortgage loan |
|
|
|
|
|
|
77,909 |
|
Concord mortgage loan |
|
|
78,464 |
|
|
|
78,549 |
|
First mortgage notes (net of discount of $9,961) |
|
|
220,039 |
|
|
|
|
|
Junior subordinated notes |
|
|
80,545 |
|
|
|
80,545 |
|
Other Debt: |
|
|
|
|
|
|
|
|
City of Sheboygan bonds |
|
|
8,564 |
|
|
|
8,544 |
|
City of Sheboygan loan |
|
|
3,113 |
|
|
|
3,290 |
|
Other |
|
|
55 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
552,996 |
|
|
|
550,071 |
|
Less current portion of long-term debt |
|
|
(70,450 |
) |
|
|
(16,126 |
) |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
482,546 |
|
|
$ |
533,945 |
|
|
|
|
|
|
|
|
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 September 30, 2010.
While recourse under the loan is limited to the property owners 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.
20
The loan also contains limitations on our ability, without lenders 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 loans 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 loans 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 September 30, 2010, the DSCR for this loan was 0.84. In
September 2010 the loans 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 loans 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
September 30, 2010, 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.
At our request, in October 2010 the loan was transferred to its special servicer. The DSCR
for this loan has been below 1.00 on a trailing twelve-month basis since second quarter 2007. We
have informed the special servicer that, given the current and expected performance of the two
properties securing this loan, we may 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 would
likely 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.
We are working with the loans special servicer to discuss a potential modification of this loan,
but we cannot provide any assurance that we will achieve such a result. Absent 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, attempting to refinance the
existing loan (which we believe would result in materially lower proceeds than the current loan
balance, thus requiring a significant paydown on the existing loan balance), or surrendering the
two properties to the lender or a lender-appointed receiver. The properties had a combined net
book value of $66,552 as of September 30, 2010, and the amount of debt outstanding under the
mortgage was $67,633 as of that date.
Mason Mortgage Loan This loan was secured by our Mason resort. In April 2010, we used a
portion of the proceeds from the issuance of new first mortgage notes to repay this loan in its
entirety.
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 September 30, 2010.
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 propertys combined trailing twelve-month net operating
21
income divided by the greater of (i) the loans 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 loans 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 owners 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 lenders 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.
Williamsburg Mortgage Loan This loan was secured by our Williamsburg resort. In April
2010, we used a portion of the proceeds from the issuance of new first mortgage notes to repay this
loan in its entirety.
Grapevine Mortgage Loan This loan was secured by our Grapevine resort. In April 2010, we
used a portion of the proceeds from the issuance of new first mortgage notes to repay this loan in
its entirety.
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 September 30, 2010). 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 owners 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 we are required 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 September 30, 2010.
Great Wolf Resorts has provided a $78,464 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;
22
(iv) make investments or (v) merge. We are currently restricted from these activities with
certain carve-outs as defined under our indentures.
Junior Subordinated Notes 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 Is 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 notes with payment terms that mirror the distribution terms of the TPS. The
indenture governing the notes contains limitations on our ability, without the consent of holders
of notes 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 notes 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
Trusts 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 notes 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 notes 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
notes 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 its consolidated balance sheet. 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 represent 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. We have recognized as a liability
the obligations for the BANs. We have an obligation to fund certain minimum guaranteed amounts of
room tax payments to be made by the Blue Harbor Resort through 2028, which obligation is indirectly
related to the payments by the City on the BANs.
City of Sheboygan Loan The City of Sheboygan loan amount represents a loan made by the City
in 2004 in conjunction with the construction of the Blue Harbor Resort in Sheboygan, Wisconsin. The
loan is noninterest bearing and matures in 2018. There are restrictions on the ability of the
borrower under the loan to enter into transactions with affiliates without the consent of the
lender. Our obligation to repay the loan will be satisfied by certain minimum guaranteed amounts
of real and personal property tax payments to be made by the Blue Harbor Resort through 2018.
23
Future Maturities Future principal requirements on long-term debt are as follows:
|
|
|
|
|
Through |
|
|
|
September 30, |
|
|
|
2011 |
|
$ |
4,434 |
|
2012 |
|
|
80,514 |
|
2013 |
|
|
3,606 |
|
2014 |
|
|
3,892 |
|
2015 |
|
|
62,548 |
|
Thereafter |
|
|
407,963 |
|
|
|
|
|
Total |
|
$ |
562,957 |
|
|
|
|
|
As discussed above, the Traverse City/Kansas City mortgage loan is classified as a current
liability as of September 30, 2010, due to the implementation of a traditional lock-box
arrangement. The future maturities table above, however, reflects future cash principal repayments
currently required under the provisions of that loan of $1,617 in 2011, $1,717 in 2012, $1,851 in 2013,
$1,981 in 2014 and $60,467 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.
The following table summarizes the Companys financial assets measured at fair value on a
recurring basis as of:
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Interest rate caps |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Interest rate caps |
|
$ |
|
|
|
$ |
133 |
|
|
$ |
|
|
|
$ |
133 |
|
Level 2 assets consist of our interest rate caps and our long-term debt. To determine the
estimated fair value of our interest rate caps we use market information provided by the banks from
whom the interest rate caps were purchased.
24
As of September 30, 2010, we estimate the total fair value of our long-term debt to be $58,861
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 441,000 shares of common stock were not included in the computations of
diluted earnings per share for the three and nine months ended September 30, 2010, because the
exercise prices of the options were greater than the average market price of the common shares
during that period. There were 627,006 shares of common stock that were not included in the
computation of diluted earnings per share for the three and nine months ended September 30, 2010,
because the market and/or performance criteria related to these shares had not been met at
September 30, 2010.
Basic and diluted earnings per common share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net loss attributable to Great Wolf Resorts, Inc. |
|
$ |
(993 |
) |
|
$ |
(36,923 |
) |
|
$ |
(21,818 |
) |
|
$ |
(48,274 |
) |
Weighted average common shares outstanding basic |
|
|
31,035,048 |
|
|
|
31,291,004 |
|
|
|
30,957,698 |
|
|
|
31,179,049 |
|
Weighted average common shares outstanding diluted |
|
|
31,035,048 |
|
|
|
31,291,004 |
|
|
|
30,957,698 |
|
|
|
31,179,049 |
|
Net loss attributable to Great Wolf Resorts, Inc. per share basic |
|
$ |
(0.03 |
) |
|
$ |
(1.18 |
) |
|
$ |
(0.70 |
) |
|
$ |
(1.55 |
) |
Net loss attributable to Great Wolf Resorts, Inc. per share diluted |
|
$ |
(0.03 |
) |
|
$ |
(1.18 |
) |
|
$ |
(0.70 |
) |
|
$ |
(1.55 |
) |
25
11. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
On April 7, 2010, our subsidiaries, GWR Operating Partnership, LLLP and Great Wolf Finance
Corp. were co-issuers (the Issuers) 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
September 30, 2010 and December 31, 2009, the condensed consolidating statements of operations for
the three and nine months ended September 30, 2010 and 2009 and the condensed consolidating
statements of cash flows for the nine months ended September 30, 2010 and 2009.
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 Companys
and the Issuers investments in their consolidated subsidiaries are presented under the equity method of accounting.
26
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2010
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
ASSETS
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
10,043 |
|
|
$ |
32,678 |
|
|
$ |
(3,661 |
) |
|
$ |
4,043 |
|
|
$ |
|
|
|
$ |
43,103 |
|
Escrows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,228 |
|
|
|
|
|
|
|
1,228 |
|
Accounts receivable |
|
|
69 |
|
|
|
|
|
|
|
1,573 |
|
|
|
1,741 |
|
|
|
|
|
|
|
3,383 |
|
Accounts receivable affiliates |
|
|
|
|
|
|
|
|
|
|
1,130 |
|
|
|
2,172 |
|
|
|
|
|
|
|
3,302 |
|
Accounts receivable consolidating entities |
|
|
11,464 |
|
|
|
467,486 |
|
|
|
278,438 |
|
|
|
145,893 |
|
|
|
(903,281 |
) |
|
|
|
|
Inventory |
|
|
|
|
|
|
|
|
|
|
2,364 |
|
|
|
3,637 |
|
|
|
|
|
|
|
6,001 |
|
Other current assets |
|
|
138 |
|
|
|
|
|
|
|
2,284 |
|
|
|
2,652 |
|
|
|
|
|
|
|
5,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
21,714 |
|
|
|
500,164 |
|
|
|
282,128 |
|
|
|
161,366 |
|
|
|
(903,281 |
) |
|
|
62,091 |
|
Property and equipment, net |
|
|
|
|
|
|
|
|
|
|
358,151 |
|
|
|
295,817 |
|
|
|
|
|
|
|
653,968 |
|
Investment in consolidating entities |
|
|
243,722 |
|
|
|
283,532 |
|
|
|
|
|
|
|
|
|
|
|
(527,254 |
) |
|
|
|
|
Investment in and advances to affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,445 |
|
|
|
|
|
|
|
26,445 |
|
Other assets |
|
|
10,619 |
|
|
|
8,466 |
|
|
|
7,052 |
|
|
|
7,073 |
|
|
|
|
|
|
|
33,210 |
|
Intangible assets |
|
|
2,276 |
|
|
|
|
|
|
|
4,668 |
|
|
|
20,694 |
|
|
|
|
|
|
|
27,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
278,331 |
|
|
$ |
792,162 |
|
|
$ |
651,999 |
|
|
$ |
511,395 |
|
|
$ |
(1,430,535 |
) |
|
$ |
803,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
32 |
|
|
$ |
70,418 |
|
|
$ |
|
|
|
$ |
70,450 |
|
Accounts payable |
|
|
16 |
|
|
|
294 |
|
|
|
749 |
|
|
|
1,284 |
|
|
|
|
|
|
|
2,343 |
|
Accounts payable affiliates |
|
|
|
|
|
|
514 |
|
|
|
5 |
|
|
|
3 |
|
|
|
|
|
|
|
522 |
|
Accounts payable consolidating entities |
|
|
|
|
|
|
314,252 |
|
|
|
488,357 |
|
|
|
100,672 |
|
|
|
(903,281 |
) |
|
|
|
|
Accrued expenses |
|
|
1,465 |
|
|
|
13,341 |
|
|
|
12,958 |
|
|
|
8,496 |
|
|
|
|
|
|
|
36,260 |
|
Advance deposits |
|
|
|
|
|
|
|
|
|
|
4,111 |
|
|
|
5,262 |
|
|
|
|
|
|
|
9,373 |
|
Other current liabilities |
|
|
2,190 |
|
|
|
|
|
|
|
766 |
|
|
|
2,603 |
|
|
|
|
|
|
|
5,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
3,671 |
|
|
|
328,401 |
|
|
|
506,978 |
|
|
|
188,738 |
|
|
|
(903,281 |
) |
|
|
124,507 |
|
Mortgage debt |
|
|
|
|
|
|
220,039 |
|
|
|
|
|
|
|
170,516 |
|
|
|
|
|
|
|
390,555 |
|
Other long-term debt |
|
|
80,545 |
|
|
|
|
|
|
|
23 |
|
|
|
11,423 |
|
|
|
|
|
|
|
91,991 |
|
Deferred compensation liability |
|
|
|
|
|
|
|
|
|
|
1,161 |
|
|
|
|
|
|
|
|
|
|
|
1,161 |
|
Other long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,048 |
|
|
|
|
|
|
|
1,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
84,216 |
|
|
|
548,440 |
|
|
|
508,162 |
|
|
|
371,725 |
|
|
|
(903,281 |
) |
|
|
609,262 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Wolf Resorts stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325 |
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in-capital |
|
|
402,095 |
|
|
|
456,893 |
|
|
|
163,514 |
|
|
|
293,379 |
|
|
|
(913,786 |
) |
|
|
402,095 |
|
Accumulated deficit |
|
|
(208,105 |
) |
|
|
(213,171 |
) |
|
|
(19,677 |
) |
|
|
(153,684 |
) |
|
|
386,532 |
|
|
|
(208,105 |
) |
Deferred compensation |
|
|
(200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Great Wolf Resorts stockholders equity |
|
|
194,115 |
|
|
|
243,722 |
|
|
|
143,837 |
|
|
|
136,695 |
|
|
|
(527,254 |
) |
|
|
194,115 |
|
Noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
194,115 |
|
|
|
243,722 |
|
|
|
143,837 |
|
|
|
139,670 |
|
|
|
(527,254 |
) |
|
|
194,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
278,331 |
|
|
$ |
792,162 |
|
|
$ |
651,999 |
|
|
$ |
511,395 |
|
|
$ |
(1,430,535 |
) |
|
$ |
803,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2009
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
ASSETS
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
5,023 |
|
|
$ |
14,538 |
|
|
$ |
(1,590 |
) |
|
$ |
2,942 |
|
|
$ |
|
|
|
$ |
20,913 |
|
Escrows |
|
|
|
|
|
|
|
|
|
|
4,430 |
|
|
|
1,508 |
|
|
|
|
|
|
|
5,938 |
|
Accounts receivable |
|
|
33 |
|
|
|
|
|
|
|
1,177 |
|
|
|
982 |
|
|
|
|
|
|
|
2,192 |
|
Accounts receivable affiliates |
|
|
|
|
|
|
|
|
|
|
1,079 |
|
|
|
1,535 |
|
|
|
|
|
|
|
2,614 |
|
Accounts receivable consolidating entities |
|
|
23,800 |
|
|
|
459,146 |
|
|
|
183,648 |
|
|
|
151,521 |
|
|
|
(818,115 |
) |
|
|
|
|
Inventory |
|
|
|
|
|
|
|
|
|
|
2,230 |
|
|
|
2,561 |
|
|
|
|
|
|
|
4,791 |
|
Other current assets |
|
|
792 |
|
|
|
|
|
|
|
1,991 |
|
|
|
1,469 |
|
|
|
|
|
|
|
4,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
29,648 |
|
|
|
473,684 |
|
|
|
192,965 |
|
|
|
162,518 |
|
|
|
(818,115 |
) |
|
|
40,700 |
|
Property and equipment, net |
|
|
|
|
|
|
|
|
|
|
373,879 |
|
|
|
302,526 |
|
|
|
|
|
|
|
676,405 |
|
Investment in consolidated entities |
|
|
251,217 |
|
|
|
277,475 |
|
|
|
|
|
|
|
|
|
|
|
(528,692 |
) |
|
|
|
|
Investment in and advances to affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,484 |
|
|
|
|
|
|
|
27,484 |
|
Notes receivable |
|
|
8,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,268 |
|
Other assets |
|
|
10,965 |
|
|
|
|
|
|
|
9,333 |
|
|
|
8,760 |
|
|
|
|
|
|
|
29,058 |
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
4,668 |
|
|
|
19,161 |
|
|
|
|
|
|
|
23,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
300,098 |
|
|
$ |
751,159 |
|
|
$ |
580,845 |
|
|
$ |
520,449 |
|
|
$ |
(1,346,807 |
) |
|
$ |
805,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
12,731 |
|
|
$ |
3,395 |
|
|
$ |
|
|
|
$ |
16,126 |
|
Accounts payable |
|
|
|
|
|
|
|
|
|
|
3,132 |
|
|
|
1,946 |
|
|
|
|
|
|
|
5,078 |
|
Accounts payable consolidating entities |
|
|
|
|
|
|
499,931 |
|
|
|
205,954 |
|
|
|
112,230 |
|
|
|
(818,115 |
) |
|
|
|
|
Accrued expenses |
|
|
1,498 |
|
|
|
11 |
|
|
|
13,351 |
|
|
|
7,110 |
|
|
|
|
|
|
|
21,970 |
|
Advance deposits |
|
|
|
|
|
|
|
|
|
|
2,457 |
|
|
|
4,657 |
|
|
|
|
|
|
|
7,114 |
|
Gift certificates payable |
|
|
3,299 |
|
|
|
|
|
|
|
830 |
|
|
|
1,817 |
|
|
|
|
|
|
|
5,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
4,797 |
|
|
|
499,942 |
|
|
|
238,455 |
|
|
|
131,155 |
|
|
|
(818,115 |
) |
|
|
56,234 |
|
Mortgage debt |
|
|
|
|
|
|
|
|
|
|
202,103 |
|
|
|
239,621 |
|
|
|
|
|
|
|
441,724 |
|
Other long-term debt |
|
|
80,545 |
|
|
|
|
|
|
|
78 |
|
|
|
11,598 |
|
|
|
|
|
|
|
92,221 |
|
Deferred compensation liability |
|
|
|
|
|
|
|
|
|
|
809 |
|
|
|
|
|
|
|
|
|
|
|
809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
85,342 |
|
|
|
499,942 |
|
|
|
441,445 |
|
|
|
382,374 |
|
|
|
(818,115 |
) |
|
|
590,988 |
|
Commitments and contingencies
Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
313 |
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in-capital |
|
|
400,930 |
|
|
|
448,562 |
|
|
|
163,514 |
|
|
|
285,048 |
|
|
|
(897,124 |
) |
|
|
400,930 |
|
Accumulated deficit |
|
|
(186,287 |
) |
|
|
(197,345 |
) |
|
|
(24,114 |
) |
|
|
(146,973 |
) |
|
|
368,432 |
|
|
|
(186,287 |
) |
Deferred compensation |
|
|
(200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
214,756 |
|
|
|
251,217 |
|
|
|
139,400 |
|
|
|
138,075 |
|
|
|
(528,692 |
) |
|
|
214,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
300,098 |
|
|
$ |
751,159 |
|
|
$ |
580,845 |
|
|
$ |
520,449 |
|
|
$ |
(1,346,807 |
) |
|
$ |
805,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three month ended September 30, 2010
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms |
|
$ |
|
|
|
$ |
|
|
|
$ |
24,016 |
|
|
$ |
23,543 |
|
|
$ |
|
|
|
|
47,559 |
|
Food and beverage |
|
|
|
|
|
|
|
|
|
|
6,593 |
|
|
|
5,905 |
|
|
|
|
|
|
|
12,498 |
|
Other |
|
|
|
|
|
|
|
|
|
|
5,493 |
|
|
|
8,043 |
|
|
|
|
|
|
|
13,536 |
|
Management and other fees |
|
|
139 |
|
|
|
|
|
|
|
6,357 |
|
|
|
38 |
|
|
|
(5,618 |
) |
|
|
916 |
|
Management and other fees affiliates |
|
|
|
|
|
|
|
|
|
|
900 |
|
|
|
|
|
|
|
|
|
|
|
900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139 |
|
|
|
|
|
|
|
43,359 |
|
|
|
37,529 |
|
|
|
(5,618 |
) |
|
|
75,409 |
|
Other revenue from managed properties affiliates |
|
|
|
|
|
|
|
|
|
|
2,725 |
|
|
|
|
|
|
|
|
|
|
|
2,725 |
|
Other revenue from managed properties |
|
|
|
|
|
|
|
|
|
|
2,984 |
|
|
|
|
|
|
|
|
|
|
|
2,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
139 |
|
|
|
|
|
|
|
49,068 |
|
|
|
37,529 |
|
|
|
(5,618 |
) |
|
|
81,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses by department: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms |
|
|
|
|
|
|
|
|
|
|
3,724 |
|
|
|
3,679 |
|
|
|
(915 |
) |
|
|
6,488 |
|
Food and beverage |
|
|
|
|
|
|
|
|
|
|
4,678 |
|
|
|
4,327 |
|
|
|
|
|
|
|
9,005 |
|
Other |
|
|
|
|
|
|
|
|
|
|
4,242 |
|
|
|
5,451 |
|
|
|
|
|
|
|
9,693 |
|
Other operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
626 |
|
|
|
37 |
|
|
|
11,349 |
|
|
|
9,251 |
|
|
|
(4,703 |
) |
|
|
16,560 |
|
Property operating costs |
|
|
|
|
|
|
|
|
|
|
4,229 |
|
|
|
4,697 |
|
|
|
|
|
|
|
8,926 |
|
Depreciation and amortization |
|
|
38 |
|
|
|
320 |
|
|
|
6,358 |
|
|
|
7,090 |
|
|
|
|
|
|
|
13,806 |
|
Loss on disposition of property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
664 |
|
|
|
357 |
|
|
|
34,580 |
|
|
|
34,495 |
|
|
|
(5,618 |
) |
|
|
64,478 |
|
Other expenses from managed properties affiliates |
|
|
|
|
|
|
|
|
|
|
2,725 |
|
|
|
|
|
|
|
|
|
|
|
2,725 |
|
Other expenses from managed properties |
|
|
|
|
|
|
|
|
|
|
2,984 |
|
|
|
|
|
|
|
|
|
|
|
2,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
664 |
|
|
|
357 |
|
|
|
40,289 |
|
|
|
34,495 |
|
|
|
(5,618 |
) |
|
|
70,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating (loss) income |
|
|
(525 |
) |
|
|
(357 |
) |
|
|
8,779 |
|
|
|
3,034 |
|
|
|
|
|
|
|
10,931 |
|
Investment income affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(267 |
) |
|
|
|
|
|
|
(267 |
) |
Interest income |
|
|
(51 |
) |
|
|
(8 |
) |
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
(59 |
) |
Interest expense |
|
|
1,591 |
|
|
|
6,636 |
|
|
|
9 |
|
|
|
4,077 |
|
|
|
|
|
|
|
12,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes and equity in
affiliates |
|
|
(2,065 |
) |
|
|
(6,985 |
) |
|
|
8,679 |
|
|
|
(775 |
) |
|
|
|
|
|
|
(1,056 |
) |
Income tax (benefit) expense |
|
|
(175 |
) |
|
|
|
|
|
|
179 |
|
|
|
44 |
|
|
|
|
|
|
|
48 |
|
Equity in loss of affiliates, net of tax |
|
|
(897 |
) |
|
|
(7,882 |
) |
|
|
|
|
|
|
(46 |
) |
|
|
8,779 |
|
|
|
(46 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(993 |
) |
|
|
897 |
|
|
|
8,590 |
|
|
|
(773 |
) |
|
|
(8,779 |
) |
|
|
(1058 |
) |
Net loss attributable to noncontrolling interest,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65 |
) |
|
|
|
|
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Great Wolf
Resorts, Inc. |
|
$ |
(993 |
) |
|
$ |
897 |
|
|
$ |
8,590 |
|
|
$ |
(708 |
) |
|
$ |
(8,779 |
) |
|
$ |
(993 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three months ended September 30, 2009
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms |
|
$ |
|
|
|
$ |
|
|
|
$ |
23,662 |
|
|
$ |
22,552 |
|
|
$ |
|
|
|
$ |
46,214 |
|
Food and beverage |
|
|
|
|
|
|
|
|
|
|
6,246 |
|
|
|
5,631 |
|
|
|
|
|
|
|
11,877 |
|
Other |
|
|
|
|
|
|
|
|
|
|
5,629 |
|
|
|
5,704 |
|
|
|
|
|
|
|
11,333 |
|
Management and other fees |
|
|
148 |
|
|
|
|
|
|
|
5,487 |
|
|
|
31 |
|
|
|
(5,040 |
) |
|
|
626 |
|
Management and other fees affiliates |
|
|
|
|
|
|
|
|
|
|
1,202 |
|
|
|
|
|
|
|
|
|
|
|
1,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148 |
|
|
|
|
|
|
|
42,226 |
|
|
|
33,918 |
|
|
|
(5,040 |
) |
|
|
71,252 |
|
Other revenue from managed properties affiliates |
|
|
|
|
|
|
|
|
|
|
3,966 |
|
|
|
|
|
|
|
|
|
|
|
3,966 |
|
Other revenue from managed properties |
|
|
|
|
|
|
|
|
|
|
1,609 |
|
|
|
|
|
|
|
|
|
|
|
1,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
148 |
|
|
|
|
|
|
|
47,801 |
|
|
|
33,918 |
|
|
|
(5,040 |
) |
|
|
76,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses by department: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms |
|
|
|
|
|
|
|
|
|
|
3,617 |
|
|
|
3,607 |
|
|
|
(892 |
) |
|
|
6,332 |
|
Food and beverage |
|
|
|
|
|
|
|
|
|
|
4,684 |
|
|
|
4,542 |
|
|
|
|
|
|
|
9,226 |
|
Other |
|
|
|
|
|
|
|
|
|
|
4,316 |
|
|
|
4,610 |
|
|
|
|
|
|
|
8,926 |
|
Other operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
641 |
|
|
|
34 |
|
|
|
10,449 |
|
|
|
7,935 |
|
|
|
(4,148 |
) |
|
|
14,911 |
|
Property operating costs |
|
|
|
|
|
|
|
|
|
|
4,176 |
|
|
|
4,025 |
|
|
|
|
|
|
|
8,201 |
|
Depreciation and amortization |
|
|
38 |
|
|
|
|
|
|
|
7,920 |
|
|
|
7,178 |
|
|
|
|
|
|
|
15,136 |
|
Asset impairment loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,000 |
|
|
|
|
|
|
|
24,000 |
|
Loss on disposition of property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
679 |
|
|
|
34 |
|
|
|
35,162 |
|
|
|
55,908 |
|
|
|
(5,040 |
) |
|
|
86,743 |
|
Other expenses from managed properties affiliates |
|
|
|
|
|
|
|
|
|
|
3,966 |
|
|
|
|
|
|
|
|
|
|
|
3,966 |
|
Other expenses from managed properties |
|
|
|
|
|
|
|
|
|
|
1,609 |
|
|
|
|
|
|
|
|
|
|
|
1,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
679 |
|
|
|
34 |
|
|
|
40,737 |
|
|
|
55,908 |
|
|
|
(5,040 |
) |
|
|
92,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating (loss) income |
|
|
(531 |
) |
|
|
(34 |
) |
|
|
7,064 |
|
|
|
(21,990 |
) |
|
|
|
|
|
|
(15,491 |
) |
Gain on sale of unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(962 |
) |
|
|
|
|
|
|
(962 |
) |
Investment income affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(310 |
) |
|
|
|
|
|
|
(310 |
) |
Interest income |
|
|
(127 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(131 |
) |
Interest expense |
|
|
1,583 |
|
|
|
|
|
|
|
3,928 |
|
|
|
4,160 |
|
|
|
|
|
|
|
9,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes and equity in
loss of unconsolidated affiliates |
|
|
(1,987 |
) |
|
|
(31 |
) |
|
|
3,137 |
|
|
|
(24,878 |
) |
|
|
|
|
|
|
(23,759 |
) |
Income tax expense (benefit) |
|
|
13,254 |
|
|
|
|
|
|
|
84 |
|
|
|
(175 |
) |
|
|
|
|
|
|
13,163 |
|
Equity in loss of unconsolidated affiliates, net of tax |
|
|
21,682 |
|
|
|
21,651 |
|
|
|
|
|
|
|
1 |
|
|
|
(43,333 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(36,923 |
) |
|
$ |
(21,682 |
) |
|
$ |
3,053 |
|
|
$ |
(24,704 |
) |
|
$ |
43,333 |
|
|
$ |
(36,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine months ended September 30, 2010
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuers |
|
|
Subsidiary |
|
|
Non Guarantor |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms |
|
$ |
|
|
|
$ |
|
|
|
$ |
63,078 |
|
|
$ |
65,729 |
|
|
$ |
|
|
|
$ |
128,807 |
|
Food and beverage |
|
|
|
|
|
|
|
|
|
|
18,281 |
|
|
|
17,290 |
|
|
|
|
|
|
|
35,571 |
|
Other |
|
|
|
|
|
|
|
|
|
|
14,962 |
|
|
|
19,161 |
|
|
|
|
|
|
|
34,123 |
|
Management and other fees |
|
|
364 |
|
|
|
|
|
|
|
17,124 |
|
|
|
50 |
|
|
|
(15,427 |
) |
|
|
2,111 |
|
Management and other fees affiliates |
|
|
|
|
|
|
|
|
|
|
2,880 |
|
|
|
|
|
|
|
|
|
|
|
2,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364 |
|
|
|
|
|
|
|
116,325 |
|
|
|
102,230 |
|
|
|
(15,427 |
) |
|
|
203,492 |
|
Other revenue from managed properties
affiliates |
|
|
|
|
|
|
|
|
|
|
8,178 |
|
|
|
|
|
|
|
|
|
|
|
8,178 |
|
Other revenue from managed properties |
|
|
|
|
|
|
|
|
|
|
8,555 |
|
|
|
|
|
|
|
|
|
|
|
8,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
364 |
|
|
|
|
|
|
|
133,058 |
|
|
|
102,230 |
|
|
|
(15,427 |
) |
|
|
220,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses by department: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms |
|
|
|
|
|
|
|
|
|
|
10,383 |
|
|
|
10,682 |
|
|
|
(2,504 |
) |
|
|
18,561 |
|
Food and beverage |
|
|
|
|
|
|
|
|
|
|
13,493 |
|
|
|
12,778 |
|
|
|
|
|
|
|
26,271 |
|
Other |
|
|
|
|
|
|
|
|
|
|
12,200 |
|
|
|
14,435 |
|
|
|
|
|
|
|
26,635 |
|
Other operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
2,335 |
|
|
|
117 |
|
|
|
35,284 |
|
|
|
24,975 |
|
|
|
(12,923 |
) |
|
|
49,788 |
|
Property operating costs |
|
|
|
|
|
|
|
|
|
|
12,200 |
|
|
|
13,930 |
|
|
|
|
|
|
|
26,130 |
|
Depreciation and amortization |
|
|
115 |
|
|
|
615 |
|
|
|
23,994 |
|
|
|
20,212 |
|
|
|
|
|
|
|
44,936 |
|
Loss on disposition of property |
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
9 |
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,450 |
|
|
|
732 |
|
|
|
107,564 |
|
|
|
97,021 |
|
|
|
(15,427 |
) |
|
|
192,340 |
|
Other expenses from managed properties
affiliates |
|
|
|
|
|
|
|
|
|
|
8,178 |
|
|
|
|
|
|
|
|
|
|
|
8,178 |
|
Other expenses from managed properties |
|
|
|
|
|
|
|
|
|
|
8,555 |
|
|
|
|
|
|
|
|
|
|
|
8,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
2,450 |
|
|
|
732 |
|
|
|
124,297 |
|
|
|
97,021 |
|
|
|
(15,427 |
) |
|
|
209,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating (loss) income |
|
|
(2,086 |
) |
|
|
(732 |
) |
|
|
8,761 |
|
|
|
5,209 |
|
|
|
|
|
|
|
11,152 |
|
Investment income affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(832 |
) |
|
|
|
|
|
|
(832 |
) |
Interest income |
|
|
(482 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(492 |
) |
Interest expense |
|
|
4,753 |
|
|
|
12,830 |
|
|
|
3,859 |
|
|
|
12,529 |
|
|
|
|
|
|
|
33,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes and equity in
affiliates |
|
|
(6,357 |
) |
|
|
(13,552 |
) |
|
|
4,902 |
|
|
|
(6,488 |
) |
|
|
|
|
|
|
(21,495 |
) |
Income tax (benefit) expense |
|
|
(365 |
) |
|
|
|
|
|
|
465 |
|
|
|
317 |
|
|
|
|
|
|
|
417 |
|
Equity in loss (income) of affiliates, net of tax |
|
|
15,826 |
|
|
|
2,274 |
|
|
|
|
|
|
|
(69 |
) |
|
|
(18,100 |
) |
|
|
(69 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(21,818 |
) |
|
|
(15,826 |
) |
|
|
4,437 |
|
|
|
(6,736 |
) |
|
|
18,100 |
|
|
|
(21,843 |
) |
Net loss attributable to noncontrolling
interest, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Great Wolf
Resorts, Inc. |
|
$ |
(21,818 |
) |
|
$ |
(15,826 |
) |
|
$ |
4,437 |
|
|
$ |
(6,711 |
) |
|
$ |
18,100 |
|
|
$ |
(21,818 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine months ended September 30, 2009
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms |
|
$ |
|
|
|
$ |
|
|
|
$ |
63,010 |
|
|
$ |
59,859 |
|
|
$ |
|
|
|
$ |
122,869 |
|
Food and beverage |
|
|
|
|
|
|
|
|
|
|
17,732 |
|
|
|
15,352 |
|
|
|
|
|
|
|
33,084 |
|
Other hotel operations |
|
|
|
|
|
|
|
|
|
|
15,431 |
|
|
|
15,027 |
|
|
|
|
|
|
|
30,458 |
|
Management and other fees |
|
|
660 |
|
|
|
|
|
|
|
14,436 |
|
|
|
66 |
|
|
|
(13,545 |
) |
|
|
1,617 |
|
Management and other fees affiliates |
|
|
|
|
|
|
|
|
|
|
3,636 |
|
|
|
|
|
|
|
|
|
|
|
3,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
660 |
|
|
|
|
|
|
|
114,245 |
|
|
|
90,304 |
|
|
|
(13,545 |
) |
|
|
191,664 |
|
Other revenue from managed properties affiliates |
|
|
|
|
|
|
|
|
|
|
14,486 |
|
|
|
|
|
|
|
|
|
|
|
14,486 |
|
Other revenue from managed properties |
|
|
|
|
|
|
|
|
|
|
1,609 |
|
|
|
|
|
|
|
|
|
|
|
1,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
660 |
|
|
|
|
|
|
|
130,340 |
|
|
|
90,304 |
|
|
|
(13,545 |
) |
|
|
207,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses by department: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms |
|
|
|
|
|
|
|
|
|
|
9,927 |
|
|
|
9,775 |
|
|
|
(2,393 |
) |
|
|
17,309 |
|
Food and beverage |
|
|
|
|
|
|
|
|
|
|
13,431 |
|
|
|
12,075 |
|
|
|
|
|
|
|
25,506 |
|
Other |
|
|
|
|
|
|
|
|
|
|
12,175 |
|
|
|
12,443 |
|
|
|
|
|
|
|
24,618 |
|
Other operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
2,269 |
|
|
|
103 |
|
|
|
33,139 |
|
|
|
22,183 |
|
|
|
(11,152 |
) |
|
|
46,542 |
|
Property operating costs |
|
|
|
|
|
|
|
|
|
|
12,875 |
|
|
|
16,782 |
|
|
|
|
|
|
|
29,657 |
|
Depreciation and amortization |
|
|
117 |
|
|
|
|
|
|
|
22,642 |
|
|
|
19,593 |
|
|
|
|
|
|
|
42,352 |
|
Asset impairment loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,000 |
|
|
|
|
|
|
|
24,000 |
|
Loss on disposition of property |
|
|
|
|
|
|
|
|
|
|
191 |
|
|
|
11 |
|
|
|
|
|
|
|
202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,386 |
|
|
|
103 |
|
|
|
104,380 |
|
|
|
116,862 |
|
|
|
(13,545 |
) |
|
|
210,186 |
|
Other expenses from managed properties affiliates |
|
|
|
|
|
|
|
|
|
|
14,486 |
|
|
|
|
|
|
|
|
|
|
|
14,486 |
|
Other expenses from managed properties |
|
|
|
|
|
|
|
|
|
|
1,609 |
|
|
|
|
|
|
|
|
|
|
|
1,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
2,386 |
|
|
|
103 |
|
|
|
120,475 |
|
|
|
116,862 |
|
|
|
(13,545 |
) |
|
|
226,281 |
|
Net operating (loss) income |
|
|
(1,726 |
) |
|
|
(103 |
) |
|
|
9,865 |
|
|
|
(26,558 |
) |
|
|
|
|
|
|
(18,522 |
) |
Gain on sale of unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(962 |
) |
|
|
|
|
|
|
(962 |
) |
Investment income affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,030 |
) |
|
|
|
|
|
|
(1,030 |
) |
Interest income |
|
|
(434 |
) |
|
|
(16 |
) |
|
|
(13 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
(467 |
) |
Interest expense |
|
|
4,533 |
|
|
|
|
|
|
|
9,286 |
|
|
|
10,896 |
|
|
|
|
|
|
|
24,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes and equity in
affiliates |
|
|
(5,825 |
) |
|
|
(87 |
) |
|
|
592 |
|
|
|
(35,458 |
) |
|
|
|
|
|
|
(40,778 |
) |
Income tax expense (benefit) |
|
|
6,304 |
|
|
|
|
|
|
|
260 |
|
|
|
(184 |
) |
|
|
|
|
|
|
6,380 |
|
Equity in affiliates, net of tax |
|
|
36,145 |
|
|
|
36,058 |
|
|
|
|
|
|
|
1,116 |
|
|
|
(72,203 |
) |
|
|
1,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(48,274 |
) |
|
$ |
(36,145 |
) |
|
$ |
332 |
|
|
$ |
(36,390 |
) |
|
$ |
72,203 |
|
|
$ |
(48,274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine months ended September 30, 2010
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(21,818 |
) |
|
$ |
(15,826 |
) |
|
$ |
4,437 |
|
|
$ |
(6,736 |
) |
|
$ |
18,100 |
|
|
$ |
(21,843 |
) |
Adjustment to reconcile net (loss) income to net
cash provided (used) by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
115 |
|
|
|
615 |
|
|
|
23,994 |
|
|
|
20,212 |
|
|
|
|
|
|
|
44,936 |
|
Bad debt expense |
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
65 |
|
|
|
|
|
|
|
205 |
|
Non-cash employee compensation and professional
fees expense |
|
|
|
|
|
|
|
|
|
|
1,606 |
|
|
|
|
|
|
|
|
|
|
|
1,606 |
|
Loss on disposition of property |
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
9 |
|
|
|
|
|
|
|
19 |
|
Equity in losses (income) of affiliates |
|
|
15,826 |
|
|
|
2,274 |
|
|
|
|
|
|
|
(68 |
) |
|
|
(18,100 |
) |
|
|
(68 |
) |
Deferred tax benefit |
|
|
(366 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(366 |
) |
Changes in operating assets and liabilities |
|
|
(1,122 |
) |
|
|
14,136 |
|
|
|
(3,832 |
) |
|
|
(1,158 |
) |
|
|
|
|
|
|
8,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by operating activities |
|
|
(7,365 |
) |
|
|
1,199 |
|
|
|
26,355 |
|
|
|
12,324 |
|
|
|
|
|
|
|
32,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for property and equipment |
|
|
|
|
|
|
|
|
|
|
(3,278 |
) |
|
|
(4,348 |
) |
|
|
|
|
|
|
(7,626 |
) |
Loan repayment from unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,225 |
|
|
|
|
|
|
|
1,225 |
|
Investment in affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
(8 |
) |
Investment in development |
|
|
|
|
|
|
|
|
|
|
(498 |
) |
|
|
|
|
|
|
|
|
|
|
(498 |
) |
Proceeds from sale of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
15 |
|
Cash acquired in acquisition of Creative
Kingdoms, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324 |
|
|
|
|
|
|
|
324 |
|
Increase in restricted cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(487 |
) |
|
|
|
|
|
|
(487 |
) |
Decrease in escrows |
|
|
|
|
|
|
|
|
|
|
4,431 |
|
|
|
279 |
|
|
|
|
|
|
|
4,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) in investing activities |
|
|
|
|
|
|
|
|
|
|
655 |
|
|
|
(3,000 |
) |
|
|
|
|
|
|
(2,345 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt |
|
|
|
|
|
|
741 |
|
|
|
(214,858 |
) |
|
|
(2,297 |
) |
|
|
|
|
|
|
(216,414 |
) |
Proceeds from issuance of long-term debt |
|
|
|
|
|
|
219,298 |
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
219,337 |
|
Payment of loan costs |
|
|
49 |
|
|
|
(9,079 |
) |
|
|
(1,836 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
(10,901 |
) |
Advances from consolidating entities, net |
|
|
12,336 |
|
|
|
(194,019 |
) |
|
|
187,613 |
|
|
|
(5,930 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
12,385 |
|
|
|
16,941 |
|
|
|
(29,081 |
) |
|
|
(8,223 |
) |
|
|
|
|
|
|
(7,978 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents |
|
|
5,020 |
|
|
|
18,140 |
|
|
|
(2,071 |
) |
|
|
1,101 |
|
|
|
|
|
|
|
22,190 |
|
Cash and cash equivalents, beginning of period |
|
|
5,023 |
|
|
|
14,538 |
|
|
|
(1,590 |
) |
|
|
2,942 |
|
|
|
|
|
|
|
20,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
10,043 |
|
|
$ |
32,678 |
|
|
$ |
(3,661 |
) |
|
$ |
4,043 |
|
|
$ |
|
|
|
$ |
43,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine months ended September 30, 2009
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(48,274 |
) |
|
$ |
(36,145 |
) |
|
$ |
332 |
|
|
$ |
(36,390 |
) |
|
$ |
72,203 |
|
|
$ |
(48,274 |
) |
Adjustment to reconcile net loss to net cash
provided (used) by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
117 |
|
|
|
|
|
|
|
22,642 |
|
|
|
19,593 |
|
|
|
|
|
|
|
42,352 |
|
Bad debt expense |
|
|
|
|
|
|
|
|
|
|
610 |
|
|
|
32 |
|
|
|
|
|
|
|
642 |
|
Non-cash employee compensation expense |
|
|
|
|
|
|
|
|
|
|
829 |
|
|
|
|
|
|
|
|
|
|
|
829 |
|
Loss on sale of assets |
|
|
|
|
|
|
|
|
|
|
191 |
|
|
|
11 |
|
|
|
|
|
|
|
202 |
|
Equity in losses of affiliates |
|
|
36,145 |
|
|
|
36,058 |
|
|
|
|
|
|
|
965 |
|
|
|
(72,203 |
) |
|
|
965 |
|
Asset impairment loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,000 |
|
|
|
|
|
|
|
24,000 |
|
Gain on sale of unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(962 |
) |
|
|
|
|
|
|
(962 |
) |
Deferred tax benefit |
|
|
6,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,535 |
|
Changes in operating assets and liabilities |
|
|
6,317 |
|
|
|
(3 |
) |
|
|
(7,557 |
) |
|
|
4,102 |
|
|
|
(6,888 |
) |
|
|
(12,233 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities |
|
|
840 |
|
|
|
(90 |
) |
|
|
17,047 |
|
|
|
3,147 |
|
|
|
(6,888 |
) |
|
|
14,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for property and equipment |
|
|
|
|
|
|
|
|
|
|
(8,165 |
) |
|
|
(40,041 |
) |
|
|
|
|
|
|
(48,206 |
) |
Loan repayment from unconsolidated affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,833 |
|
|
|
|
|
|
|
8,833 |
|
Investment in affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(303 |
) |
|
|
|
|
|
|
(303 |
) |
Proceeds from sale of interest in unconsolidated
affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000 |
|
|
|
|
|
|
|
6,000 |
|
Investment in development |
|
|
|
|
|
|
|
|
|
|
978 |
|
|
|
|
|
|
|
|
|
|
|
978 |
|
Proceeds from sale of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
|
|
|
|
66 |
|
Decrease in restricted cash |
|
|
159 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
161 |
|
(Increase) decrease in escrows |
|
|
|
|
|
|
|
|
|
|
(2,409 |
) |
|
|
543 |
|
|
|
|
|
|
|
(1,886 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) in investing activities |
|
|
159 |
|
|
|
|
|
|
|
(9,596 |
) |
|
|
(24,900 |
) |
|
|
|
|
|
|
(34,337 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt |
|
|
|
|
|
|
|
|
|
|
(3,135 |
) |
|
|
(2,016 |
) |
|
|
|
|
|
|
(5,151 |
) |
Proceeds from issuance of long-term debt |
|
|
|
|
|
|
|
|
|
|
96 |
|
|
|
44,067 |
|
|
|
6,888 |
|
|
|
51,051 |
|
Payment of loan costs |
|
|
(22 |
) |
|
|
|
|
|
|
(5,307 |
) |
|
|
(6,527 |
) |
|
|
|
|
|
|
(11,856 |
) |
Advances from consolidating entities, net |
|
|
(729 |
) |
|
|
16,633 |
|
|
|
(872 |
) |
|
|
(15,032 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by financing activities |
|
|
(751 |
) |
|
|
16,633 |
|
|
|
(9,218 |
) |
|
|
20,492 |
|
|
|
6,888 |
|
|
|
34,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
248 |
|
|
|
16,543 |
|
|
|
(1,767 |
) |
|
|
(1,261 |
) |
|
|
|
|
|
|
13,763 |
|
Cash and cash equivalents, beginning of period |
|
|
4,762 |
|
|
|
6,279 |
|
|
|
727 |
|
|
|
2,463 |
|
|
|
|
|
|
|
14,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
5,010 |
|
|
$ |
22,822 |
|
|
$ |
(1,040 |
) |
|
$ |
1,202 |
|
|
$ |
|
|
|
$ |
27,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Managements Discussion and Analysis of Financial condition and Results of Operations
is a discussion and analysis of the financial condition, results of operations and liquidity and
capital resources. The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report. We make statements in this section
that are forward-looking statements within the meaning of the federal securities laws. For a
complete discussion of forward-looking statements, see the Forward-Looking Statements section
that immediately follows the table of contents. All dollar amounts in this discussion, except for
per share data and operating statistics, ADR, RevPAR and RevPOR, are in thousands.
34
Overview
The terms Great Wolf Resorts, us, we and our used in this Managements Discussion and
Analysis of Financial Condition and Results of Operations refer to Great Wolf Resorts, Inc. and its
consolidated subsidiaries.
Business. 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, 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 and Blue Harbor Resort brand
names and have entered into licensing arrangements with third-parties to operate 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 and snack bars, 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 arrangements, management fees and other fees with
respect to our operation or development of properties owned in whole or in part by third parties.
On January 13, 2010, we announced that we had signed a non-binding letter of intent related to
the proposed development of a Great Wolf Lodge resort adjacent to The Galleria at Pittsburgh Mills
in Tarentum, Pennsylvania, outside of Pittsburgh. The resort will be developed by Zamias Services,
Inc., a real estate developer and services provider. The proposed development is subject to the
execution of definitive documentation. If we enter into definitive agreements with regard to this
proposed development, it is expected that we will receive license fees for use of the Great Wolf
Lodge brand name and other intellectual property at the proposed resort, and will receive
management fees to operate the resort on behalf of Zamias as the owner. We will also advise on
certain development-related matters. The proposed resort will be owned by a joint venture and we
expect to own a small ownership percentage in this joint venture. The Pittsburgh resort will be our
fourth licensed and managed resort under our licensing-based business model.
On June 7, 2010, we acquired a 62.4% equity interest in Creative Kingdoms, LLC in exchange for
all of the $8.7 million principal balance, plus accrued interest of approximately $1.3 million, of
convertible indebtedness owed to us by Creative Kingdoms. Creative Kingdoms is a developer of
experiential gaming products including MagiQuest, an interactive game attraction available at nine
of our resorts. Creative Kingdoms also licenses or has sold to other parties several stand-along
MagiQuest facilities or similar attractions.
On June 28, 2010, we announced that we have executed license and management agreements related
to the development of a new 600-suite Great Wolf Lodge resort in Garden Grove, Californias world
famous International West Resort. The new resort will be located less than two miles from
Disneyland, near Anaheim and Los Angeles, and will be developed by McWhinney, a diversified real
estate company. We will receive license fees for use of the Great Wolf Lodge brand name and other
intellectual property at the resort, and will receive management fees to operate the resort on
behalf of the owner. The resort will be owned by a joint-venture, with Great Wolf Resorts receiving
a minority equity interest for its development-related services. Additionally, the City of Garden
Grove will contribute cash and bond proceeds to the resort, as well as establish a financing
district to develop an adjacent parking structure.
On July 14, 2010, we announced the opening of the first Scooops Kid Spa outside of a Great
Wolf Resorts property. The first freestanding Scooops Kid Spa opened in August 2010 at Mall of
America, a popular retail destination and entertainment complex in Bloomington, Minnesota. As the
nations largest retail and entertainment complex, Mall of America welcomes more than 40 million
visitors each year.
35
The following table presents an overview of our portfolio of resorts. As of September 30,
2010, we operated, managed and/or have entered into licensing arrangements relating to the
operation of 11 Great Wolf Lodge resorts (our signature Northwoods-themed resorts) and one Blue
Harbor Resort (a nautical-themed property). 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 regard to additional nautical-themed resorts under our Blue Harbor
Resort brand or other resorts in appropriate markets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indoor |
|
|
|
Ownership |
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
Entertainment |
|
|
|
Percentage |
|
|
Opened |
|
|
Guest Suites |
|
|
Condo 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 |
|
Sheboygan, WI |
|
|
100 |
% |
|
|
2004 |
|
|
|
182 |
|
|
|
64 |
|
|
|
54,000 |
|
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 |
|
|
|
|
(1) |
|
Condominium units are individually owned by third parties and are managed by us. |
|
(2) |
|
Our indoor entertainment areas generally include our indoor waterpark, game
arcade, childrens activity room, family tech center, MagiQuest and fitness
room, as well as our spa in the resorts that have such amenities. |
|
(3) |
|
These properties are owned by CNL Lifestyle Properties, Inc. (CNL), a real
estate investment trust focused on leisure and lifestyle properties. Prior to
August 2009, these properties were owned by a joint venture between CNL and us.
In August 2009 we sold our 30.26% joint venture interest to CNL for $6,000.
We currently manage both properties and license the Great Wolf Lodge brand to
these resorts. |
|
(4) |
|
Five of our properties (Great Wolf Lodge resorts in Williamsburg, VA; Pocono
Mountains, PA; Mason, OH; Grapevine, TX and Concord NC) each had a book value
of fixed assets equal to ten percent or more of our total assets as of
September 30, 2010 and each of those five properties had total revenues equal
to ten percent or more of our total revenues for the three and nine months
ended September 30, 2010. |
|
(5) |
|
An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this
resort. We have granted Ripley a license to use the Great Wolf Lodge name for
this resort through April 2016. We managed the resort on behalf of Ripley
through April 2009. |
|
(6) |
|
This property is owned by a joint venture. The Confederated Tribes of the
Chehalis Reservation (Chehalis) owns a 51% interest in the joint venture, and
we own a 49% interest. We operate the property and license the Great Wolf Lodge
brand to the joint venture under long-term agreements through April 2057,
subject to earlier termination in certain situations. The joint venture leases
the land for the resort from the United States Department of the Interior,
which is trustee for Chehalis. |
Acquisition of Creative Kingdoms, LLC. On June 7, 2010, we acquired a 62.4% equity interest
in Creative Kingdoms (CK) in exchange for all of the $8,700 principal balance, plus accrued
interest of $1,263, of convertible indebtedness owed to us by CK. We have consolidated CK as we
have a majority ownership interest in CK. We accounted for this
36
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
$2,276 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.
Industry Trends. We operate in the family entertainment resort segment of the travel and
leisure industry. The concept of a family entertainment resort with an indoor waterpark was first
introduced to the United States in Wisconsin Dells, Wisconsin, and has evolved since 1987. In an
effort to boost occupancy and daily rates, as well as capture off-season demand, hotel operators in
the Wisconsin Dells market began expanding indoor pools and adding waterslides and other
water-based attractions to existing hotels and resorts. The success of these efforts prompted
several local operators to build new, larger destination resorts based primarily on the concept.
We believe that these resorts have proven popular because of several factors, including the
ability to provide a year-round vacation destination without weather-related risks, the wide appeal
of water-based recreation and the favorable trends in leisure travel discussed below.
While no standard industry definition for a family entertainment resort featuring an indoor
waterpark has developed, we generally consider resorts with at least 200 rooms featuring indoor
waterparks larger than 25,000 square feet, as well as a variety of water slides and other
water-based attractions, to be competitive with our resorts. A Hotel & Leisure Advisors, LLC
(H&LA) survey as of June 2010 indicates that there are 144 open indoor waterpark resort properties
in the United States and Canada. Of the total, 51 are considered indoor waterpark destination
resorts offering more than 30,000 square feet of indoor waterpark space. Of these 51 properties,
11 are our properties.
We believe recent vacation trends favor drive-to family entertainment resorts featuring indoor
waterparks, as the number of families choosing to take shorter, more frequent vacations that they
can drive to have increased in recent years. We believe these trends will continue. We believe
indoor waterpark resorts are generally less affected by changes in economic cycles, as drive-to
destinations are generally less expensive and more convenient than destinations that require air
travel.
Outlook. We believe that no other operator or developer other than us has established a
national portfolio of destination family entertainment resorts that feature indoor waterparks. Our
resorts do, however, compete directly with other family entertainment resorts and other family
entertainment attractions in our markets. We intend to continue to expand our portfolio of resorts
throughout the United States and to selectively seek licensing and management opportunities
domestically and internationally.
The resorts we plan to develop, acquire, license and/or operate in the future may require
significant industry knowledge and/or substantial capital resources. Our external growth strategy
going forward is to seek joint venture, licensing and management opportunities. We expect each of
the joint venture arrangements would involve us having a minority or no ownership interest in the
new resort. We believe there are opportunities to capitalize on our existing brand and operational
platforms with lower capital requirements from us than if we were to sole or majority owner of the
new resort.
Our primary business objective is to increase long-term stockholder value. We believe we can
increase stockholder value by executing our internal and external growth strategies. Our primary
internal growth strategies are:
|
|
|
leveraging our competitive advantages and increasing domestic geographic
diversification through a licensing-based business model and joint venture investments
in target markets; |
|
|
|
expanding our brand footprint internationally; |
|
|
|
selective sales of ownership interests/recycling of capital;
|
37
|
|
|
expanding and enhancing existing resorts; |
|
|
|
continuing to innovate; |
|
|
|
maximizing total resort revenues; |
|
|
|
minimizing total resort costs; and |
|
|
|
building upon our existing brand awareness and loyalty. |
In attempting to execute our internal and external growth strategies, we are subject to a
variety of business challenges and risks. These include:
|
|
|
attracting suitable joint venture partners; |
|
|
|
development, acquisition, conversion and/or licensing of properties; |
|
|
|
increases in costs of constructing, operating and maintaining our resorts; |
|
|
|
competition from other entertainment companies, both within and outside our industry
segment; |
|
|
|
external economic risks, including family vacation patterns and trends; and |
|
|
|
the other risks described in our annual report on Form 10-K under Item 1A, Risk
Factors. For a complete discussion of forward-looking statements, see the
Forward-Looking Statements section that immediately follows the table of contents. |
We seek to meet these challenges by providing sufficient management oversight to site
selection, development and resort operations; concentrating on growing and strengthening awareness
of our brand and demand for our resorts; and maintaining our focus on safety.
Our business model is highly dependent on consumer spending, because the majority of our
revenues are earned from leisure guests and a vacation experience at one of our resorts is a
discretionary expenditure for a family. Over the past three years, the slowing U.S. economy has
led to a decrease in credit for consumers and a related decrease in consumer discretionary
spending. Through the third quarter of 2010, consumers continued to deal with several negative
economic impacts that have developed over the past three years, including:
|
|
|
severe turbulence in the banking and lending sectors, which has led to a general
lessening of the availability of credit to consumers; |
|
|
|
an increased national unemployment rate; |
|
|
|
a continuing decline in the national average of home prices and an increase in the
national home foreclosure rate; and |
|
|
|
high volatility in the stock market that led to substantial declines in leading
market averages and aggregate household savings from 2007 to 2010. |
These and other factors impact the amount of discretionary income for consumers and consumer
sentiment toward discretionary purchases. As a result, these types of items could negatively
impact consumer spending in future periods. While we believe the convenience, quality and overall
affordability of a stay at one of our resorts continues to be an attractive alternative to other
potential family vacations, a sustained decrease in overall consumer discretionary spending could
have a material, adverse effect on our overall results.
We develop resorts with expectations of achieving certain financial returns on a resorts
operations. The economic slowdown of the past three years has materially and adversely affected
our ability to achieve the operating results on our resorts that we had expected to achieve when
those resorts were first planned and developed. Also:
|
|
|
We believe that our Traverse City and Sandusky resorts have been and will
continue to be affected by especially adverse general economic circumstances in the
Michigan/Northern Ohio region (such as bankruptcies of several major companies and/or large
announced layoffs by major employers) and increased competition that has occurred in these
markets over the past few years. The Michigan/Northern Ohio region includes cities that
have
|
38
|
|
|
historically been the Traverse City and Sandusky resorts largest source of customers. We
believe the adverse general economic circumstances in the region have negatively impacted
overall discretionary consumer spending in that region over the past few years and may
continue to do so going forward. Although we have taken steps to reduce our operating costs
at these resorts, we believe the general regional economic downturn has and may continue to
have an impact on the operating performance of our Traverse City and Sandusky resorts. |
|
|
|
Our Wisconsin Dells property has been significantly impacted by the abundance
of competing indoor waterpark resorts in that market. The Wisconsin Dells market has
approximately 16 indoor waterpark resorts that compete with us. We believe this large
number of competing properties in a relatively small tourist destination location has and
will likely continue to have an adverse impact on the operating performance of our
Wisconsin Dells resort. |
|
|
|
We have experienced much lower than expected occupancy and lower than expected
average daily room rates at our Sheboygan, Wisconsin property since its opening in 2004. We
believe this operating weakness has been primarily attributable to the fact that the
overall development of Sheboygan as a tourist destination continues to lag significantly
behind our initial expectations. We believe this has materially impacted and will likely
continue to impact the consumer demand for our indoor waterpark resort in that market and
the operations of the resort. As a result of those conditions, we recorded an impairment
charge in 2009 to decrease the resorts carrying value to its estimated fair value (net of
disposal costs). In May 2010, we listed the resort for sale. |
Our external growth strategies are based primarily on developing newly constructed additional
indoor waterpark resorts or converting existing indoor waterpark resorts to our brands (in
conjunction with joint venture partners) or by licensing our intellectual property and proprietary
management systems to others. Developing new resorts of the size and scope of our family
entertainment resorts generally requires obtaining financing for a significant portion of a
projects expected construction costs. The general tightening in U.S. lending markets has
dramatically decreased the overall availability of construction financing.
Although the ultimate effect on our external growth strategy of the current credit environment
is difficult to predict with certainty, we believe that the availability of construction financing
to us and other investors and/or developers may be more restrictive in the future and that terms of
construction financing may be less favorable than we have seen historically. Although we believe
that we and other investors and/or developers may be able to continue to obtain construction
financing sufficient to execute development strategies, we expect that the more difficult credit
market environment is likely to continue at least through mid-2011.
Revenue and Key Performance Indicators. We seek to generate positive cash flows and maximize
our return on invested capital from each of our owned resorts. Our rooms revenue represents sales
to guests of room nights at our resorts and is the largest contributor to our cash flows and
EBITDA. Rooms revenue accounted for approximately 66% of our total consolidated resort revenue for
the nine months ended September 30, 2010. We employ sales and marketing efforts to increase
overall demand for rooms at our resorts. We seek to optimize the relationship between room rates
and occupancies through the use of yield management techniques that attempt to project demand in
order to selectively increase room rates during peak demand. These techniques are designed to
assist us in managing our higher occupancy nights to achieve maximum rooms revenue and include such
practices as:
|
|
|
monitoring our historical trends for occupancy and estimating our high
occupancy nights; |
|
|
|
offering the highest discounts to previous guests in off-peak periods to build
customer loyalty and enhance our ability to charge higher rates in peak periods; |
|
|
|
structuring rates to allow us to offer our previous guests the best rate while
simultaneously working with a promotional partner or offering internet specials; |
|
|
|
monitoring sales of room types daily to evaluate the effectiveness of offered
discounts; and
|
39
|
|
|
offering specials on standard suites and yielding better rates on larger
suites when standard suites sell out. |
In addition, we seek to maximize the amount of time and money spent on-site by our guests by
providing a variety of revenue-generating amenities.
We have several key indicators that we use to evaluate the performance of our business. These
indicators include the following:
|
|
|
average daily room rate, or ADR; |
|
|
|
revenue per available room, or RevPAR; |
|
|
|
total revenue per occupied room, or Total RevPOR; |
|
|
|
total revenue per available room, or Total RevPAR; |
|
|
|
non-rooms revenue per occupied room; and |
|
|
|
earnings before interest, taxes, depreciation and amortization, or EBITDA. |
Occupancy, ADR and RevPAR are commonly used measures within the hospitality industry to
evaluate hotel operations and are defined as follows:
|
|
|
Occupancy is calculated by dividing total occupied rooms by total available
rooms. |
|
|
|
ADR is calculated by dividing total rooms revenue by total occupied rooms. |
|
|
|
RevPAR is the product of occupancy and ADR. |
Total RevPOR, Total RevPAR and Non-rooms revenue per occupied room are defined as follows:
|
|
|
Total RevPOR is calculated by dividing total revenue by total occupied rooms. |
|
|
|
Total RevPAR is calculated by dividing total revenue by total available rooms. |
|
|
|
Non-rooms revenue per occupied room is calculated by taking the difference
between Total RevPOR and ADR. |
Occupancy allows us to measure the general overall demand for rooms at our resorts and the
effectiveness of our sales and marketing strategies. ADR allows us to measure the effectiveness of
our yield management strategies. While ADR and RevPAR only include rooms revenue, Total RevPOR and
Total RevPAR include both rooms revenue and other revenue derived from food and beverage and other
amenities at our resorts. We consider Total RevPOR and Total RevPAR to be key performance
indicators for our business because we derive a significant portion of our revenue from food and
beverage and other amenities. For the nine months ended September 30, 2010, approximately 34% of
our total consolidated resort revenues consisted of non-rooms revenue.
We use RevPAR and Total RevPAR to evaluate the blended effect that changes in occupancy, ADR
and Total RevPOR have on our results. We focus on increasing ADR and Total RevPOR because we
believe those increases can have the greatest positive impact on our results. In addition, we seek
to maximize occupancy, as increases in occupancy generally lead to greater total revenues at our
resorts, and we believe maintaining certain occupancy levels is key to covering our fixed costs.
Increases in total revenues as a result of higher occupancy are, however, typically accompanied by
additional incremental costs (including housekeeping services, utilities and room amenity costs).
In contrast, increases
40
in total revenues from higher ADR and Total RevPOR are typically accompanied by lower
incremental costs and result generally, in a greater increase in operating cash flow.
We also use EBITDA as a measure of the operating performance of each of our resorts. EBITDA
is a supplemental financial measure and is not defined by accounting principles generally accepted
in the United States (GAAP). See Non-GAAP Financial Measures: below for further discussion of our
use of EBITDA and a reconciliation of net income.
Critical Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of operations is based on
our condensed consolidated financial statements, which have been prepared in accordance with GAAP.
The preparation of these condensed consolidated financial statements requires management to make
estimates and judgments that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the unconsolidated financial
statements, as well as revenue and expenses during the reporting periods. We evaluate our
estimates and judgments on an ongoing basis. We base our estimates on historical experience and on
various other factors we believe are reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results could therefore differ materially from those
estimates under different assumptions or conditions.
Acquisition Accounting We follow acquisition accounting for all acquisitions that meet the
business combination definition. Acqusition accounting requires us to measure the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest at the acquisition-date
fair value. While we use our best estimates and assumptions as a part of the purchase price
allocation process to accurately value assets acquired and liabilities assumed at the acquisition
date, our estimates are inherently uncertain and subject to refinement. As a result, during the
measurement period, which may be up to one year from the acquisition date, we record adjustments to
the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the
conclusion of the measurement period or final determination of the values of assets acquired or
liabilities assumed, whichever comes first, any subsequent adjustments are record to our
consolidated statements of operations.
Goodwill Goodwill is measured at an acquisition date as 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. 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.
In connection with the acquisition of the majority interest in CK we have recorded $2,276 of
goodwill that is included within Intangible Assets on our condensed consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Goodwill |
|
$ |
2,276 |
|
|
|
130,496 |
|
Accumulated impairment losses |
|
|
|
|
|
|
(68,405 |
) |
Goodwill related to sale of affiliate |
|
|
|
|
|
|
(62,091 |
) |
|
|
|
|
|
|
|
|
|
$ |
2,276 |
|
|
$ |
|
|
|
|
|
|
|
|
|
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 June 2010 we
have a consolidated subsidiary with a noncontrolling interest as of September 30, 2010.
41
For a description of our critical accounting policies and estimates, please refer to the
Critical Accounting Policies and Estimates section of our Managements Discussion and Analysis
of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for
the year ended December 31, 2009. Except as described above, there have been no material changes
in any of our critical accounting policies since December 31, 2009.
Recent Accounting Pronouncements
In June 2009, the FASB issued guidance which changes how a reporting entity determines when an
entity that is insufficiently capitalized or is not controlled through voting (or similar rights)
should be consolidated. The determination of whether a reporting entity is required to consolidate
another entity is based on, among other things, the other entitys purpose and design and the
reporting entitys ability to direct the activities of the other entity that most significantly
impact the other entitys economic performance. The guidance requires a reporting entity to provide
additional disclosures about its involvement with variable interest entities and any significant
changes in risk exposure due to that involvement. A reporting entity will be required to disclose
how its involvement with a variable interest entity affects the reporting entitys financial
statements. The adoption of this guidance is effective for fiscal years beginning after November
15, 2009, and interim periods within those fiscal years. We adopted this guidance on January 1,
2010. The adoption of this guidance did not have a material impact on our condensed consolidated
financial statements.
In October 2009, the FASB issued guidance for revenue recognition with multiple deliverables.
This guidance eliminates the residual method under the current guidance and replaces it with the
relative selling price method when allocating revenue in a multiple deliverable arrangement. The
selling price for each deliverable shall be determined using vendor specific objective evidence of
selling price, if it exists, otherwise third-party evidence of selling price shall be used. If
neither exists for a deliverable, the vendor shall use its best estimate of the selling price for
that deliverable. After adoption, this guidance will also require expanded qualitative and
quantitative disclosures. The guidance is effective for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, although early adoption is
permitted. We do not expect the adoption of this guidance to have a material impact on our
condensed consolidated financial statements.
In January 2010, the FASB issued updated guidance related to fair value measurement and
disclosures, which requires a reporting entity to disclose separately the amounts of significant
transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for
the transfers. The updated guidance also requires that an entity should provide fair value
measurement disclosures for each class of assets and liabilities and disclosures about the
valuation techniques and inputs used to measure fair value for both recurring and non-recurring
fair value measurements for Level 2 and Level 3 fair value measurements. This updated guidance
became effective for interim or annual financial reporting periods beginning after December 15,
2009. We adopted this guidance on January 1, 2010. The adoption of this guidance did not have a
material impact on our condensed consolidated financial statements.
Non-GAAP Financial Measures
We use EBITDA as a measure of our operating performance. EBITDA is a supplemental non-GAAP
financial measure. EBITDA is commonly defined as net income plus (a) net interest expense, (b)
income taxes, and (c) depreciation and amortization.
EBITDA as calculated by us is not necessarily comparable to similarly titled measures
presented by other companies. In addition, EBITDA (a) does not represent net income or cash flows
from operations as defined by GAAP; (b) is not necessarily indicative of cash available to fund our
cash flow needs; and (c) should not be considered as an alternative to net income, operating
income, cash flows from operating activities or our other financial information as determined under
GAAP.
We believe EBITDA is useful to an investor in evaluating our operating performance because:
42
|
|
a significant portion of our assets consists of property and equipment that are
depreciated over their remaining useful lives in accordance with GAAP. Because depreciation
and amortization are non-cash items, we believe that presentation of EBITDA is a useful
measure of our operating performance; |
|
|
|
it is widely used in the hospitality and entertainment industries to measure operating
performance without regard to items such as depreciation and amortization; and |
|
|
|
we believe it helps investors meaningfully evaluate and compare the results of our
operations from period to period by removing the impact of items directly resulting from our
asset base, primarily depreciation and amortization, from our operating results. |
Our management uses EBITDA:
|
|
as a measurement of operating performance because it assists us in comparing our
operating performance on a consistent basis as it removes the impact of items directly
resulting from our asset base, primarily depreciation and amortization, from our operating
results; |
|
|
|
for planning purposes, including the preparation of our annual operating budget; |
|
|
|
as a valuation measure for evaluating our operating performance and our capacity to incur
and service debt, fund capital expenditures and expand our business; and |
|
|
|
as one measure in determining the value of other acquisitions and dispositions. |
Some of these limitations are:
|
|
it does not reflect every cash expenditure, future requirements for capital expenditures
or contractual commitments; |
|
|
|
it does not reflect the significant interest expense or the cash requirements necessary
to service interest or principal payments on our debt; |
|
|
|
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and
EBITDA does not reflect any cash requirements for such replacements or improvements; |
|
|
|
it is not adjusted for all non-cash income or expense items that are reflected in our
statements of cash flows; |
|
|
|
it does not reflect the impact of earnings or charges resulting from matters we consider
not to be indicative of our ongoing operations; |
|
|
|
it does not reflect limitations on our costs related to transferring earnings from our
subsidiaries to us; and |
|
|
|
other companies in our industry may calculate EBITDA differently than we do, limiting its
usefulness as comparative measures. |
Because of these limitations, our EBITDA measure should not be considered as a measure of
discretionary cash available to us to invest in the growth of our business or as a measure of cash
that will be available to us to meet our obligations. We
compensate for these limitations by using EBITDA along with other comparative tools, together with
GAAP measurements, to assist in the evaluation of operating performance. Such
43
GAAP measurements include operating income (loss), net income (loss), cash flows from
operations and cash flow data. We have significant uses of cash flows, including capital
expenditures, interest payments, debt principal repayments, taxes and other non-recurring charges,
which are not reflected in our EBITDA-based measure.
EBITDA is not intended as alternatives to net income (loss) as indicators of our operating
performance, as alternatives to any other measure of performance in conformity with GAAP or as
alternatives to cash flow provided by operating activities as measures of liquidity. You should
therefore not place undue reliance on our EBITDA-based measure or ratios calculated using those
measures. Our GAAP-based measures can be found in our consolidated financial statements and the
related notes, included elsewhere in this report.
The following table reconciles net loss attributable to Great Wolf Resorts, Inc. to EBITDA for
the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net loss attributable to Great |
|
$ |
(993 |
) |
|
$ |
(36,923 |
) |
|
$ |
(21,818 |
) |
|
$ |
(48,274 |
) |
Wolf Resorts, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
|
12,254 |
|
|
|
9,540 |
|
|
|
33,479 |
|
|
|
24,248 |
|
Income tax expense |
|
|
47 |
|
|
|
14,053 |
|
|
|
416 |
|
|
|
6,531 |
|
Depreciation and amortization |
|
|
13,806 |
|
|
|
15,136 |
|
|
|
44,936 |
|
|
|
42,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
25,114 |
|
|
$ |
1,806 |
|
|
$ |
57,013 |
|
|
$ |
24,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
General
Our financial information includes:
|
|
|
our subsidiary entity that provides resort development and
management/licensing services; |
|
|
|
our wholly-owned resorts; |
|
|
|
our CK subsidiary which is a developer of experiential gaming products, less
our noncontrolling interest; and |
|
|
|
our equity interests in the Wisconsin Dells and Sandusky resorts through
August 2009, when we sold our minority ownership interests in those resorts, and our equity
interest in the Grand Mound resort in which we have a minority ownership interest but which we do not
consolidate. |
Revenues. Our revenues consist of:
|
|
|
lodging revenue, which includes rooms, food and beverage, and other department
revenues from our resorts; |
|
|
|
revenue from our CK subsidiary, which includes product sales, admission fees
and retail revenues; |
|
|
|
management fee and other revenue from resorts, which includes fees received
under our management, license, development and construction management agreements; and
|
44
|
|
|
other revenue from managed properties. We employ the staff at our managed
properties. Under our management agreements, the resort owners reimburse us for payroll,
benefits and certain other costs related to the operations of the managed properties. We
include the reimbursement of payroll, benefits and costs, recorded as revenue on our
statements of operations, with a corresponding expense recorded as other expenses from
managed properties. |
Operating Expenses. Our departmental operating expenses consist of rooms, food and beverage and
other department expenses.
Our other operating expenses include the following items:
|
|
|
selling, general and administrative expenses, which are associated with the
operations and management of resorts and which consist primarily of expenses such as
corporate payroll and related benefits, operations management, sales and marketing,
finance, legal, information technology support, human resources and other support services,
as well as general corporate expenses; |
|
|
|
property operation and maintenance expenses, such as utility costs and
property taxes; |
|
|
|
depreciation and amortization; and |
|
|
|
other expenses from managed properties. |
Three months ended September 30, 2010, compared with the three months ended September 30, 2009
The following table shows key operating statistics for our resorts for the three months ended
September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store Comparison(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
All Properties(a) |
|
|
|
|
|
|
|
|
|
|
(Decrease) |
|
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
Occupancy |
|
|
68.3 |
% |
|
|
68.3 |
% |
|
|
69.1 |
% |
|
|
N/A |
|
|
|
(1.2 |
)% |
ADR |
|
$ |
252.14 |
|
|
$ |
252.14 |
|
|
$ |
246.42 |
|
|
$ |
5.72 |
|
|
|
2.3 |
% |
RevPAR |
|
$ |
172.33 |
|
|
$ |
172.33 |
|
|
$ |
170.26 |
|
|
$ |
2.07 |
|
|
|
1.2 |
% |
Total RevPOR |
|
$ |
382.32 |
|
|
$ |
382.32 |
|
|
$ |
374.36 |
|
|
$ |
7.96 |
|
|
|
2.1 |
% |
Total RevPAR |
|
$ |
261.29 |
|
|
$ |
261.29 |
|
|
$ |
258.67 |
|
|
$ |
2.62 |
|
|
|
1.0 |
% |
Non-rooms revenue per occupied room |
|
$ |
130.17 |
|
|
$ |
130.17 |
|
|
$ |
127.94 |
|
|
$ |
2.23 |
|
|
|
1.7 |
% |
|
|
|
(a) |
|
Includes results for properties that were open for any portion of the period, for all owned,
managed and/or licensed resorts. |
|
(b) |
|
Same store comparison includes properties that were open for the full periods and with
comparable number of rooms in 2010 and 2009. |
The changes in key operating statistics for the three months ended September 30, 2010,
compared to the three months ended September 30, 2009, appear to be the result of some
stabilization of better economic conditions, which appear to be having a positive impact on
consumer sentiment and spending patterns.
Presented below are selected amounts from the statements of operations for the three
months ended September 30, 2010 and 2009:
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
Revenues |
|
$ |
81,118 |
|
|
$ |
76,827 |
|
|
$ |
4,291 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Departmental operating expenses |
|
|
25,186 |
|
|
|
24,484 |
|
|
|
702 |
|
Selling, general and administrative |
|
|
16,560 |
|
|
|
14,911 |
|
|
|
1,649 |
|
Depreciation and amortization |
|
|
13,806 |
|
|
|
15,136 |
|
|
|
(1,330 |
) |
Asset impairment loss |
|
|
|
|
|
|
24,000 |
|
|
|
(24,000 |
) |
Net operating income (loss) |
|
|
10,931 |
|
|
|
(15,491 |
) |
|
|
26,422 |
|
Gain on sale of unconsolidated affiliates |
|
|
|
|
|
|
(962 |
) |
|
|
962 |
|
Interest expense, net of interest income |
|
|
12,254 |
|
|
|
9,540 |
|
|
|
2,714 |
|
Income tax expense |
|
|
48 |
|
|
|
13,163 |
|
|
|
(13,115 |
) |
Net loss attributable to Great Wolf Resorts, Inc. |
|
|
(993 |
) |
|
|
(36,923 |
) |
|
|
35,930 |
|
Revenues. Total revenues increased due to the following:
|
|
|
More stable economic conditions which allowed our properties to increase RevPAR and
Total RevPAR. |
|
|
|
|
The acquisition of CK in June 2010. There were no similar revenues for the three
months ended September 30, 2009. |
Operating expenses.
|
|
|
Departmental operating expenses increased by $702 in the three months ended September 30,
2010, as compared to the three months ended September 30, 2009, due primarily to the
acquisition of CK. |
|
|
|
|
Total selling, general and administrative expenses increased by $1,649 in the three
months ended September 30, 2010, as compared to the three months ended September 30, 2009,
due primarily to the acquisition of CK. |
|
|
|
|
Total depreciation and amortization decreased for the three months ended September 30,
2010, as compared to the three months ended September 30, 2009, due primarily to lower
depreciation amounts on our Sheboygan resort following the asset impairment loss recorded
in 2009 as well as lower amortization expense due to the write off of the unamortized loan
fees on the Williamsburg, Mason and Grapevine properties loans. These decreases are
partially offset by an increase in depreciation and amortization due primarily to the
acquisition of CK. |
|
|
|
|
For the three months ended September 30, 2009, we recorded a $24,000 asset impairment
loss related to our resort in Sheboygan. We had no similar loss in the three months ended
September 30, 2010. |
Net loss attributable to Great Wolf Resorts, Inc. Net loss attributable to Great Wolf Resorts,
Inc. decreased due to:
|
|
|
A decrease in net operating loss of $26,422. |
|
|
|
|
An decrease in income tax expense of $13,115 recorded in the three months ended
September 30, 2010 as compared to the three months ended September 30, 2009 primarily
due to the establishment of a valuation allowance against certain deferred tax assets in
the 2009 period. |
These decreases were partially offset by:
46
|
|
|
An increase net interest expense of $2,714, mainly due to interest expense related to
our first mortgage notes issued in April 2010. |
|
|
|
|
The gain on sale of unconsolidated affiliates in the amount of $962 recorded in the
three months ended September 30, 2009. We had no similar gain in the three months ended
September 30, 2010 |
Nine months ended September 30, 2010, compared with the nine months ended September 30, 2009
The following table shows key operating statistics for our resorts for the nine months ended
September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store Comparison(b) |
|
|
|
All |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties(a) |
|
|
|
|
|
|
|
|
|
|
Increase/ (Decrease) |
|
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
Occupancy |
|
|
62.3 |
% |
|
|
63.1 |
% |
|
|
63.8 |
% |
|
|
N/A |
|
|
|
(1.1 |
)% |
ADR |
|
$ |
249.80 |
|
|
$ |
249.63 |
|
|
$ |
242.77 |
|
|
$ |
6.86 |
|
|
|
2.8 |
% |
RevPAR |
|
$ |
155.63 |
|
|
$ |
157.60 |
|
|
$ |
154.82 |
|
|
$ |
2.78 |
|
|
|
1.8 |
% |
Total RevPOR |
|
$ |
383.99 |
|
|
$ |
384.08 |
|
|
$ |
373.36 |
|
|
$ |
10.72 |
|
|
|
2.9 |
% |
Total RevPAR |
|
$ |
239.24 |
|
|
$ |
242.48 |
|
|
$ |
238.10 |
|
|
$ |
4.38 |
|
|
|
1.8 |
% |
Non-rooms revenue per occupied room |
|
$ |
134.19 |
|
|
$ |
134.45 |
|
|
$ |
130.59 |
|
|
$ |
3.86 |
|
|
|
3.0 |
% |
|
|
|
(a) |
|
Includes results for properties that were open for any portion of the period, for all owned,
managed and/or licensed resorts. |
|
(b) |
|
Same store comparison includes properties that were open for the full periods and with
comparable number of rooms in 2010 and 2009 (that is, all properties other than our Concord
resort). |
The changes in key operating statistics for the nine months ended September 30, 2010, compared
to the nine months ended September 30, 2009, appear to be the result of some stabilization of
economic conditions which appear to be having a positive impact on consumer sentiment and spending
patterns.
Presented below are selected amounts from the statements of operations for the nine months
ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
Revenues |
|
$ |
220,225 |
|
|
$ |
207,759 |
|
|
$ |
12,466 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Departmental operating expenses |
|
|
71,467 |
|
|
|
67,433 |
|
|
|
4,034 |
|
Selling, general and administrative |
|
|
49,788 |
|
|
|
46,542 |
|
|
|
3,246 |
|
Property operating costs |
|
|
26,130 |
|
|
|
29,657 |
|
|
|
(3,527 |
) |
Depreciation and amortization |
|
|
44,936 |
|
|
|
42,352 |
|
|
|
2,584 |
|
Asset impairment loss |
|
|
|
|
|
|
24,000 |
|
|
|
(24,000 |
) |
Net operating income (loss) |
|
|
11,152 |
|
|
|
(18,522 |
) |
|
|
29,674 |
|
Gain on sale of unconsolidated affiliates |
|
|
|
|
|
|
(962 |
) |
|
|
962 |
|
Interest expense, net of interest income |
|
|
33,479 |
|
|
|
24,248 |
|
|
|
9,231 |
|
Income tax expense |
|
|
417 |
|
|
|
6,380 |
|
|
|
(5,963 |
) |
Net loss attributable to Great Wolf Resorts, Inc. |
|
|
(21,818 |
) |
|
|
(48,274 |
) |
|
|
26,456 |
|
47
Revenues. Total revenues increased due to the following:
|
|
|
An increase in revenue from our Concord resort, which opened in March 2009. |
|
|
|
|
Better economic conditions which allowed our properties to increase RevPAR and Total
RevPAR. |
|
|
|
|
The acquisition of CK in June 2010. There were no similar revenues for the nine
months ended September 30, 2009. |
Operating expenses.
|
|
|
Departmental expenses increased by $4,034 for the nine months ended September 30, 2010,
as compared to the nine months ended September 30, 2009, due primarily to the opening of our
Concord resort as well as the acquistion of CK. There were no similar CK expenses for the
nine months ended September 30, 2009. |
|
|
|
|
Total selling, general and administrative expenses increased by $3,246 in the nine months
ended September 30, 2010, as compared to the nine months ended September 30, 2009, due
primarily to the opening of our Concord resort and the acquisition of CK. These increases
are partially offset by a settlement received at our Poconos resort related to wastewater
treatment litigation during the nine months ended September 30, 2010. |
|
|
|
|
Opening-related costs (included in total property operating costs) related to our
resorts were $5,592 for the nine months ended September 30, 2009, due primarily to the
expansion of our Grapevine property in January 2009 and opening of our Concord resort in
March 2009. We had $155 of opening-related costs related to the opening of our stand-alone
Scooops kid spa during the nine months ended September 30, 2010. |
|
|
|
|
Total depreciation and amortization increased for the nine months ended September 30,
2010, as compared to the nine months ended September 30, 2009, primarily due to expensing
$3,500 of unamortized loan fees related to our Williamsburg, Mason and Grapevine loans that
were repaid with the net proceeds of the first mortgage notes issued in April 2010. This
increase was partially offset by a decrease in depreciation on our Sheboygan resort due to
the asset impairment loss recorded in 2009. |
|
|
|
|
For the nine months ended September 30, 2009, we recorded a $24,000 asset impairment loss
related to our resort in Sheboygan. We had no similar loss in the nine months ended
September 30, 2010. |
Net operating income (loss). During the nine months ended September 30, 2010, we had net
operating income of $11,152 as compared to a net operating loss of $(18,522) for the nine months
ended September 30, 2009.
Net loss attributable to Great Wolf Resorts, Inc. Net loss attributable to Great Wolf Resorts,
Inc. decreased due to:
|
|
|
A decrease in net operating loss of $29,674. |
|
|
|
|
An decrease in income tax expense of $5,963 recorded in the nine months ended
September 30, 2010 as compared to the nine months ended September 30, 2009 primarily due
to the establishment of a valuation allowance against certain deferred tax assets in the
2009 period. |
These decreases were partially offset by:
48
|
|
|
An increase net interest expense of $9,231, mainly due to interest expense related to
our first mortgage notes issued in April 2010; and |
|
|
|
|
The gain on sale of unconsolidated affiliates in the amount of $962 recorded in the
nine months ended September 30, 2009. We had no similar gain in the nine months ended
September 30, 2010 |
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. |
See our Segments section in our Summary of Significant Accounting Policies, in Note 2 of our
condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
Increase / |
|
|
|
|
|
|
|
|
|
|
Increase / |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
Resort Ownership/Operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
71,147 |
|
|
$ |
69,424 |
|
|
$ |
1,723 |
|
|
$ |
195,188 |
|
|
$ |
186,411 |
|
|
$ |
8,777 |
|
EBITDA |
|
|
22,251 |
|
|
|
(2,823 |
) |
|
|
25,074 |
|
|
|
51,820 |
|
|
|
20,362 |
|
|
|
31,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort Third-Party
Management/License |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
7,525 |
|
|
|
7,403 |
|
|
|
122 |
|
|
|
21,724 |
|
|
|
21,348 |
|
|
|
376 |
|
EBITDA |
|
|
1,816 |
|
|
|
1,828 |
|
|
|
(12 |
) |
|
|
4,991 |
|
|
|
5,252 |
|
|
|
(261 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
2,446 |
|
|
|
|
|
|
|
2,446 |
|
|
|
3,313 |
|
|
|
|
|
|
|
3,313 |
|
EBITDA |
|
|
1,047 |
|
|
|
2,801 |
|
|
|
(1,754 |
) |
|
|
202 |
|
|
|
(757 |
) |
|
|
959 |
|
The Other column in the table above 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.
Liquidity and Capital Resources
We had total indebtedness of $552,996 and $550,071 as of September 30, 2010 and December 31,
2009, respectively, summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Long-Term Debt: |
|
|
|
|
|
|
|
|
Traverse City/Kansas City mortgage loan |
|
$ |
67,633 |
|
|
$ |
68,773 |
|
Mason mortgage loan |
|
|
|
|
|
|
73,800 |
|
Pocono Mountains mortgage loan |
|
|
94,583 |
|
|
|
95,458 |
|
Williamsburg mortgage loan |
|
|
|
|
|
|
63,125 |
|
Grapevine mortgage loan |
|
|
|
|
|
|
77,909 |
|
Concord mortgage loan |
|
|
78,464 |
|
|
|
78,549 |
|
First mortgage notes (net of discount of $9,961) |
|
|
220,039 |
|
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Junior subordinated notes |
|
|
80,545 |
|
|
|
80,545 |
|
Other Debt: |
|
|
|
|
|
|
|
|
City of Sheboygan bonds |
|
|
8,564 |
|
|
|
8,544 |
|
City of Sheboygan loan |
|
|
3,113 |
|
|
|
3,290 |
|
Other |
|
|
55 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
552,996 |
|
|
|
550,071 |
|
Less current portion of long-term debt |
|
|
(70,450 |
) |
|
|
(16,126 |
) |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
482,546 |
|
|
$ |
533,945 |
|
|
|
|
|
|
|
|
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 September 30, 2010.
While recourse under the loan is limited to the property owners 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 lenders 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 loans 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 loans 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 September 30, 2010, the DSCR for this loan was 0.84. In
September 2010 the loans 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 loans 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
September 30, 2010, 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.
At our request, in October 2010 the loan was transferred to its special servicer. The DSCR
for this loan has been below 1.00 on a trailing twelve-month basis since second quarter 2007. We
have informed the special servicer that, given the current and expected performance of the two
properties securing this loan, we may 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 would
likely 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.
We are working with the loans special servicer to discuss a potential modification of this loan,
but we cannot provide any assurance that we will achieve such a result.
50
Absent 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,
attempting to refinance the existing loan (which we believe would result in materially lower
proceeds than the current loan balance, thus requiring a significant paydown on the existing loan
balance), or surrendering the two properties to the lender or a lender-appointed receiver. The
properties had a combined net book value of $66,552 as of September 30, 2010, and the amount of
debt outstanding under the mortgage was $67,633 as of that date.
Mason Mortgage Loan This loan was secured by our Mason resort. In April 2010, we used a
portion of the proceeds from the issuance of new first mortgage notes to repay this loan in its
entirety.
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 September 30, 2010.
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 propertys combined trailing twelve-month net operating income divided by the
greater of (i) the loans 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
loans 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 owners 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 lenders 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.
Williamsburg Mortgage Loan This loan was secured by our Williamsburg resort. In April
2010, we used a portion of the proceeds from the issuance of new first mortgage notes to repay this
loan in its entirety.
Grapevine Mortgage Loan This loan was secured by our Grapevine resort. In April 2010, we
used a portion of the proceeds from the issuance of new first mortgage notes to repay this loan in
its entirety.
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 September 30, 2010). 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 owners 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 we are required 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 September 30, 2010.
51
Great Wolf Resorts has provided a $78,464 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 Notes 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 Is 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 notes with payment terms that mirror the distribution terms of the TPS. The
indenture governing the notes contains limitations on our ability, without the consent of holders
of notes 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 notes 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
Trusts 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 notes 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 notes 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.
52
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
notes 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 its consolidated balance sheet. 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 represent 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. We have recognized as a liability
the obligations for the BANs. We have an obligation to fund certain minimum guaranteed amounts of
room tax payments to be made by the Blue Harbor Resort through 2028, which obligation is indirectly
related to the payments by the City on the BANs.
City of Sheboygan Loan The City of Sheboygan loan amount represents a loan made by the City
in 2004 in conjunction with the construction of the Blue Harbor Resort in Sheboygan, Wisconsin. The
loan is noninterest bearing and matures in 2018. There are restrictions on the ability of the
borrower under the loan to enter into transactions with affiliates without the consent of the
lender. Our obligation to repay the loan will be satisfied by certain minimum guaranteed amounts
of real and personal property tax payments to be made by the Blue Harbor Resort through 2018.
Future Maturities Future principal requirements on long-term debt are as follows:
|
|
|
|
|
Through |
|
|
|
|
September 30, |
|
|
|
|
2011 |
|
$ |
4,434 |
|
2012 |
|
|
80,514 |
|
2013 |
|
|
3,606 |
|
2014 |
|
|
3,892 |
|
2015 |
|
|
62,548 |
|
Thereafter |
|
|
407,963 |
|
|
|
|
|
Total |
|
$ |
562,957 |
|
|
|
|
|
As discussed above, the Traverse City/Kansas City mortgage loan is classified as a current
liability as of September 30, 2010, due to the implementation of a traditional lock-box
arrangement. The future maturities table above, however, reflects future cash principal repayments
currently required under the provisions of that loan of $1,617 in 2011, $1,717 in 2012, $1,851 in 2013,
$1,981 in 2014 and $60,467 in 2015.
Short-Term Liquidity Requirements
Our short-term liquidity requirements generally consist primarily of funds necessary to pay
operating expenses for the next 12 months, including:
|
|
|
recurring maintenance, repairs and other operating expenses necessary to properly
maintain and operate our resorts; |
|
|
|
|
recurring capital expenditures we make at our resorts; |
|
|
|
|
debt maturities within the next year; |
|
|
|
|
property taxes and insurance expenses; |
|
|
|
|
interest expense and scheduled principal payments on outstanding indebtedness; |
53
|
|
|
general and administrative expenses; and |
|
|
|
|
income taxes. |
Historically, we have satisfied our short-term liquidity requirements through a combination of
operating cash flows and cash on hand. We believe that cash provided by our operations, together
with cash on hand, will be sufficient to fund our short-term liquidity requirements for working
capital, capital expenditures and debt service for the next 12 months.
Long-Term Liquidity Requirements
Our long-term liquidity requirements generally consist primarily of funds necessary to pay for
the following items for periods beyond the next 12 months:
|
|
|
scheduled debt maturities; |
|
|
|
|
costs associated with the development of new resorts; |
|
|
|
|
renovations, expansions and other non-recurring capital expenditures that need to be made
periodically to our resorts; and |
|
|
|
|
capital contributions and loans to unconsolidated joint ventures. |
We expect to meet these needs through a combination of:
|
|
|
existing working capital, |
|
|
|
|
cash provided by operations, |
|
|
|
|
proceeds from investing activities, including sales of partial or whole ownership
interests in certain of our resorts; and |
|
|
|
|
proceeds from financing activities, including mortgage financing on properties being
developed, additional or replacement borrowings under future credit facilities,
contributions from joint venture partners, and the issuance of equity instruments, including
common stock, or additional or replacement debt, including debt securities, as market
conditions permit. |
We believe these sources of capital will be sufficient to provide for our long-term capital
needs. In April 2010, as discussed above, we issued $230,000 aggregate principal amount of first
mortgage notes due 2017 and used the net proceeds from that offering to repay three existing
mortgage loans that were scheduled to mature in 2011. We cannot be certain, however, that we will
have access to additional future financing sufficient to meet our long-term liquidity requirements
on terms that are favorable to us, or at all.
Our largest long-term expenditures (other than debt maturities) are expected to be for capital
expenditures for development of future resorts, non-routine capital expenditures for our existing
resorts, and capital contributions or loans to joint ventures owning resorts under construction or
development. Such expenditures were $7,626 for the nine months ended September 30, 2010. We expect
to have approximately $1,000 of such expenditures for the rest of 2010. As discussed above, we
expect to meet these requirements primarily through a combination of cash provided by operations
and cash on hand.
54
We currently project that the combination of our cash on hand plus cash provided by operations
in 2010 will be sufficient to meet the short-term liquidity requirements, as described above. Based
on our current projections, however, we do not believe that we will have sufficient excess amounts
of cash available in 2010 in order either to begin development of any new resorts or to make
material cash capital contributions to new joint ventures that would develop or acquire resorts that we
would license and manage. Also, due to the current state of the capital markets, which are marked
by the general unavailability of debt financing for large commercial real estate construction
projects, we do not expect to have significant expenditures for development of new resorts until we
have all equity and debt capital amounts fully committed, including our projected ability to fund
any required equity contribution to a project. Furthermore, the indenture which governs our first
mortgage notes imposes significant restrictions on our ability to invest in the development of new
resorts or joint ventures that may acquire or develop resorts. We believe these factors will result
in our not making any significant cash outlays in the remainder of 2010 for development of new
resorts or capital contributions to new joint ventures that develop or acquire resorts.
Off Balance Sheet Arrangements
In August 2009 we sold our 30.26% joint venture interest in the joint venture that owns two
resorts, Great Wolf Lodge-Wisconsin Dells, Wisconsin and Great Wolf Lodge-Sandusky, Ohio to an
affiliate of CNL Income Properties, Inc. We currently manage both properties and license the Great
Wolf Lodge brand to the joint venture.
We have one unconsolidated joint venture arrangement at September 30, 2010. We account for
our unconsolidated joint venture using the equity method of accounting.
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 September 30, 2010, the joint
venture had aggregate outstanding indebtedness to third parties of $98,934. As of September 30,
2010, we have made combined loan and equity contributions, net of loan repayments, of $28,475 to
the joint venture to fund a portion of construction costs of the resorts.
Based on the nature of the activities conducted in the joint venture, we cannot estimate
with any degree of accuracy amounts that we may be required to fund in the long term. We do not
currently believe that any additional future funding of the joint venture will have a material
adverse effect on our financial condition, as we currently do not expect to make any significant
future capital contributions to this joint venture.
Contractual Obligations
The following table summarizes our contractual obligations as of September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Terms |
|
|
|
|
|
|
|
Less Than |
|
|
|
|
|
|
|
|
|
|
More Than |
|
|
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
Debt obligations (1) |
|
$ |
780,668 |
|
|
$ |
40,010 |
|
|
$ |
154,711 |
|
|
$ |
133,314 |
|
|
$ |
452,633 |
|
Operating lease obligations |
|
|
4,511 |
|
|
|
992 |
|
|
|
1,760 |
|
|
|
1,164 |
|
|
|
595 |
|
Reserve on unrecognized tax benefits |
|
|
1,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
786,447 |
|
|
$ |
41,002 |
|
|
$ |
156,471 |
|
|
$ |
134,478 |
|
|
$ |
454,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts include interest (for fixed rate debt) and principal. They also include $8,564 of
fixed rate debt recognized as a liability related to certain bonds issued by the City of
Sheboygan and $3,113 of fixed rate debt recognized as a liability related to a loan from
the City of Sheboygan. These liabilities will be satisfied by certain future minimum
guaranteed amounts of real and personal property tax payments and room tax payments to be
made by our Sheboygan resort. |
55
If we develop future resorts where we are the majority owner, we expect to incur significant
additional debt and construction contract obligations.
Working Capital
We had $43,103 of available cash and cash equivalents and working capital deficit of $62,416
(current assets less current liabilities) at September 30, 2010, compared to the $20,913 of
available cash and cash equivalents and a working capital deficit of $15,534 at December 31, 2009.
The primary reasons for the working capital deficit as of September 30, 2010 are:
|
|
|
the use of cash for capital expenditures; |
|
|
|
|
an increase in accruals related to the issuance of our first mortgage notes that
closed in April 2010, and |
|
|
|
|
the classification of our Traverse City/Kansas City mortgage loan (principal balance of $67,633)
as a current liability due to the lenders implementation of the traditional lock-box arrangement for the two
properties, as discussed above. |
The primary reason for the working capital deficit as of December 31, 2009 was the use of cash
for capital expenditures for our properties that were under development.
Cash Flows
Nine months ended September 30, 2010, compared with the nine months ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
Increase/ (Decrease) |
|
Net cash provided by operating activities |
|
$ |
32,513 |
|
|
$ |
14,056 |
|
|
$ |
18,457 |
|
Net cash used in investing activities |
|
|
(2,346 |
) |
|
|
(34,337 |
) |
|
|
(31,991 |
) |
Net cash (used in) provided by financing activities |
|
|
(7,977 |
) |
|
|
34,044 |
|
|
|
(42,021 |
) |
Operating Activities. The increase in net cash provided by operating activities resulted
primarily from a decrease in accounts receivable and other assets and an increase in accounts
payable, accrued expenses and other liabilities during the nine months ended September 30, 2010 as
compared to the nine months ended September 30, 2009.
Investing Activities. The decrease in net cash used in investing activities for the nine
months ended September 30, 2010, as compared to the nine months ended September 30, 2009, resulted
primarily from a decrease in capital expenditures related to our properties that are in service and
in development.
Financing Activities. The decrease in net cash provided by financing activities resulted
primarily from receiving fewer loan proceeds, net of principal payments, during the nine months
ended September 30, 2010 as compared to the nine months ended September 30, 2009.
Inflation
Our resort properties are able to change room and amenity rates on a daily basis, so the
impact of higher inflation can often be passed along to customers. However, a weak economic
environment that decreases overall demand for our products and services could restrict our ability
to raise room and amenity rates to offset rising costs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our future income, cash flows and fair values relevant to financial instruments are dependent,
in part, upon prevailing market interest rates. Market risk refers to the risk of loss from adverse
changes in market prices and interest rates. Our earnings are also affected by the changes in
interest rates due to the impact those changes have on our interest income
56
from cash and our interest expense from variable-rate debt instruments. We may use derivative
financial instruments to manage or hedge interest rate risks related to our borrowings. We do not
intend to use derivatives for trading or speculative purposes. All dollar amounts are in
thousands.
As of September 30, 2010, we had total indebtedness of $552,996. This debt consisted of:
|
|
|
$67,633 of fixed rate debt secured by two of our resorts. This debt bears interest at
6.96%. |
|
|
|
|
$94,583 of fixed rate debt secured by one of our resorts. This debt bears interest at
6.10%. |
|
|
|
|
$78,464 of variable rate debt secured by one of our resorts. This debt 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. The effective rate was 6.50% at September 30, 2010. |
|
|
|
|
$220,039 (net of discount of $9,961) of first mortgage notes that are secured by first
priority liens on three of our resorts. This debt bears interest at 10.875%. The notes
are due April 2017. |
|
|
|
|
$51,550 of subordinated notes that bear interest at a fixed rate of 7.80% through March
2015 and then at a floating rate of LIBOR plus 310 basis points thereafter. The securities
mature in March 2035. |
|
|
|
|
$28,995 of subordinated notes that bear interest at a fixed rate of 7.90% through June
2012 and then at a floating rate of LIBOR plus 300 basis points thereafter. The securities
mature in June 2017. |
|
|
|
|
$8,564 of fixed rate debt (effective interest rate of 10.67%) recognized as a liability
related to certain bonds issued by the City of Sheboygan and $3,113 of non-interest bearing
debt recognized as a liability related to a loan from the City of Sheboygan. These
liabilities will be satisfied by certain future minimum guaranteed amounts of real and
personal property tax payments and room tax payments to be made by the Sheboygan resort. |
|
|
|
|
$55 related to a capital lease that was entered into in June 2009. The lease matures in
May 2012. |
As of September 30, 2010, we estimate the total fair value of the indebtedness described above
to be $58,861 less than their total carrying values, due to the terms of the existing debt being
different than those terms we believe would currently be available to us for indebtedness with
similar risks and remaining maturities.
At September 30, 2010 all of our variable rate debt is subject to minimum rate floors. If
LIBOR were to increase or decrease by 1% or 100 basis points, there would be no change in interest
expense on our variable rate debt based on our debt balances outstanding and current interest rates
in effect as of September 30, 2010, as LIBOR plus the loans basis points would not increase or
decrease above the minimum rate floor.
During the nine months ended September 30, 2010, there were no other material changes in our
market risk exposure. For a complete discussion of our market risk associated with interest rate
risk as of September 30, 2010, see Item 7A. Quantitative and Qualitative Disclosures about Market
Risk in our Annual Report on Form 10-K for the year ended December 31, 2009.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that
information in our reports under the Securities Exchange Act of 1934, as amended (the Exchange
Act) is recorded, processed, summarized and reported within the time periods specified pursuant
to the SECs rules and forms. Disclosure controls and procedures,
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as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, include controls and procedures
designed to ensure that information required to be disclosed by us in the reports we file or submit
under the Exchange Act is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable, and not absolute, assurance that the objectives of the system are met.
We carried out an evaluation, under the supervision and with the participation of our
management including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures as of the end of the third
quarter of 2010. In making this evaluation, we considered matters discussed below relating to
internal control over financial reporting. After consideration of the matters discussed below, we
have concluded that our disclosure controls and procedures were not effective as of September 30,
2010, because of the material weakness related to controls around the determination and reporting
of the provision for income taxes, as described below. As reported in our Annual Report on Form
10-K for the fiscal year ended December 31, 2009, we identified a material weakness in our internal
control over financial reporting related to errors that occurred during the computation of the
valuation allowance on certain deferred tax assets recorded as of September 30, 2009. As of
September 30, 2010, we have not fully remediated this material weakness. As we may be unable to
confirm fully whether we have remediated this material weakness until preparation of our 2010
annual tax provision, we anticipate that this material weakness may continue to exist through the
end of 2010 or later.
Remediation of Material Weaknesses
As discussed in Item 9A of our Form 10-K for the year ended December 31, 2009, there was a
material weakness in our internal control over financial reporting related to errors that occurred
during the computation of the valuation allowance on certain deferred tax assets recorded as of
September 30, 2009. Through the date of this filing, we have taken steps to improve our internal
controls around our tax accounting and tax accounts reconciliation processes, with an increase in
the level of detail in our reviews of complex calculations used to derive significant financial
statement amounts or estimates. We believe we have taken the appropriate steps necessary to begin
to remediate this material weakness relating to our tax accounting and tax reconciliation
processes, procedures and controls. Certain of the corrective processes, procedures and controls,
however, relate to annual controls that cannot be tested until the preparation of our 2010 annual
tax provision. Accordingly, we will continue to monitor the effectiveness of these processes,
procedures and controls and will make any further changes we deem appropriate.
Changes in Internal Control
During the period covered by this quarterly report on Form 10-Q, other than as noted above in
this Item 4, there have not been any changes to our internal control over financial reporting that
have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in litigation from time to time in the ordinary course of our business.
We do not believe that the outcome of any pending or threatened litigation will have a
material adverse effect on our financial condition or results of operations. However, as is
inherent in legal proceedings where issues may be decided by finders of fact, there is a
risk that unpredictable decisions, materially adverse to the Company, could occur.
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ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider
the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the
year ended December 31, 2009, and subsequent Quarterly Reports on Form 10-Q, which could materially
affect our business, financial condition or future results. The risks described in our Annual
Report on Form 10-K, and subsequent Quarterly Reports on Form 10-Q, are not the only risks facing
us. Additional risks and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial condition and/or operating
results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We did not make any unregistered sales of equity securities during the applicable period.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We were not in default of our obligations upon any senior securities during the applicable period.
ITEM 4. [Removed and Reserved]
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The exhibits listed below are included as exhibits in this Quarterly Report on Form 10-Q.
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Exhibit |
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Number |
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Description |
31.1
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Certification of Chief Executive Officer of Periodic Report Pursuant to
Rule 13a 14(a) and Rule 15d 14(a) |
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31.2
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Certification of Chief Financial Officer of Periodic Report Pursuant to
Rule 13a 14(a) and Rule 15d 14(a) |
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32.1
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Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 |
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32.2
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Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
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GREAT WOLF RESORTS, INC.
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/s/ James A. Calder
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James A. Calder |
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Chief Financial Officer
(Duly authorized officer)
(Principal Financial and Accounting Officer) |
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Dated: November 4, 2010
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