##### 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, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission File Number 000-51064
 
 GREAT WOLF RESORTS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of incorporation or organization)
    
    51-0510250(I.R.S. Employer Identification No.)525 Junction Road, Suite 6000 South 
Madison, Wisconsin 53717(Address of principal executive offices)
    
    53717(Zip Code)
 (608) 662-4700
 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




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##### 



Great Wolf Resorts, Inc.
 Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2010
 INDEX
 PageNo.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009
    
    4Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2010
and 2009
    
    5Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009
    
    6Notes to Condensed Consolidated Financial Statements
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    34Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    56Item 4. Controls and Procedures
    
    57PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    58Item 1A. Risk Factors
    
    59Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    59Item 3. Defaults Upon Senior Securities
    
    59Item 4. [Removed and Reserved]
    
    59Item 5. Other Information
    
    59Item 6. Exhibits
    
    59Signatures
    
    61EX-31.1EX-31.2EX-32.1EX-32.2
  2




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FORWARD-LOOKING STATEMENTS
    3




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




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##### 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 ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Rooms
    
    $
    47,559
    
    
    $
    46,214
    
    
    $
    128,807
    
    
    $
    122,869Food and beverage
    
    
    12,498
    
    
    
    11,877
    
    
    
    35,571
    
    
    
    33,084Other
    
    
    13,536
    
    
    
    11,333
    
    
    
    34,123
    
    
    
    30,458Management and other fees
    
    
    916
    
    
    
    626
    
    
    
    2,111
    
    
    
    1,617Management and other fees  affiliates
    
    
    900
    
    
    
    1,202
    
    
    
    2,880
    
    
    
    3,63675,409
    
    
    
    71,252
    
    
    
    203,492
    
    
    
    191,664Other revenue from managed properties  affiliates
    
    
    2,725
    
    
    
    3,966
    
    
    
    8,178
    
    
    
    14,486Other revenue from managed properties
    
    
    2,984
    
    
    
    1,609
    
    
    
    8,555
    
    
    
    1,609Total revenues
    
    
    81,118
    
    
    
    76,827
    
    
    
    220,225
    
    
    
    207,759Operating expenses by department:Rooms
    
    
    6,488
    
    
    
    6,332
    
    
    
    18,561
    
    
    
    17,309Food and beverage
    
    
    9,005
    
    
    
    9,226
    
    
    
    26,271
    
    
    
    25,506Other
    
    
    9,693
    
    
    
    8,926
    
    
    
    26,635
    
    
    
    24,618Other operating expenses:Selling, general and administrative
    
    
    16,560
    
    
    
    14,911
    
    
    
    49,788
    
    
    
    46,542Property operating costs
    
    
    8,926
    
    
    
    8,201
    
    
    
    26,130
    
    
    
    29,657Depreciation and amortization
    
    
    13,806
    
    
    
    15,136
    
    
    
    44,936
    
    
    
    42,352Loss on disposition of property
    
    
    
    
    
    
    11
    
    
    
    19
    
    
    
    202Asset impairment loss
    
    
    
    
    
    
    24,000
    
    
    
    
    
    
    
    24,00064,478
    
    
    
    86,743
    
    
    
    192,340
    
    
    
    210,186Other expenses from managed properties  affiliates
    
    
    2,725
    
    
    
    3,966
    
    
    
    8,178
    
    
    
    14,486Other expenses from managed properties
    
    
    2,984
    
    
    
    1,609
    
    
    
    8,555
    
    
    
    1,609Total operating expenses
    
    
    70,187
    
    
    
    92,318
    
    
    
    209,073
    
    
    
    226,281Net operating income (loss)
    
    
    10,931
    
    
    
    (15,491
    )
    
    
    11,152
    
    
    
    (18,522
    )Gain on sale of unconsolidated affiliates
    
    
    
    
    
    
    (962
    )
    
    
    
    
    
    
    (962
    )Investment income  affiliates
    
    
    (267
    )
    
    
    (310
    )
    
    
    (832
    )
    
    
    (1,030
    )Interest income
    
    
    (59
    )
    
    
    (131
    )
    
    
    (492
    )
    
    
    (467
    )Interest expense
    
    
    12,313
    
    
    
    9,671
    
    
    
    33,971
    
    
    
    24,715Loss before income taxes and equity in
(income) loss of unconsolidated affiliates
    
    
    (1,056
    )
    
    
    (23,759
    )
    
    
    (21,495
    )
    
    
    (40,778
    )Income tax expense
    
    
    48
    
    
    
    13,163
    
    
    
    417
    
    
    
    6,380Equity in (income) loss of unconsolidated affiliates,
net of tax
    
    
    (46
    )
    
    
    1
    
    
    
    (69
    )
    
    
    1,116Net loss
    
    
    (1,058
    )
    
    
    (36,923
    )
    
    
    (21,843
    )
    
    
    (48,274
    )Net loss attributable to noncontrolling interest, net
of tax
    
    
    (65
    )
    
    
    
    
    
    
    (25
    )
    
    
    Net loss attributable to Great Wolf Resorts, Inc.
    
    $
    (993
    )
    
    $
    (36,923
    )
    
    $
    (21,818
    )
    
    $
    (48,274
    )Basic loss per common share
    
    $
    (0.03
    )
    
    $
    (1.18
    )
    
    $
    (0.70
    )
    
    $
    (1.55
    )Diluted loss per common share
    
    $
    (0.03
    )
    
    $
    (1.18
    )
    
    $
    (0.70
    )
    
    $
    (1.55
    )Weighted average common shares outstanding:Basic
    
    
    31,035,048
    
    
    
    31,291,004
    
    
    
    30,957,698
    
    
    
    31,179,049Diluted
    
    
    31,035,048
    
    
    
    31,291,004
    
    
    
    30,957,698
    
    
    
    31,179,049
  5




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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 30,2010
    
    
    2009Operating activities:Net loss
    
    $
    (21,843
    )
    
    $
    (48,274
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    44,936
    
    
    
    42,352Bad debt expense
    
    
    205
    
    
    
    642Non-cash employee compensation and professional fees expense
    
    
    1,606
    
    
    
    829Loss on disposition of property
    
    
    19
    
    
    
    202Asset impairment loss
    
    
    
    
    
    
    24,000Gain on sale of unconsolidated affiliates
    
    
    
    
    
    
    (962
    )Equity in (income) losses of unconsolidated affiliates
    
    
    (68
    )
    
    
    965Deferred tax expense (benefit)
    
    
    (366
    )
    
    
    6,535Changes in operating assets and liabilities:Accounts receivable and other assets
    
    
    (1,905
    )
    
    
    (7,711
    )Accounts payable, accrued expenses and other liabilities
    
    
    9,929
    
    
    
    (4,522
    )Net cash provided by operating activities
    
    
    32,513
    
    
    
    14,056Investing activities:Capital expenditures for property and equipment
    
    
    (7,626
    )
    
    
    (48,206
    )Loan repayment from unconsolidated affiliates
    
    
    1,225
    
    
    
    8,833Investment in affiliate
    
    
    (8
    )
    
    
    Investment in unconsolidated affiliates
    
    
    
    
    
    
    (303
    )Proceeds from sale of interest in unconsolidated affiliate
    
    
    
    
    
    
    6,000Investment in development
    
    
    (498
    )
    
    
    978Proceeds from sale of assets
    
    
    15
    
    
    
    66Cash acquired in acquisition of Creative Kingdoms, LLC
    
    
    324
    
    
    
    (Increase) decrease in restricted cash
    
    
    (487
    )
    
    
    161Decrease (increase) in escrows
    
    
    4,710
    
    
    
    (1,866
    )Net cash used in investing activities
    
    
    (2,345
    )
    
    
    (34,337
    )Financing activities:Principal payments on long-term debt
    
    
    (216,414
    )
    
    
    (5,151
    )Proceeds from issuance of long-term debt
    
    
    219,337
    
    
    
    51,051Payment of loan costs
    
    
    (10,901
    )
    
    
    (11,856
    )Net cash (used in) provided by financing activities
    
    
    (7,978
    )
    
    
    34,044Net increase in cash and cash equivalents
    
    
    22,190
    
    
    
    13,763Cash and cash equivalents, beginning of period
    
    
    20,913
    
    
    
    14,231Cash and cash equivalents, end of period
    
    $
    43,103
    
    
    $
    27,994Supplemental Cash Flow Information:Cash paid for interest, net of capitalized interest
    
    $
    22,508
    
    
    $
    24,254Cash paid for income taxes, net of refunds
    
    $
    523
    
    
    $
    379Non-cash items:Construction in process accruals
    
    $
    
    
    
    $
    15Loan cost accruals
    
    $
    1,238
    
    
    $
    Conversion of note receivable and accrued interest to equity investment
    
    $
    9,963
    
    
    $
    
  6




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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
     7




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##### 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
    
    
    
    
    57,000Sheboygan, WI
    
    
    100
    %
    
    2004
    
    182
    
    64
    
    
    54,000Williamsburg, 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 and fitness
room, as well as our spa in the resorts that have such amenities. 8




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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)
    
    Five of our properties (Great Wolf Lodge resorts in Williamsburg, VA; Pocono
Mountains, PA; Mason, OH; Grapevine, TX and Concord, NC) each had a book value
of fixed assets equal to ten percent or more of our total assets as of
September 30, 2010 and each of those five properties had total revenues equal
to ten percent or more of our total revenues for the three and nine months
ended September 30, 2010.(5)
    
    An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this
resort. We have granted Ripley a license to use the Great Wolf Lodge name for
this resort through April 2016. We managed the resort on behalf of Ripley
through April 2009.(6)
    
    This property is owned by a joint venture. The Confederated Tribes of the
Chehalis Reservation (Chehalis) owns a 51% interest in the joint venture, and
we own a 49% interest. We operate the property and license the Great Wolf Lodge
brand to the joint venture under long-term agreements through April 2057,
subject to earlier termination in certain situations. The joint venture leases
the land for the resort from the United States Department of the Interior,
which is trustee for Chehalis. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 General
  Principles of Consolidation
 Acquisition Accounting
 Goodwill
 9




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##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009Goodwill
    
    $
    2,276
    
    
    
    130,496Accumulated impairment losses
    
    
    
    
    
    
    (68,405
    )Goodwill related to sale of affiliate
    
    
    
    
    
    
    (62,091
    )$
    2,276
    
    
    $
    
 Noncontrolling Interests
 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 resorts.
  Totals perResort Ownership/
    
    
    Resort Third-Party
    
    
    
    
    
    
    FinancialOperation
    
    
    Management/License
    
    
    Other
    
    
    StatementsThree months ended September
30, 2010Revenues
    
    $
    71,147
    
    
    $
    7,525
    
    
    $
    2,446
    
    
    $
    81,118Depreciation and amortization
    
    
    (12,726
    )
    
    
    
    
    
    
    (1,080
    )
    
    
    (13,806
    )Net operating income (loss)
    
    
    9,531
    
    
    
    1,816
    
    
    
    (416
    )
    
    
    10,931Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (267
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,313Loss before income taxes and
equity in (income) loss of
unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,056
    )Additions to long-lived assets
    
    
    911
    
    
    
    
    
    
    
    486
    
    
    $
    1,397
 10




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##### Table of Contents



Totals perResort Ownership/
    
    
    Resort Third-Party
    
    
    
    
    
    
    FinancialOperation
    
    
    Management/License
    
    
    Other
    
    
    StatementsNine months ended September
30, 2010Revenues
    
    $
    195,188
    
    
    $
    21,724
    
    
    $
    3,313
    
    
    $
    220,225Depreciation and amortization
    
    
    (42,997
    )
    
    
    
    
    
    
    (1,939
    )
    
    
    (44,936
    )Net operating income (loss)
    
    
    8,822
    
    
    
    4,991
    
    
    
    (2,661
    )
    
    
    11,152Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (832
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (492
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,971Loss before income taxes and
equity in (income) loss of
unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (21,495
    )Additions to long-lived assets
    
    
    6,701
    
    
    
    
    
    
    
    925
    
    
    $
    7,626Total assets
    
    
    676,400
    
    
    
    1,863
    
    
    
    125,089
    
    
    $
    803,352
 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
    )Net operating (loss) income
    
    
    (17,757
    )
    
    
    1,828
    
    
    
    438
    
    
    
    (15,491
    )Gain on sale of
unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    (962
    )
    
    
    (962
    )Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (310
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (131
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,671Loss before income taxes and
equity in (income) loss of
unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (23,759
    )Additions to long-lived assets
    
    
    2,215
    
    
    
    
    
    
    
    145
    
    
    $
    2,360
 11




---



##### Table of Contents



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
    )Net operating (loss) income
    
    
    (21,416
    )
    
    
    5,253
    
    
    
    (2,359
    )
    
    
    (18,522
    )Gain on sale of
unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    (962
    )
    
    
    (962
    )Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,030
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (467
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,715Loss before income taxes and
equity in (income) loss of
unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (40,778
    )Additions to long-lived assets
    
    
    47,834
    
    
    
    
    
    
    
    372
    
    
    $
    48,206Total assets (as of December
31, 2009)
    
    
    707,472
    
    
    
    2,942
    
    
    
    95,330
    
    
    $
    805,744
  Recent Accounting Pronouncements 
   12




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##### Table of Contents



3. INVESTMENT IN AFFILIATES
 CNL Joint Venture
   Period July 1 through
    
    
    Period January 1 throughAugust 5,
    
    
    August 5,2009
    
    
    2009Operating data:Revenue
    
    $
    5,100
    
    
    $
    19,750Operating expenses
    
    $
    (4,383
    )
    
    $
    (24,213
    )Net income (loss)
    
    $
    717
    
    
    $
    (4,463
    )
 Grand Mound Joint Venture
   September 30,
    
    
    December 31,2010
    
    
    2009Balance sheet data:Total assets
    
    $
    142,919
    
    
    $
    145,247Total liabilities
    
    $
    111,507
    
    
    $
    114,129
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,Operating data:
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue
    
    $
    10,531
    
    
    $
    11,170
    
    
    $
    32,307
    
    
    $
    31,303Operating expenses
    
    $
    (9,120
    )
    
    $
    (9,165
    )
    
    $
    (28,186
    )
    
    $
    (26,467
    )Net income
    
    $
    146
    
    
    $
    634
    
    
    $
    295
    
    
    $
    448
  13




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##### Table of Contents



4. VARIABLE INTEREST ENTITIES
   
    
    We have equity investments in and a loan to the joint venture that owns the Great
Wolf Lodge resort Grand Mound, Washington. We manage that resort and we have
concluded that the joint venture is a variable interest entity because the
management fees we receive represent a variable interest. The management contract,
however, does not provide us with power over the activities that most significantly
impact the economic performance of the joint venture. As we lack the ability to
direct the activities that most significantly affect the resorts performance, we
are not the primary beneficiary of the joint venture and, therefore, we do not
consolidate this entity at September 30, 2010. During the three and nine months
ended September 30, 2010 and 2009, we did not provide any support to this entity
that we were not contractually obligated to do so. Our maximum exposure to loss
related to our involvement with this entity as of September 30, 2010 is limited to
the carrying value of our equity investments in and loans to the joint venture as of
that date. The total carrying values of those items on our balance sheet as of
September 30, 2010 is $26,328.
    
    We have equity investments in two subsidiaries which are Delaware statutory
trusts, both of which were used to issue trust preferred securities through private
offerings. We have concluded that both of these trusts are variable interest
entities. As we lack the ability to direct the activities that most significantly
impact the trusts performance, however, we are not the primary beneficiary and
therefore, we do not consolidate these entities at September 30, 2010. During the
three and nine months ended September 30, 2010 and 2009, we did not provide any
support to these entities that we were not contractually obligated to do so. Our
maximum exposure to loss related to our involvement with these entities as of
September 30, 2010 is limited to the carrying value of our equity investments in the
entities as of that date. The total carrying values of those items on our balance
sheet as of September 30, 2010 is $2,420.
 5. ACQUISTION OF CREATIVE KINGDOMS
 ®
  14




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6. SHARE-BASED COMPENSATION
      Stock Options
    WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    ContractualShares
    
    
    Price
    
    
    LifeNumber of shares under option:Outstanding at beginning of period
    
    
    441,000
    
    
    $
    17.53
    
    
    4.34 yearsExercised
    
    
    Forfeited
    
    
    Outstanding at end of period
    
    
    441,000
    
    
    $
    17.53
    
    
    4.34 yearsExercisable at end of period
    
    
    441,000
    
    
    $
    17.53
    
    
    4.34 years
  Market Condition Share Awards
  15




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##### 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
    %
 16




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##### 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
    %
    
    
    81,293 are based on our common stocks absolute performance during the three-year period
2007-2009. Half of these shares vested on December 31, 2009, and the other half vest on
December 31, 2010. The per share fair value of these market condition shares was $6.65.
  Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    4.73
    %Expected stock price volatility
    
    
    42.13
    %
   17




---



##### Table of Contents




    
    81,293 were based on our common stocks performance in 2007-2009 relative to a stock
index, as designated by the Compensation Committee of the Board of directors. Half of these
shares vested December 31, 2009, and the other half vest on December 31, 2010. The per share
fair value of these market condition shares was $8.24.
  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
    %
   Performance Share Awards
    
    
    Employees earned and were issued 162,559 performance shares in March 2010 related to
2009 grants and
    
    Employees earned and were issued 18,084 performance shares in February 2009 related to
the 2008 grants.
 Deferred Compensation Awards
  18




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##### Table of Contents



Non-vested Shares
   WeightedAverageGrant DateShares
    
    
    Fair ValueNon-vested shares balance at beginning of period
    
    
    483,468
    
    
    $
    5.13Granted
    
    
    1,306,653
    
    
    $
    2.10Forfeited
    
    
    (11,400
    )
    
    $
    4.47Vested
    
    
    (366,952
    )
    
    $
    2.98Non-vested shares balance at end of period
    
    
    1,411,769
    
    
    $
    2.73
   Vested Shares
  
    
    In connection with the elections related to 2008 bonus amounts, we issued 17,532 shares
in February 2009. We valued these shares at $32 based on the closing market value of our
common stock on the date of the grant.
    
    There were no shares issued in the nine months ended September 30, 2010 related to 2009
bonus amounts.
  19




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7. PROPERTY AND EQUIPMENT
  September 30,
    
    
    December2010
    
    
    31, 2009Land and improvements
    
    $
    60,718
    
    
    $
    60,718Building and improvements
    
    
    430,669
    
    
    
    427,602Furniture, fixtures and equipment
    
    
    359,950
    
    
    
    341,529Construction in process
    
    
    176
    
    
    
    327851,513
    
    
    
    830,176Less accumulated depreciation
    
    
    (197,545
    )
    
    
    (153,771
    )Property and equipment, net
    
    $
    653,968
    
    
    $
    676,405
  8. LONG-TERM DEBT
  September 30,
    
    
    December 31,2010
    
    
    2009Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    67,633
    
    
    $
    68,773Mason mortgage loan
    
    
    
    
    
    
    73,800Pocono Mountains mortgage loan
    
    
    94,583
    
    
    
    95,458Williamsburg mortgage loan
    
    
    
    
    
    
    63,125Grapevine mortgage loan
    
    
    
    
    
    
    77,909Concord mortgage loan
    
    
    78,464
    
    
    
    78,549First mortgage notes (net of discount of $9,961)
    
    
    220,039
    
    
    
    Junior subordinated notes
    
    
    80,545
    
    
    
    80,545Other Debt:City of Sheboygan bonds
    
    
    8,564
    
    
    
    8,544City of Sheboygan loan
    
    
    3,113
    
    
    
    3,290Other
    
    
    55
    
    
    
    78552,996
    
    
    
    550,071Less current portion of long-term debt
    
    
    (70,450
    )
    
    
    (16,126
    )Total long-term debt
    
    $
    482,546
    
    
    $
    533,945
 Traverse City/Kansas City Mortgage Loan
  20




---



##### Table of Contents



Mason Mortgage Loan
 Pocono Mountains Mortgage Loan 
  21




---



##### Table of Contents



Williamsburg Mortgage Loan 
 Grapevine Mortgage Loan
 Concord Mortgage Loan
   First Mortgage Notes
   22




---



##### Table of Contents



Junior Subordinated Notes
      City of Sheboygan Bonds
 City of Sheboygan Loan
 23




---



##### Table of Contents



Future Maturities
 ThroughSeptember 30,2011
    
    $
    4,4342012
    
    
    80,5142013
    
    
    3,6062014
    
    
    3,8922015
    
    
    62,548Thereafter
    
    
    407,963Total
    
    $
    562,957
  9. FAIR VALUE OF FINANCIAL INSTRUMENTS
       September 30, 2010
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalInterest rate caps
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 December 31, 2009
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalInterest rate caps
    
    $
    
    
    
    $
    133
    
    
    $
    
    
    
    $
    133
  24




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##### Table of Contents



10. EARNINGS PER SHARE
     Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss attributable to Great Wolf Resorts, Inc.
    
    $
    (993
    )
    
    $
    (36,923
    )
    
    $
    (21,818
    )
    
    $
    (48,274
    )Weighted average common shares outstanding  basic
    
    
    31,035,048
    
    
    
    31,291,004
    
    
    
    30,957,698
    
    
    
    31,179,049Weighted average common shares outstanding  diluted
    
    
    31,035,048
    
    
    
    31,291,004
    
    
    
    30,957,698
    
    
    
    31,179,049Net loss attributable to Great Wolf Resorts, Inc. per share  basic
    
    $
    (0.03
    )
    
    $
    (1.18
    )
    
    $
    (0.70
    )
    
    $
    (1.55
    )Net loss attributable to Great Wolf Resorts, Inc. per share  diluted
    
    $
    (0.03
    )
    
    $
    (1.18
    )
    
    $
    (0.70
    )
    
    $
    (1.55
    )
 25




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##### Table of Contents



11. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
   Financial statements of guarantors and issuers of
guaranteed securities registered or being registered
 26




---



##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
 September 30, 2010
(Dollars in thousands)
 Subsidiary
    
    
    Non Guarantor
    
    
    ConsolidatingParent
    
    
    Issuers
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,043
    
    
    $
    32,678
    
    
    $
    (3,661
    )
    
    $
    4,043
    
    
    $
    
    
    
    $
    43,103Escrows
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,228
    
    
    
    
    
    
    
    1,228Accounts receivable
    
    
    69
    
    
    
    
    
    
    
    1,573
    
    
    
    1,741
    
    
    
    
    
    
    
    3,383Accounts receivable  affiliates
    
    
    
    
    
    
    
    
    
    
    1,130
    
    
    
    2,172
    
    
    
    
    
    
    
    3,302Accounts receivable  consolidating entities
    
    
    11,464
    
    
    
    467,486
    
    
    
    278,438
    
    
    
    145,893
    
    
    
    (903,281
    )
    
    
    Inventory
    
    
    
    
    
    
    
    
    
    
    2,364
    
    
    
    3,637
    
    
    
    
    
    
    
    6,001Other current assets
    
    
    138
    
    
    
    
    
    
    
    2,284
    
    
    
    2,652
    
    
    
    
    
    
    
    5,074Total current assets
    
    
    21,714
    
    
    
    500,164
    
    
    
    282,128
    
    
    
    161,366
    
    
    
    (903,281
    )
    
    
    62,091Property and equipment, net
    
    
    
    
    
    
    
    
    
    
    358,151
    
    
    
    295,817
    
    
    
    
    
    
    
    653,968Investment in consolidating entities
    
    
    243,722
    
    
    
    283,532
    
    
    
    
    
    
    
    
    
    
    
    (527,254
    )
    
    
    Investment in and advances to affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,445
    
    
    
    
    
    
    
    26,445Other assets
    
    
    10,619
    
    
    
    8,466
    
    
    
    7,052
    
    
    
    7,073
    
    
    
    
    
    
    
    33,210Intangible assets
    
    
    2,276
    
    
    
    
    
    
    
    4,668
    
    
    
    20,694
    
    
    
    
    
    
    
    27,638Total assets
    
    $
    278,331
    
    
    $
    792,162
    
    
    $
    651,999
    
    
    $
    511,395
    
    
    $
    (1,430,535
    )
    
    $
    803,352LIABILITIES AND EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    32
    
    
    $
    70,418
    
    
    $
    
    
    
    $
    70,450Accounts payable
    
    
    16
    
    
    
    294
    
    
    
    749
    
    
    
    1,284
    
    
    
    
    
    
    
    2,343Accounts payable  affiliates
    
    
    
    
    
    
    514
    
    
    
    5
    
    
    
    3
    
    
    
    
    
    
    
    522Accounts payable  consolidating entities
    
    
    
    
    
    
    314,252
    
    
    
    488,357
    
    
    
    100,672
    
    
    
    (903,281
    )
    
    
    Accrued expenses
    
    
    1,465
    
    
    
    13,341
    
    
    
    12,958
    
    
    
    8,496
    
    
    
    
    
    
    
    36,260Advance deposits
    
    
    
    
    
    
    
    
    
    
    4,111
    
    
    
    5,262
    
    
    
    
    
    
    
    9,373Other current liabilities
    
    
    2,190
    
    
    
    
    
    
    
    766
    
    
    
    2,603
    
    
    
    
    
    
    
    5,559Total current liabilities
    
    
    3,671
    
    
    
    328,401
    
    
    
    506,978
    
    
    
    188,738
    
    
    
    (903,281
    )
    
    
    124,507Mortgage debt
    
    
    
    
    
    
    220,039
    
    
    
    
    
    
    
    170,516
    
    
    
    
    
    
    
    390,555Other long-term debt
    
    
    80,545
    
    
    
    
    
    
    
    23
    
    
    
    11,423
    
    
    
    
    
    
    
    91,991Deferred compensation liability
    
    
    
    
    
    
    
    
    
    
    1,161
    
    
    
    
    
    
    
    
    
    
    
    1,161Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,048
    
    
    
    
    
    
    
    1,048Total liabilities
    
    
    84,216
    
    
    
    548,440
    
    
    
    508,162
    
    
    
    371,725
    
    
    
    (903,281
    )
    
    
    609,262Commitments and contingenciesGreat Wolf Resorts stockholders equity:Common stock
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    325Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    402,095
    
    
    
    456,893
    
    
    
    163,514
    
    
    
    293,379
    
    
    
    (913,786
    )
    
    
    402,095Accumulated deficit
    
    
    (208,105
    )
    
    
    (213,171
    )
    
    
    (19,677
    )
    
    
    (153,684
    )
    
    
    386,532
    
    
    
    (208,105
    )Deferred compensation
    
    
    (200
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (200
    )Total Great Wolf Resorts stockholders equity
    
    
    194,115
    
    
    
    243,722
    
    
    
    143,837
    
    
    
    136,695
    
    
    
    (527,254
    )
    
    
    194,115Noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    (25
    )Total equity
    
    
    194,115
    
    
    
    243,722
    
    
    
    143,837
    
    
    
    139,670
    
    
    
    (527,254
    )
    
    
    194,090Total liabilities and equity
    
    $
    278,331
    
    
    $
    792,162
    
    
    $
    651,999
    
    
    $
    511,395
    
    
    $
    (1,430,535
    )
    
    $
    803,352
 27




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CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2009
(Dollars in thousands)
 Subsidiary
    
    
    Non Guarantor
    
    
    ConsolidatingParent
    
    
    Issuers
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,023
    
    
    $
    14,538
    
    
    $
    (1,590
    )
    
    $
    2,942
    
    
    $
    
    
    
    $
    20,913Escrows
    
    
    
    
    
    
    
    
    
    
    4,430
    
    
    
    1,508
    
    
    
    
    
    
    
    5,938Accounts receivable
    
    
    33
    
    
    
    
    
    
    
    1,177
    
    
    
    982
    
    
    
    
    
    
    
    2,192Accounts receivable  affiliates
    
    
    
    
    
    
    
    
    
    
    1,079
    
    
    
    1,535
    
    
    
    
    
    
    
    2,614Accounts receivable  consolidating entities
    
    
    23,800
    
    
    
    459,146
    
    
    
    183,648
    
    
    
    151,521
    
    
    
    (818,115
    )
    
    
    Inventory
    
    
    
    
    
    
    
    
    
    
    2,230
    
    
    
    2,561
    
    
    
    
    
    
    
    4,791Other current assets
    
    
    792
    
    
    
    
    
    
    
    1,991
    
    
    
    1,469
    
    
    
    
    
    
    
    4,252Total current assets
    
    
    29,648
    
    
    
    473,684
    
    
    
    192,965
    
    
    
    162,518
    
    
    
    (818,115
    )
    
    
    40,700Property and equipment, net
    
    
    
    
    
    
    
    
    
    
    373,879
    
    
    
    302,526
    
    
    
    
    
    
    
    676,405Investment in consolidated entities
    
    
    251,217
    
    
    
    277,475
    
    
    
    
    
    
    
    
    
    
    
    (528,692
    )
    
    
    Investment in and advances to affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,484
    
    
    
    
    
    
    
    27,484Notes receivable
    
    
    8,268
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,268Other assets
    
    
    10,965
    
    
    
    
    
    
    
    9,333
    
    
    
    8,760
    
    
    
    
    
    
    
    29,058Intangible assets
    
    
    
    
    
    
    
    
    
    
    4,668
    
    
    
    19,161
    
    
    
    
    
    
    
    23,829Total assets
    
    $
    300,098
    
    
    $
    751,159
    
    
    $
    580,845
    
    
    $
    520,449
    
    
    $
    (1,346,807
    )
    
    $
    805,744LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    12,731
    
    
    $
    3,395
    
    
    $
    
    
    
    $
    16,126Accounts payable
    
    
    
    
    
    
    
    
    
    
    3,132
    
    
    
    1,946
    
    
    
    
    
    
    
    5,078Accounts payable  consolidating entities
    
    
    
    
    
    
    499,931
    
    
    
    205,954
    
    
    
    112,230
    
    
    
    (818,115
    )
    
    
    Accrued expenses
    
    
    1,498
    
    
    
    11
    
    
    
    13,351
    
    
    
    7,110
    
    
    
    
    
    
    
    21,970Advance deposits
    
    
    
    
    
    
    
    
    
    
    2,457
    
    
    
    4,657
    
    
    
    
    
    
    
    7,114Gift certificates payable
    
    
    3,299
    
    
    
    
    
    
    
    830
    
    
    
    1,817
    
    
    
    
    
    
    
    5,946Total current liabilities
    
    
    4,797
    
    
    
    499,942
    
    
    
    238,455
    
    
    
    131,155
    
    
    
    (818,115
    )
    
    
    56,234Mortgage debt
    
    
    
    
    
    
    
    
    
    
    202,103
    
    
    
    239,621
    
    
    
    
    
    
    
    441,724Other long-term debt
    
    
    80,545
    
    
    
    
    
    
    
    78
    
    
    
    11,598
    
    
    
    
    
    
    
    92,221Deferred compensation liability
    
    
    
    
    
    
    
    
    
    
    809
    
    
    
    
    
    
    
    
    
    
    
    809Total liabilities
    
    
    85,342
    
    
    
    499,942
    
    
    
    441,445
    
    
    
    382,374
    
    
    
    (818,115
    )
    
    
    590,988Commitments and contingencies
Stockholders Equity:Common stock
    
    
    313
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    313Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    400,930
    
    
    
    448,562
    
    
    
    163,514
    
    
    
    285,048
    
    
    
    (897,124
    )
    
    
    400,930Accumulated deficit
    
    
    (186,287
    )
    
    
    (197,345
    )
    
    
    (24,114
    )
    
    
    (146,973
    )
    
    
    368,432
    
    
    
    (186,287
    )Deferred compensation
    
    
    (200
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (200
    )Total stockholders equity
    
    
    214,756
    
    
    
    251,217
    
    
    
    139,400
    
    
    
    138,075
    
    
    
    (528,692
    )
    
    
    214,756Total liabilities and stockholders equity
    
    $
    300,098
    
    
    $
    751,159
    
    
    $
    580,845
    
    
    $
    520,449
    
    
    $
    (1,346,807
    )
    
    $
    805,744
 28




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##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 Three month ended September 30, 2010
(Dollars in thousands)
 Subsidiary
    
    
    Non Guarantor
    
    
    ConsolidatingParent
    
    
    Issuers
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedRevenues:Rooms
    
    $
    
    
    
    $
    
    
    
    $
    24,016
    
    
    $
    23,543
    
    
    $
    
    
    
    
    47,559Food and beverage
    
    
    
    
    
    
    
    
    
    
    6,593
    
    
    
    5,905
    
    
    
    
    
    
    
    12,498Other
    
    
    
    
    
    
    
    
    
    
    5,493
    
    
    
    8,043
    
    
    
    
    
    
    
    13,536Management and other fees
    
    
    139
    
    
    
    
    
    
    
    6,357
    
    
    
    38
    
    
    
    (5,618
    )
    
    
    916Management and other fees  affiliates
    
    
    
    
    
    
    
    
    
    
    900
    
    
    
    
    
    
    
    
    
    
    
    900139
    
    
    
    
    
    
    
    43,359
    
    
    
    37,529
    
    
    
    (5,618
    )
    
    
    75,409Other revenue from managed properties  affiliates
    
    
    
    
    
    
    
    
    
    
    2,725
    
    
    
    
    
    
    
    
    
    
    
    2,725Other revenue from managed properties
    
    
    
    
    
    
    
    
    
    
    2,984
    
    
    
    
    
    
    
    
    
    
    
    2,984Total revenues
    
    
    139
    
    
    
    
    
    
    
    49,068
    
    
    
    37,529
    
    
    
    (5,618
    )
    
    
    81,118Operating expenses by department:Rooms
    
    
    
    
    
    
    
    
    
    
    3,724
    
    
    
    3,679
    
    
    
    (915
    )
    
    
    6,488Food and beverage
    
    
    
    
    
    
    
    
    
    
    4,678
    
    
    
    4,327
    
    
    
    
    
    
    
    9,005Other
    
    
    
    
    
    
    
    
    
    
    4,242
    
    
    
    5,451
    
    
    
    
    
    
    
    9,693Other operating expenses:Selling, general and administrative
    
    
    626
    
    
    
    37
    
    
    
    11,349
    
    
    
    9,251
    
    
    
    (4,703
    )
    
    
    16,560Property operating costs
    
    
    
    
    
    
    
    
    
    
    4,229
    
    
    
    4,697
    
    
    
    
    
    
    
    8,926Depreciation and amortization
    
    
    38
    
    
    
    320
    
    
    
    6,358
    
    
    
    7,090
    
    
    
    
    
    
    
    13,806Loss on disposition of property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    664
    
    
    
    357
    
    
    
    34,580
    
    
    
    34,495
    
    
    
    (5,618
    )
    
    
    64,478Other expenses from managed properties  affiliates
    
    
    
    
    
    
    
    
    
    
    2,725
    
    
    
    
    
    
    
    
    
    
    
    2,725Other expenses from managed properties
    
    
    
    
    
    
    
    
    
    
    2,984
    
    
    
    
    
    
    
    
    
    
    
    2,984Total operating expenses
    
    
    664
    
    
    
    357
    
    
    
    40,289
    
    
    
    34,495
    
    
    
    (5,618
    )
    
    
    70,187Net operating (loss) income
    
    
    (525
    )
    
    
    (357
    )
    
    
    8,779
    
    
    
    3,034
    
    
    
    
    
    
    
    10,931Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (267
    )
    
    
    
    
    
    
    (267
    )Interest income
    
    
    (51
    )
    
    
    (8
    )
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    (59
    )Interest expense
    
    
    1,591
    
    
    
    6,636
    
    
    
    9
    
    
    
    4,077
    
    
    
    
    
    
    
    12,313(Loss) income before income taxes and equity in
affiliates
    
    
    (2,065
    )
    
    
    (6,985
    )
    
    
    8,679
    
    
    
    (775
    )
    
    
    
    
    
    
    (1,056
    )Income tax (benefit) expense
    
    
    (175
    )
    
    
    
    
    
    
    179
    
    
    
    44
    
    
    
    
    
    
    
    48Equity in loss of affiliates, net of tax
    
    
    (897
    )
    
    
    (7,882
    )
    
    
    
    
    
    
    (46
    )
    
    
    8,779
    
    
    
    (46
    )Net (loss) income
    
    
    (993
    )
    
    
    897
    
    
    
    8,590
    
    
    
    (773
    )
    
    
    (8,779
    )
    
    
    (1058
    )Net loss attributable to noncontrolling interest,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    
    
    
    
    (65
    )Net (loss) income attributable to Great Wolf
Resorts, Inc.
    
    $
    (993
    )
    
    $
    897
    
    
    $
    8,590
    
    
    $
    (708
    )
    
    $
    (8,779
    )
    
    $
    (993
    )
 29




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##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three months ended September 30, 2009
(Dollars in thousands)
 Subsidiary
    
    
    Non Guarantor
    
    
    ConsolidatingParent
    
    
    Issuers
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedRevenues:Rooms
    
    $
    
    
    
    $
    
    
    
    $
    23,662
    
    
    $
    22,552
    
    
    $
    
    
    
    $
    46,214Food and beverage
    
    
    
    
    
    
    
    
    
    
    6,246
    
    
    
    5,631
    
    
    
    
    
    
    
    11,877Other
    
    
    
    
    
    
    
    
    
    
    5,629
    
    
    
    5,704
    
    
    
    
    
    
    
    11,333Management and other fees
    
    
    148
    
    
    
    
    
    
    
    5,487
    
    
    
    31
    
    
    
    (5,040
    )
    
    
    626Management and other fees  affiliates
    
    
    
    
    
    
    
    
    
    
    1,202
    
    
    
    
    
    
    
    
    
    
    
    1,202148
    
    
    
    
    
    
    
    42,226
    
    
    
    33,918
    
    
    
    (5,040
    )
    
    
    71,252Other revenue from managed properties  affiliates
    
    
    
    
    
    
    
    
    
    
    3,966
    
    
    
    
    
    
    
    
    
    
    
    3,966Other revenue from managed properties
    
    
    
    
    
    
    
    
    
    
    1,609
    
    
    
    
    
    
    
    
    
    
    
    1,609Total revenues
    
    
    148
    
    
    
    
    
    
    
    47,801
    
    
    
    33,918
    
    
    
    (5,040
    )
    
    
    76,827Operating expenses by department:Rooms
    
    
    
    
    
    
    
    
    
    
    3,617
    
    
    
    3,607
    
    
    
    (892
    )
    
    
    6,332Food and beverage
    
    
    
    
    
    
    
    
    
    
    4,684
    
    
    
    4,542
    
    
    
    
    
    
    
    9,226Other
    
    
    
    
    
    
    
    
    
    
    4,316
    
    
    
    4,610
    
    
    
    
    
    
    
    8,926Other operating expenses:Selling, general and administrative
    
    
    641
    
    
    
    34
    
    
    
    10,449
    
    
    
    7,935
    
    
    
    (4,148
    )
    
    
    14,911Property operating costs
    
    
    
    
    
    
    
    
    
    
    4,176
    
    
    
    4,025
    
    
    
    
    
    
    
    8,201Depreciation and amortization
    
    
    38
    
    
    
    
    
    
    
    7,920
    
    
    
    7,178
    
    
    
    
    
    
    
    15,136Asset impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,000
    
    
    
    
    
    
    
    24,000Loss on disposition of property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    11679
    
    
    
    34
    
    
    
    35,162
    
    
    
    55,908
    
    
    
    (5,040
    )
    
    
    86,743Other expenses from managed properties  affiliates
    
    
    
    
    
    
    
    
    
    
    3,966
    
    
    
    
    
    
    
    
    
    
    
    3,966Other expenses from managed properties
    
    
    
    
    
    
    
    
    
    
    1,609
    
    
    
    
    
    
    
    
    
    
    
    1,609Total operating expenses
    
    
    679
    
    
    
    34
    
    
    
    40,737
    
    
    
    55,908
    
    
    
    (5,040
    )
    
    
    92,318Net operating (loss) income
    
    
    (531
    )
    
    
    (34
    )
    
    
    7,064
    
    
    
    (21,990
    )
    
    
    
    
    
    
    (15,491
    )Gain on sale of unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (962
    )
    
    
    
    
    
    
    (962
    )Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (310
    )
    
    
    
    
    
    
    (310
    )Interest income
    
    
    (127
    )
    
    
    (3
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (131
    )Interest expense
    
    
    1,583
    
    
    
    
    
    
    
    3,928
    
    
    
    4,160
    
    
    
    
    
    
    
    9,671(Loss) income before income taxes and equity in
loss of unconsolidated affiliates
    
    
    (1,987
    )
    
    
    (31
    )
    
    
    3,137
    
    
    
    (24,878
    )
    
    
    
    
    
    
    (23,759
    )Income tax expense (benefit)
    
    
    13,254
    
    
    
    
    
    
    
    84
    
    
    
    (175
    )
    
    
    
    
    
    
    13,163Equity in loss of unconsolidated affiliates, net of tax
    
    
    21,682
    
    
    
    21,651
    
    
    
    
    
    
    
    1
    
    
    
    (43,333
    )
    
    
    1Net (loss) income
    
    $
    (36,923
    )
    
    $
    (21,682
    )
    
    $
    3,053
    
    
    $
    (24,704
    )
    
    $
    43,333
    
    
    $
    (36,923
    )
 30




---



##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine months ended September 30, 2010
(Dollars in thousands)
 Parent
    
    
    Issuers
    
    
    Subsidiary
    
    
    Non Guarantor
    
    
    Consolidating
    
    
    ConsolidatedGuarantors
    
    
    Subsidiaries
    
    
    AdjustmentsRevenues:Rooms
    
    $
    
    
    
    $
    
    
    
    $
    63,078
    
    
    $
    65,729
    
    
    $
    
    
    
    $
    128,807Food and beverage
    
    
    
    
    
    
    
    
    
    
    18,281
    
    
    
    17,290
    
    
    
    
    
    
    
    35,571Other
    
    
    
    
    
    
    
    
    
    
    14,962
    
    
    
    19,161
    
    
    
    
    
    
    
    34,123Management and other fees
    
    
    364
    
    
    
    
    
    
    
    17,124
    
    
    
    50
    
    
    
    (15,427
    )
    
    
    2,111Management and other fees  affiliates
    
    
    
    
    
    
    
    
    
    
    2,880
    
    
    
    
    
    
    
    
    
    
    
    2,880364
    
    
    
    
    
    
    
    116,325
    
    
    
    102,230
    
    
    
    (15,427
    )
    
    
    203,492Other revenue from managed properties 
affiliates
    
    
    
    
    
    
    
    
    
    
    8,178
    
    
    
    
    
    
    
    
    
    
    
    8,178Other revenue from managed properties
    
    
    
    
    
    
    
    
    
    
    8,555
    
    
    
    
    
    
    
    
    
    
    
    8,555Total revenues
    
    
    364
    
    
    
    
    
    
    
    133,058
    
    
    
    102,230
    
    
    
    (15,427
    )
    
    
    220,225Operating expenses by department:Rooms
    
    
    
    
    
    
    
    
    
    
    10,383
    
    
    
    10,682
    
    
    
    (2,504
    )
    
    
    18,561Food and beverage
    
    
    
    
    
    
    
    
    
    
    13,493
    
    
    
    12,778
    
    
    
    
    
    
    
    26,271Other
    
    
    
    
    
    
    
    
    
    
    12,200
    
    
    
    14,435
    
    
    
    
    
    
    
    26,635Other operating expenses:Selling, general and administrative
    
    
    2,335
    
    
    
    117
    
    
    
    35,284
    
    
    
    24,975
    
    
    
    (12,923
    )
    
    
    49,788Property operating costs
    
    
    
    
    
    
    
    
    
    
    12,200
    
    
    
    13,930
    
    
    
    
    
    
    
    26,130Depreciation and amortization
    
    
    115
    
    
    
    615
    
    
    
    23,994
    
    
    
    20,212
    
    
    
    
    
    
    
    44,936Loss on disposition of property
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    9
    
    
    
    
    
    
    
    192,450
    
    
    
    732
    
    
    
    107,564
    
    
    
    97,021
    
    
    
    (15,427
    )
    
    
    192,340Other expenses from managed properties 
affiliates
    
    
    
    
    
    
    
    
    
    
    8,178
    
    
    
    
    
    
    
    
    
    
    
    8,178Other expenses from managed properties
    
    
    
    
    
    
    
    
    
    
    8,555
    
    
    
    
    
    
    
    
    
    
    
    8,555Total operating expenses
    
    
    2,450
    
    
    
    732
    
    
    
    124,297
    
    
    
    97,021
    
    
    
    (15,427
    )
    
    
    209,073Net operating (loss) income
    
    
    (2,086
    )
    
    
    (732
    )
    
    
    8,761
    
    
    
    5,209
    
    
    
    
    
    
    
    11,152Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (832
    )
    
    
    
    
    
    
    (832
    )Interest income
    
    
    (482
    )
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (492
    )Interest expense
    
    
    4,753
    
    
    
    12,830
    
    
    
    3,859
    
    
    
    12,529
    
    
    
    
    
    
    
    33,971(Loss) income before income taxes and equity in
affiliates
    
    
    (6,357
    )
    
    
    (13,552
    )
    
    
    4,902
    
    
    
    (6,488
    )
    
    
    
    
    
    
    (21,495
    )Income tax (benefit) expense
    
    
    (365
    )
    
    
    
    
    
    
    465
    
    
    
    317
    
    
    
    
    
    
    
    417Equity in loss (income) of affiliates, net of tax
    
    
    15,826
    
    
    
    2,274
    
    
    
    
    
    
    
    (69
    )
    
    
    (18,100
    )
    
    
    (69
    )Net (loss) income
    
    
    (21,818
    )
    
    
    (15,826
    )
    
    
    4,437
    
    
    
    (6,736
    )
    
    
    18,100
    
    
    
    (21,843
    )Net loss attributable to noncontrolling
interest, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    (25
    )Net (loss) income attributable to Great Wolf
Resorts, Inc.
    
    $
    (21,818
    )
    
    $
    (15,826
    )
    
    $
    4,437
    
    
    $
    (6,711
    )
    
    $
    18,100
    
    
    $
    (21,818
    )
 31




---



##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine months ended September 30, 2009
(Dollars in thousands)
 Subsidiary
    
    
    Non Guarantor
    
    
    ConsolidatingParent
    
    
    Issuers
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedRevenues:Rooms
    
    $
    
    
    
    $
    
    
    
    $
    63,010
    
    
    $
    59,859
    
    
    $
    
    
    
    $
    122,869Food and beverage
    
    
    
    
    
    
    
    
    
    
    17,732
    
    
    
    15,352
    
    
    
    
    
    
    
    33,084Other hotel operations
    
    
    
    
    
    
    
    
    
    
    15,431
    
    
    
    15,027
    
    
    
    
    
    
    
    30,458Management and other fees
    
    
    660
    
    
    
    
    
    
    
    14,436
    
    
    
    66
    
    
    
    (13,545
    )
    
    
    1,617Management and other fees  affiliates
    
    
    
    
    
    
    
    
    
    
    3,636
    
    
    
    
    
    
    
    
    
    
    
    3,636660
    
    
    
    
    
    
    
    114,245
    
    
    
    90,304
    
    
    
    (13,545
    )
    
    
    191,664Other revenue from managed properties  affiliates
    
    
    
    
    
    
    
    
    
    
    14,486
    
    
    
    
    
    
    
    
    
    
    
    14,486Other revenue from managed properties
    
    
    
    
    
    
    
    
    
    
    1,609
    
    
    
    
    
    
    
    
    
    
    
    1,609Total revenues
    
    
    660
    
    
    
    
    
    
    
    130,340
    
    
    
    90,304
    
    
    
    (13,545
    )
    
    
    207,759Operating expenses by department:Rooms
    
    
    
    
    
    
    
    
    
    
    9,927
    
    
    
    9,775
    
    
    
    (2,393
    )
    
    
    17,309Food and beverage
    
    
    
    
    
    
    
    
    
    
    13,431
    
    
    
    12,075
    
    
    
    
    
    
    
    25,506Other
    
    
    
    
    
    
    
    
    
    
    12,175
    
    
    
    12,443
    
    
    
    
    
    
    
    24,618Other operating expenses:Selling, general and administrative
    
    
    2,269
    
    
    
    103
    
    
    
    33,139
    
    
    
    22,183
    
    
    
    (11,152
    )
    
    
    46,542Property operating costs
    
    
    
    
    
    
    
    
    
    
    12,875
    
    
    
    16,782
    
    
    
    
    
    
    
    29,657Depreciation and amortization
    
    
    117
    
    
    
    
    
    
    
    22,642
    
    
    
    19,593
    
    
    
    
    
    
    
    42,352Asset impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,000
    
    
    
    
    
    
    
    24,000Loss on disposition of property
    
    
    
    
    
    
    
    
    
    
    191
    
    
    
    11
    
    
    
    
    
    
    
    2022,386
    
    
    
    103
    
    
    
    104,380
    
    
    
    116,862
    
    
    
    (13,545
    )
    
    
    210,186Other expenses from managed properties  affiliates
    
    
    
    
    
    
    
    
    
    
    14,486
    
    
    
    
    
    
    
    
    
    
    
    14,486Other expenses from managed properties
    
    
    
    
    
    
    
    
    
    
    1,609
    
    
    
    
    
    
    
    
    
    
    
    1,609Total operating expenses
    
    
    2,386
    
    
    
    103
    
    
    
    120,475
    
    
    
    116,862
    
    
    
    (13,545
    )
    
    
    226,281Net operating (loss) income
    
    
    (1,726
    )
    
    
    (103
    )
    
    
    9,865
    
    
    
    (26,558
    )
    
    
    
    
    
    
    (18,522
    )Gain on sale of unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (962
    )
    
    
    
    
    
    
    (962
    )Investment income  affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,030
    )
    
    
    
    
    
    
    (1,030
    )Interest income
    
    
    (434
    )
    
    
    (16
    )
    
    
    (13
    )
    
    
    (4
    )
    
    
    
    
    
    
    (467
    )Interest expense
    
    
    4,533
    
    
    
    
    
    
    
    9,286
    
    
    
    10,896
    
    
    
    
    
    
    
    24,715(Loss) income before income taxes and equity in
affiliates
    
    
    (5,825
    )
    
    
    (87
    )
    
    
    592
    
    
    
    (35,458
    )
    
    
    
    
    
    
    (40,778
    )Income tax expense (benefit)
    
    
    6,304
    
    
    
    
    
    
    
    260
    
    
    
    (184
    )
    
    
    
    
    
    
    6,380Equity in affiliates, net of tax
    
    
    36,145
    
    
    
    36,058
    
    
    
    
    
    
    
    1,116
    
    
    
    (72,203
    )
    
    
    1,116Net (loss) income
    
    $
    (48,274
    )
    
    $
    (36,145
    )
    
    $
    332
    
    
    $
    (36,390
    )
    
    $
    72,203
    
    
    $
    (48,274
    )
 32




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##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine months ended September 30, 2010
(Dollars in thousands)
 Subsidiary
    
    
    Non Guarantor
    
    
    ConsolidatingParent
    
    
    Issuers
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedOperating activities:Net (loss) income
    
    $
    (21,818
    )
    
    $
    (15,826
    )
    
    $
    4,437
    
    
    $
    (6,736
    )
    
    $
    18,100
    
    
    $
    (21,843
    )Adjustment to reconcile net (loss) income to net
cash provided (used) by operating activities:Depreciation and amortization
    
    
    115
    
    
    
    615
    
    
    
    23,994
    
    
    
    20,212
    
    
    
    
    
    
    
    44,936Bad debt expense
    
    
    
    
    
    
    
    
    
    
    140
    
    
    
    65
    
    
    
    
    
    
    
    205Non-cash employee compensation and professional
fees expense
    
    
    
    
    
    
    
    
    
    
    1,606
    
    
    
    
    
    
    
    
    
    
    
    1,606Loss on disposition of property
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    9
    
    
    
    
    
    
    
    19Equity in losses (income) of affiliates
    
    
    15,826
    
    
    
    2,274
    
    
    
    
    
    
    
    (68
    )
    
    
    (18,100
    )
    
    
    (68
    )Deferred tax benefit
    
    
    (366
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (366
    )Changes in operating assets and liabilities
    
    
    (1,122
    )
    
    
    14,136
    
    
    
    (3,832
    )
    
    
    (1,158
    )
    
    
    
    
    
    
    8,024Net cash (used) provided by operating activities
    
    
    (7,365
    )
    
    
    1,199
    
    
    
    26,355
    
    
    
    12,324
    
    
    
    
    
    
    
    32,513Investing activities:Capital expenditures for property and equipment
    
    
    
    
    
    
    
    
    
    
    (3,278
    )
    
    
    (4,348
    )
    
    
    
    
    
    
    (7,626
    )Loan repayment from unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,225
    
    
    
    
    
    
    
    1,225Investment in affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )Investment in development
    
    
    
    
    
    
    
    
    
    
    (498
    )
    
    
    
    
    
    
    
    
    
    
    (498
    )Proceeds from sale of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15Cash acquired in acquisition of Creative
Kingdoms, LLC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    324
    
    
    
    
    
    
    
    324Increase in restricted cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (487
    )
    
    
    
    
    
    
    (487
    )Decrease in escrows
    
    
    
    
    
    
    
    
    
    
    4,431
    
    
    
    279
    
    
    
    
    
    
    
    4,710Net cash provided (used) in investing activities
    
    
    
    
    
    
    
    
    
    
    655
    
    
    
    (3,000
    )
    
    
    
    
    
    
    (2,345
    )Financing activities:Principal payments on long-term debt
    
    
    
    
    
    
    741
    
    
    
    (214,858
    )
    
    
    (2,297
    )
    
    
    
    
    
    
    (216,414
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    219,298
    
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    219,337Payment of loan costs
    
    
    49
    
    
    
    (9,079
    )
    
    
    (1,836
    )
    
    
    (35
    )
    
    
    
    
    
    
    (10,901
    )Advances from consolidating entities, net
    
    
    12,336
    
    
    
    (194,019
    )
    
    
    187,613
    
    
    
    (5,930
    )
    
    
    
    
    
    
    Net cash provided (used) by financing activities
    
    
    12,385
    
    
    
    16,941
    
    
    
    (29,081
    )
    
    
    (8,223
    )
    
    
    
    
    
    
    (7,978
    )Net increase (decrease) in cash and cash
equivalents
    
    
    5,020
    
    
    
    18,140
    
    
    
    (2,071
    )
    
    
    1,101
    
    
    
    
    
    
    
    22,190Cash and cash equivalents, beginning of period
    
    
    5,023
    
    
    
    14,538
    
    
    
    (1,590
    )
    
    
    2,942
    
    
    
    
    
    
    
    20,913Cash and cash equivalents, end of period
    
    $
    10,043
    
    
    $
    32,678
    
    
    $
    (3,661
    )
    
    $
    4,043
    
    
    $
    
    
    
    $
    43,103
 33




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##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine months ended September 30, 2009
(Dollars in thousands)
 Subsidiary
    
    
    Non Guarantor
    
    
    ConsolidatingParent
    
    
    Issuers
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedOperating activities:Net (loss) income
    
    $
    (48,274
    )
    
    $
    (36,145
    )
    
    $
    332
    
    
    $
    (36,390
    )
    
    $
    72,203
    
    
    $
    (48,274
    )Adjustment to reconcile net loss to net cash
provided (used) by operating activities:Depreciation and amortization
    
    
    117
    
    
    
    
    
    
    
    22,642
    
    
    
    19,593
    
    
    
    
    
    
    
    42,352Bad debt expense
    
    
    
    
    
    
    
    
    
    
    610
    
    
    
    32
    
    
    
    
    
    
    
    642Non-cash employee compensation expense
    
    
    
    
    
    
    
    
    
    
    829
    
    
    
    
    
    
    
    
    
    
    
    829Loss on sale of assets
    
    
    
    
    
    
    
    
    
    
    191
    
    
    
    11
    
    
    
    
    
    
    
    202Equity in losses of affiliates
    
    
    36,145
    
    
    
    36,058
    
    
    
    
    
    
    
    965
    
    
    
    (72,203
    )
    
    
    965Asset impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,000
    
    
    
    
    
    
    
    24,000Gain on sale of unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (962
    )
    
    
    
    
    
    
    (962
    )Deferred tax benefit
    
    
    6,535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,535Changes in operating assets and liabilities
    
    
    6,317
    
    
    
    (3
    )
    
    
    (7,557
    )
    
    
    4,102
    
    
    
    (6,888
    )
    
    
    (12,233
    )Net cash provided (used) by operating activities
    
    
    840
    
    
    
    (90
    )
    
    
    17,047
    
    
    
    3,147
    
    
    
    (6,888
    )
    
    
    14,056Investing activities:Capital expenditures for property and equipment
    
    
    
    
    
    
    
    
    
    
    (8,165
    )
    
    
    (40,041
    )
    
    
    
    
    
    
    (48,206
    )Loan repayment from unconsolidated affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,833
    
    
    
    
    
    
    
    8,833Investment in affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (303
    )
    
    
    
    
    
    
    (303
    )Proceeds from sale of interest in unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    6,000Investment in development
    
    
    
    
    
    
    
    
    
    
    978
    
    
    
    
    
    
    
    
    
    
    
    978Proceeds from sale of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    66Decrease in restricted cash
    
    
    159
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    161(Increase) decrease in escrows
    
    
    
    
    
    
    
    
    
    
    (2,409
    )
    
    
    543
    
    
    
    
    
    
    
    (1,886
    )Net cash provided (used) in investing activities
    
    
    159
    
    
    
    
    
    
    
    (9,596
    )
    
    
    (24,900
    )
    
    
    
    
    
    
    (34,337
    )Financing activities:Principal payments on long-term debt
    
    
    
    
    
    
    
    
    
    
    (3,135
    )
    
    
    (2,016
    )
    
    
    
    
    
    
    (5,151
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    44,067
    
    
    
    6,888
    
    
    
    51,051Payment of loan costs
    
    
    (22
    )
    
    
    
    
    
    
    (5,307
    )
    
    
    (6,527
    )
    
    
    
    
    
    
    (11,856
    )Advances from consolidating entities, net
    
    
    (729
    )
    
    
    16,633
    
    
    
    (872
    )
    
    
    (15,032
    )
    
    
    
    
    
    
    Net cash (used) provided by financing activities
    
    
    (751
    )
    
    
    16,633
    
    
    
    (9,218
    )
    
    
    20,492
    
    
    
    6,888
    
    
    
    34,044Net increase (decrease) in cash and cash equivalents
    
    
    248
    
    
    
    16,543
    
    
    
    (1,767
    )
    
    
    (1,261
    )
    
    
    
    
    
    
    13,763Cash and cash equivalents, beginning of period
    
    
    4,762
    
    
    
    6,279
    
    
    
    727
    
    
    
    2,463
    
    
    
    
    
    
    
    14,231Cash and cash equivalents, end of period
    
    $
    5,010
    
    
    $
    22,822
    
    
    $
    (1,040
    )
    
    $
    1,202
    
    
    $
    
    
    
    $
    27,994
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 This Managements Discussion and Analysis of Financial condition and Results of Operations
is a discussion and analysis of the financial condition, results of operations and liquidity and
capital resources. The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report. We make statements in this section
that are forward-looking statements within the meaning of the federal securities laws. For a
complete discussion of forward-looking statements, see the Forward-Looking Statements section
that immediately follows the table of contents. All dollar amounts in this discussion, except for
per share data and operating statistics, ADR, RevPAR and RevPOR, are in thousands.
 34




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##### Table of Contents



Overview
  Business.
      35




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##### 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
    
    
    
    
    
    
    
    57,000Sheboygan, WI
    
    
    100
    %
    
    
    2004
    
    
    
    182
    
    
    
    64
    
    
    
    54,000Williamsburg, 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 and fitness
room, as well as our spa in the resorts that have such amenities.(3)
    
    These properties are owned by CNL Lifestyle Properties, Inc. (CNL), a real
estate investment trust focused on leisure and lifestyle properties. Prior to
August 2009, these properties were owned by a joint venture between CNL and us.
In August 2009 we sold our 30.26% joint venture interest to CNL for $6,000.
We currently manage both properties and license the Great Wolf Lodge brand to
these resorts.(4)
    
    Five of our properties (Great Wolf Lodge resorts in Williamsburg, VA; Pocono
Mountains, PA; Mason, OH; Grapevine, TX and Concord NC) each had a book value
of fixed assets equal to ten percent or more of our total assets as of
September 30, 2010 and each of those five properties had total revenues equal
to ten percent or more of our total revenues for the three and nine months
ended September 30, 2010.(5)
    
    An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this
resort. We have granted Ripley a license to use the Great Wolf Lodge name for
this resort through April 2016. We managed the resort on behalf of Ripley
through April 2009.(6)
    
    This property is owned by a joint venture. The Confederated Tribes of the
Chehalis Reservation (Chehalis) owns a 51% interest in the joint venture, and
we own a 49% interest. We operate the property and license the Great Wolf Lodge
brand to the joint venture under long-term agreements through April 2057,
subject to earlier termination in certain situations. The joint venture leases
the land for the resort from the United States Department of the Interior,
which is trustee for Chehalis. Acquisition of Creative Kingdoms, LLC.
 36




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##### 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 of ownership interests/recycling of capital;
 37




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##### Table of Contents




    
    expanding and enhancing existing resorts;
 
    
    continuing to innovate;
 
    
    maximizing total resort revenues;
 
    
    minimizing total resort costs; and
 
    
    building upon our existing brand awareness and loyalty.
  
    
    attracting suitable joint venture partners;
 
    
    development, acquisition, conversion and/or licensing of properties;
 
    
    increases in costs of constructing, operating and maintaining our resorts;
 
    
    competition from other entertainment companies, both within and outside our industry
segment;
 
    
    external economic risks, including family vacation patterns and trends; and
 
    
    the other risks described in our annual report on Form 10-K under Item 1A, Risk
Factors. For a complete discussion of forward-looking statements, see the
Forward-Looking Statements section that immediately follows the table of contents.
   
    
    severe turbulence in the banking and lending sectors, which has led to a general
lessening of the availability of credit to consumers;
 
    
    an increased national unemployment rate;
 
    
    a continuing decline in the national average of home prices and an increase in the
national home foreclosure rate; and
 
    
    high volatility in the stock market that led to substantial declines in leading
market averages and aggregate household savings from 2007 to 2010.
   
    
    We believe that our Traverse City and Sandusky resorts have been and will
continue to be affected by especially adverse general economic circumstances in the
Michigan/Northern Ohio region (such as bankruptcies of several major companies and/or large
announced layoffs by major employers) and increased competition that has occurred in these
markets over the past few years. The Michigan/Northern Ohio region includes cities that
have
 38




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##### Table of Contents



historically been the Traverse City and Sandusky resorts largest source of customers. We
believe the adverse general economic circumstances in the region have negatively impacted
overall discretionary consumer spending in that region over the past few years and may
continue to do so going forward. Although we have taken steps to reduce our operating costs
at these resorts, we believe the general regional economic downturn has and may continue to
have an impact on the operating performance of our Traverse City and Sandusky resorts.
 
    
    Our Wisconsin Dells property has been significantly impacted by the abundance
of competing indoor waterpark resorts in that market. The Wisconsin Dells market has
approximately 16 indoor waterpark resorts that compete with us. We believe this large
number of competing properties in a relatively small tourist destination location has and
will likely continue to have an adverse impact on the operating performance of our
Wisconsin Dells resort.
 
    
    We have experienced much lower than expected occupancy and lower than expected
average daily room rates at our Sheboygan, Wisconsin property since its opening in 2004. We
believe this operating weakness has been primarily attributable to the fact that the
overall development of Sheboygan as a tourist destination continues to lag significantly
behind our initial expectations. We believe this has materially impacted and will likely
continue to impact the consumer demand for our indoor waterpark resort in that market and
the operations of the resort. As a result of those conditions, we recorded an impairment
charge in 2009 to decrease the resorts carrying value to its estimated fair value (net of
disposal costs). In May 2010, we listed the resort for sale.
   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
 39




---



##### Table of Contents




    
    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.
   40




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Acquisition Accounting
 Goodwill
  September 30,
    
    
    December 31,2010
    
    
    2009Goodwill
    
    $
    2,276
    
    
    
    130,496Accumulated impairment losses
    
    
    
    
    
    
    (68,405
    )Goodwill related to sale of affiliate
    
    
    
    
    
    
    (62,091
    )$
    2,276
    
    
    $
    
 Noncontrolling Interests
 41




---



##### Table of Contents



Recent Accounting Pronouncements
    Non-GAAP Financial Measures
    42




---



##### 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;
    
    it does not reflect the impact of earnings or charges resulting from matters we consider
not to be indicative of our ongoing operations;
    
    it does not reflect limitations on our costs related to transferring earnings from our
subsidiaries to us; and
    
    other companies in our industry may calculate EBITDA differently than we do, limiting its
usefulness as comparative measures.
  43




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss attributable to Great
    
    $
    (993
    )
    
    $
    (36,923
    )
    
    $
    (21,818
    )
    
    $
    (48,274
    )Wolf Resorts, Inc.Adjustments:Interest expense, net of interest income
    
    
    12,254
    
    
    
    9,540
    
    
    
    33,479
    
    
    
    24,248Income tax expense
    
    
    47
    
    
    
    14,053
    
    
    
    416
    
    
    
    6,531Depreciation and amortization
    
    
    13,806
    
    
    
    15,136
    
    
    
    44,936
    
    
    
    42,352EBITDA
    
    $
    25,114
    
    
    $
    1,806
    
    
    $
    57,013
    
    
    $
    24,857
 Results of Operations
 General
  
    
    our subsidiary entity that provides resort development and
management/licensing services;
 
    
    our wholly-owned resorts;
 
    
    our CK subsidiary which is a developer of experiential gaming products, less
our noncontrolling interest; and
 
    
    our equity interests in the Wisconsin Dells and Sandusky resorts through
August 2009, when we sold our minority ownership interests in those resorts, and our equity
interest in the Grand Mound resort in which we have a minority ownership interest but which we do not
consolidate.
 Revenues.
 
    
    lodging revenue, which includes rooms, food and beverage, and other department
revenues from our resorts;
 
    
    revenue from our CK subsidiary, which includes product sales, admission fees
and retail revenues;
 
    
    management fee and other revenue from resorts, which includes fees received
under our management, license, development and construction management agreements; and
 44




---



##### Table of Contents




    
    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.
  
    
    selling, general and administrative expenses, which are associated with the
operations and management of resorts and which consist primarily of expenses such as
corporate payroll and related benefits, operations management, sales and marketing,
finance, legal, information technology support, human resources and other support services,
as well as general corporate expenses;
 
    
    property operation and maintenance expenses, such as utility costs and
property taxes;
 
    
    depreciation and amortization; and
 
    
    other expenses from managed properties.
 Three months ended September 30, 2010, compared with the three months ended September 30, 2009
  Same Store Comparison(b)Increase/All Properties(a)

    
    
    
    
    
    
    
    
    
    
    (Decrease)2010
    
    
    2010
    
    
    2009
    
    
    $
    
    
    %Occupancy
    
    
    68.3
    %
    
    
    68.3
    %
    
    
    69.1
    %
    
    
    N/A
    
    
    
    (1.2
    )%ADR
    
    $
    252.14
    
    
    $
    252.14
    
    
    $
    246.42
    
    
    $
    5.72
    
    
    
    2.3
    %RevPAR
    
    $
    172.33
    
    
    $
    172.33
    
    
    $
    170.26
    
    
    $
    2.07
    
    
    
    1.2
    %Total RevPOR
    
    $
    382.32
    
    
    $
    382.32
    
    
    $
    374.36
    
    
    $
    7.96
    
    
    
    2.1
    %Total RevPAR
    
    $
    261.29
    
    
    $
    261.29
    
    
    $
    258.67
    
    
    $
    2.62
    
    
    
    1.0
    %Non-rooms revenue per occupied room
    
    $
    130.17
    
    
    $
    130.17
    
    
    $
    127.94
    
    
    $
    2.23
    
    
    
    1.7
    %
 
 (a)
    
    Includes results for properties that were open for any portion of the period, for all owned,
managed and/or licensed resorts.(b)
    
    Same store comparison includes properties that were open for the full periods and with
comparable number of rooms in 2010 and 2009.   45




---



##### Table of Contents



Three months endedSeptember 30,Increase/2010
    
    
    2009
    
    
    (Decrease)Revenues
    
    $
    81,118
    
    
    $
    76,827
    
    
    $
    4,291Operating expenses:Departmental operating expenses
    
    
    25,186
    
    
    
    24,484
    
    
    
    702Selling, general and administrative
    
    
    16,560
    
    
    
    14,911
    
    
    
    1,649Depreciation and amortization
    
    
    13,806
    
    
    
    15,136
    
    
    
    (1,330
    )Asset impairment loss
    
    
    
    
    
    
    24,000
    
    
    
    (24,000
    )Net operating income (loss)
    
    
    10,931
    
    
    
    (15,491
    )
    
    
    26,422Gain on sale of unconsolidated affiliates
    
    
    
    
    
    
    (962
    )
    
    
    962Interest expense, net of interest income
    
    
    12,254
    
    
    
    9,540
    
    
    
    2,714Income tax expense
    
    
    48
    
    
    
    13,163
    
    
    
    (13,115
    )Net loss attributable to Great Wolf Resorts, Inc.
    
    
    (993
    )
    
    
    (36,923
    )
    
    
    35,930
 Revenues.
 
    
    More stable economic conditions which allowed our properties to increase RevPAR and
Total RevPAR.
    
    The acquisition of CK in June 2010. There were no similar revenues for the three
months ended September 30, 2009.
 Operating expenses.
 
    
    Departmental operating expenses increased by $702 in the three months ended September 30,
2010, as compared to the three months ended September 30, 2009, due primarily to the
acquisition of CK.
    
    Total selling, general and administrative expenses increased by $1,649 in the three
months ended September 30, 2010, as compared to the three months ended September 30, 2009,
due primarily to the acquisition of CK.
    
    Total depreciation and amortization decreased for the three months ended September 30,
2010, as compared to the three months ended September 30, 2009, due primarily to lower
depreciation amounts on our Sheboygan resort following the asset impairment loss recorded
in 2009 as well as lower amortization expense due to the write off of the unamortized loan
fees on the Williamsburg, Mason and Grapevine properties loans. These decreases are
partially offset by an increase in depreciation and amortization due primarily to the
acquisition of CK.
    
    For the three months ended September 30, 2009, we recorded a $24,000 asset impairment
loss related to our resort in Sheboygan. We had no similar loss in the three months ended
September 30, 2010.
 Net loss attributable to Great Wolf Resorts, Inc.
 
    
    A decrease in net operating loss of $26,422.
    
    An decrease in income tax expense of $13,115 recorded in the three months ended
September 30, 2010 as compared to the three months ended September 30, 2009 primarily
due to the establishment of a valuation allowance against certain deferred tax assets in
the 2009 period.
  46




---



##### Table of Contents




    
    An increase net interest expense of $2,714, mainly due to interest expense related to
our first mortgage notes issued in April 2010.
    
    The gain on sale of unconsolidated affiliates in the amount of $962 recorded in the
three months ended September 30, 2009. We had no similar gain in the three months ended
September 30, 2010
 Nine months ended September 30, 2010, compared with the nine months ended September 30, 2009
  Same Store Comparison(b)AllProperties(a)
    
    
    
    
    
    
    
    
    
    
    Increase/ (Decrease)2010
    
    
    2010
    
    
    2009
    
    
    $
    
    
    %Occupancy
    
    
    62.3
    %
    
    
    63.1
    %
    
    
    63.8
    %
    
    
    N/A
    
    
    
    (1.1
    )%ADR
    
    $
    249.80
    
    
    $
    249.63
    
    
    $
    242.77
    
    
    $
    6.86
    
    
    
    2.8
    %RevPAR
    
    $
    155.63
    
    
    $
    157.60
    
    
    $
    154.82
    
    
    $
    2.78
    
    
    
    1.8
    %Total RevPOR
    
    $
    383.99
    
    
    $
    384.08
    
    
    $
    373.36
    
    
    $
    10.72
    
    
    
    2.9
    %Total RevPAR
    
    $
    239.24
    
    
    $
    242.48
    
    
    $
    238.10
    
    
    $
    4.38
    
    
    
    1.8
    %Non-rooms revenue per occupied room
    
    $
    134.19
    
    
    $
    134.45
    
    
    $
    130.59
    
    
    $
    3.86
    
    
    
    3.0
    %
 
 (a)
    
    Includes results for properties that were open for any portion of the period, for all owned,
managed and/or licensed resorts.(b)
    
    Same store comparison includes properties that were open for the full periods and with
comparable number of rooms in 2010 and 2009 (that is, all properties other than our Concord
resort).   Nine months endedSeptember 30,Increase/2010
    
    
    2009
    
    
    (Decrease)Revenues
    
    $
    220,225
    
    
    $
    207,759
    
    
    $
    12,466Operating expenses:Departmental operating expenses
    
    
    71,467
    
    
    
    67,433
    
    
    
    4,034Selling, general and administrative
    
    
    49,788
    
    
    
    46,542
    
    
    
    3,246Property operating costs
    
    
    26,130
    
    
    
    29,657
    
    
    
    (3,527
    )Depreciation and amortization
    
    
    44,936
    
    
    
    42,352
    
    
    
    2,584Asset impairment loss
    
    
    
    
    
    
    24,000
    
    
    
    (24,000
    )Net operating income (loss)
    
    
    11,152
    
    
    
    (18,522
    )
    
    
    29,674Gain on sale of unconsolidated affiliates
    
    
    
    
    
    
    (962
    )
    
    
    962Interest expense, net of interest income
    
    
    33,479
    
    
    
    24,248
    
    
    
    9,231Income tax expense
    
    
    417
    
    
    
    6,380
    
    
    
    (5,963
    )Net loss attributable to Great Wolf Resorts, Inc.
    
    
    (21,818
    )
    
    
    (48,274
    )
    
    
    26,456
 47




---



##### Table of Contents



Revenues.
 
    
    An increase in revenue from our Concord resort, which opened in March 2009.
    
    Better economic conditions which allowed our properties to increase RevPAR and Total
RevPAR.
    
    The acquisition of CK in June 2010. There were no similar revenues for the nine
months ended September 30, 2009.
 Operating expenses.
 
    
    Departmental expenses increased by $4,034 for the nine months ended September 30, 2010,
as compared to the nine months ended September 30, 2009, due primarily to the opening of our
Concord resort as well as the acquistion of CK. There were no similar CK expenses for the
nine months ended September 30, 2009.
    
    Total selling, general and administrative expenses increased by $3,246 in the nine months
ended September 30, 2010, as compared to the nine months ended September 30, 2009, due
primarily to the opening of our Concord resort and the acquisition of CK. These increases
are partially offset by a settlement received at our Poconos resort related to wastewater
treatment litigation during the nine months ended September 30, 2010.
    
    Opening-related costs (included in total property operating costs) related to our
resorts were $5,592 for the nine months ended September 30, 2009, due primarily to the
expansion of our Grapevine property in January 2009 and opening of our Concord resort in
March 2009. We had $155 of opening-related costs related to the opening of our stand-alone
Scooops kid spa during the nine months ended September 30, 2010.
    
    Total depreciation and amortization increased for the nine months ended September 30,
2010, as compared to the nine months ended September 30, 2009, primarily due to expensing
$3,500 of unamortized loan fees related to our Williamsburg, Mason and Grapevine loans that
were repaid with the net proceeds of the first mortgage notes issued in April 2010. This
increase was partially offset by a decrease in depreciation on our Sheboygan resort due to
the asset impairment loss recorded in 2009.
    
    For the nine months ended September 30, 2009, we recorded a $24,000 asset impairment loss
related to our resort in Sheboygan. We had no similar loss in the nine months ended
September 30, 2010.
 Net operating income (loss).
 Net loss attributable to Great Wolf Resorts, Inc.
 
    
    A decrease in net operating loss of $29,674.
    
    An decrease in income tax expense of $5,963 recorded in the nine months ended
September 30, 2010 as compared to the nine months ended September 30, 2009 primarily due
to the establishment of a valuation allowance against certain deferred tax assets in the
2009 period.
  48




---



##### Table of Contents




    
    An increase net interest expense of $9,231, mainly due to interest expense related to
our first mortgage notes issued in April 2010; and
    
    The gain on sale of unconsolidated affiliates in the amount of $962 recorded in the
nine months ended September 30, 2009. We had no similar gain in the nine months ended
September 30, 2010
 Segments
  
    
    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 ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,Increase /
    
    
    
    
    
    
    
    
    
    
    Increase /2010
    
    
    2009
    
    
    (Decrease)
    
    
    2010
    
    
    2009
    
    
    (Decrease)Resort Ownership/OperationRevenues
    
    $
    71,147
    
    
    $
    69,424
    
    
    $
    1,723
    
    
    $
    195,188
    
    
    $
    186,411
    
    
    $
    8,777EBITDA
    
    
    22,251
    
    
    
    (2,823
    )
    
    
    25,074
    
    
    
    51,820
    
    
    
    20,362
    
    
    
    31,458Resort Third-Party
Management/LicenseRevenues
    
    
    7,525
    
    
    
    7,403
    
    
    
    122
    
    
    
    21,724
    
    
    
    21,348
    
    
    
    376EBITDA
    
    
    1,816
    
    
    
    1,828
    
    
    
    (12
    )
    
    
    4,991
    
    
    
    5,252
    
    
    
    (261
    )OtherRevenues
    
    
    2,446
    
    
    
    
    
    
    
    2,446
    
    
    
    3,313
    
    
    
    
    
    
    
    3,313EBITDA
    
    
    1,047
    
    
    
    2,801
    
    
    
    (1,754
    )
    
    
    202
    
    
    
    (757
    )
    
    
    959
  Liquidity and Capital Resources
  September 30,
    
    
    December 31,2010
    
    
    2009Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    67,633
    
    
    $
    68,773Mason mortgage loan
    
    
    
    
    
    
    73,800Pocono Mountains mortgage loan
    
    
    94,583
    
    
    
    95,458Williamsburg mortgage loan
    
    
    
    
    
    
    63,125Grapevine mortgage loan
    
    
    
    
    
    
    77,909Concord mortgage loan
    
    
    78,464
    
    
    
    78,549First mortgage notes (net of discount of $9,961)
    
    
    220,039
    
    
    
    
 49




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##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009Junior subordinated notes
    
    
    80,545
    
    
    
    80,545Other Debt:City of Sheboygan bonds
    
    
    8,564
    
    
    
    8,544City of Sheboygan loan
    
    
    3,113
    
    
    
    3,290Other
    
    
    55
    
    
    
    78552,996
    
    
    
    550,071Less current portion of long-term debt
    
    
    (70,450
    )
    
    
    (16,126
    )Total long-term debt
    
    $
    482,546
    
    
    $
    533,945
 Traverse City/Kansas City Mortgage Loan
      50




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##### Table of Contents



Mason Mortgage Loan
 Pocono Mountains Mortgage Loan 
   Williamsburg Mortgage Loan 
 Grapevine Mortgage Loan
 Concord Mortgage Loan
 51




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##### Table of Contents



First Mortgage Notes
   Junior Subordinated Notes
    52




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##### Table of Contents



City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughSeptember 30,2011
    
    $
    4,4342012
    
    
    80,5142013
    
    
    3,6062014
    
    
    3,8922015
    
    
    62,548Thereafter
    
    
    407,963Total
    
    $
    562,957
  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;
    
    interest expense and scheduled principal payments on outstanding indebtedness;
 53




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##### Table of Contents




    
    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.
   54




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##### 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)
    
    $
    780,668
    
    
    $
    40,010
    
    
    $
    154,711
    
    
    $
    133,314
    
    
    $
    452,633Operating lease obligations
    
    
    4,511
    
    
    
    992
    
    
    
    1,760
    
    
    
    1,164
    
    
    
    595Reserve on unrecognized tax benefits
    
    
    1,268
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,268Total
    
    $
    786,447
    
    
    $
    41,002
    
    
    $
    156,471
    
    
    $
    134,478
    
    
    $
    454,496
 
 (1)
    
    Amounts include interest (for fixed rate debt) and principal. They also include $8,564 of
fixed rate debt recognized as a liability related to certain bonds issued by the City of
Sheboygan and $3,113 of fixed rate debt recognized as a liability related to a loan from
the City of Sheboygan. These liabilities will be satisfied by certain future minimum
guaranteed amounts of real and personal property tax payments and room tax payments to be
made by our Sheboygan resort. 55




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##### Table of Contents



Working Capital
  
    
    the use of cash for capital expenditures;
    
    an increase in accruals related to the issuance of our first mortgage notes that
closed in April 2010, and
    
    the classification of our Traverse City/Kansas City mortgage loan (principal balance of $67,633)
as a current liability due to the lenders implementation of the traditional lock-box arrangement for the two
properties, as discussed above.
  Cash Flows
 Nine months ended September 30, 2010, compared with the nine months ended September 30, 2009
 2010
    
    
    2009
    
    
    Increase/ (Decrease)Net cash provided by operating activities
    
    $
    32,513
    
    
    $
    14,056
    
    
    $
    18,457Net cash used in investing activities
    
    
    (2,346
    )
    
    
    (34,337
    )
    
    
    (31,991
    )Net cash (used in) provided by financing activities
    
    
    (7,977
    )
    
    
    34,044
    
    
    
    (42,021
    )
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Inflation
  
 ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  56




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##### Table of Contents




    
    $67,633 of fixed rate debt secured by two of our resorts. This debt bears interest at
6.96%.
    
    $94,583 of fixed rate debt secured by one of our resorts. This debt bears interest at
6.10%.
    
    $78,464 of variable rate debt secured by one of our resorts. This debt bears interest
at a floating annual rate of LIBOR plus a spread of 310 basis points, with a minimum rate
of 6.50% per annum. The effective rate was 6.50% at September 30, 2010.
    
    $220,039 (net of discount of $9,961) of first mortgage notes that are secured by first
priority liens on three of our resorts. This debt bears interest at 10.875%. The notes
are due April 2017.
    
    $51,550 of subordinated notes that bear interest at a fixed rate of 7.80% through March
2015 and then at a floating rate of LIBOR plus 310 basis points thereafter. The securities
mature in March 2035.
    
    $28,995 of subordinated notes that bear interest at a fixed rate of 7.90% through June
2012 and then at a floating rate of LIBOR plus 300 basis points thereafter. The securities
mature in June 2017.
    
    $8,564 of fixed rate debt (effective interest rate of 10.67%) recognized as a liability
related to certain bonds issued by the City of Sheboygan and $3,113 of non-interest bearing
debt recognized as a liability related to a loan from the City of Sheboygan. These
liabilities will be satisfied by certain future minimum guaranteed amounts of real and
personal property tax payments and room tax payments to be made by the Sheboygan resort.
    
    $55 related to a capital lease that was entered into in June 2009. The lease matures in
May 2012.
    
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  57




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Remediation of Material Weaknesses
  Changes in Internal Control
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  58




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##### Table of Contents



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
  ExhibitNumber
    
    Description31.1
    
    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
 59




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SIGNATURE
  GREAT WOLF RESORTS, INC./s/ James A. CalderJames A. CalderChief Financial Officer
(Duly authorized officer)
(Principal Financial and Accounting Officer)  60