##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 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
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



Great Wolf Resorts, Inc.
 Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2011
 INDEX
 PageNo.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010
    
    
    4Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010
    
    
    5Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    32Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    51Item 4. Controls and Procedures
    
    
    52PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    53Item 1A. Risk Factors
    
    
    53Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    53Item 3. Defaults Upon Senior Securities
    
    
    53Item 4. [Removed and Reserved]
    
    
    53Item 5. Other Information
    
    
    53Item 6. Exhibits
    
    
    53Signatures
    
    
    55EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



FORWARD-LOOKING STATEMENTS
   3




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 GREAT WOLF RESORTS, INC. AND SUBSIDIARIES

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




---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; dollars in thousands, except share and per share data)
 Three months endedMarch 31,2011
    
    
    2010Revenues:Rooms
    
    $
    42,187
    
    
    $
    40,771Food and beverage
    
    
    11,202
    
    
    
    11,267Other
    
    
    11,179
    
    
    
    9,739Management and other fees
    
    
    753
    
    
    
    635Management and other fees  affiliates
    
    
    1,003
    
    
    
    1,02066,324
    
    
    
    63,432Other revenue from managed properties
    
    
    2,837
    
    
    
    2,717Other revenue from managed properties  affiliates
    
    
    2,724
    
    
    
    2,694Total revenues
    
    
    71,885
    
    
    
    68,843Operating expenses by department:Rooms
    
    
    6,047
    
    
    
    5,786Food and beverage
    
    
    8,460
    
    
    
    8,227Other
    
    
    9,417
    
    
    
    8,050Other operating expenses:Selling, general and administrative
    
    
    16,981
    
    
    
    18,177Property operating costs
    
    
    8,424
    
    
    
    8,624Depreciation and amortization
    
    
    13,248
    
    
    
    14,146Loss on disposition of property
    
    
    
    
    
    
    1062,577
    
    
    
    63,020Other expenses from managed properties
    
    
    2,837
    
    
    
    2,717Other expenses from managed properties  affiliates
    
    
    2,724
    
    
    
    2,694Total operating expenses
    
    
    68,138
    
    
    
    68,431Net operating income
    
    
    3,747
    
    
    
    412Investment income  affiliates
    
    
    (242
    )
    
    
    (289
    )Interest income
    
    
    (55
    )
    
    
    (252
    )Interest expense
    
    
    12,097
    
    
    
    9,107Loss from continuing operations before income taxes and
equity in income of unconsolidated affiliates
    
    
    (8,053
    )
    
    
    (8,154
    )Income tax expense
    
    
    5,002
    
    
    
    181Equity in income of unconsolidated affiliates, net of tax
    
    
    (151
    )
    
    
    (233
    )Net loss from continuing operations
    
    
    (12,904
    )
    
    
    (8,102
    )Discontinued operations, net of tax
    
    
    (6,916
    )
    
    
    (37
    )Net loss
    
    
    (5,988
    )
    
    
    (8,065
    )Net loss attributable to noncontrolling interest, net of tax
    
    
    (14
    )
    
    
    Net loss attributable to Great Wolf Resorts, Inc.
    
    $
    (5,974
    )
    
    $
    (8,065
    )Basic loss per common share
    
    $
    (0.19
    )
    
    $
    (0.26
    )Diluted loss per common share
    
    $
    (0.19
    )
    
    $
    (0.26
    )Weighted average common shares outstanding:Basic
    
    
    31,194,900
    
    
    
    30,837,867Diluted
    
    
    31,194,900
    
    
    
    30,837,867
  5




---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES

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




---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; dollars in thousands, except share and per share amounts)
 1. ORGANIZATION
  Business Summary
 ®
   NumberNumber of
    
    
    of
    
    
    IndoorOwnership
    
    
    
    
    
    
    Guest
    
    
    Condo
    
    
    EntertainmentPercentage
    
    
    Opened
    
    
    Suites
    
    
    Units (1)
    
    
    Area (2)(approx. sq. ft.)Wisconsin Dells, WI (3)
    
    
    
    
    
    
    1997
    
    
    
    308
    
    
    
    77
    
    
    
    102,000Sandusky, OH (3)
    
    
    
    
    
    
    2001
    
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI
    
    
    100
    %
    
    
    2003
    
    
    
    280
    
    
    
    
    
    
    
    57,000Kansas City, KS
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    57,000Williamsburg, VA (4)
    
    
    100
    %
    
    
    2005
    
    
    
    405
    
    
    
    
    
    
    
    87,000Pocono
Mountains, PA (4)
    
    
    100
    %
    
    
    2005
    
    
    
    401
    
    
    
    
    
    
    
    101,000Niagara
Falls, ONT (5)
    
    
    
    
    
    
    2006
    
    
    
    406
    
    
    
    
    
    
    
    104,000Mason, OH (4)
    
    
    100
    %
    
    
    2006
    
    
    
    401
    
    
    
    
    
    
    
    105,000Grapevine,
TX (4)
    
    
    100
    %
    
    
    2007
    
    
    
    605
    
    
    
    
    
    
    
    110,000Grand Mound,
WA (6)
    
    
    49
    %
    
    
    2008
    
    
    
    398
    
    
    
    
    
    
    
    74,000Concord, NC
(4)
    
    
    100
    %
    
    
    2009
    
    
    
    402
    
    
    
    
    
    
    
    97,000
 7




---



##### Table of Contents



(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® (an
interactive game attraction) 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. 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 March
31, 2011 and each of those five properties had total revenues equal to ten
percent or more of our total revenues for the three months ended March 31,
2011.(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.(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
   8




---



##### Table of Contents



Principles of Consolidation
 Goodwill
 March 31,
    
    
    December 31,2011
    
    
    2010Goodwill related to the acquisition of the majority interest in CK
    
    $
    1,366
    
    
    $
    1,366$
    1,366
    
    
    $
    1,366
  Noncontrolling Interests
 Discontinued Operations
 Income Taxes
 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.
 9




---



##### Table of Contents



ResortResort
    
    
    Third-Party
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Management
    
    
    
    
    
    
    FinancialOperation
    
    
    /License
    
    
    Other
    
    
    StatementsThree months ended March 31,
2011Revenues
    
    $
    63,253
    
    
    $
    7,317
    
    
    $
    1,315
    
    
    $
    71,885Depreciation and amortization
    
    
    (12,484
    )
    
    
    
    
    
    
    (764
    )
    
    
    (13,248
    )Net operating income (loss)
    
    
    4,237
    
    
    
    1,756
    
    
    
    (2,246
    )
    
    
    3,747Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (242
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,097Loss from continuing
operations before income
taxes and equity in income of
unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (8,053
    )Additions to long-lived assets
    
    
    595
    
    
    
    
    
    
    
    106
    
    
    $
    701Total assets
    
    
    627,210
    
    
    
    1,984
    
    
    
    132,431
    
    
    $
    761,625
 ResortResort
    
    
    Third-Party
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Management
    
    
    
    
    
    
    FinancialOperation
    
    
    /License
    
    
    Other
    
    
    StatementsThree months ended March 31,
2010Revenues
    
    $
    61,777
    
    
    $
    7,066
    
    
    $
    
    
    
    $
    68,843Depreciation and amortization
    
    
    (13,981
    )
    
    
    
    
    
    
    (165
    )
    
    
    (14,146
    )Net operating income (loss)
    
    
    926
    
    
    
    1,656
    
    
    
    (2,170
    )
    
    
    412Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (289
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (252
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,107Loss from continuing
operations before income
taxes and equity in income of
unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (8,154
    )Additions to long-lived assets
    
    
    3,629
    
    
    
    
    
    
    
    152
    
    
    $
    3,781Total assets
    
    
    698,089
    
    
    
    3,032
    
    
    
    105,464
    
    
    $
    806,585
  Recent Accounting Pronouncements 
  10




---



##### Table of Contents



3. INVESTMENT IN AFFILIATES
 Grand Mound Joint Venture
   March 31,
    
    
    December 31,2011
    
    
    2010Balance sheet data:Total assets
    
    $
    141,678
    
    
    $
    142,329Total liabilities
    
    $
    111,304
    
    
    $
    112,307Three months endedMarch 31,2011
    
    
    2010Operating data:Revenue
    
    $
    11,225
    
    
    $
    11,213Operating expenses
    
    $
    (9,687
    )
    
    $
    (9,424
    )Net income
    
    $
    353
    
    
    $
    517
  4. VARIABLE INTEREST ENTITIES
  11




---



##### Table of Contents




    
    We have equity investments in and a loan to the joint venture that owns the Great
Wolf Lodge resort in Grand Mound, Washington. We manage that resort and we have
concluded that the joint venture is a variable interest entity because the
management fees we receive represent a variable interest. The management contract,
however, does not provide us with power to direct the activities that most
significantly impact the economic performance of the joint venture. As we lack the
ability to direct the activities that most significantly affect the resorts
performance, we are not the primary beneficiary of the joint venture and, therefore,
we do not consolidate this entity at March 31, 2011. During the three months ended
March 31, 2011 and 2010, we did not provide any support to this entity that we were
not contractually obligated to do so. Our maximum exposure to loss related to our
involvement with this entity as of March 31, 2011 is limited to the carrying value
of our equity investments in and loans to the joint venture as of that date. The
total carrying values of those items on our balance sheet as of March 31, 2011 is
$24,472.
    
    We have equity investments in two subsidiaries which are Delaware statutory
trusts, both of which were used to issue trust preferred securities through private
offerings. We have concluded that both of these trusts are variable interest
entities. As we lack the ability to direct the activities that most significantly
impact the trusts performance, however, we are not the primary beneficiary and
therefore, we do not consolidate these entities at March 31, 2011. During the three
months ended March 31, 2011 and 2010, we did not provide any support to these
entities that we were not contractually obligated to do so. Our maximum exposure to
loss related to our involvement with these entities as of March 31, 2011 is limited
to the carrying value of our equity investments in the entities as of that date.
The total carrying values of those items on our balance sheet as of March 31, 2011
is $2,420.
 5. ACQUISITION OF CREATIVE KINGDOMS
 ®
  6. SHARE-BASED COMPENSATION
   12




---



##### Table of Contents



Stock Options
    WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    ContractualShares
    
    
    Price
    
    
    LifeNumber of shares under option:Outstanding at beginning of period
    
    
    36,000
    
    
    $
    19.03
    
    
    4.15 yearsExercised
    
    
    Forfeited
    
    
    (5,500
    )
    
    $
    18.17Outstanding at end of period
    
    
    30,500
    
    
    $
    19.19
    
    
    3.93 yearsExercisable at end of period
    
    
    30,500
    
    
    $
    19.19
    
    
    3.93 years
  Market Condition Share Awards
    
    
    277,894 were based on our common stocks performance in 2011 relative to a stock index,
as designated by the Compensation Committee of the Board of Directors. These shares vest
ratably over a three-year period, 2011-2013. The per share fair value of these market
condition shares was $2.35 as of the grant date.
 13




---



##### Table of Contents



Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    0.25
    %Expected stock price volatility
    
    
    64.73
    %Expected stock price volatility (small-cap stock index)
    
    
    29.39
    %
  
    
    83,054 were based on our common stocks absolute performance during the three-year period
2010-2012. For shares that are earned, half of the shares vest on December 31, 2012, and
the other half vest on December 31, 2013. The per share fair value of these market
condition shares was $2.15 as of the grant date.
  Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    0.58
    %Expected stock price volatility
    
    
    64.73
    %
  
    
    83,054 were based on our common stocks performance in 2010-2012 relative to a stock
index, as designated by the Compensation Committee of the Board of Directors. For shares
that are earned, half of the shares vest on December 31, 2012, and the other half vest on
December 31, 2013. The per share fair value of these market condition shares was $2.19 as
of the grant date.
  Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    0.58
    %Expected stock price volatility
    
    
    64.73
    %Expected stock price volatility (small-cap stock index)
    
    
    29.39
    %
   14




---



##### Table of Contents




    
    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.
  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
    %
   
    
    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.
  Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    1.27
    %Expected stock price volatility
    
    
    95.21
    %
  
    
    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.
  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
    %
 15




---



##### Table of Contents




    
    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.
  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
    %
   Performance Share Awards
    
    
    Employees earned and were issued 96,305 performance shares in February 2011 related to
the 2010 grants and
    
    Employees earned and were issued 162,559 performance shares in March 2010 related to
2009 grants.
 Deferred Compensation Awards
  16




---



##### Table of Contents



Non-vested Shares
  
    
    We have granted non-vested shares to certain employees and our directors. These shares
vest over time periods between three and five years. We valued these non-vested shares at
the closing market value of our common stock on the date of grant.
    
    We have granted non-vested shares to certain employees for shares earned under the
Market Condition Share Awards as described above. These shares vest ratably over a
three-year period. We valued the non-vested shares related to Market Condition Shares
using a Monte Carlo simulation as described above.
    
    We have granted non-vested shares to certain employees for shares earned under the
Performance Share Awards as described above. These shares vest ratably over a three-year
period. We valued the non-vested shares related to Performance Share Awards at the closing
market value of our common stock on the date of grant of the Performance Share Awards.
  WeightedAverageGrant DateShares
    
    
    Fair ValueNon-vested shares balance at beginning of period
    
    
    1,163,379
    
    
    $
    3.12Granted
    
    
    96,305
    
    
    $
    2.12Forfeited
    
    
    (15,000
    )
    
    $
    6.21Vested
    
    
    (37,102
    )
    
    $
    1.52Non-vested shares balance at end of period
    
    
    1,207,582
    
    
    $
    3.05
   Vested Shares
  17




---



##### Table of Contents




    
    In connection with the elections related to 2010 bonus amounts, we issued 33,545 shares
in February 2011. We valued these shares at $96 based on the closing market value of our
common stock on the date of the grant.
    
    There were no shares issued in the three months ended March 31, 2010 related to 2009
bonus amounts.
  7. PROPERTY AND EQUIPMENT
  March 31,
    
    
    December 31,2011
    
    
    2010Land and improvements
    
    $
    57,665
    
    
    $
    57,665Building and improvements
    
    
    417,086
    
    
    
    420,316Furniture, fixtures and equipment
    
    
    338,417
    
    
    
    341,741Construction in process
    
    
    741
    
    
    
    623813,909
    
    
    
    820,345Less accumulated depreciation
    
    
    (208,098
    )
    
    
    (196,387
    )Property and equipment, net
    
    $
    605,811
    
    
    $
    623,958
  8. LONG-TERM DEBT
  March 31,
    
    
    December 31,2011
    
    
    2010Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    66,819
    
    
    $
    67,236Pocono Mountains mortgage loan
    
    
    93,948
    
    
    
    94,274Concord mortgage loan
    
    
    77,824
    
    
    
    78,147First mortgage notes (net of discount of $9,195 and $9,578)
    
    
    220,805
    
    
    
    220,422Junior subordinated debentures
    
    
    80,545
    
    
    
    80,545Other Long-Term Debt:City of Sheboygan bonds
    
    
    
    
    
    
    8,573City of Sheboygan loan
    
    
    
    
    
    
    3,054Other
    
    
    39
    
    
    
    47539,980
    
    
    
    552,298Less current portion of long-term debt
    
    
    (70,561
    )
    
    
    (70,083
    )Total long-term debt
    
    $
    469,419
    
    
    $
    482,215
 18




---



##### Table of Contents



Traverse City/Kansas City Mortgage Loan
       19




---



##### Table of Contents




    
    electing to continue the subsidization of debt service on this loan, if the cash flow
provided by the properties to us through the lock-box arrangement is less than the debt
service requirements of the loan;
    
    attempting to refinance the existing loan, a step that we believe would result in
materially lower proceeds than the current loan balance, thus requiring a significant
paydown on the existing loan balance; or
    
    continuing to operate the properties for some period of time, with the possibility of
surrendering the two properties at some future date to the lender or a lender-appointed
receiver in satisfaction of the loan balance.
  Pocono Mountains Mortgage Loan 
   Concord Mortgage Loan
 20




---



##### Table of Contents



First Mortgage Notes
   Junior Subordinated Debentures
    21




---



##### Table of Contents



City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughMarch 31,2012
    
    $
    5,4012013
    
    
    78,5342014
    
    
    3,3592015
    
    
    62,9942016
    
    
    1,620Thereafter
    
    
    397,267Total
    
    $
    549,175
  9. FAIR VALUE OF FINANCIAL INSTRUMENTS
     22




---



##### Table of Contents



10. EARNINGS PER SHARE
    23




---



##### Table of Contents



Three months endedMarch 31,2011
    
    
    2010Net loss attributable to Great Wolf Resorts, Inc.
    
    $
    (5,974
    )
    
    $
    (8,065
    )Weighted average common shares outstanding  basic
    
    
    31,194,900
    
    
    
    30,837,867Weighted average common shares outstanding  diluted
    
    
    31,194,900
    
    
    
    30,837,867Net loss attributable to Great Wolf Resorts, Inc. per share  basic
    
    $
    (0.19
    )
    
    $
    (0.26
    )Net loss attributable to Great Wolf Resorts, Inc. per share  diluted
    
    $
    (0.19
    )
    
    $
    (0.26
    )
 11. DISCONTINUED OPERATIONS
      March 23,
    
    
    December 31,2011
    
    
    2010Balance sheet data:Total assets
    
    $
    6,463
    
    
    $
    8,742Total liabilities
    
    $
    13,587
    
    
    $
    14,121
  Three monthsJanuary 1 -
    
    
    endedMarch 23,
    
    
    March 31,2011
    
    
    2010Revenues
    
    $
    1,578
    
    
    $
    1,836Operating expenses
    
    
    (1,424
    )
    
    
    (1,709
    )Gain on sale
    
    
    6,667
    
    
    
    Interest expense, net of interest income
    
    
    (76
    )
    
    
    (91
    )Income tax benefit
    
    
    171
    
    
    
    1Income from discontinued operations, net of tax
    
    $
    6,916
    
    
    $
    37
 24




---



##### Table of Contents



12. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
   Financial statements of guarantors and issuers of
guaranteed securities registered or being registered
 25




---



##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2011
(Dollars in thousands)
 Subsidiary
    
    
    Non Guarantor
    
    
    ConsolidatingParent
    
    
    Issuers
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,031
    
    
    $
    36,100
    
    
    $
    (3,243
    )
    
    $
    4,015
    
    
    $
    
    
    
    $
    46,903Escrows
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,247
    
    
    
    
    
    
    
    2,247Accounts receivable
    
    
    59
    
    
    
    
    
    
    
    1,750
    
    
    
    942
    
    
    
    
    
    
    
    2,751Accounts receivable  affiliates
    
    
    
    
    
    
    
    
    
    
    1,257
    
    
    
    2,615
    
    
    
    
    
    
    
    3,872Accounts receivable  consolidating entities
    
    
    10,927
    
    
    
    464,500
    
    
    
    382,908
    
    
    
    174,470
    
    
    
    (1,032,805
    )
    
    
    Inventory
    
    
    
    
    
    
    
    
    
    
    2,949
    
    
    
    4,779
    
    
    
    
    
    
    
    7,728Other current assets
    
    
    1,187
    
    
    
    
    
    
    
    2,220
    
    
    
    6,222
    
    
    
    
    
    
    
    9,629Total current assets
    
    
    22,204
    
    
    
    500,600
    
    
    
    387,841
    
    
    
    195,290
    
    
    
    (1,032,805
    )
    
    
    73,130Property and equipment, net
    
    
    
    
    
    
    
    
    
    
    346,734
    
    
    
    259,077
    
    
    
    
    
    
    
    605,811Investments in consolidating entities
    
    
    211,429
    
    
    
    265,216
    
    
    
    
    
    
    
    
    
    
    
    (476,645
    )
    
    
    Investments in and advances to affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,472
    
    
    
    
    
    
    
    24,472Other assets
    
    
    12,615
    
    
    
    7,725
    
    
    
    7,601
    
    
    
    3,555
    
    
    
    
    
    
    
    31,496Intangible assets
    
    
    1,365
    
    
    
    
    
    
    
    4,668
    
    
    
    20,683
    
    
    
    
    
    
    
    26,716Total assets
    
    $
    247,613
    
    
    $
    773,541
    
    
    $
    746,844
    
    
    $
    503,077
    
    
    $
    (1,509,450
    )
    
    $
    761,625LIABILITIES AND EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    33
    
    
    $
    70,528
    
    
    $
    
    
    
    $
    70,561Accounts payable
    
    
    89
    
    
    
    
    
    
    
    1,393
    
    
    
    2,054
    
    
    
    
    
    
    
    3,536Accounts payable  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5Accounts payable  consolidating entities
    
    
    2,517
    
    
    
    328,685
    
    
    
    577,217
    
    
    
    124,386
    
    
    
    (1,032,805
    )
    
    
    Accrued interest payable
    
    
    717
    
    
    
    12,506
    
    
    
    
    
    
    
    766
    
    
    
    
    
    
    
    13,989Accrued expenses
    
    
    515
    
    
    
    116
    
    
    
    12,227
    
    
    
    8,977
    
    
    
    
    
    
    
    21,835Advance deposits
    
    
    
    
    
    
    
    
    
    
    6,902
    
    
    
    7,856
    
    
    
    
    
    
    
    14,758Other current liabilities
    
    
    3,237
    
    
    
    
    
    
    
    1,023
    
    
    
    1,662
    
    
    
    
    
    
    
    5,922Total current liabilities
    
    
    7,075
    
    
    
    341,307
    
    
    
    598,795
    
    
    
    216,234
    
    
    
    (1,032,805
    )
    
    
    130,606Mortgage debt
    
    
    
    
    
    
    220,805
    
    
    
    
    
    
    
    168,063
    
    
    
    
    
    
    
    388,868Other long-term debt
    
    
    80,545
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    80,551Deferred compensation liability
    
    
    
    
    
    
    
    
    
    
    1,630
    
    
    
    
    
    
    
    
    
    
    
    1,630Total liabilities
    
    
    87,620
    
    
    
    562,112
    
    
    
    600,431
    
    
    
    384,297
    
    
    
    (1,032,805
    )
    
    
    601,655Commitments and contingenciesGreat Wolf Resorts stockholders equity:Common stock
    
    
    324
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    324Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    403,139
    
    
    
    456,693
    
    
    
    163,514
    
    
    
    293,179
    
    
    
    (913,386
    )
    
    
    403,139Accumulated deficit
    
    
    (243,270
    )
    
    
    (245,264
    )
    
    
    (17,101
    )
    
    
    (174,376
    )
    
    
    436,741
    
    
    
    (243,270
    )Deferred compensation
    
    
    (200
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (200
    )Total Great Wolf Resorts stockholders equity
    
    
    159,993
    
    
    
    211,429
    
    
    
    146,413
    
    
    
    118,803
    
    
    
    (476,645
    )
    
    
    159,993Noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    (23
    )Total equity
    
    
    159,993
    
    
    
    211,429
    
    
    
    146,413
    
    
    
    118,780
    
    
    
    (476,645
    )
    
    
    159,970Total liabilities and equity
    
    $
    247,613
    
    
    $
    773,541
    
    
    $
    746,844
    
    
    $
    503,077
    
    
    $
    (1,509,450
    )
    
    $
    761,625
 26




---



##### Table of Contents



CONSOLIDATING BALANCE SHEET
December 31, 2010
(Dollars in thousands)
 Subsidiary
    
    
    Non Guarantor
    
    
    ConsolidatingParent
    
    
    Issuers
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,047
    
    
    $
    24,168
    
    
    $
    (328
    )
    
    $
    3,101
    
    
    $
    
    
    
    $
    36,988Escrows
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,283
    
    
    
    
    
    
    
    1,283Accounts receivable
    
    
    88
    
    
    
    
    
    
    
    1,615
    
    
    
    1,575
    
    
    
    
    
    
    
    3,278Accounts receivable  affiliates
    
    
    
    
    
    
    
    
    
    
    1,369
    
    
    
    2,395
    
    
    
    
    
    
    
    3,764Accounts receivable  consolidating entities
    
    
    12,747
    
    
    
    462,941
    
    
    
    304,775
    
    
    
    151,770
    
    
    
    (932,233
    )
    
    
    Inventory
    
    
    
    
    
    
    
    
    
    
    2,593
    
    
    
    4,278
    
    
    
    
    
    
    
    6,871Other current assets
    
    
    192
    
    
    
    
    
    
    
    1,512
    
    
    
    2,915
    
    
    
    
    
    
    
    4,619Total current assets
    
    
    23,074
    
    
    
    487,109
    
    
    
    311,536
    
    
    
    167,317
    
    
    
    (932,233
    )
    
    
    56,803Property and equipment, net
    
    
    
    
    
    
    
    
    
    
    352,689
    
    
    
    271,269
    
    
    
    
    
    
    
    623,958Investments in consolidating entities
    
    
    210,356
    
    
    
    257,151
    
    
    
    
    
    
    
    
    
    
    
    (467,507
    )
    
    
    Investments in and advances to affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,131
    
    
    
    
    
    
    
    25,131Other assets
    
    
    17,274
    
    
    
    7,948
    
    
    
    7,070
    
    
    
    6,357
    
    
    
    
    
    
    
    38,649Intangible assets
    
    
    1,365
    
    
    
    
    
    
    
    4,668
    
    
    
    20,664
    
    
    
    
    
    
    
    26,697Total assets
    
    $
    252,069
    
    
    $
    752,208
    
    
    $
    675,963
    
    
    $
    490,738
    
    
    $
    (1,399,740
    )
    
    $
    771,238LIABILITIES AND EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    33
    
    
    $
    70,050
    
    
    $
    
    
    
    $
    70,083Accounts payable
    
    
    151
    
    
    
    
    
    
    
    5,543
    
    
    
    2,805
    
    
    
    
    
    
    
    8,499Accounts payable  affiliates
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    3
    
    
    
    
    
    
    
    4Accounts payable  consolidating entities
    
    
    423
    
    
    
    314,488
    
    
    
    510,186
    
    
    
    107,136
    
    
    
    (932,233
    )
    
    
    Accrued interest payable
    
    
    723
    
    
    
    6,253
    
    
    
    
    
    
    
    1,109
    
    
    
    
    
    
    
    8,085Accrued expenses
    
    
    287
    
    
    
    689
    
    
    
    11,534
    
    
    
    7,924
    
    
    
    
    
    
    
    20,434Advance deposits
    
    
    
    
    
    
    
    
    
    
    2,522
    
    
    
    4,950
    
    
    
    
    
    
    
    7,472Other current liabilities
    
    
    4,161
    
    
    
    
    
    
    
    1,111
    
    
    
    2,144
    
    
    
    
    
    
    
    7,416Total current liabilities
    
    
    5,745
    
    
    
    321,430
    
    
    
    530,930
    
    
    
    196,121
    
    
    
    (932,233
    )
    
    
    121,993Mortgage debt
    
    
    
    
    
    
    220,422
    
    
    
    
    
    
    
    169,867
    
    
    
    
    
    
    
    390,289Other long-term debt
    
    
    80,545
    
    
    
    
    
    
    
    14
    
    
    
    11,367
    
    
    
    
    
    
    
    91,926Deferred compensation liability
    
    
    
    
    
    
    
    
    
    
    1,260
    
    
    
    
    
    
    
    
    
    
    
    1,260Total liabilities
    
    
    86,290
    
    
    
    541,852
    
    
    
    532,204
    
    
    
    377,355
    
    
    
    (932,233
    )
    
    
    605,468Commitments and contingenciesGreat Wolf Resorts stockholders equity:Common stock
    
    
    323
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    323Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    402,952
    
    
    
    456,693
    
    
    
    163,514
    
    
    
    293,179
    
    
    
    (913,386
    )
    
    
    402,952Accumulated deficit
    
    
    (237,296
    )
    
    
    (246,337
    )
    
    
    (19,755
    )
    
    
    (179,787
    )
    
    
    445,879
    
    
    
    (237,296
    )Deferred compensation
    
    
    (200
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (200
    )Total Great Wolf Resorts stockholders equity
    
    
    165,779
    
    
    
    210,356
    
    
    
    143,759
    
    
    
    113,392
    
    
    
    (467,507
    )
    
    
    165,779Noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Total equity
    
    
    165,779
    
    
    
    210,356
    
    
    
    143,759
    
    
    
    113,383
    
    
    
    (467,507
    )
    
    
    165,770Total liabilities and equity
    
    $
    252,069
    
    
    $
    752,208
    
    
    $
    675,963
    
    
    $
    490,738
    
    
    $
    (1,399,740
    )
    
    $
    771,238
 27




---



##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three month ended March 31, 2011
(Dollars in thousands)
 Subsidiary
    
    
    Non Guarantor
    
    
    ConsolidatingParent
    
    
    Issuers
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedRevenues:Rooms
    
    $
    
    
    
    $
    
    
    
    $
    20,142
    
    
    $
    22,045
    
    
    $
    
    
    
    $
    42,187Food and beverage
    
    
    
    
    
    
    
    
    
    
    5,521
    
    
    
    5,681
    
    
    
    
    
    
    
    11,202Other
    
    
    
    
    
    
    
    
    
    
    4,941
    
    
    
    6,238
    
    
    
    
    
    
    
    11,179Management and other fees
    
    
    155
    
    
    
    
    
    
    
    5,728
    
    
    
    18
    
    
    
    (5,148
    )
    
    
    753Management and other fees  affiliates
    
    
    
    
    
    
    
    
    
    
    1,003
    
    
    
    
    
    
    
    
    
    
    
    1,003155
    
    
    
    
    
    
    
    37,335
    
    
    
    33,982
    
    
    
    (5,148
    )
    
    
    66,324Other revenue from managed properties
    
    
    
    
    
    
    
    
    
    
    2,837
    
    
    
    
    
    
    
    
    
    
    
    2,837Other revenue from managed properties  affiliates
    
    
    
    
    
    
    
    
    
    
    2,724
    
    
    
    
    
    
    
    
    
    
    
    2,724Total revenues
    
    
    155
    
    
    
    
    
    
    
    42,896
    
    
    
    33,982
    
    
    
    (5,148
    )
    
    
    71,885Operating expenses by department:Rooms
    
    
    
    
    
    
    
    
    
    
    3,400
    
    
    
    3,494
    
    
    
    (847
    )
    
    
    6,047Food and beverage
    
    
    
    
    
    
    
    
    
    
    4,268
    
    
    
    4,192
    
    
    
    
    
    
    
    8,460Other
    
    
    
    
    
    
    
    
    
    
    3,964
    
    
    
    5,453
    
    
    
    
    
    
    
    9,417Other operating expenses:Selling, general and administrative
    
    
    893
    
    
    
    33
    
    
    
    12,479
    
    
    
    7,794
    
    
    
    (4,218
    )
    
    
    16,981Property operating costs
    
    
    
    
    
    
    
    
    
    
    4,113
    
    
    
    4,311
    
    
    
    
    
    
    
    8,424Depreciation and amortization
    
    
    38
    
    
    
    326
    
    
    
    6,353
    
    
    
    6,531
    
    
    
    
    
    
    
    13,248931
    
    
    
    359
    
    
    
    34,577
    
    
    
    31,775
    
    
    
    (5,065
    )
    
    
    62,577Other expenses from managed properties
    
    
    
    
    
    
    
    
    
    
    2,837
    
    
    
    
    
    
    
    
    
    
    
    2,837Other expenses from managed properties  affiliates
    
    
    
    
    
    
    
    
    
    
    2,724
    
    
    
    
    
    
    
    
    
    
    
    2,724Total operating expenses
    
    
    931
    
    
    
    359
    
    
    
    40,138
    
    
    
    31,775
    
    
    
    (5,065
    )
    
    
    68,138Net operating (loss) income
    
    
    (776
    )
    
    
    (359
    )
    
    
    2,758
    
    
    
    2,207
    
    
    
    (83
    )
    
    
    3,747Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (242
    )
    
    
    
    
    
    
    (242
    )Interest income
    
    
    (49
    )
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (55
    )Interest expense
    
    
    1,584
    
    
    
    6,636
    
    
    
    
    
    
    
    3,877
    
    
    
    
    
    
    
    12,097(Loss)
income from continuing operations before income taxes and equity in
income of unconsolidated affiliates
    
    
    (2,311
    )
    
    
    (6,992
    )
    
    
    2,758
    
    
    
    (1,425
    )
    
    
    (83
    )
    
    
    (8,053
    )Income tax (benefit) expense
    
    
    4,736
    
    
    
    
    
    
    
    104
    
    
    
    162
    
    
    
    
    
    
    
    5,002Equity in
(income) loss of affiliates, net of tax
    
    
    (1,073
    )
    
    
    (8,065
    )
    
    
    
    
    
    
    (151
    )
    
    
    9,138
    
    
    
    (151
    )Net (loss) income from continuing operations
    
    
    (5,974
    )
    
    
    1,073
    
    
    
    2,654
    
    
    
    (1,436
    )
    
    
    (9,221
    )
    
    
    (12,904
    )Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,833
    )
    
    
    (83
    )
    
    
    (6,916
    )Net (loss) income
    
    
    (5,974
    )
    
    
    1,073
    
    
    
    2,654
    
    
    
    5,397
    
    
    
    (9,138
    )
    
    
    (5,988
    )Net loss attributable to noncontrolling interest,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    (14
    )Net (loss) income attributable to Great Wolf
Resorts, Inc.
    
    $
    (5,974
    )
    
    $
    1,073
    
    
    $
    2,654
    
    
    $
    5,411
    
    
    $
    (9,138
    )
    
    $
    (5,974
    )
 28




---



##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three months ended March 31, 2010
(Dollars in thousands)
 Subsidiary
    
    
    Non Guarantor
    
    
    ConsolidatingParent
    
    
    Issuers
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedRevenues:Rooms
    
    $
    
    
    
    $
    
    
    
    $
    19,114
    
    
    $
    21,657
    
    
    $
    
    
    
    $
    40,771Food and beverage
    
    
    
    
    
    
    
    
    
    
    5,662
    
    
    
    5,605
    
    
    
    
    
    
    
    11,267Other
    
    
    
    
    
    
    
    
    
    
    4,796
    
    
    
    4,943
    
    
    
    
    
    
    
    9,739Management and other fees
    
    
    117
    
    
    
    
    
    
    
    5,541
    
    
    
    12
    
    
    
    (5,035
    )
    
    
    635Management and other fees  affiliates
    
    
    
    
    
    
    
    
    
    
    1,020
    
    
    
    
    
    
    
    
    
    
    
    1,020117
    
    
    
    
    
    
    
    36,133
    
    
    
    32,217
    
    
    
    (5,035
    )
    
    
    63,432Other revenue from managed properties
    
    
    
    
    
    
    
    
    
    
    2,717
    
    
    
    
    
    
    
    
    
    
    
    2,717Other revenue from managed properties  affiliates
    
    
    
    
    
    
    
    
    
    
    2,694
    
    
    
    
    
    
    
    
    
    
    
    2,694Total revenues
    
    
    117
    
    
    
    
    
    
    
    41,544
    
    
    
    32,217
    
    
    
    (5,035
    )
    
    
    68,843Operating expenses by department:Rooms
    
    
    
    
    
    
    
    
    
    
    3,269
    
    
    
    3,335
    
    
    
    (818
    )
    
    
    5,786Food and beverage
    
    
    
    
    
    
    
    
    
    
    4,232
    
    
    
    3,995
    
    
    
    
    
    
    
    8,227Other
    
    
    
    
    
    
    
    
    
    
    3,945
    
    
    
    4,105
    
    
    
    
    
    
    
    8,050Other operating expenses:Selling, general and administrative
    
    
    715
    
    
    
    39
    
    
    
    13,323
    
    
    
    8,219
    
    
    
    (4,119
    )
    
    
    18,177Property operating costs
    
    
    
    
    
    
    
    
    
    
    4,105
    
    
    
    4,519
    
    
    
    
    
    
    
    8,624Depreciation and amortization
    
    
    38
    
    
    
    
    
    
    
    7,602
    
    
    
    6,506
    
    
    
    
    
    
    
    14,146Loss on disposition of property
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10753
    
    
    
    39
    
    
    
    36,486
    
    
    
    30,679
    
    
    
    (4,937
    )
    
    
    63,020Other expenses from managed properties
    
    
    
    
    
    
    
    
    
    
    2,717
    
    
    
    
    
    
    
    
    
    
    
    2,717Other expenses from managed properties  affiliates
    
    
    
    
    
    
    
    
    
    
    2,694
    
    
    
    
    
    
    
    
    
    
    
    2,694Total operating expenses
    
    
    753
    
    
    
    39
    
    
    
    41,897
    
    
    
    30,679
    
    
    
    (4,937
    )
    
    
    68,431Net operating (loss) income
    
    
    (636
    )
    
    
    (39
    )
    
    
    (353
    )
    
    
    1,538
    
    
    
    (98
    )
    
    
    412Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (289
    )
    
    
    
    
    
    
    (289
    )Interest income
    
    
    (251
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (252
    )Interest expense
    
    
    1,578
    
    
    
    
    
    
    
    3,600
    
    
    
    3,929
    
    
    
    
    
    
    
    9,107Loss from
continuing operations before income taxes and equity income of
unconsolidated in affiliates
    
    
    (1,963
    )
    
    
    (38
    )
    
    
    (3,953
    )
    
    
    (2,102
    )
    
    
    (98
    )
    
    
    (8,154
    )Income tax expense (benefit)
    
    
    (193
    )
    
    
    
    
    
    
    115
    
    
    
    259
    
    
    
    
    
    
    
    181Equity in affiliates, net of tax
    
    
    6,295
    
    
    
    6,257
    
    
    
    
    
    
    
    (233
    )
    
    
    (12,552
    )
    
    
    (233
    )Net (loss) income from continuing operations
    
    
    (8,065
    )
    
    
    (6,295
    )
    
    
    (4,068
    )
    
    
    (2,128
    )
    
    
    12,454
    
    
    
    (8,102
    )Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    (98
    )
    
    
    (37
    )Net (loss) income
    
    $
    (8,065
    )
    
    $
    (6,295
    )
    
    $
    (4,068
    )
    
    $
    (2,189
    )
    
    $
    12,552
    
    
    $
    (8,065
    )
 29




---



##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three months ended March 31, 2011
(Dollars in thousands)
 Subsidiary
    
    
    Non Guarantor
    
    
    ConsolidatingParent
    
    
    Issuers
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedOperating activities:Net (loss) income
    
    $
    (5,974
    )
    
    $
    1,073
    
    
    $
    2,654
    
    
    $
    5,397
    
    
    $
    (9,138
    )
    
    $
    (5,988
    )Adjustment to reconcile net (loss) income to
net cash (used in) provided by operating
activities:Depreciation and amortization
    
    
    38
    
    
    
    326
    
    
    
    6,353
    
    
    
    6,632
    
    
    
    
    
    
    
    13,349Bad debt expense
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    17
    
    
    
    
    
    
    
    14Non-cash employee compensation and
professional fees expense
    
    
    
    
    
    
    
    
    
    
    583
    
    
    
    
    
    
    
    
    
    
    
    583Gain on disposition of property included in
discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,667
    )
    
    
    
    
    
    
    (6,667
    )Equity in (income) losses of affiliates
    
    
    (1,073
    )
    
    
    (8,065
    )
    
    
    
    
    
    
    (147
    )
    
    
    9,138
    
    
    
    (147
    )Deferred tax benefit
    
    
    4,562
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,562Changes in operating assets and liabilities
    
    
    (483
    )
    
    
    5,680
    
    
    
    (634
    )
    
    
    (1,301
    )
    
    
    
    
    
    
    3,262Net cash (used in) provided by operating
activities
    
    
    (2,930
    )
    
    
    (986
    )
    
    
    8,953
    
    
    
    3,931
    
    
    
    
    
    
    
    8,968Investing activities:Capital expenditures for property and equipment
    
    
    
    
    
    
    
    
    
    
    (691
    )
    
    
    (10
    )
    
    
    
    
    
    
    (701
    )Loan repayment from unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    807
    
    
    
    
    
    
    
    807Investment in development
    
    
    
    
    
    
    
    
    
    
    (67
    )
    
    
    
    
    
    
    
    
    
    
    (67
    )Proceeds
from the sale of a discontinued operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,200
    
    
    
    
    
    
    
    4,200Increase in restricted cash
    
    
    (1,000
    )
    
    
    
    
    
    
    
    
    
    
    (1,412
    )
    
    
    
    
    
    
    (2,412
    )Net cash
(used in) provided by investing
activities
    
    
    (1,000
    )
    
    
    
    
    
    
    (758
    )
    
    
    3,585
    
    
    
    
    
    
    
    1,827Financing activities:Principal payments on long-term debt
    
    
    
    
    
    
    383
    
    
    
    (8
    )
    
    
    (1,131
    )
    
    
    
    
    
    
    (756
    )Payment of loan costs
    
    
    
    
    
    
    (103
    )
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    (124
    )Advances from consolidating entities, net
    
    
    3,914
    
    
    
    12,638
    
    
    
    (11,102
    )
    
    
    (5,450
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing
activities
    
    
    3,914
    
    
    
    12,918
    
    
    
    (11,110
    )
    
    
    (6,602
    )
    
    
    
    
    
    
    (880
    )Net (decrease) increase in cash and cash
equivalents
    
    
    (16
    )
    
    
    11,932
    
    
    
    (2,915
    )
    
    
    914
    
    
    
    
    
    
    
    9,915Cash and cash equivalents, beginning of period
    
    
    10,047
    
    
    
    24,168
    
    
    
    (328
    )
    
    
    3,101
    
    
    
    
    
    
    
    36,988Cash and cash equivalents, end of period
    
    $
    10,031
    
    
    $
    36,100
    
    
    $
    (3,243
    )
    
    $
    4,015
    
    
    $
    
    
    
    $
    46,903
 30




---



##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three months ended March 31, 2010
(Dollars in thousands)
 Subsidiary
    
    
    Non Guarantor
    
    
    ConsolidatingParent
    
    
    Issuers
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedOperating activities:Net (loss) income
    
    $
    (8,065
    )
    
    $
    (6,295
    )
    
    $
    (4,068
    )
    
    $
    (2,189
    )
    
    $
    12,552
    
    
    $
    (8,065
    )Adjustment to reconcile net (loss) income to net cash
(used in) provided by operating activities:Depreciation and amortization
    
    
    38
    
    
    
    
    
    
    
    7,602
    
    
    
    6,380
    
    
    
    
    
    
    
    14,020Bad debt expense
    
    
    
    
    
    
    
    
    
    
    127
    
    
    
    7
    
    
    
    
    
    
    
    134Non-cash employee compensation expense
    
    
    
    
    
    
    
    
    
    
    544
    
    
    
    
    
    
    
    
    
    
    
    544Loss on disposition of property
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10Equity in losses (income) of unconsolidated affiliates
    
    
    6,295
    
    
    
    6,257
    
    
    
    
    
    
    
    (228
    )
    
    
    (12,552
    )
    
    
    (228
    )Deferred tax benefit
    
    
    (220
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (220
    )Changes in operating assets and liabilities
    
    
    (1,342
    )
    
    
    (207
    )
    
    
    2,217
    
    
    
    5,932
    
    
    
    
    
    
    
    6,600Net cash (used in) provided by operating activities
    
    
    (3,294
    )
    
    
    (245
    )
    
    
    6,432
    
    
    
    9,902
    
    
    
    
    
    
    
    12,795Investing activities:Capital expenditures for property and equipment
    
    
    
    
    
    
    
    
    
    
    (1,196
    )
    
    
    (2,585
    )
    
    
    
    
    
    
    (3,781
    )Loan repayment from unconsolidated affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    490
    
    
    
    
    
    
    
    490Investment in development
    
    
    
    
    
    
    
    
    
    
    (162
    )
    
    
    
    
    
    
    
    
    
    
    (162
    )Decrease (increase) in restricted cash
    
    
    
    
    
    
    
    
    
    
    2,091
    
    
    
    (554
    )
    
    
    
    
    
    
    1,537Net cash provided by (used in) investing activities
    
    
    
    
    
    
    
    
    
    
    733
    
    
    
    (2,649
    )
    
    
    
    
    
    
    (1,916
    )Financing activities:Principal payments on long-term debt
    
    
    
    
    
    
    
    
    
    
    (3,183
    )
    
    
    (748
    )
    
    
    
    
    
    
    (3,931
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    39Payment of loan costs
    
    
    57
    
    
    
    (9
    )
    
    
    (743
    )
    
    
    (10
    )
    
    
    
    
    
    
    (705
    )Advances from consolidating entities, net
    
    
    8,227
    
    
    
    267
    
    
    
    (2,082
    )
    
    
    (6,412
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    8,284
    
    
    
    258
    
    
    
    (6,008
    )
    
    
    (7,131
    )
    
    
    
    
    
    
    (4,597
    )Net increase in cash and cash equivalents
    
    
    4,990
    
    
    
    13
    
    
    
    1,157
    
    
    
    122
    
    
    
    
    
    
    
    6,282Cash and cash equivalents, beginning of period
    
    
    5,023
    
    
    
    14,538
    
    
    
    (1,590
    )
    
    
    2,942
    
    
    
    
    
    
    
    20,913Cash and cash equivalents, end of period
    
    $
    10,013
    
    
    $
    14,551
    
    
    $
    (433
    )
    
    $
    3,064
    
    
    $
    
    
    
    $
    27,195
 31




---



##### Table of Contents



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, are in thousands.
 Overview
  Business.
     32




---



##### Table of Contents



IndoorOwnership
    
    
    
    
    Number of
    
    Number of
    
    EntertainmentPercentage
    
    
    Opened
    
    Guest Suites
    
    Condo Units (1)
    
    Area (2)(approx. sq. ft.)Wisconsin Dells, WI (3)
    
    
    
    
    
    1997
    
    308
    
    77
    
    
    102,000Sandusky, OH (3)
    
    
    
    
    
    2001
    
    271
    
    
    
    
    41,000Traverse City, MI
    
    
    100
    %
    
    2003
    
    280
    
    
    
    
    57,000Kansas City, KS
    
    
    100
    %
    
    2003
    
    281
    
    
    
    
    57,000Williamsburg, VA (4)
    
    
    100
    %
    
    2005
    
    405
    
    
    
    
    87,000Pocono
Mountains, PA (4)
    
    
    100
    %
    
    2005
    
    401
    
    
    
    
    101,000Niagara
Falls, ONT (5)
    
    
    
    
    
    2006
    
    406
    
    
    
    
    104,000Mason, OH (4)
    
    
    100
    %
    
    2006
    
    401
    
    
    
    
    105,000Grapevine,
TX (4)
    
    
    100
    %
    
    2007
    
    605
    
    
    
    
    110,000Grand Mound,
WA (6)
    
    
    49
    %
    
    2008
    
    398
    
    
    
    
    74,000Concord, 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® (an
interactive game attraction) 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. 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 March
31, 2011 and each of those five properties had total revenues equal to ten
percent or more of our total revenues for the three months ended March 31,
2011.(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.(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.  33




---



##### Table of Contents



Industry Trends.
    Outlook.
   
    
    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/dispositions of ownership interests/recycling of capital;
    
    expanding and enhancing existing resorts;
    
    continuing to innovate;
    
    maximizing total resort revenues;
    
    minimizing total resort costs;
    
    building upon our existing brand awareness and loyalty; and
 34




---



##### Table of Contents




    
    expanding operations of our majority-owned subsidiary, Creative Kingdoms.
  
    
    attracting suitable joint venture partners;
    
    development, acquisition, conversion and/or licensing of properties;
    
    increases in costs of constructing, operating and maintaining resorts we own or
manage;
    
    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.
   
    
    continued turbulence in the banking and lending sectors, which has led to a general
lessening of the availability of credit to consumers;
    
    increasing energy and commodity prices (particularly food) in 2010 and 2011;
    
    a high 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 stock values
and aggregate household savings from 2007 to 2010.
   
    
    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 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
 35




---



##### Table of Contents



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 and regional economic
conditions appear to have improved recently, 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.
    
    In 2010, the master servicer for our loan that is secured by our Traverse City and
Kansas City resorts implemented a lock-box cash management arrangement due to the
properties not meeting a minimum debt service coverage ratio test under the loan. The loan
is not in default and the outstanding principal balance is not due currently, but
accounting rules require us to classify the entire loan balance as a current liability as
of March 31, 2011. We recorded an $18,741 impairment charge in 2010 related to our
Traverse City and Kansas City resorts to reflect a decline in their estimated fair value.
Although the operating performance of the two properties securing this loan has improved in
2011, we expect the properties to continue to feel the effects of the regional economic
declines experienced over the past several years and to produce operating results below
what they had produced prior to 2008.
    
    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 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 was primarily attributable to the fact that the overall development of
downtown Sheboygan as a tourist destination lagged materially behind our initial
expectations. We believe this materially impacted the consumer demand for our indoor
waterpark resort in that market and the operations of the resort. We recorded a $24,000
impairment charge in 2009 relating to our Sheboygan resort and, in March 2011, we disposed
of this resort.
  
    
    developing additional indoor waterpark resorts,
    
    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.
  Revenue and Key Performance Indicators.
 36




---



##### Table of Contents




    
    monitoring our historical trends for occupancy and estimating our high
occupancy night,
    
    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
    
    offering specials on standard suites and yielding better rates on larger
suites when standard suites sell out.
   
    
    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 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 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.
 37




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Goodwill
 March 31,
    
    
    December 31,2011
    
    
    2010Goodwill related to the acquisition of the majority interest in CK
    
    $
    1,366
    
    
    $
    1,366$
    1,366
    
    
    $
    1,366
  Noncontrolling Interests
 38




---



##### Table of Contents



Discontinued Operations
 Income Taxes
  Recent Accounting Pronouncements
    Non-GAAP Financial Measures
 39




---



##### Table of Contents




    
    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.
  
    
    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.
  
    
    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;
 40




---



##### Table of Contents




    
    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 a comparative measure.
 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 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 an alternative to net income (loss) as an indicator of our
operating performance, as an alternative to any other measure of performance in conformity with
GAAP or as an alternative to cash flow provided by operating activities as a measure 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.
  Three months endedMarch 31,2011
    
    
    2010Net loss attributable to Great Wolf Resorts, Inc.
    
    $
    (5,974
    )
    
    $
    (8,065
    )Adjustments:Interest expense, net of interest income
    
    
    12,117
    
    
    
    8,946Income tax expense
    
    
    4,826
    
    
    
    175Depreciation and amortization
    
    
    13,349
    
    
    
    14,020EBITDA
    
    $
    24,318
    
    
    $
    15,076
 Results of Operations
 General
  
    
    our subsidiary that provides resort development and management/licensing
services;
    
    our wholly-owned resorts;
    
    beginning in June 2010, our CK subsidiary which is a developer of experiential
gaming products, less our noncontrolling interest; and
    
    our equity interest in the Grand Mound resort in which we have a minority
ownership interest but which we do not consolidate.
 Revenues.
 
    
    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;
 41




---



##### Table of Contents




    
    management fee and other revenue from resorts, which includes fees received
under our management, license, development and construction management agreements; and
    
    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.
  
    
    selling, general and administrative expenses, which are associated with the
operations and management of resorts and our CK subsidiary (beginning June 2010) 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 March 31, 2011, compared with the three months ended March 31, 2010
  AllProperties (a)
    
    
    Same Store Comparison (b)2011
    
    
    2011
    
    
    2010
    
    
    $
    
    
    %Occupancy
    
    
    61.4
    %
    
    
    62.5
    %
    
    
    60.4
    %
    
    
    N/A
    
    
    
    3.5
    %ADR
    
    $
    262.64
    
    
    $
    265.12
    
    
    $
    260.75
    
    
    $
    4.37
    
    
    
    1.7
    %RevPAR
    
    $
    161.33
    
    
    $
    165.60
    
    
    $
    157.39
    
    
    $
    8.21
    
    
    
    5.2
    %Total RevPOR
    
    $
    403.88
    
    
    $
    406.33
    
    
    $
    402.28
    
    
    $
    4.05
    
    
    
    1.0
    %Total RevPAR
    
    $
    248.10
    
    
    $
    253.80
    
    
    $
    242.82
    
    
    $
    10.98
    
    
    
    4.5
    %Non-rooms revenue per occupied room
    
    $
    141.24
    
    
    $
    141.21
    
    
    $
    141.53
    
    
    $
    (0.32
    )
    
    
    (0.2
    )%
 
 (a)
    
    Includes results for properties all owned, managed and/or licensed resorts. All
Property operating statistics include our Blue Harbor Resort in Sheboygan, WI, through
March 23, 2011. We sold Blue Harbor Resort on March 24, 2011.(b)
    
    Same store comparison includes properties that were open for the full periods and with
comparable number of rooms in 2011 and 2010 (that is, all properties other than our
Sheboygan resort).  42




---



##### Table of Contents



Three months endedMarch 31,2011
    
    
    2010
    
    
    Increase/ (Decrease)Revenues
    
    $
    71,885
    
    
    $
    68,843
    
    
    $
    3,042Operating expenses:Departmental operating expenses
    
    
    23,924
    
    
    
    22,063
    
    
    
    1,861Selling, general and administrative
    
    
    16,981
    
    
    
    18,177
    
    
    
    (1,196
    )Net operating income
    
    
    3,747
    
    
    
    412
    
    
    
    3,335Interest expense, net of interest income
    
    
    12,042
    
    
    
    8,855
    
    
    
    3,187Income tax expense
    
    
    5,002
    
    
    
    181
    
    
    
    4,821Discontinued operations, net of tax
    
    
    (6,916
    )
    
    
    (37
    )
    
    
    (6,879
    )Net loss attributable to Great Wolf Resorts, Inc.
    
    
    (5,974
    )
    
    
    (8,065
    )
    
    
    2,091
 Revenues.
 
    
    More stable economic conditions with corresponding strengthening in consumer confidence
and discretionary spending, which positively affected our business; and
    
    The inclusion of CK as a consolidated subsidiary following our acquisition of a 62.4%
equity interest in June 2010. We had no similar revenues from CK for the three months ended
March 31, 2010.
 Operating expenses.
 
    
    Departmental operating expenses increased by $1,861 in the three months ended March 31,
2011, as compared to the three months ended March 31, 2010, due primarily to the acquisition
of CK.
    
    Total selling, general and administrative expenses decreased by $1,196 in the three
months ended March 31, 2011, as compared to the three months ended March 31, 2010, due to
less corporate and resort sales and marketing expense, which is partially due to a shift to
a later spring break-related travel in 2011.
 Net operating income.
 Net loss attributable to Great Wolf Resorts, Inc.Net loss attributable to Great Wolf
Resorts, Inc. decreased due to:
 
    
    An increase in net operating income of $3,335; and
 During the three months ended March 31, 2011 we disposed of our Blue Harbor Resort in
Sheboygan, WI and have included the propertys operations in discontinued operations for the
three months ended March 31, 2011 and 2010. Included in discontinued operations for the three
months ended March 31, 2011 is the gain on sale of $6,667.
  
    
    An increase in net interest expense of $3,187, mainly due to interest expense related to
our first mortgage notes issued in April 2010; and
 43




---



##### Table of Contents




    
    An increase in income tax expense of $4,821 recorded in the three months ended March 31,
2011 as compared to the three months ended March 31, 2010. The increase in income tax
expense was mainly due to an increase in our valuation allowance of $4,772, as a result of
our sale of Blue Harbor Resort. The increase was due to uncertainties related to our
ability to utilize some of our deferred tax assets, primarily consisting of certain net
operating loss carryforwards, before they expire.
 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.
  Three months endedMarch 31,2011
    
    
    2010
    
    
    IncreaseResort Ownership/OperationRevenues
    
    $
    63,253
    
    
    $
    61,777
    
    
    $
    1,476EBITDA
    
    
    23,342
    
    
    
    14,811
    
    
    
    8,531Resort Third-Party Management/LicenseRevenues
    
    
    7,317
    
    
    
    7,066
    
    
    
    251EBITDA
    
    
    1,756
    
    
    
    1,655
    
    
    
    101OtherRevenues
    
    
    1,315
    
    
    
    
    
    
    
    1,315EBITDA
    
    
    (780
    )
    
    
    (1,390
    )
    
    
    610
  Liquidity and Capital Resources
  March 31,
    
    
    December 31,2011
    
    
    2010Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    66,819
    
    
    $
    67,236Pocono Mountains mortgage loan
    
    
    93,948
    
    
    
    94,274Concord mortgage loan
    
    
    77,824
    
    
    
    78,147First mortgage notes (net of discount of $9,195 and $9,578)
    
    
    220,805
    
    
    
    220,422Junior subordinated debentures
    
    
    80,545
    
    
    
    80,545Other Long-Term Debt:
 44




---



##### Table of Contents



March 31,
    
    
    December 31,2011
    
    
    2010City of Sheboygan bonds
    
    
    
    
    
    
    8,573City of Sheboygan loan
    
    
    
    
    
    
    3,054Other
    
    
    39
    
    
    
    47539,980
    
    
    
    552,298Less current portion of long-term debt
    
    
    (70,561
    )
    
    
    (70,083
    )Total long-term debt
    
    $
    469,419
    
    
    $
    482,215
 Traverse City/Kansas City Mortgage Loan
      45




---



##### Table of Contents




    
    electing to continue the subsidization of debt service on this loan, if the cash flow
provided by the properties to us through the lock-box arrangement is less than the debt
service requirements of the loan;
    
    attempting to refinance the existing loan, a step that we believe would result in
materially lower proceeds than the current loan balance, thus requiring a significant
paydown on the existing loan balance; or
    
    continuing to operate the properties for some period of time, with the possibility of
surrendering the two properties at some future date to the lender or a lender-appointed
receiver in satisfaction of the loan balance.
  Pocono Mountains Mortgage Loan 
   Concord Mortgage Loan
 46




---



##### Table of Contents



First Mortgage Notes
   Junior Subordinated Debentures
    47




---



##### Table of Contents



City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughMarch 31,2012
    
    $
    5,4012013
    
    
    78,5342014
    
    
    3,3592015
    
    
    62,9942016
    
    
    1,620Thereafter
    
    
    397,267Total
    
    $
    549,175
  Short-Term Liquidity Requirements
  
    
    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;
 48




---



##### Table of Contents




    
    interest expense and scheduled principal payments on outstanding indebtedness;
    
    general and administrative expenses; and
    
    income taxes.
  Long-Term Liquidity Requirements
  
    
    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.
  
    
    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.
   49




---



##### Table of Contents



Off Balance Sheet Arrangements
    Contractual Obligations
  Payment TermsLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsDebt obligations (1)
    
    $
    761,624
    
    
    $
    40,911
    
    
    $
    152,247
    
    
    $
    129,216
    
    
    $
    439,250Operating lease obligations
    
    
    3,995
    
    
    
    957
    
    
    
    1,627
    
    
    
    947
    
    
    
    464Reserve on unrecognized tax benefits
    
    
    1,268
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,268Total
    
    $
    766,887
    
    
    $
    41,868
    
    
    $
    153,874
    
    
    $
    130,163
    
    
    $
    440,982
 
 (1)
    
    Amounts include interest (for fixed rate debt) and principal.  Working Capital
 50




---



##### Table of Contents



Cash Flows
 Three months ended March 31, 2011, compared with the three months ended March 31, 2010
 2011
    
    
    2010
    
    
    Increase/
(Decrease)Net cash provided by operating activities
    
    $
    8,968
    
    
    $
    12,795
    
    
    $
    (3,827
    )Net cash provided by (used in) investing activities
    
    
    1,827
    
    
    
    (1,916
    )
    
    
    3,743Net cash used in financing activities
    
    
    (880
    )
    
    
    (4,597
    )
    
    
    3,717
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Inflation
  
 ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
    
    $66,819 of fixed rate debt secured by two of our resorts. This debt bears interest at
6.96%. This loan matures in January 2015.
 51




---



##### Table of Contents




    
    $93,948 of fixed rate debt secured by one of our resorts. This debt bears interest at
6.10%. This loan matures in January 2017.
    
    $77,824 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 March 31, 2011. This loan matures in
April 2012.
    
    $220,805 (net of discount of $9,195) 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.
    
    $39 related to a capital lease that was entered into in June 2009. The lease matures in
May 2012.
    
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   52




---



##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    [Removed and Reserved]
 
 ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS
  53




---



##### Table of Contents



ExhibitNumber
    
    Description10.1
    
    Separation Agreement and Release between Great Wolf Resorts, Inc. and J.
Michael Schroeder dated February 17, 2011.10.2
    
    Purchase Agreement for Blue Harbor
Resort, Sheboygan, Wisconsin between
Claremont New Frontier Resort, LLC and Blue Harbor Resort Sheboygan, LLC
dated March 17, 2011.31.1
    
    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 135032.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
 54




---



##### Table of Contents



SIGNATURE
  GREAT WOLF RESORTS, INC./s/ James A. CalderJames A. CalderChief Financial Officer
(Duly authorized officer)

(Principal Financial and Accounting Officer)  55