e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One) |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal period ended December 31, 2004 |
OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 000-51064
GREAT WOLF RESORTS, INC.
(Exact name of issuer as specified in its charter)
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Delaware |
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51-0510250 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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122 West Washington Avenue
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53703 |
Madison, Wisconsin 53703
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(Zip Code) |
(Address of principal executive offices)
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Registrants telephone number, including area code
608 661-4700
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
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Title of Each Class |
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Name of Exchange on Which Registered |
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Common Stock, par value $0.01 per share |
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Nasdaq National Market |
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange
Act). Yes o No þ
As of March 16, 2005, the aggregate market value of the
voting and non-voting stock held by non-affiliates of the
Registrant was approximately $724,782,000 based on the closing
price on the Nasdaq for such shares.
The number of shares outstanding of the issuers common
equity was 30,262,308 as of March 16, 2005.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2005 Annual Meeting of
Stockholders are incorporated by reference into Part III. A
definitive Proxy Statement pursuant to Regulation 14A will
be filed with the Commission no later than May 2, 2005.
Great Wolf Resorts, Inc.
Annual Report on Form 10-K
For the Year Ended December 31, 2004
INDEX
1
PART I
Overview and Development
As used herein, the terms we, our and
us refer to Great Wolf Resorts, Inc., a Delaware
corporation, and its subsidiaries. All dollar amounts used in
this Annual Report on Form 10-K are in thousands, except
per share amounts and operating statistics.
We are a family entertainment resort company that provides our
guests with a high-quality vacation at an affordable price. We
are the largest owner, operator and developer in the United
States of drive-to family resorts featuring indoor waterparks
and other family-oriented entertainment activities, based on the
number of resorts in operation. We provide a full-service
entertainment resort experience to our target customer base:
families with children ranging in ages from 2 to 14 years
old that live within a convenient driving distance from our
resorts. Our resorts provide a consistent and comfortable
environment throughout the year where our guests can enjoy our
various amenities and activities. We are a fully integrated
resort company with in-house expertise and resources in resort
and indoor waterpark development, management, marketing and
financing.
We own and operate four existing Great Wolf Lodge® resorts,
our signature northwoods-themed resorts, and one Blue Harbor
Resort, a nautical-themed property. In addition, we own two
Great Wolf Lodge resorts that are under construction and
scheduled to open for business during 2005. We are also the
licensor and manager of an additional Great Wolf Lodge resort in
Niagara Falls, Ontario that is owned and under development by an
affiliate of Ripley Entertainment Inc., or Ripleys. We are
currently evaluating 12 to 14 additional markets for potential
future development of Great Wolf Lodge resorts, six of which are
in active site negotiation. We anticipate that most of our
future resorts will be developed under our Great Wolf Lodge
brand, but we may develop additional nautical-themed resorts in
other appropriate markets.
We were formed in May 2004 to succeed to the family
entertainment resort business of our predecessor companies, The
Great Lakes Companies, Inc., and a number of its related
entities. We refer to these entities collectively as Great
Lakes. Great Lakes developed and operated hotels between 1995
and December 2004. In 1999, Great Lakes began its resort
operations by purchasing Great Wolf Lodge in Wisconsin Dells,
Wisconsin and developing the Great Wolf Lodge in Sandusky, Ohio,
which opened in 2001. In 2003, Great Lakes opened two additional
Great Wolf Lodge resorts, one in Traverse City, Michigan and the
other in Kansas City, Kansas. In June 2004, Great Lakes opened
the Blue Harbor Resort in Sheboygan, Wisconsin. Immediately
prior to the closing of our initial public offering of common
stock, which we refer to in this Form 10-K report as the
IPO, Great Lakes had two additional Great Wolf Lodge resorts
under construction, one in Williamsburg, Virginia and the other
in the Pocono Mountains region of Pennsylvania. These resorts
are scheduled to open in late March and October of 2005,
respectively.
On December 20, 2004, in connection with the closing of the
IPO, we acquired each of these resorts and the resorts currently
under construction, as well as certain resort development and
management operations, in exchange for an aggregate of
14,032,896 shares of our common stock and $97,600, in a
series of transactions we refer to in this Form 10-K report
as the formation transactions. We also realized net proceeds of
$248,700 from the sale of 16,100,000 shares of our common
stock in the IPO.
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Properties Overview
We have five family entertainment resorts that are currently
operating and two additional resorts that are under
construction, and we will manage one resort under construction
that is owned by a third-party licensee. We also have identified
additional target markets for future resort development and are
in negotiations with respect to sites in six of these markets.
The following table presents an overview of our existing
portfolio of resorts:
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Year Ended December 31, 2004(1) | |
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Other | |
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Total | |
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Indoor | |
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Average | |
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Revenue per | |
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Revenue per | |
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Revenue per | |
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Opened/Target | |
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Entertainment | |
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Daily | |
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Available | |
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Occupied | |
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Occupied | |
Location |
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Opening | |
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Rooms | |
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Area(2) | |
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Occupancy | |
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Rate | |
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Room(3) | |
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Room | |
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Room(4) | |
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(Approx. ft2) | |
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(%) | |
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($) | |
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($) | |
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($) | |
Existing Resorts:
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Wisconsin Dells, WI
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May 1997(5) |
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309 |
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64,000 |
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62.2 |
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188.76 |
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117.47 |
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78.44 |
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267.20 |
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Sandusky, OH(7)
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March 2001 |
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271 |
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41,000 |
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68.0 |
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231.45 |
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157.50 |
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94.33 |
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325.78 |
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Traverse City, MI
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March 2003 |
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281 |
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51,000 |
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69.4 |
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223.43 |
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155.04 |
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97.25 |
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320.68 |
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Kansas City, KS
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May 2003 |
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281 |
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49,000 |
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64.4 |
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196.18 |
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126.31 |
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89.67 |
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285.85 |
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Sheboygan, WI(8)
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June 2004 |
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183 |
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54,000 |
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58.3 |
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190.35 |
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110.93 |
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161.26 |
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351.61 |
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Resorts Under Construction:
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Williamsburg, VA
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March 2005 |
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301 |
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66,000 |
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Pocono Mountains, PA
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Fall 2005 |
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400 |
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91,000 |
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Niagara Falls, ONT(10)
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Spring 2006 |
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404 |
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94,000 |
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(1) |
Information for our Sheboygan resort reflects operating results
from the resorts opening in June 2004 through
December 31, 2004. |
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(2) |
Our indoor entertainment areas generally include our indoor
waterpark, game arcade, childrens activity room and
fitness room, as well as our Aveda concept spa, 3D virtual
reality theater, Wileys Woods and party room in the
resorts that have such amenities. |
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Revenue per available room represents the total room revenue per
total available rooms for the year ended December 31, 2004,
calculated by multiplying the occupancy by the average daily
rate. |
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Total revenue per occupied room is calculated by adding the
average daily rate and other revenue per occupied room. |
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Great Lakes purchased this property in November 1999. |
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Our Wisconsin Dells property also features 77 condominium units
currently under construction. |
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Prior to May 2004, we operated this resort as a Great Bear Lodge. |
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Our Sheboygan property is branded as a Blue Harbor Resort. This
resort is subject to a 98-year and 11-month ground lease with
the Redevelopment Authority of the City of Sheboygan. |
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(9) |
Our Blue Harbor Resort also features 64 individually owned two
and four bedroom condominium units. |
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(10) |
An affiliate of Ripley Entertainment, Inc., our licensee, which
we refer to as Ripleys, owns this resort. We are assisting
Ripleys with construction management and other pre-opening
matters related to the Great Wolf Lodge in Niagara Falls. We
have granted Ripleys a license to use the Great Wolf Lodge
name for this resort for ten years after opening. We have agreed
to enter into a management agreement, pursuant to which we
expect to operate the resort on behalf of Ripleys for five
years, and a central reservation services agreement. In
conjunction with this project, we expect to receive a one-time
construction fee and ongoing license, central reservation
services and management fees. |
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Northwoods Lodge Theme. Each of our Great Wolf Lodge
resorts has a northwoods lodge theme, with a rustic log exterior
and cultured stone veneer that provides a dramatic and authentic
log cabin appearance. Our three-story, approximately 5,000 to
7,800 square-foot atrium lobbies are designed in a
northwoods cabin motif with exposed timber beams, massive stone
fireplaces, mounted wolves and other northwoods creatures,
Native American art and an animated two-story clocktower that
provides theatrical entertainment for our younger guests.
Throughout the common areas and in each guest suite, we use
sturdy, rustic furniture that complements the northwoods theme.
We believe that this consistent theme throughout our resorts
creates a comfortable and relaxing environment and provides a
sense of adventure and exploration that the entire family can
enjoy.
Guest Suites. All of our guest suites are themed luxury
suites ranging in size from approximately 385 square feet
to 1,900 square feet. Substantially all of our rooms also
include a private deck or patio. Our resorts offer up to nine
room styles to meet the needs and preferences of our guests,
including a selection of rooms with lofts, jacuzzis and
fireplaces. Our standard rooms include two queen beds and a
third queen bed in the sleeper sofa, a wet bar, microwave oven,
refrigerator and dining and sitting area, and can accommodate up
to six people. Our specialty rooms can accommodate up to seven
people and provide a separate area for children, including our
KidCabin Suites that feature a log cabin bunk bed room, our Wolf
Den Suites that feature a themed den enclosure with bunk beds
and our KidKamp Suites that feature bunk beds in a themed tent
enclosure. We also offer larger rooms, such as our Majestic Bear
Suite, which has a separate bedroom with a king bed, a large
dining and living area and can accommodate up to eight people.
Our guest suites have wallpaper, artwork and linens that
continue the northwoods theme and provide for full room service,
pay-per-view movies and pay-per-play video games.
Indoor Waterparks. Our existing Great Wolf Lodge indoor
waterparks are maintained at a warm and comfortable temperature,
range in size from approximately 34,000 to 43,000 square
feet and have a northwoods, totemic theme, including four-story
totem poles, decorative rockwork and plantings, all of which is
contained in a five-story wooden beam structure. The focus of
each Great Wolf Lodge waterpark is our signature 12-level
treehouse water fort. The fort is an interactive water
experience for the entire family that features over 60 water
effects, including spray guns, fountains, valves and hoses, has
cargo netting and suspension bridges and is capped by an
oversized bucket that dumps between 700 and 1,000 gallons of
water every five minutes. Our Blue Harbor Resort has a
43,000 square-foot Breaker Bay waterpark including our
12-level Lighthouse Pier water fort featuring a 1,000 gallon
tipping ship. Our waterparks also feature high-speed body slides
and inner tube waterslides that wind in and out of the building
into a splash-down pool, smaller slides for younger children,
zero-depth water activity pools for small children with geysers,
a water curtain, fountains and tumble buckets, a lazy river,
additional activity pools for basketball, open swimming and
other water activities and two large free-form hot tubs, one of
which is for adults-only. Each waterpark is constructed with a
special nonslip floor surface for maximum traction and has ample
deck space and good sight lines to enhance parental oversight.
Our resorts under construction will have indoor waterparks
ranging in size from approximately 55,000 to 82,000 square
feet with additional attractions such as wave pools and water
rollercoasters.
Approximately one million gallons of water are cycled through
each of our waterparks every hour in order to ensure
cleanliness. Our primary operating equipment includes standard
water pumps, tanks and filters, located in separate spaces to
allow for quick repairs or replacement. The water and air
quality of our waterparks is continuously monitored by
computerized water and air treatment systems and highly trained
technicians in order to ensure a clean and safe environment. We
seek to minimize the use of chlorine. Most of the water
purification is performed by an advanced ozone water treatment
system, which ensures the highest water quality and an absence
of the typical chlorine odor found in indoor pools. In addition,
the water within each area circulates every hour to maximize
hygiene. Each waterpark area has its own water system so that a
problem with any one area can be quickly contained and does not
affect the operations of the rest of the waterpark.
We expect recurring annual capital expenditures for each resort
to be approximately 3-4% of the resorts revenues,
including the repair and maintenance of our waterpark equipment.
As much of the equipment used in our waterparks is designed for
outdoor application and capable of withstanding intense physical
use and the
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elements year-round, wear and tear is minimal and we believe our
equipment has a long useful life. In addition, our water
purification system minimizes airborne chemicals and their
potentially corrosive effects on materials and equipment and
helps extend the life of our equipment.
The safety of our guests is a primary focus in our waterparks.
Our lifeguards receive one of the highest levels of training and
certification in the industry, provided by Jeff Ellis &
Associates, Inc., an international aquatic safety consulting
company. Ellis & Associates conducts quarterly
unannounced safety inspections at each of our resorts to ensure
that proper safety measures and procedures are maintained. All
of our on duty lifeguards perform daily training exercises under
the supervision of a certified instructor. We also encourage our
lifeguards to obtain EMT certification, and we reimburse them
for the costs of the training.
Our indoor waterparks are open from 8:30 a.m. until
10:00 p.m. seven days a week and admission is generally
only available to resort guests. Our general guests-only policy,
at all of our resorts other than our Sheboygan resort, allows
our guests to avoid the long lines and other inconveniences of
daily admission-based waterparks.
Amenities. Each of our existing resorts features, and
each of our resorts under construction will feature, a
combination of the following amenities. Our Blue Harbor resort
amenities have similar appropriate nautical-themed names.
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Themed Restaurants. Our resorts feature one or more
full-service, themed restaurants and a themed bar and grille
that serves alcoholic beverages and sandwiches. Our themed
restaurants include the Gitchigoomie Grill, with a life-sized
sea plane suspended over the dining area, Lumber Jacks
Cook Shanty, the Loose Moose Bar & Grill, and the Camp
Critter Bar & Grille, which features a two-story
realistic tree with a canopy of leaves and canvas-topped booths
with hanging lanterns, giving guests the impression that they
are dining in a northwoods forest campsite. Our Blue Harbor
Resort features our On the Rocks Bar & Grille and Rusty
Anchor Buffet. |
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Ice Cream Shop and Confectionery. Each of our Great Wolf
Lodge resorts, with the exception of our Sandusky resort, has a
Bear Claw Café ice cream shop and confectionery that
provides sandwiches, Starbucks® coffee, pastries, ice
cream, candies, home-made fudge and other snacks that families
can share together. Our Blue Harbor Resort has a Sweetshop
Landing confectionery. |
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Snack Bar. Each of our waterparks has a snack bar that
offers a variety of sandwiches, pizzas and similar foods with
ample seating so that our guests do not have to leave the warmth
and comfort of the waterparks. |
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Gift Shop. Each of our resorts has a Buckhorn Exchange or
Precious Cargo gift shop that provides unique themed gifts,
including Great Wolf Lodge logo merchandise, souvenirs,
collectibles and stuffed animals. The gift shop also offers
resort toys, swimwear and personal necessities. |
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Full-Service Spa. Each of our resorts, with the exception
of our Sandusky resort, has an Aveda concept or Cameo spa that
provides a relaxing get-a-way with a full complement of
massages, facials, manicures, pedicures and other spa
treatments, as well as yoga classes and a wide selection of
Aveda products. We intend to add an Aveda concept spa to our
Sandusky Great Wolf Lodge resort. |
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Game Arcade. Our Youkon Jacks or Northern Lights
game arcades range in size from approximately 3,900 to
7,000 square feet, have over 70 games of skill and are
divided into distinct areas with video and skill games that
appeal to children of different ages. Tickets won from the games
may be exchanged for a wide selection of merchandise that
appeals to our younger guests. |
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Cub Club. Our Cub Club rooms are professionally staffed
childrens activity rooms with programmed activities,
including arts and crafts, games and nature hikes. Cub Club is a
frequent guest program for our younger guests. Cub Club
membership is open to all children who have stayed at one of our
resorts and includes a periodic newsletter, exclusive offers,
rewards for each stay and a free meal and dessert when members
visit during their birthday month. We currently have more than
10,000 Cub Club members. Our Blue Harbor Resort features a Crew
Club frequent guest program and activities that are similar to
our Cub Club. |
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Animated Clocktower. Each of our Great Wolf Lodge
resorts, with the exception of our Sandusky resort, has a
two-story animated clocktower located in the resorts main
atrium lobby. The clocktower provides daily theatrical
entertainment through talking and singing trees, animals and
northwoods figures. Our Blue Harbor Resort features a 2,000
gallon water fountain featuring a hand-blown glass sculpture and
a music and light show located in its main atrium lobby. |
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Outdoor Water Amenities. Outdoor water amenities
complement our indoor waterpark facilities and allow our guests
to take advantage of favorable weather conditions. Our outdoor
water amenities include activity pools and a large deck or patio
area and are generally open from May until September. Our
Wisconsin Dells resort also has outdoor waterslides. |
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Fitness Room. Our fitness rooms contain aerobic exercise
equipment and weight-lifting machines with numerous televisions
for active viewing. |
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Meeting Space. Our resorts offer meeting rooms ranging
from approximately 3,000 to over 7,000 square feet that are
available for guest meetings, including a 99-seat,
state-of-the-art, symposium-style room at our Traverse City
resort. |
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Conference Facility. Our Blue Harbor Resort features an
approximately 21,000 square-foot attached conference
facility that provides spaces ranging from approximately
1,000 square feet to 10,000 square feet for a number
of different types of conferences and conventions. |
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Bikos 3D Theatre. Our 3D theatres, located at our
Wisconsin Dells and Traverse City resorts, provide a 12-minute
virtual reality adventure for children and their parents. |
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Wileys Woods. Wileys Woods is an interactive
indoor live video game in a four-story, approximately
16,000 square-foot structure located at our Wisconsin Dells
resort. Children ages three and older wear electronic wrist
bands and gain points by navigating slides, bridges, nets and
mazes and performing a variety of tasks on over 60 machines and
gadgets. Admission to Wileys Woods is free for all resort
guests and is open to the public for a fee of $6 for children
and $9 for adults, with free admission for children under the
age of three. |
Operating Properties
Our operating resorts are currently located in Wisconsin Dells,
Wisconsin; Sandusky, Ohio; Traverse City, Michigan; Kansas City,
Kansas; and Sheboygan, Wisconsin.
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Great Wolf Lodge of Wisconsin Dells, Wisconsin |
Our Great Wolf Lodge, located on 25 acres in Wisconsin
Dells, Wisconsin, was originally constructed in 1997 and
acquired by Great Lakes in 1999.
Wisconsin Dells is a renowned family vacation destination that
features a number of entertainment options, including amusement
parks, museums, live entertainment and other indoor waterparks.
According to its Visitor and Convention Bureau, the Wisconsin
Dells area attracts over two and a half million visitors each
year and in 2003 attracted over $840,000 of vacation-related
expenditures. Wisconsin Dells is within a one-hour drive from
Madison, Wisconsin; a two-hour drive from Milwaukee, Wisconsin;
and a three and one-half hour drive from Chicago, Illinois.
According to Third Wave Research, there are approximately
16.0 million people who live within 180 miles of the
resort.
Great Wolf Lodge of Wisconsin Dells has 309 guest suites and an
approximately 38,000 square-foot indoor waterpark that
includes our signature treehouse water fort. The resort offers a
number of revenue-enhancing amenities, including a themed
restaurant, Loose Moose Bar & Grill, Bear Claw
Café ice cream shop and confectionery, Youkon Jacks
game arcade, Buckhorn Exchange gift shop, full-service Aveda
concept spa, Wileys Woods, Bikos 3-D virtual reality
adventure theater and meeting rooms. The resort also includes
non- revenue-generating amenities, such as an animated two-story
clocktower, Cub Club room and Iron Horse fitness center. In
September 2004, we began construction of 77 condominium units.
In connection with this project, we intend to expand our indoor
waterpark accordingly, which we expect would be complete
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in 2005. In Summer 2005, we expect to begin construction on
enhancements to our indoor waterpark at this resort to add a
wave pool and other new attractions.
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Great Wolf Lodge of Sandusky, Ohio |
In March 2001, we opened our Great Bear Lodge in Sandusky, Ohio,
which has the same theming as each of our Great Wolf Lodge
resorts and was re-named the Great Wolf Lodge of Sandusky in May
2004. Sandusky is a family destination near Cleveland, Ohio that
is well known for its amusement parks. According to the
Sandusky/ FIB Erie County Visitors and Convention Bureau,
Sandusky attracts approximately seven million visitors each
year. Sandusky is within a one-hour drive from Cleveland, Ohio;
a two-hour drive from Detroit, Michigan; a two and one-half-hour
drive from Columbus, Ohio; and a three-hour drive from
Pittsburgh, Pennsylvania. According to Third Wave Research,
there are approximately 23.7 million people who live within
180 miles of the resort.
Great Wolf Lodge of Sandusky is located on approximately
15 acres and has 271 guest suites and an approximately
34,000 square-foot indoor waterpark that includes our
signature treehouse water fort, tube slides, body slides, hot
tubs and a lazy river. The resort offers a number of
revenue-enhancing amenities, including our Gitchigoomie Grill
and Lumber Jacks Cook Shanty themed restaurants, Northern
Lights game arcade, Buckhorn Exchange gift shop and meeting
rooms. The resort also includes non-revenue-generating amenities
such as our Cub Club room and Iron Horse fitness center.
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Great Wolf Lodge of Traverse City, Michigan |
In March 2003, we opened our Great Wolf Lodge in Traverse City,
Michigan. Traverse City is a traditional family vacation
destination with skiing and lake activities. According to the
Traverse City Convention and Visitors Bureau, Traverse City
attracts approximately two million visitors each year. Traverse
City is within a three-hour drive from Grand Rapids, Michigan
and the Saginaw/ Flint, Michigan area and a four-hour drive from
Detroit, Michigan. This resort also draws guests from Northern
Indiana and Ohio. According to Third Wave Research, there are
approximately 7.6 million people who live within
180 miles of the resort.
Great Wolf Lodge of Traverse City is located on approximately
48 acres and has 281 guest suites and an approximately
40,000 square-foot indoor waterpark that includes our
signature treehouse fort and Howling Wolf family raft. The
resort offers a number of revenue-enhancing amenities, including
our Camp Critter Bar & Grille and Loose Moose Cottage
themed restaurants, Northern Lights game arcade, full-service
Aveda concept spa, Bear Claw Café ice cream shop and
confectionery, Bikos 3D virtual reality adventure theater,
Buckhorn Exchange gift shop and meeting rooms. The resort also
includes non-revenue-generating amenities such as our animated
two-story clocktower, Cub Club room and Iron Horse fitness
center.
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Great Wolf Lodge of Kansas City, Kansas |
In May 2003, we opened our Great Wolf Lodge in Kansas City,
Kansas as part of the Village West tourist district that
includes a Cabelas superstore, Nebraska Furniture Mart and
the Kansas Nascar Speedway. According to the Kansas City
Convention and Visitors Bureau, Kansas City attracts
approximately five million visitors each year. Kansas City is
within a one-hour drive from Topeka, Kansas; a two and one-half
hour drive from Jefferson City, Missouri; and a three-hour drive
from Lincoln, Nebraska. According to Third Wave Research, there
are approximately 7.0 million people who live within
180 miles of the resort.
Great Wolf Lodge of Kansas City is located on approximately
17 acres and has 281 guest suites and an approximately
40,000 square-foot indoor waterpark that includes our
signature treehouse water fort. The resort offers a number of
revenue-enhancing amenities, including our Camp Critter
Bar & Grille themed restaurant, Bear Claw Café ice
cream shop and confectionery, full-service Aveda concept spa,
Northern Lights game arcade, Buckhorn Exchange gift shop and
meeting rooms. The resort also includes non-revenue-generating
amenities such as our animated two-story clocktower, Cub Club
room and Iron Horse fitness center.
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Blue Harbor Resort of Sheboygan, Wisconsin |
In June 2004, we opened our Blue Harbor Resort on an
approximately 12-acre property on the shores of Lake Michigan in
Sheboygan, Wisconsin. Sheboygan is a traditional family vacation
destination featuring lake activities and golf. Due to the
nature of Sheboygan as a family vacation destination on the
water, we decided that a nautical theme would be more
appropriate than our typical northwoods lodge theme. This resort
is modeled after a grand beach resort and decorated in a manner
consistent with that theme, including a nautical themed lobby
and specialty rooms such as the KidAquarium Suite with bunk beds
surrounded by walls of deep blue sea and schools of fish and the
Boathouse Suite with rowboat bunk beds. According to the
Sheboygan Convention and Visitors Bureau, visitors to Sheboygan
spent approximately $260,000 in 2002. Sheboygan is within a
one-hour drive from Milwaukee and Green Bay, Wisconsin; a
two-hour drive from Madison, Wisconsin; a three-hour drive from
Chicago, Illinois; and a four-hour drive from Dubuque, Iowa.
According to Third Wave Research, there are approximately
18.4 million people who live within 180 miles of the
resort.
Blue Harbor Resort has 183 guest suites, with an additional 64
individually-owned, two and four bedroom condominium units
located adjacent to the resort, and an approximately
43,000 square-foot Breaker Bay indoor waterpark with a
12-level Lighthouse Pier water fort. The resort offers a number
of revenue-enhancing amenities, including our nautical-themed On
the Rocks Bar & Grille and Rusty Anchor Buffet
restaurants, Sweetshop Landing ice cream shop and confectionery,
full-service Aveda concept spa, Northern Lights game arcade and
Precious Cargo gift shop. This resort also has an approximately
21,000 square-foot attached conference facility capable of
seating 1,000 people. The resort offers non-revenue-generating
amenities such as our 2,000 gallon hand-blown glass water
fountain featuring a music and light show, Crew Club for kids
and Ship Shape Place fitness center. Admission to the indoor
waterpark is available to residents of Sheboygan County for a
fee. We currently manage the rental of substantially all of the
condominium units at this resort. We receive a rental management
fee of approximately 40% of net room revenue after the deduction
of certain expenses. In addition, we receive reimbursement of
certain waterpark expenses through the condominium association.
Properties Under Construction
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Great Wolf Lodge of Williamsburg, Virginia |
In December 2003, we began construction of our Great Wolf Lodge
in Williamsburg, Virginia on a 83-acre site. Williamsburg is a
popular family vacation destination with amusement parks and
waterparks and other entertainment attractions. Williamsburg is
a one-hour drive from Richmond, Virginia; a two and
one-half-hour drive from Washington, D.C.; a three-hour
drive from Baltimore, Maryland and a three and one-half-hour
drive from Raleigh, North Carolina. According to Third Wave
Research, there are approximately 16.7 million people who
live within 180 miles of the resort.
The resort will occupy approximately 36 acres of the site.
We may sell up to 11 acres of the excess land as out-lots
and plan to retain the remaining acreage to support future
expansion of the resort.
Upon completion, Great Wolf Lodge of Williamsburg will have 301
guest suites and an approximately 55,000 square-foot indoor
waterpark that includes our signature treehouse water fort. We
are constructing a relatively large indoor waterpark in
Williamsburg because we believe that the demand for this resort
will support an expansion, including an additional number of
rooms, over the next several years. The resort will offer a
number of revenue-enhancing amenities, including themed
restaurants, a full-service Aveda concept spa, game arcade, Bear
Claw Café ice cream shop and confectionery, gift shop and
approximately 7,000 square feet of meeting rooms. The
resort will also include non-revenue-generating amenities such
as a two-story animated clocktower, Cub Club room and fitness
center. We anticipate that this resort will open in late March
2005.
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Great Wolf Lodge of the Pocono Mountains |
In April 2004, we began construction of a Great Wolf Lodge in
the Pocono Mountains on a 95-acre site near Stroudsburg,
Pennsylvania. The Pocono Mountains area is a popular family
vacation destination featuring
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family-oriented attractions and recreational activities.
According to the Official Convention and Visitors Bureau of
Pennsylvanias Pocono Mountains, the Pocono Mountains
region attracts approximately three million visitors each year.
The resort will be located within a one and one-half-hour drive
from New York, New York; a two-hour drive from Philadelphia,
Pennsylvania; a three and one-half hour drive from Baltimore,
Maryland and a four-hour drive from Washington, D.C.
According to Third Wave Research, there are approximately
43.6 million people who live within 180 miles of the
resort.
Upon completion, Great Wolf Lodge of the Pocono Mountains will
have 400 guest suites and an approximately
78,000 square-foot indoor waterpark that includes our
signature treehouse water fort. The resort will offer a number
of revenue-enhancing amenities, including a themed restaurant
and bar and grille, full-service Aveda concept spa, game arcade,
gift shop and approximately 7,900 square feet of meeting
rooms. The resort will also include non-revenue-generating
amenities such as a two-story animated clocktower, Cub Club room
and fitness center. We anticipate that this resort will open in
the fall of 2005.
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Great Wolf Lodge of Niagara Falls, Ontario |
In January 2004, Great Lakes entered into a license agreement
with Ripleys that authorizes Ripleys to develop and
operate a Great Wolf Lodge resort in Niagara Falls, Ontario. In
addition, the agreement allows Ripleys to use certain
licensed trademarks, such as Cub Club,
KidCabin, Wileys Woods and
Great Wolf Lodge. The term of the license agreement
is ten years, with the possibility of up to four successive
five-year automatic renewals. Under the license agreement,
Ripleys is required to pay a monthly license fee, a brand
marketing fee that we are obligated to contribute to a marketing
program and a fee related to furniture, fixtures and equipment
start-up costs. We may terminate the license agreement at any
time, upon notice, if Ripleys fails to meet its material
obligations under the agreement. These obligations require
Ripleys to meet payment obligations in a timely manner,
maintain and operate the resort in a manner consistent with our
operating standards and obtain our approval prior to the use of
any of our licensed trademarks. In addition, these material
obligations restrict Ripleys to selling only products,
goods and services that we approve and from developing or
managing a hotel with an indoor waterpark within the United
States until, at the earliest, January 2016.
We have also entered into a construction consulting agreement in
connection with Ripleys construction of the resort. Under
the agreement, we are providing construction management and
consulting services for a fee. In addition, we are currently
negotiating a management services agreement and a reservation
system agreement for this resort under which we will manage the
resort and provide central reservation systems services.
Ripleys began construction of the Niagara Falls resort in
September 2004. Niagara Falls is a popular family vacation
destination. According to the City of Niagara Falls, Ontario
website, Niagara Falls attracts over 14 million visitors
each year. Niagara Falls is less than a one hour drive from
Buffalo, New York; a one and one-half-hour drive from Toronto,
Ontario; and a two and one-half-hour drive from Syracuse, New
York. Pursuant to the management services agreement, we will
operate the resort once it is completed.
Upon completion, Great Wolf Lodge of Niagara Falls will have 404
guest suites with an approximately 82,000 square-foot
indoor waterpark. The resort will offer a number of
revenue-enhancing amenities, including themed restaurants, ice
cream shop and confectionery, full-service Aveda concept spa,
game arcade, gift shop and meeting space. The resort will also
include non-revenue-generating amenities such as a two-story
animated clocktower, Cub Club room and fitness center. We
anticipate that this resort will open in the Spring of 2006.
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Business and Growth Strategies
Our primary business objective is to increase long-term
stockholder value by executing our internal and external growth
strategies. Our primary internal growth strategies are to:
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Increase Total Resort Revenue. We intend to increase
total resort revenue by increasing: |
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Average Room Rate: We plan to increase our average
room rate over time by driving demand for our resorts and
focusing on yield management techniques. We intend to increase
demand through aggressive sales and marketing and increased
visibility and by enhancing our brand image. We plan to employ
our yield management techniques to project demand in order to
effectively direct our sales and marketing efforts and
selectively increase room rates. We believe that our focus on
optimizing the relationship between room rates and occupancies
will allow us to maximize profitability. |
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Average Occupancy: We intend to maintain high occupancy
levels during peak times and will focus on increasing our
off-peak occupancies. Our off-peak occupancy levels generally
occur in May, September and during the middle of the week. Our
occupancy levels are affected by school calendars, with the
summer months, spring break period and other school holidays
achieving the highest occupancy levels. We will continue to seek
to improve off-peak occupancy levels by holding special events
and targeting group sales and conferences. |
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Other Revenue: We provide our guests with a
self-contained vacation experience and attempt to capture a
significant portion of their spending on food and beverage,
entertainment and merchandise. Each Great Wolf Lodge generally
contains at least one themed restaurant, an ice cream shop and
confectionery, snack shop, an Aveda concept spa, gift shop and
game arcade. The average non-room revenue, including the revenue
from these amenities, was approximately $95 per occupied
room night for the year ended December 31, 2004. By
providing these additional revenue-generating amenities, we seek
to maximize the amount of time and money spent on-site by our
guests. We have also entered into a number of co-marketing
agreements with strategic partners and will enter into
additional co-marketing agreements in the future in order to
increase other revenue. |
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Leverage Our Economies of Scale. We will take advantage
of the following economies of scale: |
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Increased Purchasing Power: We intend to capitalize on
our increased purchasing power with respect to operating
supplies, food and beverage, insurance and employee benefits. As
the number of resorts we own and operate increases, we expect to
be able to leverage our increased buying volume and power to
obtain more advantageous and predictable pricing on commodity
goods and services. In addition, we intend to manage increases
and fluctuations in the cost of electricity, water and natural
gas for each of our resorts by entering into volume-based
contracts. |
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Centralized Services: By centralizing certain of our
services, we will focus on decreasing our per unit costs,
increasing our control over those services and be in a position
to deliver a greater quality of service to our customers. For
example, our central reservations call center operates every day
of the year, has approximately 75 full and part-time employees
and accepts reservations for all of our resorts. The call center
also has the capacity to efficiently handle high call volumes
and will require only limited additional incremental costs over
the next several years as we increase our portfolio of resorts. |
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Build Upon Our Existing Brand Awareness and Loyalty. Our
Great Wolf Lodge brand is symbolized by our distinctive and
easily identifiable theming, from our captivating northwoods log
cabin exterior, to our Native American totemic waterpark theme
and signature treehouse water fort, to our mascots and
recognizable logos and merchandise. We believe we have fostered
strong customer and brand loyalty, which is evidenced by our
high levels of repeat and referral guests. We will continue to
focus on ensuring that each of our guests associates the Great
Wolf Lodge brand with a memorable and consistent family vacation
experience. |
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Our primary external growth strategies are to:
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Capitalize on First-Mover Advantage. We intend to be the
first to develop and operate family entertainment resorts
featuring indoor waterparks in our selected target markets. We
intend to continue to leverage our development expertise,
existing platform and model and our access to capital to take
advantage of the significant barriers to entry associated with
the development of large family entertainment resorts with
indoor waterparks like our Great Wolf Lodge resorts. We will
seek to set the standard for quality, build on visible sites and
capitalize on the opportunity to be located near other popular
local attractions that draw our target customers. We believe
that the combination of our first mover advantage and the
significant barriers to entry in our target markets provide us
with a competitive advantage. |
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Focus on Development and Strategic Growth Opportunities.
Family entertainment resorts featuring indoor waterparks are a
relatively new concept and a growing segment of the resort and
entertainment industries. We intend to focus on this growth
opportunity by: |
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Building in Target Markets: We intend to develop and open
at least two new owned resorts each year for the next several
years. We have already identified potential development
locations in 12 to 14 of these target markets that meet our
other criteria for successful development. We are in
negotiations for sites in six of these markets that, if
appropriate, will provide ample land for us to expand or sell
out-lots in the future for complementary uses. A new resort,
from market selection to opening, can take over four years to
develop and build. We believe that our experience will enable us
to more efficiently develop and build new resorts in our target
markets. |
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Licensing Our Resort Concept Internationally: We plan to
selectively seek licensing and management opportunities
internationally. Similar to our arrangement with Ripleys
in Niagara Falls, Ontario, we intend to enter into license and
management agreements with reputable companies that have local
market knowledge in order to increase revenues and expand the
reach of our Great Wolf Lodge brand. |
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Forming Strategic Partnerships: We will consider
strategic partnerships on a selective basis. For example, we
have had discussions with several established companies that
control superior sites in certain of our target markets and have
indicated an interest in jointly developing a Great Wolf Lodge
at or near one of their existing entertainment venues. |
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Expanding and Enhancing Existing Resorts: We intend to
focus on growth opportunities at our existing resorts by adding
revenue-enhancing features that drive ancillary vacation
spending to certain of our resorts and meet our target returns,
including non-water based attractions. We also intend to pursue
incremental revenue-generating opportunities, such as expanding
the number of rooms and adding condominium units at certain of
our resorts. In addition, we will consider adding conference
centers at existing resorts to capture convention and other
business travel revenue. |
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Continue to Innovate. We intend to leverage our in-house
expertise, in conjunction with the knowledge and experience of
our third-party suppliers and designers, to develop and
implement the latest innovations in family entertainment
activities and amenities, including waterpark attractions. We
have received numerous industry awards for our guests
experiences, our operations, innovative development, sales and
marketing initiatives and materials, and employee retention. |
Our Competitive Strengths
We are the market leader for family entertainment resorts that
feature indoor waterparks and other family-oriented amenities in
the United States. Our competitive strengths include:
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Unforgettable Family Resort Experience. Each of our
resorts provides a welcome opportunity for families to spend
quality time together, relax and reconnect. In addition to our
indoor waterparks, our resorts provide other activities and
amenities that the entire family can enjoy together. Our family
amenities and activities include themed restaurants, a game
arcade, ice cream shop and confectionery, |
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gift shop, snack shop, animated clocktower and fireside bedtime
stories. We also have amenities and activities tailored to each
member of the family, including our full-service Aveda concept
spa, Cub Club for kids and fitness room. Our resorts also offer
special events, including seasonal and holiday activities, wild
animal and nature educational programs and other special events.
We believe that our focus on delivering an unforgettable family
resort experience appeals to our target customers and results in
repeat visits and referrals. For the year ended
December 31, 2004, we generated approximately 48% of our
room revenue from repeat visitors and referral guests. |
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Value, Comfort and Convenience. Guest rooms at each of
our resorts are spacious and comfortable suites that generally
range in size from approximately 385 square feet to
1,900 square feet and include a wet bar, microwave,
refrigerator and dining and sitting area. Many of the suites
have specific themes that are geared toward enhancing our
younger guests experience, including our KidCabin®
and Wolf Den Suites, which have a partitioned room with bunk
beds designed as log cabins and northwoods forest dens,
respectively. All of our resorts are within a convenient driving
distance of our large target customer bases. Because our indoor
waterparks and our other amenities generally are not impacted by
weather conditions, we offer our guests a reliable experience.
On average, a two-night stay at our resorts costs a family of
four approximately $600, making it a very affordable family
vacation option. |
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Favorable Market Trends. We believe recent vacation
trends favor our Great Wolf Lodge concept as the number of
families choosing to take shorter, more frequent vacations that
they can drive to has increased over the past several years. We
believe that these trends will continue and that we are well
positioned to take advantage of them. We believe our resorts are
less affected by changes in economic cycles, as drive-to
destinations are less expensive and more convenient than
destinations that require air travel. In addition, we have
identified over 50 markets in the United States that, according
to Third Wave Research, each have populations in excess of five
million people located within a convenient driving distance. |
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Market Presence and Barriers to Entry. We are the largest
owner and operator of family entertainment resorts with indoor
waterparks in the United States based on the number of resorts
in operation. We believe this market presence gives us a
significant competitive advantage in attracting guests and
efficiently developing additional resorts. We believe our
closest competitor has one operating themed indoor waterpark
resort and another under construction. In addition, we believe
the significant barriers to entry present in our industry
segment, including operational complexity, substantial capital
requirements, availability of suitable sites in desirable
markets and a difficult, multi-year permitting process,
discourage other companies in the lodging and entertainment
industries from developing similar family entertainment resorts.
A new Great Wolf Lodge resort typically takes from one to three
years to develop, which includes market selection, site
selection and permitting, an additional 15 to 18 months to
build and costs approximately $65,000 to $95,000. |
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Focus on Safety. We invest heavily in safety measures in
the design and operation of our resorts. For example, we
specifically design our waterparks with attention to sightlines
and safety precautions and use one of the most respected
training methods in the water safety industry to train each of
our lifeguards. We design and construct our indoor waterparks
with state-of-the-art air quality and water treatment systems.
We also maintain and periodically upgrade our facilities to
ensure that we provide our guests with best-in-class safety
measures and systems. |
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Experienced Management Team and Committed and Motivated
Staff. Our senior management team has an average of
approximately 14 years of experience in the hospitality,
family resort and real estate development industries and has
significant expertise in operating complex, themed, family
entertainment resorts featuring indoor waterparks. In addition,
we have a team of skilled, loyal and committed employees at each
of our resorts. We offer our resort employees a number of
benefits, including a pleasant and rewarding work environment,
career-oriented training, the ability to obtain consistent
year-round work, which is uncommon in the resort industry, and
career growth opportunities. As a result, we believe our
employees are committed to delivering a superb customer
experience and personally assuring that our guests fully enjoy
their family vacation. |
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Industry Overview
We operate in the family entertainment resort segment of the
travel and leisure industry.
The concept of a family entertainment resort with an indoor
waterpark was first introduced in Wisconsin Dells, Wisconsin and
has evolved there over the past 15 years. In an effort to
boost occupancy and daily rates, as well as capture off-season
demand, hotel operators in the Wisconsin Dells market began
expanding indoor pools and adding waterslides and other
water-based attractions to existing hotels and resorts. The
success of these efforts prompted several local operators to
build new, larger destination resorts based primarily on this
concept, including the Wilderness Hotel & Golf Resort,
Treasure Island, Raintree Resort, Kalahari and the Great Wolf
Lodge (formerly known as the Black Wolf Lodge), which Great
Lakes purchased in 1999.
We believe that these properties, which typically are themed and
include other resort features such as arcades, retail shops and
full food and beverage service in addition to the indoor
waterpark, have historically outperformed standard hotels in the
market. According to United States Realty Consultants, Inc., or
USRC, the six largest waterpark resorts in the Wisconsin Dells
had a premium of 15 occupancy points and an ADR premium of $110
in 2003 as compared to the franchised non-waterpark hotels in
the market. We believe that the rate premiums and increased
market share in the Wisconsin Dells for hotels and resorts with
some form of an indoor waterpark can be attributed to several
factors, including the ability to provide a year-round vacation
destination without weather-related risks, the wide appeal of
water-based recreation and the favorable trends in leisure
travel discussed below. Although the rate premiums and increased
market share in Wisconsin Dells have been significant, no
operator or developer other than Great Lakes has established a
regional portfolio of family entertainment resorts featuring
indoor waterparks.
No standard industry definition for a family entertainment
resort featuring an indoor waterpark has developed. A recent
USRC survey identified a total of 45 hotels with indoor
waterpark facilities in the United States and Canada, of which
17 meet USRCs definition of an indoor waterpark
destination resort. We do not believe that the non-destination
resorts in the USRC survey offer a comparable experience and
quality level to compete with our resorts. Most of our resorts
are located in well-established, traditional drive-to family
vacation destinations, which allows us to leverage the
popularity of these destinations by offering a complementary
entertainment option to existing venues and a high-quality
family resort alternative. In addition, many of these
destinations offer beaches, theme parks, waterparks, amusement
parks and many other forms of outdoor activities that are only
available on a seasonal basis. Within our enclosed resort
environment, our guests can enjoy a total resort experience year
round, regardless of weather conditions.
We believe there are characteristics of the domestic travel and
leisure industry that indicate families favor frequent, short,
drive-to vacations. According to the Travel Industry Association
of America, or TIA, from 1994 to 2003 the number of domestic
leisure trips taken by families grew from approximately
96 million trips in 1994 to 154 million trips in 2003.
In 2003, approximately 45% of leisure trips lasted one to two
nights. The primary mode of transportation for 77% of the
overnight leisure trips in 2003 was by automobile. We believe
these statistics provide evidence that our segment of the travel
and leisure industry has strong demand characteristics that make
our family entertainment resorts attractive to leisure
travelers. As a result, we expect these demand characteristics
to continue to support the expansion of the indoor waterpark
concept. According to USRC, the indoor waterpark resort concept
is expanding outside of its traditional base in Wisconsin Dells,
Wisconsin.
Resort Operations
Each resort employs a general manager who is responsible for the
operations of the particular resort and who typically has
20-25 years of experience in the hospitality or family
entertainment industry. Our general managers oversee a staff of
approximately 300 resort employees and are assisted by an
assistant general manager and directors for each of human
resources, food and beverage, housekeeping, aquatics,
maintenance, sales and marketing and front office. A
corporate-level liaison for each department ensures consistency
throughout our resorts while allowing a particular resort to
tailor its operations to best meet the needs of its guests.
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Prior to assuming responsibility for a resort, general managers
and assistant general managers undergo a management training
program designed to familiarize each trainee with various facets
of our management, operations and development programs. The
program also emphasizes our guest service policies and provides
hands-on operating experience at the resort level. Our
management training program is intended to train assistant
managers to become future general managers.
We strive to provide our guests with a fun and convenient
experience in a warm and family-friendly environment from the
first day a new resort opens. To achieve this, a team of
experienced management members from our existing resorts, along
with corporate liaisons, begins training personnel at our new
resorts one month prior to a resorts opening and is on
site at the new resort for a month after opening. We believe
that this process ensures that the opening of a new resort is
efficient and that our culture of high quality and friendly
customer service is carried over to our new resorts, including
our guests interactions with our front desk, housekeeping,
waterpark, restaurant and other staff members. In addition, we
train our maintenance personnel to minimize any operational
problems that occur during the opening of a new resort,
including the operation of our waterparks. We believe that these
efforts help to minimize any problems associated with opening a
new resort and give our first guests a favorable, memorable
experience that will build brand loyalty.
We believe that our ability to provide a warm family atmosphere
where families can relax, play and reconnect begins with our
people and their ability to deliver quality customer service. We
seek to recruit, train and retain employees who will make sure
that our guests enjoy their stay, and we seek to promote from
within our company. Each new resort employee undergoes a
week-long orientation program and is paired with a more veteran
employee for a month so that the new employee can learn more
about our resorts, our culture and how we strive to provide the
best possible customer service. Our employees are invested in
our success and focused on ensuring a memorable experience for
each of our guests. We believe that our high level of customer
service sets us apart and promotes valuable referrals and repeat
visits.
We place a significant emphasis on the sales and marketing of
our unique, family-focused resorts. We work together with a
third-party consulting firm to analyze the demographics of our
markets and to identify potential guests for targeted marketing,
both within our primary market areas and beyond those areas to
attract occasional or seasonal travelers. We market to these
potential customers through a combination of television, radio,
newspaper and direct mail advertising, including advertising
through local chambers of commerce and convention and visitors
bureaus. We also rely upon repeat guests and guest referrals, as
well as brand recognition and the visibility of the resorts
themselves, which are located along major highways in high
traffic areas. In addition, our engaging website offers detailed
information about our resorts, including virtual tours and room
layouts.
For new resorts, our marketing efforts begin before construction
commences and we establish sales offices to generate advance
bookings. Reservations may be made at our resorts, through our
web site or through our central reservations call center. Our
call center and highly trained staff allow us to offer
consistent specials throughout our resorts, better track room
occupancy levels and room rates and handle the high volume of
calls that are usually associated with the opening of a resort.
We maintain an in-house sales force and graphic arts department
comprised of 10 employees. Our experienced staff develops
products and promotions for use in merchandising and marketing
promotions. We also engage in cross-marketing, promotions and
co-marketing arrangements with major vendors. We have received
numerous awards for our general advertising, website, print
media, radio commercials and sales presentations.
We have developed Cub Club, a frequent guest program for
children. Membership is available to all children who have
stayed at one of our resorts. The benefits of the program
include coupons and other incentives, a periodic newsletter,
access to the Cub Club activity rooms at each of our resorts and
special offers
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to children who visit during their birthday month. Our Blue
Harbor Resort features a Crew Club program for children similar
to the Great Wolf Lodge resorts Cub Club.
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Maintenance and Inspections |
Each of our resorts has an aquatics manager who is trained in
all aspects of water quality and safety. Our waterparks are
frequently inspected by on-site maintenance personnel. These
inspections include safety checks of the equipment in the
waterpark, as well as analyses of water and air quality. Our
water quality levels are constantly monitored and tested by
computers and by a full-time aquatics maintenance engineer, who
works with an additional assistant during our busiest months.
Our air quality system is designed to minimize humidity and
moisture build-up, which materially reduces maintenance costs.
Furthermore, we use Ellis & Associates as water safety
consultants at our resorts in order to train lifeguards and
audit safety procedures.
Our senior management and the individual resort personnel
evaluate the risk aspects of each resorts operation,
including potential risks to the public and employees and staff.
Each resort has six full time maintenance employees on staff
that ensure building quality and three fulltime aquatics
maintenance employees that ensure the ride safety and air and
water quality inside the resorts indoor waterpark. We use
a state of the art filtration system and ozonators to balance
the water and air quality within the waterpark in order to
accommodate fluctuating quantities of visitors.
Development Criteria
We choose sites for the development of new resorts based upon a
number of factors, including:
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Large target customer base. We select development sites
that generally have a minimum of five million target customers
within a convenient driving distance. Because we offer an
affordable vacation experience, we appeal to families in a
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Recognized tourist destination. We focus on drive-to
destinations that attract a large number of tourists, including
traditional family vacation markets. We believe we can charge
premium rates in these markets due to the high quality of our
resorts and our family-oriented amenities and activities. In
addition, the indoor nature of many of our amenities and
activities allows us to reduce the impact of seasonality that
negatively affects other attractions in these areas. These areas
also often have active and effective local visitors and
convention bureaus that complement our marketing and advertising
efforts at little or no cost to us. |
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Highly visible and large sites. We develop resorts in
highly visible locations along major roadways. Visibility from
highways enhances easy drive-to access, provides marketing
benefits due to high volumes of traffic and often produces
synergies from adjacent land uses or complementary developments.
We generally choose sites that have enough acreage to allow for
potential expansions and future sales of out-lots. |
Based upon these criteria, we have identified over 50 markets
that have populations of at least five million people located
within a convenient driving distance. We have already identified
potential development locations in 12 to 14 of these target
markets that meet our other criteria for successful development.
We are in negotiations for sites in six of these markets. In
addition, our licensee, Ripleys, is developing a Great
Wolf Lodge in Niagara Falls, Ontario that we will operate
pursuant to our license and management agreement with
Ripleys.
Once we have identified a market that meets our development
criteria, we search for potential sites, which may be difficult
to find in some areas. We then perform initial analyses of the
permitting process and access to utilities, before acquiring a
sufficient amount of land from one or more landowners. Based
upon the target customer base of the market, we develop initial
specifications for the resort, such as the number of guest
suites and size of the indoor waterpark and other amenities. We
also formally begin the potentially lengthy and difficult
process of obtaining the necessary approvals and permits from
the appropriate local governmental bodies, including the
necessary water rights and environmental permits. Once the
permitting process is
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complete, we secure financing for the project and begin
construction on the resort. This overall development process
typically takes from two and one-half to four years.
Our Customers
Our target customer base consists of families with children
ranging in age from 2 to 14 years old who live within a
convenient driving distance from our resorts. We believe that
most families choose our resorts either for taking a primary
vacation during the year or for weekend or holiday getaways.
According to research conducted by Third Wave Research at our
Wisconsin Dells and Sandusky resorts, families choosing us as
their primary vacation destination account for approximately 60%
of our annual room nights and approximately 40% of our total
revenue, while families choosing us for weekend and holiday
getaways account for approximately 25% of our annual room nights
and approximately 30% of our total revenue. Although we have not
had studies performed at our other resorts, we believe our other
resorts would have similar statistics.
In addition, meeting facilities at our resorts allow us to
attract other types of customers, such as small companies,
business groups and social clubs. We believe that the
21,000 square foot conference center located at our
Sheboygan resort will allow us to attract larger companies and
industry groups to that resort.
Competition
Our resorts compete with other forms of family vacation travel,
including theme parks, waterparks, amusement parks and other
recreational activities, including other resorts located near
these types of attractions. Our business is also subject to
factors that affect the recreation and leisure and resort
industries generally, such as general economic conditions and
changes in consumer spending habits. We believe that the
principal competitive factors of a family entertainment resort
include location, room rates, name recognition, reputation, the
uniqueness and perceived quality of the attractions and
amenities, the atmosphere and cleanliness of the attractions and
amenities, the quality of the lodging accommodations, the
quality of the food and beverage service, convenience, service
levels and reservation systems.
A recent US Realty Consultants, Inc. (USRC) survey
identified 24 existing properties in the United States and
Canada meeting their definition of an indoor waterpark
destination resort that are currently open and 14 additional
destination resorts expected to open in 2005. Two additional
waterparks are identified as under construction and expected to
open in 2006 and additional resorts currently in development are
considered likely to begin construction in 2005 and open in
2006. Based on the USRC survey, our eight resorts that we expect
to be open at the end of 2005 will comprise approximately 21% of
the supply of existing destination waterpark resorts in this
market segment.
As a result of our market presence and our management
teams substantial experience, we believe we have an
opportunity to capitalize on our first-mover advantage in this
industry segment and to achieve significant brand recognition.
While we believe that our first-mover advantage is very
beneficial to us, it does provide our competitors with an
opportunity to monitor our success in our chosen markets. As
such, a competitor may choose not to enter one of our markets
based on our performance, or may subsequently develop a resort
in our markets that is newer, has additional amenities, or
offers more, larger or more exciting waterpark attractions than
our resorts.
In most of our markets, there are few, if any, other family
entertainment resorts featuring indoor waterparks. However, in
Wisconsin Dells, Wisconsin, where indoor waterparks were first
introduced, there are approximately 16 other resorts and hotels
with some type of indoor water-related activity or amenity. As a
result, we face significant competition from both lower priced
unthemed waterparks and larger, more expensive waterparks with
thrill rides and other attractions in the Wisconsin Dells
market. While the Wisconsin Dells market has a significant
number of resorts with indoor waterparks, we believe the
competitive landscape in that small, regional market is not
representative of the competition we may face as we further
expand our portfolio of resorts. The vast majority of indoor
waterpark resorts in Wisconsin Dells are family-owned or
privately operated businesses that have yet to develop
additional resorts outside of Wisconsin Dells. In addition, we
believe our ability to compete effectively in this highly
competitive market will enable us to more effectively compete in
other markets where we may not be the only family entertainment
resort.
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We anticipate that competition within some of our markets will
increase in the foreseeable future. We believe that a number of
other resort operators are developing or considering the
development of family entertainment resorts with indoor
waterparks, which will compete with our resorts. One of these
resorts is being constructed by a competitor in Sandusky and
another resort is being constructed by a competitor near
Traverse City.
Governmental Regulation
The ownership and management of our resorts, as well as our
development and construction of new resorts, subjects us to
comprehensive federal, state and local laws regulating zoning,
land development, land use, building design and construction,
and other real estate-related laws and regulations. In addition,
a number of states regulate the permitting and licensing of
resorts by requiring registration, disclosure statements and
compliance with specific standards of conduct. Our failure to
maintain or acquire the requisite licenses, permits and
authorizations required by such laws and regulations, as well as
any failure on our part to comply with registration, disclosure
and standards of conduct required by such laws and regulations
could impact the operation, profitability and success of our
current resorts or the development, completion and success of
any resorts we may develop in the future.
We believe that each of our resorts has the necessary permits
and approvals to operate its business and is in material
compliance with all applicable registration, disclosure and
conduct requirements. We intend to continue to obtain such
permits and approvals for any resorts we may develop in the
future or additions or renovations to current resorts and to
ensure that such resorts and additions or renovations comply
with applicable registration, disclosure and conduct
requirements.
We are also subject to laws and regulations governing our
relationship with employees, including minimum wage
requirements, overtime, working conditions and work permit
requirements. An increase in the minimum wage rate, employee
benefit costs or other costs associated with employees could
increase our overall labor costs.
The operation of our waterparks subjects us to state and local
regulations governing the quality of the water we use in our
waterparks, including bacteriological, chemical, physical and
radiological standards. In addition to inspections we conduct on
our own, state and local authorities may also conduct
inspections of our waterparks to determine our compliance with
applicable standards. If we are found to be in violation of such
regulations we could be subject to various penalties, including,
but not limited to, monetary fines and the temporary closure of
our waterparks. Changes in state or local regulations could
impose more stringent standards with which we would have to
comply.
We are subject to both federal and state environmental laws and
regulations, including laws and regulations governing the
discharge of water from our waterparks. Specifically, under the
requirements of the Federal Clean Water Act, we must obtain
National Pollutant Discharge Elimination System permits from the
Environmental Protection Agency or from the state environmental
agency to which the permit program has been delegated for
discharges into waterways and comply with the permit terms
regarding wastewater quality and discharge limits. Such permits
must be renewed from time-to-time, as required by regulation and
additional capital expenditures for wastewater treatment systems
associated with the renewal of our water discharge permits may
be required. Importantly, changes in federal or state
legislation or regulations could impose more stringent release
standards with which we would have to comply. Currently, our
development in the Pocono Mountains is our only property subject
to such laws and regulations governing the discharge of water
and we intend to comply with these laws and regulations as we
develop that property.
As a place of public accommodation, our resorts are subject to
the requirements of the Americans with Disabilities Act of 1990,
which we refer to as the ADA. As such, our resorts are required
to meet certain federal requirements related to access and use
by disabled persons. While we believe that our resorts are
substantially in compliance with these requirements, we have not
conducted an audit or investigation of all of our resorts to
determine our compliance. Further, federal legislation or
regulations may amend the ADA to impose more stringent
requirements with which we would have to comply.
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Environmental Matters
Our operations and properties are subject to federal, state and
local laws and regulations relating to the protection of the
environment, natural resources and worker health and safety,
including laws and regulations governing and creating liability
relating to the management, storage and disposal of hazardous
substances and other regulated materials. Our properties are
also subject to various environmental laws and regulations that
govern certain aspects of our on-going operations. These laws
and regulations control such things as the nature and volume of
our wastewater discharges, quality of our water supply and our
waste management practices. The costs of complying with these
requirements, as they now exist or may be altered in the future,
could adversely affect our financial condition and results of
operations.
Because we own and operate real property, various federal, state
and local laws may impose liability on us for the costs of
removing or remediating various hazardous substances, including
substances that may be currently unknown to us, that may have
been released on or in our property or disposed by us at
third-party locations. The principal federal laws relating to
environmental contamination and associated liabilities that
could affect us are the Resource Conservation and Recovery Act
and the Comprehensive Environmental Response, Compensation and
Liability Act; state and local governments have also adopted
separate but similar environmental laws and regulations that
vary from state to state and locality to locality. These laws
may impose liability jointly and severally, without regard to
fault and whether or not we knew of or caused the release. The
presence of hazardous substances on a property or the failure to
meet environmental regulatory requirements may materially
adversely affect our ability to use or sell the property, or to
use the property as collateral for borrowing, and may cause us
to incur substantial remediation or compliance costs. In
addition, if hazardous substances are located on or released
from one of our properties, we could incur substantial
liabilities through a private party personal injury claim, a
claim by an adjacent property owner for property damage or a
claim by a governmental entity for other damages, such as
natural resource damages. This liability may be imposed on us
under environmental laws or common-law principles.
We obtain environmental assessment reports on the properties we
own or operate as we deem appropriate. These reports have not
revealed any environmental liability or compliance concerns that
we believe would materially adversely affect our financial
condition or results of operations. However, the environmental
assessments that we have undertaken might not have revealed all
potential environmental liabilities or claims for such
liabilities. It is also possible that future laws, ordinances or
regulations or changed interpretations of existing laws and
regulations will impose material environmental liability or
compliance costs on us, that the current environmental
conditions of properties we own or operate will be affected by
other properties in the vicinity or by the actions of third
parties unrelated to us or that our guests could introduce
hazardous or toxic substances into the resorts we own or manage
without our knowledge and expose us to liability under federal
or state environmental laws. The costs of defending these
claims, complying with as yet unidentified requirements,
conducting this environmental remediation or responding to such
changed conditions could adversely affect our financial
condition and results of operations.
Some of our resort properties may have contained, or are
adjacent to or near other properties that have contained or
currently contain underground storage tanks for the storage of
petroleum products or other hazardous or toxic substances. If
hazardous or toxic substances were released from these tanks, we
could incur significant costs or, with respect to tanks on our
property, be liable to third parties with respect to the
releases.
On occasion, we may elect to develop properties that have had a
history of industrial activities and/or historical environmental
contamination. Where such opportunities arise, we engage
third-party experts to evaluate the extent of contamination, the
scope of any needed environmental clean-up work, and available
measures (such as creation of barriers over residual
contamination and deed restrictions prohibiting groundwater use
or disturbance of the soil) for ensuring that planned
development and future property uses will not present
unacceptable human health or environmental risks or exposure to
liabilities. If those environmental assessments indicate that
the development opportunities are acceptable, we also work with
appropriate governmental agencies and obtain their approvals of
planned site clean-up, development activities, and the proposed
future property uses. We have followed that process in
connection with the development of our Blue Harbor Resort in
Sheboygan, Wisconsin where the City of Sheboygan has arranged
for environmental
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clean-up work and ongoing groundwater monitoring and we have
agreed to the use of a barrier preventing contact with residual
contamination and implementation of a deed restriction limiting
site activities. To our knowledge, our work at our Sheboygan
resort has been conducted in accordance with requirements
imposed by the Wisconsin Department of Natural Resources. Based
on these efforts, we are not aware of any environmental
liability or compliance concerns at our Sheboygan resort that we
believe would materially adversely affect our financial
conditions or results of operations. It is possible, however,
that our efforts have not identified all environmental
conditions at the property or that environmental conditions and
liabilities associated with the property could change in the
future.
Future acquisitions of properties subject to environmental
requirements or affected by environmental contamination could
require us to incur substantial costs relating to such matters.
In addition, environmental laws, regulations, wetlands,
endangered species and other land use and natural resource
issues affecting either currently owned properties or sites
identified as possible future acquisitions may increase costs
associated with future site development and construction
activities or business or expansion opportunities, prevent,
delay, alter or interfere with such plans or otherwise adversely
affect such plans.
Insurance
We believe that our properties are covered by adequate fire,
flood and property insurance, as well as commercial liability
insurance with what we believe are commercially reasonable
deductibles and limits for our industry. Changes in the
insurance market since September 11, 2001 have caused
significant increases in insurance costs and deductibles, and
have increased the risk that affordable insurance may not be
available to us in the future.
While our management believes that our insurance coverage is
adequate, if we were held liable for amounts and claims
exceeding the limits of our insurance coverage or outside the
scope of our insurance coverage, our business, results of
operations and financial condition could be materially and
adversely affected.
Intellectual Property
We have registered, applied for the registration of or claim
ownership of a variety of trade names, service marks, copyrights
and trademarks for use in our business, including Biko the Bear,
Blue Harbor Resort, Boathouse Suite, Breaker Bay, Crew Club, Cub
Club, Great Wolf Lodge, Great Wolf Resorts, KidAquarium Suite,
KidCabin and Wiley the Wolf in the United States and, where
appropriate, in foreign countries. There can be no assurance
that we can obtain the registration for the marks where
registration has been sought. We are not aware of any facts that
would negatively impact our continuing use of any of the above
trade names, service marks or trademarks. We consider our
intellectual property rights to be important to our business and
actively defend and enforce them.
Employees
As of December 31, 2004, we had approximately 120 corporate
employees, including our central reservations center employees,
and approximately 1,600 resort-level employees, approximately
700 of whom were part-time employees. Unlike more seasonal
resorts and attractions, we are open year-round and are able to
attract and retain high quality employees throughout the year.
However, we do have fewer part-time employees during the winter
months. None of our employees is covered by a collective
bargaining agreement. We believe that our relationship with our
employees is good.
Offices
We lease approximately 13,800 square feet of office space
for our corporate headquarters office and approximately
2,500 square feet of office space for our central
reservations call center operations in Madison, Wisconsin. We
also lease approximately 3,800 square feet of office space
in Falls Church, Virginia. We believe these facilities are
adequate for our current needs.
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Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that
applies to our principal executive officer and senior financial
officers. It is available in the investor relations section of
our website, which is located at
www.greatwolfresorts.com. In the event that we make
changes to or provide waivers from the provisions of our Code of
Business Conduct and Ethics that the SEC requires us to
disclose, we intend to disclose these events in the investor
relations section of our website.
Risk Factors
The risk factors set forth below are applicable to Great Wolf
Resorts. You should carefully consider the following factors in
evaluating our company, our properties and our business. The
occurrence of any of the following risks could materially
adversely affect, among other things, our business, financial
condition and results of operations.
Risk Factors Related to Our Business
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We may not be able to develop new resorts or further
develop existing resorts on a timely or cost efficient basis,
which would adversely affect our growth strategy. |
As part of our growth strategy, we intend to develop additional
resorts and to further expand our existing resorts. Development
involves substantial risks, including the following risks:
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development costs may exceed budgeted or contracted amounts; |
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delays in completion of construction; |
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failure to obtain all necessary zoning, land use, occupancy,
construction, operating and other required governmental permits
and authorizations; |
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changes in real estate, zoning, land use, environmental and tax
laws; |
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unavailability of financing on favorable terms; |
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failure of developed properties to achieve desired revenue or
profitability levels once opened; |
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competition for suitable development sites from competitors that
may have greater financial resources or risk tolerance than we
do; and |
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the incurrence of substantial costs in the event a development
project must be abandoned prior to completion. |
In particular, resort construction projects entail significant
risks, including shortages of design and construction expertise,
materials or skilled labor, unforeseen engineering,
environmental or geological problems, work stoppages, weather
interference, floods and unanticipated cost increases. There are
also a limited number of suppliers and manufacturers of the
equipment we use in our indoor waterparks. We may not be able to
successfully manage our development to minimize these risks, and
there can be no assurance that present or future developments
will perform in accordance with our previous developments or our
expectations.
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We compete with other family vacation travel destinations
and resorts. |
Our resorts compete with other forms of family vacation travel,
including theme, water and amusement parks and other
recreational activities. Our business is also subject to factors
that affect the recreation and leisure and resort industries
generally, such as general economic conditions and changes in
consumer spending habits. We believe the principal competitive
factors of a family entertainment resort include location, room
rates, name recognition, reputation, the uniqueness and
perceived quality of the attractions and amenities, the
atmosphere and cleanliness of the attractions and amenities, the
quality of the lodging accommodations, the quality of the food
and beverage service, convenience, service levels and
reservation systems.
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We anticipate that competition within some of our markets will
increase in the foreseeable future. A number of other resort
operators are developing family entertainment resorts with
indoor waterparks that will compete with some or all of our
resorts. In particular, one of our current competitors is
constructing a resort in the Sandusky market. We compete for
guests and for new development sites with certain of these
entities that may have greater financial resources than we do
and better relationships with lenders and sellers of real
estate. These entities may be able to accept more risk than we
can prudently manage and may have greater marketing and
financial resources. Further, there can be no assurance that new
or existing competitors will not significantly reduce their
rates or offer greater convenience, services or amenities,
significantly expand or improve resorts, including the addition
of thrill rides, in markets in which we operate.
Such events could materially adversely affect our business and
results of operations.
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We may not be able to manage our expected growth, which
could adversely affect our operating results. |
Since 1999, we have experienced substantial growth as we have
grown from operating one resort to currently owning and
operating five resorts with two additional owned resorts
scheduled to open in 2005 and a licensed resort that we will
manage scheduled to open in 2006. We intend to continue to
develop additional resorts and manage additional licensed
resorts owned by third parties. Our anticipated growth could
place a strain on our management, employees and operations. Our
growth has increased our operating complexity and the level of
responsibility for new and existing management. Our ability to
compete effectively and to manage our recent and future growth
effectively will depend on our ability to implement and improve
financial and management information systems on a timely basis
and to effect changes in our business, such as implementing
internal controls to handle the increased size of our operations
and hiring, training, developing and managing an increasing
number of experienced management-level and other employees.
Unexpected difficulties during expansion, the failure to attract
and retain qualified employees or our inability to respond
effectively to recent growth or plan for future expansion, could
adversely affect our results of operations.
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Accidents or injuries in our resorts, particularly in our
waterparks, may subject us to liability, and accidents or
injuries at our resorts or at competing resorts with waterparks
could adversely affect our safety reputation and attendance,
which would harm our business, financial condition and results
of operations. |
There are inherent risks of accidents or injuries at family
entertainment resorts, including accidents or injuries at
waterparks, particularly for small children if their parents do
not provide appropriate supervision. Despite our emphasis on
safety, the lifeguards in our indoor waterparks and our other
resort staff cannot prevent every accident or injury. Potential
waterpark accidents and injuries include falls, cuts or other
abrasions, sickness from contaminated water, injuries resulting
from equipment malfunctions and drownings. One or more accidents
or injuries at any of our waterparks or at other waterparks
could reduce attendance at our resorts, adversely affect our
safety reputation among our potential customers, decrease our
overall occupancy rates and increase our costs by requiring us
to take additional measures to make our safety precautions even
more visible and effective.
If accidents or injuries occur at any of our resorts, we may be
held liable for costs related to the injuries. We maintain
insurance of the type and in the amounts that we believe are
commercially reasonable and that are available to businesses in
our industry, but there can be no assurance that our liability
insurance will be adequate or available at all times and in all
circumstances to cover any liability for these costs. Our
business, financial condition and results of operations would be
adversely affected to the extent claims and associated expenses
resulting from accidents or injuries exceed our insurance
recoveries.
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Our predecessor entities have a history of losses and we
may not be able to achieve or sustain profitability. |
Our predecessor entities incurred net losses in the period ended
December 20, 2004 and in each of the years ended
December 31, 2003 and 2002. We cannot guarantee that we
will become profitable. Given the increasing competition in our
industry and capital intensive nature of our business, we may
not be able to
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sustain or increase profitability on a quarterly or annual
basis, and our failure to do so would adversely affect our
business and financial condition.
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Our business is dependent upon family vacation patterns,
which may cause fluctuations in our revenues. |
Since most families with small children choose to take vacations
during school breaks and on weekends, our occupancy is highest
on the weekends and during months with prolonged school breaks,
such as the summer months and spring break weeks in March and
April. Our occupancy is lowest during May and September as
children return to school following these prolonged breaks. As a
result of these family vacation patterns, our revenues may
fluctuate. We may be required to enter into short-term
borrowings in slower periods in order to offset such
fluctuations in revenues and to fund our anticipated
obligations. In addition, adverse events occurring during our
peak occupancy periods would have an increased impact on our
results of operations.
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We may not be able to attract a significant number of
customers from our key target markets, which would adversely
affect our business, financial condition and results of
operations. |
Our strategy emphasizes attracting and retaining customers from
the local, or drive-to, markets within a convenient driving
distance from each of our resorts. Any resorts we develop in the
future are similarly likely to be dependent primarily on the
markets in the immediate vicinity of such resorts. There can be
no assurance that we will be able to continue to attract a
sufficient number of customers in our local markets to make our
resort operations profitable. If we fail to do so, our business,
financial condition and results of operations would be adversely
affected.
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Because we concentrate in a single industry segment, we
may be adversely affected by a downturn in that industry
segment. |
Our assets and operations are concentrated in a single industry
segment family entertainment resorts. Our current
strategy is to expand the number of our resorts and improve our
existing resorts. Therefore, a downturn in the entertainment,
travel or vacation industries, in general, and the family
entertainment resort segment, in particular, could have an
adverse effect on our business and financial condition.
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Changes in consumer spending habits may affect our growth,
financial condition and results of operations. |
The success of our operations depends to a significant extent
upon a number of factors relating to discretionary consumer
spending, including economic conditions affecting disposable
consumer income such as employment, business conditions,
interest rates and taxation. There can be no assurance that
consumer spending will not be adversely affected by economic
conditions, thereby impacting our growth, financial condition
and results of operations.
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Increases in operating costs and other expense items could
reduce our operating margins and adversely affect our growth,
financial condition and results of operations. |
Increases in operating costs due to inflation and other factors
may not be directly offset by increased room and other revenue.
Our most significant operating costs are our labor, energy,
insurance and property taxes. Many, and in some cases all, of
the factors affecting these costs are beyond our control.
Labor is our primary resort-level operating expense. As of
December 31, 2004, we employed approximately
1,600 hourly-wage and salaried employees in our resorts. If
we face labor shortages or increased labor costs because of
increased competition for employees, higher employee turnover
rates or increases in the federal minimum wage or other employee
benefits costs (including costs associated with health insurance
coverage), our operating expenses could increase and our growth
could be adversely affected. Our success depends in part upon
our ability to attract, motivate and retain a sufficient number
of qualified employees, including resort managers, lifeguards,
waterpark maintenance professionals and resort staff, necessary
to keep pace with our expansion schedule. The number of
qualified individuals needed to fill these positions is in short
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supply in some areas. Although we have not yet experienced any
significant problems in recruiting or retaining employees, any
future inability to recruit and retain sufficient individuals
may delay the planned openings of new resorts. Competition for
qualified employees could also require us to pay higher wages to
attract a sufficient number of employees.
Energy costs also account for a significant portion of our total
resort-level operating expenses. The price of energy is
volatile, and shortages sometimes occur. Significant increases
in the cost of energy, or shortages of energy, could interrupt
or curtail our operations and lower our operating margins.
The costs for maintaining adequate insurance coverage fluctuate
and are generally beyond our control. If insurance rates
increase and we are not able to pass along those increased costs
to our customers through higher room rates and amenity costs,
our operating margins could suffer.
Each of our resorts is subject to real and personal property
taxes. The real and personal property taxes on our resorts may
increase or decrease as tax rates change and as our resorts are
assessed or reassessed by taxing authorities. If property taxes
increase and we are unable to pass these increased costs along
to our customers through higher room rates and amenity costs,
our financial condition and results of operations may be
adversely affected.
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Uninsured losses or losses in excess of our insurance
coverage could adversely affect our financial condition and our
cash flow, and there are a limited number of insurers that will
underwrite coverage for resorts with indoor waterparks. |
We maintain comprehensive liability, fire, flood (where
appropriate) and extended coverage insurance with respect to our
resorts with policy specifications, limits and deductibles that
we believe are commercially reasonable for our operations and
are available to businesses in our industry. Certain types of
losses, however, may be either uninsurable or not economically
insurable, such as losses due to earthquakes, riots, acts of war
or terrorism. Should an uninsured loss occur, we could lose both
our investment in, and anticipated profits and cash flow from, a
resort. If any such loss is insured, we may be required to pay a
significant deductible on any claim for recovery of such a loss
prior to our insurer being obligated to reimburse us for the
loss or the amount of the loss may exceed our coverage for the
loss. In addition, we may not be able to obtain insurance in the
future at acceptable rates, or at all, and insurance may not be
available to us on favorable terms or at all, including
insurance for the construction and development of our resorts,
especially since there are a limited number of insurance
companies that underwrite insurance for indoor waterparks.
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We will be required to make certain capital expenditures
to maintain the quality of our resorts, which could adversely
affect our financial condition and results of operations. |
Our resorts have an ongoing need for renovations and other
capital improvements, including periodic replacement of
furniture, fixtures and equipment. The cost of such capital
improvements could have an adverse effect on our financial
condition and results of operations. Such renovations involve
certain risks, including the possibility of environmental
problems, construction cost overruns and delays, the possibility
that we will not have available cash to fund renovations or that
financing for renovations will not be available on favorable
terms, if at all, uncertainties as to market demand or
deterioration in market demand after commencement of renovation
and the emergence of unanticipated competition from other
entities. If we are unable to meet our capital expenditure
needs, we may not be able to maintain the quality of our resorts.
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We may not be able to adequately protect our intellectual
property, which could harm the value of our brands and adversely
affect our business. |
The success of our resorts depends in part on our brands, logos
and branded merchandise. We rely on a combination of trademarks,
copyrights, service marks, trade secrets and similar
intellectual property rights to protect our brands, logos,
branded merchandise and other intellectual property. The success
of our growth strategy depends on our continued ability to use
our existing trademarks and service marks in order to increase
brand awareness and further develop our brand in both domestic
and international markets. We also use our trademarks and other
intellectual property on the Internet. If our efforts to protect
our intellectual property are
23
not adequate, or if any third party misappropriates or infringes
on our intellectual property, either in print or on the
Internet, the value of our brands may be harmed, which could
have a material adverse effect on our business, including the
failure of our brands, logos and branded merchandise to achieve
and maintain market acceptance.
We have licensed our Great Wolf Lodge brand and intend to
further license the brand in international markets. While we try
to ensure that the quality of our brand is maintained by our
current licensee, and will be maintained by any future
licensees, we cannot assure you that these licensees will not
take actions that adversely affect the value of our intellectual
property or reputation.
We have registered certain trademarks and have other trademark
registrations pending in the United States and foreign
jurisdictions. There is no guarantee that our trademark
registration applications will be granted. In addition, the
trademarks that we currently use have not been registered in all
of the countries in which we do, or intend to do, business and
may never be registered in all of these countries. We cannot
assure you that we will be able to adequately protect our
trademarks or that our use of these trademarks will not result
in liability for trademark infringement, trademark dilution or
unfair competition.
We cannot assure you that all of the steps we have taken to
protect our intellectual property in the United States and
foreign countries will be adequate. In addition, the laws of
some foreign countries do not protect intellectual property
rights to the same extent as the laws of the United States.
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Our operations may be adversely affected by extreme
weather conditions and the impact of disasters. |
We currently operate, and in the future intend to operate, our
resorts in a number of different markets, each of which is
subject to local weather patterns and their effects on our
resorts, especially our guests ability to travel to our
resorts. Extreme weather conditions can from time to time have
an adverse impact upon individual resorts or particular regions.
Our resorts are also vulnerable to the effects of destructive
forces, such as fire, storms, high winds and flooding and any
other occurrence that could affect the supply of water or
electricity to our resorts. Although our resorts are insured
against property damage, damages resulting from acts of God or
otherwise may exceed the limits of our insurance coverage or be
outside the scope of that coverage.
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Compliance with the Americans with Disabilities Act and
other governmental regulations and changes in governmental rules
and regulations may adversely affect our financial condition and
results of operations. |
Under the Americans with Disabilities Act of 1990, or the ADA,
all public accommodations are required to meet certain federal
requirements related to access and use by disabled persons.
While we believe that our resorts are substantially in
compliance with these requirements, we have not conducted an
audit or investigation of all of our resorts to determine our
compliance. A determination that we are not in compliance with
the ADA could result in the imposition of fines or an award of
damages to private litigants. We cannot predict the ultimate
cost of compliance with the ADA.
The resort industry is also subject to numerous federal, state
and local governmental regulations including those related to
building and zoning requirements, and we are subject to laws
governing our relationship with our employees, including minimum
wage requirements, overtime, working conditions and work permit
requirements. In addition, changes in governmental rules and
regulations or enforcement policies affecting the use and
operation of our resorts, including changes to building codes
and fire and life safety codes, may occur. If we were required
to make substantial modifications at our resorts to comply with
the ADA, other governmental regulations or changes in
governmental rules and regulations, our financial condition and
results of operations could be adversely affected.
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We face possible liability for environmental cleanup costs
and damages for contamination related to our properties, which
could adversely affect our business, financial condition and
results of operations. |
Our operations and properties are subject to federal, state and
local laws and regulations relating to the protection of the
environment, natural resources and worker health and safety,
including laws and regulations
24
governing and creating liability relating to the management,
storage and disposal of hazardous substances and other regulated
materials. Our properties are also subject to various
environmental laws and regulations that govern certain aspects
of our on-going operations. These laws and regulations control
such things as the nature and volume of our wastewater
discharges, quality of our water supply and our waste management
practices. The costs of complying with these requirements, as
they now exist or may be altered in the future, could adversely
affect our financial condition and results of operations.
Because we own and operate real property, various federal, state
and local laws may impose liability on us for the costs of
removing or remediating various hazardous substances, including
substances that may be currently unknown to us, that may have
been released on or in our property or disposed by us at
third-party locations. The principal federal laws relating to
environmental contamination and associated liabilities that
could affect us are the Resource Conservation and Recovery Act
and the Comprehensive Environmental Response, Compensation and
Liability Act; state and local governments have also adopted
separate but similar environmental laws and regulations that
vary from state to state and locality to locality. These laws
may impose liability jointly and severally, without regard to
fault and whether or not we knew of or caused the release. The
presence of hazardous substances on a property or the failure to
meet environmental regulatory requirements may materially
adversely affect our ability to use or sell the property, or to
use the property as collateral for borrowing, and may cause us
to incur substantial remediation or compliance costs. In
addition, if hazardous substances are located on or released
from one of our properties, we could incur substantial
liabilities through a private party personal injury claim, a
claim by an adjacent property owner for property damage or a
claim by a governmental entity for other damages, such as
natural resource damages. This liability may be imposed on us
under environmental laws or common-law principles.
We obtain environmental assessment reports on the properties we
own or operate as we deem appropriate. These reports have not
revealed any environmental liability or compliance concerns that
we believe would materially adversely affect our financial
condition or results of operations. However, the environmental
assessments that we have undertaken might not have revealed all
potential environmental liabilities or claims for such
liabilities. It is also possible that future laws, ordinances or
regulations or changed interpretations of existing laws and
regulations will impose material environmental liability or
compliance costs on us, that the current environmental
conditions of properties we own or operate will be affected by
other properties in the vicinity or by the actions of third
parties unrelated to us or that our guests could introduce
hazardous or toxic substances into the resorts we own or manage
without our knowledge and expose us to liability under federal
or state environmental laws. The costs of defending these
claims, complying with as yet unidentified requirements,
conducting this environmental remediation or responding to such
changed conditions could adversely affect our financial
condition and results of operations.
Some of our resort properties may have contained, or are
adjacent to or near other properties that have contained or
currently contain underground storage tanks for the storage of
petroleum products or other hazardous or toxic substances. If
hazardous or toxic substances were released from these tanks, we
could incur significant costs or, with respect to tanks on our
property, be liable to third parties with respect to the
releases.
On occasion, we may elect to develop properties that have had a
history of industrial activities and/or historical environmental
contamination. Where such opportunities arise, we engage
third-party experts to evaluate the extent of contamination, the
scope of any needed environmental clean-up work, and available
measures (such as creation of barriers over residual
contamination and deed restrictions prohibiting groundwater use
or disturbance of the soil) for ensuring that planned
development and future property uses will not present
unacceptable human health or environmental risks or exposure to
liabilities. If those environmental assessments indicate that
the development opportunities are acceptable, we also work with
appropriate governmental agencies and obtain their approvals of
planned site clean-up, development activities and the proposed
future property uses. We have followed that process in
connection with the development of our Blue Harbor Resort in
Sheboygan, Wisconsin where the City of Sheboygan has arranged
for environmental clean-up work and ongoing groundwater
monitoring and we have agreed to the use of a barrier preventing
contact with residual contamination and implementation of a deed
restriction limiting site activities. To our knowledge, our work
at our Sheboygan resort has been conducted in accordance with
requirements imposed by the Wisconsin Department of Natural
Resources. Based on these efforts, we are not aware of any
25
environmental liability or compliance concerns at our Sheboygan
resort that we believe would materially adversely affect our
financial conditions or results of operations. It is possible,
however, that our efforts have not identified all environmental
conditions at the property or that environmental conditions and
liabilities associated with the property could change in the
future.
Future acquisitions of properties subject to environmental
requirements or affected by environmental contamination could
require us to incur substantial costs relating to such matters.
In addition, environmental laws, regulations, wetlands,
endangered species and other land use and natural resource
issues affecting either currently owned properties or sites
identified as possible future acquisitions may increase costs
associated with future site development and construction
activities or business or expansion opportunities, prevent,
delay, alter or interfere with such plans or otherwise adversely
affect such plans.
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Regulation of the marketing and sale of condominiums,
including a prior offer of condominiums at our Blue Harbor
Resort, could adversely affect our business. |
Our marketing and sales of condominium units are subject to
extensive regulation by the federal government and the states in
which our condominiums are marketed and sold. On a federal
level, the Federal Trade Commission Act prohibits unfair or
deceptive acts or competition in interstate commerce. Other
federal legislation to which we are or may be subject includes
the Interstate Land Sales Full Disclosure Act, the Real Estate
Settlement Practices Act and the Fair Housing Act. In addition,
many states have adopted specific laws and regulations regarding
the sale of condominiums. For example, certain state laws grant
the purchaser the right to cancel a contract of purchase within
a specified period following the earlier of the date the
contract was signed or the date the purchaser has received the
last of the documents required to be provided by the seller. No
assurance can be given that the cost of qualifying under
condominium regulations in all jurisdictions in which we desire
to conduct sales will not be significant. The failure to comply
with such laws or regulations could adversely affect our
business, financial condition and results of operations.
There can be no assurance that prior or future sales of our
condominium units will not be considered offers or sales of
securities under federal law or the state law in the
states where we desire to, or do, conduct sales or in which our
properties are located. If such interests were considered to be
securities, we would be required to comply with applicable state
and federal securities laws, including laws pertaining to
registration or qualification of securities, licensing of
salespeople and other matters. There can be no assurance that we
will be able to comply with the applicable state and federal
securities requirements, and if the offers or sales of our
condominium units are deemed to be offers or sales of
securities, such a determination may create liabilities or
contingencies that could have an adverse effect on our
operations, including possible rescission rights relating to the
units that have been sold, which, if exercised, could result in
losses and would adversely affect our business, financial
condition and results of operations.
In particular, it is possible that the prior offer of
condominiums at our Sheboygan resort by Blue Harbor Resort
Condominium, LLC, a former subsidiary of Great Lakes that we
refer to as Condo LLC, may not have been in compliance with
federal and state securities laws. Prior to the initial public
offering and the completion of the formation transactions,
interests in Condo LLC held by Great Lakes were distributed to
Great Lakes shareholders. We did not acquire Condo LLC as
a part of the formation transactions. Although Condo LLC has
taken steps to correct any potential securities laws issues in
connection with these offers, we cannot assure you that we would
not be held liable to some extent for the offers made by Condo
LLC or that the indemnification obligations of the Great
Lakes principals to us would be sufficient to cover any
such liabilities.
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The illiquidity of real estate may make it difficult for
us to dispose of one or more of our resorts. |
We may from time to time decide to dispose of one or more of our
real estate assets. Because real estate holdings generally, and
family entertainment resorts like ours in particular, are
relatively illiquid, we may not be able to dispose of one or
more real estate assets on a timely basis or at a favorable
price. The illiquidity of our real estate assets could mean that
we continue to operate a facility that management has identified
for disposition. Failure to dispose of a real estate asset in a
timely fashion, or at all, could adversely affect our business,
financial condition and results of operations.
26
Risk Factors Related to Our Capital Structure
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The covenants in our revolving credit facility and
mortgage loan agreement impose significant restrictions on
us. |
The terms of our revolving credit facility impose significant
operating and financial restrictions on us and our subsidiaries
and require us to meet certain financial tests. These
restrictions could also have a negative impact on our business,
financial condition and results of operations by significantly
limiting or prohibiting us from engaging in certain
transactions, including:
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incurring or guaranteeing additional indebtedness; |
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paying dividends or making distributions or certain other
restricted payments; |
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making capital expenditures and other investments; |
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creating liens on our assets; |
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issuing or selling capital stock of our subsidiaries; |
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transferring or selling assets currently held by us; |
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repurchasing stock and certain indebtedness; |
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engaging in transactions with affiliates; |
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entering into any agreements that restrict dividends from our
subsidiaries; and |
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engaging in mergers or consolidations. |
The failure to comply with any of these covenants could cause a
default under our other debt agreements. Furthermore, our
revolving credit facility contains certain financial covenants,
including establishing a maximum leverage ratio and requiring us
to maintain a minimum interest coverage ratio, which, if not
maintained by us, would cause us to be in default under the
revolving credit facility. Any of these defaults, if not waived,
could result in the acceleration of all of our debt, in which
case the debt would become immediately due and payable. If this
occurs, we may not be able to repay our debt or borrow
sufficient funds to refinance it.
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We may not be able to obtain additional financing on
favorable terms, if at all. |
We expect that we will require additional financing over time,
the amount of which will depend on a number of factors,
including the number of resorts we construct, additions to our
current resorts and the cash flow generated by our resorts. The
terms of any additional financing we may be able to procure are
unknown at this time. Our access to third-party sources of
capital depends, in part, on:
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general market conditions; |
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the markets perception of our growth potential; |
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our then-current debt levels; |
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our then-current and expected future earnings; |
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our cash flow; and |
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the market price per share of our common stock. |
Any future debt financing or issuances of preferred stock that
we may make will be senior to the rights of holders of our
common stock, and any future issuances of common stock will
result in the dilution of the then-existing stockholders
proportionate equity interest.
27
Risk Factors Related to the Ownership of Our Company
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Certain of our insiders exercise considerable influence
over the company. |
As of the date of this Form 10-K report, our executive
officers and directors, as a group, beneficially own
approximately 16.3% of the outstanding shares of our common
stock (taking into account the resignations of two of our
executive officers effective March 31, 2005). By reason of
such holdings, these stockholders acting as a group will be able
to exercise significant influence over our affairs and policies,
including the election of our board of directors and matters
submitted to a vote of our stockholders such as mergers and
significant asset sales, and their interests might not be
consistent with the interests of other stockholders.
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We may have assumed unknown liabilities in connection with
the formation transactions. |
As part of the formation transactions, we acquired our
predecessor companies subject to existing liabilities, some of
which may have been unknown at the time of the closing thereof.
Unknown liabilities might include liabilities for cleanup or
remediation of undisclosed environmental conditions, claims of
vendors or other persons dealing with the entities prior to the
closing of the formation transactions (that had not been
asserted or threatened prior thereto), tax liabilities and
accrued but unpaid liabilities incurred in the ordinary course
of business. The founding shareholders of our predecessor
companies agreed to indemnify us with respect to claims for
breaches of representations and warranties brought by us within
one year following the completion of the IPO and the formation
transactions, subject to certain limitations. Many liabilities
may not be identified within the one-year period and we may have
no recourse against the founding shareholders or these entities
for such liabilities.
With respect to each founding shareholder, the maximum
indemnification obligation under these agreements will not
exceed 35% of the value of the shares of our common stock
received by that founding shareholder in the formation
transactions based on the IPO price of $17.00 per share.
The maximum amount of the indemnification obligations under
these agreements equals approximately $45,200 in the aggregate.
To the extent required, these founding shareholders may fulfill
the indemnity obligations under the agreements solely through
delivery of shares of common stock that they own, valued at the
time of delivery, or an equivalent amount of cash. However, if
any of these founding shareholders chooses to fulfill the
indemnity obligation under the agreement through the delivery of
shares, the maximum number of shares such shareholder will be
obligated to deliver is 35% of the number of shares such
founding shareholder received in the formation transactions. As
a result, there may be a significant shortfall in relation to
the actual costs incurred from the indemnifiable event for which
we will have no recourse against these founding shareholders.
Three of the founding shareholders received personal loans that
are secured by a pledge of all the shares of our common stock
received by each such founding shareholder in the formation
transactions. Accordingly, as these shares may not be available
to these founding shareholders, these founding shareholders may
be required to satisfy any indemnification obligations under
these agreements in cash. There is no assurance that the
founding shareholders will have adequate cash resources to
satisfy their indemnification obligations under these agreements
if necessary.
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We may issue partnership interests in the future that may
be dilutive to, and may have preferential rights over, our
common stockholders. |
We have formed a wholly owned operating partnership to serve as
the parent entity of each of the surviving resort-owning
entities. We are the limited partner of the partnership and the
sole general partner of the partnership is a new wholly owned
subsidiary that we have formed for that purpose. We formed the
operating partnership to provide flexibility for future
transactions as we execute our growth strategy. We believe that
the ability to issue partnership units will enable us to acquire
assets from sellers seeking certain tax treatment. While we do
not anticipate issuing any interests in the operating
partnership in the foreseeable future, we may issue such
interests in the future. These additional interests may include
preferred limited partnership units. Any partnership interests
that we issue may be entitled to distributions of available cash
that might otherwise be allocated to the execution of our
business plan or generally available for future dividends, if
any. In addition, any partnership interests may be convertible
into our common stock, thus having a dilutive
28
impact to our common stockholders, and may have voting or other
preferential rights relative to those of our common stockholders.
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The sale of a substantial number of shares of our common
stock may cause the market price of our common stock to
decline. |
As of the date of this Form 10-K report, we have
outstanding 30,262,308 shares of common stock. Of these
shares, the 16,100,000 shares sold in the IPO are freely
tradable. The 14,032,896 shares issued in connection with
our formation transactions are subject to lock-up provisions in
our bylaws that prohibit the sale of any of these shares until
June 18, 2005, without the prior written consent of our
board of directors or chief executive officer. Subject to
certain restrictions, after the end of the lock-up period all of
these shares will be freely tradable pursuant to an effective
Registration Statement previously filed under the Securities Act
of 1933, as amended. If our stockholders sell substantial
amounts of shares of common stock in the public market,
including the shares issued in connection with our formation
transactions, or upon the exercise of outstanding options, or if
the market perceives that these sales could occur, the market
price of our common stock could decline. These sales also might
make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem
appropriate, or to use equity as consideration for future
acquisitions.
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Provisions in our certificate of incorporation, bylaws,
employment agreements and Delaware law have anti-takeover
effects that could prevent a change in control that could be
beneficial to our stockholders, which could depress the market
price of our common stock. |
Our certificate of incorporation, bylaws, employment agreements
and Delaware corporate law contain provisions that could delay,
defer, increase the costs of or prevent a change in control of
us or our management that could be beneficial to our
stockholders. These provisions could also discourage proxy
contests and make it more difficult for you and other
stockholders to elect directors and take other corporate
actions. As a result, these provisions could limit the price
that investors are willing to pay in the future for shares of
our common stock. These provisions might also discourage a
potential acquisition proposal or tender offer, even if the
acquisition proposal or tender offer is at a price above the
then current market price for our common stock. These provisions:
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authorize our board of directors to issue blank
check preferred stock and determine the powers,
preferences and privileges of those shares without prior
stockholder approval; |
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prohibit the right of our stockholders to act by written consent; |
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limit the calling of special meetings of stockholders; |
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impose a requirement that holders of 50% of the outstanding
shares of common stock are required to amend the provisions
relating to actions by written consent of stockholders and the
limitations of calling special meetings; and |
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provide for payments to certain of our executive officers upon
termination of employment within certain time periods before or
after a change of control. |
Forward-Looking Statements
Certain information included in this Form 10-K report
contains, and other materials filed or to be filed by us with
the Securities and Exchange Commission, or the SEC, contain or
will contain, forward-looking statements. All statements, other
than statements of historical facts, including, among others,
statements regarding our future financial position, business
strategy, projected levels of growth, projected costs and
projected financing needs, are forward-looking statements. Those
statements include statements regarding the intent, belief or
current expectations of Great Wolf Resorts, Inc. and members of
our management team, as well as the assumptions on which such
statements are based, and generally are identified by the use of
words such as may, will,
seeks, anticipates,
believes, estimates,
expects, plans, intends,
should or similar expressions. Forward-looking
statements are not guarantees of future performance and
29
involve risks and uncertainties that actual results may differ
materially from those contemplated by such forward-looking
statements. Important factors currently known to our management
that could cause actual results to differ materially from those
in forward-looking statements include those set forth above
under the section entitled Risk Factors.
We believe these forward-looking statements are reasonable;
however, undue reliance should not be placed on any
forward-looking statements, which are based on current
expectations. All written and oral forward-looking statements
attributable to us or persons acting on our behalf are qualified
in their entirety by these cautionary statements. Further,
forward-looking statements speak only as of the date they are
made, and we undertake no obligation to update or revise
forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future
operating results over time unless required by law.
We have five family entertainment resorts that are currently
operating and two additional resorts that are under
construction. Information on our properties is as follows:
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Great Wolf Lodge of Wisconsin Dells, is located on 25 acres
in Wisconsin Dells, Wisconsin, all of which have been developed
or are under development. |
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Great Wolf Lodge of Sandusky, is located on 15 acres in
Sandusky, Ohio, all of which have been developed. |
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Great Wolf Lodge of Traverse City, Michigan, is located on
48 acres in Traverse City, Michigan, of which 22 acres
have been developed and 26 acres remain available for
future expansion. |
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Great Wolf Lodge of Kansas City, is located on 17 acres in
Kansas City, Kansas, all of which have been developed. |
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Blue Harbor Resort of Sheboygan, is located on 12 acres in
Sheboygan, Wisconsin, all of which have been developed. |
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Great Wolf Lodge of Williamsburg, is located on 83 acres in
Williamsburg, Virginia, of which 36 acres are being
developed and 47 acres remain available for future
expansion. |
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Great Wolf Lodge of the Pocono Mountains, is located on
95 acres in Pocono Township, near Stroudsburg,
Pennsylvania, of which 45 acres are being developed and
50 acres remain available for future expansion. |
For additional information regarding our resort properties see
Item 1. Business Operating
Properties and Item 1. Business
Properties Under Construction above.
In addition, we lease approximately 13,800 square feet of
office space for our corporate offices and approximately
2,500 square feet of office space for our central
reservations call center operations in Madison, Wisconsin. We
also lease approximately 3,800 square feet of office space
in Falls Church, Virginia. We believe these facilities are
adequate for our current needs.
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ITEM 3. |
LEGAL PROCEEDINGS |
We are party to various legal actions in the ordinary course of
our business. We believe that these actions are routine in
nature and incidental to the operation of our business. While
the outcome of these actions cannot be predicted with certainty,
we believe that the ultimate resolution of these matters will
not have a material, adverse impact on our business, financial
condition or prospects.
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ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matters were submitted to a vote of our stockholders during
the period December 15, 2004 (the date we began trading as
a public company) through December 31, 2004.
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PART II
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ITEM 5. |
MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS |
In conjunction with the completion of our IPO, our common shares
began trading on Nasdaq National Market under the symbol
WOLF. As of December 31, 2004, there were 507
record holders of our common stock. The following table sets
forth the high and low closing prices for Great Wolf
Resorts Common Stock.
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Low | |
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December 15, 2004 through December 31, 2004
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23.00 |
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18.65 |
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January 1, 2005 through March 16, 2005
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25.49 |
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20.07 |
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As of March 1, 2005, there were 516 record holders of our
common stock. The closing price of our common stock on the
Nasdaq National Market on March 16, 2005, was $23.95.
In connection with our formation transactions, we issued common
stock to certain holders of securities, who, among other things,
have certified to us as to their status as accredited
investors, in each of GLC and its resort related
subsidiaries, in an offering exempt from registration under the
Securities Act pursuant to Section 4(2) and Rule 506
of Regulation D. In total, we issued an aggregate of
13,901,947 shares of our common stock to such investors. In
exchange, we received all or a portion of each such
investors interest in either GLC or the applicable resort
related GLC subsidiary and such entities became wholly owned
subsidiaries of our company.
Also in connection with our formation transactions, we issued
(1) 64,038 shares of our common stock to the holder of
a tenant in common interest in our Poconos resort and
(2) 67,516 shares of our common stock to the holder of
a tenant in common interest in our Willimsburg resort. These
shares were issued in offerings exempt from registration under
the Securities Act pursuant to Section 4(2) and Rulte 506
of Regulation D.
In addition, we issued 100 shares of common stock, par
value $0.01 per share, to GLC upon our formation on
May 10, 2004. We received an aggregate of $1,000 in cash in
exchange for these shares. We redeemed these shares in
connection with the formation transactions. This issuance was
exempt from registration under the Securities Act pursuant to
Section 4(2) of the Securities Act.
The issuances described above were exempt from registration
under the Securities Act, pursuant to Section 4(2) of the
Securities Act and Regulation D promulgated there under as
a transaction by an issuer not involving a public offering. Each
investor receiving shares in the formation transactions was an
accredited investor, with knowledge and experience in financial
and business matters sufficient for evaluating the associated
merits and risks, has represented its intention to acquire the
securities for investment purposes only and not with a view
towards distribution and received or had access to adequate
information about us. Appropriate legends were affixed to the
stock certificates in connection with these transactions and
there was no general solicitation or advertising.
Use of Proceeds from the IPO
On December 20, 2004, we closed our IPO. The shares of
common stock sold in our IPO were registered under the
Securities Act of 1933, as amended, on a Registration Statement
(Registration No. 333-118148) on Form S-1 that was
declared effective by the Securities and Exchange Commission on
December 14, 2004. All 16,100,000 shares of common
stock registered under such Registration Statement were sold at
a price to the public of $17.00 per share, generating gross
proceeds of $273,700. The net proceeds to us were approximately
$248,700 after deducting an aggregate of $19,200 in underwriting
discounts and commissions paid to the underwriters and $5,800 in
other expenses incurred in connection with our IPO. The managing
underwriter for the IPO was Citigroup Global Markets, Inc.
The net proceeds from our IPO were used to pay an aggregate of
$97,600 of the cash consideration in connection with the
formation transactions; repay certain indebtedness in the
aggregate amount of approximately $75,700; and fund $75,400 of
our future resort development costs.
31
In addition, upon the closing of our IPO, two of our resorts
refinanced existing mortgage indebtedness with a total
outstanding debt of $72,300, and our operating partnership
entered into a $75,000 revolving credit facility secured by two
of our resorts. As of March 1, 2005, based on the financial
and debt service rations contained in the revolving credit
facility, approximately $50,000 of the facility is available for
borrowing.
Dividend Policy
We have never declared or paid any cash dividends on our capital
stock, and we do not anticipate paying cash dividends in the
foreseeable future. We are prohibited from paying cash dividends
under covenants contained in the credit facility. We currently
intend to retain our earnings, if any, for future growth. Future
dividends on our common stock, if any, will be at the discretion
of our board of directors and will depend on, among other
things, our operations, capital requirements and surplus,
general financial condition, contractual restrictions and such
other factors as our board of directors may deem relevant.
|
|
ITEM 6. |
SELECTED FINANCIAL DATA |
The following table sets forth selected consolidated financial
and operating data on a historical basis for Great Wolf Resorts,
and on a combined historical basis for Great Lakes Predecessor
(the Predecessor). The Predecessor was the predecessor
accounting entity to Great Wolf Resorts. We have not presented
historical information for Great Wolf Resorts prior to
December 20, 2004, the date on which we closed the IPO,
because we did not have any material corporate operating
activity during the period from our formation until the closing
of the IPO.
Great Lakes Predecessor Financial Information
The Predecessors combined historical financial information
included the following:
|
|
|
|
|
The Great Lakes Companies, Inc. and its consolidated
subsidiaries, including development of, ownership interests in,
and management contracts with respect to, resorts and certain
non-resort hotels and multifamily housing development and
management assets; |
|
|
|
the entities that owned our Traverse City, Kansas City and
Sheboygan operating resorts; and |
|
|
|
the entities that owned our Williamsburg and Pocono Mountains
resorts that are under construction. |
The Traverse City, Kansas City and Sheboygan resorts opened in
March 2003, May 2003 and June 2004, respectively. Therefore, the
Predecessors historical results of operations only
reflected operating results for the Traverse City, Kansas City
and Sheboygan resorts for those periods after the resort opening
dates, and only through the closing of the IPO (that is, through
December 20, 2004).
The Predecessors financial statements did not include the
entities that owned the Wisconsin Dells and Sandusky operating
resorts as those entities were controlled by affiliates of AIG
SunAmerica.
Great Wolf Resorts Financial Information
Great Wolf Resorts financial information includes:
|
|
|
|
|
our corporate entity that provides resort development and
management services; |
|
|
|
our Wisconsin Dells, Sandusky, Traverse City, Kansas City and
Sheboygan operating resorts; and |
|
|
|
our Williamsburg and Pocono Mountains resorts that are under
construction. |
32
The following data should be read in conjunction with our
financial statements and notes thereto and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 21, | |
|
|
|
|
|
|
|
|
|
|
|
|
|
2004- | |
|
|
January 1, | |
|
|
|
|
December 31, | |
|
|
2004- | |
|
Year Ended December 31, | |
|
|
2004 | |
|
|
December 20, | |
|
| |
|
|
Great Wolf | |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
Resorts | |
|
|
Predecessor | |
|
Predecessor | |
|
Predecessor | |
|
Predecessor | |
|
Predecessor | |
|
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands, except per share amounts) | |
Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
|
|
$ |
3,261 |
|
|
|
$ |
31,438 |
|
|
$ |
18,801 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Food, beverage and other
|
|
|
1,289 |
|
|
|
|
16,110 |
|
|
|
9,439 |
|
|
|
|
|
|
|
312 |
|
|
|
|
|
|
Management and other fees
|
|
|
79 |
|
|
|
|
3,157 |
|
|
|
3,109 |
|
|
|
3,329 |
|
|
|
3,022 |
|
|
|
4,070 |
|
|
Other revenue from managed properties(1)
|
|
|
|
|
|
|
|
14,553 |
|
|
|
14,904 |
|
|
|
14,889 |
|
|
|
13,286 |
|
|
|
9,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,629 |
|
|
|
|
65,258 |
|
|
|
46,253 |
|
|
|
18,218 |
|
|
|
16,620 |
|
|
|
13,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Departmental expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
|
|
|
298 |
|
|
|
|
4,917 |
|
|
|
3,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, beverage and other
|
|
|
958 |
|
|
|
|
13,678 |
|
|
|
8,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
7,372 |
|
|
|
|
18,613 |
|
|
|
11,376 |
|
|
|
4,159 |
|
|
|
3,853 |
|
|
|
5,168 |
|
|
Property operating costs
|
|
|
295 |
|
|
|
|
8,810 |
|
|
|
5,283 |
|
|
|
631 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,897 |
|
|
|
|
12,925 |
|
|
|
7,744 |
|
|
|
212 |
|
|
|
73 |
|
|
|
51 |
|
|
Other expenses from managed properties(1)
|
|
|
|
|
|
|
|
14,553 |
|
|
|
14,904 |
|
|
|
14,808 |
|
|
|
13,286 |
|
|
|
9,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
10,820 |
|
|
|
|
73,496 |
|
|
|
51,152 |
|
|
|
19,810 |
|
|
|
17,212 |
|
|
|
14,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(6,191 |
) |
|
|
|
(8,238 |
) |
|
|
(4,899 |
) |
|
|
(1,592 |
) |
|
|
(592 |
) |
|
|
(1,149 |
) |
Interest income
|
|
|
(66 |
) |
|
|
|
(224 |
) |
|
|
(55 |
) |
|
|
(88 |
) |
|
|
(76 |
) |
|
|
2 |
|
Interest expense
|
|
|
280 |
|
|
|
|
6,748 |
|
|
|
4,413 |
|
|
|
217 |
|
|
|
366 |
|
|
|
578 |
|
(Gain) loss on sale of investments and securities
|
|
|
|
|
|
|
|
(1,653 |
) |
|
|
|
|
|
|
13 |
|
|
|
(96 |
) |
|
|
(11 |
) |
Interest on mandatorily redeemable shares
|
|
|
|
|
|
|
|
1,761 |
|
|
|
(3,136 |
) |
|
|
4,479 |
|
|
|
390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(6,405 |
) |
|
|
|
(14,870 |
) |
|
|
(6,121 |
) |
|
|
(6,213 |
) |
|
|
(1,176 |
) |
|
|
(1,718 |
) |
Income tax benefit
|
|
|
(2,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(3,842 |
) |
|
|
|
(14,870 |
) |
|
|
(6,121 |
) |
|
|
(6,213 |
) |
|
|
(1,176 |
) |
|
|
(1,718 |
) |
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
1,928 |
|
|
|
1,118 |
|
|
|
(542 |
) |
|
|
332 |
|
|
|
(1,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting
principle
|
|
|
(3,842 |
) |
|
|
|
(12,942 |
) |
|
|
(5,003 |
) |
|
|
(6,755 |
) |
|
|
(844 |
) |
|
|
(2,755 |
) |
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
460 |
|
|
|
|
|
|
|
(333 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(3,842 |
) |
|
|
$ |
(12,942 |
) |
|
$ |
(4,543 |
) |
|
$ |
(6,755 |
) |
|
$ |
(1,177 |
) |
|
$ |
(2,755 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,132,896 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
30,132,896 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
762 |
|
|
|
|
6,049 |
|
|
$ |
8,126 |
|
|
$ |
376 |
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
(95,575 |
) |
|
|
|
(66,884 |
) |
|
|
(64,280 |
) |
|
|
(46,276 |
) |
|
|
|
|
|
|
|
|
Financing activities
|
|
|
172,151 |
|
|
|
|
61,424 |
|
|
|
54,854 |
|
|
|
49,797 |
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 21, | |
|
|
|
|
|
|
|
|
|
|
|
|
|
2004- | |
|
|
January 1, | |
|
|
|
|
December 31, | |
|
|
2004- | |
|
Year Ended December 31, | |
|
|
2004 | |
|
|
December 20, | |
|
| |
|
|
Great Wolf | |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
Resorts | |
|
|
Predecessor | |
|
Predecessor | |
|
Predecessor | |
|
Predecessor | |
|
Predecessor | |
|
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands, except per share amounts) | |
Balance Sheet Data (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
592,414 |
|
|
|
|
|
|
|
$ |
173,494 |
|
|
$ |
106,751 |
|
|
$ |
54,191 |
|
|
$ |
51,342 |
|
Total long-term debt
|
|
$ |
142,665 |
|
|
|
|
|
|
|
$ |
93,733 |
|
|
$ |
37,710 |
|
|
$ |
9,466 |
|
|
$ |
5,679 |
|
Long-term debt secured by assets of spun-off entities
|
|
|
|
|
|
|
|
|
|
|
|
12,108 |
|
|
|
5,054 |
|
|
|
5,177 |
|
|
|
5,100 |
|
Long-term debt secured by assets held for sale
|
|
|
|
|
|
|
|
|
|
|
$ |
14,220 |
|
|
$ |
31,564 |
|
|
$ |
34,193 |
|
|
$ |
33,084 |
|
Non-GAAP financial measures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$ |
(4,294 |
)(3) |
|
|
$ |
7,559 |
(3) |
|
$ |
12,439 |
(3) |
|
$ |
334(3 |
) |
|
$ |
6,287 |
|
|
$ |
431 |
|
|
|
(1) |
Reflects reimbursement of payroll, benefits and costs related to
the operations of properties managed by the Predecessor. |
|
(2) |
We currently have 30,262,308 shares of our common stock
outstanding. Included in that total are 129,412 shares held in a
trust that holds the assets to pay obligations under our
deferred compensation plan. Under applicable accounting rules,
the shares of common stock held in that trust are treated as
treasury stock for purposes of our earnings per share
computations and are therefore excluded from the basic and
diluted earnings per share calculations. |
|
(3) |
See reconciliation to net income (loss) in
Managements Discussion and Analysis of Financial
Condition and Results of Operation Non-GAAP
Financial Measures. |
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with
the financial statements and notes thereto appearing elsewhere
in this report. Where appropriate, the following discussion
includes analysis of the effects of our IPO, the formation
transactions and related refinancing transactions and certain
other transactions. We make statements in this section that are
forward-looking statements within the meaning of the federal
securities laws. For a complete discussion of forward-looking
statements, see the section in Item 1 of this
Form 10-K report entitled Forward-Looking
Statements. Certain risk factors may cause our actual
results, performance or achievements to differ materially from
those expressed or implied by the following discussion. For a
discussion of such risk factors, see the sections in Item 1
of this Form 10-K report entitled Risk
Factors and Forward-Looking Statements. All
dollar amounts in this discussion, except for per share data and
operating statistics, are in thousands.
Overview
Formation. The terms Great Wolf Resorts,
us, we and our are used in
this report refer to Great Wolf Resorts, Inc. Through our
controlling interest in Great Wolf Resort Operating Partnership,
L.L.L.P., or the Operating Partnership, of which we
are the sole general partner, and the subsidiaries of the
Operating Partnership, we develop, own and operate family
entertainment resorts.
We were formed to succeed to certain businesses of the Great
Lakes Predecessor (the Predecessor), which was not a legal
entity but rather a combination of numerous entities. The
Predecessor consisted of the following, all of which were under
common management:
|
|
|
|
|
The Great Lakes Companies, Inc. (GLC) and its consolidated
subsidiaries; |
|
|
|
Great Wolf Lodge of Traverse City, LLC; |
|
|
|
Great Wolf Lodge of Kansas City, LLC; |
34
|
|
|
|
|
Blue Harbor Resort Sheboygan, LLC; |
|
|
|
Great Wolf Lodge of Williamsburg, LLC; and |
|
|
|
Great Wolf Lodge of the Poconos, LLC |
The Predecessor financial statements did not include entities
that owned Great Wolf Lodges in Wisconsin Dells, Wisconsin and
Sandusky, Ohio. These entities, although they were managed by
GLC, were controlled by affiliates of AIG SunAmerica, Inc.
The Predecessor developed and operated hotels since 1995. In
1999, the Predecessor began its resort operations by purchasing
the Great Wolf Lodge in Wisconsin Dells, Wisconsin and
developing the Great Wolf Lodge in Sandusky, Ohio, which opened
in 2001. In 2003, the Predecessor opened two additional Great
Wolf Lodge resorts, one in Traverse City, Michigan and the other
in Kansas City, Kansas. In June 2004, the Predecessor opened the
Blue Harbor Resort in Sheboygan, Wisconsin. Subsequently, the
Predecessor had two additional Great Wolf Lodge resorts under
construction, one in Williamsburg, Virginia and the other in the
Pocono Mountains region of Pennsylvania, and had licensed a
resort owned by a third party that was under construction in
Niagara Falls, Ontario (Canada).
We were incorporated in May 2004 as a Delaware corporation in
anticipation of our initial public offering of common stock (the
IPO). The IPO closed on December 20, 2004, concurrently
with the completion of various formation transactions (the
Formation Transactions).
Pursuant to the Formation Transactions:
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|
|
|
|
The Predecessor contributed its hotel management and multifamily
housing management and development assets, which were unrelated
to the resort business, to two subsidiaries of the Predecessor
and then distributed the interests in those subsidiaries to the
former shareholders of the Predecessor. |
|
|
|
We effected, through our Operating Partnership, the acquisition
of GLC and each resort-owning entity. Pursuant to these
acquisitions, investors of GLC and the resort-owning entities
received cash, unregistered shares of our common stock or a
combination of cash and unregistered shares of our common stock.
We issued 13,901,947 shares of our common stock and paid
approximately $97,600 in cash in connection with these
acquisitions. |
|
|
|
We issued an aggregate of 130,949 shares of unregistered
common stock to holders of tenant in common interests in two of
our resorts. |
These transactions consolidated the ownership of our resort
properties and property interests to Great Wolf Resorts. During
the period from our formation until we commenced operations upon
closing of our IPO on December 20, 2004, we did not have
any material corporate activity.
The IPO consisted of the sale of 16,100,000 shares of
common stock at a price per share of $17.00, generating gross
proceeds of $273,700. The net proceeds to us were approximately
$248,700 after deducting an aggregate of $19,200 in underwriting
discounts and commissions paid to the underwriters and $5,800 in
other expenses incurred in connection with the IPO.
As of December 31, 2004, we develop, own and operate four
Great Wolf Lodge resorts, our signature northwoods-themed
resorts, and one Blue Harbor Resort, a nautical-themed property.
In addition, we own two Great Wolf Lodge resorts that are under
construction and scheduled to open for business during 2005. We
are also the licensor and manager of an additional Great Wolf
Lodge resort in Niagara Falls, Ontario that is owned and under
development by an affiliate of Ripley Entertainment Inc., or
Ripleys.
Business. We are a family entertainment resort company
that provides our guests with a high-quality vacation at an
affordable price. We are the largest owner, operator and
developer in the United States of drive-to family resorts
featuring indoor waterparks and other family-oriented
entertainment activities. We provide a full-service
entertainment resort experience to our target customer base:
families with children ranging in ages from 2 to 14 years
old that live within a convenient driving distance from our
resorts. Our resorts are open
35
year-round and provide a consistent and comfortable environment
where our guests can enjoy our various amenities and activities.
We provide our guests with a self-contained vacation experience
and focus on capturing a significant portion of their total
vacation spending. We earn revenues through the sale of rooms,
which includes admission to our indoor waterpark, and other
revenue-generating resort amenities. Each of our resorts
features a combination of the following revenue-generating
amenities: themed restaurants, an ice cream shop and
confectionery, full-service spa, game arcade, gift shop and
meeting space. We also expect to generate revenues from
licensing arrangements, management fees and construction fees
with respect to properties owned by third parties, such as the
licensing agreement we have entered into and management
arrangement we have agreed to enter into with Ripleys in
connection with the Niagara Falls, Ontario resort.
The following table presents an overview of our portfolio of
operating resorts and resorts under construction (including the
Niagara resort that will be owned by a third party licensee):
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|
|
|
|
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|
|
|
|
|
|
|
|
Indoor | |
|
|
Opened/Target | |
|
|
|
Entertainment | |
Location |
|
Opening | |
|
Rooms | |
|
Area(1) | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
(Approx. ft2) | |
Existing Resorts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Wisconsin Dells, WI
|
|
|
May 1997(2) |
|
|
|
309 |
(3) |
|
|
64,000 |
|
Sandusky, OH(4)
|
|
|
March 2001 |
|
|
|
271 |
|
|
|
41,000 |
|
Traverse City, MI
|
|
|
March 2003 |
|
|
|
281 |
|
|
|
51,000 |
|
Kansas City, KS
|
|
|
May 2003 |
|
|
|
281 |
|
|
|
49,000 |
|
Sheboygan, WI(5)
|
|
|
June 2004 |
|
|
|
183 |
(6) |
|
|
54,000 |
|
Resorts Under Construction:
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|
|
|
|
|
|
|
|
|
|
|
|
Williamsburg, VA
|
|
|
March 2005 |
|
|
|
301 |
|
|
|
66,000 |
|
Pocono Mountains, PA
|
|
|
Fall 2005 |
|
|
|
400 |
|
|
|
91,000 |
|
Niagara Falls, ONT(7)
|
|
|
Spring 2006 |
|
|
|
404 |
|
|
|
94,000 |
|
|
|
(1) |
Our indoor entertainment areas generally include our indoor
waterpark, game arcade, childrens activity room and
fitness room, as well as our Aveda concept spa, 3D virtual
reality theatre, Wileys Woods and party room in the
resorts that have such amenities. |
|
(2) |
We purchased this property in November 1999. |
|
(3) |
Our Wisconsin Dells property also features 77 condominium units
currently under construction. |
|
(4) |
Prior to May 2004, we operated this resort as a Great Bear Lodge. |
|
(5) |
Our Sheboygan property is branded as a Blue Harbor Resort. This
resort is subject to a 98-year and 11-month ground lease with
the Redevelopment Authority of the City of Sheboygan. |
|
(6) |
Our Sheboygan resort includes an additional 64 individually
owned two and four bedroom condominium units. |
|
(7) |
Ripleys, our licensee, owns this resort. We are assisting
Ripleys with construction management and other pre-opening
matters related to the Great Wolf Lodge in Niagara Falls. We
have granted Ripleys a license to use the Great Wolf Lodge
name for this resort and other intellectual property for ten
years after opening. We have agreed to enter into a management
agreement, pursuant to which we expect to operate the resort on
behalf of Ripleys for five years, and a central
reservations agreement. In conjunction with this project, we
expect to receive a one-time construction fee and ongoing
license, central reservation and management fees. |
Industry Trends and Outlook. While no standard industry
definition for a family entertainment resort featuring an indoor
waterpark has developed, we generally consider resorts with at
least 200 rooms featuring indoor waterparks larger than
25,000 square feet, as well as a variety of water slides
and other water-based attractions, to be competitive with our
resorts. The concept of a family entertainment resort with an
indoor waterpark was first introduced in Wisconsin Dells,
Wisconsin and has evolved there over the past 15 years. We
36
believe those resorts have historically outperformed standard
hotels in that market. We believe that the rate premiums and
increased market share in Wisconsin Dells have been significant
and that no other operator or developer other than Great Wolf
Resorts has established a regional portfolio of family
entertainment resorts featuring indoor waterparks. We intend to
continue to expand our portfolio of owned resorts throughout the
United States and to selectively seek licensing and management
opportunities domestically and internationally. The resorts we
are currently constructing and plan to develop in the future
require significant industry knowledge and substantial capital
resources. We believe that a number of other resort operators
are developing or considering the development of family
entertainment resorts that will compete directly with our
resorts. In particular, one of our current competitors is
constructing a resort in Sandusky and another competitor is
constructing a resort near Traverse City.
We believe there are characteristics of the domestic travel and
leisure industry that indicate families favor frequent, short,
drive-to vacations. According to the Travel Industry Association
of America, or TIA, from 1994 to 2003 the number of domestic
leisure trips taken by families grew from approximately
96 million trips in 1994 to 154 million trips in 2003.
In 2003, approximately 45% of leisure trips lasted one to two
nights. The primary mode of transportation for 77% of the
overnight leisure trips in 2003 was by automobile. We believe
these statistics provide evidence that our segment of the travel
and leisure industry has strong demand characteristics that make
our family entertainment resorts attractive to leisure travelers.
Our primary business objective is to increase long-term
stockholder value. We believe we can increase stockholder value
by executing our internal and external growth strategies. Our
primary internal growth strategies are to: maximize total resort
revenue; minimize costs by leveraging our economies of scale;
and build upon our existing brand awareness and loyalty in order
to compete more effectively. Our primary external growth
strategies are to: capitalize on our first-mover advantage by
being the first to develop and operate family entertainment
resorts featuring indoor waterparks in our selected target
markets; focus on development and strategic growth opportunities
by seeking to develop and open at least two new owned resorts in
target markets each year for the next several years and target
selected licensing opportunities; and continue to innovate by
leveraging our in-house expertise, in conjunction with the
knowledge and experience of our third-party suppliers and
designers.
In attempting to execute our internal and external growth
strategies, we are subject to a variety of business challenges
and risks. These challenges include: development and 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; and
external economic risks, including family vacation patterns and
trends. We seek to meet these challenges by providing sufficient
management oversight to site selection, development and resort
operations, concentrating on growing and strengthening awareness
of our brand and demand for our resorts, and maintaining our
focus on safety.
Revenue and Key Performance Indicators. We seek to
generate positive cash flows and net income from each of our
owned resorts. Our rooms revenue represents sales to guests of
room nights at our resorts, and is the largest contributor to
our cash flows and profitability. Rooms revenue accounted for
approximately 67% of our total resort revenue for the year ended
December 31, 2004. We employ sales and marketing efforts to
increase overall demand for rooms at our resorts. We seek to
optimize the relationship between room rates and occupancies
through the use of yield management techniques that attempt to
project demand in order to selectively increase room rates
during peak demand. These techniques are designed to assist us
in managing our higher occupancy nights to achieve maximum rooms
revenue, and include such practices as: monitoring our
historical trends for occupancy and estimating our high
occupancy nights; offering the highest discounts to previous
guests in off-peak periods to build customer loyalty and enhance
our ability to charge higher rates in peak periods; structuring
rates to allow us to offer our previous guests the best rate
while simultaneously working with a promotional partner or
offering internet specials; monitoring sales of room types daily
to evaluate the effectiveness of offered discounts; and offering
specials on standard suites and yielding better rates on larger
suites when standard suites sell out. In addition, we seek to
maximize the amount of time and money spent on-site by our
guests by providing a variety of revenue-generating amenities.
37
We have several key indicators that we use to evaluate the
performance of our business. These indicators include the
following:
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|
occupancy; |
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|
|
average daily room rate, or ADR; |
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|
|
revenue per available room, or RevPAR; |
|
|
|
total revenue per available room, or Total RevPAR; |
|
|
|
total revenue per occupied room, or Total RevPOR; and |
|
|
|
EBITDA. |
Occupancy, ADR and RevPAR are commonly used measures within the
hospitality industry to evaluate hotel operations and are
defined as follows:
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|
|
|
|
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. |
Occupancy allows us to measure the general overall demand for
rooms at our resorts and the effectiveness of our sales and
marketing strategies. ADR allows us to measure the effectiveness
of our yield management strategies. ADR and RevPAR only include
rooms revenue. Total RevPOR and Total RevPAR include both rooms
revenue and other revenue derived from food and beverage and
other amenities at our resorts. We consider Total RevPOR and
Total RevPAR to be key performance indicators for our business
because we derive a significant portion of our revenue from food
and beverage and other amenities. For the year ended
December 31, 2004, approximately 33% of our total resort
revenues consisted of non-rooms revenue.
We use RevPAR and Total RevPAR to evaluate the blended effect
that changes in occupancy, ADR and Total RevPOR have on our
profitability. We focus on increasing ADR and Total RevPOR
because those increases can have the greatest positive impact on
our profitability. In addition, we seek to maximize occupancy,
as increases in occupancy generally lead to greater total
revenues at our resorts, and maintaining certain occupancy
levels is key to covering our fixed costs. Increases in total
revenues as a result of higher occupancy are, however, typically
accompanied by additional incremental costs (including
housekeeping services, utilities and room amenity costs). In
contrast, increases in total revenues from higher ADR and Total
RevPOR are typically accompanied by lower incremental costs, and
result in a greater increase in profitability.
We also use EBITDA as a measure of the operating performance of
each of our resorts. EBITDA is a supplemental financial measure,
and is not defined by accounting principles generally accepted
in the United States of America, or GAAP. See Non-GAAP
Financial Measures for further discussion of our use of
EBITDA and a reconciliation to net income.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements and our
financial reporting process involve the use of accounting
estimates based on our current judgments. Certain accounting
estimates are particularly sensitive because of their
significance to our consolidated financial statements and
because of the possibility that future events affecting them may
differ from our current judgments.
Investments in Property and Equipment. We record
investments in property and equipment at cost. Improvements and
replacements are capitalized when they extend the useful life,
increase capacity or improve the efficiency of the asset.
Repairs and maintenance are charged to expense as incurred.
38
Depreciation and amortization are recorded on a straight-line
basis over the estimated useful lives of the assets as follows:
|
|
|
|
|
Buildings and improvements
|
|
|
40 years |
|
Land improvements
|
|
|
15 years |
|
Fixtures and equipment, including waterpark equipment
|
|
|
3-10 years |
|
We are required to make subjective assessments as to these
useful lives for purposes of determining the amount of
depreciation and amortization to record annually with respect to
our investments in property and equipment. These assessments
have a direct impact on our net income because if we were to
shorten the expected useful lives of our investments in property
and equipment we would depreciate and amortize such investments
over fewer years, resulting in more depreciation and
amortization expense and lower net income on an annual basis. We
periodically review the estimated useful lives we have assigned
to our depreciable assets to determine whether those useful
lives are reasonable and appropriate.
When circumstances, such as adverse market conditions, indicate
the carrying values of a long-lived asset may be impaired, we
perform an analysis to review the recoverability of the
assets carrying value. We make estimates of the
undiscounted cash flows (excluding interest charges) from the
expected future operations of the asset. These estimates
consider factors such as expected future operating income,
operating trends and prospects, as well as the effects of
demand, competition and other factors. If the analysis indicates
that the carrying value is not recoverable from future cash
flows, an impairment loss is recognized to the extent that the
carrying value exceeds the estimated fair value. Any impairment
losses are recorded as operating expenses, which reduce net
income.
We are required to make subjective assessments as to the fair
value of assets and liabilities in connection with purchase
accounting adjustments recorded related to real estate we
acquire, including the resorts acquired through the Formation
Transactions which are accounted for by the purchase method of
accounting. Purchase accounting requires allocation of the
acquisition value among the property and equipment and
identifiable intangible assets acquired.
Carrying Value of Goodwill. As a result of the Formation
Transactions, we recorded approximately $218,727 of goodwill on
our consolidated balance sheet. On an annual basis, we perform
an analysis to determine any impairment of the carrying value of
goodwill. To test goodwill for impairment, we analyze the fair
value of the individual resort to which the goodwill is assigned
to the carrying value of that resort. If the analysis indicates
that the carrying value is less than the fair value of the
individual resort, we compare the implied fair value of the
resorts goodwill with the carrying amount of that
goodwill. The implied fair value of the goodwill is determined
by allocating the fair value of the individual resort to all the
assets and liabilities of that resort as if it had been acquired
in a business combination. The excess of the fair value of the
individual resort over the amounts assigned to its assets and
liabilities is the implied fair value of the goodwill. If the
implied fair value of the goodwill is less than the carrying
value, an impairment loss is recognized. Any impairment losses
are recorded as operating expenses, which reduce net income.
New Accounting Pronouncements
In December 2004, the FASB issued Statement No. 123
(revised 2004), Share-Based Payment
(SFAS 123R), that requires companies to expense the value
of employee stock options, discounts on employee stock purchase
plans and the similar awards. Under SFAS 123R, share-abased
payment awards result in compensation expense that will be
measured at fair value on the awards grant date, based on
the estimated number of awards that are expected to vest.
SFAS 123R is effective for periods beginning after
July 1, 2005, and applies to all outstanding and unvested
share-based payment awards at the adoption date. We have not
completed our evaluation of the impact of adopting
SFAS 124R.
39
Non-GAAP Financial Measures
We use EBITDA as a measure of our operating performance. EBITDA
is a supplemental non-GAAP financial measure. EBITDA is commonly
defined as net income plus (a) interest expense,
(b) income taxes and (c) depreciation and amortization.
EBITDA as calculated by us is not necessarily comparable to
similarly titled measures presented by other companies. In
addition, EBITDA (a) does not represent net income or cash
flows from operations as defined by GAAP; (b) is not
necessarily indicative of cash available to fund our cash flow
needs; and (c) should not be considered as an alternative
to net income, operating income, cash flows from operating
activities or our other financial information as determined
under GAAP.
We believe EBITDA is useful to an investor in evaluating our
operating performance because:
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|
|
|
a significant portion of our assets consists of property and
equipment that are depreciated over their remaining useful lives
in accordance with GAAP. Because depreciation and amortization
are non-cash items, we believe that presentation of EBITDA is a
useful measure of our operating performance; |
|
|
|
it is widely used in the hospitality and entertainment
industries to measure operating performance without regard to
items such as depreciation and amortization; and |
|
|
|
we believe it helps investors meaningfully evaluate and compare
the results of our operations from period to period by removing
the impact of items directly resulting from our asset base,
primarily depreciation and amortization, from our operating
results. |
Our management uses EBITDA:
|
|
|
|
|
as a measurement of operating performance because it assists us
in comparing our operating performance on a consistent basis as
it removes the impact of items directly resulting from our asset
base, primarily depreciation and amortization, from our
operating results; |
|
|
|
for planning purposes, including the preparation of our annual
operating budget; |
|
|
|
as a valuation measure for evaluating our operating performance
and our capacity to incur and service debt, fund capital
expenditures and expand our business; and |
|
|
|
as one measure in determining the value of other acquisitions
and dispositions. |
Covenants in our revolving credit facility also require us to
meet financial tests based upon EBITDA as adjusted for certain
items.
Using a measure such as EBITDA has material limitations. These
limitations include the difficulty associated with comparing
results among companies and the inability to analyze certain
significant items, including depreciation and interest expense,
which directly affect our net income or loss. Management
compensates for these limitations by considering the economic
effect of the excluded expense items independently, as well as
in connection with its analysis of net income.
40
The tables shown below reconcile net loss to EBITDA for the
periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Wolf | |
|
|
|
|
Resorts | |
|
Predecessor | |
|
|
| |
|
| |
|
|
Period | |
|
Period | |
|
|
|
|
December 21, | |
|
January 1, | |
|
|
|
|
2004 | |
|
2004 | |
|
Year Ended | |
|
|
through | |
|
through | |
|
December 31, | |
|
|
December 31, | |
|
December 20, | |
|
| |
|
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
Net loss
|
|
$ |
(3,842 |
) |
|
$ |
(12,942 |
) |
|
$ |
(4,543 |
) |
|
$ |
(6,755 |
) |
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
214 |
|
|
|
7,394 |
|
|
|
6,542 |
|
|
|
2,920 |
|
|
Income tax benefit
|
|
|
(2,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,897 |
|
|
|
13,107 |
|
|
|
10,440 |
|
|
|
4,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$ |
(4,294 |
) |
|
$ |
7,559 |
|
|
$ |
12,439 |
|
|
$ |
334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
Our and the Predecessors results of operations for the
years ended December 31, 2004 and 2003 are not directly
comparable due primarily to the impact of the IPO and the
Formation Transactions, our new debt and the repayment of debt
upon the consummation of the IPO. To facilitate a meaningful
analysis of the results of operations, amounts for the year
ended December 31, 2004, are labeled as Company
and include both the historical operations of the Predecessor in
2004 (for the period January 1, 2004 through
December 20, 2004) and our operations since the IPO (for
the period December 21, 2004 through December 31,
2004). The Company results are compared to Predecessor results
from prior years. The Predecessor results were combined with our
results in 2004 because we believe that a discussion of our
results for the eleven-day period from December 21, 2004
through December 31, 2004 would not be meaningful.
|
|
|
Great Lakes Predecessor Financial Information |
The Predecessor combined historical financial information
included the following:
|
|
|
|
|
The Great Lakes Companies, Inc. and its consolidated
subsidiaries, including development of, ownership interests in,
and management contracts with respect to, resorts and certain
non-resort hotels and multifamily housing development and
management assets; |
|
|
|
the entities that owned our Traverse City, Kansas City and
Sheboygan operating resorts; and |
|
|
|
the entities that owned our Williamsburg and Pocono Mountains
resorts that are under construction. |
The Traverse City, Kansas City and Sheboygan resorts opened in
March 2003, May 2003 and June 2004, respectively. Therefore,
Predecessors historical results of operations only
reflected operating results for Traverse City, Kansas City and
Sheboygan for those periods after the resort opening dates.
The Predecessors financial information did not include the
entities that own the Wisconsin Dells and Sandusky operating
resorts as those entities were controlled by affiliates of AIG
SunAmerica.
Revenues. The Predecessors revenues consisted of
the following:
|
|
|
|
|
lodging revenue, which consists of rooms, food and beverage and
other department revenues from its consolidated and combined
hotels and resorts; |
|
|
|
management fee revenue from both resort activity and non-resort
activity, which includes fees received under its management
agreements; and |
|
|
|
other revenue, which consists of accounting fees, development
fees, central reservation fees, construction management fees and
other fees. |
41
The Predecessor employed the staff at its managed properties.
Under its management agreements, the hotel and resort owners
reimbursed Predecessor for payroll, benefits and certain other
costs related to the operations of the managed properties.
Emerging Issues Task Force, or EITF, Issue No. 01-14,
Income Statement Characteristics of Reimbursements for
Out-of-pocket Expenses, (EITF 01-14) establishes
standards for accounting for reimbursable expenses in
Predecessors income statement. Under this pronouncement,
the reimbursement of payroll, benefits and costs is recorded as
revenue on Predecessors statements of operations, with a
corresponding expense recorded as other expenses from
managed properties.
Operating Expenses. The Predecessors departmental
operating expenses consisted of rooms, food and beverage and
other department expenses.
The Predecessors other operating expenses included the
following items:
|
|
|
|
|
selling, general and administrative expenses, which were
associated with the management of hotels and 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; |
|
|
|
depreciation and amortization; and |
|
|
|
other expenses from managed properties, which are recorded as an
expense in accordance with EITF 01-14. |
|
|
|
Great Wolf Resorts Financial Information |
Great Wolf Resorts financial information includes:
|
|
|
|
|
our corporate entity that provides resort development and
management services; |
|
|
|
our Wisconsin Dells, Sandusky, Traverse City, Kansas City and
Sheboygan operating resorts; and |
|
|
|
our Williamsburg and Pocono Mountains resorts that are under
construction. |
Revenues. Our revenues consist of lodging revenue, which
includes rooms, food and beverage, and other department revenues
from our resorts.
Operating Expenses. Our departmental operating expenses
consist of rooms, food and beverage and other department
expenses.
Our other operating expenses include the following items:
|
|
|
|
|
selling, general and administrative expenses, which are
associated with the 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; and |
|
|
|
depreciation and amortization. |
|
|
|
Year Ended December 31, 2004 for the Company Compared
with Year Ended December 31, 2003 for the
Predecessor |
The Traverse City, Kansas City and Sheboygan resorts opened in
March 2003, May 2003 and June 2004, respectively. We acquired
the Wisconsin Dells and Sandusky resorts as part of the IPO in
December 2004. As a result, comparisons of changes in total
revenue, rooms revenue and other revenue between the twelve
month periods ended December 31, 2004 (during which two
resorts were open for the entire period, one resort opened, and
we purchased two resorts) and December 31, 2003 (during
which two resorts opened) are not meaningful.
42
Revenues. Total revenues increased $23,634 to $69,887 for
2004 compared to $46,253 for 2003. This increase was primarily
due to:
|
|
|
|
|
The commencement of operations at the Great Wolf Lodge in
Traverse City, Michigan, which opened in March 2003. This resort
had revenues of $22,885 for 2004 compared to $18,232 for 2003,
an increase of $4,653; |
|
|
|
The commencement of operations at the Great Wolf Lodge in Kansas
City, Kansas, which opened in May 2003. This resort had revenues
of $18,929 for 2004 compared to $9,971 for 2003, an increase of
$8,958; and |
|
|
|
The commencement of operations at the Blue Harbor Resort in
Sheboygan, Wisconsin, which opened in June 2004. This resort had
revenues of $8,350 for 2004. |
Operating expenses. Total departmental expenses increased
$8,006 to $19,851 for 2004 compared to $11,845 for 2003,
primarily due to the opening of the Traverse City, Kansas City
and Sheboygan resorts in March 2003, May 2003 and June 2004,
respectively.
Total other operating expenses increased $25,158 to $64,465 for
2004 compared to $39,307 for 2003. This increase was primarily
due to:
|
|
|
|
|
Selling, general and administrative expenses increased $14,609
to $25,985 for 2004 compared to $11,376 for 2003, primarily due
to the effect of the Traverse City and Kansas City resorts
opening in 2003 and the Sheboygan resort opening in 2004, the
effect of additional labor costs at GLC due to increases in
staffing, and $6,413 of IPO-related expenses incurred in 2004. |
|
|
|
Property operating costs increased $3,822 to $9,105 for 2004
compared to $5,283 for 2003, primarily due to the effect of the
Traverse City and Kansas City resorts opening in 2003 and the
Sheboygan resort opening in 2004. |
|
|
|
Depreciation and amortization expense increased $7,078 to
$14,822 for 2004 compared to $7,744 for 2003. This increase
resulted from: |
|
|
|
|
|
the purchases or placement into service of property and
equipment during 2003, primarily at the Traverse City and Kansas
City resorts that opened in 2003, and the related increase in
depreciation taken on those assets; and |
|
|
|
the purchases or placement into service of property and
equipment in 2004, primarily at the Sheboygan resort that opened
in 2004, and the related increase in depreciation taken on those
assets. |
Operating loss. Operating loss for 2004 increased $9,530
to $(14,429) from $(4,899) for 2003.
Net loss. Net loss increased $12,241 to $(16,784) for
2004 from ($4,543) for 2003. This increase was due to the
increase in operating loss, as explained above, as well as the
effect of the following:
|
|
|
|
|
Net interest expense increased $2,380 to $6,738 for 2004 from
$4,358 for 2003. This increase was due primarily to increased
debt levels as a result of finishing construction of the
Traverse City and Kansas City resorts during 2003 and the
Sheboygan resort in 2004. |
|
|
|
Interest on mandatorily redeemable ownership interests increased
$4,897 to $1,761 for 2004 from $(3,136) for 2003. This increase
was due to an increase in the redemption value of certain
mandatorily redeemable equity interests in 2004. The Predecessor
treated the following as mandatorily redeemable financial
instruments: |
|
|
|
|
|
Class A and Class B shares of GLC that were obligated
to be redeemed in cash if a shareholder died or incurred certain
triggering events. The redemption price was calculated based on
a formula with GLCs net operating income and a multiple
based on the type of triggering event. The shares contained
restrictions on transfers and sales by the shareholders. |
43
|
|
|
|
|
Class B Units of Great Wolf Lodge of Kansas City, LLC that
were required to be redeemed in cash no later than the fifth
anniversary date of the operating commencement date of the
Kansas City resort. The redemption price was based on the
greater of fair value or an internal rate of return. |
|
|
|
|
|
A cumulative effect of change in accounting principle of $460
related to the adoption of Statement of Financial Accounting
Standards No. 150 Accounting for Certain Financial
Instruments with Characteristics of Both Debt and Equity
(SFAS 150) was recorded in 2003. This gain resulted from
recording at fair market value the value of certain mandatorily
redeemable equity interests. |
This increase was partially offset by:
|
|
|
|
|
A net gain on sale of real estate of $1,653 in 2004 due to the
sales of land owned in Ontario, Canada and Beckley, West
Virginia. |
|
|
|
An income tax benefit of $2,563 recorded in 2004 related to the
net loss incurred since the IPO date. The Predecessor was not a
taxable entity and therefore had no income tax provision
recorded prior to the IPO. |
|
|
|
Income from discontinued operations increased $810 to $1,928 in
2004 from $1,118 in 2003, due to lower minority interest expense
in 2004. |
|
|
|
Year Ended December 31, 2003 for the Predecessor
Compared with Year Ended December 31, 2002 for the
Predecessor |
Revenues. Total revenues increased $28,035 to $46,253 for
2003 compared to $18,218 for 2002. This increase was primarily
due to:
|
|
|
|
|
the commencement of operations at the Great Wolf Lodge in
Traverse City, Michigan, which opened in March 2003. This
property produced revenues of $18,232 in 2003; and |
|
|
|
the commencement of operations at the Great Wolf Lodge in Kansas
City, Kansas, which opened in May 2003. This property produced
revenues of $9,971 in 2003. |
Operating expenses. Total departmental expenses for 2003
were $11,845 as a result of the commencement of operations of
the Traverse City and Kansas City resorts during 2003. The
Traverse City resort had $7,167 of rooms, food and beverage and
other expenses in 2003. The Kansas City resort had $5,054 of
similar departmental expenses in 2003. There were no comparative
departmental expenses in 2002.
Total other operating expenses increased $19,497 to $39,307 for
2003, compared to $19,810 for 2002. This increase was primarily
due to:
|
|
|
|
|
Selling, general and administrative expenses increased by $7,217
to $11,376 for 2003 from $4,159 for 2002, primarily due to the
effect of the Traverse City and Kansas City resorts commencing
operations in 2003. |
|
|
|
Property operating costs increased $4,652 to $5,283 for 2003
from $631 in 2002, primarily due to the effect of the Traverse
City and Kansas City resorts commencing operations in 2003. |
|
|
|
Depreciation and amortization expense increased by $7,532 to
$7,744 for 2003 from $212 for 2002. This increase resulted from
the purchases or placement into service of property and
equipment during 2003, primarily at the Traverse City and Kansas
City resorts that commenced operations in 2003, and the related
increase in depreciation taken on those assets. |
|
|
|
Other expenses from managed properties increased $96 to $14,904
for 2003 from $14,808 for 2002 due to increased payroll costs at
managed properties. |
Operating loss. Operating loss for 2003 increased $3,307
to $(4,899) from $(1,592) for 2002.
44
Net loss. Net loss decreased $2,212 to $(4,543) in 2003
from $(6,755) in 2002. This decrease was primarily due to the
following:
|
|
|
|
|
Interest on mandatorily redeemable ownership interests decreased
by $7,615 to $(3,136) in 2003 and $4,479 in 2002, due to the
adoption of SFAS No. 150 on July 1, 2003 and the
marking to fair value of the derivative instruments related to
the mandatorily redeemable ownership interests. |
|
|
|
Income (loss) from discontinued operations increased $1,660 to
$1,118 for 2003 from $(542) for 2002. SFAS No. 144
requires the net activity of assets held for sale or disposed of
during a fiscal period to be classified as discontinued
operations. The income from discontinued operations increased
significantly in 2003 as a result of gains on the sales of the
Manassas Country Inn & Suites, the Manassas Fairfield
Inn and the Hampton Inn & Suites Warwick during 2003. |
|
|
|
A cumulative effect of change in accounting principle of $460
related to the adoption of SFAS No. 150 was recorded
in 2003. This gain resulted from recording at fair market value
the value of certain mandatorily redeemable equity interests. |
This decrease was partially offset by the increase in operating
loss, as well as:
|
|
|
|
|
Net interest expense increased $4,229 to $4,358 in 2003 from
$129 in 2002. This increase was due primarily to increased debt
levels as a result of finishing construction of the Traverse
City and Kansas City resorts during 2003. |
Liquidity and Capital Resources
As of December 31, 2004, we had total indebtedness of
$142,665 summarized as follows:
|
|
|
|
|
|
Mortgage Debt:
|
|
|
|
|
|
Senior credit facility
|
|
$ |
|
|
|
Mortgage Loan
|
|
|
75,000 |
|
|
Sheboygan Construction Loan
|
|
|
29,475 |
|
|
Williamsburg Construction Loan
|
|
|
19,011 |
|
|
Poconos Construction Loan
|
|
|
5,598 |
|
|
Other
|
|
|
1,523 |
|
Other Debt:
|
|
|
|
|
|
City of Sheboygan bonds
|
|
|
8,063 |
|
|
City of Sheboygan loan
|
|
|
3,995 |
|
|
|
|
|
|
|
$ |
142,665 |
|
|
|
|
|
Senior Credit Facility Upon closing the IPO,
we entered into a $75,000 senior secured revolving credit
facility with a syndicate of banks. The loan is secured by our
Wisconsin Dells and Sandusky resorts and is not drawn as of
December 31, 2004. Future borrowings under this facility
will bear interest at LIBOR plus a margin of 2.25% to 3.00%
depending upon our leverage ratio from time to time. The maximum
amount of indebtedness we may incur under the facility is equal
to 3.75 multiplied by the combined EBITDA (adjusted for
non-recurring items, unusual items, infrequent items and asset
impairment charges) of the two resorts securing the facility
plus up to $5,400 relating to enhancements to the waterpark
facility for the Wisconsin Dells property. The facility has
customary bank covenants including limiting the maximum level of
total debt, the minimum level of interest coverage, and the
minimum level of fixed charge coverage. As of March 1,
2005, based on the financial and debt service ratios contained
in the revolving credit facility, approximately $50,000 of the
facility is available for borrowing. The facility also includes
an annual unused commitment fee of 0.5%.
Mortgage Loan Upon closing the IPO, we
entered into a $75,000, ten-year loan secured by our Traverse
City and Kansas City resorts. The loan bears interest at a fixed
rate of 6.96% and is subject to a 25-year principal amortization
schedule. The loan has customary financial and operating debt
compliance
45
covenants, including a minimum debt service coverage ratio,
representing the combined EBITDA (adjusted for non-recurring
items, unusual items, infrequent items and asset impairment
charges) of the two resorts divided by their combined annual
interest expense and principal amortization. The loan also has
customary prohibitions on our ability to prepay the loan prior
to maturity.
Sheboygan Mortgage Loan The Sheboygan
mortgage loan is secured by our Sheboygan resort. The loan
matures in January 2008 and bears interest at a floating rate of
prime plus 200 basis points and is subject to a 20-year
principal and amortization schedule. The loan has customary
covenants associated with a single asset mortgage. There are no
prohibitions or fees associated with the repayment of the loan
principal.
Williamsburg Construction Loan The
Williamsburg construction loan was incurred to construct the
Williamsburg resort property. In February 2005, after drawing an
additional $10,242 on this loan, we retired the loan in full
using cash on hand.
Poconos Construction Loan The Poconos
construction loan was incurred to construct the Poconos resort
property. In March 2005, after drawing an additional $13,550 on
this loan, we retired the loan in full using cash on hand and
the proceeds of junior subordinated debentures we issued in
March 2005.
City of Sheboygan bonds The City of Sheboygan
(the City) bonds amount represents the face amount of bond
anticipation notes (BANs) issued by the City in November 2003 in
conjunction with the Predecessors construction of the Blue
Harbor Resort in Sheboygan, Wisconsin. In accordance with the
provisions of EITF Issue No. 91-10 Accounting for
Special Assessments and Tax Increment Financing, we have
recognized as a liability the obligations for these BANs. The
notes bear interest at 3.95% and mature in 2008. The notes are
not a general obligation of the City and are payable from
(a) the proceeds of bond anticipation notes or other funds
appropriated by the City for the payment of interest on the BANs
and (b) the proceeds to be delivered from the issuance and
sale of securities by the City. We have an obligation to fund
payment of these BANs. Our obligation to fund repayment of the
notes will be satisfied by certain minimum guaranteed amounts of
room tax payments to be made by the Blue Harbor Resort through
2028.
City of Sheboygan loan The City of Sheboygan
loan amount represents a loan made by the City in 2004 to the
Predecessor in conjunction with the Predecessors
construction of the Blue Harbor Resort in Sheboygan, Wisconsin.
The loan is noninterest-bearing and matures in 2018. Our
obligation to repay the loan will be satisfied by certain
minimum guaranteed amounts of real and personal property tax
payments to be made by the Blue Harbor Resort through 2018.
Junior Subordinated Debentures Subsequent to
year-end, we completed a private offering of $50,000 of trust
preferred securities by Great Wolf Capital Trust I (the
Trust), a Delaware statuatory trust which is our subsidiary. The
securities pay holders cumulative cash distributions at an
annual rate which is fixed at 7.80% through March 2015 and then
floats at LIBOR plus 310 basis points. The securities
mature in March 2035. In addition, we invested $1,500 in the
trusts common securities, representing 3% of the total
capitalization of the trust.
The Trust used the proceeds of the offering and our investment
to purchase from us $51,500 of our junior subordinated
debentures with payment terms that mirror the distribution terms
of the trust securities. The cost of the trust preferred
offering totaled $1,600, including $1,500 of underwriting
commissions and expenses and $100 of costs incurred directly by
the Trust. The Trust paid these costs utilizing an investment
from us. The proceeds from our debenture sale, net of the costs
of the trust preferred offering and our investment in the Trust,
were $48,400. We used the net proceeds to retire the Poconos
construction loan.
|
|
|
Short-Term Liquidity Requirements |
Our short-term liquidity requirements consist primarily of funds
necessary to pay operating expenses including:
|
|
|
|
|
recurring maintenance, repairs and other operating expenses
necessary to properly maintain our resorts; |
|
|
|
property taxes and insurance expenses; |
46
|
|
|
|
|
interest expense and scheduled principal payments on outstanding
indebtedness; and |
|
|
|
general and administrative expenses. |
Historically, we have satisfied our short-term liquidity
requirements through operating cash flows, proceeds from
borrowings and equity contributions from investors. In the
future, we believe that cash provided by our operations,
together with borrowing capacity under our line of credit, will
be sufficient to fund our requirements for working capital,
capital expenditures and debt service for the next twelve months.
|
|
|
Long-Term Liquidity Requirements |
Our long-term liquidity requirements consist primarily of funds
necessary to pay for scheduled debt maturities, renovations,
expansion and other non-recurring capital expenditures that need
to be made periodically to our resorts as well as the costs
associated with the development of new resorts. We expect to
meet these needs through existing working capital, cash provided
by operations and a combination of mortgage financing on
properties being developed, additional borrowings under our
revolving credit facility, and the issuance of equity
instruments, including common stock, or additional or
replacement debt, if market conditions permit. We believe these
sources of capital will be sufficient to provide for our
long-term capital needs.
Our revolving credit facility and secured mortgage financing are
material sources to satisfy our long-term liquidity
requirements. As such, compliance with their financial and
operating debt compliance covenants is material to our
liquidity. Non-compliance with the covenants would have a
material adverse effect on our financial condition and liquidity.
As we develop future resorts, we expect to finance a portion of
the total construction cost of each resort through a stand-alone
construction loan on the resort. We expect to fund the remainder
of the total construction cost through cash provided from a
combination of sources, including our revolving credit facility,
cash on hand and cash provided by operating activities. We
expect to consider converting stand-alone construction loans to
longer-term permanent financing after each resort commences
operations.
The following table summarizes our contractual obligations as of
December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Terms | |
|
|
| |
|
|
|
|
Less Than | |
|
|
|
More Than | |
|
|
Total | |
|
1 Year | |
|
1-3 Years | |
|
3-5 Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Long-Term Debt Obligations(1)
|
|
$ |
142,665 |
|
|
$ |
27,794 |
|
|
$ |
4,069 |
|
|
$ |
30,290 |
|
|
$ |
80,512 |
|
Operating Lease Obligations
|
|
|
1,944 |
|
|
|
371 |
|
|
|
824 |
|
|
|
749 |
|
|
|
|
|
Construction Contracts
|
|
|
45,282 |
|
|
|
45,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
189,891 |
|
|
|
73,447 |
|
|
$ |
4,893 |
|
|
$ |
31,039 |
|
|
$ |
80,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes $8,063 of fixed rate debt recognized as a liability
related to certain bonds issued by the City of Sheboygan and
$3,995 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. |
We had $79,417 of available cash and cash equivalent assets and
$11,034 of working capital (current assets less current
liabilities) at December 31, 2004, compared to the
Predecessors $3,490 of cash and cash equivalents and its
working capital deficit of $(15,231) at December 31, 2003.
This increase to cash and working capital, as compared to
Predecessor historical amounts, are primarily due to net cash
provided by the IPO.
47
Cash Flows
|
|
|
Comparison of Twelve Months Ended December 31, 2004
for the Company to Year Ended December 31, 2003 for the
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase | |
|
|
2004 | |
|
2003 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
Net cash provided by operating activities
|
|
$ |
6,811 |
|
|
$ |
8,126 |
|
|
$ |
(1,315 |
) |
Net cash used in investing activities
|
|
|
(162,459 |
) |
|
|
(64,280 |
) |
|
|
(98,179 |
) |
Net cash provided by financing activities
|
|
|
233,575 |
|
|
|
54,854 |
|
|
|
178,721 |
|
Operating Activities. The decrease in net cash provided
by operating activities for the year ended December 31,
2004, as compared to the year ended December 31, 2003,
resulted primarily from an increase in net loss in 2004.
Investing Activities. The increase in net cash used in
investing activities for the year ended December 31, 2004,
as compared to the year ended December 31, 2003, resulted
primarily from the purchase of the resorts as part of the IPO
and increased capital expenditures in the 2004 period as
compared to the 2003 period, offset by a decrease in equity
escrow and an increase in proceeds from sales of assets in the
2004 period.
Financing Activities. Net cash provided by financing
activities increased for the year ended December 31, 2004,
as compared to the year ended December 31, 2003 primarily
due to the IPO and additional borrowings incurred in 2004.
|
|
|
Comparison of Year Ended December 31, 2003 for the
Predecessor to Year Ended December 31, 2002 for the
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/ | |
|
|
2003 | |
|
2002 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
Net cash provided by operating activities
|
|
$ |
8,126 |
|
|
$ |
376 |
|
|
$ |
7,750 |
|
Net cash used in investing activities
|
|
|
(64,280 |
) |
|
|
(46,276 |
) |
|
|
(18,004 |
) |
Net cash provided by financing activities
|
|
|
54,854 |
|
|
|
49,797 |
|
|
|
5,057 |
|
Operating Activities. The increase in net cash provided
by operating activities for the year ended December 31,
2003, as compared the year ended December 31, 2002,
resulted primarily from higher levels of depreciation and
amortization in 2003, and a smaller net loss in 2003.
Investing Activities. The increase in net cash used in
investing activities for the year ended December 31, 2003
as compared to the year ended December 31, 2002, resulted
primarily from higher levels of capital expenditures in 2003
compared to 2002.
Financing Activities. The increase in net cash provided
by financing activities for the year ended December 31,
2003, as compared to the year ended December 31, 2002, was
primarily due to increased amounts of proceeds from long-term
debt in 2003 compared to 2002.
Inflation
Our resort properties are able to change room and amenity rates
on a daily basis, so the impact of higher inflation can often be
passed along to customers. However, a weak economic environment
that decreased overall demand for our products and services
could restrict our ability to raise room and amenity rates to
offset rising costs.
|
|
Item 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our future income, cash flows and fair values relevant to
financial instruments are dependent upon prevailing market
interest rates. Market risk refers to the risk of loss from
adverse changes in market prices and interest rates. In the
future, we intend to use derivative financial instruments to
manage or hedge interest
48
rate risks related to our borrowings. We do not intend to use
derivatives for trading or speculative purposes and anticipate
entering into derivative contracts only with major financial
institutions with investment grade credit ratings.
As of December 31, 2004, we had total indebtedness of
approximately $142,665. This debt consisted of:
|
|
|
|
|
$75,000 of fixed rate debt secured by two of our resorts. This
debt bears interest at 6.96%. |
|
|
|
$29,475 of variable rate debt secured by one of our resorts.
This debt bears interest at a floating rate equal to prime plus
200 basis points. The total rate was 7.25% at
December 31, 2004. |
|
|
|
$8,063 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 $3,995 of noninterest 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; |
|
|
|
$19,011 of variable rate debt secured by our Williamsburg resort
that is under construction; |
|
|
|
$5,598 of variable rate debt secured by our Pocono Mountains
resort that is under construction; and |
|
|
|
$1,523 of other fixed rate debt. |
As of December 31, 2004, the fair values of the mortgage
loans and other secured loans approximate the carrying values as
the terms are similar to those currently available to us for
debt with similar risks and remaining maturities.
In February and March 2005, we retired the Williamsburg and
Poconos construction loans, respectively. In March 2005, we also
issued $51,500 of junior subordinated debentures, bearing
interest at a fixed rate of 7.80% through 2015. Giving pro forma
effect to the retirements of the Williamsburg and Poconos
construction loans and the issuance of the junior subordinated
debentures, we had $169,556 of total debt, of which 83% was
subject to fixed interest rates and 17% was variable rate debt.
If the prime rate were to increase by 100 basis points, the
increase in interest expense on our variable rate debt (giving
effect to the repayment of the Williamsburg and Poconos
construction loans in 2005, as discussed above) would decrease
future earnings and cash flows by approximately $295 annually.
If the prime rate were to decrease by 1% or 100 basis
points, the decrease in interest expense on our variable rate
debt would be approximately $295 annually.
49
|
|
ITEM 8. |
FINANCIAL STATEMENTS |
The following consolidated and combined financial statements are
filed as part of this Annual Report on Form 10-K:
|
|
|
|
|
|
|
|
Page | |
|
|
No. | |
|
|
| |
Consolidated and Combined Financial Statements of Great Wolf
Resorts, Inc. and Subsidiaries and Great Lakes Predecessor:
|
|
|
|
|
|
|
|
|
51 |
|
|
|
|
|
52 |
|
|
|
|
|
53 |
|
|
|
|
|
54 |
|
|
|
|
|
55 |
|
|
|
|
|
56 |
|
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Great Wolf Resorts, Inc.
Madison, Wisconsin
We have audited the accompanying consolidated balance sheet of
Great Wolf Resorts, Inc. and subsidiaries (Great Wolf Resorts)
and the combined balance sheet of Great Lakes Predecessor, as
defined in Note 1 to the combined financial statements, as
of December 31, 2004 and 2003, respectively, and the
related consolidated statements of operations, cash flows and
stockholders equity of Great Wolf Resorts for the period
from December 21, 2004 (commencement of operations) through
December 31, 2004, the related combined statements of
operations, cash flows and equity of Great Lakes Predecessor for
the period from January 1, 2004 through December 20,
2004 and the years ended December 31, 2003 and 2002. These
consolidated and combined financial statements are the
responsibility of Great Wolf Resortss management. Our
responsibility is to express an opinion on these consolidated
and combined financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. Great Wolf Resorts is not
required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit
included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of Great Wolf
Resortss and Great Lakes Predecessors internal
control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the consolidated financial position of Great
Wolf Resorts and the combined financial position of Great Lakes
Predecessor as December 31, 2004 and 2003, respectively,
the consolidated results of operations and cash flows of Great
Wolf Resorts for the period from December 21, 2004
(commencement of operations) through December 31, 2004, the
combined results of operations and cash flows of Great Lakes
Predecessor for the period from January 1, 2004 through
December 20, 2004 and the years ended December 31,
2003 and 2002, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 2 to the combined financial
statements, effective July 1, 2003, Great Lakes Predecessor
adopted SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities
and Equity.
Milwaukee, Wisconsin
March 22, 2005
51
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
CONSOLIDATED AND COMBINED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Wolf | |
|
|
|
|
Resorts, Inc. | |
|
Predecessor | |
|
|
| |
|
| |
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Dollars in thousands, | |
|
|
except per share amounts) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
81,417 |
|
|
$ |
3,490 |
|
|
Accounts receivable, net of allowance for doubtful accounts of
$183 and $655
|
|
|
881 |
|
|
|
1,877 |
|
|
Inventory
|
|
|
1,848 |
|
|
|
850 |
|
|
Other current assets
|
|
|
3,921 |
|
|
|
134 |
|
|
Assets of spun-off entities
|
|
|
|
|
|
|
10,382 |
|
|
Assets held for sale
|
|
|
|
|
|
|
15,467 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
88,067 |
|
|
|
32,200 |
|
Property and equipment, net
|
|
|
275,758 |
|
|
|
120,874 |
|
Equity escrow
|
|
|
1,564 |
|
|
|
13,722 |
|
Other assets
|
|
|
8,298 |
|
|
|
5,288 |
|
Goodwill
|
|
|
218,727 |
|
|
|
1,410 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
592,414 |
|
|
$ |
173,494 |
|
|
|
|
|
|
|
|
|
LIABILITIES, MINORITY INTERESTS AND EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$ |
27,794 |
|
|
$ |
9,632 |
|
|
Accounts payable
|
|
|
31,506 |
|
|
|
4,550 |
|
|
Accrued expenses
|
|
|
10,466 |
|
|
|
5,057 |
|
|
Advance deposits
|
|
|
3,129 |
|
|
|
1,153 |
|
|
Other current liabilities
|
|
|
2,138 |
|
|
|
711 |
|
|
Long-term debt secured by assets of spun-off entities
|
|
|
|
|
|
|
12,108 |
|
|
Long-term debt secured by assets held for sale
|
|
|
|
|
|
|
14,220 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
75,033 |
|
|
|
47,431 |
|
Mortgage debt
|
|
|
102,813 |
|
|
|
82,637 |
|
Other long-term debt
|
|
|
12,058 |
|
|
|
1,464 |
|
Deferred tax liability
|
|
|
11,298 |
|
|
|
|
|
Deferred compensation liability
|
|
|
2,891 |
|
|
|
|
|
Mandatorily redeemable ownership interests
|
|
|
|
|
|
|
11,194 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
204,093 |
|
|
|
142,726 |
|
Minority interests
|
|
|
|
|
|
|
1,585 |
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
Class A voting Shares, no par value; 450 shares
authorized, 329 shares issued and 300 shares
outstanding at December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
Class B non-voting Shares, no par value; 8,550 shares
authorized, 6,251 shares issued and 5,700 shares
outstanding at December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock
|
|
|
|
|
|
|
(824 |
) |
|
|
|
Members equity of combined entities
|
|
|
|
|
|
|
31,263 |
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
(1,256 |
) |
|
Great Wolf Resorts, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 250,000,000 shares
authorized, 30,262,308 shares issued and outstanding at
December 31, 2004
|
|
|
303 |
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
394,060 |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, no shares issued or outstanding at December 31,
2004
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(3,842 |
) |
|
|
|
|
|
|
|
Shares of common stock held in deferred compensation plan
|
|
|
(2,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
388,321 |
|
|
|
29,183 |
|
|
|
|
|
|
|
|
|
|
Total liabilities, minority interests and equity
|
|
$ |
592,414 |
|
|
$ |
173,494 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated and combined financial
statements.
52
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Wolf | |
|
|
|
|
|
|
|
Resorts, Inc. | |
|
|
Predecessor | |
|
Predecessor | |
|
|
| |
|
|
| |
|
| |
|
|
Period | |
|
|
Period | |
|
|
|
|
December 21, | |
|
|
January 1, | |
|
|
|
|
2004 | |
|
|
2004 | |
|
Year Ended | |
|
|
through | |
|
|
through | |
|
December 31, | |
|
|
December 31, | |
|
|
December 20, | |
|
| |
|
|
2004 | |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
(Dollars in thousands, except per share data) | |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
|
|
$ |
3,261 |
|
|
|
$ |
31,438 |
|
|
$ |
18,801 |
|
|
$ |
|
|
|
Food and beverage
|
|
|
776 |
|
|
|
|
8,255 |
|
|
|
4,833 |
|
|
|
|
|
|
Other hotel operations
|
|
|
513 |
|
|
|
|
7,855 |
|
|
|
4,606 |
|
|
|
|
|
|
Management fees related parties
|
|
|
|
|
|
|
|
1,700 |
|
|
|
2,190 |
|
|
|
2,574 |
|
|
Development and other fees related parties
|
|
|
79 |
|
|
|
|
1,457 |
|
|
|
919 |
|
|
|
836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,629 |
|
|
|
|
50,705 |
|
|
|
31,349 |
|
|
|
3,410 |
|
|
Other revenue from managed properties
|
|
|
|
|
|
|
|
14,553 |
|
|
|
14,904 |
|
|
|
14,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,629 |
|
|
|
|
65,258 |
|
|
|
46,253 |
|
|
|
18,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses by department:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
|
|
|
298 |
|
|
|
|
4,917 |
|
|
|
3,265 |
|
|
|
|
|
|
Food and beverage
|
|
|
598 |
|
|
|
|
7,370 |
|
|
|
4,528 |
|
|
|
|
|
|
Other
|
|
|
360 |
|
|
|
|
6,308 |
|
|
|
4,052 |
|
|
|
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
7,372 |
|
|
|
|
18,613 |
|
|
|
11,376 |
|
|
|
4,159 |
|
|
Property operating costs
|
|
|
295 |
|
|
|
|
8,810 |
|
|
|
5,283 |
|
|
|
631 |
|
|
Depreciation and amortization
|
|
|
1,897 |
|
|
|
|
12,925 |
|
|
|
7,744 |
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,820 |
|
|
|
|
58,943 |
|
|
|
36,248 |
|
|
|
5,002 |
|
|
Other expenses from managed properties
|
|
|
|
|
|
|
|
14,553 |
|
|
|
14,904 |
|
|
|
14,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
10,820 |
|
|
|
|
73,496 |
|
|
|
51,152 |
|
|
|
19,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
(6,191 |
) |
|
|
|
(8,238 |
) |
|
|
(4,899 |
) |
|
|
(1,592 |
) |
Interest income
|
|
|
(66 |
) |
|
|
|
(224 |
) |
|
|
(55 |
) |
|
|
(88 |
) |
Interest expense
|
|
|
280 |
|
|
|
|
6,748 |
|
|
|
4,413 |
|
|
|
217 |
|
(Gain) loss on sale of investments
|
|
|
|
|
|
|
|
(1,653 |
) |
|
|
|
|
|
|
13 |
|
Interest on mandatorily redeemable shares
|
|
|
|
|
|
|
|
1,761 |
|
|
|
(3,136 |
) |
|
|
4,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(6,405 |
) |
|
|
|
(14,870 |
) |
|
|
(6,121 |
) |
|
|
(6,213 |
) |
Income tax benefit
|
|
|
(2,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(3,842 |
) |
|
|
|
(14,870 |
) |
|
|
(6,121 |
) |
|
|
(6,213 |
) |
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
1,928 |
|
|
|
1,118 |
|
|
|
(542 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of change in accounting principle
|
|
|
(3,842 |
) |
|
|
|
(12,942 |
) |
|
|
(5,003 |
) |
|
|
(6,755 |
) |
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(3,842 |
) |
|
|
$ |
(12,942 |
) |
|
$ |
(4,543 |
) |
|
$ |
(6,755 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,132,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
30,132,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated and combined financial
statements.
53
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members | |
|
|
|
|
|
|
|
|
Additional | |
|
|
|
|
|
Equity of | |
|
|
|
|
|
|
Common | |
|
Paid in | |
|
Accumulated | |
|
Deferred | |
|
Combined | |
|
Treasury | |
|
Total | |
|
|
Stock | |
|
Capital | |
|
Deficit | |
|
Compensation | |
|
Entities | |
|
Stock | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands, except per share data) | |
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2001
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
(2,960 |
) |
|
$ |
|
|
|
$ |
452 |
|
|
$ |
(354 |
) |
|
$ |
(2,860 |
) |
Contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,648 |
|
|
|
|
|
|
|
28,648 |
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
(710 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(710 |
) |
Net loss
|
|
|
|
|
|
|
|
|
|
|
(513 |
) |
|
|
|
|
|
|
(6,242 |
) |
|
|
|
|
|
|
(6,755 |
) |
Accretion of mandatorily redeemable equity interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,496 |
) |
|
|
|
|
|
|
(6,496 |
) |
Treasury shares repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(470 |
) |
|
|
(470 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
2 |
|
|
|
|
|
|
|
(4,183 |
) |
|
|
|
|
|
|
16,362 |
|
|
|
(824 |
) |
|
|
11,357 |
|
Contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,318 |
|
|
|
|
|
|
|
29,318 |
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
(318 |
) |
|
|
|
|
|
|
(3,538 |
) |
|
|
|
|
|
|
(3,856 |
) |
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
3,705 |
|
|
|
|
|
|
|
(8,248 |
) |
|
|
|
|
|
|
(4,543 |
) |
Accretion of mandatorily redeemable equity interests
|
|
|
(2 |
) |
|
|
|
|
|
|
(460 |
) |
|
|
|
|
|
|
(2,631 |
) |
|
|
|
|
|
|
(3,093 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
(1,256 |
) |
|
|
|
|
|
|
31,263 |
|
|
|
(824 |
) |
|
|
29,183 |
|
Contributions
|
|
|
|
|
|
|
|
|
|
|
643 |
|
|
|
|
|
|
|
25,145 |
|
|
|
|
|
|
|
25,788 |
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
(3,170 |
) |
|
|
|
|
|
|
(7,534 |
) |
|
|
|
|
|
|
(10,704 |
) |
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
1,582 |
|
|
|
|
|
|
|
(14,524 |
) |
|
|
|
|
|
|
(12,942 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 20, 2004
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(2,201 |
) |
|
$ |
|
|
|
$ |
34,350 |
|
|
$ |
(824 |
) |
|
$ |
31,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Wolf Resorts, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification, net of effect of spin-off, of
Predecessors equity, mandatorily redeemable ownership
interests and minority interests
|
|
$ |
50 |
|
|
$ |
45,727 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
45,777 |
|
Net proceeds from sale of common stock
|
|
|
161 |
|
|
|
248,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248,667 |
|
Issuance of common stock acquisition of resorts
|
|
|
91 |
|
|
|
97,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,719 |
|
Issuance of common stock deferred compensation plan
|
|
|
1 |
|
|
|
2,199 |
|
|
|
|
|
|
|
(2,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(3,842 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,842 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
$ |
303 |
|
|
$ |
394,060 |
|
|
$ |
(3,842 |
) |
|
$ |
(2,200 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
388,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated and combined financial
statements.
54
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Wolf | |
|
|
|
|
|
|
|
|
Resorts, Inc. | |
|
Predecessor | |
|
|
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
Predecessor | |
|
|
Period | |
|
Period | |
|
| |
|
|
December 21, | |
|
January 1, | |
|
|
|
|
2004 | |
|
2004 | |
|
Year Ended | |
|
|
through | |
|
through | |
|
December 31, | |
|
|
December 31, | |
|
December 20, | |
|
| |
|
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(3,842 |
) |
|
$ |
(12,942 |
) |
|
$ |
(4,543 |
) |
|
$ |
(6,755 |
) |
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,897 |
|
|
|
13,107 |
|
|
|
10,440 |
|
|
|
4,169 |
|
|
|
Non-cash employee compensation expenses
|
|
|
2,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of assets
|
|
|
|
|
|
|
(5,327 |
) |
|
|
(10,967 |
) |
|
|
|
|
|
|
(Gain) loss on sale of investments and other
|
|
|
|
|
|
|
(1,653 |
) |
|
|
|
|
|
|
13 |
|
|
|
Minority interests
|
|
|
|
|
|
|
2,729 |
|
|
|
10,247 |
|
|
|
(26 |
) |
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
(460 |
) |
|
|
|
|
|
|
Deferred tax benefit
|
|
|
(2,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
1,564 |
|
|
|
(6,824 |
) |
|
|
(883 |
) |
|
|
(675 |
) |
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
815 |
|
|
|
16,959 |
|
|
|
4,292 |
|
|
|
3,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
762 |
|
|
|
6,049 |
|
|
|
8,126 |
|
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for property and equipment
|
|
|
(115 |
) |
|
|
(111,216 |
) |
|
|
(77,060 |
) |
|
|
(46,224 |
) |
|
Proceeds from sale of assets
|
|
|
|
|
|
|
32,174 |
|
|
|
26,451 |
|
|
|
|
|
|
Purchases of owners interest, net of cash acquired
|
|
|
(95,460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in equity escrow
|
|
|
|
|
|
|
12,158 |
|
|
|
(13,671 |
) |
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(95,575 |
) |
|
|
(66,884 |
) |
|
|
(64,280 |
) |
|
|
(46,276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from equity offering
|
|
|
273,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of offering costs
|
|
|
(21,979 |
) |
|
|
(726 |
) |
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(152,417 |
) |
|
|
(16,805 |
) |
|
|
(17,765 |
) |
|
|
(3,523 |
) |
|
Proceeds from issuance of long-term debt
|
|
|
75,000 |
|
|
|
68,330 |
|
|
|
63,496 |
|
|
|
29,018 |
|
|
Payment of loan costs
|
|
|
(2,153 |
) |
|
|
(2,569 |
) |
|
|
(2,351 |
) |
|
|
(1,897 |
) |
|
Member contributions
|
|
|
|
|
|
|
25,788 |
|
|
|
29,318 |
|
|
|
24,648 |
|
|
Member distributions
|
|
|
|
|
|
|
(11,370 |
) |
|
|
(3,856 |
) |
|
|
(710 |
) |
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(470 |
) |
|
Changes in mandatorily redeemable ownership interests
|
|
|
|
|
|
|
1,761 |
|
|
|
(3,136 |
) |
|
|
4,479 |
|
|
Net distributions to minority investors
|
|
|
|
|
|
|
(2,985 |
) |
|
|
(10,852 |
) |
|
|
(1,748 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
172,151 |
|
|
|
61,424 |
|
|
|
54,854 |
|
|
|
49,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
77,338 |
|
|
|
589 |
|
|
|
(1,300 |
) |
|
|
3,897 |
|
Cash and cash equivalents, beginning of period
|
|
|
4,079 |
|
|
|
3,490 |
|
|
|
4,790 |
|
|
|
893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
81,417 |
|
|
$ |
4,079 |
|
|
$ |
3,490 |
|
|
$ |
4,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of capitalized interest
|
|
$ |
698 |
|
|
$ |
6,317 |
|
|
$ |
4,786 |
|
|
$ |
493 |
|
|
Land contributed for membership interest
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,000 |
|
See accompanying notes to consolidated and combined financial
statements.
55
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
The terms Great Wolf Resorts, us,
we and our are used in this report to
refer to Great Wolf Resorts, Inc. Through our controlling
interest in Great Wolf Resort Operating Partnership, L.L.L.P.,
or the Operating Partnership, of which we are the
sole general partner, and the subsidiaries of the Operating
Partnership, we develop, own and operate family entertainment
resorts.
We were formed to succeed to certain businesses of the Great
Lakes Predecessor (the Predecessor), which was not a legal
entity but rather a combination of numerous entities. The
Predecessor consisted of the following, all of which were under
common management:
|
|
|
|
|
The Great Lakes Companies, Inc. (GLC), and its consolidated
subsidiaries; |
|
|
|
Great Wolf Lodge of Traverse City, LLC; |
|
|
|
Great Wolf Lodge of Kansas City, LLC; |
|
|
|
Blue Harbor Resort Sheboygan, LLC; |
|
|
|
Great Wolf Lodge of Williamsburg, LLC; and |
|
|
|
Great Wolf Lodge of the Poconos, LLC |
The Predecessor financial statements do not include entities
that owned Great Wolf Lodges in Wisconsin Dells, Wisconsin and
Sandusky, Ohio. These entities, although they were managed by
GLC, were controlled by affiliates of AIG SunAmerica, Inc.
The Predecessor has developed and operated hotels and
multifamily housing projects since 1995. In 1999, the
Predecessor began its resort operations by purchasing the Great
Wolf Lodge in Wisconsin Dells, Wisconsin and developing the
Great Wolf Lodge in Sandusky, Ohio, which opened in 2001. In
2003, the Predecessor opened two additional Great Wolf Lodge
resorts, one in Traverse City, Michigan and the other in Kansas
City, Kansas. In June 2004, the Predecessor opened the Blue
Harbor Resort in Sheboygan, Wisconsin. Additionally in 2004, the
Predecessor had two additional Great Wolf Lodge resorts under
construction, one in Williamsburg, Virginia and the other in the
Pocono Mountains region of Pennsylvania, and had licensed a
resort owned by a third party that was under construction in
Niagara Falls, Ontario (Canada).
We were incorporated in May 2004 as a Delaware corporation in
anticipation of the initial public offering of our common stock
(the IPO). The IPO closed on December 20, 2004,
concurrently with the completion of various formation
transactions (the Formation Transactions).
Pursuant to the Formation Transactions:
|
|
|
|
|
The Predecessor contributed its hotel management and multifamily
housing management and development assets, which were unrelated
to the resort business, to two subsidiaries of the Predecessor
and then distributed the interests in those subsidiaries to the
former shareholders of GLC. |
|
|
|
We effected, through our Operating Partnership, the acquisition
of GLC and each resort-owning entity. Pursuant to these
acquisitions, investors of GLC and the resort-owning entities
received cash, unregistered shares of our common stock or a
combination of cash and unregistered shares of our common stock.
We issued 13,901,947 shares of our common stock and paid
approximately $97,600 in cash in connection with these
acquisitions. |
|
|
|
We issued an aggregate of 130,949 shares of unregistered
common stock to holders of tenant in common interests in two of
our resorts. |
56
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
These transactions consolidated the ownership of our resort
properties and property interests to Great Wolf Resorts. During
the period from our formation until we commenced operations upon
closing of the IPO on December 20, 2004, we did not have
any material corporate activity.
The IPO consisted of the sale of 16,100,000 shares of
common stock at a price per share of $17.00, generating gross
proceeds of $273,700. The net proceeds to us were approximately
$248,700 after deducting an aggregate of $19,200 in underwriting
discounts and commissions paid to the underwriters and $5,800 in
other expenses directly related to the issuance of common stock
(such as professional fees and printing fees) incurred in
connection with the IPO.
As of December 31, 2004, we develop, own and operate four
Great Wolf Lodge resorts, our signature northwoods-themed
resorts, and one Blue Harbor Resort, a nautical-themed property.
In addition, we own two Great Wolf Lodge resorts that we are
developing and that are under construction and scheduled to open
for business during 2005. We are also the licensor and manager
of an additional Great Wolf Lodge resort in Niagara Falls,
Ontario that is owned and under development by an affiliate of
Ripley Entertainment Inc., or Ripleys.
|
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Principles of Consolidation and Combination
For the period subsequent to the IPO, the accompanying
consolidated financial statements include all of the accounts of
Great Wolf Resorts, Inc., the Operating Partnership and the
subsidiaries of the Operating Partnership. Property interests
(other than property contributed by GLC) contributed to the
Operating Partnership by the Predecessor and other investors
have been accounted for as purchases, and the excess of the
purchase price over the related historical cost bases has been
allocated to the assets acquired and liabilities assumed. For
the period prior to our IPO, the accompanying combined financial
statements include all of the accounts of the Predecessor. All
significant intercompany balances and transactions have been
eliminated in the consolidated and combined financial statements.
Cash and Cash Equivalents Cash and cash
equivalents consist of highly liquid investments with an
original maturity of three months or less when acquired. Cash is
invested with quality federally insured institutions that are
members of the FDIC. Cash balances with institutions may be in
excess of federally insured limits or may be invested in time
deposits that are not insured by the institution, the FDIC or
any other government agency. We have not realized any losses in
such cash investments and we believe that these investments are
not exposed to any significant credit risk.
Allowance for Doubtful Accounts An allowance
for doubtful accounts is provided when it is determined that it
is more likely than not a specific account will not be
collected. Bad debt expense for the period January 1, 2004
through December 20, 2004 and the years ended
December 31, 2003 and 2002 was $239, $524, and $110,
respectively, and writeoffs of accounts receivable for the
period January 1, 2004 through December 20, 2004 and
the years ended December 31, 2003 and 2002 were $116, $136,
and $22, respectively. There was no bad debt expense or
writeoffs during the period December 21, 2004 through
December 31, 2004.
Inventory Inventories are recorded at the
lower of cost or market.
Property and Equipment Investments in
property and equipment are recorded at cost, except in the case
of acquired property and equipment, which is record at its
estimated fair value. These assets are depreciated using the
straight-line method over their estimated useful lives as
follows:
|
|
|
|
|
Buildings and improvements
|
|
|
40 years |
|
Land improvements
|
|
|
15 years |
|
Furniture, fixtures and equipment, including waterpark equipment
|
|
|
3-10 years |
|
57
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
We periodically review the estimated useful lives we have
assigned to our depreciable assets to determine whether those
useful lives are reasonable and appropriate.
Improvements and replacements are capitalized when they extend
the useful life, increase capacity or improve the efficiency of
the asset. Repairs and maintenance are expensed as incurred.
Construction in process includes costs such as site work,
permitting and construction related to resorts under
development. Interest is capitalized on construction in process
balances during the construction period. Interest capitalized
totaled $1,918, $1,381, and $574 for the years ended
December 31, 2004, 2003 and 2002, respectively.
Loan Fees Loan fees are capitalized and
amortized over the term of the loan using a method that
approximates the effective interest method. Loan fees, net of
accumulated amortization, were $5,174, $2,938 and $1,724 as of
December 31, 2004, 2003 and 2002, respectively.
Amortization of loan fees was $1,386, $1,698, $1,137, and $984
for the period December 21, 2004 through December 31,
2004, the period January 1, 2004 through December 20,
2004, and the years ended December 31, 2003 and 2002,
respectively. Included in loan fee amortization for the period
December 21, 2004 through December 31, 2004, were
$1,283 of loan fees that were written off due to repayment of
debt in conjunction with the IPO.
Assets Held for Sale The Predecessor
classified as held for sale those properties that were actively
marketed for sale. A property classified as held for sale was
carried at the lower of its book value or estimated fair value
less costs to sell. Depreciation of the held for sale
propertys assets was ceased at the time the property is
classified as held for sale. The Predecessor segregated the
property and equipment, and long-term debt relating to the held
for sale properties on its combined balance sheets. The
Predecessor segregated the operating activity and any gains or
losses upon disposition relating to the held for sale properties
in income (loss) from discontinued operations in its combined
statements of operations.
Equity Escrow For certain of the entities
included in the accompanying combined financial statement, the
Predecessor raised equity from members through private
placements. Equity amounts raised through these private
placements are held in escrow and used in construction of
resorts. We are only permitted to use these funds for the
construction of the applicable resorts. The funds are held in a
bank account which exceeds the FDIC insurance limit.
Goodwill The excess of the purchase price
over the estimated fair value of tangible and identifiable
intangible assets acquired is recorded as goodwill. We recorded
goodwill in connection with the Formation Transactions. The
Predecessors goodwill resulted from the acquisition of a
hotel in 2000. Effective January 1, 2002, the Predecessor
adopted Statement of Financial Accounting Standards (SFAS)
No. 142, which states that goodwill should not be amortized
but instead tested for impairment and adjusted, if applicable.
Accordingly, the Predecessor ceased amortization of goodwill as
of January 1, 2002.
In connection with SFAS 142, we are required to assess
goodwill and intangible assets for impairment annually, or more
frequently if circumstances indicate impairment may have
occurred. We assess goodwill for such impairment by comparing
the carrying value of our reporting units to their fair values.
The Predecessor performed its initial goodwill impairment
assessment on January 1, 2002 in connection with the
adoption of SFAS 142 and determined that the carrying
amounts of its reporting units did not exceed their respective
fair values. Accordingly, the initial implementation of this
standard did not result in a charge and, as such, did not impact
the Predecessors results of operations during 2002.
Subsequent to the initial assessment, an assessment of goodwill
has been performed annually, or more frequently if circumstances
indicated impairment may have occurred, and during the years
ended December 31, 2004, 2003 and 2002 determined that no
such impairment had occurred.
Impairment of Long-Lived Assets When
circumstances, such as adverse market conditions, indicate that
the carrying value of a long lived asset may be
impaired, we perform an analysis to review the recoverability of
the assets carrying value. We make estimates of the
undiscounted cash flows (excluding
58
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
interest charges) from the expected future operations of the
asset. These estimates consider factors such as expected future
operating income, operating trends and prospects, as well as the
effects of demand, competition and other factors. If the
analysis indicates that the carrying value is not recoverable
from future cash flows, an impairment loss is recognized to the
extent that the carrying value exceeds the estimated fair value.
Any impairment losses are recorded as operating expenses, which
reduce net income. There were no impairment losses in any of the
periods presented.
Minority Interests The Predecessor recorded
the non-owned equity interests of its consolidated subsidiaries
as minority interests on the combined balance sheets. The
Predecessor recognized losses that exceed the minority interest
partys capital in a consolidated entity. Distributions
that exceed the minority interest partners capital in a
consolidated entity were recorded as distributions in excess of
minority interest capital expense.
Derivative Instruments
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, requires an entity to
recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value.
SFAS 137 and SFAS 138 amended certain provisions of
SFAS 133. The Predecessor did not generally enter into
derivative instruments; certain of the Predecessors
contracts, however, contained derivative instruments as defined
in SFAS 133. The Predecessors implementation of
SFAS 133 resulted in the classification of certain
derivative instruments as liabilities.
Revenue Recognition We earn revenue from our
resort operations, and from development and other related
services. The Predecessor also earned revenue from its hotel
operations and hotel and multifamily management and development
services. We also recognize revenue from rooms, food and
beverage, and other operating departments at the resorts as
earned at the time of sale or rendering of service. Cash
received in advance of the sale or rendering of services is
recorded as advance deposits on the balance sheets. We recognize
development fees as earned under the completed contract method
for projects with a short duration, and the percentage of
completion method (based on contract-to-date costs incurred
compared to total expected costs) for longer-term projects.
Gains on Sales of Real Estate
SFAS No. 66, Accounting for Sales of Real
Estate, requires an entity to recognize gains on sales of
real estate only when a sale is consummated, the buyers
initial and continuing investments are adequate to demonstrate a
commitment to pay, and risks and rewards of ownership are
transferred to the buyer. The Predecessor accounted for gains on
sales of real estate in accordance with the provisions of
SFAS 66. In the period from January 1, 2004 through
December 20, 2004, the Predecessor recognized a gain on
sale of real estate of $1,072 from the sale of land owned in
Ontario, Canada and $581 from the sale of land in Beckley, West
Virginia. No gains or losses on sales of real estate were
recognized between December 21, 2004 and December 31,
2004.
Income Taxes The Predecessor was comprised of
a Subchapter S Corporation and limited liability companies.
Under applicable federal and state income tax rules, the net
income or loss of each of these entities was reportable in the
income tax returns of the stockholders, partners and members of
the entities. Accordingly, no income tax provision was included
in the accompanying combined financial statements.
Subsequent to the IPO, we and our subsidiaries file a
consolidated federal income tax return and separate state income
tax returns. Under the liability method prescribed by
SFAS 109, income taxes are deferred for all temporary
differences between pretax financial and taxable income and
between the book and tax bases of assets and liabilities using
the tax rates scheduled by law to be in effect when the
temporary differences reverse. Future tax benefits are
recognized to the extent that realization of such benefits is
more likely than not. A valuation allowance is recorded for
those benefits that do not meet this criterion.
Advertising Advertising costs are expensed as
incurred. Advertising expense for the period December 21,
2004 through December 31, 2004, the period January 1,
2004 through December 20, 2004 and the year
59
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
ended December 31, 2003 was $135, $3,148, and $2,218,
respectively; advertising expense for 2002 was insignificant.
IPO Costs Underwriting commissions and other
costs directly related to sale of our common stock in the IPO
are reflected as a reduction of additional paid-in-capital.
Included in selling, general and administrative expenses are
$5,550 and $863 of other expenses incurred as a result of the
IPO transactions, for the period January 1, 2004 through
December 20, 2004 and December 21, 2004 through
December 31, 2004, respectively. These expenses include a
debt prepayment penalty, write-offs of loan fees related to debt
repaid or refinanced in conjunction with the IPO and bonuses due
to certain executives, pursuant to their employment
arrangements, as a result of the IPO.
Segments We view our operations as
principally one segment and the financial information disclosed
herein represents all of the financial information related to
our principal segment.
Stock Based Compensation We have issued stock
options under our 2004 Stock Incentive Plan. As permitted under
Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation, we have
elected to account for such options in accordance with
APB Opinion No. 25 (APB 25), Accounting for
Stock Issued to Employees. Under APB 25, the total
compensation expense recognized is equal to the difference
between the awards exercise price and the underlying
stocks market prices at the measurement date. Stock
options were granted at their fair market value; therefore no
compensation expense was recorded in the period
December 21, 2004 through December 31, 2004. Had
compensation costs been determined under the fair value method
as set forth in SFAS 123, the Companys pro forma net
loss and net loss per share for the period December 21,
2004 through December 31, 2004, would have been as follows:
|
|
|
|
|
|
Net loss, as reported
|
|
$ |
(3,842 |
) |
Compensation expense, SFAS 123 fair value method
|
|
|
(48 |
) |
|
|
|
|
|
Pro forma net loss
|
|
$ |
(3,890 |
) |
|
|
|
|
|
Pro forma net loss per share Basic
|
|
$ |
(0.13 |
) |
|
Pro forma net loss per share Diluted
|
|
$ |
(0.13 |
) |
The weighted average fair value for the options granted in 2004
was $4.82. The SFAS 123 fair value of options granted in
2004 was estimated using a Black-Scholes option-pricing model
with the following assumptions:
|
|
|
Dividend yield
|
|
|
Weighted-average, risk free interest rate
|
|
3.65% |
Weighted-average, expected life of option
|
|
5.0 years |
Expected stock price volatility
|
|
23% |
Use of Estimates To prepare financial
statements in conformity with accounting principles generally
accepted in the United States of America, we must make estimates
and assumptions. These estimates and assumptions affect the
reported amounts in the financial statements, and the disclosure
of contingent assets and liabilities at the date of the
financial statements. Actual results could differ from those
estimates.
New Accounting Pronouncements In June 2001,
the Financial Accounting Standards Board (FASB) issued
SFAS No. 142. SFAS 142 eliminates the
amortization of goodwill and replaces it with a requirement to
conduct an impairment analysis of the carrying value of the
goodwill at least annually, and more often as circumstances
warrant. The provisions of SFAS 142 are required to be
applied starting with fiscal years beginning after
December 15, 2001. The Predecessor adopted SFAS 142 on
January 1, 2002.
60
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
In August 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS 144 addresses financial accounting and
reporting for the impairment and disposal of long-lived assets.
SFAS 144 requires the current and prior period operating
results of any asset that has been classified as held for sale
or has been disposed of after January 1, 2002 and where the
Predecessor had no continuing involvement to be recorded as
discontinued operations. Any gains or losses on final
disposition are also included in discontinued operations. The
provisions of SFAS 144 are effective for financial
statements issued for fiscal years beginning after
December 15, 2001. The Predecessor adopted SFAS 144 on
January 1, 2002. Certain of the Predecessors hotel
properties were classified as held for sale in the accompanying
combined balance sheets and, accordingly, the operating results
of those properties were recorded in discontinued operations in
the combined statements of operations. A long-lived asset to be
distributed to owners in a spinoff is disposed of when it is
distributed. In a period in which a component of an entity has
been disposed of, the results of operations of the entity for
current and prior periods are reported in discontinued
operations. Certain assets of subsidiaries of the Predecessor
that have been spun off in connection with the Formation
Transactions are classified as assets of spun-off entities. The
results of operations for these spun-off entities are recorded
in discontinued operations in the combined statements of
operations.
Effective January 1, 2002, the Predecessor adopted the
provisions of Emerging Issues Task Force (EITF) Issue
No. 01-14 Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses
Incurred. EITF 01-14 establishes standards for
accounting for reimbursements received for out-of-pocket
expenses incurred and the characterization as revenue and
expense in the statements of operations. In accordance with
EITF 01-14, the Predecessor included in operating revenues
and expenses the reimbursement of costs it incurs on behalf of
the third-party owners of hotels managed by GLC. These costs
relate primarily to payroll and benefit costs at managed hotels
where GLC is the employer. The Predecessor received
reimbursements for these costs based upon its costs with no
added margin. Therefore, the adoption of EITF 01-14 did not
impact its operating results, cash flows or financial position.
The Predecessor adopted EITF 01-14 by retroactively
applying it to all periods presented in the accompanying
combined financial statements. The effect of adopting
EITF 01-14 was an increase in operating revenues and
expenses of $14,553, $14,904 and $14,808 for the period
January 1, 2004 through December 20, 2004, and the
years ended December 31, 2003 and 2002, respectively.
FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation
of FASB Statements No. 5, 57 and 107 and rescission of FASB
Interpretation No. 34 (FIN 45), was issued in
November 2002. FIN 45 elaborates on the disclosures to be
made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that
it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis
to guarantees issued or modified after December 31, 2002,
irrespective of the guarantors fiscal year-end. The
disclosure requirements in FIN 45 are effective for
financial statements of interim or annual periods ending after
December 15, 2002. There was no financial statement impact
from the adoption of FIN 45.
In January 2003, the FASB issued FASB Interpretation
No. 46, Consolidation of Variable Interest
Entities, an interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial
Statements. FIN 46 prescribes how to identify
variable interest entities and how an enterprise assesses its
interests in a variable interest entity to decide whether to
consolidate the entity. FIN 46 requires existing
unconsolidated variable interest entities to be consolidated by
their primary beneficiaries if the entities do not effectively
disperse risks among parties involved. The original provisions
of FIN 46 were effective February 1, 2003 for all
arrangements entered into after January 31, 2003. For
arrangements entered into before February 1, 2003, the
provisions of FIN 46 applied in the first fiscal year or
interim period beginning after June 15, 2003.
61
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
In December 2003, the FASB issued a revision of FIN 46
(FIN 46R) to clarify some of its provisions. FIN 46R
deferred the effective date for FIN 46 for arrangements
entered into before February 1, 2003 and results in
multiple effective dates based on the nature as well as the
creation date of the variable interest entity. Variable interest
entities created after January 31, 2003 but prior to
December 24, 2003, may be accounted for either based on the
original or the revised interpretations. Variable interest
entities created after December 24, 2003 must be accounted
for under the revised interpretations. FIN 46R is effective
for periods ending after March 15, 2004. The Predecessor
applied FIN 46 to variable interest entities created after
January 31, 2003 for the year ended December 31, 2003.
The Predecessor applied FIN 46R to variable interest
entities effective January 1, 2004. Prior to the
implementation of FIN 46 and FIN 46R, the Predecessor
consolidated entities for which it controlled major management
and operating decisions. There was no financial statement impact
from the adoption of FIN 46 and FIN 46R.
In May 2003, the FASB issued SFAS No. 150
Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity.
SFAS 150 requires the classification of certain financial
instruments that were previously classified as equity to be
classified as liabilities. The implementation of SFAS 150
is effective for financial instruments issued or modified after
May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003.
The Predecessors implementation of SFAS 150 resulted
in the classification of certain mandatorily redeemable
interests as liabilities, resulting in a cumulative effect of a
change in accounting principle of $460 for the year ended
December 31, 2003.
In December 2004, the FASB issued Statement No. 123
(revised 2004), Share-Based Payment
(SFAS 123R), that requires companies to expense the value
of employee stock options, discounts on employee stock purchase
plans and similar awards. Under SFAS 123R, share-based
payment awards result in compensation expense that will be
measured at fair value on the awards grant date, based on
the estimated number of awards that are expected to vest.
SFAS 123R is effective for periods beginning after
July 1, 2005, and applies to all outstanding and unvested
share-based payment awards at the adoption date. We have not
completed our evaluation of the impact of adopting
SFAS 123R.
|
|
3. |
PURCHASE ACCOUNTING IN CONNECTION WITH THE IPO |
The IPO closed on December 20, 2004. In conjunction with
the Formation Transactions completed on that date, we issued a
total of 14,032,896 shares of our common stock. We also
paid cash of approximately $97,600 to buy-out certain investors
in the resort-owning entities and interests held by AIG
SunAmerica, Inc. in the Wisconsin Dells and Sandusky entities.
We recorded the Formation Transactions by applying the purchase
method of accounting in connection with GLCs acquisition
of the seven resort-owning entities. Through the exchanges of
shares of GLC for shares of our common stock, GLCs
shareholders as a group had the largest minority portion of any
organized group of shareholder interest in our company, and
GLCs former senior management comprises our senior
management. Accordingly, as prescribed by
SFAS No. 141, Business Combinations, GLC
was identified as the accounting acquirer. We issued
9,123,819 shares of our common stock with a value of
$155,104 to the owners of the seven resort-owning entities. The
value of our shares issued was determined based on the IPO price
of $17.00 per share. Net of the effects of the carryover in
book value from the Predecessor to us of (1) the
resorts equity included in the Predecessors
December 20, 2004 equity balance, (2) the
resorts mandatorily redeemable ownership interests and
(3) the resorts minority interests, the total
increase in our equity from the issuance of these
9,123,819 shares was $97,719.
We also issued 4,909,077 shares of our common stock to the
shareholders of GLC, the accounting acquirer. As GLCs
equity was carried forward to us at historical cost, the
issuance of these shares did not
62
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
affect our total equity balance, but instead resulted in a
reclassification of $50 from additional paid-in capital to
common stock.
In conjunction with purchase accounting we:
|
|
|
|
|
Recorded property and equipment, other assets, debt and other
liabilities at their preliminarily estimated fair values; |
|
|
|
Recorded a deferred tax liability resulting from the difference
between the preliminarily estimated fair value and the tax basis
of assets acquired from the seven resort-owning entities. We
recorded this liability at our anticipated effective tax rate of
40%; |
|
|
|
Eliminated mandatorily redeemable interests of the Predecessor
due to the conversion of those ownership interests to our common
stock in conjunction with the Formation Transactions; and |
|
|
|
Recorded as goodwill the excess of consideration in the purchase
transaction over the fair value of net tangible assets acquired
from the seven resort-owning entities. |
The following summarizes the purchase accounting piece of the
Formation Transactions:
|
|
|
|
|
Value of Great Wolf Resorts common stock issued
|
|
$ |
155,104 |
|
Cash paid
|
|
|
97,615 |
|
|
|
|
|
Total cost of acquisition
|
|
|
252,719 |
|
Fair value of debt assumed
|
|
|
207,547 |
|
Fair value of property and equipment acquired
|
|
|
(276,424 |
) |
Deferred tax liability recorded
|
|
|
11,298 |
|
Fair value of other assets and liabilities
|
|
|
23,587 |
|
|
|
|
|
Goodwill
|
|
$ |
218,727 |
|
|
|
|
|
Some of the values and amounts used in the application of
purchase accounting for our consolidated balance sheet are based
on preliminary estimates and assumptions. These estimates and
assumptions are subject to possible change as we finalize them
in 2005.
The following pro forma information is presented assuming the
IPO and Formation Transactions had been completed as of
January 1, 2003. In managements opinion, all pro
forma adjustments necessary to reflect the material effects of
these transactions have been made. The pro forma information
does not purport to present what the actual results of
operations would have been if the IPO and Formation Transactions
had occurred on such date, nor to project the results of
operations for any future period.
Pro Forma Information
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
Total revenues
|
|
$ |
91,036 |
|
|
$ |
68,920 |
|
Net loss
|
|
|
(9,331 |
) |
|
|
(646 |
) |
Loss per basic and diluted share
|
|
$ |
(0.31 |
) |
|
$ |
(0.02 |
) |
63
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
4. |
PROPERTY AND EQUIPMENT |
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Land and improvements
|
|
$ |
21,242 |
|
|
$ |
16,455 |
|
Building and improvements
|
|
|
80,116 |
|
|
|
32,778 |
|
Furniture, fixtures and equipment
|
|
|
82,470 |
|
|
|
51,488 |
|
Construction in process
|
|
|
92,544 |
|
|
|
25,933 |
|
|
|
|
|
|
|
|
|
|
|
276,372 |
|
|
|
126,654 |
|
|
Less accumulated depreciation
|
|
|
(614 |
) |
|
|
(5,780 |
) |
|
|
|
|
|
|
|
Property and equipment, net
|
|
$ |
275,758 |
|
|
$ |
120,874 |
|
|
|
|
|
|
|
|
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Mortgage Debt:
|
|
|
|
|
|
|
|
|
|
Senior credit facility
|
|
$ |
|
|
|
$ |
|
|
|
Traverse City/ Kansas City Mortgage Loan
|
|
|
75,000 |
|
|
|
|
|
|
Sheboygan Construction Loan
|
|
|
29,475 |
|
|
|
10,326 |
|
|
Williamsburg Construction Loan
|
|
|
19,011 |
|
|
|
554 |
|
|
Poconos Construction Loan
|
|
|
5,598 |
|
|
|
|
|
|
Pre-IPO Mortgage Loans
|
|
|
|
|
|
|
74,470 |
|
|
Other mortgage debt
|
|
|
1,523 |
|
|
|
|
|
Other Debt:
|
|
|
|
|
|
|
|
|
|
City of Sheboygan bonds
|
|
|
8,063 |
|
|
|
1,468 |
|
|
City of Sheboygan loan
|
|
|
3,995 |
|
|
|
|
|
|
Lines of credit
|
|
|
|
|
|
|
6,682 |
|
|
Notes payable
|
|
|
|
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
142,665 |
|
|
|
93,733 |
|
Less current portion of long-term debt
|
|
|
(27,794 |
) |
|
|
(9,632 |
) |
|
|
|
|
|
|
|
|
|
$ |
114,871 |
|
|
$ |
84,101 |
|
|
|
|
|
|
|
|
Senior Credit Facility Upon closing the IPO,
we entered into a $75,000 senior secured revolving credit
facility with a syndicate of banks. The loan is secured by our
Wisconsin Dells and Sandusky resorts and is not drawn as of
December 31, 2004. Future borrowings under this facility
will bear interest at LIBOR plus a margin of 2.25% to 3.00%
depending upon our leverage ratio from time to time. The maximum
amount of indebtedness we may incur under the facility is equal
to 3.75 multiplied by the combined EBITDA (adjusted for
non-recurring items, unusual items, infrequent items and asset
impairment charges) of the two resorts securing the facility
plus up to $5,400 relating to enhancements to the waterpark
facility for the Wisconsin Dells property. The facility has
customary bank covenants including limiting the maximum level of
total debt,
64
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
the minimum level of interest coverage, and the minimum level of
fixed charge coverage. The facility also includes an annual
unused commitment fee of 0.5%.
Traverse City/ Kansas City Mortgage Loan Upon
closing the IPO, we entered into a $75,000, ten-year loan
secured by our Traverse City and Kansas City resorts. The loan
bears interest at a fixed rate of 6.96% and is subject to a
25-year principal amortization schedule. The loan has customary
financial and operating debt compliance covenants, including a
minimum debt service coverage ratio, representing the combined
EBITDA (adjusted for non-recurring items, unusual items,
infrequent items and asset impairment charges) of the two
resorts divided by their combined annual interest expense and
principal amortization. The loan also has customary prohibitions
on our ability to prepay the loan prior to maturity. We were in
compliance with all mortgage loan covenants at December 31,
2004.
Sheboygan Construction Loan The Sheboygan
mortgage loan is secured by our Sheboygan resort. The loan
matures in January 2008 and bears interest at a floating rate of
prime plus 200 basis points and is subject to a 20-year
principal amortization schedule. The loan has customary
covenants associated with a single asset mortgage. There are no
prohibitions or fees associated with the repayment of the loan
principal. We were in compliance with the construction loan
covenants at December 31, 2004.
Williamsburg Construction Loan The
Williamsburg construction loan was incurred to construct the
Williamsburg resort property. In February 2005, after drawing an
additional $10,242 on this loan, we retired the loan in full
using cash on hand.
Poconos Construction Loan The Poconos
construction loan was incurred to construct the Poconos resort
property. In March 2005, after drawing an additional $13,550 on
this loan, we retired the loan in full using cash on hand and
the proceeds of junior subordinated debentures we issued in
March 2005.
Pre-IPO Mortgage Loans Prior to the IPO, the
Predecessor maintained mortgage loans on each of the Traverse
City and Kansas City resorts. Those loans, totaling $72,298 at
the IPO, were repaid using a portion of the proceeds from the
IPO.
Also, as part of the Formation Transactions, we assumed $75,648
of debt from the Wisconsin Dells and Sandusky resorts. This debt
was paid off using a portion of the proceeds from the IPO.
City of Sheboygan bonds The City of Sheboygan
(the City) bonds amount represents the face amount of bond
anticipation notes (BANs) issued by the City in November 2003 in
conjunction with the Predecessors construction of the Blue
Harbor Resort in Sheboygan, Wisconsin. In accordance with the
provisions of EITF Issue No. 91-10, we have recognized as a
liability the obligations for these BANs. The notes bear
interest at 3.95% and mature in 2008. The notes are not a
general obligation of the City and are payable from (a) the
proceeds of bond anticipation notes or other funds appropriated
by the City for the payment of interest on the BANs and
(b) the proceeds to be delivered from the issuance and sale
of securities by the City. We have an obligation to fund payment
of these BANs. Our obligation to fund repayment of the notes
will be satisfied by certain minimum guaranteed amounts of room
tax payments to be made by the Blue Harbor Resort through 2028.
City of Sheboygan loan The City of Sheboygan
loan amount represents a loan made by the City in 2004 to the
Predecessor in conjunction with the Predecessors
construction of the Blue Harbor Resort in Sheboygan, Wisconsin.
The loan is noninterest-bearing and matures in 2018. Our
obligation to repay the loan will be satisfied by certain
minimum guaranteed amounts of real and personal property tax
payments to be made by the Blue Harbor Resort through 2018.
Lines of Credit The lines of credit were
borrowings of GLC and were generally secured by business
security agreements, which pledged as collateral GLCs
assets, assignments of stockholder interests of GLCs
principals and guarantees of GLCs stockholders. These
borrowings were terminated as of the IPO.
65
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Junior Subordinated Debentures In March 2005,
we completed a private offering of $50,000 of trust preferred
securities through Great Wolf Capital Trust I (the Trust),
a Delaware statutory trust which is our subsidiary. The
securities pay holders cumulative cash distributions at an
annual rate which is fixed at 7.80% through March 2015 and then
floats at LIBOR + 310 basis points. The securities mature
in March 2035. In addition, we invested $1,500 in the
trusts common securities, representing 3% of the total
capitalization of the trust.
The Trust used the proceeds of the offering and our investment
to purchase from us $51,500 of our junior subordinated
debentures with payment terms that mirror the distribution terms
of the trust securities. The cost of the trust preferred
offering totaled $1,600, including $1,500 of underwriting
commissions and expenses and $100 of costs incurred directly by
the Trust. The Trust paid these costs utilizing an investment
from us. The proceeds from our debenture sale, net of the costs
of the trust preferred offering and our investment in the Trust,
were $48,400. We used the net proceeds to retire the Poconos
construction loan.
Future Maturities Future principal
requirements on long-term debt are as follows:
|
|
|
|
|
2005
|
|
$ |
27,794 |
|
2006
|
|
|
1,925 |
|
2007
|
|
|
2,144 |
|
2008
|
|
|
28,721 |
|
2009
|
|
|
1,569 |
|
Thereafter
|
|
|
80,512 |
|
|
|
|
|
Total
|
|
$ |
142,665 |
|
|
|
|
|
|
|
6. |
FAIR VALUE OF FINANCIAL INSTRUMENTS |
As of December 31, 2004 and 2003, the fair values of the
mortgage loans and other secured loans approximate the carrying
values as the terms are similar to those currently available to
us for debt with similar risks and remaining maturities.
The carrying amounts for cash and cash equivalents, other
current assets, equity escrows and accounts payable and accrued
expenses approximate fair value because of the short-term nature
of these instruments.
For the period December 21, 2004 through December 31,
2004, we incurred a pre-tax loss of $(6,405) and recorded an
income tax benefit of $(2,563) on that pre-tax loss. That income
tax benefit amount differs from the federal statutory income tax
rate due to the effect of state and local taxes. Our income tax
benefit for that period consists of a deferred federal amount of
$2,243 and a deferred state amount of $320. Our deferred tax
asset of $2,563 results from the effect of recording this
benefit on our net operating loss carryforward of $(6,405) in
the period and is included in other current assets in the
consolidated balance sheet. That carryforward expires in 2019.
We believe all of the net operating loss carryforwards will be
realized; therefore we have not established any valuation
allowance on the deferred tax asset as of December 31, 2004.
Our deferred tax liability of $11,298 as of December 31,
2004 was recorded in conjunction with purchase accounting
entries associated with the IPO and the Formation Transactions.
As required by SFAS No. 141, we recorded a deferred
tax liability resulting from the tax-effected difference between
the fair value and the tax basis of assets acquired from the
seven resort-owning entities. We recorded this liability at our
anticipated effective tax rate of 40%. The deferred liability
results substantially from the effects of accelerated
depreciation and amortization of fixed assets.
66
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
8. |
RELATED-PARTY TRANSACTIONS |
The Predecessor provided management, development, accounting,
central reservations and other services to the real estate
entities invested in by the Predecessor and to affiliates of the
owners of the Predecessor. All management, development and other
fees were earned from entities for which GLC or its stockholders
are the managing members or investees. Amounts due from related
parties were $1,521 at December 31, 2003.
We and the Predecessor have regularly used an aircraft owned by
an entity owned by several of our stockholders. Payments of
$235, $149, and $122 were made in the period January 1,
2004 through December 20, 2004, and the years ended
December 31, 2003 and 2002, respectively, for the lease of
the aircraft for company business. There were no payments made
in the period December 21, 2004 through December 31,
2004. The entity that owns the aircraft also had one employee
for whom Predecessor provided payroll and benefit services, the
costs of which were reimbursed by the entity.
A member of our senior management owns a 25% interest in the
entity that leases space at the Great Wolf Lodge in Wisconsin
Dells and operates the spa located within that resort. That
entity made payments of $44, $35 for the period January 1,
2004 through December 20, 2004 and the year ended
December 31, 2003, respectively, to the resort and no
payment in 2002 or the period December 21, 2004 through
December 31, 2004.
The Predecessor received fees from an affiliate in connection
with arranging the financing transactions for certain of the
Predecessors resorts. Total fees received by the
Predecessor from this entity were $604, $395 and $432 for the
period January 1, 2004 through December 20, 2004, and
the years ended December 31, 2003 and 2002, respectively.
There were no fees received for the period December 21,
2004 through December 31, 2004.
We provide administrative services for a non-resort hotel entity
and a multifamily housing entity owned by certain current and
former members of our senior management. Amounts due to us at
December 31, 2004 were insignificant. At December 31,
2004, we owed the multifamily housing entity $472 for amounts
they had provided to us. This amount was repaid in January 2005.
At December 31, 2004, we owed an affiliate $3,202 for
amounts collected on behalf of the affiliate. This amount was
repaid in January 2005.
|
|
9. |
COMMITMENTS AND CONTINGENCIES |
Legal Matters In the course of normal
business activities, various lawsuits, claims and proceedings
have been or may be instituted or asserted against us. Based on
currently available facts, we believe that the disposition of
matters pending or asserted will not have a material adverse
effect on our consolidated financial position, results of
operations or liquidity.
Letter of Credit In connection with the
construction of the Blue Harbor Resort, we have supplied a
$2,000 letter of credit in favor of the City of Sheboygan. The
letter of credit expires on December 31, 2005. There have
been no draws on this letter of credit. We have made a $2,000
deposit with a bank as collateral for this letter of credit. The
deposit is considered restricted cash and is included in cash
and cash equivalents on the consolidated balance sheet at
December 31, 2004.
Guarantees Based on certain criteria,
FIN 45 requires a guarantor to recognize, at the inception
of a guarantee, a liability for that guarantee. The objective of
the initial measurement of the liability is the fair value of
the guarantee at its inception. In connection with the
construction of the Blue Harbor Resort in Sheboygan, Wisconsin,
Blue Harbor Resort Sheboygan, LLC (BH Resort LLC) entered into
agreements with the City of Sheboygan and The Redevelopment
Authority of the City of Sheboygan, Wisconsin (collectively, the
City) whereby the City funded certain costs of construction. The
City funded $4,000 toward
67
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
the construction of the Blue Harbor Resort and related public
improvements and $8,200 toward construction of a convention
center connected to the resort.
In exchange for the $4,000 funding, BH Resort LLC guaranteed
real and personal property tax payments over a fourteen-year
period totaling $16,400. This obligation is also guaranteed
jointly by us and by three of our stockholders. The guarantee
was entered into on July 30, 2003.
In exchange for the $8,200 funding, BH Resort LLC entered into a
lease for the convention center with the City. The initial term
of the lease is
251/2 years
with 15, 5-year renewal options. Under the lease, BH Resort
LLC will satisfy repayment of the $8,200 funding by making
guaranteed room tax payments totaling $25,944 over the initial
term of the lease. This obligation is also guaranteed jointly by
us and by three of our stockholders. This guarantee was also
entered into on July 30, 2003.
As Blue Harbor Resort is a consolidated subsidiary, the debt
related to the $4,000 and $8,200 fundings is included in the
accompanying consolidated balance sheet and we have not recorded
any liability related to the guarantees on those fundings.
Commitments We lease office space, storage
space and office equipment under various operating leases. Most
of the leases include renewal options. Future minimum payments
on these operating leases are as follows:
|
|
|
|
|
2005
|
|
$ |
371 |
|
2006
|
|
|
424 |
|
2007
|
|
|
400 |
|
2008
|
|
|
406 |
|
2009
|
|
|
343 |
|
|
|
|
|
Total
|
|
$ |
1,944 |
|
|
|
|
|
Rent expense for the years ended December 31, 2004, 2003
and 2002 was not significant.
We also have commitments on contracts to build the
Predecessors resorts under construction. Commitments on
these contracts total $45,282 for periods subsequent to
December 31, 2004.
Under a program available in the State of Kansas, the
Predecessor entered into a transaction with a local government
for the sole purpose of enabling the Predecessor to save
approximately $800 in sales and compensation use taxes that
would have been otherwise payable on materials and equipment
incorporated into the Predecessors resort in Kansas City,
Kansas. To effect the transaction, the Predecessor transferred
title to the site and the resort to the local government, which
leased the resort back to the Predecessor with an option (and
ultimately the obligation) to purchase for a nominal amount at
the end of the lease term. The local government issued $42,260
of industrial revenue bonds (IRBs), which were
purchased by the Predecessor. The purchase of the IRBs was
funded by the deposit of proceeds of a third-party construction
loan with the bond trustee for application to payment of costs
of the resort. In connection with the IPO, the Predecessor gave
notice of the exercise of its option to purchase the Kansas
City, Kansas resort and tendered the IRBs plus the nominal
option price to effect the purchase. The local government
authorized the transfer of title back to Predecessor, and
executed and delivered a deed and bill of sale.
We maintain a 401(k) profit sharing plan for our employees.
Eligibility for participation in the plan is based on an
employee meeting certain minimum age and service requirements.
Participants may make voluntary, pre-tax contributions through
salary deferrals to the plan. Employer matching contributions are
68
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
discretionary and are based on a percentage of employee
contributions. Contributions to the plan were $193, $166, and
$131 for the period January 1, 2004 through
December 20, 2004, and the years ended December 31,
2003 and 2002, respectively. There were no contributions for the
period December 21, 2004 through December 31, 2004.
General The Predecessor was comprised of a
Subchapter S Corporation and limited liability companies.
As a result, equity for the Predecessor included par value and
retained earnings (for the Subchapter S Corporation) and
members equity (for the limited liability companies). The
entities included in the Predecessors combined historical
financial statements conducted business under various operating
agreements. These agreements governed the various classes of
members, distribution preferences, payment of dividends,
liquidation preferences and voting rights.
Members Equity of Combined Entities The
Predecessors combined financial statements included
certain entities that were under common management by GLC.
Members equity of combined entities on the combined
balance sheets represents the portion of owners equity of
those combined entities not owned by GLC.
Treasury Stock The Predecessor accounted for
repurchases of treasury shares under the cost method. Treasury
stock consisted of 29 Series A shares and 551 Series B
shares at December 31, 2003.
Mandatorily Redeemable
Ownership Interests In accordance with the
provisions of SFAS 150, the Predecessor identified the
following items as meeting the criteria of a mandatorily
redeemable financial instrument:
|
|
|
|
|
Class A and Class B shares of GLC. GLC was
obligated to redeem in cash the A Shares and B Shares of a
shareholder who died or incurred certain triggering events (as
defined in the Term Sheet of Buy and Sell Provisions for Shares
in The Great Lakes Companies, Inc.). The redemption price was
calculated by a formula using GLCs net operating income
and a multiple based on the type of triggering event, as
described in the Term Sheet. Both the A Shares and the B shares
contained restrictions on transfers and sales by the
stockholders. |
|
|
|
Class B Units of Great Wolf Lodge of Kansas City,
LLC. In accordance with provisions in the Kansas City LLC
Agreement, the LLC was required to redeem in cash the
Class B Units no later than the fifth anniversary date of
the operating commencement date of the Kansas City resort. The
redemption price was based on the greater of fair value or an
internal rate of return. |
The rights of GLCs shareholders and Great Wolf Lodge of
Kansas Citys Class B unitholders to require the
Predecessor to redeem these equity instruments represented
embedded derivative instruments. The Predecessor recorded these
derivative instruments at their estimated fair values at each of
the reporting dates in the Predecessors accompanying
combined balance sheets. The fair values of the derivative
instruments were included in mandatorily redeemable ownership
interests. For each period presented, the Predecessor marked the
underlying derivative to its estimated fair value. The change in
the estimated fair value between periods was included in
interest on mandatorily redeemable ownership interests in the
accompanying combined statements of operations.
The Predecessor adopted the provisions of SFAS 150
effective July 1, 2003. Prior to the adoption of
SFAS 150, the Predecessor accounted for the Kansas City
Class B units under the provisions of EITF Issue
No. D-98. In accordance with that pronouncement, the
Predecessor accounted for the Kansas City Class B units as
a mandatorily redeemable security and classified the redemption
amount outside of equity in the combined balance sheet. The
security was initially recorded at its fair value at date of
issue, using accepted
69
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
valuation techniques, and the security was adjusted to its
estimated redemption amount at each balance sheet date and
recorded as mandatorily redeemable ownership interests. On
November 7, 2003, the FASB issued FASB Staff Position
No. 150-3, or FSP 150-3, indefinitely deferring the
measurement provisions of SFAS 150 with respect to certain
minority interests in consolidated ventures entered into prior
to November 5, 2003. As a result, the Predecessor
thereafter continued to account for the Kansas City security
under the provisions of EITF D-98.
As of December 31, 2003, the Predecessor has classified
$11,194 related to these mandatorily redeemable items as
liabilities in the combined balance sheet.
Deferred Compensation Plan In 2004, we
established a deferred compensation plan for certain of our
executives. The plan allows for contributions by both the
participants and us. Pursuant to their employment arrangements,
certain executives received bonuses upon completion of the IPO.
Executives receiving bonus payments totaling $2,200 elected to
defer those payments pursuant to our deferred compensation plan.
To satisfy this obligation, we contributed 129,412 shares
of our common stock to the trust that holds the assets to pay
obligations under our deferred compensation plan. The fair value
of that stock at the date of contribution was $2,200. In
accordance with the provisions of EITF Issue No. 97-14,
Accounting for Deferred Compensation Arrangements Where
Amounts earned Are Held in a Rabbi Trust and Invested, we
have recorded the fair value of the shares of common stock, at
the date the shares were contributed to the trust, as a
reduction of our stockholders equity. Also, as prescribed
by EITF 97-14, we account for the change in fair value of
the shares held in the trust as a charge to compensation cost.
Accordingly, we recorded $691 of non-cash employee compensation
in the period December 21, 2004 through December 31,
2004.
Earnings per Share We calculate our basic
earnings per common share by dividing net loss available to
common shareholders by the weighted average number of shares of
common stock outstanding. Our diluted earnings per common share
assumes the issuance of common stock for all potentially
dilutive stock equivalents outstanding. In periods in which
there is a loss, potentially dilutive stock equivalents are
excluded from the computation of diluted weighted average shares
outstanding as the effect of those potentially dilutive items is
anti-dilutive. In accordance with the provisions of
EITF 97-14, the shares of common stock held in our deferred
compensation plan are treated as treasury stock for purposes of
our earnings per share computations and therefore excluded from
the basic and diluted earnings per share calculations. Basic and
diluted earnings per common share are as follows:
|
|
|
|
|
|
|
Period | |
|
|
December 21, | |
|
|
2004 | |
|
|
through | |
|
|
December 31, | |
|
|
2004 | |
|
|
| |
Net loss attributable to common shares
|
|
$ |
(3,842 |
) |
Weighted average common shares outstanding basic and
diluted
|
|
|
30,133 |
|
Net loss per share basic and diluted
|
|
$ |
(0.13 |
) |
Under the Great Wolf Resorts, Inc. 2004 Incentive Stock Plan, we
grant incentive stock options and/or nonqualified stock options
to employees and directors. The Plan authorizes us to grant up
to 3,380,520 options, stock appreciation rights or shares of our
common stock. Each option entitles the holder to purchase one
share of common stock at the specified option price. The options
vest over a three-year period and expire after ten years. For
all options granted to date, the exercise price was equal to the
fair market value of the underlying stock on the date of grant.
70
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2004, we have granted 1,656,300 stock
options, all at an exercise price of $17.00. No options were
exercisable during the period from December 21, 2004
through December 31, 2004.
|
|
13. |
DISCONTINUED OPERATIONS |
As of December 31, 2001, an office building held by one of
the Predecessors subsidiaries was classified as held for
sale. The building was sold in 2002. The gain realized upon sale
was not recognized because GLC had continuing involvement in the
real estate after the sale. In May 2004, GLC was released from
the guarantee of the buyers mortgage and the sale was
recognized, resulting in a gain of $548. The operating activity
of this office building and the related gain is included in
discontinued operations in the combined statements of operations.
As of December 31, 2002, the Predecessor had five hotels
classified as held for sale. Three of these hotels were sold in
2003, resulting in a gain of $10,967, and the remaining two
hotels were sold in 2004, resulting in a gain of $4,779.
Operating results and the gain on disposition for the hotels
classified as held for sale are included in income (loss) from
discontinued operations in the combined statements of operations
for the period January 1, 2004 through December 20,
2004 and the years ended December 31, 2003, and 2002.
On December 20, 2004, in connection with the Formation
Transactions, the Predecessor spun-off its non-resort interests
to the existing shareholders of GLC. As a result, we have
included the operations of the spun-off entities in discontinued
operations for all periods.
Operating activity of the discontinued operations consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period | |
|
|
|
|
|
|
January 1, | |
|
|
|
|
|
|
2004 | |
|
|
|
|
through | |
|
Year Ended December 31, | |
|
|
December 20, | |
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Revenues
|
|
$ |
4,859 |
|
|
$ |
10,896 |
|
|
$ |
16,596 |
|
Expenses
|
|
|
(5,529 |
) |
|
|
(10,498 |
) |
|
|
(17,164 |
) |
Gain on sale
|
|
|
5,327 |
|
|
|
10,967 |
|
|
|
|
|
Minority interests
|
|
|
(2,729 |
) |
|
|
(10,247 |
) |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$ |
1,928 |
|
|
$ |
1,118 |
|
|
$ |
(542 |
) |
|
|
|
|
|
|
|
|
|
|
Interest on mortgage debt related to properties sold or spun off
has been included in the operating results above.
71
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
14. |
QUARTERLY FINANCIAL DATA (UNAUDITED) |
The following tables sets forth certain items included in our
and the Predecessors consolidated and combined financial
statements for each quarter of the years ended December 31,
2004 and 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor | |
|
|
| |
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
2003: |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
|
| |
|
| |
|
| |
|
| |
Total Revenues
|
|
$ |
5,082 |
|
|
$ |
13,030 |
|
|
$ |
15,659 |
|
|
$ |
12,482 |
|
Operating income (loss)
|
|
|
(2,092 |
) |
|
|
(298 |
) |
|
|
1,149 |
|
|
|
(3,658 |
) |
Net income (loss) before cumulative effect of change in
accounting principle
|
|
|
(373 |
) |
|
|
(116 |
) |
|
|
1,185 |
|
|
|
(5,699 |
) |
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
460 |
|
|
|
|
|
Net income (loss)
|
|
|
(373 |
) |
|
|
(116 |
) |
|
|
1,645 |
|
|
|
(5,699 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Wolf | |
|
|
Predecessor | |
|
Resorts, Inc. | |
|
|
| |
|
| |
|
|
|
|
Period | |
|
Period | |
|
|
|
|
October 1, | |
|
December 21, | |
|
|
|
|
2004 | |
|
2004 | |
|
|
|
|
through | |
|
through | |
|
|
First | |
|
Second | |
|
Third | |
|
December 20, | |
|
December 31, | |
2004: |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Total Revenues
|
|
$ |
14,752 |
|
|
$ |
15,344 |
|
|
$ |
22,158 |
|
|
$ |
13,004 |
|
|
$ |
(4,629 |
) |
Operating income (loss)
|
|
|
(84 |
) |
|
|
(4,385 |
) |
|
|
1,593 |
|
|
|
(5,362 |
) |
|
|
(6,191 |
) |
Net income (loss)
|
|
|
(1,830 |
) |
|
|
(4,993 |
) |
|
|
1,953 |
|
|
|
(8,072 |
) |
|
|
(3,842 |
) |
Basic and diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.13 |
) |
72
|
|
ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
|
|
ITEM 9A. |
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures
that are designed to provide reasonable assurance that
information required to be disclosed in our reports under the
Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules
and forms and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
for timely decisions regarding required disclosure. In designing
and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls
and procedures.
As required by the Securities and Exchange Commissions
rules, we have carried out an evaluation, under the supervision
and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by
this Form 10-K report. Based on the foregoing, our Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective at the
reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial
reporting that has occurred during the fiscal quarter ended
December 31, 2004, that materially affected, or is
reasonably likely to materially affect, our internal controls
over financial reporting.
|
|
ITEM 9B. |
OTHER INFORMATION |
None.
PART III
|
|
ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
This information is hereby incorporated by reference from the
Proxy Statement (under the headings The Election of
Directors and The Executive Officers).
|
|
ITEM 11. |
EXECUTIVE COMPENSATION |
This information is hereby incorporated by reference from the
Proxy Statement (under the heading Executive
Compensation).
|
|
ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT |
This information is hereby incorporated by reference from the
Proxy Statement (under the heading Ownership Of Our Common
Stock).
73
|
|
ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
This information is hereby incorporated by reference from the
Proxy Statement (under the heading Certain Relationships
And Related Transactions).
|
|
ITEM 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
This information is hereby incorporated by reference from the
Proxy Statement (under the heading Relationship With
Independent Public Accountants).
|
|
ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a)(1) Financial Statements
The financial statements included in this Annual Report on
Form 10-K are provided under Item 8.
(a)(2) Financial Statement Schedules
All schedules are omitted since the required information is not
present in amounts sufficient to require submission to the
schedule or because the information required is included in the
financial statements and notes thereto.
(a)(3) Exhibits
See Index to Exhibits.
74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly cause this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: March 22, 2005
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ John Emery
John
Emery |
|
Chief Executive Officer (Principal Executive Officer) |
|
March 22, 2005 |
|
/s/ James A. Calder
James
A. Calder |
|
Chief Financial Officer (Principal Financial and Accounting
Officer) |
|
March 22, 2005 |
|
/s/ Bruce D. Neviaser
Bruce
D. Neviaser |
|
Chairman of the Board |
|
March 22, 2005 |
|
/s/ Elan Blutinger
Elan
Blutinger |
|
Director |
|
March 22, 2005 |
|
/s/ Randy Churchey
Randy
Churchey |
|
Director |
|
March 22, 2005 |
|
Michael
M. Knetter |
|
Director |
|
March 22, 2005 |
|
/s/ Alissa N. Nolan
Alissa
N. Nolan |
|
Director |
|
March 22, 2005 |
|
/s/ Howard Silver
Howard
Silver |
|
Director |
|
March 22, 2005 |
|
Craig
A. Stark |
|
President and Director |
|
March 22, 2005 |
|
/s/ Marc B. Vaccaro
Marc
B. Vaccaro |
|
Director |
|
March 22, 2005 |
75
INDEX TO EXHIBITS
The exhibits listed below are incorporated herein by reference to prior SEC filings by Registrant
or are included as exhibits in this Form 10-K.
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
2.1
|
|
Form of Merger Agreement (Delaware) (incorporated herein by reference to Exhibit 2.1 to
the Companys Registration Statement on Form S-1 filed August 12, 2004) |
2.2
|
|
Form of Merger Agreement (Wisconsin) (incorporated herein by reference to Exhibit 2.2 to
the Companys Registration Statement on Form S-1 filed August 12, 2004) |
3.1
|
|
Form of Amended and Restated Certificate of Incorporation for Great Wolf Resorts, Inc.
dated December 9, 2004 (incorporated herein by reference to Exhibit 3.1 to the Companys
Registration Statement on Form S-1 filed August 12, 2004) |
3.2
|
|
Form of Amended and Restated Bylaws of Great Wolf Resorts, Inc. effective December 20,
2004 (incorporated herein by reference to Exhibit 3.2 to the Companys Registration
Statement on Form S-1 filed August 12, 2004) |
4.1
|
|
Form of the Common Stock Certificate of Great Wolf Resorts, Inc. (incorporated herein by
reference to Exhibit 4.1 to the Companys Registration Statement on Form S-1 filed October
21, 2004) |
4.2
|
|
Junior Subordinated Indenture, dated as of March 15, 2005, between Great Wolf Resorts,
Inc. and JPMorgan Chase Bank, National Association, as trustee (incorporated herein by
reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed March 18, 2005) |
4.3
|
|
Amended and Restated Trust Agreement, dated as of March 15, 2005, by and among Chase
Manhattan Bank USA, National Association, as Delaware trustee; JPMorgan Chase Bank, National
Association, as property trustee; Great Wolf Resorts, Inc., as depositor; and James A.
Calder, Alex G. Lombardo and J. Michael Schroeder, as administrative trustees (incorporated
herein by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K filed March
18, 2005) |
10.1
|
|
License Agreement, dated January 30, 2004, by and between The Great Lakes Companies, Inc.
and Jim Pattison Entertainment Ltd. (incorporated herein by reference to Exhibit 10.1 to the
Companys Registration Statement on Form S-1 filed September 23, 2004) |
10.2
|
|
Development Agreement, dated as of July 30, 2003, among the City of Sheboygan, Wisconsin,
the Redevelopment Authority of the City of Sheboygan, Wisconsin, The Great Lakes Companies,
Inc., Blue Harbor Resort Sheboygan, LLC, and Blue Harbor Resort Condominium, LLC
(incorporated herein by reference to Exhibit 10.1 to the Companys Registration Statement on
Form S-1 filed August 12, 2004) |
10.3
|
|
First Amendment to the Development Agreement, dated June 25, 2004, by and among the City
of Sheboygan, Wisconsin, the Redevelopment Authority of the City of Sheboygan, Wisconsin,
The Great Lakes Companies, Inc., Blue Harbor Resort Sheboygan, LLC, and Blue Harbor Resort
Condominium, LLC (incorporated herein by reference |
|
|
|
|
|
|
|
|
to Exhibit 10.2 to the Companys Registration Statement on Form S-1
filed August 12, 2004) |
10.4
|
|
Tall Pines Exclusive License and Royalty Agreement, dated July 25, 2004, between Tall
Pines Development Corporation and The Great Lakes Companies, Inc. (incorporated herein by
reference to Exhibit 10.4 to the Companys Registration Statement on Form S-1 filed December
7, 2004) |
10.5+
|
|
Form of Employment Agreement (incorporated herein by reference to Exhibit 10.5 to the
Companys Registration Statement on Form S-1 filed January 21, 2005) |
10.12
|
|
Form of Noncompete Agreement, Trade Secret and Confidentiality Agreement (incorporated
herein by reference to Exhibit 10.6 to the Companys Registration Statement on Form S-1
filed January 21, 2005) |
10.14
|
|
Form of Officers and Directors Indemnification Agreement (incorporated herein by
reference to Exhibit 10.7 to the Companys Registration Statement on Form S-1 filed August
12, 2004) |
10.15
|
|
Form of Indemnity Agreement (incorporated herein by reference to Exhibit 10.8 to the
Companys Registration Statement on Form S-1 filed September 23, 2004) |
10.16+
|
|
Form of Great Wolf Resorts, Inc. Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 10.9 to the Companys Registration Statement on Form S-1 filed August
12, 2004) |
10.17+
|
|
Form of Great Wolf Resorts, Inc. 2004 Incentive Stock Plan (incorporated herein by
reference to Exhibit 10.10 to the Companys Registration Statement on Form S-1 filed
November 26, 2004) |
10.18+
|
|
Form of Great Wolf Resorts, Inc. Deferred Compensation Plan (incorporated herein by
reference to Exhibit 10.11 to the Companys Registration Statement on Form S-1 filed August
12, 2004) |
10.19
|
|
Form of Transition Services Agreement between Great Wolf Resorts, Inc. and Great Lakes
Hospitality Partners, LLC (incorporated herein by reference to Exhibit 10.12 to the
Companys Registration Statement on Form S-1 filed August 12, 2004) |
10.20
|
|
Form of Transition Services Agreement, between Great Wolf Resorts, Inc. and Great Lakes
Housing Partners, LLC (incorporated herein by reference to Exhibit 10.13 to the Companys
Registration Statement on Form S-1 filed August 12, 2004) |
10.21
|
|
Form of Registration Rights Agreement, between Great Wolf Resorts, Inc. and the persons
named therein (incorporated herein by reference to Exhibit 10.14 to the Companys
Registration Statement on Form S-1 filed August 12, 2004) |
10.22
|
|
Revolving Credit Agreement, by and among Great Wolf Resorts, Inc., GWR Operating
Partnership, L.L.L.P., the Subsidiary Guarantors named therein, Citicorp North America,
Inc., Societe Generale, Citigroup Global Markets, Inc., SG Americas Securities LLC and
Calyon New York Branch (incorporated herein by reference to Exhibit 10.15 to the Companys
Registration Statement on Form S-1 filed January 21, 2005) |
10.23
|
|
Loan Agreement by and among Great Wolf Resorts, Inc., Citigroup Global Markets Realty
Corp. and The Travelers Insurance Company |
|
|
|
|
|
|
|
|
(incorporated herein by reference to Exhibit 10.16 to Companys
Registration Statement on Form S-1 filed January 21, 2005) |
10.24
|
|
Purchase Agreement, dated as of March 15, 2005, among Great Wolf Resorts, Inc., Great
Wolf Capital Trust I, Taberna Preferred Funding I, Ltd and Merrill Lynch International
(incorporated herein by reference to Exhibit 1.1 to the Companys Current Report on Form 8-K
filed March 18, 2005) |
21.1*
|
|
List of Subsidiaries |
23.1*
|
|
Consent of Deloitte & Touche LLP |
31.1*
|
|
Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a14(a)
and Rule 15d14(a) |
31.2*
|
|
Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a14(a)
and Rule 15d14(a) |
32.1*
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
|
32.2*
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 |
* Filed herewith.
+ Indicated management contract or compensatory plan or arrangement required to be filed as an
exhibit pursuant to Item 15(c) of Form 10-K.