10-K
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, 2008
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 000-51064
GREAT WOLF RESORTS,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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51-0510250
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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122 West Washington Avenue
Madison, Wisconsin 53703
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53703
(Zip Code)
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(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 Each Exchange on Which Registered
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Common Stock, par value $0.01 per share
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NASDAQ Global Market
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Exchange
Act. Yes o No þ
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 Annual Report on
Form 10-K
or any amendment to this Annual Report on
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of June 30, 2008, the aggregate market value of the
voting and non-voting common equity held by non-affiliates was
approximately $135,629,750 based on the closing price on the
NASDAQ National Market for such shares.
The number of shares outstanding of the issuers common
stock was 31,005,945 as of March 5, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2009 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 April 30, 2009.
Great
Wolf Resorts, Inc.
Annual
Report on
Form 10-K
For the
Year Ended December 31, 2008
INDEX
1
PART I
Overview
and Development
The terms Great Wolf
Resorts®,
us, we and our are used in
this report to refer to Great Wolf Resorts,
Inc®.
and its consolidated subsidiaries. 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 North America
of drive-to family resorts featuring indoor waterparks and other
family-oriented entertainment activities. Our resorts generally
feature approximately 270 to 600 family suites, each of which
sleep from six to ten people and include a wet bar, microwave
oven, refrigerator and dining and sitting area. We provide a
full-service entertainment resort experience to our target
customer base: families with children ranging in ages from 2 to
14 years old that live within a convenient driving distance
of our resorts. We operate under our Great Wolf
Lodge®
and Blue Harbor
Resorttm
brand names. Our resorts are open year-round and provide a
consistent, comfortable environment where our guests can enjoy
our various amenities and activities.
We provide our guests with a self-contained vacation experience
and focus on capturing a significant portion of their total
vacation spending. We earn revenues through the sale of rooms
(which includes admission to our indoor waterpark), and other
revenue-generating resort amenities. Each of our resorts
features a combination of some or all of the following
revenue-generating amenities: themed restaurants, ice cream shop
and confectionery, full-service adult spa, kid spa, game arcade,
gift shop, miniature golf, interactive game attraction, family
tech center and meeting space. We also generate revenues from
licensing arrangements, management fees and other fees with
respect to our operation or development of properties owned in
whole or in part by third parties.
We operate ten Great Wolf Lodge resorts (our signature
Northwoods-themed resorts), and one Blue Harbor Resort (a
nautical-themed property). We anticipate that most of our future
resorts will be developed under our Great Wolf Lodge brand, but
we may develop additional nautical-themed resorts under our Blue
Harbor Resort brand or other resorts in appropriate markets.
Financial information regarding our reportable segments during
2008 is included in Note 2 of our Notes to Consolidated
Financial Statements.
2
Properties
Overview
The following table presents an overview of our portfolio of
operating resorts and our resort under construction. As of
December 31, 2008, we operate ten Great Wolf Lodge resorts
(our signature Northwoods-themed resorts) and one Blue Harbor
Resort (a nautical-themed property).
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Indoor
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Ownership
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Opened/
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Number of
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Number of
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Entertainment
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Percentage
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Opening
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Guest Suites
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Condo Units(1)
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Area(2)
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(Approx.
ft2)
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Existing Resorts:
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Wisconsin Dells, WI(3)
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30.32%
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1997
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308
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77
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102,000
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Sandusky, OH(3)
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30.32%
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2001
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271
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41,000
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Traverse City, MI
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100%
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2003
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280
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57,000
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Kansas City, KS
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100%
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2003
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281
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57,000
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Sheboygan, WI
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100%
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2004
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182
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64
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54,000
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Williamsburg, VA
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100%
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2005
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405
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87,000
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Pocono Mountains, PA
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100%
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2005
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401
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101,000
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Niagara Falls, ONT(4)
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2006
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406
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104,000
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Mason, OH
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100%
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2006
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401
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105,000
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Grapevine, TX(5)
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100%
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2007
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605
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110,000
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Grand Mound, WA(6)
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49%
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2008
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398
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74,000
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Resort Under Construction:
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Concord, NC(7)
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100%
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March 2009
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402
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97,000
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(1) |
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Condominium units are individually owned by third parties and
are managed by us. |
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(2) |
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Our indoor entertainment areas generally include our indoor
waterpark, game arcade, childrens activity room, family
tech center,
MagiQuest®
and fitness room, as well as our spa in the resorts that have
such amenities. |
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(3) |
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These properties are owned by a joint venture. CNL Lifestyle
Properties, Inc. (CNL), a real estate investment trust focused
on leisure and lifestyle properties, owns a 69.68% interest in
the joint venture, and we own a 30.32% interest. We operate the
properties and license the Great Wolf Lodge brand to the joint
venture under long-term agreements through October 2020, subject
to earlier termination in certain situations. |
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(4) |
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An affiliate of Ripley Entertainment, Inc. (Ripley) owns this
resort. We have granted Ripley a license to use the Great Wolf
Lodge name for this resort through April 2016. We will manage
the resort on behalf of Ripley through April 2009. |
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(5) |
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In late 2007, we began construction on an additional 203 suites
and 20,000 square feet of meeting space as an expansion of
this resort. The meeting space, along with 92 rooms, was opened
in December 2008, with the rest of the rooms completed and
opened in January 2009. |
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This property is owned by a joint venture. The Confederated
Tribes of the Chehalis Reservation (Chehalis) own a 51% interest
in the joint venture, and we own a 49% interest. We operate the
property and license the Great Wolf Lodge brand to the joint
venture under long-term agreements through April 2057, subject
to earlier termination in certain situations. The joint venture
leases the land for the resort from Chehalis. |
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We are developing a Great Wolf Lodge resort in Concord, North
Carolina. The Northwoods-themed, 402-suite resort will provide a
comprehensive package of destination lodging amenities and
activities. Construction on the resort began in October 2007
with expected completion in March 2009. |
Northwoods Lodge Theme. Each of our Great Wolf
Lodge resorts has a Northwoods lodge theme. Our approximately
5,000 to 9,000 square-foot atrium lobbies, that are between
three and five stories high, are designed in a Northwoods cabin
motif with exposed timber beams, massive stone fireplaces,
mounted wolves and other Northwoods creatures and an animated
two-story Clock Tower that provides theatrical entertainment for
our younger guests. Throughout the common areas and in each
guest suite, we use sturdy, rustic furniture
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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 1,970 square feet. Substantially
all of the rooms in our resorts also include a private deck or
patio, although a lower percentage of rooms in our Grapevine and
Grand Mound resorts include this type of amenity. Our resorts
offer up to 11 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
Suitestm
that feature a themed den enclosure with bunk beds and our
KidKamptm
suites that feature bunk beds in a themed tent enclosure. We
also offer larger rooms, such as our Majestic Bear
Suitetm
and Grizzly Bear
Suitetm,
which have separate bedrooms with a king bed, a large dining and
living area and can accommodate up to eight people. For business
travelers we also offer Luxury King Suites that have a king bed,
a 32 plasma television, and wireless Internet access. Our
guest suites have wallpaper, artwork and linens that continue
the Northwoods theme and our resorts provide
pay-per-view
movies and
pay-per-play
video games. Some of our resorts also provide room service
dining. Our Blue Harbor Resort has similar appropriate
nautical-themed named rooms.
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
84,000 square feet and have a Northwoods theme and include
decorative rockwork and plantings. The focus of each Great Wolf
Lodge waterpark is our signature 12-level treehouse waterfort.
The waterfort 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 waterfort
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 with geysers for young children,
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.
On average, approximately one to two million gallons of water is
cycled through each of our waterparks every hour as part of our
water filtration procedures. Our primary operating equipment
includes water pumps, tanks and filters, located in separate
spaces to allow for quick repairs or replacement. Computerized
water and air treatment systems and highly trained technicians
monitor the water and air quality of our waterparks in order to
promote a clean and safe environment. We seek to minimize the
use of chlorine. Most of the water purification is performed by
one or more non-chlorinated water treatment systems, which
ensures the highest water quality and a substantial reduction in
the typical chlorine odor found in indoor pools. In addition,
the water within each area circulates at least 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
that we own 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 elements year-round, wear and tear
is minimal. 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 is designed to help extend the life of our
equipment.
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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. (Ellis &
Associates), 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 generally 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, which is in effect 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 resorts feature a
combination of the following amenities. Some of the amenities
described below have different names at certain of our Great
Wolf Lodge resorts. 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
Grilltm,
with a life-sized sea plane suspended over the dining area,
Lumber Jacks Cook
Shantytm,
the Loose Moose Bar &
Grilltm,
and the Camp Critter Bar &
Grilletm,
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
Anchortm
Buffet.
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Ice Cream Shop and Confectionery. Each of our
Great Wolf Lodge resorts has a Bear Claw Café or Bear Paw
Sweets & Eats 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 waterpark.
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Gift Shop. Each of our resorts has a Buckhorn
Exchangetm
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. Our resorts also
have a Bear
Essentialstm
or Washed Ashore gift shop located in the waterpark.
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Full-Service Spa. Each of our resorts, with
the exception of our Sandusky resort, has an
Elementstm
Spa and Salon that provides a relaxing
get-a-way
with a full complement of massages, facials, manicures,
pedicures and other spa treatments and a wide selection of
Aveda®
products. Each of our spas also includes our
Scooops®
Kid Spa. The furnishings for the kid-friendly spa have the look
of a modern ice cream parlor, with chocolate-colored walls,
retro swivel stools and a pedicure sofa that looks like an
oversized ice cream sundae. While enjoying their treatments,
kids can listen to music with a provided CD player and speakers
or with their own digital music player.
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Game Arcade. Our Youkon Jacks Game
Parlortm
or Northern Lights
Arcadetm
range in size from approximately 3,900 to 7,000 square
feet, generally feature over 70 games and are divided into
distinct areas with video and skill games that appeal to
children of different ages. Tickets won from the skill games may
be exchanged for a wide selection of merchandise that appeals to
our younger guests.
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Cub Club. Our Cub
Clubtm
rooms are professionally staffed childrens activity rooms
with programmed activities, including arts and crafts, games and
nature hikes. Cub Club is also a membership 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 approximately 55,000
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Cub Club members. Our Blue Harbor Resort features a Crew
Clubtm
program and activities that are similar to our Cub Club.
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Animated Clock Tower. Each of our Great Wolf
Lodge resorts has a two-story animated Clock Tower located in
the resorts main atrium lobby. The Clock Tower 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, longer if the weather is favorable. Our Wisconsin
Dells and Grapevine resorts also have outdoor waterslides.
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Fitness Room. Our fitness rooms contain
aerobic exercise equipment, weight-lifting machines, and
numerous televisions for active viewing.
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Meeting Space. Our resorts offer meeting space
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 and
Niagara resorts.
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Conference Facility. Many of our resorts
feature conference facility space. Our Traverse City, Sheboygan,
Williamsburg, Mason, Grapevine and Grand Mound resorts feature
conference facilities that range in size from 10,000
40,000 square feet. Each of these conference facilities
also feature some if not all, of the following additional
aspects to their conference facilities: Grand Ballroom, flexible
meeting spaces, executive boardroom, audio visual systems, and
multiple pre-function concourses including an outdoor patio.
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Wileys Woods. Wileys Woods is a
four-story, approximately 16,000 square-foot structure
located at our Wisconsin Dells resort. Children ages three and
older can navigate through slides, bridges, nets and mazes.
Admission to Wileys Woods is free for all resort guests
and is open to the public for a fee.
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MagiQuest. Seven of our resorts feature a
MagiQuest®
attraction. MagiQuest is an interactive, live-action, fantasy
adventure game that guests can play throughout the resort.
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Minigolf. Five of our resorts feature a
custom-designed, outdoor 18-hole miniature golf course.
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gr8_space. Four of our resorts feature an
approximately 1,000 square foot interactive family tech
center. gr8_space features multiple computer stations offering
Internet access, docking stations for digital music players, as
well as multiple gaming stations. gr8_space also features family
events, like rock star karaoke and family challenge games. In
the evening, gr8_space features dedicated teen time and
activities for fun on their terms.
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Operating
Properties
We currently operate 11 resorts, located in Wisconsin Dells,
Wisconsin; Sandusky, Ohio; Traverse City, Michigan; Kansas City,
Kansas; Williamsburg, Virginia; Pocono Mountains, Pennsylvania;
Niagara Falls, Ontario; Mason, Ohio; Grapevine, Texas; Grand
Mound, Washington; and Sheboygan, Wisconsin.
Great
Wolf Lodge Wisconsin Dells, Wisconsin
Our Great Wolf Lodge, located on 16 acres in Wisconsin
Dells, Wisconsin, was originally constructed in 1997 and
acquired by our predecessor company in 1999. In October 2005, we
sold this resort to our joint venture with CNL Lifestyle
Properties, Inc. We have a 30.32% interest in that joint venture.
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 the 2009 Travel & Tourism Market Research
Handbook, the Wisconsin Dells area attracts over
2.9 million
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visitors each year. Wisconsin Dells is within a
one-hour
drive from Madison, Wisconsin; a
two-hour
drive from Milwaukee, Wisconsin; a
three-hour
drive from Chicago, Illinois; a three and one-half-hour drive
from Minneapolis/St. Paul, Minnesota; and a
five-hour
drive from Des Moines, Iowa. According to Applied Geographic
Solutions, Inc., there are approximately 16.4 million
people who live within 180 miles of the resort.
Great Wolf Lodge of Wisconsin Dells has 308 guest suites, with
an additional 77 individually owned, one to four bedroom
condominium units located adjacent to the resort, on a
six-acre
land parcel, and an approximately 76,000 square-foot indoor
waterpark that includes our signature treehouse waterfort. The
resort offers a number of revenue-enhancing amenities, including
themed restaurants and snack bars, confectionery and ice cream
shop, Cub Club, full-service spa, kids spa, game arcade, gift
shops, Wileys Woods, an outdoor recreation area and
meeting rooms. The resort also includes non revenue-generating
amenities, such as an animated two-story Clock Tower and fitness
center.
We currently manage, on behalf of the CNL joint venture, the
rental of all of the condominium units at this resort. The CNL
joint venture receives a rental management fee of approximately
42% of gross revenue, after deduction of certain expenses. In
addition, the CNL joint venture receives reimbursement of
certain waterpark and other expenses from the condominium
association.
Great
Wolf Lodge Sandusky, Ohio
In March 2001, we opened our Great Wolf Lodge in Sandusky, Ohio.
In October 2005, we sold this resort to our joint venture with
CNL Lifestyle Properties, Inc. We have a 30.32% interest in that
joint venture.
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 9 million visitors each
year. Sandusky is within a
one-hour
drive from Cleveland and Toledo, 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 Applied
Geographic Solutions, Inc., there are approximately
22.9 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 waterfort, tube slides, body slides, hot
tubs and a lazy river. The resort offers a number of
revenue-enhancing amenities, including our themed restaurants
and snack bars, confectionary and ice cream shop, Cub Club, game
arcade, gift shops, an outdoor recreation area and meeting
rooms. The resort also includes non revenue-generating amenities
such as our animated two-story Clock Tower and fitness center.
Great
Wolf Lodge 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 2 million visitors each year.
Traverse City is within a
two-hour
drive from Grand Rapids, Michigan; a
three-hour
drive from the Sault St. Marie, Michigan; and a
four-hour
drive from Detroit and Ann Arbor, Michigan, as well as Windsor,
Ontario. According to Applied Geographic Solutions, Inc., there
are approximately 7.1 million people who live within
180 miles of the resort.
Great Wolf Lodge of Traverse City is located on approximately
48 acres and has 280 guest suites and an approximately
40,000 square-foot indoor waterpark that includes our
signature treehouse waterfort. It also includes a conference
center that is
10,000 square-feet.
The resort offers a number of revenue-enhancing amenities,
including our themed restaurants and snack bars, confectionery
and ice cream shop, Cub Club, full-service spa, kids spa, game
arcade, gift shops, MagiQuest, minigolf, an outdoor recreation
area and approximately 7,000 square feet of meeting space.
The resort also includes non revenue-generating amenities such
as our animated two-story Clock Tower and fitness center.
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Great
Wolf Lodge Kansas City, Kansas
In May 2003, we opened our Great Wolf Lodge in Kansas City,
Kansas, as part of the Village West tourism district that
includes a Cabelas superstore, Nebraska Furniture Mart and
the Kansas NASCAR Speedway. According to the 2009
Travel & Tourism Market Research Handbook, Kansas City
attracts approximately 8 million visitors each year. Kansas
City is within a
one-hour
drive from Topeka, Kansas; a
three-hour
drive from Wichita, Kansas, Des Moines, Iowa and Omaha,
Nebraska; and a
four-hour
drive from St. Louis, Missouri. According to Applied
Geographic Solutions, Inc., there are approximately
6.8 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 waterfort. The resort offers a number of
revenue-enhancing amenities, including our themed restaurants
and snack bars, confectionery and ice cream shop, Cub Club,
full-service spa, kids spa, game arcade, gift shops, MagiQuest,
minigolf, an outdoor recreation area and meeting rooms. The
resort also includes non revenue-generating amenities such as
our animated two-story Clock Tower and fitness center.
Blue
Harbor Resort 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 family vacation destination featuring lake
activities and golf. Due to the lakefront location, we designed
this resort with a nautical theme rather than our typical
Northwoods lodge theme. This resort is styled as 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. 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 Applied Geographic
Solutions, Inc., there are approximately 18.6 million
people who live within 180 miles of the resort.
Blue Harbor Resort has 182 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 waterfort. The resort offers a
number of revenue-enhancing amenities, including our
nautical-themed restaurants and snack bar, confectionery and ice
cream shop, Crew Club, full-service spa, kids spa, game arcade,
gift shops and an outdoor recreation area. This resort also has
an approximately 21,000 square-foot attached conference
facility that seats 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 and
fitness center.
We currently manage the rental of all of the condominium units
at this resort. We receive a rental management fee of
approximately 38% of gross revenue. In addition, we receive
reimbursement of certain waterpark expenses through the
condominium association.
Great
Wolf Lodge Williamsburg, Virginia
In March 2005, we opened our Great Wolf Lodge in Williamsburg,
Virginia, on an
83-acre
site. Williamsburg is a popular family vacation destination with
amusement parks, waterparks and other entertainment attractions.
According to the 2009 Travel & Tourism Market Research
Handbook, the Williamsburg area attracts 4 million visitors
each year. 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; a three and one-half-hour drive
from Raleigh, North Carolina; a four and one-half-hour drive
from Wilmington, Delaware; and a
five-hour
drive from Philadelphia, Pennsylvania. According to Applied
Geographic Solutions, Inc., there are approximately
17.4 million people who live within 180 miles of the
resort.
The resort occupies approximately 36 acres of the site. We
may sell or lease portion of the excess land as out-lots and
retain the remaining acreage to support future expansion of the
resort.
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Great Wolf Lodge of Williamsburg has 405 guest suites and an
approximately 67,000 square-foot indoor waterpark that
includes our signature treehouse waterfort. It also includes a
conference center that is
10,000 square-feet.
The resort offers a number of revenue-enhancing amenities,
including themed restaurants and snack bars, confectionery and
ice cream shop, Cub Club, full-service spa, kids spa, game
arcade, gift shops, MagiQuest, minigolf, gr8 space, an outdoor
recreation area and approximately 11,000 square feet of
meeting rooms. The resort offers non revenue-generating
amenities such as a two-story animated Clock Tower and fitness
center.
Great
Wolf Lodge Pocono Mountains
In October 2005, we opened our 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 family-oriented
attractions and recreational activities. According to the 2009
Travel & Tourism Market Research Handbook, the Pocono
Mountains region attracts approximately 8 million visitors
each year. The resort is less than a
one-hour
drive from Scranton, Pennsylvania; a
two-hour
drive from Manhattan, New York and Philadelphia, Pennsylvania; a
two and one-half-hour drive from Bridgeport, Connecticut; a
three hour drive from Baltimore, Maryland; and a
five-hour
drive from Pittsburgh, Pennsylvania. According to Applied
Geographic Solutions, Inc., there are approximately
45.2 million people who live within 180 miles of the
resort.
Our Great Wolf Lodge of the Pocono Mountains has 401 guest
suites and an approximately 80,000 square-foot indoor
waterpark that includes our signature treehouse waterfort. The
resort offers a number of revenue-enhancing amenities, including
themed restaurants and snack shops, confectionery and ice cream
shop, Cub Club, full-service spa, kids spa, game arcade, gift
shops, MagiQuest, gr8 space, an outdoor recreation area and
approximately 5,800 square feet of meeting rooms. The
resort also includes non revenue-generating amenities such as a
two-story animated Clock Tower and fitness center.
Great
Wolf Lodge Niagara Falls, Ontario
In January 2004, we entered into a license agreement with
Ripleys that authorized 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, and Great Wolf Lodge. The term
of the license agreement is ten years, with the possibility of
up to four successive five-year renewals. Under the license
agreement, Ripleys is required to pay a monthly license
fee and a brand marketing fee that we are obligated to
contribute to a marketing program. 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.
In April 2006, we opened the Great Wolf Lodge in Niagara Falls,
Ontario, Canada. Niagara Falls is a popular family vacation
destination. According to the 2009 Travel & Tourism
Market Research Handbook, Niagara Falls attracts nearly
12 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; a one and three-quarter-hour drive
from Kitchener, Ontario; a two and one-half-hour drive from
London, Ontario; and a four and one-quarter-hour drive from
Windsor, Ontario. According to Applied Geographic Solutions,
Inc., there are approximately 8 million people in the
United States and 9.6 million people in Canada, who live
within 180 miles of the resort.
Great Wolf Lodge of Niagara Falls has 406 guest suites with an
approximately 82,000 square-foot indoor waterpark. The
resort offers a number of revenue-enhancing amenities, including
themed restaurants and snack bars, confectionery and ice cream
shop, Cub Club, full-service spa, game arcade, gift shops,
minigolf, an
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outdoor recreation area and meeting space. The resort also
includes non revenue-generating amenities such as a two-story
animated Clock Tower and fitness center.
Great
Wolf Lodge Mason, Ohio
In December 2006, we opened our Great Wolf Lodge in Mason, Ohio,
on a 39-acre
land parcel adjacent to Kings Island theme park. Mason is a
popular family destination featuring family-oriented attractions
and recreational activities. According to the 2009
Travel & Tourism Market Research Handbook, the
Mason/Cincinnati metro areas attract 5 million visitors per
year. The resort is located less than a
one-hour
drive from Cincinnati and Dayton, Ohio; a one and one-half hour
drive from Columbus, Ohio; and a
two-hour
drive from Louisville, Kentucky, Indianapolis, Indiana and
Lexington, Kentucky. According to Applied Geographic Solutions,
Inc., there are approximately 16.6 million people who live
within 180 miles of the resort.
Our Great Wolf Lodge of Mason, Ohio, has 401 guest suites and an
approximately 84,000 square-foot indoor waterpark. The
resort offers a number of revenue-enhancing amenities, including
themed restaurants and snack bars, confectionery and ice cream
shop, Cub Club, full-service spa, kids spa, game arcade, gift
shops, MagiQuest and an outdoor recreation area. The resort also
includes non revenue-generating amenities such as a two-story
animated Clock Tower and fitness center. The resort also
includes a state-of-the-art 40,000 square-foot conference
center, including an expansive Grand Ballroom, flexible meeting
spaces, an executive boardroom, audio and visual systems, and
multiple pre-function concourses including an outdoor patio.
Great
Wolf Lodge Grapevine, Texas
In December 2007, we opened our Great Wolf Lodge in Grapevine,
Texas, on a
51-acre
site. Grapevine is a popular family destination featuring
family-oriented attractions and recreational activities. The
resort is less than a
one-hour
drive from both Dallas and Fort Worth, Texas. The Dallas
and Fort Worth region is the 6th largest market area
in the United States according to Nielsen Media Research Inc.,
and the resort has a higher population within a
60-mile
radius than any other Great Wolf Lodge resort. The resort is
also a
three-hour
drive from Oklahoma City, Oklahoma; a three and one-half-hour
drive from Shreveport, Louisiana and Austin, Texas; and a four
and one-half-hour drive from Houston and San Antonio,
Texas. According to Applied Geographic Solutions, Inc., there
are approximately 10.7 million people who live within
180 miles of the resort. The resort occupies approximately
30 acres of this site. We may sell a portion of the excess
land as out-lots.
Our Great Wolf Lodge of Grapevine, Texas, has 605 guest suites
and an approximately 78,000 square-foot indoor waterpark.
The resort offers a number of revenue-enhancing amenities,
including themed restaurants and snack bars, confectionery and
ice cream shop, Cub Club, full-service spa, kids spa, game
arcade, gift shops, MagiQuest, gr8_space and an outdoor
recreation area. The resort also includes non revenue-generating
amenities such as a two-story animated Clock Tower and fitness
center. In December 2008, we opened the expansion of this resort
which includes 27,000 square feet of additional meeting
space.
Great
Wolf Lodge Grand Mound, Washington
In 2005, we entered into a joint venture with The Confederated
Tribes of the Chehalis Reservation to develop a Great Wolf Lodge
resort and conference center on a
39-acre land
parcel in Grand Mound, Washington. We operate the resort under
the Great Wolf Lodge brand. The Confederated Tribes of the
Chehalis Reservation has leased the land needed for the resort
to the joint venture on favorable terms. Both parties maintain
equity positions in the joint venture. The resort opened in
March 2008. The resort is the first family destination vacation
resort with an indoor waterpark in the Pacific Northwest. The
resort is a less than
one-hour
drive from Olympia, Washington; an hour and half drive from
Seattle, Washington and Portland, Oregon; a
three-hour
drive from Yakima, Washington; a
four-hour
drive from Vancouver, British Columbia; and a
five-hour
drive from Spokane, Washington. According to Applied Geographic
Solutions, Inc., there are approximately 7.8 million people
who live within 180 miles of the resort.
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Our Great Wolf Lodge of Chehalis, Washington, has 398 guest
suites and an approximately 60,000 square-foot indoor
waterpark. The resort offers a number of revenue-enhancing
amenities, including themed restaurants and snack bars,
confectionery and ice cream shop, a full-service spa, game
arcade, gift shops, MagiQuest, minigolf, gr8_space, an outdoor
recreation area and an approximately 30,000 square-foot
conference center. The resort also includes non
revenue-generating amenities such as a two-story animated Clock
Tower and fitness center.
Property
Under Construction
Great
Wolf Lodge Concord, North Carolina
In September 2007, we purchased a
37-acre site
in Concord, North Carolina and began construction on a Great
Wolf Lodge resort. Concord is a popular family destination
featuring family-oriented attractions and recreational
activities. The Concord site is located 15 miles from
downtown Charlotte at Exit 49 on Interstate 85. This freeway
interchange is well known throughout the Carolinas mostly due to
its main attraction draws, Lowes Motor Speedway and the
Concord Mills shopping center. The resort is a less than
one-hour
drive from Charlotte, North Carolina; a one and one-half hour
drive from Greensboro/Winston-Salem, North Carolina; a
two-hour
drive from Columbia, South Carolina; and a two and one-half-hour
drive from Raleigh and Asheville, North Carolina. According to
Applied Geographic Solutions, Inc., there are approximately
14.7 million people who live within 180 miles of the
resort.
Upon completion, Great Wolf Lodge of Concord, North Carolina
will have 402 guest suites and approximately 97,000 square
feet of indoor entertainment, including an 84,000 square
foot indoor waterpark. The resort will offer a number of
revenue-enhancing amenities, including themed restaurants and
snack bars, confectionery and ice cream shop, full-service spa,
game arcade, gift shops, MagiQuest, minigolf, gr8_space, an
outdoor recreation area and an approximately
20,000 square-foot conference center. The resort also will
include non revenue-generating amenities such as a two-story
animated Clock Tower and fitness center. We anticipate that this
resort will open in March 2009.
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 make efforts
to increase total resort revenue by increasing:
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Average Room Rate: We attempt to increase
our average room rate over time by driving demand for our
resorts and focusing on yield management techniques. We strive
to increase demand through intelligent sales, marketing and
public relations efforts, by increasing our visibility and by
enhancing our brand image. We attempt 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. Our average room rate was approximately
$250 for the year ended December 31, 2008.
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Average Occupancy: We seek to maintain high
occupancy levels during peak times and also 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, weekends, 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. Our
average occupancy was approximately 62.9% for the year ended
December 31, 2008.
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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 of our resorts feature a
combination of the following amenities: at least one themed
restaurant, an ice cream shop and confectionery, snack shop, an
full-service adult spa, kids spa, gift shop, game
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arcade, MagiQuest, minigolf and gr8 space. Our average non-room
revenue, including the revenue from these amenities, was
approximately $134 per occupied room night for the year ended
December 31, 2008. 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 expect to 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 attempt to
continue to take advantage of the following economies of scale:
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Increased Purchasing Power: We strive to
continue to capitalize on our increasing 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. We have entered into an
arrangement with a nationally recognized hospitality procurement
company to further leverage our buying power. In addition, we
intend to continue to make efforts to manage increases and
fluctuations in the cost of electricity, water and natural gas
for our resorts by entering into volume-based contracts where we
are able to do so.
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Centralized Services: By centralizing certain
of our services, we focus on decreasing our
per-unit
costs, increasing our control over those services and being 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 135 full- and
part-time employees and accepts reservations for our resorts.
The call center also has the capacity to efficiently handle high
call volumes and should require only limited additional
incremental costs over the next several years as we increase our
portfolio of resorts. In addition, as we have grown we have
focused on increasing the functionality of our web-based online
reservations system. We expect this centralized function to
allow us to further efficiently handle an increasing volume of
guest reservations with limited incremental costs.
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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
signature treehouse waterfort, to our mascots and recognizable
logos and merchandise. We believe we have fostered strong
customer and brand loyalty, which is evidenced by our relatively
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 strive
to be the first to develop and operate family entertainment
resorts featuring indoor waterparks in our selected target
markets. We seek 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 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 additional resorts, primarily as licensed or
minority-owned resorts, in major domestic markets
and/or
international markets.
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Selective Sales of Ownership Interests/Recycling of
Capital: We will selectively consider
opportunities to sell partial or whole interests in one or more
of our owned and operated properties, as we did
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in our CNL joint venture. We intend to continue to manage all of
our Great Wolf Lodge branded resorts, and we will consider
transactions that allow us to maintain our management/licensing
position at a resort while realizing value created through our
development expertise. In those situations, we expect then to
recycle capital generated by such transactions for investment in
future growth opportunities.
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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 seek to enter into license and management agreements with
other 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 entered into resort ownership joint ventures
with CNL Lifestyle Properties and The Confederated Tribes of the
Chehalis Reservation and we are actively exploring other
possible joint venture arrangements for future properties.
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Expanding and Enhancing Existing Resorts: We
seek to continue to focus on growth opportunities at our
existing resorts by adding revenue-enhancing features that drive
ancillary vacation spending at certain of our resorts and meet
our target returns, including non-water based attractions. We
also intend to continue to evaluate 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.
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Our
Competitive Strengths
We are the market leader for family entertainment resorts that
feature indoor waterparks and other family-oriented amenities in
North America. 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, gift shop, snack shop,
animated Clock Tower and fireside bedtime stories. We also have
amenities and activities tailored to each member of the family,
including our full-service Aveda spa, Scooops Kids Spa, Cub
Club, MagiQuest, minigolf, gr8 space 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, 2008, we generated
approximately 56% of our rooms 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 1,970 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
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generally are not impacted by weather conditions, we offer our
guests a reliable experience. On average, we believe that a
two-night stay at our resorts for a family of four, is an
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 have increased in recent 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 generally less expensive and more convenient
than destinations that require air travel.
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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 North America 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. 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
costs in excess of $120,000 and takes from one to three years to
develop, which includes market selection, site selection and
permitting, an additional 18 months or more to build.
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Focus on Safety. We invest heavily in safety
measures in the design, construction 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 significant
experience in the hospitality, family entertainment 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
what we believe is 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 helping to assure 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 to the United States in Wisconsin Dells, Wisconsin,
and has evolved there since 1987. In an effort to boost
occupancy and daily rates, as well as capture off-season demand,
hotel operators in the Wisconsin Dells market began expanding
indoor pools and adding waterslides and other water-based
attractions to existing hotels and resorts. The success of these
efforts prompted several local operators to build new, larger
destination resorts based primarily on 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 our predecessor company
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. 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. No operator
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or developer other than Great Wolf Resorts has established a
national portfolio of destination family entertainment resorts
featuring indoor waterparks.
No standard industry definition for a family entertainment
resort featuring an indoor waterpark has developed. A recent
Hotel & Leisure Advisors, LLC (H&LA) survey
indicates that there are 132 open indoor waterpark resort
properties in the United States and Canada. Of the total, 46 are
considered indoor waterpark destination resorts
offering more than 30,000 square feet of indoor waterpark
space. Of these 46 properties, 11 are Great Wolf Resorts
properties. The same survey indicated 13 openings of indoor
waterpark resorts projected for 2009. The 2009 opening include
only two indoor waterpark destination resorts; one of those two
is our property in Concord, North Carolina. Most of our resorts
are located in well-established, traditional drive-to family
vacation destinations, which allow 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.
Resort
Operations
Each of our resorts employs a general manager who is responsible
for the operations of the particular resort and who typically
has extensive experience in the hospitality or family
entertainment industry. Our general managers on average oversee
a staff of 400 or more resort employees and are assisted by a
management team, including directors for each of aquatics,
finance, food and beverage, front office, housekeeping, human
resources, maintenance, retail and sales and marketing. A
corporate-level liaison for most departments ensures consistency
throughout our resorts while allowing a particular resort to
tailor its operations to best meet the needs of its guests.
Prior to assuming responsibility for a resort, general managers
and assistant general managers undergo a proprietary 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
general 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 approximately one month prior to a resorts opening
and remains on site at the new resort for up to 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.
Training
and Development
We believe that our ability to provide a friendly 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. We seek to promote
from within our company. Each new resort employee undergoes an
extensive orientation program and is paired with a more veteran
employee for an initial period 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
committed to 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.
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Sales and
Marketing
We place a significant emphasis on the sales and marketing of
our 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,
electronic mail 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 typically located along major
highways in high traffic areas. In addition, our Web site offers
detailed information about our resorts, including virtual tours
and room layouts.
For new resorts, our marketing efforts generally begin before
construction commences. 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.
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, Web site, print media, radio commercials and sales
presentations.
We have developed Cub Club, a program for our younger guests.
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 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.
Maintenance
and Inspections
Each of our resorts has an experienced aquatics director who is
extensively trained and experienced in water quality and safety.
On-site
maintenance personnel frequently inspect our waterparks. 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 regularly 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 full-time maintenance employees on staff who
ensure building quality and full-time aquatics maintenance
employees who 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 by
considering 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 variety of income ranges.
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Recognized tourist destination. We generally
focus on drive-to destinations that attract a large number of
tourists, including both emerging and traditional family
vacation markets. We believe we can charge
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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 generally
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.
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Based upon these factors, we have identified over 50 domestic
markets as potential locations for our resorts.
Once we have identified a market that meets our development
criteria, we search for potential sites. Acceptable sites may be
difficult to find in some areas. We 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 complete, we secure financing for the
project and begin construction on the resort. This overall
development process generally takes from two to four years or
longer from identification of a market to completion of a 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 Hotel & Leisure Advisors, LLC (H&LA)
survey indicates that there are 132 open indoor waterpark resort
properties in the United States and Canada. Of the total, 46 are
considered indoor waterpark destination resorts
offering more than 30,000 square feet of indoor waterpark
space. Of these 46 properties, 11 are Great Wolf Resorts
properties. The same survey indicated 13 openings of indoor
waterpark resorts projected for 2009. The 2009 opening include
only two indoor waterpark destination resorts; one of those two
is our property in Concord, North Carolina.
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 a
result, 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, is
strategically located or offers more
and/or
larger waterpark attractions than our resorts.
In several 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,
un-themed, waterparks and larger, more
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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. In addition to Wisconsin Dells, we face
direct competition from other indoor waterpark destination
resorts in the Sandusky, Traverse City, Kansas City, Pocono
Mountains and Mason areas.
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.
Governmental
Regulation
The ownership and management of our resorts, as well as our
development and construction of new resorts, subjects us to
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, and some of the individual components of our resorts
such as our spas, waterparks, and others, 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, which may include 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
resort 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
operate that property.
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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.
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
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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 environmental
liability or compliance concerns at our Sheboygan resort that we
believe would materially adversely affect our financial
condition or results of operations. It is possible; however,
that our efforts have not identified all environmental
conditions at the property or that environmental condition 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 over the past few years 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 Blue Harbor
Resort, Great Wolf Lodge, Great Wolf Resorts, gr8 space,
KidCabin and Scooops Kid Spa 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, 2008, we had approximately 200 corporate
employees, including our central reservations center employees,
and approximately 4,100 resort-level employees, approximately
1,650 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 are covered by a collective
bargaining agreement. We believe that our relationship with our
employees is generally good.
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Offices
We lease approximately 13,800 square feet of office space
for our corporate headquarters office and approximately
9,800 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, approximately 1,500 square feet
of office space in North Ridgeville, Ohio, and approximately
300 square feet of office space in New York, New York. We
believe these facilities are adequate for our current needs.
Domestic
and Foreign Operations
We derive a portion of our revenues from licensing fees,
management fees, construction management fees and central
reservations fees paid by the Great Wolf Lodge resort located in
Niagara Falls, Ontario, Canada. During 2008, 2007 and 2006, the
total revenue we received from U.S. operations was
$243,041, $185,015 and $148,648, respectively, and the total
revenue from Canadian operations was $2,497, $2,565 and $1,664,
respectively. We receive no revenue from any foreign country
other than Canada. We have no long-lived assets located outside
of the United States.
Code
of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that
applies to all our employees, including our principal executive
officer and senior financial officers. It is available in the
investor relations section of our Web site, which is located at
www.greatwolf.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 United States Securities Exchange
Commission (SEC) or any other regulatory agency or NASDAQ
requires us to disclose, we intend to disclose these events in
the investor relations section of our Web site.
Available
Information
We maintain a Web site at www.greatwolf.com. Our Annual
Report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to such reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (the Exchange Act), as well as our Annual Report to
stockholders, proxy statements and Section 16 reports on
Forms 3, 4, and 5, are available free of charge via
EDGAR/IDEA through the SECs Web site at
www.sec.gov. On our Web site we have a page for all of
our filings that is updated automatically when filings are added
to the SECs Web site.
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.
Risks
Related to Our Business
Current
economic conditions, including recent disruptions in the
financial markets may adversely affect our industry, business
and results of operations, our ability to obtain financing on
reasonable and acceptable terms and the market price of our
common stock.
The United States economy is currently undergoing a significant
slowdown, which some observers view as a recession, and the
future economic environment may continue to be less favorable
than that of recent years. This slowdown has and could further
lead to reduced consumer and commercial spending in the
foreseeable future. The hospitality industry may experience
significant downturns in connection with, or in anticipation of,
declines in general economic conditions. Declines in consumer
and commercial spending may drive us and our competitors to
reduce pricing, which would have a negative impact on our gross
profit. A continued softening in the economy may adversely and
materially affect our industry, business and results of
operations and we can not accurately predict how severe and
prolonged any downturn might be. Moreover,
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reduced revenues as a result of a softening of the economy may
also reduce our working capital and interfere with our long term
business strategy.
The United States stock and credit markets have recently
experienced significant price volatility, dislocations and
liquidity disruptions, which have caused market prices of many
stocks to fluctuate substantially and the spreads on prospective
and outstanding debt financings to widen considerably. These
circumstances have materially impacted liquidity in the
financial markets, making terms for certain financings
materially less attractive, and in certain cases have resulted
in the unavailability of certain types of financing. Continued
uncertainty in the stock and credit markets may negatively
impact our ability to access additional short-term and long-term
financing, including future securitization transactions, on
reasonable terms or at all, which would negatively impact our
liquidity and financial condition. A prolonged downturn in the
stock or credit markets may cause us to seek alternative sources
of potentially less attractive financing, and may require us to
adjust our business operations accordingly. In addition, if one
or more of the financial institutions that support our existing
credit facilities fails, we may not be able to find a
replacement, which would negatively impact our ability to borrow
under the credit facilities. These disruptions in the financial
markets also may adversely affect our credit rating and the
market value of our common stock.
In addition, if the current pressures on credit continue or
worsen, we may not be able to refinance, if necessary, our
outstanding debt when due, which could have a material adverse
effect on our business. While we believe we have adequate
sources of liquidity to meet our anticipated requirements for
working capital, debt servicing and capital expenditures for the
foreseeable future, if our operating results worsen
significantly and our cash flow or capital resources prove
inadequate, or if interest rates increase significantly, we
could face liquidity problems that could materially and
adversely affect our results of operations and financial
condition.
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 currently intend to develop
additional resorts or possibly to further expand certain of our
existing resorts. Development involves substantial risks,
including the following risks:
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development costs may exceed budgeted or contracted amounts or
may exceed available capital;
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increases in the costs of materials or supplies used in
construction of our resorts;
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changes in applicable building codes, construction materials,
labor costs or construction methodologies may increase
development costs;
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delays in architectural or other design-related services, or in
the commencement or 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 or any terms;
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failure of developed properties to achieve desired revenue or
profitability levels once opened;
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scarcity of suitable development sites, due to existing
development, physical limitation or competition for sites from
competitors that may have greater financial resources or risk
tolerance than we do or other factors; and
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incurrence of substantial costs in the event a development
project is abandoned or modified prior to completion.
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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
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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.
We
compete with other family vacation travel destinations and
resorts.
Our resorts compete with other forms of family vacation travel
and leisure activities, 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:
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location,
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room rates,
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name recognition,
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reputation,
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the uniqueness and perceived quality of the attractions and
amenities,
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the atmosphere and cleanliness of the attractions and amenities,
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the quality and perceived value of the lodging accommodations,
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the quality and perceived value of the food and beverage service,
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convenience,
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service levels and
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reservation systems.
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Many of our markets have become more competitive, including in
particular our Wisconsin Dells, Sandusky, Mason, Pocono
Mountains and Traverse City markets. We anticipate that
competition within some of our markets will increase further 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. 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, as they have in the past, 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.
We may
not be able to achieve or 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 our current portfolio of
eleven resorts at December 31, 2008. We intend to continue
to develop additional resorts and manage additional licensed
resorts owned either by joint ventures in which we have an
equity interest or 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 achieve
and/or
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
23
loss of or 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.
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 young children if their parents do
not provide appropriate supervision. 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, concussions and
other head injuries, sickness from contaminated water,
chlorine-related irritation, 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, increase the cost of or make unavailable to us
the appropriate liability insurance policies and increase our
operating 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. There can
also be no assurance that the liability insurance carried by
Great Lakes prior to our initial public offering (IPO) was
adequate or available to cover any liability related to
incidents occurring prior to our IPO. 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.
We
have a history of losses and we may not be able to achieve or
sustain profitability.
We incurred net losses in the years ended December 31,
2008, 2007 and 2006. 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
sustain or increase profitability on a quarterly or annual
basis, and our failure to do so could adversely affect our
business and financial condition.
Our
business is largely dependent upon family vacation patterns,
which may cause fluctuations in our revenues.
Since most families with young 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 generally 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. There can be no assurance that we would
be able to secure short-term borrowing on favorable terms, or at
all.
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. Regional
economic difficulties, for example the issues affecting domestic
automotive manufacturers and the related impact in Michigan and
surrounding areas, may have a disproportionately negative impact
on our resorts in the affected
24
markets. 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.
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.
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. In recent months, consumer spending
has been adversely affected by economic conditions. Accordingly,
our growth, financial condition and results of operations have
been adversely impacted. Continued adverse developments
affecting economies throughout the world, including a general
tightening of the availability of credit, increasing interest
rates, increasing energy costs, acts of war or terrorism,
natural disasters, declining consumer confidence or significant
declines in the stock market could lead to a further reduction
in discretionary spending on leisure activities, thereby
adversely affecting our business.
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 rooms 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, 2008, we employed approximately
4,100 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
supply in some areas. 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, lower our operating margins, or both.
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
25
through higher room rates and amenity costs, our financial
condition and results of operations may be adversely affected.
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, or losses related to the award of punitive damages
in a legal action. 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.
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.
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 service
marks, copyrights, trademarks 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 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 domestic and international markets.
While we try to ensure that the quality of our brand is
maintained by our current licensees, and will be maintained by
any future licensees, we cannot assure 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
26
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 may not have taken all the steps necessary to protect our
intellectual property in the United States and foreign
countries. 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.
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 a
material 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, gas, telephone 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.
A
significant decline in real estate values may have an adverse
impact on our financial condition.
We own significant amounts of real estate throughout the United
States. A significant decline in real estate values could have
an impact on our ability to readily generate cash flow from the
real estate to meet our debt or other obligations.
If we
fail to maintain effective internal controls over financial
reporting or remediate any future material weakness in our
internal control over financial reporting, we may be unable to
accurately report our financial results or prevent fraud, which
could have a material adverse effect on our financial results
and our stock price.
Our internal controls over financial reporting are designed to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. Effective internal controls over
financial reporting are necessary for us to provide reliable
reports and prevent fraud.
We believe that a control system, no matter how well designed
and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company
have been detected. Failure to maintain effective internal
controls over financial reporting in accordance with
Section 404 of the Sarbanes-Oxley Act could have a material
adverse effect on our business and stock price.
Sustained
increases in costs of medical and other employee health and
welfare benefits may reduce our profitability.
With more than 4,300 employees, our profitability is
substantially affected by costs of current medical benefits. In
some recent years, we experienced significant increases in these
costs as a result of macro-economic factors beyond our control,
including increases in health care costs. At least some of these
macro-economic factors may put upward pressure on the cost of
providing medical benefits. Although we have actively sought to
control increases in these costs, there can be no assurance that
we will succeed in limiting cost increases, and continued upward
pressure could reduce the profitability of our businesses.
We may
have disputes with our joint venture partners owning majority
interests in three resorts that we manage and
license.
We manage and license some of our resort properties. The nature
of our responsibilities under our management agreements to
manage each resort and enforce the standards required for our
brands under both
27
management and license agreements may be subject to
interpretation and may give rise to disagreements in some
instances. We seek to resolve any disagreements in order to
develop and maintain positive relations with current and
potential joint venture partners but may not always be able to
do so. Failure to resolve such disagreements may result in
litigation. In addition, the terms of our management agreements
and license agreements for some of our facilities are influenced
by contract terms offered by our competitors, among other
things. We cannot assure you that any of our current
arrangements will continue or that we will be able to enter into
future collaborations, renew agreements, or enter into new
agreements in the future on terms that are as favorable to us as
those that exist today.
Because
the land used by two of our resorts are subject to ground
leases, termination of these leases by the lessors could cause
us to lose the ability to operate these resorts altogether and
incur substantial costs in restoring the premises.
Our rights to use the land underlying two of our resorts are
based upon our interest under long-term ground leases. Pursuant
to the terms of the ground leases for these resorts, we are
required to pay all rent due and comply with all other lessee
obligations. As of December 31, 2008, the terms of these
ground leases (including renewal options) range from 49 to
95 years. Any pledge of our interest in a ground lease may
also require the consent of the applicable lessor and its
lenders. As a result, we may not be able to sell, assign,
transfer or convey our lessees interest in any resort
subject to a ground lease in the future absent consent of such
third parties even if such transactions may be in the best
interest of our stockholders.
The lessors may require us, at the expiration or termination of
the ground leases, to surrender or remove any improvements,
alterations or additions to the land at our own expense. The
ground leases also generally require us to restore the premises
following a casualty and to apply in a specified manner any
proceeds received in connection therewith. We may have to
restore the premises if a material casualty, such as a fire or
an act of God, occurs and the cost thereof exceeds available
insurance proceeds.
We are
subject to the risks of brand concentration.
We are subject to the potential risks associated with
concentration of our resorts under the Great Wolf Lodge brand
and the brand image associated with each geographic location. A
negative public image or other adverse event which becomes
associated with one of our brands could adversely affect its
revenue and profitability.
A
failure to keep pace with developments in technology could
impair our operations or competitive position.
The hospitality industry continues to demand the use of
sophisticated technology and systems, including those used for
our reservation, revenue management and property management
systems and technologies we make available to our guests. These
technologies and systems must be refined, updated,
and/or
replaced with more advanced systems on a regular basis. If we
are unable to do so as quickly as our competitors or within
budgeted costs and time frames, our business could suffer. We
also may not achieve the benefits that we anticipate from any
new technology or system, and a failure to do so could result in
higher than anticipated costs or could impair our operating
results.
An
increase in the use of third-party Internet reservation services
could adversely impact our revenues.
Some of our resort rooms are booked through Internet travel
intermediaries, such as
Expedia.com®,
Travelocity.com®,
and
Priceline.com®,
serving both the leisure and, increasingly, the corporate travel
and group meeting sectors These intermediaries attempt to
commoditize hotel rooms by aggressively marketing to
price-sensitive travelers and corporate accounts and increasing
the importance of general indicators of quality (such as
three-star downtown hotel) at the expense of brand
identification. These agencies hope that consumers will
eventually develop brand loyalties to their travel services
rather than to our lodging brands. Although we expect to
continue to maintain and even increase the strength of our
brands in the online
28
marketplace, if the amount of sales made through Internet
intermediaries increases significantly, our business and
profitability may be harmed.
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.
We may
have assumed unknown liabilities in connection with the
IPO.
As part of the IPO, we acquired our predecessor companies (The
Great Lakes Companies, Inc. and a number of its related
entities), referred to in this Annual Report on
Form 10-K
as the Predecessor, in a series of transactions we refer to in
this Annual Report on
Form 10-K
as the Formation Transactions. We acquired our Predecessor
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 our IPO and the Formation
Transactions, subject to certain limitations. Since the one year
period expired on December 20, 2005, we have limited
recourse against the founding shareholders for any liabilities
subsequently identified.
We
depend on a seasonal workforce.
Our resort operations are dependent on a seasonal workforce. In
some cases, we hire documented foreign workers to fill certain
staffing needs each season and utilize visas to enable the use
of foreign workers. In addition, we manage seasonal wages and
the timing of the hiring process to ensure the appropriate
workforce is in place. We cannot guarantee that material
increases in the cost of securing our seasonal workforce will
not be necessary in the future. In addition, we cannot guarantee
that we will be able to obtain the visas necessary to hire
foreign workers who are a source for some of the seasonal
workforce. Increased seasonal wages or an inadequate workforce
could have an adverse impact on our results of operations.
Risks
Related to Regulation
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 and the
regulations promulgated there under, 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,
29
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.
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 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 ongoing 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, and of paying penalties, fines, assessments and
the like related to non-compliance, as they now exist or may be
altered in the future, could adversely affect our financial
condition and results of operations. Specifically, the
wastewater treatment plant at our Pocono Mountains resort is
subject to numerous state, federal and other regulations. The
cost of compliance with such regulations for penalties,
remediation and other costs arising out of non compliance, can
be large, as occurred in 2006 when we agreed to pay an
assessment of $833 and incurred other costs in excess of $1,000
to remediate wastewater discharges that were out of compliance
with applicable permits and to prevent further out-of-compliance
discharges. In 2008 and 2007 we incurred other costs of $270 and
$300, respectively, to remediate wastewater discharges that were
out of compliance with applicable permits and to prevent further
out-of-compliance discharges.
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
30
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 participate in the development of
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 environmental
liability or compliance concerns at our Sheboygan resort that we
believe would materially adversely affect our financial
condition or results of operations. It is possible; however,
that our efforts have not identified all environmental
conditions at the property or that environmental condition 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.
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,
31
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 our predecessor company
that we refer to as Condo LLC, may not have been in compliance
with federal and state securities laws. Prior to our IPO and the
completion of the Formation Transactions, interests in Condo LLC
held by our predecessor company were distributed to the
predecessor companys 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.
Failure
to maintain the integrity of internal or customer data could
result in faulty business decisions, damage of reputation and/or
subject us to costs, fines or lawsuits.
Our business requires collection and retention of large volumes
of internal and customer data, including credit card numbers and
other personally identifiable information of our customers as
they are entered into, processed by, summarized by, and reported
by our various information systems. We also maintain personally
identifiable information about our employees. The integrity and
protection of that customer, employee, and company data is
critical to us. If that data is not accurate or complete we
could make faulty decisions. Our customers and employees also
have a high expectation that we will adequately protect their
personal information, and the regulatory environment surrounding
information security and privacy is increasingly demanding, both
in the U.S. and other international jurisdictions in which
we operate. A significant theft, loss or fraudulent use of
customer, employee or company data could adversely impact our
reputation and could result in remedial and other expenses,
fines and litigation.
Changes
in privacy law could adversely affect our ability to market our
products effectively.
Our resorts rely on a variety of direct marketing techniques,
including email marketing, and postal mailings. Any further
restrictions in laws such as the Telemarketing Sales Rule,
CANSPAM Act, and various U.S. state laws, or new federal
laws, regarding marketing and solicitation or international data
protection laws that govern these activities could adversely
affect the continuing effectiveness of email and postal mailing
techniques and could force further changes in our marketing
strategy. If this occurs, we may not be able to develop adequate
alternative marketing strategies, which could adversely impact
the amount and timing of our sales.
Risks
Related to Our Capital Structure
We may
issue partnership units 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 resort-owning entities that we
acquired in the formation transactions. We are the limited
partner of the partnership and the sole general partner of the
partnership is a 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 limited
partnership units may enable us to acquire assets from sellers
seeking certain tax treatment. Any additional operating
partnership interests we issue 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
32
for future dividends, if any. In addition, any partnership
interests may be convertible into our common stock, thus having
a dilutive impact to our common stockholders, and may have
voting or other preferential rights relative to those of our
common stockholders.
Our
stock price has been volatile in the past and may be volatile in
the future.
On December 20, 2004, we completed our IPO. Trading markets
after an initial public offering have often been extremely
volatile. Since our IPO through March 3, 2009, our common
stock has traded at a high of $25.88 and a low of $0.61. The
following factors could cause the price of our common stock in
the public market to fluctuate significantly:
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variations in our quarterly operating results;
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changes in market valuations of companies in the resort or
entertainment industries, generally, and the family
entertainment resort segment, specifically;
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fluctuations in stock market prices and volumes;
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issuances of common stock or other securities in the future;
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the addition or departure of key personnel;
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announcements by us or our competitors of new properties,
acquisitions or joint ventures, or our failure to announce new
properties of a type or in a quantity deemed desirable by
participants in the public market; and
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expectations about macroeconomic condition.
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Volatility in the market price of our common stock may prevent
investors from being able to sell their common stock at or above
the price an investor pays for our common stock. In the past,
class action litigation has often been brought against companies
following periods of volatility in the market price of those
companies common stock. Litigation is often expensive and
diverts managements attention and company resources and
could have a material adverse effect on our business, financial
condition and operating results.
The
sale of a substantial number of shares of our common stock may
cause the market price of our common stock to
decline.
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.
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, and 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. Certain of these provisions could also discourage
proxy contests and make it more difficult for 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.
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Our
organizational documents contain no limitations on the amount of
debt we may incur, so we may become too highly
leveraged.
Our organizational documents do not limit the amount of
indebtedness that we may incur. If we increase the level of our
borrowings, then the resulting increase in cash flow that must
be used for debt service would reduce cash available for
distribution and could harm our ability to make payments on our
outstanding indebtedness and our financial condition.
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 some or all of the following:
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general capital market conditions;
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capital providers 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.
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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.
Investing
through partnerships or joint ventures decreases our ability to
manage risk.
In addition to acquiring or developing resorts, we have from
time to time invested, and expect to continue to invest, as a
co-venturer. Joint venturers often have shared control over the
operation of the joint venture assets. Therefore, joint venture
investments may involve risks such as the possibility that the
co-venturer in an investment might become bankrupt or not have
the financial resources to meet its obligations, or have
economic or business interests or goals that are inconsistent
with our business interests or goals, or be in a position to
take action contrary to our instructions or requests or contrary
to our policies or objectives. Consequently, actions by a
co-venturer might subject any resorts owned by the joint venture
to additional risk. Further, we may be unable to take action
without the approval of our joint venture partners.
Alternatively, our joint venture partners could take actions
binding on the joint venture without our consent. Additionally,
should a joint venture partner become bankrupt, we could become
liable for our partners share of joint venture liabilities.
The
covenants in our mortgage loan agreements impose significant
restrictions on us.
The terms of our mortgage loan agreements 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
34
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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transferring or selling assets currently held by us;
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transferring ownership interests in certain of our
subsidiaries; and
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reducing our tangible net worth below specified levels.
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The failure to comply with any of these covenants could cause a
default under a debt agreement. 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 on favorable terms, if any.
Because
we have guaranteed certain mortgage-related obligations of our
subsidiaries if our subsidiary fails to meet its obligations
under the mortgage, we may be required to satisfy such
obligations and such an undertaking could have an adverse affect
on our financial condition.
We have provided a $15,000 corporate guaranty and
cross-collateralization on the companys Grapevine, Texas
resort property and a $79,900 payment and completion guaranty on
the companys Concord, North Carolina resort property. If
our subsidiaries default on their obligations we would be
required to assume that obligation, including the payment of any
outstanding debt amounts. If we are required to undertake such
obligations, it may have an adverse affect on our business,
financial condition and results of operations.
Certain
of our insiders exercise considerable influence over the
company.
As of the date of this Annual Report on
Form 10-K,
our executive officers and directors, as a group, beneficially
own approximately 9.1% of the outstanding shares of our common
stock. By reason of such holdings, these stockholders acting as
a group could 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.
Forward-Looking
Statements
Certain information included in this Annual Report on
Form 10-K
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 results or 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 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.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
35
We have ten family entertainment resorts in which we own an
equity interest that are currently operating and one additional
resort that is under construction. Unless otherwise indicated,
we own a 100% fee interest in these properties. We are organized
into a single operating division. Within that operating
division, we have three reportable segments in 2008:
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resort ownership/operation, and
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resort third-party management, and
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condominium sales-revenues.
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The properties listed below are included in either our
Resort Ownership/Operation segment or our
Resort Third-Party Management segment.
Information on our properties included in our Resort Third-Party
Management segment is as follows:
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Great Wolf Lodge of Wisconsin Dells is located on 16 acres
in Wisconsin Dells, Wisconsin, all of which have been developed.
This property is owned by a joint venture of which we have a
30.32% minority interest and CNL Lifestyle Properties, Inc. has
a 69.68% majority interest.
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Great Wolf Lodge of Sandusky is located on 15 acres in
Sandusky, Ohio, all of which have been developed. This property
is owned by a joint venture of which we have a 30.32% minority
interest and CNL Lifestyle Properties, Inc. has a 69.68%
majority interest.
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Great Wolf Lodge of Grand Mound is located on 39 leased acres in
Grand Mound, Washington. This property is owned by a joint
venture of which we have a 49% minority interest and The
Confederated Tribes of the Chehalis Reservation has a 51%
majority interest.
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Information on our properties included in our Resort
Ownership/Operation segment is as follows:
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Great Wolf Lodge of Traverse City is located on 48 acres in
Traverse City, Michigan, of which 27 acres have been
developed and 21 acres remain undeveloped.
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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 leased 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 37 acres have been
developed and 46 acres remain undeveloped.
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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 developed and
50 acres remain undeveloped.
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Great Wolf Lodge of Mason is located on 39 acres in Mason,
Ohio. All 39 acres of this property are developed.
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Great Wolf Lodge of Grapevine is located on 51 acres in
Grapevine, Texas, of which 30 acres are developed and
21 acres remain undeveloped.
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Great Wolf Lodge of Concord, which is under construction, is
located on 37 acres in Concord, North Carolina, of which
34 acres are being developed and 3 acres may be
subdivided and developed separately.
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For additional information regarding our resort properties see
Item 1. Business Operating
Properties and Item 1. Business
Properties Under Construction above.
We lease approximately 13,800 square feet of office space
for our corporate headquarters office and approximately
9,800 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, approximately 1,500 square feet
of office space in North Ridgeville, Ohio, and approximately
300 square feet of office space in New York, New York. We
believe these facilities are adequate for our current needs.
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ITEM 3.
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LEGAL
PROCEEDINGS
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We are involved in litigation from time to time in the ordinary
course of our business. We do not believe that the outcome of
any such pending or threatened litigation will have a material
adverse effect on our financial condition or results of
operations. However, as is inherent in legal proceedings where
issues may be decided by finders of fact, there is a risk that
unpredictable decisions adverse to us could be reached.
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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We did not submit any matters to a vote of security holder
during the fourth quarter of 2008.
PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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Our common stock is listed on the NASDAQ Global Market under the
symbol WOLF. The following table sets forth, for the
periods indicated, the high and low sales prices per share for
our common stock.
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Stock Price
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High
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Low
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Fiscal 2007:
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First Quarter
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$
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14.73
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$
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12.91
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Second Quarter
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$
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15.16
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$
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12.15
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Third Quarter
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$
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15.85
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$
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12.27
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Fourth Quarter
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$
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13.46
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$
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9.51
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Fiscal 2008:
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First Quarter
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$
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9.94
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$
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6.29
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Second Quarter
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$
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8.38
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$
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4.34
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Third Quarter
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$
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6.40
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$
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3.00
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Fourth Quarter
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$
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3.80
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$
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0.61
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Fiscal 2009:
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First Quarter through March 3, 2009
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$
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3.05
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$
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1.50
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As of February 27, 2009, there were approximately 183
record holders of our common stock.
The issuance described below were exempt from registration under
the Securities Act, pursuant to Section 4(2) of the
Securities Act and Regulation D promulgated thereunder as
transactions by an issuer not involving a public offering.
In June 2007 we completed a private offering of $28,125 of trust
preferred securities (TPS) through Great Wolf Capital
Trust III (Trust III), a Delaware statutory trust
which is our subsidiary. The securities pay holders cumulative
cash distributions at an annual rate which is fixed at 7.90%
through June 2012 and then floats at LIBOR plus a spread of
300 basis points thereafter. The securities mature in June
2017 and are callable at no premium after June 2012. In
addition, we invested $870 in the Trusts common
securities, representing 3% of the total capitalization of
Trust III. Trust III used the proceeds of the offering
and our investment to purchase from us $28,995 of our junior
subordinated debentures with payment terms that mirror the
distribution terms of the trust securities. The costs of the TPS
offering totaled $932, including $870 of underwriting
commissions and expenses and $62 of costs incurred directly by
Trust III. Trust III paid these costs utilizing an
investment from us. These costs are being amortized over a
10-year
period. The proceeds from our debenture sales, net of the costs
of the TPS offering and our investment in Trust III, were
$27,193.
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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 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.
Performance
Graph
This performance graph shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of
1934, as amended, or otherwise subject to the liabilities under
that Section, and shall not be deemed to be incorporated by
reference into any of our filings under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as
amended.
The following graph depicts a comparison of our total return to
shareholders from December 20, 2004 (the date of our IPO)
through December 31, 2008, relative to the performance of
(i) the NASDAQ 100 Index, (ii) the Russell 2000 Index
and (iii) the Dow Jones U.S. Hotel Index. All indices
shown in the graph assume an investment of $100 on
December 20, 2004 and the reinvestment of dividends paid
since that date. We have never paid cash dividends on our common
stock. The stock price performance shown in the graph is not
necessarily indicative of future price performance.
Securities
Authorized for Issuance Under Equity Compensation
Plans
This information is hereby incorporated by reference to our 2009
Proxy Statement (under the heading Equity Compensation
Plan Information).
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ITEM 6.
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SELECTED
FINANCIAL DATA
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The following table sets forth selected consolidated financial
and operating data on a historical basis for Great Wolf Resorts.
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 completed our IPO, because we did not have any material
corporate operating activity during the period from our
formation until the completion of our IPO.
Great
Wolf Resorts Financial Information
Great Wolf Resorts consolidated financial information
includes:
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our subsidiary that provides resort development and management
services and licenses certain intellectual property;
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our Traverse City, Kansas City, Sheboygan, Williamsburg, Pocono
Mountains, Mason and Grapevine operating resorts;
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for all periods prior to October 2005, the Wisconsin Dells and
Sandusky resorts;
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equity interests in resorts in which we have ownership interests
but which we do not consolidate; and
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our resort that is under construction which we will consolidate.
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Predecessor
Financial Information
The Predecessors combined historical financial information
included the following:
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The Great Lakes Companies, Inc. (GLC) 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;
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the entities that owned our Traverse City, Kansas City and
Sheboygan operating resorts; and
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the entities that owned our Williamsburg and Pocono Mountains
resorts that were under construction.
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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 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, while managed by GLC, were controlled
by affiliates of AIG SunAmerica.
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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 Annual Report on
Form 10-K.
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December 21,
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Year Ended
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Year Ended
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Year Ended
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Year Ended
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2004-
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January 1,
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December 31,
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December 31,
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December 31,
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December 31,
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December 31,
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2004-
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2008
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|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
December 20,
|
|
|
|
Great Wolf
|
|
|
Great Wolf
|
|
|
Great Wolf
|
|
|
Great Wolf
|
|
|
Great Wolf
|
|
|
|
2004
|
|
|
|
Resorts, Inc.
|
|
|
Resorts, Inc.
|
|
|
Resorts, Inc.
|
|
|
Resorts, Inc.
|
|
|
Resorts, Inc.
|
|
|
|
Predecessor
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
Statement of Operations and Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
|
|
$
|
143,395
|
|
|
$
|
112,261
|
|
|
$
|
87,775
|
|
|
$
|
73,207
|
|
|
$
|
3,261
|
|
|
|
$
|
31,438
|
|
Food, beverage and other
|
|
|
74,173
|
|
|
|
56,673
|
|
|
|
43,137
|
|
|
|
36,846
|
|
|
|
1,289
|
|
|
|
|
16,110
|
|
Sales of condominiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,862
|
|
|
|
|
|
|
|
|
|
|
Management and other fees
|
|
|
2,798
|
|
|
|
2,855
|
|
|
|
2,087
|
|
|
|
494
|
|
|
|
79
|
|
|
|
|
3,157
|
|
Management and other fees-affiliates
|
|
|
5,346
|
|
|
|
4,314
|
|
|
|
3,729
|
|
|
|
482
|
|
|
|
|
|
|
|
|
|
|
Other revenue from managed properties(1)
|
|
|
19,826
|
|
|
|
11,477
|
|
|
|
11,920
|
|
|
|
2,524
|
|
|
|
|
|
|
|
|
14,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
245,538
|
|
|
|
187,580
|
|
|
|
148,648
|
|
|
|
139,415
|
|
|
|
4,629
|
|
|
|
|
65,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses by department:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
|
|
|
20,134
|
|
|
|
15,716
|
|
|
|
11,914
|
|
|
|
10,944
|
|
|
|
298
|
|
|
|
|
4,917
|
|
Food, beverage and other
|
|
|
59,949
|
|
|
|
48,300
|
|
|
|
35,923
|
|
|
|
31,407
|
|
|
|
958
|
|
|
|
|
13,678
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
51,902
|
|
|
|
47,915
|
|
|
|
41,421
|
|
|
|
26,894
|
|
|
|
7,372
|
|
|
|
|
18,613
|
|
Property operating costs
|
|
|
37,086
|
|
|
|
30,555
|
|
|
|
23,217
|
|
|
|
24,798
|
|
|
|
295
|
|
|
|
|
8,810
|
|
Depreciation and amortization
|
|
|
46,081
|
|
|
|
36,372
|
|
|
|
25,903
|
|
|
|
26,248
|
|
|
|
1,897
|
|
|
|
|
12,925
|
|
Costs of sales of condominiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,780
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on investment in affiliates
|
|
|
18,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
17,430
|
|
|
|
|
|
|
|
50,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposition of property
|
|
|
19
|
|
|
|
128
|
|
|
|
1,066
|
|
|
|
26,161
|
|
|
|
|
|
|
|
|
|
|
Other expenses from managed properties(1)
|
|
|
19,826
|
|
|
|
11,477
|
|
|
|
11,920
|
|
|
|
2,524
|
|
|
|
|
|
|
|
|
14,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
271,204
|
|
|
|
190,463
|
|
|
|
202,339
|
|
|
|
165,756
|
|
|
|
10,820
|
|
|
|
|
73,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
(25,666
|
)
|
|
|
(2,883
|
)
|
|
|
(53,691
|
)
|
|
|
(26,341
|
)
|
|
|
(6,191
|
)
|
|
|
|
(8,238
|
)
|
Investment income affiliates
|
|
|
(2,187
|
)
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(1,424
|
)
|
|
|
(2,758
|
)
|
|
|
(3,105
|
)
|
|
|
(1,623
|
)
|
|
|
(66
|
)
|
|
|
|
(224
|
)
|
Interest expense
|
|
|
27,277
|
|
|
|
14,887
|
|
|
|
7,169
|
|
|
|
6,728
|
|
|
|
280
|
|
|
|
|
6,748
|
|
Gain on sale of investments and securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,653
|
)
|
Interest on mandatorily redeemable shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, minority interests, and equity in
unconsolidated affiliates
|
|
|
(49,332
|
)
|
|
|
(14,345
|
)
|
|
|
(57,755
|
)
|
|
|
(31,446
|
)
|
|
|
(6,405
|
)
|
|
|
|
(14,870
|
)
|
Income tax benefit
|
|
|
(11,956
|
)
|
|
|
(5,859
|
)
|
|
|
(8,764
|
)
|
|
|
(7,199
|
)
|
|
|
(2,563
|
)
|
|
|
|
|
|
Minority interests, net of tax
|
|
|
|
|
|
|
(452
|
)
|
|
|
(502
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Equity in unconsolidated affiliates, net of tax
|
|
|
3,349
|
|
|
|
1,547
|
|
|
|
761
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(40,725
|
)
|
|
|
(9,581
|
)
|
|
|
(49,250
|
)
|
|
|
(24,413
|
)
|
|
|
(3,842
|
)
|
|
|
|
(14,870
|
)
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(40,725
|
)
|
|
$
|
(9,581
|
)
|
|
$
|
(49,250
|
)
|
|
$
|
(24,413
|
)
|
|
$
|
(3,842
|
)
|
|
|
$
|
(12,942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss on interest rate swaps
|
|
|
(387
|
)
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(40,338
|
)
|
|
$
|
(9,968
|
)
|
|
$
|
(49,250
|
)
|
|
$
|
(24,413
|
)
|
|
$
|
(3,842
|
)
|
|
|
$
|
(12,942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(1.32
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(1.63
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(1.32
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(1.63
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
Weighted average common shares outstanding Basic
|
|
|
30,827,860
|
(2)
|
|
|
30,533,249
|
(2)
|
|
|
30,299,647
|
(2)
|
|
|
30,134,146
|
(2)
|
|
|
30,132,896
|
(2)
|
|
|
|
|
|
Diluted
|
|
|
30,827,860
|
(2)
|
|
|
30,533,249
|
(2)
|
|
|
30,299,647
|
(2)
|
|
|
30,134,146
|
(2)
|
|
|
30,132,896
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 21,
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
2004-
|
|
|
|
January 1,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2004-
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
December 20,
|
|
|
|
Great Wolf
|
|
|
Great Wolf
|
|
|
Great Wolf
|
|
|
Great Wolf
|
|
|
Great Wolf
|
|
|
|
2004
|
|
|
|
Resorts, Inc.
|
|
|
Resorts, Inc.
|
|
|
Resorts, Inc.
|
|
|
Resorts, Inc.
|
|
|
Resorts, Inc.
|
|
|
|
Predecessor
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
33,534
|
|
|
$
|
29,751
|
|
|
$
|
29,723
|
|
|
$
|
17,788
|
|
|
$
|
762
|
|
|
|
$
|
3,637
|
|
Investing activities
|
|
|
(144,612
|
)
|
|
|
(213,867
|
)
|
|
|
(107,123
|
)
|
|
|
(65,496
|
)
|
|
|
(97,583
|
)
|
|
|
|
(64,472
|
)
|
Financing activities
|
|
|
106,712
|
|
|
|
105,935
|
|
|
|
119,396
|
|
|
|
23,081
|
|
|
|
172,151
|
|
|
|
|
61,424
|
|
Balance Sheet Data (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
840,061
|
|
|
$
|
770,805
|
|
|
$
|
683,439
|
|
|
$
|
605,526
|
|
|
$
|
622,025
|
|
|
|
|
|
|
Total debt
|
|
|
507,051
|
|
|
|
396,302
|
|
|
|
289,389
|
|
|
|
168,328
|
|
|
|
142,665
|
|
|
|
|
|
|
Non-GAAP financial Measures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
18,181
|
(3)
|
|
$
|
32,305
|
(3)
|
|
$
|
(28,221
|
)(3)
|
|
$
|
(369
|
)(3)
|
|
$
|
(4,294
|
)
|
|
|
$
|
6,507
|
|
|
|
|
(1) |
|
Reflects reimbursement of payroll, benefits and costs related to
the operations of properties managed by us in
2005-2008
and the Predecessor in 2004. |
|
(2) |
|
Included in the total shares outstanding of our common stock are
11,765 shares (in 2008) and 129,412 shares (in
2004-2007)
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 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 1A of this Annual
Report on
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 1A of this Annual
Report on
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
The terms Great Wolf Resorts, us,
we and our are used in this report to
refer to Great Wolf Resorts, Inc. and its consolidated
subsidiaries.
Business. We are a family entertainment resort
company that provides our guests with a high-quality vacation at
an affordable price. We are the largest owner, operator and
developer in North America of drive-to family resorts featuring
indoor waterparks and other family-oriented entertainment
activities. Our resorts generally feature approximately 270 to
600 family suites that sleep from six to ten people and each
includes a wet bar, microwave oven, refrigerator and dining and
sitting area. We provide a full-service entertainment resort
experience to our target customer base: families with children
ranging in ages from 2 to 14 years old that live within a
convenient driving distance of our resorts. We operate under our
Great Wolf Lodge and Blue Harbor Resort brand names. Our resorts
are open 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
41
to our indoor waterpark, and other revenue-generating resort
amenities. Each of our resorts features a combination of the
following revenue-generating amenities: themed restaurants and
snack bars, an ice cream shop and confectionery, Cub Club,
full-service spa, kids spa, game arcade, gift shops, MagiQuest
(an interactive, live-action, fantasy adventure game), minigolf,
gr8_space and meeting space. We also generate revenues from
licensing arrangements, resort management fees, development
fees, construction management fees and other fees with respect
to properties owned in whole or in part by third parties.
The following table presents an overview of our portfolio of
operating resorts and our resort under construction. As of
December 31, 2008, we operate ten Great Wolf Lodge resorts
(our signature Northwoods-themed resorts) and one Blue Harbor
Resort (a nautical-themed property).
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Indoor
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Opened/
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Number of
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Number of
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Entertainment
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Ownership Percentage
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Opening
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Guest Suites
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Condo Units(1)
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Area(2)
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(Approx.
ft2)
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Existing Resorts:
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Wisconsin Dells, WI(3)
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30.32
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%
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1997
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308
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77
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102,000
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Sandusky, OH(3)
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30.32
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%
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2001
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271
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41,000
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Traverse City, MI
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100
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%
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2003
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280
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57,000
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Kansas City, KS
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100
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%
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2003
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281
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57,000
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Sheboygan, WI
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100
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%
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2004
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182
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64
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54,000
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Williamsburg, VA
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100
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%
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2005
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405
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87,000
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Pocono Mountains, PA
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100
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%
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2005
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401
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101,000
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Niagara Falls, ONT(4)
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2006
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406
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104,000
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Mason, OH
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100
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%
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2006
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401
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105,000
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Grapevine, TX(5)
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100
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%
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2007
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605
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110,000
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Grand Mound, WA(6)
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49
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%
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2008
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398
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74,000
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Resort Under Construction:
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Concord, NC(7)
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100
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%
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March 2009
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402
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97,000
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(1) |
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Condominium units are individually owned by third parties and
are managed by us. |
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(2) |
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Our indoor entertainment areas generally include our indoor
waterpark, game arcade, childrens activity room, family
tech center,
MagiQuest®
and fitness room, as well as our spa in the resorts that have
such amenities. |
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(3) |
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These properties are owned by a joint venture. CNL Lifestyle
Properties, Inc. (CNL), a real estate investment trust focused
on leisure and lifestyle properties, owns a 69.68% interest in
the joint venture, and we own a 30.32% interest. We operate the
properties and license the Great Wolf Lodge brand to the joint
venture under long-term agreements through October 2020, subject
to earlier termination in certain situations. |
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(4) |
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An affiliate of Ripley Entertainment, Inc. (Ripley) owns this
resort. We have granted Ripley a license to use the Great Wolf
Lodge name for this resort through April 2016. We will manage
the resort on behalf of Ripley through April 2009. |
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(5) |
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In late 2007, we began construction on an additional 203 suites
and 20,000 square feet of meeting space as an expansion of
this resort. The meeting space, along with 92 rooms, was opened
in December 2008, with the rest of the rooms completed and
opened in January 2009. |
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(6) |
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This property is owned by a joint venture. The Confederated
Tribes of the Chehalis Reservation (Chehalis) own a 51% interest
in the joint venture, and we own a 49% interest. We operate the
property and license the Great Wolf Lodge brand to the joint
venture under long-term agreements through April 2057, subject
to earlier termination in certain situations. The joint venture
leases the land for the resort from Chehalis. |
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(7) |
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We are developing a Great Wolf Lodge resort in Concord, North
Carolina. The Northwoods-themed,
402-suite
resort will provide a comprehensive package of destination
lodging amenities and activities. Construction on the resort
began in October 2007 with expected completion in March 2009. |
42
Industry Trends. We operate in the family
entertainment resort segment of the travel and leisure industry.
The concept of a family entertainment resort with an indoor
waterpark was first introduced to the United States in Wisconsin
Dells, Wisconsin, and has evolved there since 1987. In an effort
to boost occupancy and daily rates, as well as capture
off-season demand, hotel operators in the Wisconsin Dells market
began expanding indoor pools and adding waterslides and other
water-based attractions to existing hotels and resorts. The
success of these efforts prompted several local operators to
build new, larger destination resorts based primarily on the
concept.
We believe that these 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. 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.
While no standard industry definition for a family entertainment
resort featuring an indoor waterpark has developed, we generally
consider resorts with at least 200 rooms featuring indoor
waterparks larger than 25,000 square feet, as well as a
variety of water slides and other water-based attractions, to be
competitive with our resorts. A recent Hotel & Leisure
Advisors, LLC (H&LA) survey indicates that there are 132
open indoor waterpark resort properties in the United States and
Canada. Of the total, 46 are considered indoor waterpark
destination resorts offering more than 30,000 square
feet of indoor waterpark space. Of these 46 properties, 11
are Great Wolf Resorts properties. The same survey indicated 13
openings of indoor waterpark resorts projected for 2009. The
2009 openings include only two indoor waterpark destination
resorts, one of which is our property in Concord, North Carolina.
We believe recent vacation trends favor drive-to family
entertainment resorts featuring indoor waterparks, as the number
of families choosing to take shorter, more frequent vacations
that they can drive to have increased in recent years. We
believe that these trends will continue. We believe indoor
waterpark resorts are generally less affected by changes in
economic cycles, as drive-to destinations are less expensive and
more convenient than destinations that require air travel.
Outlook. We believe that no other operator or
developer other than us has established a 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. Similar family entertainment resorts compete directly
with several of our resorts.
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 additional resorts and target selected
licensing and joint venture 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.
43
Our business model is highly dependent on consumer spending, and
a vacation experience at one of our resorts is a discretionary
expenditure for a family. Over the past 18 months, the
slowing U.S. economy has led to a decrease in available
credit for consumers and a related decrease in consumer
discretionary spending. This trend continued during 2008 as
consumers experienced several negative economic impacts,
including:
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record prices for many commodities, most notably oil, that
resulted in increased costs for gasoline and other consumer
staples;
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severe turbulence in the banking and lending sectors, which has
led to a general lessening of the availability of credit to
consumers;
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an increased national unemployment rate;
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a continuing decline in the national average of home
prices; and
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high volatility in the stock market that led to substantial
declines in leading market averages and aggregate household
savings.
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These and other similar factors impact the amount of
discretionary income for consumers and consumer sentiment toward
discretionary purchases. As a result, these types of items could
negatively impact consumer spending patterns in future periods.
While we believe the convenience, quality and overall
affordability of a stay at one of our resorts continues to be an
attractive alternative to other potential family vacations, a
sustained decrease in overall consumer discretionary spending
could have a material, adverse effect on our overall results.
Also:
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We believe that our Traverse City and Sandusky resorts have been
and will continue to be affected by especially adverse general
economic circumstances in the Michigan/Northern Ohio region
(such as bankruptcies of several major companies
and/or large
announced layoffs by major employers) and increased competition
that has occurred in these markets over the past three years.
The Michigan/Northern Ohio region includes cities that have
historically been the Traverse City and Sandusky resorts
largest origin of customers. We believe the adverse general
economic circumstances in the region have negatively impacted
overall discretionary consumer spending in that region over the
past few years and may continue to do so going forward. Although
we have taken steps to reduce our operating costs at these
resorts, we believe the general regional economic downturn has
and may continue to have an impact on the operating performance
of our Traverse City and Sandusky resorts. As discussed further
below, due to the continued adverse current and expected market
conditions for our Sandusky resort, in 2008 we recorded an
$18,777 impairment loss related to our interest in the joint
venture that owns the Wisconsin Dells and Sandusky resorts.
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Our Wisconsin Dells property has been significantly impacted by
the abundance of competing indoor waterpark resorts in that
market. The Wisconsin Dells market has approximately 16 indoor
waterpark resorts that compete with us. We believe this large
number of competing properties in a relatively small tourist
destination location has and may continue to have an impact on
the operating performance of our Wisconsin Dells resort. As
discussed in Critical Accounting Policies and
Estimates below, due to the continued adverse current and
expected market conditions for our Wisconsin Dells resort, in
2008 we recorded an $18,777 impairment loss related to our
interest in the joint venture that owns the Wisconsin Dells and
Sandusky resorts.
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We have experienced a much slower-than-expected occupancy
ramp-up and
lower-than-expected average daily room rates at our Sheboygan,
Wisconsin property since its opening in 2004. We believe this
operating weakness has been primarily attributable to the fact
that the overall development of Sheboygan as a tourist
destination continues to lag materially behind our initial
expectations. We believe this has materially impacted and will
likely continue to impact the consumer demand for our indoor
waterpark resort in that market and the operations of the resort.
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Our Mason resort opened its first phase in December 2006 and is
ramping up more slowly than we had projected, which we believe
is due, in part, to the opening of competitive properties in the
region and to perceived operating issues at the resort in early
2007.
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44
Our external growth strategies are based primarily on developing
additional indoor waterpark resorts (primarily in conjunction
with joint venture partners) or by licensing our intellectual
property and proprietary systems to others. Developing resorts
of the size and scope of our family entertainment resorts
generally requires obtaining financing for a significant portion
of a projects expected construction costs. The general
tightening in U.S. lending markets has dramatically
decreased the overall availability of construction financing.
Although the ultimate effect on our external growth strategy of
the current credit environment is difficult to predict with
certainty, we believe that the availability of construction
financing may be lessened in the future and that terms of
construction financing may be less favorable than we have seen
over the past few years. We believe we may be able to continue
to obtain construction financing sufficient to execute
development strategies; however, the more difficult credit
market environment is likely to continue at least through 2009,
and possibly beyond.
Revenue and Key Performance Indicators. We
seek to generate positive cash flows and maximize our return on
invested capital from each of our owned resorts. Our rooms
revenue represents sales to guests of room nights at our resorts
and is the largest contributor to our cash flows and
profitability. Rooms revenue accounted for approximately 66% of
our total resort revenue for the year ended December 31,
2008. 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 and computer software 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:
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Monitoring our historical trends for occupancy and estimating
our high occupancy nights;
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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;
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Structuring rates to allow us to offer our previous guests the
best rate while simultaneously working with a promotional
partner or offering Internet specials;
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Monitoring sales of room types continously to evaluate the
effectiveness of offered discounts; and
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Offering specials on standard suites and yielding better rates
on larger suites when standard suites sell out.
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In addition, we seek to maximize the amount of time and money
spent
on-site by
our guests by providing a variety of revenue-generating
amenities.
We have several key indicators that we use to evaluate the
performance of our business. These indicators include the
following:
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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;
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Total revenue per available room, or Total RevPAR;
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Total revenue per occupied room, or Total RevPOR; and
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Earnings before interest, taxes, depreciation and amortization,
or EBITDA.
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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.
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ADR is calculated by dividing total rooms revenue by total
occupied rooms.
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45
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RevPAR is the product of occupancy and ADR.
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Total RevPAR and Total RevPOR are defined as follows:
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Total RevPAR is calculated by dividing total revenue by total
available rooms.
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Total RevPOR is calculated by dividing total revenue by total
occupied rooms.
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Occupancy allows us to measure the general overall demand for
rooms at our resorts and the effectiveness of our sales and
marketing strategies. ADR allows us to measure the effectiveness
of our yield management strategies. While ADR and RevPAR only
include rooms revenue, Total RevPOR and Total RevPAR include
both rooms revenue and other revenue derived from food and
beverage and other amenities at our resorts. We consider Total
RevPOR and Total RevPAR to be key performance indicators for our
business because we derive a significant portion of our revenue
from food and beverage and other amenities. For the year ended
December 31, 2008, approximately 34% 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 we believe 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 we believe
maintaining certain occupancy levels is key to covering our
fixed costs. Increases in total revenues as a result of higher
occupancy are, however, typically accompanied by additional
incremental costs (including housekeeping services, utilities
and room amenity costs). In contrast, increases in total
revenues from higher ADR and Total RevPOR are typically
accompanied by lower incremental costs and result, generally, 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 below for further
discussion of our use of EBITDA and a reconciliation to net
income.
Critical
Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance
with GAAP in the United States. The application of GAAP requires
us to make estimates and assumptions that affect the reported
values of assets and liabilities, revenue and expenses and
related disclosure of contingent assets and liabilities. 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.
Depreciation and amortization are recorded on a straight-line
basis over the estimated useful lives of the assets as follows:
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Buildings and improvements
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20-40 years
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Fixtures and equipment, including waterpark equipment
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5-15 years
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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.
46
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 had no impairment losses related to long-lived assets
in any of the periods presented.
Carrying
Values of Goodwill, Intangible Assets and Investment in
Affiliates.
Goodwill We are required to assess goodwill
for impairment annually, or more frequently if circumstances
indicate impairment may have occurred. To test goodwill for
impairment, we compare the fair value of the individual resort
to which the goodwill is assigned to the carrying value of that
resort. To estimate the resorts fair value we used a
discounted cash flow model. Each of our resorts is considered a
reporting unit. If the analysis indicates that the fair value is
less than the carrying 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
at the assessment date. 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 its carrying
value, an impairment loss is recognized. Any impairment losses
are recorded as operating expenses, which reduce net income. Our
assessment of the fair value is dependent on the operating
results of the resorts. Future adverse changes in the
hospitality and lodging industry, market conditions or poor
operating results of the underlying real estate assets could
result in future losses or the inability to recover the carrying
value of goodwill.
We originally recorded on our consolidated balance sheet
approximately $129,086 of goodwill. Also, in conjunction with
our purchase of a minority owners 15% equity interest in
our Mason resort, we recorded approximately $1,409 of goodwill
in 2007. In 2005 we wrote off $62,091 of goodwill in conjunction
with the sale of 70% interests in our Wisconsin Dells and
Sandusky resorts. In 2006 we wrote off $50,975 of goodwill on
our Traverse City and Blue Harbor resorts as the implied fair
value of the goodwill, as discussed above, was deemed less than
the carrying value. In the fourth quarter of 2008, as part of
our annual impairment assessment of our remaining goodwill on
our Kansas City and Mason resorts, we considered various pieces
of information, including:
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2009 budget information;
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The impact of the December holiday season on overall 2008
financial results;
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Full year 2008 financial results for each of the resorts;
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Impact of/changes in the economy since the severe economic
disruptions of 2008; and
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Forecasted booking trends for 2009.
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We required all of this information to complete our impairment
assessments. We concluded that the implied fair value of the
goodwill, as discussed above, on our Kansas City and Mason
resorts was less than the carrying value of those goodwill
amounts for each of the resorts. As a result, we wrote off
$17,430 of goodwill on our Kansas City and Mason resorts in the
2008 fourth quarter. As of December 31, 2008, all goodwill
has been written off.
Intangible Assets When circumstances, such as
adverse market conditions, indicate that the carrying value of
an indefinite-lived intangible asset may be impaired, we perform
an analysis to review the recoverability of the assets
carrying value. To test indefinite-lived intangible assets for
impairment, we compare the fair value of the intangible asset
with its carrying amount. If the fair value of the intangible
asset is less than its carrying value, an impairment loss is
recognized. Any impairment losses are recorded as
47
operating expenses, which reduce net income. Future adverse
changes in the hospitality and lodging industry, market
conditions or poor operating results of the underlying real
estate assets could result in future losses or the inability to
recover the carrying value of these intangibles. We had no
impairment losses related to intangible assets in any of the
periods presented.
Our consolidated balance sheet reflects approximately $23,829 of
intangible assets related to our Great Wolf Lodge brand name.
This brand name intangible asset has an indefinite life.
Investments in Affiliates When circumstances,
such as adverse market conditions, indicate that the carrying
value of our investments in affiliates may be impaired, we
perform an analysis to review the recoverability of the
assets carrying value. To test investment in affiliates
for impairment, we compare the fair value of the investment in
affiliates with its carrying amount. If the fair value of the
investment in affiliates is less than its carrying value, an
impairment loss is recognized. Any impairment losses are
recorded as operating expenses, which reduce net income. Future
adverse changes in the hospitality and lodging industry, market
conditions or poor operating results of the underlying
investments could result in future losses or the inability to
recover the carrying value of these assets.
In the fourth quarter of 2008, we concluded that continued
adverse current and expected market conditions for our Wisconsin
Dells and Sandusky resorts indicated that our minority
investment in the joint venture that owns these resorts may be
impaired. Accordingly, we conducted an analysis, as described
above, to assess the recoverability of the carrying value of our
investments in that affiliate. As part of that analysis, we
considered various pieces of information, including:
|
|
|
|
|
2009 budget information;
|
|
|
|
The impact of the December holiday season on overall 2008
financial results;
|
|
|
|
The relative success of operational adjustments implemented
throughout 2008 to improve the resorts operations;
|
|
|
|
Full year 2008 financial results for each of the resorts;
|
|
|
|
Impact of/changes in the economy since the severe economic
disruptions of 2008; and
|
|
|
|
Forecasted booking trends for 2009.
|
We required all of this information to complete our impairment
analysis. When we had obtained and completed our evaluation of
this information in early 2009, we concluded that the fair value
of our investment in this joint venture, as discussed above, was
less than its carrying value. As a result, we recorded an
$18,777 impairment loss related to our 30.32% interest in the
joint venture that owns the Wisconsin Dells and Sandusky
resorts, as the implied fair value of the investment, as
discussed above, was less than its carrying value.
We do not believe current circumstances indicate that the
carrying value of our minority investment in the joint venture
that owns our Grand Mound resort may be impaired. The carrying
value in this joint venture is $5,686 as of December 31,
2008. The carrying value of our 49% interest in our joint
venture that owns the Great Wolf Lodge in Grand Mound is $38,169
as of December 31, 2008.
Accounting for Income Taxes. We account for
income taxes under the asset and liability method, which
requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have
been included in the financial statements. Under this method,
deferred tax assets and liabilities are determined based on the
differences between the financial statements and tax basis of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. The
effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that includes
the enactment date.
Significant management judgment is required in determining our
provision or benefit for income taxes, our deferred tax assets
and liabilities, and any valuation allowance recorded against
our net deferred tax assets. We record net deferred tax assets
(primarily resulting from net operating loss carryforwards) to
the extent we
48
believe these assets will more likely than not be realized. In
making such determination, we consider all available positive
and negative evidence, including scheduled reversals of deferred
tax liabilities, projected future taxable income (that could
result from a sale of one or more of our resorts where
theres a sales price in excess of tax basis), tax planning
strategies and recent financial operations. In the event we were
to determine that we would be able to realize our deferred
income tax assets in the future in excess of their net recorded
amount, we would make an adjustment to the valuation allowance
which would reduce the provision for income taxes. Conversely,
in the event we were to determine that we would not be able to
realize our deferred tax assets, we would establish a valuation
allowance which would increase the provision for income taxes.
As of December 31, 2008, we had net operating loss
carryforwards of approximately $43,890 and $43,603 for federal
and state income tax purposes, respectively. These federal and
state carryforwards begin expiring in 2024 and 2014,
respectively. Based on our analysis, we believe all but $6,620
of the net operating loss carryforwards will be realized;
therefore we have established a valuation allowance as of
December 31, 2008 of $366, the tax effected benefit of that
operating loss carryforward. The valuation allowance is included
in a deferred tax asset, and classified in Other Assets on the
balance sheet.
New
Accounting Pronouncements
In September 2006, the FASB issued SFAS 157, Fair
Value Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value in accordance
with generally accepted accounting principles, and expands
disclosures about fair value measurements. The adoption of
SFAS 157 in 2008 did not have an impact on our results of
operations or financial position. In February 2008, the FASB
issued FASB Staff Position
FAS 157-2,
Partial Deferral of the Effective Date of Statement
157
(FSP 157-2).
FSP 157-2
delays the effective date of SFAS 157 for non-financial
assts and liabilities that are not measured or disclosed on a
recurring basis to fiscal years beginning after
November 15, 2008. We are currently evaluating the impact
of the adoption of
FSP 157-2
and do not expect it to have a material impact on our financial
statements.
In December 2007, the FASB issued SFAS 141 (Revised 2007),
Business Combinations. SFAS 141(R) will
significantly change the accounting for business combinations.
Under SFAS 141(R), an acquiring entity will be required to
recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition-date fair value with limited
exceptions. SFAS 141(R) also includes a substantial number
of new disclosure requirements. SFAS 141(R) applies
prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. We do not
expect the adoption of SFAS 141(R) to have a material
impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS 160,
Non-controlling Interests in Consolidated Financial
Statements-an Amendment of Accounting Research
Bulletin No. 51. SFAS 160 establishes new
accounting and reporting standards for a non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this statement requires the
recognition of a non-controlling interest (minority interest) as
equity in the consolidated financial statements separate from
the parents equity. The amount of the new income
attributable to the non-controlling interest will be included in
consolidated net income on the face of the income statement.
SFAS 160 clarifies that changes in a parents
ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions if the parent retains
its controlling financial interest. In addition, this statement
requires that a parent recognize a gain or loss in net income
when a subsidiary is deconsolidated. Such gain or loss will be
measured using the fair value of the non-controlling equity
investment on the deconsolidation date. SFAS 160 also
includes expanded disclosure requirements regarding the
interests of the parent and its non-controlling interest.
SFAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after
December 15, 2008 We do not expect the adoption of
SFAS 160 to have a material impact on our consolidated
financial statements.
In March 2008, the FASB issued SFAS 161, Disclosures
about Derivative Instruments and Hedging Activities, an
amendment of FASB Statement No. 133. SFAS 161
requires enhanced disclosures for derivative and hedging
activities. SFAS 161 is effective for fiscal years and
interim periods beginning after November 15, 2008. We are
currently evaluating the impact of the adoption of this
statement and do not expect it to have a material impact on our
financial statements.
49
In April 2008, the FASB issued FASB Staff Position
FAS 142-3,
Determination of the Useful Life of Intangible
Assets
(FSP 142-3).
FSP 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142,
Goodwill and Other Intangible Assets.
FSP 142-3
is effective for fiscal years beginning after December 15,
2008. We do not expect the adoption of
FSP 142-3
to have a material impact on our consolidated financial
statements.
In May 2008, the FASB issued SFAS 162, The Hierarchy
of Generally Accepted Accounting Principles. SFAS 162
identifies the sources of generally accepted accounting
principles and provides a framework, or hierarchy, for selecting
the principles to be used in preparing financial statements for
non-governmental entities in conformity with GAAP. This
statement was effective on November 15, 2008. The adoption
of this statement did not have a material impact on our
financial statements.
In November 2008, the FASB ratified Emerging Issues Task Force
(EITF) Issue
No. 08-6,
Equity Method Investment Accounting Considerations
(EITF 08-6).
EITF 08-6
clarifies the accounting for certain transactions and impairment
considerations involving equity method investments.
EITF 08-6
is effective for fiscal years beginning after December 15,
2008. The adoption of this EITF is not expected to have a
material impact on our financial statements.
Non-GAAP Financial
Measures
We use EBITDA as a measure of our operating performance. EBITDA
is a supplemental non-GAAP financial measure. EBITDA is commonly
defined as net income plus (a) net interest expense;
(b) income taxes; and (c) depreciation and
amortization.
EBITDA as calculated by us is not necessarily comparable to
similarly titled measures presented by other companies. In
addition, EBITDA (a) does not represent net income or cash
flows from operations as defined by GAAP; (b) is not
necessarily indicative of cash available to fund our cash flow
needs; and (c) should not be considered as an alternative
to net income, operating income, cash flows from operating
activities or our other financial information as determined
under GAAP.
We believe EBITDA is useful to an investor in evaluating our
operating performance because:
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|
|
|
|
a significant portion of our assets consists of property and
equipment that are depreciated over their remaining useful lives
in accordance with GAAP. Because depreciation and amortization
are non-cash items, we believe that presentation of EBITDA is a
useful measure of our operating performance;
|
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|
|
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.
|
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
50
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.
The following table reconciles net loss to EBITDA for the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net loss
|
|
$
|
(40,725
|
)
|
|
$
|
(9,581
|
)
|
|
$
|
(49,250
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income
|
|
|
25,853
|
|
|
|
12,129
|
|
|
|
4,064
|
|
Income tax benefit
|
|
|
(13,028
|
)
|
|
|
(6,615
|
)
|
|
|
(8,938
|
)
|
Depreciation and amortization
|
|
|
46,081
|
|
|
|
36,372
|
|
|
|
25,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
18,181
|
|
|
$
|
32,305
|
|
|
$
|
(28,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of Operations
General
Our results of operations for the years ended December 31,
2008 and 2007 are not directly comparable primarily due to the
opening of our Great Wolf Lodge resort in Grapevine, Texas in
December 2007.
Great
Wolf Resorts Financial Information
Our financial information includes:
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|
|
|
|
our subsidiary entity that provides resort development and
management/licensing services;
|
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|
|
our Traverse City, Kansas City, Sheboygan, Williamsburg, Pocono
Mountains, Mason and Grapevine operating resorts;
|
|
|
|
equity interests in resorts in which we have ownership interests
but which we do not consolidate; and
|
|
|
|
our resort that is under construction which we will consolidate.
|
Revenues. Our revenues consist of:
|
|
|
|
|
lodging revenue, which includes rooms, food and beverage, and
other department revenues from our resorts;
|
|
|
|
management fee and other revenue from resorts, which includes
fees received under our management, license, development and
construction management agreements; and
|
|
|
|
other revenue from managed properties. We employ the staff at
our managed properties (except for the Niagara Falls resort).
Under our management agreements, the resort owners reimburse us
for payroll, benefits and certain other costs related to the
operations of the managed properties.
EITF 01-14,
Income Statement Characteristics of Reimbursements for
Out-of-Pocket Expenses, establishes standards for
accounting for reimbursable expenses in our statements of
operations. Under this pronouncement, the reimbursement of
payroll, benefits and costs is recorded as other revenue
from managed properties on our statements of operations,
with a corresponding expense recorded as other expenses
from managed properties.
|
Operating Expenses. Our departmental operating
expenses consist of rooms, food and beverage and other
department expenses.
Our other operating expenses include the following items:
|
|
|
|
|
selling, general and administrative expenses, which are
associated with the operations and management of resorts and
which consist primarily of expenses such as corporate payroll
and related benefits,
|
51
|
|
|
|
|
operations management, sales and marketing, finance, legal,
information technology support, human resources and other
support services, as well as general corporate expenses;
|
|
|
|
|
|
property operation and maintenance expenses, such as utility
costs and property taxes;
|
|
|
|
depreciation and amortization; and
|
|
|
|
other expenses from managed properties, which are recorded as an
expense in accordance with
EITF 01-14.
|
Year
Ended December 31, 2008 compared with Year Ended
December 31, 2007
The following table shows key operating statistics for our
resorts for the years ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Properties(a)
|
|
|
Same Store Comparison(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
Occupancy
|
|
|
62.9
|
%
|
|
|
61.9
|
%
|
|
|
61.5
|
%
|
|
|
N/A
|
|
|
|
0.7
|
%
|
ADR
|
|
$
|
249.92
|
|
|
$
|
243.81
|
|
|
$
|
244.16
|
|
|
$
|
(0.35
|
)
|
|
|
(0.1
|
)%
|
RevPAR
|
|
$
|
157.19
|
|
|
$
|
151.02
|
|
|
$
|
150.16
|
|
|
$
|
0.86
|
|
|
|
0.6
|
%
|
Total RevPOR
|
|
$
|
383.75
|
|
|
$
|
369.61
|
|
|
$
|
370.77
|
|
|
$
|
(1.16
|
)
|
|
|
(0.3
|
)%
|
Total RevPAR
|
|
$
|
241.36
|
|
|
$
|
228.95
|
|
|
$
|
228.02
|
|
|
$
|
0.93
|
|
|
|
0.4
|
%
|
|
|
|
(a) |
|
Includes results for properties that were open for any portion
of the period, for all owned and/or managed resorts. |
|
(b) |
|
Same store comparison includes properties that were open for the
full periods in 2008 and 2007 (that is, our Wisconsin Dells,
Sandusky, Traverse City, Kansas City, Sheboygan, Williamsburg,
Pocono Mountains, Niagara Falls, and Mason resorts). |
In December 2007 we opened our resort in Grapevine, Texas. As a
result, total revenue, rooms revenue and other revenue for the
years ended December 31, 2008 and 2007 are not directly
comparable.
The increases in same store occupancy and RevPAR were due in
part to an increase in the number of rooms sold for group
business (as opposed to leisure guests) in 2008 as compared to
2007. As we typically charge lower room rates for group rooms as
compared to leisure, this resulted in a decrease in ADR in 2008
as compared to 2007.
Presented below are selected amounts from our consolidated
statements of operations for the years ended December 31,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Revenues
|
|
$
|
245,538
|
|
|
$
|
187,580
|
|
|
$
|
57,958
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Departmental operating expenses
|
|
|
80,083
|
|
|
|
64,016
|
|
|
|
16,067
|
|
Selling, general and administrative
|
|
|
51,902
|
|
|
|
47,915
|
|
|
|
3,987
|
|
Property operating costs
|
|
|
37,086
|
|
|
|
30,555
|
|
|
|
6,531
|
|
Depreciation and amortization
|
|
|
46,081
|
|
|
|
36,372
|
|
|
|
9,709
|
|
Impairment loss on investment in affiliates
|
|
|
18,777
|
|
|
|
|
|
|
|
18,777
|
|
Goodwill impairment
|
|
|
17,430
|
|
|
|
|
|
|
|
17,430
|
|
Net operating loss
|
|
|
(25,666
|
)
|
|
|
(2,883
|
)
|
|
|
(22,783
|
)
|
Interest expense, net of interest income
|
|
|
25,853
|
|
|
|
12,129
|
|
|
|
13,724
|
|
Income tax benefit
|
|
|
(11,956
|
)
|
|
|
(5,859
|
)
|
|
|
(6,097
|
)
|
Net loss
|
|
|
(40,725
|
)
|
|
|
(9,581
|
)
|
|
|
(31,144
|
)
|
52
Revenues. Total revenues increased primarily
due to the opening of our Grapevine resort in December 2007; our
construction of 104 additional guest suites at our Williamsburg
resort that opened in March 2007; and other fees and other
revenues from managed properties related to our joint venture
with Chehalis at our resort in Grand Mound, Washington.
Operating expenses. Total operating expenses
increased primarily due to the opening of our Grapevine resort
in December 2007.
|
|
|
|
|
Departmental expenses increased $16,067 for the year ended
December 31, 2008, as compared to the year ended
December 31, 2007, due primarily to the opening of our
Grapevine resort.
|
|
|
|
Total selling, general and administrative expenses increased
$3,987 for the year ended December 31, 2008, as compared to
the year ended December 31, 2007, due primarily to the
opening of our Grapevine resort. This increase was offset by a
decrease in corporate selling, general and administrative
expenses. Corporate selling, general and administrative expenses
decreased due to decreases in bonus expense and restricted stock
expense, primarily due to the resignation of two senior officers
in 2008; and a decrease in stock option expense, as most options
were fully vested as of December 31, 2007.
|
|
|
|
Total property operating costs (exclusive of opening costs)
increased $9,614 for the year ended December 31, 2008, as
compared to the year ended December 31, 2007, due primarily
to the opening of our Grapevine resort, as well as increased
repairs and maintenance expense and increased utilities expense
related to the expansion of our Williamsburg resort. Opening
costs related to our resorts were $6,301 for the year ended
December 31, 2008, as compared to $9,384 for the year ended
December 31, 2007.
|
|
|
|
Total depreciation and amortization increased mainly due to the
opening of our Grapevine resort and the expansion of our
Williamsburg resort as well as the write off of loan fees of
$615 related to our Williamsburg mortgage loan that we paid off
in August 2008. We had no similar loan fee write offs for the
year ended December 31, 2007.
|
|
|
|
For the year ended December 31, 2008, we recorded an
aggregate $18,777 impairment loss related to our 30.32% interest
in the joint venture that owns the Wisconsin Dells and Sandusky
resorts. There was no similar charge recorded in the year ended
December 31, 2007.
|
|
|
|
For the year ended December 31, 2008, we recorded a
goodwill impairment charge of $17,430 related to our Kansas City
and Mason resorts. There was no similar charge recorded in the
year ended December 31, 2007.
|
Net operating loss. During the year ended
December 31, 2008, we had a net operating loss of $25,666
as compared to a net operating loss of $2,883 for the year ended
December 31, 2007.
Net loss. Net loss increased due to the
increase in operating loss of $22,783 and an increase in net
interest expense of $13,724 mainly due to interest expense on
mortgage debt related to our Williamsburg and Grapevine resorts,
and having less interest expense capitalized to development
projects in 2008 as compared to 2007, due to fewer development
projects in process in 2008 as compared to 2007.
These increases were partially offset by an increase of $6,097
in income tax benefit recorded for the year ended
December 31, 2008 as compared to the year ended
December 31, 2007.
53
Year
Ended December 31, 2007 compared with Year Ended
December 31, 2006
The following table shows key operating statistics for our
resorts for the years ended December 31, 2008 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Properties(a)
|
|
|
Same Store Comparison(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
%
|
|
|
Occupancy
|
|
|
61.5
|
%
|
|
|
62.5
|
%
|
|
|
64.1
|
%
|
|
|
N/A
|
|
|
|
(2.5
|
)%
|
ADR
|
|
$
|
244.16
|
|
|
$
|
241.56
|
|
|
$
|
234.21
|
|
|
$
|
7.35
|
|
|
|
3.1
|
%
|
RevPAR
|
|
$
|
150.16
|
|
|
$
|
150.92
|
|
|
$
|
150.24
|
|
|
$
|
0.68
|
|
|
|
0.5
|
%
|
Total RevPOR
|
|
$
|
370.77
|
|
|
$
|
363.65
|
|
|
$
|
351.34
|
|
|
$
|
12.31
|
|
|
|
3.5
|
%
|
Total RevPAR
|
|
$
|
228.02
|
|
|
$
|
227.20
|
|
|
$
|
225.37
|
|
|
$
|
1.83
|
|
|
|
0.8
|
%
|
|
|
|
(a) |
|
Includes results for properties that were open for any portion
of the period, for all owned
and/or
managed resorts. |
|
(b) |
|
Same store comparison includes properties that were open for the
full periods in 2007 and 2006 (that is, our Wisconsin Dells,
Sandusky, Traverse City, Kansas City, Sheboygan, Williamsburg,
Pocono Mountains, and Niagara Falls resorts). |
In December 2007 and in December 2006 we opened our resorts in
Grapevine, Texas and Mason, Ohio, respectively. As a result,
total revenue, rooms revenue and other revenue for the years
ended December 31, 2007 and 2006 are not directly
comparable.
Presented below are selected amounts from our consolidated
statements of operations for the years ended December 31,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Revenues
|
|
$
|
187,580
|
|
|
$
|
148,648
|
|
|
$
|
38,932
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Departmental operating expenses
|
|
|
64,016
|
|
|
|
47,837
|
|
|
|
16,179
|
|
Selling, general and administrative
|
|
|
47,915
|
|
|
|
41,421
|
|
|
|
6,494
|
|
Property operating costs
|
|
|
30,555
|
|
|
|
23,217
|
|
|
|
7,338
|
|
Depreciation and amortization
|
|
|
36,372
|
|
|
|
25,903
|
|
|
|
10,469
|
|
Goodwill impairment
|
|
|
|
|
|
|
50,975
|
|
|
|
(50,975
|
)
|
Loss on disposition of property
|
|
|
128
|
|
|
|
1,066
|
|
|
|
(938
|
)
|
Net operating loss
|
|
|
(2,883
|
)
|
|
|
(53,691
|
)
|
|
|
50,808
|
|
Interest expense, net of interest income
|
|
|
12,129
|
|
|
|
4,064
|
|
|
|
8,065
|
|
Income tax benefit
|
|
|
(5,859
|
)
|
|
|
(8,764
|
)
|
|
|
2,905
|
|
Net loss
|
|
|
(9,581
|
)
|
|
|
(49,250
|
)
|
|
|
39,669
|
|
Revenues. Total revenues increased primarily
due to the opening of our Grapevine and Mason resorts in
December 2007 and December 2006, respectively; our construction
of 104 additional guest suites at our Williamsburg resort that
opened in March 2007; and increased marketing efforts at our
Pocono Mountains resort. Revenues increased at these resorts by
$40,590 for the year ended December 31, 2007, as compared
to the year ended December 31, 2006.
Operating expenses. Total operating expenses
increased primarily due to the opening of our Grapevine and
Mason resorts in December 2007 and December 2006, respectively;
our construction of 104 additional guest suites at our
Williamsburg resort that opened in March 2007; and increased
marketing efforts at our Pocono Mountains resort.
54
|
|
|
|
|
Departmental expenses increased for the Williamsburg, Pocono
Mountains, Mason and Grapevine resorts by $16,814 for the year
ended December 31, 2007, as compared to the year ended
December 31, 2006, due to the opening of our Grapevine and
Mason resorts, the expansion of our Williamsburg resort and
increased revenues at our Pocono Mountains resort.
|
|
|
|
Total selling, general and administrative expenses increased by
$6,494 due primarily to the opening of our Grapevine and Mason
resorts, the expansion of our Williamsburg resort and increased
marketing efforts at our Pocono Mountains resort.
|
|
|
|
Total property operating costs (exclusive of opening costs)
increased $5,349 for the year ended December 31, 2007, as
compared to the year ended December 31, 2006, due primarily
to the opening of our Grapevine and Mason resorts, as well as
increased repairs and maintenance expense and increased
utilities expense related to the expansion of our Williamsburg
resort and amenity additions to several of our other resorts.
Opening costs related to our resorts were $9,384 for the year
ended December 31, 2007, as compared to $7,395 for the year
ended December 31, 2006.
|
|
|
|
Total depreciation and amortization increased mainly due to the
opening of our Grapevine and Mason resorts and the expansion at
our Williamsburg resort. The total increase in depreciation and
amortization at these three resorts was $9,331 during the year
ended December 31, 2007 as compared to the year ended
December 31, 2006.
|
|
|
|
For the year ended December 31, 2006 we recorded a goodwill
impairment charge of $50,975 related to our Traverse City and
Sheboygan resorts, as the implied fair value of the goodwill was
deemed less than the carrying value. There was no similar charge
recorded in the year ended December 31, 2007.
|
|
|
|
Loss on disposition of property of $1,066 during the year ended
December 31, 2006 primarily relates to finalization of the
accounting for the sale of 70% of our equity interests in the
Wisconsin Dells and Sandusky resorts in October 2005.
|
Net operating loss. During the year ended
December 31, 2007, we had a net operating loss of $2,883 as
compared to a net operating loss of $53,691 for the year ended
December 31, 2006.
Net loss. Net loss decreased due to the
decrease in operating loss from $53,691 for the year ended
December 31, 2006, to $2,883 for the year ended
December 31, 2007. The net operating loss for the year
ended December 31, 2006 included a goodwill impairment
charge of $50,975.
This decrease was partially offset by:
|
|
|
|
|
An increase in net interest expense of $8,065 mainly due to
mortgage debt related our Pocono Mountains and Mason
resorts, and
|
|
|
|
A decrease of $2,905 in income tax benefit recorded for the year
ended December 31, 2007 as compared to the year ended
December 31, 2006. Our effective tax rate in 2007 was
(40.8)% as compared to 2006 of (15.4)% primarily due to the
impact of the goodwill impairment charge in 2006.
|
Segments
We have three reportable segments in 2008 and 2007:
|
|
|
|
|
resort ownership/operation-revenues derived from our
consolidated owned resorts; and
|
|
|
|
resort third-party management-revenues derived from management,
license and other related fees from unconsolidated managed
resorts; and
|
|
|
|
condominium sales-revenues derived from sales of condominium
units to third-party owners.
|
See our Segments section in our Summary of Significant
Accounting Policies, in Note 2 to our consolidated
financial statements.
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase (Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008 - 2007
|
|
|
2007 - 2006
|
|
|
Resort Ownership/Operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
217,568
|
|
|
$
|
168,934
|
|
|
$
|
130,912
|
|
|
$
|
48,634
|
|
|
$
|
38,022
|
|
EBITDA, excluding certain items
|
|
|
33,756
|
|
|
|
32,179
|
|
|
|
26,729
|
|
|
|
1,577
|
|
|
|
5,450
|
|
Resort Third-Party Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
27,970
|
|
|
|
18,646
|
|
|
|
17,736
|
|
|
|
9,324
|
|
|
|
910
|
|
EBITDA, excluding certain items
|
|
|
8,144
|
|
|
|
7,169
|
|
|
|
5,817
|
|
|
|
975
|
|
|
|
1,352
|
|
Condominium Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA, excluding certain items
|
|
|
|
|
|
|
(682
|
)
|
|
|
(370
|
)
|
|
|
682
|
|
|
|
(312
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA, excluding certain items
|
|
|
(21,485
|
)
|
|
|
(5,177
|
)
|
|
|
(8,989
|
)
|
|
|
(16,308
|
)
|
|
|
3,812
|
|
The Other items in the table above represent corporate-level
activities that do not constitute a reportable segment. Total
assets at the corporate level primarily consist of cash, our
investment in affiliates, and intangibles. In 2008 Resort
Ownership/Operation EBITDA includes $16,021 for a goodwill
impairment charge and Other EBITDA includes $1,409 for a
goodwill impairment charge and $18,777 for the write-down of
investment in affiliates. EBITDA, excluding certain items is
defined as EBITDA less investment income and equity in
unconsolidated affiliates.
Liquidity
and Capital Resources
As of December 31, 2008, we had total indebtedness of
$507,051, summarized as follows:
|
|
|
|
|
Long-Term Debt:
|
|
|
|
|
Traverse City/Kansas City mortgage loan
|
|
$
|
70,211
|
|
Mason mortgage loan
|
|
|
76,800
|
|
Pocono Mountains mortgage loan
|
|
|
96,571
|
|
Williamsburg mortgage loan
|
|
|
64,625
|
|
Grapevine construction loan
|
|
|
78,709
|
|
Concord construction loan
|
|
|
27,594
|
|
Junior subordinated debentures
|
|
|
80,545
|
|
Other Debt:
|
|
|
|
|
City of Sheboygan bonds
|
|
|
8,493
|
|
City of Sheboygan loan
|
|
|
3,503
|
|
|
|
|
|
|
|
|
$
|
507,051
|
|
|
|
|
|
|
Traverse City/Kansas City Mortgage Loan This
loan is secured by our Traverse City and Kansas City resorts.
The loan bears interest at a fixed rate of 6.96%, is subject to
a 25-year
principal amortization schedule, and matures in January 2015.
The loan has customary financial and operating debt compliance
covenants. The loan also has customary restrictions on our
ability to prepay the loan prior to maturity. We were in
compliance with all covenants under this loan at
December 31, 2008.
Mason Mortgage Loan This loan is secured by
our Mason resort. The loan bears interest at a floating rate of
30-day LIBOR
plus a spread of 425 basis points, with a minimum rate of
6.50% per annum (effective rate of 6.50% as of December 31,
2008). The loan initially matured in November 30, 2008. On
January 23, 2009, the maturity date was extended to
November 30, 2009. This loan has customary financial and
operating debt compliance covenants associated with an
individual mortgaged property, including a minimum consolidated
tangible net worth provision. In addition, we have provided the
Mason mortgage loan lenders with a
56
$15,000 corporate guaranty and cross-collateralization on our
Grapevine resort. The corporate guaranty and
cross-collateralization on the Grapevine property will remain in
place until we make a $15,000 principal reduction of the Mason
loan over the remaining term of the loan. Should there be
certain liquidity-producing events, including the sale of
majority-owned equity interest in any of our existing properties
or the refinance of a mortgage loan on an existing property, we
will be required to use 50 percent of the net proceeds
toward the $15,000 mandatory principal reduction. We were in
compliance with all covenants under this loan at
December 31, 2008.
Pocono Mountains Mortgage Loan This loan is
secured by our Pocono Mountains resort. The loan bears interest
at a fixed rate of 6.10% and matures in December 2016. The loan
is currently subject to a
30-year
principal amortization schedule. The loan has customary
covenants associated with an individual mortgaged property. The
loan also has customary restrictions on our ability to prepay
the loan prior to maturity. We were in compliance with all
covenants under this loan at December 31, 2008.
Williamsburg Mortgage Loan In August 2008 we
closed on a $65,000 first mortgage loan secured by our
Williamsburg resort. The loan bears interest at a floating rate
of 30-day
LIBOR plus a spread of 350 basis points with a minimum rate
of 6.25% per annum (effective rate of 6.25% as of
December 31, 2008). This loan matures in August 2011 and
has a one-year extension available at our option, assuming the
property meets an operating performance threshold. The loan has
a prepayment fee calculated as 3.50% of the prepaid principal
amount for any payments made in the first twelve months of the
loan. After twelve months, the loan has no prepayment fees. The
loan has customary covenants associated with an individual
mortgaged property. We were in compliance with all covenants
under this loan at December 31, 2008.
Grapevine Construction Loan This loan is
secured by our Grapevine resort. The loan bears interest at a
floating rate of
30-day LIBOR
plus a spread of 260 basis points (effective rate of 3.04%
as of December 31, 2008). The loan matures in July 2009 and
also has two one-year extensions available at our option,
provided that the property meets an operating performance
threshold. The loan is interest-only during its initial
three-year term and then is subject to a
25-year
amortization schedule in the extension periods. This loan has
customary financial and operating debt compliance covenants
associated with an individual mortgaged property, including a
minimum consolidated tangible net worth provision. The loan has
no restrictions or fees associated with the repayment of the
loan principal. We were in compliance with all covenants under
this loan at December 31, 2008.
In December 2007, we entered into an interest rate cap that
hedged our entire Grapevine loan in accordance with our original
loan document. This interest rate cap matures in July 2009 and
fixes the maximum annual interest rate on this loan at 10%.
Concord Construction Loan In April 2008 we
closed on a $63,940 construction loan to fund a portion of the
total costs of our Great Wolf Lodge resort under construction in
Concord. The four-year loan was potentially expandable to a
maximum principal amount of up to $79,900. The loan bears
interest at a floating annual rate of LIBOR plus a spread of
345 basis points during the construction period and LIBOR
plus a spread of 310 basis points once the resort is open,
with a minimum rate of 6.50% per annum (effective rate of 6.50%
as of December 31, 2008). The loan requires interest only
payments until the one-year anniversary of the opening date of
the property and then requires monthly principal payments based
on a 25-year
amortization schedule. This loan has customary financial and
operating debt compliance covenants associated with an
individual mortgaged property, including a minimum consolidated
tangible net worth provision. We were in compliance with all
covenants under this loan at December 31, 2008. In January
2009, the total commitments under this loan increased from
$63,940 to $79,900.
Junior Subordinated Debentures In March 2005
we completed a private offering of $50,000 of trust preferred
securities (TPS) through Great Wolf Capital Trust I
(Trust I), a Delaware statutory trust which is our
subsidiary. The securities pay holders cumulative cash
distributions at an annual rate which is fixed at 7.80% through
March 2015 and then floats at LIBOR plus a spread of
310 basis points thereafter. The securities mature in March
2035 and are callable at no premium after March 2010. In
addition, we invested $1,500 in Trust Is common
securities, representing 3% of the total capitalization of
Trust I.
57
Trust I used the proceeds of the offering and our
investment to purchase from us $51,550 of our junior
subordinated debentures with payment terms that mirror the
distribution terms of the TPS. The costs of the TPS offering
totaled $1,600, including $1,500 of underwriting commissions and
expenses and $100 of costs incurred directly by Trust I.
Trust I paid these costs utilizing an investment from us.
These costs are being amortized over a
30-year
period. The proceeds from our debenture sale, net of the costs
of the TPS offering and our investment in Trust I, were
$48,400. We used the net proceeds to retire a construction loan.
In June 2007 we completed a private offering of $28,125 of TPS
through Great Wolf Capital Trust III (Trust III), a
Delaware statutory trust which is our subsidiary. The securities
pay holders cumulative cash distributions at an annual rate
which is fixed at 7.90% through June 2012 and then floats at
LIBOR plus a spread of 300 basis points thereafter. The
securities mature in June 2017 and are callable at no premium
after June 2012. In addition, we invested $870 in the
Trusts common securities, representing 3% of the total
capitalization of Trust III.
Trust III used the proceeds of the offering and our
investment to purchase from us $28,995 of our junior
subordinated debentures with payment terms that mirror the
distribution terms of the trust securities. The costs of the TPS
offering totaled $932, including $870 of underwriting
commissions and expenses and $62 of costs incurred directly by
Trust III. Trust III paid these costs utilizing an
investment from us. These costs are being amortized over a
10-year
period. The proceeds from our debenture sales, net of the costs
of the TPS offering and our investment in Trust III, were
$27,193. We used the net proceeds for development costs.
As a result of the issuance of FIN No. 46R,
Consolidation of Variable Interest Entities and the
accounting professions application of the guidance
provided by the FASB, issue trusts, like Trust I and
Trust III (collectively, the Trusts), are generally
variable interest entities. We have determined that we are not
the primary beneficiary under the Trusts, and accordingly we do
not include the financial statements of the Trusts in our
consolidated financial statements.
Based on the foregoing accounting authority, our consolidated
financial statements present the debentures issued to the Trusts
as long-term debt. Our investments in the Trusts are accounted
as cost investments and are included in other assets on our
consolidated balance sheet. For financial reporting purposes, we
record interest expense on the corresponding debentures in our
condensed consolidated statements of operations.
City of Sheboygan Bonds The City of Sheboygan
(the City) bonds represent the face amount of bond anticipation
notes (BANs) issued by the City in November 2003 in conjunction
with the construction of the Blue Harbor Resort in Sheboygan,
Wisconsin. In accordance with the provisions of EITF Issue
No. 91-10,
we have recognized as a liability the obligations for the BANs.
We have an obligation to fund certain minimum guaranteed amounts
of room tax payments to be made by the Blue Harbor Resort
through 2028, which obligation is indirectly related to the
payments by the City on the BANs .
City of Sheboygan Loan The City of Sheboygan
loan amount represents a loan made by the City in 2004 in
conjunction with the construction of the Blue Harbor Resort in
Sheboygan, Wisconsin. The loan is noninterest bearing and
matures in 2018. Our obligation to repay the loan will be
satisfied by certain minimum guaranteed amounts of real and
personal property tax payments to be made by the Blue Harbor
Resort through 2018.
Future Maturities Future principal
requirements on long-term debt are as follows:
|
|
|
|
|
2009
|
|
$
|
81,464
|
|
2010
|
|
|
6,485
|
|
2011
|
|
|
143,002
|
|
2012
|
|
|
29,039
|
|
2013
|
|
|
3,675
|
|
Thereafter
|
|
|
243,386
|
|
|
|
|
|
|
Total
|
|
$
|
507,051
|
|
|
|
|
|
|
58
Short-Term
Liquidity Requirements
Our short-term liquidity requirements consist primarily of funds
necessary to pay operating expenses for the next 12 months,
including:
|
|
|
|
|
recurring maintenance, repairs and other operating expenses
necessary to properly maintain and operate our resorts;
|
|
|
|
debt maturities within the next year;
|
|
|
|
property taxes and insurance expenses;
|
|
|
|
interest expense and scheduled principal payments on outstanding
indebtedness;
|
|
|
|
general and administrative expenses; and
|
|
|
|
income taxes.
|
Historically, we have satisfied our short-term liquidity
requirements through operating cash flows and cash on hand. We
believe that cash provided by our operations, together with cash
on hand, will be sufficient to fund our short-term liquidity
requirements for working capital, capital expenditures and debt
service for the next 12 months, assuming that we are
successful in negotiating an additional extension of the
maturity date or a refinancing for our Mason mortgage loan that
matures in November 2009, as discussed below.
Long-Term
Liquidity Requirements
Our long-term liquidity requirements consist primarily of funds
necessary to pay for the following items for periods beyond the
next 12 months:
|
|
|
|
|
scheduled debt maturities;
|
|
|
|
costs associated with the development of new resorts;
|
|
|
|
renovations, expansions and other non-recurring capital
expenditures that need to be made periodically to our
resorts; and
|
|
|
|
capital contributions and loans to unconsolidated joint ventures.
|
We expect to meet these needs through existing working capital;
cash provided by operations; proceeds from investing activities,
including sales of partial or whole ownership interests in
certain of our resorts; and proceeds from financing activities,
including mortgage financing on properties being developed,
additional borrowings under future credit facilities,
contributions from joint venture partners, and the issuance of
equity instruments, including common stock, or additional or
replacement debt, as market conditions permit. We believe these
sources of capital will be sufficient to provide for our
long-term capital needs.
Our Mason mortgage loan in the amount of $76,800 matures in
November 2009. We have provided the Mason mortgage loan lenders
with a $15,000 corporate guaranty and cross-collateralization on
the our Grapevine resort. The corporate guaranty and
cross-collateralization on the Grapevine property will remain in
place until we make a $15,000 million principal reduction
of the Mason loan over the remaining term of the loan. Should
there be certain liquidity-producing events, including the sale
of majority-owned equity interest in any of the our existing
properties or the refinance of a mortgage loan on an existing
property, we will be required to use 50 percent of the net
proceeds toward the $15,000 mandatory principal reduction. We
expect to satisfy the $15,000 mandatory principal reduction
through one of these liquidity-providing events, cash generated
by operations, or a combination of these items. We do not
currently or project to have sufficient liquidity to repay this
loan at its maturity date. Also, given current capital markets
conditions, we do not believe we will be able to pursue
refinancing the Mason loan with a new lender until late in 2009
at the earliest. In the event we are unable to refinance this
loan, we expect to enter into discussions with the lender to
obtain a modification allowing us to extend the loans
maturity date. In the event we are unable to obtain such a
modification in that circumstance, however, the nonpayment of
the remaining principal balance in November 2009 would
constitute an event of default under the terms of the mortgage
loan. In an event of
59
default, interest on the loan would accrue at an annual rate of
500 basis points higher than the normal interest rate on
the loan; in addition, the lender would have the right to
foreclose on the property.
Our largest long-term expenditures are expected to be for
capital expenditures, development of future resorts and capital
contributions or loans to joint ventures owning resorts under
construction or development. Such expenditures were $147,652 for
the year ended December 31, 2008. We expect to have
approximately $60,262 of such expenditures in 2009. This amount
consists primarily of remaining construction costs to complete
our Concord resort (scheduled to open in March 2009); remaining
construction costs to compete the expansion of our existing
Grapevine resort; and recurring maintenance capital expenditures
at our existing properties. As discussed above, we expect to
meet these requirements through a combination of cash provided
by operations, cash on hand, contributions from new joint
venture partners, proceeds from investing activities and
proceeds from financing activities.
We currently project that the combination of our cash on hand
plus cash provided by operations in 2009 will be sufficient to
meet the short-term liquidity requirements, as described above.
Based on our current projections, however, we do not believe
that we will have sufficient excess amounts of cash available in
2009 in order either to begin development of any new resorts
following the completion of construction of our Concord resort
or to make capital contributions to new joint ventures that may
wish to develop a resort that we would license and manage. Also,
due to the current state of the capital markets, which is marked
by the general unavailability of debt financing for future
development, we expect to have no significant expenditures for
development of new resorts until we have all equity and debt
capital amounts fully committed, including our projected ability
to fund our required equity contribution to a project. We
believe this may result in our not making any significant
expenditures in 2009 for development of new resorts or capital
contributions to new joint venture that may develop future
resorts.
Off
Balance Sheet Arrangements
We have two unconsolidated joint venture arrangements at
December 31, 2008. We account for our unconsolidated joint
ventures using the equity method of accounting.
|
|
|
|
|
Our joint venture with CNL Income Properties, Inc. (CNL) owns
two resorts, Great Wolf Lodge-Wisconsin Dells, Wisconsin and
Great Wolf Lodge-Sandusky, Ohio. We are a limited partner with a
30.32% ownership interest in the CNL joint venture. At
December 31, 2008, the joint venture had aggregate
outstanding indebtedness to third parties of $63,000. This loan
is a mortgage loan that is non-recourse to us. In December 2008,
we recorded an $18,777 impairment loss related to our interest
in the joint venture, as the implied fair value of the
investment, as discussed above, was less than its carrying value.
|
|
|
|
We have entered into our joint venture with The Confederated
Tribes of the Chehalis Reservation to develop a Great Wolf Lodge
resort and conference center on a
39-acre land
parcel in Grand Mound, Washington. This joint venture is a
limited liability company; we are a member of that limited
liability company with a 49% ownership interest. At
December 31, 2008, the joint venture had aggregate
outstanding indebtedness to third parties of $102,000. As of
December 31, 2008, we have made combined loan and equity
contributions, net of loan repayments, of $38,925 to the joint
venture to fund a portion of construction cost of the resort. In
January 2009, the other member of the joint venture purchased
$5,991 of our loan at par.
|
We expect that capital will be required to fund the activities
of the resorts owned by these joint ventures and we may in the
future fund either or both of the joint ventures share of
the costs not funded by the majority owner of the joint venture,
the joint ventures operations or outside financing. In
particular, the resorts owned by the CNL joint venture have been
adversely affected by a regional economic downturn and greater
than expected competitive pressures. In February 2009, we made a
$303 capital contribution to the CNL joint venture. We are
working with our partner to develop strategies to improve the
performance of the properties and minimize any potential future
capital funding by the joint ventures partners.
60
Based on the nature of the activities conducted in these joint
ventures, we cannot estimate with any degree of accuracy amounts
that we may be required to fund in the long term. We do not
currently believe that any additional future funding of these
joint ventures will have an adverse effect on our financial
condition, as we currently do not expect to make any significant
future capital contributions to these joint ventures.
Contractual
Obligations
The following table summarizes our contractual obligations as of
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Terms
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Debt obligations(1)
|
|
$
|
581,092
|
|
|
$
|
92,331
|
|
|
$
|
170,699
|
|
|
$
|
53,177
|
|
|
$
|
264,885
|
|
Operating lease obligations
|
|
|
1,229
|
|
|
|
548
|
|
|
|
485
|
|
|
|
145
|
|
|
|
51
|
|
Construction contracts
|
|
|
20,722
|
|
|
|
20,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve on unrecognized tax benefits
|
|
|
1,298
|
|
|
|
|
|
|
|
|
|
|
|
1,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
604,341
|
|
|
$
|
113,601
|
|
|
$
|
171,184
|
|
|
$
|
54,620
|
|
|
$
|
264,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts include interest (for fixed rate debt) and principal.
They also include $8,493 of fixed rate debt recognized as a
liability related to certain bonds issued by the City of
Sheboygan and $3,503 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. |
As we develop future resorts, we expect to incur significant
additional debt and construction contract obligations.
Working
Capital
We had $14,231 of available cash and cash equivalents and a
working capital deficit of $117,323 (current assets less current
liabilities) at December 31, 2008, compared to the $18,597
of available cash and cash equivalents and a working capital
deficit of $98,560 at December 31, 2007. The primary
reasons for the working capital deficit are:
|
|
|
|
|
the use of cash for capital expenditures and investments in and
advances to affiliates and for our properties under development,
|
|
|
|
less proceeds from issuances of long-term debt, and
|
|
|
|
the classification of our Mason mortgage loan maturing in
November 2009 as a current liability.
|
Cash
Flows
Comparison
of Year Ended December 31, 2008 to Year Ended
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Net cash provided by operating activities
|
|
$
|
33,534
|
|
|
$
|
29,751
|
|
|
$
|
3,783
|
|
Net cash used in investing activities
|
|
|
(144,612
|
)
|
|
|
(213,867
|
)
|
|
|
69,255
|
|
Net cash provided by financing activities
|
|
|
106,712
|
|
|
|
105,935
|
|
|
|
777
|
|
Operating Activities. The increase in net cash
provided by operating activities resulted primarily from an
increase in equity in losses of unconsolidated affiliates,
during the year ended December 31, 2008 as compared to
December 31, 2007.
Investing Activities. The decrease in net cash
used in investing activities for the year ended
December 31, 2008, as compared to the year ended
December 31, 2007, resulted primarily from decreased
capital
61
expenditures for our properties that are in service and under
development, a decrease in cash used to fund our investments in
unconsolidated affiliates, and the receipt of payments on a loan
from one of our joint ventures.
Financing Activities. The increase in net cash
provided by financing activities resulted primarily from the
proceeds from our Williamsburg loan during the year ended
December 31, 2008. The increase from the loan proceeds were
offset partially by an increase in principal payments and loan
costs.
Comparison
of Year Ended December 31, 2007 to Year Ended
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Net cash provided by operating activities
|
|
$
|
29,751
|
|
|
$
|
29,723
|
|
|
$
|
28
|
|
Net cash used in investing activities
|
|
|
(213,867
|
)
|
|
|
(107,123
|
)
|
|
|
(106,744
|
)
|
Net cash provided by financing activities
|
|
|
105,935
|
|
|
|
119,396
|
|
|
|
(13,461
|
)
|
Investing Activities. The increase in net cash
used in investing activities for the year ended
December 31, 2007, as compared to the year ended
December 31, 2006, resulted primarily from increased
capital expenditures for our properties that are in service and
our development properties. This increase in net cash used was
also due to distributions received in 2006 from our
unconsolidated related party.
Financing Activities. The decrease in net cash
provided by financing activities resulted primarily from less
proceeds received from issuances of long-term debt in 2007 as
compared to 2006 offset by draws on our Mason and Grapevine
construction loans during the year ended December 31, 2007.
Inflation
We generally are able to change room and amenity rates at our
resort properties on a daily basis, so the impact of higher
inflation can often be passed along to customers. However, a
weak economic environment that decreases overall demand for our
products and services could restrict our ability to raise room
and amenity rates to offset rising costs.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Our future income, cash flows and fair values relevant to
financial instruments are dependent, in part, upon prevailing
market interest rates. Market risk refers to the risk of loss
from adverse changes in market prices and interest rates. Our
earnings are also affected by the changes in interest rates due
to the impact those changes have on our interest income from
cash and short-term investments, and our interest expense from
variable-rate debt instruments. We may use derivative financial
instruments to manage or hedge interest rate risks related to
our borrowings. We do not intend to use derivatives for trading
or speculative purposes.
As of December 31, 2008, we had total indebtedness of
approximately $507,051. This debt consisted of:
|
|
|
|
|
$70,211 of fixed rate debt secured by two of our resorts. This
debt bears interest at 6.96%.
|
|
|
|
$76,800 of variable rate debt secured by one of our resorts.
This debt bears interest at a floating rate of
30-day LIBOR
plus a spread of 425 basis points, with a minimum rate of
6.50% per annum. The effective rate was 6.50% at
December 31, 2008.
|
|
|
|
$96,571 of fixed rate debt secured by one of our resorts. This
debt bears interest at 6.10%.
|
|
|
|
$64,625 of variable rate debt secured by one of our resorts.
This debt bears interest at a floating rate of
30-day LIBOR
plus a spread of 350 basis points, with a minimum rate of
6.25% per annum. The effective rate was 6.25% at
December 31, 2008.
|
|
|
|
$78,709 of variable rate debt secured by one of our resorts.
This debt bears interest at a floating rate of
30-day LIBOR
plus a spread of 260 basis points. The effective rate was
3.04% at December 31, 2008.
|
|
|
|
$27,594 of variable rate debt secured by one of our resorts.
This debt bears interest at a floating annual rate of LIBOR plus
a spread of 345 basis points during the construction period
and LIBOR plus a
|
62
|
|
|
|
|
spread of 310 basis points once the resort is open, with a
minimum rate of 6.50% per annum. The effective rate was 6.50% at
December 31, 2008.
|
|
|
|
|
|
$51,550 of subordinated debentures that bear interest at a fixed
rate of 7.80% through March 2015 and then at a floating rate of
LIBOR plus 310 basis points thereafter. The securities
mature in March 2035.
|
|
|
|
$28,995 of subordinated debentures that bear interest at a fixed
rate of 7.90% through June 2012 and then at a floating rate of
LIBOR plus 300 basis points thereafter. The securities
mature in June 2017.
|
|
|
|
$8,493 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 $3,503 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.
|
As of December 31, 2008, we estimate the total fair value
of the indebtedness described above to be $152,270 less than
their total carrying values, due to the terms of the existing
debt being different than those terms we believe would currently
be available to us for indebtedness with similar risks and
remaining maturities.
If LIBOR were to increase by 1% or 100 basis points, the
increase in interest expense on our variable rate debt would
decrease future earnings and cash flows by approximately $787
annually, based on our debt balances outstanding and current
interest rates in effect as of December 31, 2008. If LIBOR
were to decrease by 1% or 100 basis points, the decrease in
interest expense on our variable rate debt would be
approximately $787 annually, based on our debt balances
outstanding as of December 31, 2008.
63
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The following consolidated financial statements are filed as
part of this Annual Report on
Form 10-K:
|
|
|
|
|
|
|
Page
|
|
|
No.
|
|
Consolidated Financial Statements of Great Wolf Resorts and
Subsidiaries:
|
|
|
|
|
|
|
|
65
|
|
|
|
|
67
|
|
|
|
|
68
|
|
|
|
|
69
|
|
|
|
|
70
|
|
|
|
|
71
|
|
64
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Great Wolf Resorts, Inc.
We have audited the accompanying consolidated balance sheet of
Great Wolf Resorts, Inc. (a Delaware Corporation) and
subsidiaries (the Company) as of December 31,
2008, and the related consolidated statement of operations and
comprehensive loss, equity and cash flows for the year ended
December 31, 2008. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of the Company as of
December 31, 2008, and the consolidated results of their
operations and their cash flows for the year ended
December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated March 5, 2009
expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
Madison, Wisconsin
March 5, 2009
65
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Great Wolf Resorts, Inc.
Madison, Wisconsin
We have audited the accompanying consolidated balance sheets of
Great Wolf Resorts, Inc. and subsidiaries (the
Company) as of December 31, 2007, and the
related consolidated statements of operations and comprehensive
loss, equity and cash flows for each of the two years in the
period ended December 31, 2007. These consolidated
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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 consolidated financial statements present
fairly, in all material respects, the consolidated financial
position of the Company as of December 31, 2007, and the
results of their operations and their cash flows for each of the
two years in the period ended December 31, 2007, in
conformity with accounting principles generally accepted in the
United States of America.
As described in Note 12 to the consolidated financial
statements, on January 1, 2006, the Company changed its
method of accounting for share-based compensation to adopt
Statement of Financial Accounting Standards No. 123R,
Share-Based Payment.
/s/ DELOITTE & TOUCHE, LLP
Milwaukee, Wisconsin
March 5, 2008
66
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands,
|
|
|
|
except per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,231
|
|
|
$
|
18,597
|
|
Accounts receivable, net of allowance for doubtful accounts of
$114 and $113
|
|
|
2,167
|
|
|
|
2,373
|
|
Accounts receivable affiliates, net of allowance for
doubtful accounts of $1,201 in 2008
|
|
|
925
|
|
|
|
3,973
|
|
Inventory
|
|
|
4,265
|
|
|
|
4,632
|
|
Other current assets
|
|
|
3,055
|
|
|
|
2,869
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
24,643
|
|
|
|
32,444
|
|
Property and equipment, net
|
|
|
716,173
|
|
|
|
617,697
|
|
Investment in and advances to affiliates
|
|
|
43,855
|
|
|
|
59,148
|
|
Other assets
|
|
|
31,561
|
|
|
|
20,257
|
|
Other intangible assets
|
|
|
23,829
|
|
|
|
23,829
|
|
Goodwill
|
|
|
|
|
|
|
17,430
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
840,061
|
|
|
$
|
770,805
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS
EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
81,464
|
|
|
$
|
78,752
|
|
Accounts payable
|
|
|
23,217
|
|
|
|
18,471
|
|
Accrued expenses
|
|
|
22,565
|
|
|
|
20,776
|
|
Accrued expenses affiliates
|
|
|
1,806
|
|
|
|
124
|
|
Advance deposits
|
|
|
7,498
|
|
|
|
8,211
|
|
Gift certificates payable
|
|
|
5,416
|
|
|
|
4,670
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
141,966
|
|
|
|
131,004
|
|
Mortgage debt
|
|
|
333,259
|
|
|
|
225,042
|
|
Other long-term debt
|
|
|
92,328
|
|
|
|
92,508
|
|
Other long-term liabilities
|
|
|
|
|
|
|
2,232
|
|
Deferred tax liability
|
|
|
|
|
|
|
7,597
|
|
Deferred compensation liability
|
|
|
568
|
|
|
|
2,029
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
568,121
|
|
|
|
460,412
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 250,000,000 shares
authorized, 30,982,646 and 30,698,683 shares issued and
outstanding at December 31, 2008 and 2007, respectively
|
|
|
310
|
|
|
|
307
|
|
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, no shares issued or outstanding at December 31,
2008 and 2007
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
399,641
|
|
|
|
399,759
|
|
Accumulated deficit
|
|
|
(127,811
|
)
|
|
|
(87,086
|
)
|
Deferred compensation
|
|
|
(200
|
)
|
|
|
(2,200
|
)
|
Accumulated other comprehensive loss, net of tax
|
|
|
|
|
|
|
(387
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
271,940
|
|
|
|
310,393
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, minority interests and stockholders
equity
|
|
$
|
840,061
|
|
|
$
|
770,805
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
67
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
|
|
$
|
143,395
|
|
|
$
|
112,261
|
|
|
$
|
87,775
|
|
|
|
|
|
Food and beverage
|
|
|
38,808
|
|
|
|
29,588
|
|
|
|
21,930
|
|
|
|
|
|
Other hotel operations
|
|
|
35,365
|
|
|
|
27,085
|
|
|
|
21,207
|
|
|
|
|
|
Management and other fees
|
|
|
2,798
|
|
|
|
2,855
|
|
|
|
2,087
|
|
|
|
|
|
Management and other fees affiliates
|
|
|
5,346
|
|
|
|
4,314
|
|
|
|
3,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,712
|
|
|
|
176,103
|
|
|
|
136,728
|
|
|
|
|
|
Other revenue from managed properties-affiliates
|
|
|
19,826
|
|
|
|
11,477
|
|
|
|
11,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
245,538
|
|
|
|
187,580
|
|
|
|
148,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses by department:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
|
|
|
20,134
|
|
|
|
15,716
|
|
|
|
11,914
|
|
|
|
|
|
Food and beverage
|
|
|
30,990
|
|
|
|
25,196
|
|
|
|
18,806
|
|
|
|
|
|
Other
|
|
|
28,959
|
|
|
|
23,104
|
|
|
|
17,117
|
|
|
|
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
51,902
|
|
|
|
47,915
|
|
|
|
41,421
|
|
|
|
|
|
Property operating costs
|
|
|
37,086
|
|
|
|
30,555
|
|
|
|
23,217
|
|
|
|
|
|
Depreciation and amortization
|
|
|
46,081
|
|
|
|
36,372
|
|
|
|
25,903
|
|
|
|
|
|
Impairment loss on investment in affiliates
|
|
|
18,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
17,430
|
|
|
|
|
|
|
|
50,975
|
|
|
|
|
|
Loss on disposition of property
|
|
|
19
|
|
|
|
128
|
|
|
|
1,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251,378
|
|
|
|
178,986
|
|
|
|
190,419
|
|
|
|
|
|
Other expenses from managed properties-affiliates
|
|
|
19,826
|
|
|
|
11,477
|
|
|
|
11,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
271,204
|
|
|
|
190,463
|
|
|
|
202,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
(25,666
|
)
|
|
|
(2,883
|
)
|
|
|
(53,691
|
)
|
|
|
|
|
Investment income affiliates
|
|
|
(2,187
|
)
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(1,424
|
)
|
|
|
(2,758
|
)
|
|
|
(3,105
|
)
|
|
|
|
|
Interest expense
|
|
|
27,277
|
|
|
|
14,887
|
|
|
|
7,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, minority interests, and equity in
unconsolidated affiliates
|
|
|
(49,332
|
)
|
|
|
(14,345
|
)
|
|
|
(57,755
|
)
|
|
|
|
|
Income tax benefit
|
|
|
(11,956
|
)
|
|
|
(5,859
|
)
|
|
|
(8,764
|
)
|
|
|
|
|
Minority interests, net of tax
|
|
|
|
|
|
|
(452
|
)
|
|
|
(502
|
)
|
|
|
|
|
Equity in unconsolidated affiliates, net of tax
|
|
|
3,349
|
|
|
|
1,547
|
|
|
|
761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(40,725
|
)
|
|
$
|
(9,581
|
)
|
|
$
|
(49,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss on interest rate swap
|
|
|
(387
|
)
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(40,338
|
)
|
|
$
|
(9,968
|
)
|
|
$
|
(49,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(1.32
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(1.63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(1.32
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(1.63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,827,860
|
|
|
|
30,533,249
|
|
|
|
30,299,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
30,827,860
|
|
|
|
30,533,249
|
|
|
|
30,299,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
68
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EQUITY
(dollars
in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid- in
|
|
|
Accumulated
|
|
|
Deferred
|
|
|
Accumulated Other
|
|
|
Total
|
|
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Compensation
|
|
|
Comprehensive Loss
|
|
|
Equity
|
|
|
|
|
|
Balance, January 1, 2006
|
|
|
30,277,308
|
|
|
$
|
303
|
|
|
$
|
394,212
|
|
|
$
|
(28,255
|
)
|
|
$
|
(2,349
|
)
|
|
$
|
|
|
|
$
|
363,911
|
|
|
|
|
|
Issuance of non-vested equity shares
|
|
|
232,012
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Reclassification of unearned compensation to additional paid-in
capital upon the adoption of Financial Accounting Standards
No. 123(R)
|
|
|
|
|
|
|
|
|
|
|
(149
|
)
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
3,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,052
|
|
|
|
|
|
Share issuance costs
|
|
|
|
|
|
|
|
|
|
|
(206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(206
|
)
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,250
|
)
|
|
|
|
|
|
|
|
|
|
|
(49,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
30,509,320
|
|
|
|
305
|
|
|
|
396,909
|
|
|
|
(77,505
|
)
|
|
|
(2,200
|
)
|
|
|
|
|
|
|
317,509
|
|
|
|
|
|
Issuance of non-vested equity shares
|
|
|
189,363
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
2,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,850
|
|
|
|
|
|
Unrealized loss on interest rate swap, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(387
|
)
|
|
|
(387
|
)
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,581
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
30,698,683
|
|
|
|
307
|
|
|
|
399,759
|
|
|
|
(87,086
|
)
|
|
|
(2,200
|
)
|
|
|
(387
|
)
|
|
|
310,393
|
|
|
|
|
|
Issuance of non-vested equity shares
|
|
|
283,963
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Sale of common stock deferred compensation plan
|
|
|
|
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
1,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,882
|
|
|
|
|
|
Unrealized gain on interest rate swap, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387
|
|
|
|
387
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,725
|
)
|
|
|
|
|
|
|
|
|
|
|
(40,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
30,982,646
|
|
|
$
|
310
|
|
|
$
|
399,641
|
|
|
$
|
(127,811
|
)
|
|
$
|
(200
|
)
|
|
$
|
|
|
|
$
|
271,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
69
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(40,725
|
)
|
|
$
|
(9,581
|
)
|
|
$
|
(49,250
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
46,081
|
|
|
|
36,372
|
|
|
|
25,903
|
|
Bad debt expense
|
|
|
1,305
|
|
|
|
154
|
|
|
|
189
|
|
Impairment loss in investment in affiliates
|
|
|
18,777
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
17,430
|
|
|
|
|
|
|
|
50,975
|
|
Non-cash employee compensation and professional fees expense
|
|
|
250
|
|
|
|
5,080
|
|
|
|
3,559
|
|
Loss on disposition of property
|
|
|
19
|
|
|
|
128
|
|
|
|
1,066
|
|
Equity in losses of unconsolidated affiliates
|
|
|
4,421
|
|
|
|
2,616
|
|
|
|
1,269
|
|
Minority interests
|
|
|
|
|
|
|
(764
|
)
|
|
|
(836
|
)
|
Deferred tax benefit
|
|
|
(14,072
|
)
|
|
|
(7,105
|
)
|
|
|
(9,500
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and other assets
|
|
|
(1,916
|
)
|
|
|
(4,399
|
)
|
|
|
3,918
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
1,964
|
|
|
|
7,250
|
|
|
|
2,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
33,534
|
|
|
|
29,751
|
|
|
|
29,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for property and equipment
|
|
|
(134,967
|
)
|
|
|
(171,884
|
)
|
|
|
(120,523
|
)
|
Cash distributions from unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
18,902
|
|
Loan repayment from unconsolidated affiliates
|
|
|
3,168
|
|
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliates
|
|
|
(10,430
|
)
|
|
|
(24,058
|
)
|
|
|
(523
|
)
|
Investment in development
|
|
|
(2,255
|
)
|
|
|
(10,276
|
)
|
|
|
(4,626
|
)
|
Purchase of minority interest
|
|
|
|
|
|
|
(6,900
|
)
|
|
|
|
|
Issuance of notes receivable
|
|
|
|
|
|
|
(3,263
|
)
|
|
|
|
|
Proceeds from sale of assets
|
|
|
|
|
|
|
|
|
|
|
2,101
|
|
Decrease (increase) in restricted cash
|
|
|
55
|
|
|
|
2,289
|
|
|
|
(1,282
|
)
|
Decrease (increase) in escrow
|
|
|
(183
|
)
|
|
|
225
|
|
|
|
(1,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(144,612
|
)
|
|
|
(213,867
|
)
|
|
|
(107,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(57,294
|
)
|
|
|
(1,350
|
)
|
|
|
(31,978
|
)
|
Proceeds from issuance of long-term debt
|
|
|
168,042
|
|
|
|
108,263
|
|
|
|
153,039
|
|
Payment of loan costs
|
|
|
(4,036
|
)
|
|
|
(978
|
)
|
|
|
(1,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
106,712
|
|
|
|
105,935
|
|
|
|
119,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(4,366
|
)
|
|
|
(78,181
|
)
|
|
|
41,996
|
|
Cash and cash equivalents, beginning of year
|
|
|
18,597
|
|
|
|
96,778
|
|
|
|
54,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
14,231
|
|
|
$
|
18,597
|
|
|
$
|
96,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of capitalized interest
|
|
$
|
26,749
|
|
|
$
|
13,404
|
|
|
$
|
6,036
|
|
Cash paid for income taxes, net of refunds
|
|
$
|
597
|
|
|
$
|
(312
|
)
|
|
$
|
(471
|
)
|
Non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in process accruals
|
|
$
|
6,969
|
|
|
$
|
9,728
|
|
|
$
|
10,101
|
|
Guarantee on loan for unconsolidated affliate
|
|
$
|
|
|
|
$
|
1,180
|
|
|
$
|
|
|
See accompanying notes to consolidated financial statements.
70
The terms Great Wolf Resorts, us,
we and our are used in this report to
refer to Great Wolf Resorts, Inc. and its consolidated
subsidiaries.
Business
Summary
We are a family entertainment resort company. We are the largest
owner, operator and developer in North America of drive-to
family resorts featuring indoor waterparks and other
family-oriented entertainment activities. Our resorts generally
feature approximately 270 to 400 family suites that sleep from
six to ten people and each includes a wet bar, microwave oven,
refrigerator and dining and sitting area. We provide a
full-service entertainment resort experience to our target
customer base: families with children ranging in ages from 2 to
14 years old that live within a convenient driving distance
of our resorts. We operate under our Great Wolf
Lodge®
and Blue Harbor
Resorttm
brand names.
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, miniature golf, interactive game attraction
and meeting space. We also generate revenues from licensing
arrangements, management fees and other fees with respect to our
operation or development of properties owned in whole or in part
by third parties.
The following table presents an overview of our portfolio of
operating resorts and our resort under construction. As of
December 31, 2008, we operate ten Great Wolf Lodge resorts
(our signature Northwoods-themed resorts) and one Blue Harbor
Resort (a nautical-themed property).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Indoor
|
|
|
Ownership
|
|
Opened/
|
|
Number of
|
|
Condo
|
|
Entertainment
|
|
|
Percentage
|
|
Opening
|
|
Guest Suites
|
|
Units(1)
|
|
Area(2)
|
|
|
|
|
|
|
|
|
|
|
(Approx.
ft2)
|
|
Existing Resorts:
|
|
|
|
|
|
|
|
|
|
|
Wisconsin Dells, WI(3)
|
|
30.32%
|
|
1997
|
|
308
|
|
77
|
|
102,000
|
Sandusky, OH(3)
|
|
30.32%
|
|
2001
|
|
271
|
|
|
|
41,000
|
Traverse City, MI
|
|
100%
|
|
2003
|
|
280
|
|
|
|
57,000
|
Kansas City, KS
|
|
100%
|
|
2003
|
|
281
|
|
|
|
57,000
|
Sheboygan, WI
|
|
100%
|
|
2004
|
|
182
|
|
64
|
|
54,000
|
Williamsburg, VA
|
|
100%
|
|
2005
|
|
405
|
|
|
|
87,000
|
Pocono Mountains, PA
|
|
100%
|
|
2005
|
|
401
|
|
|
|
101,000
|
Niagara Falls, ONT(4)
|
|
|
|
2006
|
|
406
|
|
|
|
104,000
|
Mason, OH
|
|
100%
|
|
2006
|
|
401
|
|
|
|
105,000
|
Grapevine, TX(5)
|
|
100%
|
|
2007
|
|
605
|
|
|
|
110,000
|
Grand Mound, WA(6)
|
|
49%
|
|
2008
|
|
398
|
|
|
|
74,000
|
Resort Under Construction:
|
|
|
|
|
|
|
|
|
|
|
Concord, NC(7)
|
|
100%
|
|
March 2009
|
|
402
|
|
|
|
97,000
|
|
|
|
(1) |
|
Condominium units are individually owned by third parties and
are managed by us. |
|
(2) |
|
Our indoor entertainment areas generally include our indoor
waterpark, game arcade, childrens activity room, family
tech center,
MagiQuest®
and fitness room, as well as our spa in the resorts that have
such amenities. |
71
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
(3) |
|
These properties are owned by a joint venture. CNL Lifestyle
Properties, Inc. (CNL), a real estate investment trust focused
on leisure and lifestyle properties, owns a 69.68% interest in
the joint venture, and we own a 30.32% interest. We operate the
properties and license the Great Wolf Lodge brand to the joint
venture under long-term agreements through October 2020, subject
to earlier termination in certain situations. |
|
(4) |
|
An affiliate of Ripley Entertainment, Inc. (Ripley) owns this
resort. We have granted Ripley a license to use the Great Wolf
Lodge name for this resort through April 2016. We will manage
the resort on behalf of Ripley through April 2009. |
|
(5) |
|
In late 2007, we began construction on an additional 203 suites
and 20,000 square feet of meeting space as an expansion of
this resort. The meeting space, along with 92 rooms, was opened
in December 2008, with the rest of the rooms completed and
opened in January 2009. |
|
(6) |
|
This property is owned by a joint venture. The Confederated
Tribes of the Chehalis Reservation (Chehalis) own a 51% interest
in the joint venture, and we own a 49% interest. We operate the
property and license the Great Wolf Lodge brand to the joint
venture under long-term agreements through April 2057, subject
to earlier termination in certain situations. The joint venture
leases the land for the resort from Chehalis. |
|
(7) |
|
We are developing a Great Wolf Lodge resort in Concord, North
Carolina. The Northwoods-themed,
402-suite
resort will provide a comprehensive package of destination
lodging amenities and activities. Construction on the resort
began in October 2007 with expected completion in March 2009. |
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles of Consolidation The
accompanying consolidated financial statements include all of
the accounts of Great Wolf Resorts and our consolidated
subsidiaries. All significant intercompany balances and
transactions have been eliminated in the consolidated 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 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. Cash and cash equivalents does not include
cash escrowed under loan agreements or cash restricted in
connection with deferred compensation payable.
Accounts receivable Accounts receivable
primarily represents receivables from resort guests who occupy
rooms and utilize resort amenities. We provide an allowance for
doubtful accounts when we determine that it is more likely than
not a specific account will not be collected. Bad debt expense
for the years ended December 31, 2008, 2007, and 2006 was
$1,305, $154, and $189, respectively. Writeoffs of accounts
receivable for the years ended December 31, 2008, 2007, and
2006, were $103, $246, and $79, respectively.
Inventory Inventories are recorded at the
lower of cost on an average cost basis or market.
Property and Equipment Investments in
property and equipment are recorded at cost. These assets are
depreciated using the straight-line method over their estimated
useful lives as follows:
|
|
|
|
|
Buildings and improvements
|
|
|
20-40 years
|
|
Fixtures and equipment, including waterpark equipment
|
|
|
5-15 years
|
|
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 expenditures 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
72
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
capitalized totaled $4,714, $9,277, and $7,628 for the years
ended December 31, 2008, 2007, and 2006, 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 $6,462, $4,928 and $4,823 as of
December 31, 2008, 2007 and 2006, respectively.
Amortization of loan fees was $2,502, $872, and $515 for the
years ended December 31, 2008, 2007, and 2006,
respectively. Included in loan fee amortization for the years
ended December 31, 2008 and 2006 were $615 and $178,
respectively, of loan fees that were written off due to
repayments of debt.
Partially-Owned Entities To determine the
method of accounting for our partially-owned entities, we
consider Accounting Principles Based Opinion No. 18,
The Equity Method of Accounting for Investments in Common
Stock, Statement of Position
78-9,
Accounting for Investments in Real Estate Ventures,
Emerging Issues Task Force (EITF)
96-16,
Investors Accounting for an Investee When the Investor has
the Majority of the Voting Interest but the Minority Partners
have Certain Approval or Veto Rights, FASB Interpretation
No. 46 (Revised 2003), Consolidation of Variable
Interest Entities An Interpretation of ARB
No. 51 and
EITF 04-5,
Determining Whether a General Partner, or the General
Partners as a group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights. In
determining whether we had controlling interest in a
partially-owned entity and the requirement to consolidate the
accounts of that entity, we consider factors such as ownership
interest, board representation, management representation,
authority to make decisions, and contractual and substantive
participating rights of the partners/members as well as whether
the entity is a variable interest entity in which we will absorb
the majority of the entitys expected losses, if they
occur, or receive the majority of the expected residual returns,
if they occur, or both.
Investments In and Advances to Unconsolidated
Affiliates We use the equity method to account
for our investments in unconsolidated joint ventures, as we do
not have a controlling interest. Net income or loss is allocated
between the partners in the joint ventures based on the
hypothetical liquidation at book value method (HLBV). Under the
HLBV method, net income or loss is allocated between the
partners based on the difference between each partners
claim on the net assets of the partnership at the end and
beginning of the period, after taking into account contributions
and distributions. Each partners share of the net assets
of the partnership is calculated as the amount that the partner
would receive if the partnership were to liquidate all of its
assets at net book value and distribute the resulting cash to
creditors and partners in accordance with their respective
priorities. Periodically we may make advances to our affiliates.
Other Intangible Assets Our other intangible
assets consist of the value of our Great Wolf Lodge brand name.
This intangible asset has an indefinite useful life. In
accordance with Statement of Financial Accounting Standards
(SFAS) No. 142 Goodwill and Other Intangible
Assets, we do not amortize this intangible, but instead
test it for possible impairment at least annually by comparing
the fair value of the intangible asset with its carrying amount.
Our assessment during the year ended December 31, 2008
determined that no such impairment had occurred. Future adverse
changes in the hospitality and lodging industry, market
conditions or poor operating results of the underlying real
estate assets could result in future losses or the inability to
recover the carrying value of these intangibles.
Goodwill The excess of the purchase price of
entities that are considered to be purchases of businesses over
the estimated fair value of tangible and identifiable intangible
assets acquired is recorded as goodwill. In connection with
SFAS 142, Goodwill and Other Intangible Assets,
we are required to assess goodwill for impairment annually, or
more frequently if circumstances indicate impairment may have
occurred. We assess goodwill for such impairment by comparing
the carrying value of our reporting units to their fair values.
We determine our reporting units fair value using a
discounted cash flow model.
73
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In the fourth quarter of 2008, as part of our annual impairment
assessment of our remaining goodwill on our Kansas City and
Mason resorts, we considered various pieces of information,
including:
|
|
|
|
|
2009 budget information;
|
|
|
|
The impact of the December holiday season on overall 2008
financial results;
|
|
|
|
Full year 2008 financial results for each of the resorts;
|
|
|
|
Impact of/changes in the economy since the severe economic
disruptions of 2008; and
|
|
|
|
Forecasted booking trends for 2009.
|
We required all of this information to complete our impairment
assessments. We concluded that the implied fair value of the
goodwill, as discussed above, on our Kansas City and Mason
resorts was less than the carrying value of those goodwill
amounts for each of the resorts. As a result, we wrote off
$17,430 of goodwill on our Kansas City and Mason resorts in the
2008 fourth quarter. We had a similar impairment in 2006 in the
amount of $50,975. As of December 31, 2008, all goodwill
has been written off.
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 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 had no impairment losses related to long-lived assets
in any of the periods presented.
Revenue Recognition We earn revenues from our
resort operations, management of resorts and other related
services, and sales of condominiums.
We 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 consolidated balance sheets. We recognize resort management
and related fees as they are contractually earned. We recognize
development and construction management 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 services performed or costs incurred compared
to services performed or total expected costs) for longer-term
projects. We recognize revenue from the sale of real estate
assets in accordance with SFAS 66, Accounting for
Sales of Real Estate.
Sales of Real Estate Assets SFAS 66
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. We account for gains and losses on sales of real
estate in accordance with the provisions of SFAS 66. In
2006 we recorded a loss of $953 related to our 2005 sale of two
of our resorts to a joint venture.
Other Revenue and Other Expenses From Managed
Properties We employ the staff at some of our
managed properties. Under our management agreements, the resort
owners reimburse us for payroll, benefits and certain other
costs related to the staff we employ at the managed properties.
EITF 01-14
Income Statement Characterization of Reimbursements
Received for Out-of-Pocket Expenses Incurred,
establishes standards for accounting for reimbursable expenses
in our income statement. Under this pronouncement, the
reimbursement of payroll, benefits and costs is recorded as
other revenue from managed properties on our
statements of operations, with a corresponding expense recorded
as other expenses from managed properties.
74
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Minority Interests We record the non-owned
equity interests of our consolidated subsidiaries as minority
interests on our consolidated balance sheets. The minority
ownership interest of our earnings or loss, net of tax, is
classified as Minority interests in our condensed
consolidated statements of operations. In June 2007 we purchased
the remaining minority interest, and now own 100% of the resort.
Income Taxes We account for income taxes
under the asset and liability method, which requires the
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
included in the financial statements. Under this method,
deferred tax assets and liabilities are determined based on the
differences between the financial statements and tax basis of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. The
effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that includes
the enactment date.
We record net deferred tax assets to the extent we believe these
assets will more likely than not be realized. In making such
determination, we consider all available positive and negative
evidence, including scheduled reversals of deferred tax
liabilities, projected future taxable income (that could result
from a sale of one or more of our resorts where theres a
sales price in excess of tax basis), tax planning strategies and
recent financial operations. In the event we were to determine
that we would be able to realize our deferred income tax assets
in the future in excess of their net recorded amount, we would
make an adjustment to the valuation allowance which would reduce
the provision for income taxes.
In July 2006, the FASB issued Financial Interpretation
(FIN) No. 48, Accounting for Uncertainty
in Income Taxes, which clarifies the accounting for
uncertainty in income taxes recognized in the financial
statements in accordance with SFAS 109, Accounting
for Income Taxes. FIN No. 48 provides that a tax
benefit from an uncertain tax position may be recognized when it
is more likely than not that the position will be sustained upon
examination, including resolutions of any related appeals or
litigation processes, based on the technical merits. Income tax
positions must meet a more-likely-than-not recognition threshold
at the effective date to be recognized upon the adoption of
FIN 48 and in subsequent periods. This interpretation also
provides guidance on measurement, derecognition, classification,
interest and penalties, accounting in interim periods,
disclosure and transition.
We and our subsidiaries file income tax returns in the
U.S. federal jurisdiction, and various states and foreign
jurisdictions. All of the tax years since the date of our IPO
are open in all jurisdictions. Our policy is to recognize
interest related to unrecognized tax benefits as interest
expense and penalties as income tax expense. We believe that we
have appropriate support for the income tax positions taken and
to be taken on our tax returns and that our accruals for tax
liabilities are adequate for all open years based on an
assessment of many factors including interpretations of tax law
applied to the facts of each matter.
Earnings per share We calculate our basic
earnings per common share by dividing net income (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 we incur a net loss, we exclude potentially dilutive
stock equivalents from the computation of diluted weighted
average shares outstanding, as the effect of those potentially
dilutive items is anti-dilutive.
Fair Value Measurements SFAS 157,
Fair Value Measurements, defines fair value as the
price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date (an exit price). The
standard outlines a valuation framework and creates a fair value
hierarchy in order to increase the consistency and comparability
of fair value measurements and the related disclosures. Under
accounting principles generally accepted in the United States of
America, or GAAP, certain assets and liabilities must be
measured at fair value, and SFAS 157 details the
disclosures that are required for items measured at fair value.
75
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
We must measure our derivatives under SFAS No. 157.
None of our current non-financial assets or non-financial
liabilities must be measured at fair value on a recurring basis.
We measure our derivatives using inputs from the following three
levels of the fair value hierarchy. The three levels are as
follows:
Level 1 inputs are unadjusted quoted prices in active
markets for identical assets or liabilities that we have the
ability to access at the measurement date.
Level 2 inputs include quoted prices for similar assets and
liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable for the
asset or liability (that is, interest rates, yield curves,
etc.), and inputs that are derived principally from or
corroborated by observable market data by correlation or other
means (market corroborated inputs).
Level 3 includes unobservable inputs that reflect our
assumptions about the assumptions that market participants would
use in pricing the asset or liability. We develop these inputs
based on the best information available, including our own data.
We have no outstanding derivatives at December 31, 2008.
Derivatives We account for derivative
instruments in accordance with SFAS 133 Accounting
for Derivative Instruments and Hedging Activities, as
amended and interpreted. Derivative instruments are recorded on
the balance sheet as either an asset or liability measured at
fair value. If the derivative is designated as a fair value
hedge, the changes in the fair value of the derivative are
recognized in earnings. To the extent the hedge is effective;
there is an offsetting adjustment to the basis of the item
hedged. If the derivative is designated as a cash flow hedge,
the effective portions of the changes in fair value or the
derivative are recorded as a component of accumulated other
comprehensive loss and recognized in the consolidated statements
of operations when the hedged item affects earnings. Ineffective
portions of changes in the fair value of hedges are recognized
in earnings. Our policy is to execute derivative financial
instruments with creditworthy banks and not to enter into such
instruments for speculative purposes.
Share based compensation We account for share
based compensation in accordance with SFAS 123(R)
Share Based Payment, using the modified prospective
application transition method. Before we adopted
SFAS 123(R), we accounted for share-based compensation in
accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees.
Advertising Advertising costs are expensed as
incurred. Advertising expense for the years ended
December 31, 2008, 2007, and 2006 was $13,321, $12,323, and
$10,297, respectively.
Comprehensive Income Comprehensive income
consists of the net income and other gains and losses affecting
stockholders equity that, under accounting principles
generally accepted in the United States, are excluded from net
income. Other comprehensive loss as presented in the
consolidated statements of stockholders equity for 2008
consisted of the unrealized gain, net of tax, on the
Companys cash flow hedge which expired in November 2008.
Segments We have three reportable segments in
2008, 2007 and 2006:
|
|
|
|
|
resort ownership/operation-revenues derived from our
consolidated owned resorts;
|
|
|
|
resort third-party management-revenues derived from management,
license and other related fees from unconsolidated managed
resorts; and
|
|
|
|
condominium sales-revenues derived from sales of condominium
units to third-party owners.
|
76
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following summarizes significant financial information
regarding our segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort
|
|
|
Resort Third-
|
|
|
|
|
|
|
|
|
Totals per
|
|
|
|
Ownership/
|
|
|
Party
|
|
|
Condominium
|
|
|
|
|
|
Financial
|
|
|
|
Operation
|
|
|
Management
|
|
|
Sales
|
|
|
Other
|
|
|
Statements
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
217,568
|
|
|
$
|
27,970
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
245,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(45,042
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,039
|
)
|
|
$
|
(46,081
|
)
|
Impairment loss on investment in affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,777
|
)
|
|
$
|
(18,777
|
)
|
Goodwill impairment
|
|
|
(16,021
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,409
|
)
|
|
$
|
(17,430
|
)
|
Operating income (loss)
|
|
|
(11,286
|
)
|
|
|
8,144
|
|
|
|
|
|
|
|
(22,524
|
)
|
|
$
|
(25,666
|
)
|
Investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,187
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,424
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, minority interest, and equity in
unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(49,332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets
|
|
|
134,167
|
|
|
|
|
|
|
|
|
|
|
|
800
|
|
|
$
|
134,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
738,119
|
|
|
|
2,314
|
|
|
|
|
|
|
|
99,628
|
|
|
$
|
840,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort
|
|
|
Resort Third-
|
|
|
|
|
|
|
|
|
Totals per
|
|
|
|
Ownership/
|
|
|
Party
|
|
|
Condominium
|
|
|
|
|
|
Financial
|
|
|
|
Operation
|
|
|
Management
|
|
|
Sales
|
|
|
Other
|
|
|
Statements
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
168,934
|
|
|
$
|
18,646
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
187,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(35,767
|
)
|
|
|
|
|
|
|
|
|
|
|
(605
|
)
|
|
$
|
(36,372
|
)
|
Operating income (loss)
|
|
|
(3,588
|
)
|
|
|
7,169
|
|
|
|
(682
|
)
|
|
|
(5,782
|
)
|
|
$
|
(2,883
|
)
|
Investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,758
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, minority interest, and equity in
unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(14,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets
|
|
|
171,197
|
|
|
|
|
|
|
|
|
|
|
|
687
|
|
|
$
|
171,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
653,367
|
|
|
|
4,384
|
|
|
|
|
|
|
|
113,054
|
|
|
$
|
770,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort
|
|
|
Resort Third-
|
|
|
|
|
|
|
|
|
Totals per
|
|
|
|
Ownership/
|
|
|
Party
|
|
|
Condominium
|
|
|
|
|
|
Financial
|
|
|
|
Operation
|
|
|
Management
|
|
|
Sales
|
|
|
Other
|
|
|
Statements
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
130,912
|
|
|
$
|
17,736
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
148,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(25,390
|
)
|
|
|
|
|
|
|
|
|
|
|
(513
|
)
|
|
$
|
(25,903
|
)
|
Goodwill impairment
|
|
|
(50,975
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(50,975
|
)
|
Operating income (loss)
|
|
|
(49,633
|
)
|
|
|
5,817
|
|
|
|
(370
|
)
|
|
|
(9,505
|
)
|
|
$
|
(53,691
|
)
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,105
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, minority interest, and equity in
unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(57,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets
|
|
|
119,692
|
|
|
|
|
|
|
|
|
|
|
|
831
|
|
|
$
|
120,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
524,820
|
|
|
|
3,120
|
|
|
|
|
|
|
|
155,499
|
|
|
$
|
683,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Other items in the table above represent corporate-level
activities that do not constitute a reportable segment. Total
assets at the corporate level primarily consist of cash, our
investment in affiliates, and intangibles.
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 September
2006, the FASB issued SFAS 157, Fair Value
Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value in accordance
with generally accepted accounting principles, and expands
disclosures about fair value measurements. The adoption of
SFAS 157 in 2008 did not have an impact on our results of
operations or financial position. In February 2008, the FASB
issued FASB Staff Position
FAS 157-2,
Partial Deferral of the Effective Date of Statement
157
(FSP 157-2).
FSP 157-2
delays the effective date of SFAS 157 for non-financial
assts and liabilities that are not measured or disclosed on a
recurring basis to fiscal years beginning after
November 15, 2008. We are currently evaluating the impact
of the adoption of
FSP 157-2
and do not expect it to have a material impact on our financial
statements.
In December 2007, the FASB issued SFAS 141 (Revised 2007),
Business Combinations. SFAS 141(R) will
significantly change the accounting for business combinations.
Under SFAS 141(R), an acquiring entity will be required to
recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition-date fair value with limited
exceptions. SFAS 141(R) also includes a substantial number
of new disclosure requirements. SFAS 141(R) applies
prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. We do not
expect the adoption of SFAS 141(R) to have a material
impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS 160,
Non-controlling Interests in Consolidated Financial
Statements-an Amendment of Accounting Research
Bulletin No. 51. SFAS 160 establishes new
accounting and reporting standards for a non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this statement requires the
recognition of a non-controlling interest (minority interest) as
equity in the consolidated financial statements separate from
the parents equity. The amount of the new income
attributable to the non-controlling interest will be included in
consolidated net income on the face of
78
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
the income statement. SFAS 160 clarifies that changes in a
parents ownership interest in a subsidiary that do not
result in deconsolidation are equity transactions if the parent
retains its controlling financial interest. In addition, this
statement requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. Such gain or loss
will be measured using the fair value of the non-controlling
equity investment on the deconsolidation date. SFAS 160
also includes expanded disclosure requirements regarding the
interests of the parent and its non-controlling interest.
SFAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after
December 15, 2008. We do not expect the adoption of
SFAS 160 to have a material impact on our consolidated
financial statements.
In March 2008, the FASB issued SFAS 161, Disclosures
about Derivative Instruments and Hedging Activities, an
amendment of FASB Statement No. 133. SFAS 161
requires enhanced disclosures for derivative and hedging
activities. SFAS 161 is effective for fiscal years and
interim periods beginning after November 15, 2008. We are
currently evaluating the impact of the adoption of this
statement and do not expect it to have a material impact on our
financial statements.
In April 2008, the FASB issued FASB Staff Position
FAS 142-3,
Determination of the Useful Life of Intangible
Assets
(FSP 142-3).
FSP 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142,
Goodwill and Other Intangible Assets.
FSP 142-3
is effective for fiscal years beginning after December 15,
2008. We do not expect the adoption of
FSP 142-3
to have a material impact on our consolidated financial
statements.
In May 2008, the FASB issued SFAS 162, The Hierarchy
of Generally Accepted Accounting Principles. SFAS 162
identifies the sources of generally accepted accounting
principles and provides a framework, or hierarchy, for selecting
the principles to be used in preparing financial statements for
non- governmental entities in conformity with GAAP. This
statement was effective on November 15, 2008. The adoption
of this statement did not have a material impact on our
financial statements.
In November 2008, the FASB ratified Emerging Issues Task Force
(EITF) Issue
No. 08-6,
Equity Method Investment Accounting Considerations
(EITF 08-6).
EITF 08-6
clarifies the accounting for certain transactions and impairment
considerations involving equity method investments.
EITF 08-6
is effective for fiscal years beginning after December 15,
2008. The adoption of this EITF is not expected to have a
material impact on our financial statements.
|
|
3.
|
INVESTMENT
IN AFFILIATES
|
CNL
Joint Venture
In October 2005, we formed a joint venture with CNL Lifestyle
Properties, Inc. (CNL), a real estate investment trust focused
on leisure and lifestyle properties. The joint venture acquired
two of our wholly owned properties Great Wolf
Lodge Wisconsin Dells, Wisconsin, and Great Wolf
Lodge Sandusky, Ohio. CNL paid us $80,150 to
purchase a 70% interest in the joint venture; we retained the
remaining 30% of the joint venture. We continue to manage the
properties and license the Great Wolf Lodge brand to the joint
venture under
25-year
agreements. In 2007, we contributed additional assets to the
joint venture which increased our ownership percentage to 30.32%.
In March 2006, our joint venture with CNL entered into a loan
agreement and borrowed $63,000. The loan is secured by the joint
ventures resorts. Pursuant to the joint venture agreement,
the joint venture distributed to us 30% of the net loan
proceeds, or approximately $18,600.
In accordance with the provisions of SFAS 66, upon
formation of the joint venture we reclassified 30% of the
historical carrying value of the two properties net assets
to our investment in affiliate balance. We wrote
79
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
off the remaining 70% of the historical carrying value of the
properties net assets in determining the loss on sale.
In the fourth quarter of 2008, we concluded that continued
adverse current and expected market conditions for our Wisconsin
Dells and Sandusky resorts indicated that our minority
investment in the joint venture that owns these resorts may be
impaired. Accordingly, we conducted an analysis, as described
above, to assess the recoverability of the carrying value of our
investments in that affiliate. As part of that analysis, we
considered various pieces of information, including:
|
|
|
|
|
2009 budget information;
|
|
|
|
The impact of the December holiday season on overall 2008
financial results;
|
|
|
|
The relative success of operational adjustments implemented
throughout 2008 to improve the resorts operations;
|
|
|
|
Full year 2008 financial results for each of the resorts;
|
|
|
|
Impact of/changes in the economy since the severe economic
disruptions of 2008; and
|
|
|
|
Forecasted booking trends for 2009.
|
We required all of this information to complete our impairment
analysis. We concluded that the fair value of our investment in
this joint venture, as discussed above, was less than its
carrying value. As a result, we recorded an $18,777 impairment
loss related to our 30.32% interest in the joint venture that
owns the Wisconsin Dells and Sandusky resorts, as the implied
fair value of the investment, as discussed above, was less than
its carrying value.
The carrying value of our investment in this joint venture was
$5,686 and $23,814 as of December 31, 2008 and 2007,
respectively. Included in the carrying value are differences
between the amount at which the investment is carried and the
amount of underlying equity in net assets of $0 and $551 as of
December 31, 2008 and 2007, respectively. We amortize the
differences over the average life of the underlying fixed assets.
Summary financial data for this joint venture as of and for the
years ended December 31, 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
104,712
|
|
|
$
|
111,982
|
|
Total liabilities
|
|
$
|
69,612
|
|
|
$
|
71,058
|
|
Operating data:
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
31,531
|
|
|
$
|
34,597
|
|
Operating expenses
|
|
$
|
(39,491
|
)
|
|
$
|
(41,341
|
)
|
Net loss
|
|
$
|
(7,960
|
)
|
|
$
|
(6,703
|
)
|
We have a receivable from the joint venture of $1,465 and $1,656
that relates primarily to license fees as of December 31,
2008 and 2007, respectively. At December 31, 2008, we have
reserved $1,201 against this receivable. We have a payable to
the joint venture of $1,225 and $124 as of December 31,
2008 and 2007, respectively.
Grand
Mount Joint Venture
We have entered into our joint venture with The Confederated
Tribes of the Chehalis Reservation to develop a Great Wolf Lodge
resort and conference center on a
39-acre land
parcel in Grand Mound,
80
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Washington. This resort opened in March 2008. This joint venture
is a limited liability company; we are a member of that limited
liability company with a 49% ownership interest. At
December 31, 2008, the joint venture had aggregate
outstanding indebtedness to third parties of $102,000. The
carrying value of our investment in this joint venture was
$38,169 and $35,339 as of December 31, 2008 and 2007,
respectively. Included in the carrying value are differences
between the amount at which the investment is carried and the
amount of underlying equity in net assets of $3,126 and $1,971
as of December 31, 2008 and 2007, respectively, We amortize
the differences over the average life of the underlying fixed
assets. Total loans outstanding between us and the joint venture
were $11,746 as of December 31, 2008; this loan bears
interest at 11% per annum and matures in August 2013. In January
2009, our joint venture partner purchased $5,991 of this debt
from us at par.
We have a receivable from the joint venture of $661 and $2,317
that relates primarily to accrued preferred equity returns as of
December 31, 2008 and 2007, respectively. This amount is
recorded as accounts receivable-affiliates on our consolidated
balance sheet. We have a payable to the joint venture of $581 as
of December 31, 2008.
Summary financial data for this joint venture for the years
ended December 31, 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
152,215
|
|
|
$
|
122,975
|
|
Total liabilities
|
|
$
|
118,636
|
|
|
$
|
80,659
|
|
Operating data:
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
33,194
|
|
|
$
|
|
|
Operating expenses
|
|
$
|
31,739
|
|
|
$
|
|
|
Net loss
|
|
$
|
(5,553
|
)
|
|
$
|
(2,369
|
)
|
|
|
4.
|
PROPERTY
AND EQUIPMENT
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Land and improvements
|
|
$
|
51,684
|
|
|
$
|
51,398
|
|
Building and improvements
|
|
|
353,537
|
|
|
|
289,768
|
|
Furniture, fixtures and equipment
|
|
|
315,577
|
|
|
|
334,836
|
|
Construction in process
|
|
|
117,063
|
|
|
|
19,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
837,861
|
|
|
|
695,739
|
|
Less accumulated depreciation
|
|
|
(121,688
|
)
|
|
|
(78,042
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
716,173
|
|
|
$
|
617,697
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $43,663, $35,686, and $25,657 for the
years ended December 31, 2008, 2007 and 2006 respectively.
81
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
Traverse City/Kansas City mortgage loan
|
|
$
|
70,211
|
|
|
$
|
71,542
|
|
Mason mortgage loan
|
|
|
76,800
|
|
|
|
76,800
|
|
Pocono Mountains mortgage loan
|
|
|
96,571
|
|
|
|
97,000
|
|
Williamsburg mortgage loan
|
|
|
64,625
|
|
|
|
|
|
Grapevine construction loan
|
|
|
78,709
|
|
|
|
58,260
|
|
Concord construction loan
|
|
|
27,594
|
|
|
|
|
|
Junior subordinated debentures
|
|
|
80,545
|
|
|
|
80,545
|
|
Other Debt:
|
|
|
|
|
|
|
|
|
City of Sheboygan bonds
|
|
|
8,493
|
|
|
|
8,465
|
|
City of Sheboygan loan
|
|
|
3,503
|
|
|
|
3,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
507,051
|
|
|
|
396,302
|
|
Less current portion of long-term debt
|
|
|
(81,464
|
)
|
|
|
(78,752
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
425,587
|
|
|
$
|
317,550
|
|
|
|
|
|
|
|
|
|
|
Traverse City/Kansas City Mortgage Loan This
loan is secured by our Traverse City and Kansas City resorts.
The loan bears interest at a fixed rate of 6.96%, is subject to
a 25-year
principal amortization schedule, and matures in January 2015.
The loan has customary financial and operating debt compliance
covenants. The loan also has customary restrictions on our
ability to prepay the loan prior to maturity. We were in
compliance with all covenants under this loan at
December 31, 2008.
Mason Mortgage Loan This loan is secured by
our Mason resort. The loan bears interest at a floating rate of
30-day LIBOR
plus a spread of 425 basis points, with a minimum rate of
6.50% per annum (effective rate of 6.50% as of December 31,
2008). The loan initially matured in November 30, 2008. On
January 23, 2009, the maturity date was extended to
November 30, 2009. This loan has customary financial and
operating debt compliance covenants associated with an
individual mortgaged property, including a minimum consolidated
tangible net worth provision. In addition, we have provided the
Mason mortgage loan lenders with a $15,000 corporate guaranty
and cross-collateralization on our Grapevine resort. The
corporate guaranty and cross-collateralization on the Grapevine
property will remain in place until we make a $15,000 principal
reduction of the Mason loan over the remaining term of the loan.
Should there be certain liquidity-producing events, including
the sale of majority-owned equity interest in any of our
existing properties or the refinance of a mortgage loan on an
existing property, we will be required to use 50 percent of
the net proceeds toward the $15,000 mandatory principal
reduction. We were in compliance with all covenants under this
loan at December 31, 2008.
Pocono Mountains Mortgage Loan This loan is
secured by our Pocono Mountains resort. The loan bears interest
at a fixed rate of 6.10% and matures in December 2016. The loan
is currently subject to a
30-year
principal amortization schedule. The loan has customary
covenants associated with an individual mortgaged property. The
loan also has customary restrictions on our ability to prepay
the loan prior to maturity. We were in compliance with all
covenants under this loan at December 31, 2008.
Williamsburg Mortgage Loan In August 2008 we
closed on a $65,000 first mortgage loan secured by our
Williamsburg resort. The loan bears interest at a floating rate
of 30-day
LIBOR plus a spread of 350 basis
82
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
points with a minimum rate of 6.25% per annum (effective rate of
6.25% as of December 31, 2008). This loan matures in August
2011 and has a one-year extension available at our option,
assuming the property meets an operating performance threshold.
The loan has a prepayment fee calculated as 3.50% of the prepaid
principal amount for any payments made in the first twelve
months of the loan. After twelve months, the loan has no
prepayment fees. The loan has customary covenants associated
with an individual mortgaged property. We were in compliance
with all covenants under this loan at December 31, 2008.
Grapevine Construction Loan This loan is
secured by our Grapevine resort. The loan bears interest at a
floating rate of
30-day LIBOR
plus a spread of 260 basis points (effective rate of 3.04%
as of December 31, 2008). The loan matures in July 2009 and
also has two one-year extensions available at our option,
provided that the property meets an operating performance
threshold. The loan is interest-only during its initial
three-year term and then is subject to a
25-year
amortization schedule in the extension periods. This loan has
customary financial and operating debt compliance covenants
associated with an individual mortgaged property, including a
minimum consolidated tangible net worth provision. The loan has
no restrictions or fees associated with the repayment of the
loan principal. We were in compliance with all covenants under
this loan at December 31, 2008.
In December 2007, we entered into an interest rate cap that
hedged our entire Grapevine loan in accordance with our original
loan document. This interest rate cap matures in July 2009 and
fixes the maximum annual interest rate on this loan at 10%.
Concord Construction Loan In April 2008 we
closed on a $63,940 construction loan to fund a portion of the
total costs of our Great Wolf Lodge resort under construction in
Concord. The four-year loan was potentially expandable to a
maximum principal amount of up to $79,900. The loan bears
interest at a floating annual rate of LIBOR plus a spread of
345 basis points during the construction period and LIBOR
plus a spread of 310 basis points once the resort is open,
with a minimum rate of 6.50% per annum (effective rate of 6.50%
as of December 31, 2008). The loan requires interest only
payments until the one-year anniversary of the opening date of
the property and then requires monthly principal payments based
on a 25-year
amortization schedule. This loan has customary financial and
operating debt compliance covenants associated with an
individual mortgaged property, including a minimum consolidated
tangible net worth provision. We were in compliance with all
covenants under this loan at December 31, 2008. In January
2009, the total commitments under this loan increased from
$63,940 to $79,900.
Junior Subordinated Debentures In March 2005
we completed a private offering of $50,000 of trust preferred
securities (TPS) through Great Wolf Capital Trust I
(Trust I), a Delaware statutory trust which is our
subsidiary. The securities pay holders cumulative cash
distributions at an annual rate which is fixed at 7.80% through
March 2015 and then floats at LIBOR plus a spread of
310 basis points thereafter. The securities mature in March
2035 and are callable at no premium after March 2010. In
addition, we invested $1,500 in Trust Is common
securities, representing 3% of the total capitalization of
Trust I.
Trust I used the proceeds of the offering and our
investment to purchase from us $51,550 of our junior
subordinated debentures with payment terms that mirror the
distribution terms of the TPS. The costs of the TPS offering
totaled $1,600, including $1,500 of underwriting commissions and
expenses and $100 of costs incurred directly by Trust I.
Trust I paid these costs utilizing an investment from us.
These costs are being amortized over a
30-year
period. The proceeds from our debenture sale, net of the costs
of the TPS offering and our investment in Trust I, were
$48,400. We used the net proceeds to retire a construction loan.
In June 2007 we completed a private offering of $28,125 of TPS
through Great Wolf Capital Trust III (Trust III), a
Delaware statutory trust which is our subsidiary. The securities
pay holders cumulative cash distributions at an annual rate
which is fixed at 7.90% through June 2012 and then floats at
LIBOR plus a spread of 300 basis points thereafter. The
securities mature in June 2017 and are callable at no premium
after
83
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
June 2012. In addition, we invested $870 in the Trusts
common securities, representing 3% of the total capitalization
of Trust III.
Trust III used the proceeds of the offering and our
investment to purchase from us $28,995 of our junior
subordinated debentures with payment terms that mirror the
distribution terms of the trust securities. The costs of the TPS
offering totaled $932, including $870 of underwriting
commissions and expenses and $62 of costs incurred directly by
Trust III. Trust III paid these costs utilizing an
investment from us. These costs are being amortized over a
10-year
period. The proceeds from our debenture sales, net of the costs
of the TPS offering and our investment in Trust III, were
$27,193. We used the net proceeds for development costs.
As a result of the issuance of FIN No. 46R,
Consolidation of Variable Interest Entities and the
accounting professions application of the guidance
provided by the FASB, issue trusts, like Trust I and
Trust III (collectively, the Trusts), are generally
variable interest entities. We have determined that we are not
the primary beneficiary under the Trusts, and accordingly we do
not include the financial statements of the Trusts in our
consolidated financial statements.
Based on the foregoing accounting authority, our consolidated
financial statements present the debentures issued to the Trusts
as long-term debt. Our investments in the Trusts are accounted
as cost investments and are included in other assets on our
consolidated balance sheet. For financial reporting purposes, we
record interest expense on the corresponding debentures in our
condensed consolidated statements of operations.
City of Sheboygan Bonds The City of Sheboygan
(the City) bonds represent the face amount of bond anticipation
notes (BANs) issued by the City in November 2003 in conjunction
with the construction of the Blue Harbor Resort in Sheboygan,
Wisconsin. In accordance with the provisions of EITF Issue
No. 91-10,
we have recognized as a liability the obligations for the BANs.
We have an obligation to fund certain minimum guaranteed amounts
of room tax payments to be made by the Blue Harbor Resort
through 2028, which obligation is indirectly related to the
payments by the City on the BANs .
City of Sheboygan Loan The City of Sheboygan
loan amount represents a loan made by the City in 2004 in
conjunction with the construction of the Blue Harbor Resort in
Sheboygan, Wisconsin. The loan is noninterest bearing and
matures in 2018. Our obligation to repay the loan will be
satisfied by certain minimum guaranteed amounts of real and
personal property tax payments to be made by the Blue Harbor
Resort through 2018.
Future Maturities Future principal
requirements on long-term debt are as follows:
|
|
|
|
|
2009
|
|
$
|
81,464
|
|
2010
|
|
|
6,485
|
|
2011
|
|
|
143,002
|
|
2012
|
|
|
29,039
|
|
2013
|
|
|
3,675
|
|
Thereafter
|
|
|
243,386
|
|
|
|
|
|
|
Total
|
|
$
|
507,051
|
|
|
|
|
|
|
|
|
6.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
We adopted SFAS 157, Fair Value Measurements,
on January 1, 2008, the first day of fiscal year 2008.
SFAS 157 defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date (an exit price). The standard outlines a
valuation framework and creates a fair value hierarchy in order
to increase the consistency and comparability of fair value
measurements and the related disclosures. Under GAAP, certain
assets and
84
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
liabilities must be measured at fair value, and SFAS 157
details the disclosures that are required for items measured at
fair value.
We must measure our derivatives under SFAS 157. None of our
current non-financial assets or non-financial liabilities must
be measured at fair value on a recurring basis. We measure our
derivatives using inputs from the following three levels of the
fair value hierarchy. The three levels are as follows:
Level 1 inputs are unadjusted quoted prices in active
markets for identical assets or liabilities that we have the
ability to access at the measurement date.
Level 2 inputs include quoted prices for similar assets and
liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable for the
asset or liability (that is, interest rates, yield curves,
etc.), and inputs that are derived principally from or
corroborated by observable market data by correlation or other
means (market corroborated inputs).
Level 3 includes unobservable inputs that reflect our
assumptions about the assumptions that market participants would
use in pricing the asset or liability. We develop these inputs
based on the best information available, including our own data.
We have no outstanding derivatives at December 31, 2008.
As of December 31, 2008, we estimate the total fair value
of our long-term debt to be $152,270 less than its total
carrying value due to the terms of the existing debt being
different than those terms currently available to us for
indebtedness with similar risks and remaining maturities.
The carrying amounts for cash and cash equivalents, other
current assets, escrows, accounts payable, gift certificates
payable and accrued expenses approximate fair value because of
the short-term nature of these instruments.
We adopted the provisions of FIN 48 on January 1,
2007. The adoption of FIN 48 did not impact our
consolidated financial condition, results of operations or cash
flows. At January 1, 2007, we had unrecognized tax benefits
of $978, which primarily related to uncertainty regarding the
sustainability of certain deductions taken on our 2005 and 2006
U.S. Federal income tax return related to transaction costs
from our IPO. At December 31, 2008, we had unrecognized tax
benefits of $1,298, which primarily related to uncertainty
regarding the sustainability of certain deductions taken on our
2005 and 2006 U.S. Federal income tax return related to
transaction costs from our IPO and certain deductions taken on
our 2006 U.S. Federal income tax return related to a tax
assessment. To the extent these unrecognized tax benefits are
ultimately recognized, they will impact the effective tax rate
in a future period. We do not expect the total amount of
unrecognized tax benefits to change significantly in the next
year. The unrecognized tax benefits are classified as a
reduction of the net operating loss carryforwards. The following
is a reconciliation of the total amounts of unrecognized tax
benefits for the year:
|
|
|
|
|
Unrecognized tax benefit December 31, 2007
|
|
$
|
1,298
|
|
Gross increases tax positions in current period
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefit December 31, 2008
|
|
$
|
1,298
|
|
|
|
|
|
|
85
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Income tax expense (benefit) consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
(12,499
|
)
|
|
$
|
(12,499
|
)
|
State and local
|
|
|
955
|
|
|
|
(1,573
|
)
|
|
|
(618
|
)
|
Foreign
|
|
|
89
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,044
|
|
|
$
|
(14,072
|
)
|
|
$
|
(13,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
(5,723
|
)
|
|
$
|
(5,723
|
)
|
State and local
|
|
|
398
|
|
|
|
(1,382
|
)
|
|
|
(984
|
)
|
Foreign
|
|
|
92
|
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
490
|
|
|
$
|
(7,105
|
)
|
|
$
|
(6,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
(8,768
|
)
|
|
$
|
(8,768
|
)
|
State and local
|
|
|
506
|
|
|
|
(732
|
)
|
|
|
(226
|
)
|
Foreign
|
|
|
56
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
562
|
|
|
$
|
(9,500
|
)
|
|
$
|
(8,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax benefit is included in the following lines in our
Consolidated Statements of Operations and Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense (Benefit)
|
|
|
|
for the Year Ending December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Income tax benefit
|
|
$
|
(11,956
|
)
|
|
$
|
(5,859
|
)
|
|
$
|
(8,764
|
)
|
Minority interest, net of tax
|
|
|
|
|
|
|
312
|
|
|
|
334
|
|
Equity in unconsolidated affiliates, net of tax
|
|
|
(1,072
|
)
|
|
|
(1,068
|
)
|
|
|
(508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefit
|
|
$
|
(13,028
|
)
|
|
$
|
(6,615
|
)
|
|
$
|
(8,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The differences between the statutory Federal income tax rate
and the effective income tax rate reflected in our consolidated
statements of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Federal statutory income tax benefit
|
|
|
(35.0
|
)%
|
|
|
(35.0
|
)%
|
|
|
(35.0
|
)%
|
State income taxes, net of Federal income taxes
|
|
|
(0.6
|
)%
|
|
|
(6.1
|
)%
|
|
|
(0.7
|
)%
|
Nondeductible goodwill
|
|
|
11.5
|
%
|
|
|
|
|
|
|
19.9
|
%
|
Other
|
|
|
(0.1
|
)%
|
|
|
0.3
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24.2
|
)%
|
|
|
(40.8
|
)%
|
|
|
(15.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
at December 31, 2008 and 2007 are presented below:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
17,504
|
|
|
|
13,553
|
|
Intangibles
|
|
|
11,564
|
|
|
|
9,630
|
|
Investment in affiliates
|
|
|
7,161
|
|
|
|
|
|
Salaries and wages
|
|
|
2,534
|
|
|
|
4,140
|
|
Interest rate swap
|
|
|
|
|
|
|
273
|
|
Other
|
|
|
1,329
|
|
|
|
623
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
40,092
|
|
|
|
28,219
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
(32,922
|
)
|
|
$
|
(33,598
|
)
|
Prepaid expenses
|
|
|
(932
|
)
|
|
|
(741
|
)
|
Interest rate swap
|
|
|
(273
|
)
|
|
|
|
|
Investment in affiliates
|
|
|
|
|
|
|
(1,629
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(34,127
|
)
|
|
|
(35,968
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(366
|
)
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
5,599
|
|
|
$
|
(8,074
|
)
|
|
|
|
|
|
|
|
|
|
Our 2008 net deferred tax asset consisted of a current
deferred tax liability of $126 included in accrued expenses and
a long-term deferred tax asset of $5,725 include in other assets
on the consolidated balance sheet. Our 2007 net deferred
tax liability consisted of a current deferred tax liability of
$477 included in accrued expenses and a long-term deferred tax
liability of $7,597 in the consolidated balance sheet.
We consider whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in
which those temporary differences become deductible. We consider
the scheduled reversal of deferred tax liabilities, projected
future taxable income (that could result from a sale of one or
more of our resorts where theres a sales price in excess
of tax basis); and tax planning strategies in making this
assessment. Based upon the scheduled reversal of deferred tax
liabilities, potential tax planning strategies, and projections
of future taxable income over the periods in which the temporary
differences are deductible, we believe it is more likely than
not that we will realize the benefits of these deductible
differences.
As of December 31, 2008, we had net operating loss
carryforwards of approximately $43,890 and $43,603 for federal
and state income tax purposes, respectively. These federal and
state carryforwards begin expiring in 2024 and 2014,
respectively. Based on our analysis, we believe all but $6,620
of the net operating loss carryforwards related to the State of
Ohio will be realized; therefore we have established a valuation
allowance as of December 31, 2008 of $366, the tax effected
benefit of such state carryforward. The valuation allowance is
included on the balance sheet as a reduction to deferred tax
assets, which is included in Other Assets on our balance sheet.
As of December 31, 2007, we had net operating loss
carryforwards of approximately $33,418 and $38,026 for federal
and state income tax purposes, respectively. These federal and
state carryforwards begin expiring in 2024 and 2014,
respectively. We believe all but $5,879 of the net operating
loss carryforwards related to the State of Ohio will be
realized; therefore we have established a valuation allowance as
of December 31, 2007 of $325, the tax effected benefit of
such state carryforward. The valuation allowance is included on
the balance sheet in deferred tax liability.
87
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The 2008 and 2007 income tax provisions include a deduction of
$126 and $739, respectively, related to share-based compensation
which was recorded as an increase in additional paid in capital.
|
|
8.
|
RELATED-PARTY
TRANSACTIONS
|
We rent office space for our headquarters location in Madison,
Wisconsin from a company that is an affiliate of a member of our
board of directors. Our total payments for rent and related
expenses for this office space were $304, $325, and $313 for the
years ended December 31, 2008, 2007, and 2006,
respectively, and are included in selling, general and
administrative expenses on our consolidated statements of
operations and comprehensive loss.
Our consolidated statements of operations and comprehensive loss
includes fees of $5,346, $4,314 and $3,729 from our investments
in affiliates. These fees relate primarily to management,
license, central reservation, development and construction fees.
|
|
9.
|
COMMITMENTS
AND CONTINGENCIES
|
Legal Matters We are involved in litigation
from time to time in the ordinary course of our business. We do
not believe that the outcome of any such pending or threatened
litigation will have a material adverse effect on our financial
condition or results of operations. However, as is inherent in
legal proceedings where issues may be decided by finders of
fact, there is a risk that an unpredictable decision adverse to
the company could be reached.
Letters of Credit In connection with the
construction of our Sheboygan, Wisconsin 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,
2009. 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 other assets on the consolidated balance sheets.
Guarantees We recognize guarantees in
accordance with FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements
for Guarantees. FIN 45 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.
In connection with the construction of our Sheboygan, Wisconsin
resort, we 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 the
construction of the 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, we guaranteed real and
personal property tax payments over a fourteen-year period
totaling $16,400. This obligation is also guaranteed by three of
our former members of senior management. The guarantee was
entered into on July 30, 2003.
In exchange for the $8,200 funding, we entered into a lease for
the convention center with the City. The initial term of the
lease is
251/2
years with fifteen, five-year renewal options. Under the lease,
we 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 by three
of our former members of senior management. This guarantee was
also entered into on July 30, 2003.
The debt related to the $4,000 and $8,200 fundings is included
in the accompanying consolidated balance sheets; therefore, we
have not recorded any liability related to the guarantees on
those fundings.
88
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Commitments We lease office space, storage
space and office equipment under various operating leases that
expire between 2009 and 2017. Most of the leases include renewal
options. Future minimum payments on these operating leases are
as follows:
|
|
|
|
|
2009
|
|
$
|
548
|
|
2010
|
|
|
334
|
|
2011
|
|
|
151
|
|
2012
|
|
|
131
|
|
2013
|
|
|
14
|
|
Thereafter
|
|
|
51
|
|
|
|
|
|
|
Total
|
|
$
|
1,229
|
|
|
|
|
|
|
Rent expense for the years ended December 31, 2008, 2007,
and 2006 were $708, $488, and $450, respectively.
We also have commitments on contracts to build our resorts under
construction. Commitments on these contracts total $20,722 for
periods subsequent to December 31, 2008.
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 discretionary and are based on a percentage of employee
contributions. Our contributions to the plan were $432, $336,
and $231 for the years ended December 31, 2008, 2007, and
2006, respectively.
Deferred Compensation We have a deferred
compensation plan for certain of our employees. The plan allows
for contributions by both the participants and us. Our employer
contributions for the plan were $43, $54, and $74 for the years
ended December 31, 2008, 2007 and 2006, respectively.
Earnings per Share We calculate our basic
earnings per common share by dividing net income (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 we incur a net loss, we exclude potentially dilutive
stock equivalents from the computation of diluted weighted
average shares outstanding, as the effect of those potentially
dilutive items is anti-dilutive. We had 475,000, 987,000, and
1,064,500 total options outstanding at December 31, 2008,
2007 and 2006, respectively.
The trust that holds the assets to pay obligations under our
deferred compensation plan has 11,765 shares of our common
stock. In accordance with the provisions of EITF Issue
No. 97-14,
we treat those shares of common stock as treasury stock for
purposes of our earnings per share computations and therefore we
exclude
89
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
them from our basic and diluted earnings per share calculations.
Basic and diluted earnings per common share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net loss attributable to common shares
|
|
$
|
(40,725
|
)
|
|
$
|
(9,581
|
)
|
|
$
|
(49,250
|
)
|
Weighted average common shares outstanding basic and
diluted
|
|
|
30,827,860
|
|
|
|
30,533,249
|
|
|
|
30,299,647
|
|
Net loss per share basic and diluted
|
|
$
|
(1.32
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(1.63
|
)
|
Options to purchase 475,000 shares of common stock were not
included in the computations of diluted earnings per share for
the year ended December 31, 2008, because the exercise
price for the options were greater than the average market price
of the common shares during that period. There were
94,069 shares of common stock that were not included in the
computation of diluted earnings per share for the year ended
December 31, 2008, because the market
and/or
performance criteria related to these shares had not been met at
December 31, 2008.
|
|
12.
|
SHARE-BASED
COMPENSATION
|
Effective January 1, 2006, we adopted SFAS 123(R),
Share-Based Payment SFAS 123(R), using the
modified prospective application transition method. Before we
adopted SFAS 123(R), we accounted for share-based
compensation in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees. Other than for the expense related to
our deferred compensation shares and our non-vested shares, no
share-based employee compensation cost has been reflected in net
income prior to January 1, 2006.
We recognized $222, $5,080, and $3,559, net of estimated
forfeitures, in share-based compensation expense for the years
ended December 31, 2008, 2007 and 2006, respectively. The
total income tax benefit recognized related to share-based
compensation was $54, $2,073 and $1,424 for the years ended
December 31, 2008, 2007, and 2006, respectively. We
recognize compensation expense on grants of share-based
compensation awards on a straight-line basis over the requisite
service period of each award recipient. As of December 31,
2008, total unrecognized compensation cost related to
share-based compensation awards was $2,241, which we expect to
recognize over a weighted average period of approximately
3.1 years.
The Great Wolf Resorts 2004 Incentive Stock Plan (the Plan)
authorizes us to grant up to 3,380,520 options, stock
appreciation rights or shares of our common stock to employees
and directors. At December 31, 2008, there were
2,091,333 shares available for future grants under the Plan.
We anticipate having to issue new shares of our common stock for
stock option exercises.
Stock
Options
We have granted non-qualified stock options to purchase our
common stock under the Plan at prices equal to the fair market
value of the common stock on the grant dates. The exercise price
for certain options granted under the plans may be paid in cash,
shares of common stock or a combination of cash and shares.
Stock options expire ten years from the grant date and vest
ratably over three years.
We recorded stock option expense of $111, $1,524 and $1,776 for
the years ended December 31, 2008, 2007 and 2006,
respectively. There were no stock options granted in 2008 or
2007. We granted 15,000 stock options during the year ended
December 31, 2006. The per share weighted average fair
value of stock options
90
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
granted during the year ended December 31, 2006 was $6.00.
We estimated the fair value of each stock option on the date of
grant using the Black-Scholes pricing model and the following
assumptions:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2006
|
|
|
Dividend yield
|
|
|
|
|
Weighted average, risk free interest rate
|
|
|
4.33
|
%
|
Weighted average, expected life of option
|
|
|
6.0 years
|
|
Expected stock price volatility
|
|
|
39.83
|
%
|
We used an expected dividend yield of 0% as we do not currently
pay a dividend and do not contemplate paying a dividend in the
foreseeable future. The weighted average, risk free interest
rate is based on the U.S. Treasury note rate at the
beginning of the period. The weighted average expected live of
our options is based on the simplified calculation allowed under
SFAS 123(R). Due to our formation in December 2004, our
expected stock price volatility is estimated using daily returns
data for the five-year period ending on the grant date for a
group of peer companies.
A summary of stock option activity during the years ended
December 31, 2008, 2007, and 2006 is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Shares
|
|
|
Price
|
|
|
Life
|
|
|
Number of shares under option:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2006
|
|
|
1,471,834
|
|
|
$
|
17.45
|
|
|
|
|
|
Granted
|
|
|
15,000
|
|
|
$
|
13.18
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(422,334
|
)
|
|
$
|
17.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
1,064,500
|
|
|
$
|
17.55
|
|
|
|
8.05 years
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(167
|
)
|
|
$
|
12.40
|
|
|
|
|
|
Forfeited
|
|
|
(77,333
|
)
|
|
$
|
20.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
987,000
|
|
|
$
|
17.29
|
|
|
|
7.03 years
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(512,000
|
)
|
|
$
|
17.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
475,000
|
|
|
$
|
17.59
|
|
|
|
6.09 years
|
|
Exercisable at December 31, 2008
|
|
|
470,000
|
|
|
$
|
17.64
|
|
|
|
6.00 years
|
|
At December 31, 2008 and 2007, all of our option grant
prices were above our stock price. Therefore there was no
intrinsic value for our outstanding or exercisable shares at
December 31, 2008 or 2007. The intrinsic value of our
outstanding stock options and exercisable stock options was $12
and $0, respectively, at December 31, 2006.
Market
Condition Share Awards
Certain employees are eligible to receive shares of our common
stock in payment of market condition share awards granted to
them in accordance with the terms thereof.
91
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
We granted 84,748, 215,592 and 81,820 market condition share
awards during the years ended December 31, 2008, 2007 and
2006, respectively. We recorded share based compensation expense
of $(132), $779 and $482 for the years ended December 31,
2008, 2007 and 2006, respectively. Included in the 2008 amount
were reversals of expense related to the resignation of two
senior officers in 2008, as the service condition of these
shares was not met.
Of the 2008 market condition shares granted:
|
|
|
|
|
84,748 are based on our common stocks performance in 2008
relative to a stock index, as designated by the Compensation
Committee of the Board of directors. These shares vest ratably
over a three-year period,
2008-2010.
The per share fair value of these market condition shares was
$1.63.
|
The fair value of these market condition shares was determined
using a Monte Carlo simulation and the following assumptions:
|
|
|
|
|
Dividend yield
|
|
|
|
|
Weighted average, risk free interest rate
|
|
|
2.05
|
%
|
Expected stock price volatility
|
|
|
34.98
|
%
|
Expected stock price volatility (small-cap stock index)
|
|
|
20.08
|
%
|
We used an expected dividend yield of 0% as we do not currently
pay a dividend and do not contemplate paying a dividend in the
foreseeable future. The weighted average, risk free interest
rate was based on the one-year T-bill rate. Our expected stock
price volatility was estimated using daily returns data of our
stock for a two-year period ending on the grant date. The
expected stock price volatility for the small cap stock index
was estimated using daily returns data for a two-year period
ending on the grant date. Due to the resignation of a senior
officer in 2008, 55,046 shares were forfeited.
Of the 2007 market condition shares awards granted:
|
|
|
|
|
53,006 are based on our common stocks performance in 2007
relative to a stock index, as designated by the Compensation
Committee of the Board of directors. These shares vest ratably
over a three-year period,
2007-2009.
The per share fair value of these market condition shares was
$7.25.
|
The fair value of these market condition shares was determined
using a Monte Carlo simulation and the following assumptions:
|
|
|
|
|
Dividend yield
|
|
|
|
|
Weighted average, risk free interest rate
|
|
|
5.05
|
%
|
Expected stock price volatility
|
|
|
42.13
|
%
|
Expected stock price volatility (small-cap stock index)
|
|
|
16.64
|
%
|
We used an expected dividend yield of 0% as we do not currently
pay a dividend and do not contemplate paying a dividend in the
foreseeable future. The weighted average, risk free interest
rate is based on the one-year T-bill rate. Our expected stock
price volatility was estimated using daily returns data of our
stock for a two-year period ending on the grant date. The
expected stock price volatility for the small cap stock index
was estimated using daily returns data for a two-year period
ending on the grant date.
Based on our common stock performance in 2007, employees did not
earn any of these market condition shares. As a result, we
recorded the entire fair value of the grant as expense in 2007.
|
|
|
|
|
81,293 are based on our common stocks absolute performance
during the three-year period
2007-2009.
Half of these shares vest on December 31, 2009, and the
other half vest on December 31, 2010. The per share fair
value of these market condition shares was $6.65.
|
92
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The fair value of these market condition shares was determined
using a Monte Carlo simulation and the following assumptions:
|
|
|
|
|
Dividend yield
|
|
|
|
|
Weighted average, risk free interest rate
|
|
|
4.73
|
%
|
Expected stock price volatility
|
|
|
42.13
|
%
|
We used an expected dividend yield of 0% as we do not currently
pay a dividend and do not contemplate paying a dividend in the
foreseeable future. The weighted average, risk free interest
rate is based on the four-year T-bill rate. Our expected stock
price volatility was estimated using daily returns data of our
stock for a two-year period ending on the grant date. Due to the
resignation of two senior officers in 2008, 58,628 shares
were forfeited.
|
|
|
|
|
81,293 are based on our common stocks performance in
2007-2009
relative to a stock index, as designated by the Compensation
Committee of the Board of directors. Half of these shares vest
on December 31, 2009, and the other half vest on
December 31, 2010. The per share fair value of these market
condition shares was $8.24.
|
The fair value of these market condition shares was determined
using a Monte Carlo simulation and the following assumptions:
|
|
|
|
|
Dividend yield
|
|
|
|
|
Weighted average, risk free interest rate
|
|
|
4.73
|
%
|
Expected stock price volatility
|
|
|
42.13
|
%
|
Expected stock price volatility (small-cap stock index)
|
|
|
16.64
|
%
|
We used an expected dividend yield of 0% as we do not currently
pay a dividend and do not contemplate paying a dividend in the
foreseeable future. The weighted average, risk free interest
rate is based on the four-year T-bill rate. Our expected stock
price volatility was estimated using daily returns data of our
stock for a two-year period ending on the grant date. The
expected stock price volatility for the small cap stock index
was estimated using daily returns data for a two-year period
ending on the grant date. Due to the resignation of two senior
officers in 2008, 58,628 shares were forfeited.
Of the 2006 market condition shares awards granted:
|
|
|
|
|
81,820 were based on our common stocks performance in 2006
relative to a stock index, as designated by the Compensation
Committee of the Board of directors. The per share fair value of
these market condition shares was $5.76.
|
The fair value of the market condition shares was determined
using a Monte Carlo simulation and the following assumptions:
|
|
|
|
|
Dividend yield
|
|
|
|
|
Weighted average, risk free interest rate
|
|
|
4.12
|
%
|
Expected stock price volatility (peer group of companies)
|
|
|
31.00
|
%
|
Expected stock price volatility (small-cap stock index)
|
|
|
17.50
|
%
|
We used an expected dividend yield of 0% as we do not currently
pay a dividend and do not contemplate paying a dividend in the
foreseeable future. The weighted average, risk free interest
rate is based on the one year T-bill rate. Our expected stock
price volatility was estimated using daily returns data for the
three-year period ending on the grant date for peer group
companies. The expected stock price volatility for the small cap
stock index was estimated using three-year return averages.
93
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Based on our common stock performance in 2006, employees earned
and were issued 81,820 market condition shares in February 2007.
Performance
Share Awards
Certain employees are eligible to receive shares of our common
stock in payment of performance share awards granted to them. We
granted 37,386, 23,149 and 27,273 performance shares during the
years ended December 31, 2008, 2007 and 2006, respectively.
Shares granted in 2008 vest over a three year period,
2008-2010;
shares granted in 2007 vest ratably over a three year period,
2007-2009;
shares granted in 2006 vested upon issuance. Grantees of
performance shares are eligible to receive shares of our common
stock based on the achievement of certain individual and
departmental performance criteria during the calendar year. The
per share fair value of performance shares granted during the
years ended December 31, 2008, 2007 and 2006, was $7.09,
$13.10 and $11.03, respectively, which represents the fair value
of our common stock on the grant date. We recorded share based
compensation expense of $51, $101 and $310 for the years ended
December 31, 2008, 2007 and 2006, respectively.
Based on their achievement of certain individual and
departmental performance goals:
|
|
|
|
|
Employees earned and were issued 18,084 performance shares in
February 2009 related to the 2008 grants,
|
|
|
|
Employees earned and were issued 20,843 performance shares in
February 2008 related to the 2007 grants, and
|
|
|
|
Employees earned and were issued 17,949 performance shares in
February 2007 related to the 2006 grants.
|
As a result, we recorded a reduction in expense of $10 and $103
during the years ended December 31, 2008 and 2007,
respectively, related to the shares not issued.
Deferred
Compensation Awards
Pursuant to their employment arrangements, certain executives
received bonuses upon completion of our 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 Issue
No. 97-14,
we account for the change in fair value of the shares held in
the trust as a charge to compensation cost. We recorded share
based compensation expense (revenue) of $(893), $(537) and $472,
for the years ended December 31, 2008, 2007 and 2006,
respectively.
In 2008, one of the executives who had deferred a bonus payment
as discussed above resigned from our company. As a result, we
have reclassified $2,000 previously recorded as deferred
compensation to additional
paid-in-capital.
Non-vested
Shares
We have granted non-vested shares to certain employees and our
directors. Shares vest over time periods between three and five
years. We valued the non-vested shares at the closing market
value of our common stock on the date of grant.
94
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A summary of non-vested shares activity for the years ended
December 31, 2008, 2007, and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Grant Date
|
|
|
Shares
|
|
Fair Value
|
|
Non-vested shares balance at January 1, 2006
|
|
|
15,000
|
|
|
$
|
10.09
|
|
Granted
|
|
|
236,000
|
|
|
$
|
11.60
|
|
Forfeited
|
|
|
(3,000
|
)
|
|
$
|
11.77
|
|
Vested
|
|
|
(3,000
|
)
|
|
$
|
10.09
|
|
|
|
|
|
|
|
|
|
|
Non-vested shares balance at December 31, 2006
|
|
|
245,000
|
|
|
$
|
11.08
|
|
Granted
|
|
|
143,711
|
|
|
$
|
13.47
|
|
Forfeited
|
|
|
(5,000
|
)
|
|
$
|
10.79
|
|
Vested
|
|
|
(50,600
|
)
|
|
$
|
11.53
|
|
|
|
|
|
|
|
|
|
|
Non-vested shares balance at December 31, 2007
|
|
|
333,111
|
|
|
$
|
12.37
|
|
Granted
|
|
|
210,799
|
|
|
$
|
6.78
|
|
Forfeited
|
|
|
(162,008
|
)
|
|
$
|
10.91
|
|
Vested
|
|
|
(81,653
|
)
|
|
$
|
12.14
|
|
|
|
|
|
|
|
|
|
|
Non-vested shares balance at December 31, 2008
|
|
|
300,249
|
|
|
$
|
9.29
|
|
|
|
|
|
|
|
|
|
|
There was no intrinsic value of our shares at December 31,
2008, 2007 or 2006.
We recorded share based expense of $657, $963, and $519 for the
years ended December 31, 2008, 2007, and 2006, respectively.
Vested
Shares
We have an annual short-term incentive plan for certain
employees that provides them the potential to earn cash bonus
payments. For 2008 and 2007, certain of these employees had the
option to elect to have some or all of their annual bonus
compensation paid in the form of shares of our common stock
rather than cash. Employees making this election received shares
having a market value equal to 125% of the cash they would
otherwise receive. Shares issued in lieu of cash bonus payments
are fully vested upon issuance. We recorded expense of $32 and
$2,353 during the years ended December 31, 2008 and 2007,
respectively, related to our short-term incentive plan. In
connection with the elections related to 2008 bonus amounts, we
issued 17,532 shares in February 2009. We valued these shares at
$32 based on the closing market value of our common stock on the
date of the grant. In connection with the elections related to
2007 bonus amounts, we issued 265,908 shares in February
2008. We valued these shares at $2,055 based on the closing
market value of our common stock on the date of the grant.
In 2008, our directors had the option to elect to have some or
all of the cash portion of their annual fees paid in the form of
shares of our common stock rather than cash. Directors making
this election received shares having a market value equal to
125% of the cash they would otherwise receive. Shares issued in
lieu of cash fee payments are fully vested upon issuance. We
recorded non-cash professional fees expense of $437 for the year
ended December 31, 2008, related to these elections to
receive shares in lieu of cash. We issued 118,823 shares
during the year ended December 31, 2008, respectively. We
had no similar issuances of stock for director compensation in
2007 or 2006.
95
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
13.
|
QUARTERLY
FINANCIAL DATA (UNAUDITED)
|
The following tables sets forth certain items included in our
consolidated financial statements for each quarter of the years
ended December, 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
64,208
|
|
|
$
|
63,018
|
|
|
$
|
69,413
|
|
|
$
|
48,899
|
|
Net operating income (loss)
|
|
|
4,062
|
|
|
|
51
|
|
|
|
9,763
|
|
|
|
(39,542
|
)
|
Net income (loss)
|
|
|
(2,327
|
)
|
|
|
(4,090
|
)
|
|
|
2,171
|
|
|
|
(36,479
|
)
|
Basic earnings (loss) per share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
0.07
|
|
|
$
|
(1.18
|
)
|
Diluted earnings (loss) per share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
0.07
|
|
|
$
|
(1.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
48,459
|
|
|
$
|
46,292
|
|
|
$
|
50,898
|
|
|
$
|
41,931
|
|
Net operating income (loss)
|
|
|
(745
|
)
|
|
|
811
|
|
|
|
5,637
|
|
|
|
(8,586
|
)
|
Net income (loss)
|
|
|
(2,005
|
)
|
|
|
(1,656
|
)
|
|
|
1,761
|
|
|
|
(7,681
|
)
|
Basic earnings (loss) per share
|
|
$
|
(0.07
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.25
|
)
|
Diluted earnings (loss) per share
|
|
$
|
(0.07
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.25
|
)
|
The following is a summary of the significant fourth quarter
adjustments for our fiscal year 2008:
|
|
|
|
|
Impairment loss on investment in affiliates
|
|
$
|
18,777
|
|
Goodwill impairment
|
|
|
17,430
|
|
|
|
|
|
|
|
|
$
|
36,207
|
|
|
|
|
|
|
See Footnotes 2 and 3 for further discussion of these
adjustments.
|
|
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 maintain disclosure controls and procedures designed to
provide reasonable assurance that information in our reports
under the Securities Exchange Act of 1934, as amended (the
Exchange Act) is recorded, processed, summarized and
reported within the time periods specified pursuant to the
SECs rules and forms. Disclosure controls and procedures,
as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act, include controls and procedures designed
to ensure that information required to be disclosed by us in the
reports we file or submit under the Exchange Act is accumulated
and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of
the system are met.
96
GREAT
WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
We carried out an evaluation, under the supervision and with the
participation of our management including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures
as of the end of the fourth quarter of 2008. In making this
evaluation, we considered matters discussed below relating to
internal control over financial reporting. After consideration
of the matters discussed below, we have concluded that our
disclosure controls and procedures were effective as of
December 31, 2008.
Managements
Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate and effective internal control over financial
reporting. Internal control over financial reporting refers to
the process designed by, or under the supervision of, our Chief
Executive Officer and Chief Financial Officer, and effected by
our Board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with U.S. generally
accepted accounting principles, and includes those policies and
procedures that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the Company;
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of our
management and directors; and
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial
statements.
|
Internal control over financial reporting cannot provide
absolute assurance for the prevention or detection of
misstatements within our financial reporting because of its
inherent limitations. Internal control over financial reporting
is a process that involves human judgment and requires diligence
and compliance to prevent errors. Internal control over
financial reporting can also be circumvented by collusion or
improper management override. Because of such limitations, there
is a risk that material misstatements may not be prevented or
detected on a timely basis. However, these inherent limitations
are known features of the financial reporting process and it is
possible to design safeguards to reduce, though not eliminate,
this risk. Our management has used the framework set forth in
the report entitled Internal Control-Integrated
Framework published by the Committee of Sponsoring
Organizations of the Treadway Commission to evaluate the
effectiveness of our internal control over financial reporting.
Management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework
in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission Based on our evaluation under the framework in
Internal Control Integrated Framework, management
concluded that our internal control over financial reporting was
effective as of December 31, 2008.
The effectiveness of our internal control over financial
reporting as of December 31, 2008 has been audited by Grant
Thornton LLP, an independent registered public accounting firm,
as stated in their report which is included herein.
Changes
in Internal Control
There were no changes in internal control over financial
reporting that occurred during the fourth quarter of 2008 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
97
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Great Wolf Resorts, Inc.
We have audited Great Wolf Resorts, Inc.s (a Delaware
Corporation) and subsidiaries (the Company) internal
control over financial reporting of as of December 31,
2008, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The
Companys management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management
Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Companys
internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that the receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of the effectiveness to
future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on criteria established in
Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements of the Company as of and for
the year ended December 31, 2008 and our report dated
March 5, 2009 expressed an unqualified opinion on those
consolidated financial statements.
/s/ GRANT THORNTON LLP
Madison, Wisconsin
March 5, 2009
98
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICER AND CORPORATE GOVERNANCE
|
This information is hereby incorporated by reference to our 2009
Proxy Statement (under the headings The Election of
Directors, The Executive Officers,
Corporate Governance and Section 16(A)
Beneficial Ownership Compliance).
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
This information is hereby incorporated by reference to our 2009
Proxy Statement (under the headings Executive
Compensation, Compensation Committee Interlocks and
Insider Participation and Compensation of
Directors).
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
This information is hereby incorporated by reference to our 2009
Proxy Statement (under the headings Ownership Of Our
Common Stock and Equity Compensation Plan
Information).
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
This information is hereby incorporated by reference to our 2009
Proxy Statement (under the heading Certain Relationships
And Related Transactions).
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
This information is hereby incorporated by reference to our 2009
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.
99
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GREAT WOLF RESORTS, INC.
Kimberly K. Schaefer
Chief Executive Officer
Dated: March 5, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Kimberly
K. Schaefer
Kimberly
K. Schaefer
|
|
Chief Executive Officer (Principal Executive Officer) and
Director
|
|
March 5, 2009
|
|
|
|
|
|
/s/ James
A. Calder
James
A. Calder
|
|
Chief Financial Officer (Principal Financial and Accounting
Officer)
|
|
March 5, 2009
|
|
|
|
|
|
/s/ Joseph
V. Vittoria
Joseph
V. Vittoria
|
|
Chairman of the Board and Director
|
|
March 5, 2009
|
|
|
|
|
|
/s/ Elan
Blutinger
Elan
Blutinger
|
|
Director
|
|
March 5, 2009
|
|
|
|
|
|
Randy
L. Churchey
|
|
Director
|
|
March 5, 2009
|
|
|
|
|
|
/s/ Steven
D. Hovde
Steven
D. Hovde
|
|
Director
|
|
March 5, 2009
|
|
|
|
|
|
/s/ Michael
M. Knetter
Michael
M. Knetter
|
|
Director
|
|
March 5, 2009
|
|
|
|
|
|
/s/ Richard
T. Murray III
Richard
T. Murray III
|
|
Director
|
|
March 5, 2009
|
|
|
|
|
|
Edward
H. Rensi
|
|
Director
|
|
March 5, 2009
|
|
|
|
|
|
/s/ Howard
A. Silver
Howard
A. Silver
|
|
Director
|
|
March 5, 2009
|
100
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 Annual Report on
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 September 12, 2007 (incorporated herein by
reference to Exhibit 4.1 to the Companys Current
Report on
Form S-1
filed September 18, 2007)
|
|
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 10.2 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 10.3 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 December 7, 2004)
|
|
10
|
.6
|
|
Registration Statement on
Form S-1
filed January 21, 2005) 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
|
.7
|
|
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
|
.8+
|
|
Form of Indemnity Agreement (incorporated herin by reference to
Exhibit 10.8 to the Companys Registration Statement
on
Form S-1
filed September 23, 2004)
|
|
10
|
.9+
|
|
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
|
.10+
|
|
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)
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.11+
|
|
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
|
.12
|
|
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
|
.13
|
|
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)
|
|
10
|
.14
|
|
Venture formation and Contribution Agreement dated
October 3, 2005, among Great Wolf Resorts, Inc., Great Bear
Lodge of Wisconsin Dells, LLC, Great Bear Lodge of Sandusky,
LLC, and CNL Income Partners, LP (incorporated herein by
reference to Exhibit 10.1 to the Companys current
Report on
Form 8-K
filed October 7, 2005).
|
|
10
|
.15
|
|
Loan Agreement dated March 1, 2007, among CNL Income GW
WI-Del, LP and CNL Income GW Sandusky, LP, as borrowers, and
NSPL, Inc., as lender (incorporated herein by reference to
Exhibit 1.1 to the Companys Current Report on
Form 8-K
filed March 2, 2007).
|
|
10
|
.16
|
|
Loan Agreement dated July 28, 2007, among Great Wolf Lodge
of Grapevine, LLC, as borrower, and Merrill Lynch Capital and
HSH Nordbank, as lenders (incorporated herein by reference to
Exhibit 1.1 to the Companys Current Report on
Form 8-K
filed July 31, 2007).
|
|
10
|
.17
|
|
Loan Agreement dated December 6, 2007, between Great Wolf
Lodge of the Poconos, LLC, as borrower, and Citigroup Global
Markets Realty Corp., as lender (incorporated herein by
reference to Exhibit 1.1 to the Companys Current
Report on
Form 8-K
filed December 13, 2007).
|
|
10
|
.18
|
|
Loan Agreement dated February 6, 2008, between Great Wolf
Lodge Williamsburg SPE, LLC, as borrower, and Citigroup Global
Markets Realty Corp., as lender (incorporated herein by
reference to Exhibit 1.1 to the Companys Current
Report on
Form 8-K
filed February 8, 2008).
|
|
10
|
.19
|
|
Loan Agreement dated April 30, 2008, among Great Wolf Lodge
of the Carolinas, LLC, as borrower, Marshall Financial Group, as
administrative agent, and the several banks and other financial
institutions from time to time party thereto, as lenders
(incorporated herein by reference to Exhibit 1.1 to the
Companys Current Report on
Form 8-K
filed May 6, 2008).
|
|
10
|
.20*
|
|
The Hovde Building Lease, dated September 1, 1997, as
amended by amendments dated July 2, 2002, February 12,
2004, April 23, 2004, August 11, 2004, and
January 22, 2009.
|
|
21
|
.1*
|
|
List of Subsidiaries
|
|
23
|
.1*
|
|
Consent of Grant Thornton LLP
|
|
23
|
.2*
|
|
Consent of Deloitte & Touche LLP
|
|
31
|
.1*
|
|
Certification of Chief Executive Officer of Periodic Report
Pursuant to Rule 13a 14(a) and
Rule 15d 14(a)
|
|
31
|
.2*
|
|
Certification of Chief Financial Officer of Periodic Report
Pursuant to Rule 13a 14(a) and
Rule 15d 14(a)
|
|
32
|
.1*
|
|
Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350
|
|
32
|
.2*
|
|
Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350
|
|
|
|
* |
|
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. |