e10vq
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
OR
     
o   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)
     
Delaware
(State or other jurisdiction of incorporation or organization)
  51-0510250
(I.R.S. Employer Identification No.)
     
525 Junction Road, Suite 6000 South
Madison, Wisconsin 53717

(Address of principal executive offices)
  53717
(Zip Code)
(608) 662-4700
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The number of shares outstanding of the issuer’s common stock was 32,458,808 as of November 4, 2010.
 
 

 


 

Great Wolf Resorts, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2010
INDEX
     
    Page
    No.
   
 
   
   
  4
  5
  6
  7
  34
  56
  57
   
 
   
  58
  59
  59
  59
  59
  59
  59
  61
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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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.

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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)
                 
    September 30,     December 31,  
    2010     2009  
    (Unaudited)  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 43,103     $ 20,913  
Escrows
    1,228       5,938  
Accounts receivable, net of allowance for doubtful accounts of $107 and $101
    3,383       2,192  
Accounts receivable – affiliates
    3,302       2,614  
Inventory
    6,001       4,791  
Other current assets
    5,074       4,252  
 
           
Total current assets
    62,091       40,700  
Property and equipment, net
    653,968       676,405  
Investments in and advances to affiliates
    26,445       27,484  
Notes receivable
          8,268  
Other assets
    33,210       29,058  
Intangible assets
    27,638       23,829  
 
           
Total assets
  $ 803,352     $ 805,744  
 
           
 
               
LIABILITIES AND EQUITY
               
 
               
Current liabilities:
               
Current portion of long-term debt
  $ 70,450     $ 16,126  
Accounts payable
    2,343       5,078  
Accounts payable – affiliates
    522        
Accrued expenses
    36,260       21,970  
Advance deposits
    9,373       7,114  
Other current liabilities
    5,559       5,946  
 
           
Total current liabilities
    124,507       56,234  
Mortgage debt
    390,555       441,724  
Other long-term debt
    91,991       92,221  
Deferred compensation liability
    1,161       809  
Other long-term liabilities
    1,048        
 
           
 
Total liabilities
    609,262       590,988  
 
Commitments and contingencies
               
Great Wolf Resorts stockholders’ equity:
               
Common stock, $0.01 par value; 250,000,000 shares authorized; 32,458,808 and 31,278,889 shares issued and outstanding
    325       313  
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding
           
Additional paid-in-capital
    402,095       400,930  
Accumulated deficit
    (208,105 )     (186,287 )
Deferred compensation
    (200 )     (200 )
 
           
Total Great Wolf Resorts stockholders’ equity
    194,115       214,756  
Noncontrolling interest
    (25 )      
 
           
Total equity
    194,090       214,756  
 
           
Total liabilities and equity
  $ 803,352     $ 805,744  
 
           
See accompanying notes to condensed consolidated financial statements.

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GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; dollars in thousands, except share and per share data)
                                 
    Three months ended     Nine months ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Revenues:
                               
Rooms
  $ 47,559     $ 46,214     $ 128,807     $ 122,869  
Food and beverage
    12,498       11,877       35,571       33,084  
Other
    13,536       11,333       34,123       30,458  
Management and other fees
    916       626       2,111       1,617  
Management and other fees — affiliates
    900       1,202       2,880       3,636  
 
                       
 
    75,409       71,252       203,492       191,664  
Other revenue from managed properties — affiliates
    2,725       3,966       8,178       14,486  
Other revenue from managed properties
    2,984       1,609       8,555       1,609  
 
                       
Total revenues
    81,118       76,827       220,225       207,759  
 
                               
Operating expenses by department:
                               
Rooms
    6,488       6,332       18,561       17,309  
Food and beverage
    9,005       9,226       26,271       25,506  
Other
    9,693       8,926       26,635       24,618  
Other operating expenses:
                               
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  
 
                       
 
    64,478       86,743       192,340       210,186  
Other expenses from managed properties — affiliates
    2,725       3,966       8,178       14,486  
Other expenses from managed properties
    2,984       1,609       8,555       1,609  
 
                       
Total operating expenses
    70,187       92,318       209,073       226,281  
 
                       
 
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 )     1       (69 )     1,116  
 
                       
 
                               
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 )
 
                       
 
                               
Basic loss per common share
  $ (0.03 )   $ (1.18 )   $ (0.70 )   $ (1.55 )
 
                       
Diluted loss per common share
  $ (0.03 )   $ (1.18 )   $ (0.70 )   $ (1.55 )
 
                       
Weighted average common shares outstanding:
                               
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.

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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.

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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

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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, California’s 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 nation’s 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, children’s activity room, family tech center, MagiQuest and fitness room, as well as our spa in the resorts that have such amenities.

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(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

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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  
 
                             

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                            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  
 
                             

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                            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 entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s 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 entity’s 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

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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.

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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.

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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.

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     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 stock’s performance in 2010 relative to a stock index, as designated by the Compensation Committee of the Board of Directors. These shares vest ratably over a three-year period, 2010-2012. The per share fair value of these market condition shares was $2.43 as of the grant date.
          The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:
         
Dividend yield
     
Weighted average, risk free interest rate
    0.26 %
Expected stock price volatility
    108.06 %
Expected stock price volatility (small-cap stock index)
    40.92 %
     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the 9-month treasury constant maturity. Our expected stock price volatility was estimated using daily returns data of our stock for a two-year period ending on the grant date. The expected stock price volatility for the small cap stock index was estimated using daily returns data for a two-year period ending on the grant date.
    91,463 were based on our common stock’s absolute performance during the three-year period 2010-2012. For shares that are earned, half of the shares vest on December 31, 2012, and the other half vest on December 31, 2013. The per share fair value of these market condition shares was $2.53 as of the grant date.
     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:
         
Dividend yield
     
Weighted average, risk free interest rate
    1.27 %
Expected stock price volatility
    95.21 %
     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the 2.75-year treasury constant maturity. Our expected stock price volatility was estimated using daily returns data of our stock for the period June 29, 2007 through March 30, 2010.
    91,463 were based on our common stock’s performance in 2010-2012 relative to a stock index, as designated by the Compensation Committee of the Board of Directors. For shares that are earned, half of the shares vest on December 31, 2012, and the other half vest on December 31, 2013. The per share fair value of these market condition shares was $2.61 as of the grant date.
     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:
         
Dividend yield
     
Weighted average, risk free interest rate
    1.27 %
Expected stock price volatility
    95.21 %
Expected stock price volatility (small-cap stock index)
    37.51 %

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     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the 2.75-year treasury constant maturity. Our expected stock price volatility and the expected stock price volatility for the small cap stock index was estimated using daily returns data of our stock for the period June 29, 2007 through March 30, 2010.
Of the 2009 market condition shares granted:
    541,863 were based on our common stock’s performance in 2009 relative to a stock index, as designated by the Compensation Committee of the Board of Directors. These shares vest ratably over a three-year period, 2009-2011. The per share fair value of these market condition shares was $1.26 as of the grant date.
     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:
         
Dividend yield
     
Weighted average, risk free interest rate
    0.62 %
Expected stock price volatility
    96.51 %
Expected stock price volatility (small-cap stock index)
    37.89 %
     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the one-year T-bill rate. Our expected stock price volatility was estimated using daily returns data of our stock for a two-year period ending on the grant date. The expected stock price volatility for the small cap stock index was estimated using daily returns data for a two-year period ending on the grant date.
     Based on our common stock performance in 2009, employees earned all of these market condition shares.
     Of the 2007 market condition shares awards granted:
    81,293 are based on our common stock’s 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.

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    81,293 were based on our common stock’s 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

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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

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

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          The loan also contains limitations on our ability, without lender’s consent, to (i) make payments to our affiliates if a default exists; (ii) enter into transactions with our affiliates; (iii) make loans or advances; or (iv) assume, guarantee or become liable in connection with any other obligations.
     The loan requires us to maintain a minimum debt service coverage ratio (DSCR) of 1.35, calculated on a quarterly basis. This ratio is defined as the two collateral properties’ combined trailing twelve-month net operating income divided by the greater of (i) the loan’s twelve-month debt service requirements and (ii) 8.5% of the amount of the outstanding principal indebtedness under the loan. Failure to meet the minimum DSCR is not an event of default and does not accelerate the due date of the loan. Not meeting the minimum DSCR, however, subjects the two properties to a lock-box cash management arrangement, at the discretion of the loan’s servicer. The loan also contains a similar lock-box requirement if we open any Great Wolf Lodge or Blue Harbor Resort within 100 miles of either resort, and the two collateral properties’ combined trailing twelve-month net operating income is not at least equal to 1.8 times 8.5% of the amount of the outstanding principal indebtedness under the loan
     For the twelve-month period ended September 30, 2010, the DSCR for this loan was 0.84. In September 2010 the loan’s master servicer implemented the lock-box cash management arrangement. That lock-box cash management arrangement currently requires substantially all cash receipts for the two resorts to be moved each day to a lender-controlled bank account, which the loan servicer then uses monthly to fund debt service and operating expenses for the two resorts, with excess cash flow being deposited in a reserve account and held as additional collateral for the loan. We believe that this arrangement currently constitutes a traditional lock-box arrangement as discussed in authoritative accounting guidance. Based on that guidance, since the loan’s master servicer has now established the traditional lock-box arrangement currently permitted under the loan, we have classified the entire outstanding principal balance of the loan as a current liability as of 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 loan’s 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 property’s combined trailing twelve-month net operating

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income divided by the greater of (i) the loan’s twelve-month debt service requirements and (ii) 7.25% of the amount of the outstanding principal indebtedness under the loan. Failure to meet the minimum DSCR is not an event of default and does not accelerate the due date of the loan. Not meeting the minimum DSCR, however, subjects the property to a lock-box cash management arrangement, at the discretion of the loan’s servicer. We believe that lock-box arrangement would require substantially all cash receipts for the resort to be moved each day to a lender-controlled bank account, which the loan servicer would then use to fund debt service and operating expenses for the resort, with excess cash flow being deposited in a reserve account and held as additional collateral for the loan. While recourse under the loan is limited to the property owner’s interest in the mortgage property, we have provided limited guarantees with respect to certain customary non-recourse provisions and environmental indemnities relating to the loan.
     The loan also contains limitations on our ability, without lender’s consent, to (i) make payments to our affiliates if a default exists; (ii) enter into transactions with our affiliates; (iii) make loans or advances; or (iv) assume, guarantee or become liable in connection with any other obligations.
     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 owner’s net income available to pay debt service on this loan for four consecutive quarters is less than $10,000, or if maximum principal amount of the loan exceeds 75% of the fair market value of the property, then 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;

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(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 I’s common securities, representing 3% of the total capitalization of Trust I.
          Trust I used the proceeds of the offering and our investment to purchase from us $51,550 of junior subordinated 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 Trust’s common securities, representing 3% of the total capitalization of Trust III.
     Trust III used the proceeds of the offering and our investment to purchase from us $28,995 of junior subordinated 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.

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     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 Company’s 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.

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     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 )

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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 Company’s and the Issuers’ investments in their consolidated subsidiaries are presented under the equity method of accounting.

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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  
 
                                   

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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  
 
                                   

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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 )
 
                                   

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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 )
 
                                   

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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 )
 
                                   

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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 )
 
                                   
 
                                               

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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  
 
                                   

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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. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     This “Management’s 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.

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Overview
     The terms “Great Wolf Resorts,” “us,” “we” and “our” used in this Management’s 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, California’s 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 nation’s largest retail and entertainment complex, Mall of America welcomes more than 40 million visitors each year.

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     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, children’s 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

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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;

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    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 resort’s 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

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      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 resort’s 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 project’s 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

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    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:
    occupancy;
    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

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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.

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     For a description of our critical accounting policies and estimates, please refer to the “Critical Accounting Policies and Estimates” section of our “Management’s 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 entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s 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 entity’s 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:

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  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

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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

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    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:

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    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:

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    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  

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     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:

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    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        

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    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 owner’s interest in the mortgaged property, we have provided limited guarantees with respect to certain customary non-recourse provisions and environmental indemnities relating to the loan.
     The loan also contains limitations on our ability, without lender’s consent, to (i) make payments to our affiliates if a default exists; (ii) enter into transactions with our affiliates; (iii) make loans or advances; or (iv) assume, guarantee or become liable in connection with any other obligations.
     The loan requires us to maintain a minimum debt service coverage ratio (DSCR) of 1.35, calculated on a quarterly basis. This ratio is defined as the two collateral properties’ combined trailing twelve-month net operating income divided by the greater of (i) the loan’s twelve-month debt service requirements and (ii) 8.5% of the amount of the outstanding principal indebtedness under the loan. Failure to meet the minimum DSCR is not an event of default and does not accelerate the due date of the loan. Not meeting the minimum DSCR, however, subjects the two properties to a lock-box cash management arrangement, at the discretion of the loan’s servicer. The loan also contains a similar lock-box requirement if we open any Great Wolf Lodge or Blue Harbor Resort within 100 miles of either resort, and the two collateral properties’ combined trailing twelve-month net operating income is not at least equal to 1.8 times 8.5% of the amount of the outstanding principal indebtedness under the loan
     For the twelve-month period ended September 30, 2010, the DSCR for this loan was 0.84. In September 2010 the loan’s master servicer implemented the lock-box cash management arrangement. That lock-box cash management arrangement currently requires substantially all cash receipts for the two resorts to be moved each day to a lender-controlled bank account, which the loan servicer then uses monthly to fund debt service and operating expenses for the two resorts, with excess cash flow being deposited in a reserve account and held as additional collateral for the loan. We believe that this arrangement currently constitutes a traditional lock-box arrangement as discussed in authoritative accounting guidance. Based on that guidance, since the loan’s master servicer has now established the traditional lock-box arrangement currently permitted under the loan, we have classified the entire outstanding principal balance of the loan as a current liability as of 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 loan’s special servicer to discuss a potential modification of this loan, but we cannot provide any assurance that we will achieve such a result.

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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 property’s combined trailing twelve-month net operating income divided by the greater of (i) the loan’s twelve-month debt service requirements and (ii) 7.25% of the amount of the outstanding principal indebtedness under the loan. Failure to meet the minimum DSCR is not an event of default and does not accelerate the due date of the loan. Not meeting the minimum DSCR, however, subjects the property to a lock-box cash management arrangement, at the discretion of the loan’s servicer. We believe that lock-box arrangement would require substantially all cash receipts for the resort to be moved each day to a lender-controlled bank account, which the loan servicer would then use to fund debt service and operating expenses for the resort, with excess cash flow being deposited in a reserve account and held as additional collateral for the loan. While recourse under the loan is limited to the property owner’s interest in the mortgage property, we have provided limited guarantees with respect to certain customary non-recourse provisions and environmental indemnities relating to the loan.
     The loan also contains limitations on our ability, without lender’s consent, to (i) make payments to our affiliates if a default exists; (ii) enter into transactions with our affiliates; (iii) make loans or advances; or (iv) assume, guarantee or become liable in connection with any other obligations.
     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 owner’s net income available to pay debt service on this loan for four consecutive quarters is less than $10,000, or if maximum principal amount of the loan exceeds 75% of the fair market value of the property, then 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.

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     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 I’s common securities, representing 3% of the total capitalization of Trust I.
          Trust I used the proceeds of the offering and our investment to purchase from us $51,550 of junior subordinated 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 Trust’s common securities, representing 3% of the total capitalization of Trust III.
     Trust III used the proceeds of the offering and our investment to purchase from us $28,995 of junior subordinated 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.

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     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;

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    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.

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     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.

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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 lender’s 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

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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 SEC’s 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.
     
Exhibit    
Number   Description
31.1
  Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a — 14(a) and Rule 15d — 14(a)
 
   
31.2
  Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a — 14(a) and Rule 15d — 14(a)
 
   
32.1
  Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
 
   
32.2
  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.
         
  GREAT WOLF RESORTS, INC.
 
 
  /s/ James A. Calder    
  James A. Calder   
  Chief Financial Officer
(Duly authorized officer)
(Principal Financial and Accounting Officer) 
 
 
Dated: November 4, 2010

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