##### 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 September 30, 2009
 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.)122 West Washington Avenue 
Madison, Wisconsin 53703(Address of principal executive offices)
    
    53703(Zip Code)
 (608) 661-4700
 þ o
 þ 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




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##### 



Great Wolf Resorts, Inc.
 Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2009
  
 INDEX
 PageNo.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    41Item 4. Controls and Procedures
    
    
    42PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    43Item 1A. Risk Factors
    
    
    43Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 3. Defaults Upon Senior Securities
    
    
    43Item 4. Submission of Matters to a Vote of Security Holders
    
    
    43Item 5. Other Information
    
    
    43Item 6. Exhibits
    
    
    43Signature
    
    
    45EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### 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 amounts)
 September 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    27,994
    
    
    $
    14,231Accounts receivable, net of allowance for doubtful accounts of $109 and $114
    
    
    2,709
    
    
    
    2,167Accounts receivable  unconsolidated affiliates, net of allowance for doubtful accounts of $0 and $1,201
    
    
    1,923
    
    
    
    925Inventory
    
    
    5,301
    
    
    
    4,265Other current assets
    
    
    12,056
    
    
    
    3,055Total current assets
    
    
    49,983
    
    
    
    24,643Property and equipment, net
    
    
    687,983
    
    
    
    716,173Investments in and advances to unconsolidated affiliates
    
    
    29,327
    
    
    
    43,855Other assets
    
    
    28,148
    
    
    
    31,561Other intangible assets
    
    
    23,829
    
    
    
    23,829Total assets
    
    $
    819,270
    
    
    $
    840,061LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    14,638
    
    
    $
    81,464Accounts payable
    
    
    5,157
    
    
    
    23,217Accounts payable  unconsolidated affiliates
    
    
    3
    
    
    
    622Accrued expenses
    
    
    23,041
    
    
    
    22,565Accrued expenses  unconsolidated affiliates
    
    
    
    
    
    
    1,184Advance deposits
    
    
    7,961
    
    
    
    7,498Gift certificates payable
    
    
    3,921
    
    
    
    5,416Total current liabilities
    
    
    54,721
    
    
    
    141,966Mortgage debt
    
    
    446,042
    
    
    
    333,259Other long-term debt
    
    
    92,270
    
    
    
    92,328Deferred tax liability
    
    
    5,891
    
    
    
    Deferred compensation liability
    
    
    776
    
    
    
    568Total liabilities
    
    
    599,700
    
    
    
    568,121Commitments and contingenciesStockholders equity:Common stock, $0.01 par value; 250,000,000 shares authorized; 31,298,546 and 30,982,646 shares issued and outstanding
    
    
    313
    
    
    
    310Additional paid-in-capital
    
    
    400,767
    
    
    
    399,641Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding
    
    
    
    
    
    
    Accumulated deficit
    
    
    (181,310
    )
    
    
    (127,811
    )Deferred compensation
    
    
    (200
    )
    
    
    (200
    )Total stockholders equity
    
    
    219,570
    
    
    
    271,940Total liabilities and stockholders equity
    
    $
    819,270
    
    
    $
    840,061
  3




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##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  AND COMPREHENSIVE LOSS  (Unaudited; dollars in thousands, except share and per share data)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Rooms
    
    $
    46,214
    
    
    $
    40,994
    
    
    $
    122,869
    
    
    $
    115,801Food and beverage
    
    
    11,877
    
    
    
    10,088
    
    
    
    33,084
    
    
    
    30,751Other hotel operations
    
    
    11,333
    
    
    
    9,759
    
    
    
    30,458
    
    
    
    28,439Management and other fees
    
    
    626
    
    
    
    863
    
    
    
    1,617
    
    
    
    2,292Management and other fees  affiliates
    
    
    1,202
    
    
    
    1,767
    
    
    
    3,636
    
    
    
    4,36371,252
    
    
    
    63,471
    
    
    
    191,664
    
    
    
    181,646Other revenue from managed properties  affiliates
    
    
    3,966
    
    
    
    5,942
    
    
    
    14,486
    
    
    
    14,993Other revenue from managed properties
    
    
    1,609
    
    
    
    
    
    
    
    1,609
    
    
    
    Total revenues
    
    
    76,827
    
    
    
    69,413
    
    
    
    207,759
    
    
    
    196,639Operating expenses by department:Rooms
    
    
    6,332
    
    
    
    5,407
    
    
    
    17,309
    
    
    
    15,827Food and beverage
    
    
    9,226
    
    
    
    8,176
    
    
    
    25,506
    
    
    
    24,311Other
    
    
    8,926
    
    
    
    7,832
    
    
    
    24,618
    
    
    
    22,573Other operating expenses:Selling, general and administrative
    
    
    14,911
    
    
    
    11,637
    
    
    
    46,542
    
    
    
    41,729Property operating costs
    
    
    8,201
    
    
    
    8,642
    
    
    
    29,657
    
    
    
    28,556Depreciation and amortization
    
    
    15,136
    
    
    
    11,995
    
    
    
    42,352
    
    
    
    34,755Loss on disposition of property
    
    
    11
    
    
    
    19
    
    
    
    202
    
    
    
    19Asset impairment loss
    
    
    24,000
    
    
    
    
    
    
    
    24,000
    
    
    
    86,743
    
    
    
    53,708
    
    
    
    210,186
    
    
    
    167,770Other expenses from managed properties  affiliates
    
    
    3,966
    
    
    
    5,942
    
    
    
    14,486
    
    
    
    14,993Other expenses from managed properties
    
    
    1,609
    
    
    
    
    
    
    
    1,609
    
    
    
    Total operating expenses
    
    
    92,318
    
    
    
    59,650
    
    
    
    226,281
    
    
    
    182,763Net operating (loss) income
    
    
    (15,491
    )
    
    
    9,763
    
    
    
    (18,522
    )
    
    
    13,876Gain on sale of unconsolidated affiliate
    
    
    (962
    )
    
    
    
    
    
    
    (962
    )
    
    
    Investment income  affiliates
    
    
    (310
    )
    
    
    (625
    )
    
    
    (1,030
    )
    
    
    (1,629
    )Interest income
    
    
    (131
    )
    
    
    (279
    )
    
    
    (467
    )
    
    
    (1,178
    )Interest expense
    
    
    9,671
    
    
    
    6,808
    
    
    
    24,715
    
    
    
    20,599(Loss) income before income taxes and equity in unconsolidated affiliates
    
    
    (23,759
    )
    
    
    3,859
    
    
    
    (40,778
    )
    
    
    (3,916
    )Income tax expense (benefit)
    
    
    18,267
    
    
    
    1,755
    
    
    
    11,484
    
    
    
    (1,282
    )Equity in loss (income) of unconsolidated affiliates, net of tax
    
    
    122
    
    
    
    (67
    )
    
    
    1,237
    
    
    
    1,612Net (loss) income
    
    $
    (42,148
    )
    
    $
    2,171
    
    
    $
    (53,499
    )
    
    $
    (4,246
    )Other comprehensive (loss) income, net of tax:Unrealized gain on interest rate swaps
    
    
    
    
    
    
    (271
    )
    
    
    
    
    
    
    (220
    )Comprehensive (loss) income
    
    $
    (42,148
    )
    
    $
    2,442
    
    
    $
    (53,499
    )
    
    $
    (4,026
    )Net (loss) income per share-basic
    
    $
    (1.35
    )
    
    $
    0.07
    
    
    $
    (1.72
    )
    
    $
    (0.14
    )Net (loss) income per share-diluted
    
    $
    (1.35
    )
    
    $
    0.07
    
    
    $
    (1.72
    )
    
    $
    (0.14
    )Weighted average common shares outstanding:Basic
    
    
    31,291,004
    
    
    
    30,840,691
    
    
    
    31,179,049
    
    
    
    30,793,822Diluted
    
    
    31,291,004
    
    
    
    30,840,691
    
    
    
    31,179,049
    
    
    
    30,793,822
  4




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##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited; dollars in thousands)
 Nine months endedSeptember 30,2009
    
    
    2008Operating activities:Net loss
    
    $
    (53,499
    )
    
    $
    (4,246
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    42,352
    
    
    
    34,755Bad debt expense
    
    
    642
    
    
    
    65Non-cash employee compensation and professional fees expense
    
    
    829
    
    
    
    (7
    )Loss on disposition of property
    
    
    202
    
    
    
    19Asset impairment loss
    
    
    24,000
    
    
    
    Gain on sale of unconsolidated affiliate
    
    
    (962
    )
    
    
    Equity in losses of unconsolidated affiliates
    
    
    965
    
    
    
    2,620Deferred tax expense (benefit)
    
    
    11,760
    
    
    
    (2,290
    )Changes in operating assets and liabilities:Accounts receivable and other assets
    
    
    (7,711
    )
    
    
    (3,855
    )Accounts payable, accrued expenses and other liabilities
    
    
    (4,522
    )
    
    
    204Net cash provided by operating activities
    
    
    14,056
    
    
    
    27,265Investing activities:Capital expenditures for property and equipment
    
    
    (48,206
    )
    
    
    (98,811
    )Loan repayment from unconsolidated affiliates
    
    
    8,833
    
    
    
    2,500Investments in unconsolidated affiliates
    
    
    (303
    )
    
    
    (9,823
    )Proceeds from sale of interest in unconsolidated affiliate
    
    
    6,000
    
    
    
    Investment in development
    
    
    978
    
    
    
    (2,288
    )Proceeds from sale of assets
    
    
    66
    
    
    
    Decrease in restricted cash
    
    
    161
    
    
    
    58Increase in escrows
    
    
    (1,866
    )
    
    
    (607
    )Net cash used in investing activities
    
    
    (34,337
    )
    
    
    (108,971
    )Financing activities:Principal payments on long-term debt
    
    
    (5,151
    )
    
    
    (56,667
    )Proceeds from issuance of long-term debt
    
    
    51,051
    
    
    
    149,663Payment of loan costs
    
    
    (11,856
    )
    
    
    (4,003
    )Net cash provided by financing activities
    
    
    34,044
    
    
    
    88,993Net increase in cash and cash equivalents
    
    
    13,763
    
    
    
    7,287Cash and cash equivalents, beginning of period
    
    
    14,231
    
    
    
    18,597Cash and cash equivalents, end of period
    
    $
    27,994
    
    
    $
    25,884Supplemental Cash Flow Information:Cash paid for interest, net of capitalized interest
    
    $
    24,254
    
    
    $
    20,381Cash paid for income taxes, net of refunds
    
    $
    379
    
    
    $
    365Non-cash items:Construction in process accruals
    
    $
    15
    
    
    $
    10,180
  5




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##### 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
 ® tm
   IndoorOwnership

    
    
    
    
    
    Number of

    
    Number of

    
    EntertainmentPercentage

    
    Opened

    
    Guest Suites

    
    Condo Units (1)

    
    Area (2)(Approx. ft2)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
    
    
    
    
    
    
    
    57,000Sheboygan, WI
    
    
    100
    %
    
    
    2004
    
    
    
    182
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    
    2005
    
    
    
    405
    
    
    
    
    
    
    
    87,000Pocono Mountains, PA
    
    
    100
    %
    
    
    2005
    
    
    
    401
    
    
    
    
    
    
    
    101,000Niagara Falls, ONT (4)
    
    
    
    
    
    
    2006
    
    
    
    406
    
    
    
    
    
    
    
    104,000Mason, OH
    
    
    100
    %
    
    
    2006
    
    
    
    401
    
    
    
    
    
    
    
    105,000Grapevine, TX (5)
    
    
    100
    %
    
    
    2007
    
    
    
    605
    
    
    
    
    
    
    
    110,000Grand Mound, WA (6)
    
    
    49
    %
    
    
    2008
    
    
    
    398
    
    
    
    
    
    
    
    74,000Concord, NC
    
    
    100
    %
    
    March 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. 6




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##### Table of Contents



(3)
    
    These properties are owned by CNL Lifestyle Properties, Inc. (CNL), a real estate investment trust focused on
leisure and lifestyle properties. Prior to  August 2009,  these properties were owned by a joint venture between CNL and us. In August 2009 we sold our 30.26% joint
venture interest to CNL for $6,000. We currently manage both properties and license the Great Wolf
Lodge brand to these resorts.(4)
    
    An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this
resort. We have granted Ripley a license to use the Great Wolf Lodge name for
this resort through April 2016. We managed the resort on behalf of Ripley
through April 2009.(5)
    
    In late 2007, we began construction on an additional 203 suites and 20,000
square feet of meeting space as an expansion of this resort. The meeting space,
along with 92 rooms, was opened in December 2008, with the rest of the rooms
completed and opened in January 2009.(6)
    
    This property is owned by a joint venture. The Confederated Tribes of the
Chehalis Reservation (Chehalis) owns a 51% interest in the joint venture, and
we own a 49% interest. We operate the property and license the Great Wolf Lodge
brand to the property 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 Interior, which is trustee
for Chehalis. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 General
   Principles of Consolidation
 Investments In and Advances to Unconsolidated Affiliates
 7




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Income Taxes
  Fair Value of Financial Instruments
 8




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Comprehensive Income
 Segments
 
    
    resort ownership/operation-revenues derived from our consolidated owned resorts; and
    
    resort third-party management/license-revenues derived from management, license and other related
fees from unconsolidated managed resorts.
  Totals perResort Ownership/
    
    
    Resort Third-Party
    
    
    
    
    
    
    FinancialOperation
    
    
    Management/License
    
    
    Other
    
    
    StatementsThree months ended September
30, 2009Revenues
    
    $
    69,424
    
    
    $
    7,403
    
    
    $
    
    
    
    $
    76,827Depreciation and amortization
    
    
    (14,932
    )
    
    
    
    
    
    
    (204
    )
    
    
    (15,136
    )Asset impairment loss
    
    
    (24,000
    )
    
    
    
    
    
    
    
    
    
    
    (24,000
    )Operating (loss) income
    
    
    (17,757
    )
    
    
    1,828
    
    
    
    438
    
    
    
    (15,491
    )Gain on sale of
unconsolidated affiliate
    
    
    
    
    
    
    
    
    
    
    (962
    )
    
    
    (962
    )Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (310
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (131
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,671Loss before income taxes and
equity in income of
unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (23,759
    )Additions to long-lived assets
    
    
    2,215
    
    
    
    
    
    
    
    145
    
    
    $
    2,360
 9




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Totals perResort Ownership/
    
    
    Resort Third-Party
    
    
    
    
    
    
    FinancialOperation
    
    
    Management/License
    
    
    Other
    
    
    StatementsNine months ended September
30, 2009Revenues
    
    $
    186,411
    
    
    $
    21,348
    
    
    $
    
    
    
    $
    207,759Depreciation and amortization
    
    
    (41,776
    )
    
    
    
    
    
    
    (576
    )
    
    
    (42,352
    )Asset impairment loss
    
    
    (24,000
    )
    
    
    
    
    
    
    
    
    
    
    (24,000
    )Operating (loss) income
    
    
    (21,416
    )
    
    
    5,253
    
    
    
    (2,359
    )
    
    
    (18,522
    )Gain on sale of
unconsolidated affiliate
    
    
    
    
    
    
    
    
    
    
    (962
    )
    
    
    (962
    )Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,030
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (467
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,715Loss before income taxes and
equity in income of
unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (40,778
    )Additions to long-lived assets
    
    
    47,834
    
    
    
    
    
    
    
    372
    
    
    $
    48,206Total assets
    
    
    741,895
    
    
    
    2,218
    
    
    
    75,157
    
    
    $
    819,270
 Totals perResort Ownership/
    
    
    Resort Third-Party
    
    
    
    
    
    
    FinancialOperation
    
    
    Management/License
    
    
    Other
    
    
    StatementsThree months ended September
30, 2008Revenues
    
    $
    60,841
    
    
    $
    8,572
    
    
    $
    
    
    
    $
    69,413Depreciation and amortization
    
    
    (11,796
    )
    
    
    
    
    
    
    (199
    )
    
    
    (11,995
    )Operating income (loss)
    
    
    5,416
    
    
    
    2,630
    
    
    
    1,717
    
    
    
    9,763Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (625
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (279
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,808Income (loss) before income
taxes and equity in losses of
unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,859Additions to long-lived assets
    
    
    43,285
    
    
    
    
    
    
    
    254
    
    
    $
    43,539
 Totals perResort Ownership/
    
    
    Resort Third-Party
    
    
    
    
    
    
    FinancialOperation
    
    
    Management/License
    
    
    Other
    
    
    StatementsNine months ended September
30, 2008Revenues
    
    $
    174,991
    
    
    $
    21,648
    
    
    $
    
    
    
    $
    196,639Depreciation and amortization
    
    
    (34,171
    )
    
    
    
    
    
    
    (584
    )
    
    
    (34,755
    )Operating income (loss)
    
    
    9,977
    
    
    
    6,655
    
    
    
    (2,756
    )
    
    
    13,876Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,629
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,178
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,599Loss before income taxes and
equity in losses of
unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,916
    )Additions to long-lived assets
    
    
    98,019
    
    
    
    
    
    
    
    792
    
    
    $
    98,811Total assets
    
    
    730,802
    
    
    
    1,999
    
    
    
    133,435
    
    
    $
    866,236
 10




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##### Table of Contents



Recent Accounting Pronouncements 
       11




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##### Table of Contents



3. INVESTMENT IN AFFILIATES
 CNL Joint Venture
   Period
    
    
    Three
    
    
    
    
    
    NineJuly 1 through
    
    
    months ended
    
    
    Period January 1
    
    
    months endedAugust 5,
    
    
    September 30,
    
    
    through August 5,
    
    
    September 30,Operating data:
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    5,100
    
    
    $
    10,120
    
    
    $
    19,750
    
    
    $
    26,488Operating expenses
    
    $
    (4,383
    )
    
    $
    (10,793
    )
    
    $
    (24,213
    )
    
    $
    (31,978
    )Net income (loss)
    
    $
    717
    
    
    $
    (673
    )
    
    $
    (4,463
    )
    
    $
    (5,490
    )
  Grand Mound Joint Venture
  September 30,
    
    
    December 31,2009
    
    
    2008Balance sheet data:Total assets
    
    $
    148,162
    
    
    $
    152,215Total liabilities
    
    $
    114,135
    
    
    $
    118,636
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Operating data:Revenue
    
    $
    11,170
    
    
    $
    12,253
    
    
    $
    31,303
    
    
    $
    25,544Operating expenses
    
    $
    (9,165
    )
    
    $
    (9,579
    )
    
    $
    (26,467
    )
    
    $
    (23,861
    )Net income (loss)
    
    $
    634
    
    
    $
    463
    
    
    $
    448
    
    
    $
    (3,171
    )
  4. SHARE-BASED COMPENSATION
   12




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##### Table of Contents



Stock Options
    Weighted AverageWeighted Average
    
    
    RemainingShares
    
    
    Exercise Price
    
    
    Contractual LifeNumber of shares under option:Outstanding at beginning of period
    
    
    475,000
    
    
    $
    17.59Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    (21,500
    )
    
    $
    18.12Outstanding at end of period
    
    
    453,500
    
    
    $
    17.57
    
    
    5.34 yearsExercisable at end of period
    
    
    448,500
    
    
    $
    17.62
    
    
    5.25 years
  Market Condition Share Awards
    
    
    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.
 13




---



##### Table of Contents



The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    0.62
    %Expected stock price volatility
    
    
    96.51
    %Expected stock price volatility (small-cap stock index)
    
    
    37.89
    %
 We used an expected dividend yield of 0% as we do not currently pay a dividend and do
not contemplate paying a dividend in the foreseeable future. The weighted average,
risk free interest rate was based on the one-year T-bill rate. Our expected stock
price volatility was estimated using daily returns data of our stock for a two-year
period ending on the grant date. The expected stock price volatility for the small cap
stock index was estimated using daily returns data for a two-year period ending on the
grant date.
  
    
    84,748 were based on our common stocks performance in 2008 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, 2008-2010. The per share fair value
of these market condition shares was $1.63 as of the grant date.
 The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    2.05
    %Expected stock price volatility
    
    
    34.98
    %Expected stock price volatility (small-cap stock index)
    
    
    20.08
    %
 We used an expected dividend yield of 0% as we did not pay a dividend and did not
contemplate paying a dividend in the foreseeable future. The weighted average, risk
free interest rate was based on the one-year T-bill rate. Our expected stock price
volatility was estimated using daily returns data of our stock for a two-year period
ending on the grant date. The expected stock price volatility for the small cap stock
index was estimated using daily returns data for a two-year period ending on the grant
date. Due to resignation of a senior officer in May 2008, 55,046 shares were forfeited.
 The market condition for these shares was not met and therefore no shares related to
this grant were issued.
  
    
    81,293 were based on our common stocks absolute performance during the
three-year period 2007-2009. For shares that are earned, half of the shares vest on
December 31, 2009, and the other half vest on December 31, 2010. The per share fair
value of these market condition shares was $6.65.
 The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 14




---



##### Table of Contents



Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    4.73
    %Expected stock price volatility
    
    
    42.13
    %
 We used an expected dividend yield of 0% as we do not currently pay a dividend and do
not contemplate paying a dividend in the foreseeable future. The weighted average,
risk free interest rate was based on the four-year T-bill rate. Our expected stock
price volatility was estimated using daily returns data of our stock for a two-year
period ending on the grant date. Due to the resignation of two senior officers in
2008, 58,628 shares were forfeited.
 
    
    81,293 were based on our common stocks performance in 2007-2010 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, 2009, and the
other half vest on December 31, 2010. The per share fair value of these market
condition shares was $8.24.
 The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    4.73
    %Expected stock price volatility
    
    
    42.13
    %Expected stock price volatility (small-cap stock index)
    
    
    16.64
    %
 We used an expected dividend yield of 0% as we did not pay a dividend and did not
contemplate paying a dividend in the foreseeable future. The weighted average, risk
free interest rate was based on the four-year T-bill rate. Our expected stock price
volatility was estimated using daily returns data of our stock for a two-year period
ending on the grant date. The expected stock price volatility for the small cap stock
index was estimated using daily returns data for a two-year period ending on the grant
date. Due to the resignation of two senior officers in 2008, 58,628 shares were
forfeited.
 Performance Share Awards
   Deferred Compensation Awards
  15




---



##### Table of Contents



Non-vested Shares
   WeightedAverageGrant DateShares
    
    
    Fair ValueNon-vested shares balance at beginning of period
    
    
    300,249
    
    
    $
    9.29Granted
    
    
    331,179
    
    
    $
    2.88Forfeited
    
    
    (36,041
    )
    
    $
    6.47Vested
    
    
    (80,123
    )
    
    $
    9.64Non-vested shares balance at end of period
    
    
    515,264
    
    
    $
    5.41
   Vested Shares
  
    
    We issued 17,532 shares in February 2009 related to 2008 bonus amounts. We
valued these shares at $32 based on the closing market value of our common stock on
the date of the grant.
    
    We issued 265,908 shares in February 2008 related to 2007 bonus amounts. These shares were valued at $2,055 based on the closing market value of our common stock
on the date of grant.
 16




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##### Table of Contents



5. PROPERTY AND EQUIPMENT
  September 30,
    
    
    December 31,2009
    
    
    2008Land and improvements
    
    $
    60,718
    
    
    $
    51,684Building and improvements
    
    
    427,524
    
    
    
    353,537Furniture, fixtures and equipment
    
    
    340,323
    
    
    
    315,577Construction in process
    
    
    626
    
    
    
    117,063829,191
    
    
    
    837,861Less accumulated depreciation
    
    
    (141,208
    )
    
    
    (121,688
    )Property and equipment, net
    
    $
    687,983
    
    
    $
    716,173
   6. LONG-TERM DEBT
  September 30,
    
    
    December 31,2009
    
    
    2008Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    69,145
    
    
    $
    70,211Mason mortgage loan
    
    
    74,800
    
    
    
    76,800Pocono Mountains mortgage loan
    
    
    95,746
    
    
    
    96,571Williamsburg mortgage loan
    
    
    63,500
    
    
    
    64,625Grapevine mortgage loan
    
    
    78,709
    
    
    
    78,709Concord construction loan
    
    
    78,549
    
    
    
    27,594
 17




---



##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008Junior subordinated debentures
    
    
    80,545
    
    
    
    80,545Other Debt:City of Sheboygan bonds
    
    
    8,527
    
    
    
    8,493City of Sheboygan loan
    
    
    3,343
    
    
    
    3,503Other
    
    
    86
    
    
    
    552,950
    
    
    
    507,051Less current portion of long-term debt
    
    
    (14,638
    )
    
    
    (81,464
    )Total long-term debt
    
    $
    538,312
    
    
    $
    425,587
 Traverse City/Kansas City Mortgage Loan
 Mason Mortgage Loan
  Pocono Mountains Mortgage Loan 
 Williamsburg Mortgage Loan 
  18




---



##### Table of Contents



Grapevine Mortgage Loan
  Concord Construction Loan
 Junior Subordinated Debentures
    19




---



##### Table of Contents



City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughSeptember 30,2010
    
    $
    14,6382011
    
    
    210,8092012
    
    
    79,5322013
    
    
    3,6062014
    
    
    3,892Thereafter
    
    
    240,473Total
    
    $
    552,950
 7.  FAIR VALUE OF FINANCIAL INSTRUMENTS
       Level 1
    
    Level 2
    
    Level 3
    
    TotalInterest rate caps
    
    $    
    
    $
    (23
    )
    
    $    
    
    $
    (23
    )Long-term debt
    
    
    
    
    438,151
    
    
    
    
    
    438,151$    
    
    $
    438,174
    
    
    $    
    
    $
    438,174
    Level 1
    
    Level 2
    
    Level 3
    
    TotalProperty and Equipment
    
    $         
    
    $         
    
    
    $  6,000
    
    
    
    $  6,000
   8. COMPREHENSIVE INCOME
  9. EARNINGS PER SHARE
  20




---



##### Table of Contents



Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Net (loss) income
    
    $
    (42,148
    )
    
    $
    2,171
    
    
    $
    (53,499
    )
    
    $
    (4,246
    )Weighted average common shares outstanding  basic
    
    
    31,291,004
    
    
    
    30,840,691
    
    
    
    31,179,049
    
    
    
    30,793,822Weighted average common shares outstanding  diluted
    
    
    31,291,004
    
    
    
    30,840,691
    
    
    
    31,179,049
    
    
    
    30,793,822Net loss per share  basic
    
    $
    (1.35
    )
    
    $
    0.07
    
    
    $
    (1.72
    )
    
    $
    (0.14
    )Net loss per share  diluted
    
    $
    (1.35
    )
    
    $
    0.07
    
    
    $
    (1.72
    )
    
    $
    (0.14
    )
 
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 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 section in Item 1 of our Annual Report on Form
10-K entitled, Forward-Looking Statements. All dollar amounts in this discussion, except for per
share data and operating statistics, are in thousands.
 Overview
  Business.
  21




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##### Table of Contents



Number
    
    Number
    
    IndoorOwnership
    
    
    
    of
    
    of
    
    EntertainmentPercentage
    
    Opened
    
    Guest Suites
    
    Condo Units (1)
    
    Area (2)(Approx. ft2)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
    
    
    
    
    
    
    
    57,000Sheboygan, WI
    
    
    100
    %
    
    2004
    
    
    182
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    2005
    
    
    405
    
    
    
    
    
    
    
    87,000Pocono Mountains, PA
    
    
    100
    %
    
    2005
    
    
    401
    
    
    
    
    
    
    
    101,000Niagara Falls, ONT (4)
    
    
    
    
    
    2006
    
    
    406
    
    
    
    
    
    
    
    104,000Mason, OH
    
    
    100
    %
    
    2006
    
    
    401
    
    
    
    
    
    
    
    105,000Grapevine, TX (5)
    
    
    100
    %
    
    2007
    
    
    605
    
    
    
    
    
    
    
    110,000Grand Mound, WA (6)
    
    
    49
    %
    
    2008
    
    
    398
    
    
    
    
    
    
    
    74,000Concord, NC
    
    
    100
    %
    
    March 2009
    
    
    402
    
    
    
    
    
    
    
    97,000
 
 (1)
    
    Condominium units are individually owned by third parties and are managed by us.(2)
    
    Our indoor entertainment areas generally include our indoor waterpark, game
arcade, childrens activity room, family tech center, MagiQuest and fitness
room, as well as our spa in the resorts that have such amenities.(3)
    
    These properties are owned by CNL Lifestyle Properties, Inc. (CNL), a real estate investment trust focused on
leisure and lifestyle properties. Prior to  August 2009,  these properties were owned by a joint venture between CNL and us. In August 2009 we sold our 30.26% joint
venture interest to CNL for $6,000. We currently manage both properties and license the Great Wolf
Lodge brand to these resorts.(4)
    
    An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this
resort. We have granted Ripley a license to use the Great Wolf Lodge name for
this resort through April 2016. We managed the resort on behalf of Ripley
through April 2009.(5)
    
    In late 2007, we began construction on an additional 203 suites and 20,000
square feet of meeting space as an expansion of this resort. The meeting space,
along with 92 rooms, was opened in December 2008, with the rest of the rooms
completed and opened in January 2009.(6)
    
    This property is owned by a joint venture. The Confederated Tribes of the
Chehalis Reservation (Chehalis) owns a 51% interest in the joint venture, and
we own a 49% interest. We operate the property and license the Great Wolf Lodge
brand to the property 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. Industry Trends.
 22




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##### Table of Contents



Outlook.
    23




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##### Table of Contents




    
    severe turbulence in the banking and lending sectors, which has led to a general
lessening of the availability of credit to consumers;
    
    an increased national unemployment rate;
    
    a continuing decline in the national average of home prices; and
    
    high volatility in the stock market that led to substantial declines in leading
market averages and aggregate household savings from 2007 to 2009.
  
    
    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 origin of customers. We believe the
adverse general economic circumstances in the region have negatively impacted overall
discretionary consumer spending in that region over the past few years and may continue to
do so going forward. Although we have taken steps to reduce our operating costs at these
resorts, we believe the general regional economic downturn has and may continue to have an
impact on the operating performance of our Traverse City and Sandusky resorts.
    
    The 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 impact on the operating performance of the Wisconsin Dells
resort.
    
    We have experienced much lower-than-expected occupancy and lower-than-expected average
daily room rates at our Sheboygan, Wisconsin property since its opening in 2004. We believe
this operating weakness has been primarily attributable to the fact that the overall
development of Sheboygan as a tourist destination continues to lag materially behind our
initial expectations. We believe this has materially impacted and will likely continue to
impact the consumer demand for our indoor waterpark resort in that market and the operations
of the resort.Because of triggering events that occurred in the three months ended September 30, 2009,
related to our resort in Sheboygan, including changes in the expectation of how long we will
hold this property, current period and historical operating losses and the deterioration in the
current market conditions, we tested this resort to determine if further assessment for
potential impairment was required. Based on this testing, we determined the carrying value of
this resort was not recoverable. As a result, we recorded a $24,000 impairment charge to
decrease the resorts carrying value to its estimated fair value (net of estimated disposal
costs) as of September 30, 2009. To determine the estimated fair value for purposes of
calculating the impairment charge, we used a combination of historical and projected cash flows
and other available market information, such as recent sales prices for similar
assets. Although we believe our estimated fair value for the resort is reasonable, the actual
fair value we ultimately realize from this resort could differ materially from this estimate.
The impaired long-lived asset is included in our Resort Ownership/Operation segment.
    
    Our Mason resort opened its first phase in December 2006 and has experienced
lower-than-expected occupancy and lower-than-expected average daily room rates. We believe
this is due, in part, to the opening of competitive properties in the region.
 24




---



##### Table of Contents



Revenue and Key Performance Indicators.
 
    
    Monitoring our historical trends for occupancy and estimating our high occupancy nights;
    
    Offering the highest discounts to previous guests in off-peak periods to build customer
loyalty and enhance our ability to charge higher rates in peak periods;
    
    Structuring rates to allow us to offer our previous guests the best rate while
simultaneously working with a promotional partner or offering internet specials;
    
    Monitoring sales of room types daily to evaluate the effectiveness of offered discounts;
and
    
    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 available room, or Total RevPAR;
    
    Total revenue per occupied room, or Total RevPOR; and
 25




---



##### Table of Contents




    
    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 RevPAR is calculated by dividing total revenue by total available rooms.
    
    Total Rev POR is calculated by dividing total revenue by total occupied rooms.
    Critical Accounting Policies and Estimates
  26




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Recent Accounting Pronouncements
       27




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##### Table of Contents



Non-GAAP Financial Measures
    
    
    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.
   28




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net (loss) income
    
    $
    (42,148
    )
    
    $
    2,171
    
    
    $
    (53,499
    )
    
    $
    (4,246
    )Adjustments:Interest expense, net of interest income
    
    
    9,540
    
    
    
    6,529
    
    
    
    24,248
    
    
    
    19,421Income tax expense (benefit)
    
    
    19,278
    
    
    
    1,825
    
    
    
    11,756
    
    
    
    (2,290
    )Depreciation and amortization
    
    
    15,136
    
    
    
    11,995
    
    
    
    42,352
    
    
    
    34,755EBITDA
    
    $
    1,806
    
    
    $
    22,520
    
    
    $
    24,857
    
    
    $
    47,640
 Results of Operations
 General
  
    
    our subsidiary entity that provides resort development and management/licensing services;
    
    our Traverse City, Kansas City, Sheboygan, Williamsburg, Pocono Mountains, Mason,
Grapevine and Concord operating resorts; and
    
    our equity interests in resorts in which we have ownership interests but which we do not
consolidate.
 Revenues.
 
    
    lodging revenue, which includes rooms, food and beverage, and other department revenues from
our resorts;
    
    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 on our condensed consolidated statements of
operations as other revenue from managed properties, with a corresponding expense recorded
as other expenses from managed properties.
 Operating Expenses.
  
    
    selling, general and administrative expenses, which are associated with the operations
and management of resorts and which consist primarily of expenses such as corporate payroll
and related benefits, operations management, sales and marketing, finance, legal,
information technology support, human resources and other support services, as well as
general corporate expenses;
    
    property operation and maintenance expenses, such as utility costs, insurance and
property taxes;
    
    depreciation and amortization; and
 29




---



##### Table of Contents




    
    other expenses from managed properties.
 Three months ended September 30, 2009, compared with the three months ended September 30, 2008
  All Properties (a)Three months
    
    Three monthsended
    
    ended
    
    DecreaseSeptember 30, 2009
    
    September 30, 2008
    
    $
    
    %Occupancy
    
    
    69.1
    %
    
    
    72.2
    %
    
    
    N/A
    
    
    
    (4.3
    )%ADR
    
    $
    246.42
    
    
    $
    255.39
    
    
    $
    (8.97
    )
    
    
    (3.5
    )%RevPAR
    
    $
    170.26
    
    
    $
    184.52
    
    
    $
    (14.26
    )
    
    
    (7.7
    )%Total RevPOR
    
    $
    374.36
    
    
    $
    384.75
    
    
    $
    (10.39
    )
    
    
    (2.7
    )%Total RevPAR
    
    $
    258.67
    
    
    $
    277.98
    
    
    $
    (19.31
    )
    
    
    (6.9
    )%
 
 (a)
    
    Includes results for properties that were open for any portion of the period, for all owned
and/or managed resorts. Same Store Comparison (b)Three months
    
    Three monthsended
    
    ended
    
    DecreaseSeptember 30, 2009
    
    September 30, 2008
    
    $
    
    %Occupancy
    
    
    69.9
    %
    
    
    71.9
    %
    
    
    N/A
    
    
    
    (2.8
    )%ADR
    
    $
    240.01
    
    
    $
    247.20
    
    
    $
    (7.19
    )
    
    
    (2.9
    )%RevPAR
    
    $
    167.87
    
    
    $
    177.76
    
    
    $
    (9.89
    )
    
    
    (5.6
    )%Total RevPOR
    
    $
    363.87
    
    
    $
    372.68
    
    
    $
    (8.81
    )
    
    
    (2.4
    )%Total RevPAR
    
    $
    254.50
    
    
    $
    268.00
    
    
    $
    (13.50
    )
    
    
    (5.0
    )%
 
 (b)
    
    Same store comparison includes properties that were open for the full periods and with
comparable number of rooms in 2009 and 2008 (that is, our Wisconsin Dells, Sandusky, Traverse
City, Kansas City, Sheboygan, Williamsburg, Poconos, Niagara Falls, Mason and Grand Mound
resorts).  30




---



##### Table of Contents



Three months endedSeptember 30,Increase/2009
    
    2008
    
    (Decrease)Revenues
    
    $
    76,827
    
    
    $
    69,413
    
    
    $
    7,414Operating expenses:Departmental operating expenses
    
    
    24,484
    
    
    
    21,415
    
    
    
    3,069Selling, general and administrative
    
    
    14,911
    
    
    
    11,637
    
    
    
    3,274Property operating costs
    
    
    8,201
    
    
    
    8,642
    
    
    
    (441
    )Depreciation and amortization
    
    
    15,136
    
    
    
    11,995
    
    
    
    3,141Asset impairment loss
    
    
    24,000
    
    
    
    
    
    
    
    24,000Net operating (loss) income
    
    
    (15,491
    )
    
    
    9,763
    
    
    
    (25,254
    )Gain on sale of unconsolidated affiliate
    
    
    (962
    )
    
    
    
    
    
    
    (962
    )Interest expense, net of interest income
    
    
    9,540
    
    
    
    6,529
    
    
    
    3,011Income tax expense
    
    
    18,267
    
    
    
    1,755
    
    
    
    16,512Net (loss) income
    
    
    (42,148
    )
    
    
    2,171
    
    
    
    (44,319
    )
 Revenues.
 
    
    An increase in revenue from our Grapevine resort, due to the completion of its
expansion in early 2009; and
    
    An increase in revenue from our Concord resort, which opened in March 2009.
  Operating expenses.
 
    
    Departmental expenses increased by $3,069 for the three months ended September 30, 2009,
as compared to the three months ended September 30, 2008, due primarily to the opening of
our Concord resort.
    
    Total selling, general and administrative expenses increased by $3,274 in three months
ended September 30, 2009, as compared to the three months ended September 30, 2008, due
primarily to the opening of our Concord resort and  less
labor and overhead expenses allocated to development properties during the three months
ended September 30, 2009 than in the three months ended September 30, 2008.
    
    Opening-related costs (included in total property operating costs) related to our
resorts were $9 for the three months ended September 30, 2009, as compared to $402 for the
three months ended September 30, 2008, due primarily to the opening of our Concord resort
in March 2009.
    
    Total depreciation and amortization increased for the three months ended September 30,
2009, as compared to the three months ended September 30, 2008, primarily due to the
expansion of our Grapevine resort as well as the opening of our Concord resort. Also, loan
fees incurred during the three months ended September 30, 2009 as compared to the three
months ended September 30, 2008 were higher due to fees incurred in connection with the
extensions of our Mason and Grapevine mortgage loans.
 31




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##### Table of Contents




    
    We recorded a $24,000 asset impairment loss related to our resort in Sheboygan during the
three months ended September 30, 2009. We had no similar loss in the three months ended
September 30, 2008.
 Net operating (loss) income .
 Net (loss) income.
 
    
    A decrease in net operating loss of $25,254 for the three months ended September 30,
2009, as compared to the three months ended September 30, 2008,
    
    An increase in net interest expense of $3,011, mainly due to interest expense on our
Concord loan, and less interest being capitalized to development properties in 2009 as
compared to 2008; and
    
    An increase in income tax expense mainly due to a $28,490 income tax expense related
to our net operating loss valuation allowance, which was partially offset by the tax
impact of our impairment loss.
  Nine months ended September 30, 2009, compared with the nine months ended September 30, 2008
  All Properties (a)Nine months
    
    Nine monthsended
    
    ended
    
    Increase (Decrease)September 30, 2009
    
    September 30, 2008
    
    $
    
    %Occupancy
    
    
    63.4
    %
    
    
    67.9
    %
    
    
    N/A
    
    
    
    (6.6
    )%ADR
    
    $
    243.00
    
    
    $
    252.64
    
    
    $
    (9.64
    )
    
    
    (3.8
    )%RevPAR
    
    $
    154.12
    
    
    $
    171.58
    
    
    $
    (17.46
    )
    
    
    (10.2
    )%Total RevPOR
    
    $
    373.87
    
    
    $
    386.66
    
    
    $
    (12.79
    )
    
    
    (3.3
    )%Total RevPAR
    
    $
    237.12
    
    
    $
    262.59
    
    
    $
    (25.47
    )
    
    
    (9.7
    )%
 
 (a)
    
    Includes results for properties that were open for any portion of the period, for all owned
and/or managed resorts. Same Store Comparison (b)Nine months
    
    Nine monthsended
    
    ended
    
    Increase (Decrease)September 30, 2009
    
    September 30, 2008
    
    $
    
    %Occupancy
    
    
    63.4
    %
    
    
    66.7
    %
    
    
    N/A
    
    
    
    (4.9
    )%ADR
    
    $
    235.56
    
    
    $
    246.00
    
    
    $
    (10.44
    )
    
    
    (4.2
    )%RevPAR
    
    $
    149.28
    
    
    $
    164.01
    
    
    $
    (14.73
    )
    
    
    (9.0
    )%Total RevPOR
    
    $
    358.47
    
    
    $
    372.04
    
    
    $
    (13.57
    )
    
    
    (3.6
    )%Total RevPAR
    
    $
    227.17
    
    
    $
    248.04
    
    
    $
    (20.87
    )
    
    
    (8.4
    )%
 
 (b)
    
    Same store comparison includes properties that were open for the full periods and with
comparable number of rooms in 2009 and 2008 (that is, our Wisconsin Dells, Sandusky, Traverse
City, Kansas City, Sheboygan, Williamsburg, Poconos, Niagara Falls and Mason resorts). 32




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##### Table of Contents



Nine months endedSeptember 30,Increase/2009
    
    2008
    
    (Decrease)Revenues
    
    $
    207,759
    
    
    $
    196,639
    
    
    $
    11,120Operating expenses:Departmental operating expenses
    
    
    67,433
    
    
    
    62,711
    
    
    
    4,722Selling, general and administrative
    
    
    46,542
    
    
    
    41,729
    
    
    
    4,813Property operating costs
    
    
    29,657
    
    
    
    28,556
    
    
    
    1,101Depreciation and amortization
    
    
    42,352
    
    
    
    34,755
    
    
    
    7,597Asset impairment loss
    
    
    24,000
    
    
    
    
    
    
    
    24,000Net operating (loss) income
    
    
    (18,522
    )
    
    
    13,876
    
    
    
    (32,398
    )Gain on sale of unconsolidated affiliate
    
    
    (962
    )
    
    
    
    
    
    
    (962
    )Interest expense, net of interest income
    
    
    24,248
    
    
    
    19,421
    
    
    
    4,827Income tax expense (benefit)
    
    
    11,484
    
    
    
    (1,282
    )
    
    
    12,766Net loss
    
    
    (53,499
    )
    
    
    (4,246
    )
    
    
    (49,253
    )
 Revenues.
 
    
    An increase in revenue from our Grapevine resort, due to the completion of its
expansion in early 2009; and
    
    An increase in revenue from our Concord resort, which opened in March 2009.
  Operating expenses.
 
    
    Departmental expenses increased by $4,722 for the nine months ended September 30, 2009,
as compared to the nine months ended September 30, 2008, due primarily to the opening of our
Concord resort.
 33




---



##### Table of Contents




    
    Total selling, general and administrative expenses increased by $4,813 in nine months
ended September 30, 2009, as compared to the nine months ended September 30, 2008, due
primarily to the opening of our Concord resort, the expansion of our
Grapevine resort,
and less labor and overhead expenses allocated to
development.
Separation costs for former officers were
$791 less in the nine months ended September 30, 2009 than in the nine months ended
September 30, 2008.
    
    Opening-related costs (included in total property operating costs) related to our
resorts were $5,592 for the nine months ended September 30, 2009, as compared to $4,350 for
the nine months ended September 30, 2008, due primarily to the expansion of our Grapevine
resort in early 2009 and the opening of our Concord resort in March 2009.
    
    Total depreciation and amortization increased for the nine months ended September 30,
2009, as compared to the nine months ended September 30, 2008, primarily due to the
expansion of our Grapevine resort, as well as the opening of our Concord resort. Also, loan
fees incurred during the nine months ended September 30, 2009 as compared to the nine months
ended September 30, 2008 were higher due to fees incurred in connection with the extensions
of our Mason and Grapevine mortgage loans.
    
    We recorded a $24,000 asset impairment loss related to our resort in Sheboygan during the
nine months ended September 30, 2009. We had no similar loss in the nine months ended
September 30, 2008.
 Net operating (loss) income.
 Net loss.
 
    
    The decrease in operating income of $32,398 for the nine months ended September 30,
2009 as compared to the nine months ended September 30, 2008;
    
    An increase in net interest expense of $4,827 mainly due to interest expense on our
Concord loan and less interest being capitalized to development properties; and
    
    An increase in income tax expense mainly due to a $28,490 income tax expense related
to our net operating loss valuation allowance, which was partially offset by the tax
impact of our impairment loss.
  Segments
  
    
    resort ownership/operation-revenues derived from our consolidated owned resorts; and
    
    resort third-party management/license-revenues derived from management, license and other related
fees from unconsolidated managed resorts.
  34




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##### Table of Contents



Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,Increase /
    
    
    
    
    
    
    
    
    
    Increase /2009
    
    2008
    
    (Decrease)
    
    2009
    
    2008
    
    (Decrease)Resort Ownership/OperationRevenues
    
    $
    69,424
    
    
    $
    60,841
    
    
    $
    8,583
    
    
    $
    186,411
    
    
    $
    174,991
    
    
    $
    11,420EBITDA
    
    
    (2,823
    )
    
    
    17,211
    
    
    
    (20,034
    )
    
    
    20,362
    
    
    
    44,147
    
    
    
    (23,785
    )Resort Third-Party Management/LicenseRevenues
    
    
    7,403
    
    
    
    8,572
    
    
    
    (1,169
    )
    
    
    21,348
    
    
    
    21,648
    
    
    
    (300
    )EBITDA
    
    
    1,828
    
    
    
    2,631
    
    
    
    (803
    )
    
    
    5,252
    
    
    
    6,655
    
    
    
    (1,403
    )OtherRevenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EBITDA
    
    
    2,801
    
    
    
    2,678
    
    
    
    123
    
    
    
    (757
    )
    
    
    (3,162
    )
    
    
    2,405
  Liquidity and Capital Resources
  September 30,
    
    
    December 31,2009
    
    
    2008Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    69,145
    
    
    $
    70,211Mason mortgage loan
    
    
    74,800
    
    
    
    76,800Pocono Mountains mortgage loan
    
    
    95,746
    
    
    
    96,571Williamsburg mortgage loan
    
    
    63,500
    
    
    
    64,625Grapevine mortgage loan
    
    
    78,709
    
    
    
    78,709Concord construction loan
    
    
    78,549
    
    
    
    27,594Junior subordinated debentures
    
    
    80,545
    
    
    
    80,545Other Debt:City of Sheboygan bonds
    
    
    8,527
    
    
    
    8,493City of Sheboygan loan
    
    
    3,343
    
    
    
    3,503Other
    
    
    86
    
    
    
    552,950
    
    
    
    507,051Less current portion of long-term debt
    
    
    (14,638
    )
    
    
    (81,464
    )Total long-term debt
    
    $
    538,312
    
    
    $
    425,587
 Traverse City/Kansas City Mortgage Loan
 Mason Mortgage Loan
 35




---



##### Table of Contents



Pocono Mountains Mortgage Loan 
 Williamsburg Mortgage Loan 
  Grapevine Mortgage Loan
  Concord Construction Loan
 36




---



##### Table of Contents



Junior Subordinated Debentures
      City of Sheboygan Bonds
 City of Sheboygan Loan
 37




---



##### Table of Contents



Future Maturities
 ThroughSeptember 30,2010
    
    $
    14,6382011
    
    
    210,8092012
    
    
    79,5322013
    
    
    3,6062014
    
    
    3,892Thereafter
    
    
    240,473Total
    
    $
    552,950
 Short-Term Liquidity Requirements
  
    
    recurring maintenance, repairs and other operating expenses necessary to properly
maintain and operate our resorts;
    
    debt maturities within the next year;
    
    property taxes and insurance expenses;
    
    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.
  38




---



##### Table of Contents




    
    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 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, as market conditions permit.
    Off Balance Sheet Arrangements
    39




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##### Table of Contents



Contractual Obligations
  Payment TermsLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsDebt obligations (1)
    
    $
    618,826
    
    
    $
    25,383
    
    
    $
    311,305
    
    
    $
    27,612
    
    
    $
    254,526Operating lease obligations
    
    
    766
    
    
    
    424
    
    
    
    326
    
    
    
    16
    
    
    
    Reserve on unrecognized tax benefits
    
    
    1,268
    
    
    
    
    
    
    
    
    
    
    
    1,268
    
    
    
    Total
    
    $
    620,860
    
    
    $
    25,807
    
    
    $
    311,631
    
    
    $
    28,896
    
    
    $
    254,526
 
 (1)
    
    Amounts include interest (for fixed rate debt) and principal. They also include $8,527 of fixed rate debt
recognized as a liability related to certain bonds issued by the City of Sheboygan and $3,343 of fixed rate
debt recognized as a liability related to a loan from the City of Sheboygan. These liabilities will be
satisfied by certain future minimum guaranteed amounts of real and personal property tax payments and room tax
payments to be made by our Sheboygan resort.  Working Capital
  
    
    The use of cash for capital expenditures and investments in and advances to
affiliates and of our properties that were under development, and
 
    
    Less proceeds from issuances of long-term debt.
 Cash Flows
 Nine months ended September 30, 2009, compared with the nine months ended September 30, 2008
 Increase/2009
    
    2008
    
    (Decrease)Net cash provided by operating activities
    
    $
    14,056
    
    
    $
    27,265
    
    
    $
    (13,209
    )Net cash used in investing activities
    
    
    (34,337
    )
    
    
    (108,971
    )
    
    
    74,634Net cash provided by financing activities
    
    
    34,044
    
    
    
    88,993
    
    
    
    (54,949
    )
 Operating Activities.
 40




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##### Table of Contents



Investing Activities.
 Financing Activities.
 Inflation
  
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
    
    $69,145 of fixed rate debt secured by two of our resorts. This debt bears interest at
6.96%.
 
    
    $74,800 of variable rate debt secured by one of our resorts. This debt bears interest at
a floating rate of 30-day LIBOR plus a spread of 425 basis points, with a minimum rate of
6.50% per annum. The effective rate was 6.50% at September 30, 2009.
    
    $95,746 of fixed rate debt secured by one of our resorts. This debt bears interest at
6.10%.
    
    $63,500 of variable rate debt secured by one of our resorts. This debt bears interest at
a floating rate of 30-day LIBOR plus a spread of 350 basis points, with a minimum rate of
6.25% per annum. The effective rate was 6.25% at September 30, 2009.
    
    $78,709 of variable rate debt secured by one of our resorts. This debt bears interest at
a floating rate of 90-day LIBOR plus a spread of 400 basis points, with a minimum rate of
7.00% per annum. The effective rate was 7.00% at September 30, 2009.
    
    $78,549 of variable rate debt secured by one of our resorts. This debt bears interest at
a floating annual rate of LIBOR plus a spread of 310 basis points, with a minimum rate of
6.50% per annum. The effective rate was 6.50% at September 30, 2009.
    
    $51,550 of subordinated debentures 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.
 41




---



##### Table of Contents




    
    $28,995 of subordinated debentures that bear interest at a fixed rate of 7.90% through
June 2012 and then at a floating rate of LIBOR plus 300 basis points thereafter. The
securities mature in June 2017.
    
    $8,527 of fixed rate debt (effective interest rate of 10.67%) recognized as a liability
related to certain bonds issued by the City of Sheboygan and $3,343 of non-interest bearing
debt recognized as a liability related to a loan from the City of Sheboygan. These
liabilities will be satisfied by certain future minimum guaranteed amounts of real and
personal property tax payments and room tax payments to be made by the Sheboygan resort.
    
    $86 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
   Changes in Internal Control over Financial Reporting
  42




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
 A
regional, national or global outbreak of influenza or other disease,
such as the recent international outbreak of influenza A(H1N1), could
adversely affect our business and results of operations.
   
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS
  ExhibitNumber
    
    Description2.1
    
    
    Form of Merger Agreement (Delaware) (incorporated herein by reference to
Exhibit 2.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)2.2
    
    
    Form of Merger Agreement (Wisconsin) (incorporated herein by reference to
Exhibit 2.2 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)
 43




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##### Table of Contents



ExhibitNumber
    
    Description3.1
    
    
    Form of Amended and Restated Certificate of Incorporation for Great Wolf
Resorts, Inc. dated December 9, 2004 (incorporated herein by reference to
Exhibit 3.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)3.2
    
    
    Form of Amended and Restated Bylaws of Great Wolf Resorts, Inc. effective
December 20, 2004 (incorporated herein by reference to Exhibit 3.2 to the
Companys Registration Statement on Form S-1 filed August 12, 2004)4.1
    
    
    Form of the Common Stock Certificate of Great Wolf Resorts, Inc.
(incorporated herein by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-1 filed October 21, 2004)4.2
    
    
    Junior Subordinated Indenture, dated as of March 15, 2005, between Great
Wolf Resorts, Inc. and JP Morgan Chase Bank, National Association, as
trustee (incorporated herein by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K filed March 18, 2005)4.3
    
    
    Amended and Restated Trust Agreement, dated as of March 15, 2005, by and
among Chase Manhattan Bank USA, National Association, as Delaware trustee;
JP Morgan Chase Bank, National Association, as property trustee; Great
Wolf Resorts, Inc., as depositor; and James A. Calder, Alex G. Lombardo
and J. Michael Schroeder, as administrative trustees (incorporated herein
by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K
filed March 18, 2005)4.4
    
    
    Junior Subordinated Debenture, dated as of June 15, 2007, between Great
Wolf Resorts, Inc. and JP Morgan Chase Bank, National Association, as
trustee (incorporated herein by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K filed June 19, 2007)4.5
    
    
    Amended and Restated Trust Agreement, dated as of June 15, 2007, by and
among Great Wolf Resorts, Inc., as depositor, Wells Fargo Bank, N.A., as
property trustee, Wells Fargo Delaware Trust Company, as Delaware trustee,
and James A. Calder, Alex P. Lombardo and J. Michael Schroeder, as
administrative trustees (incorporated herein by reference to Exhibit 4.2
to the Companys Current Report on Form 8-K filed June 19, 2007)4.6
    
    
    Purchase Agreement, dated April 29, 2009, by and among Great Bear Lodge of
Wisconsin Dells, LLC, a Delaware limited liability company, Great Lakes
Services, LLC, a Delaware limited liability company and CNL Income
Partners, LP, a Delaware limited partnership (incorporated herein by
reference to Exhibit 4.6 to the Companys Current Quarterly Report on Form
10-Q filed August 5, 2009)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
 
 *
    
    Filed herewith. 44




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##### Table of Contents



SIGNATURE
  GREAT WOLF RESORTS, INC./s/ James A. CalderJames A. CalderChief Financial Officer
(Duly authorized officer)
(Principal Financial and Accounting Officer)  45