e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-51064
GREAT WOLF RESORTS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation or organization)
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51-0510250
(I.R.S. Employer Identification No.) |
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122 West Washington Avenue
Madison, Wisconsin 53703
(Address of principal executive offices)
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53703
(Zip Code) |
(608) 661-4700
(Registrants telephone number, including area code)
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 whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No 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 o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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
The number of shares outstanding of the issuers common stock was 31,297,046 as of November 5,
2009.
Great Wolf Resorts, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2009
INDEX
2
PART I. FINANCIAL INFORMATION
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ITEM 1. |
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FINANCIAL STATEMENTS |
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
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September 30, |
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December 31, |
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2009 |
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2008 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
27,994 |
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$ |
14,231 |
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Accounts receivable, net of allowance for doubtful accounts of $109 and $114 |
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2,709 |
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2,167 |
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Accounts receivable unconsolidated affiliates, net of allowance for doubtful accounts of $0 and $1,201 |
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1,923 |
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925 |
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Inventory |
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5,301 |
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4,265 |
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Other current assets |
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12,056 |
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3,055 |
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Total current assets |
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49,983 |
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24,643 |
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Property and equipment, net |
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687,983 |
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716,173 |
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Investments in and advances to unconsolidated affiliates |
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29,327 |
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43,855 |
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Other assets |
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28,148 |
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31,561 |
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Other intangible assets |
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23,829 |
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23,829 |
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Total assets |
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$ |
819,270 |
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$ |
840,061 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Current portion of long-term debt |
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$ |
14,638 |
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$ |
81,464 |
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Accounts payable |
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5,157 |
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23,217 |
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Accounts payable unconsolidated affiliates |
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3 |
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622 |
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Accrued expenses |
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23,041 |
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22,565 |
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Accrued expenses unconsolidated affiliates |
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1,184 |
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Advance deposits |
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7,961 |
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7,498 |
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Gift certificates payable |
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3,921 |
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5,416 |
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Total current liabilities |
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54,721 |
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141,966 |
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Mortgage debt |
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446,042 |
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333,259 |
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Other long-term debt |
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92,270 |
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92,328 |
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Deferred tax liability |
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5,891 |
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Deferred compensation liability |
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776 |
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568 |
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Total liabilities |
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599,700 |
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568,121 |
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Commitments and contingencies |
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Stockholders equity: |
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Common stock, $0.01 par value; 250,000,000 shares authorized; 31,298,546 and 30,982,646 shares issued and outstanding |
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313 |
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310 |
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Additional paid-in-capital |
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400,767 |
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399,641 |
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Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding |
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Accumulated deficit |
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(181,310 |
) |
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(127,811 |
) |
Deferred compensation |
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(200 |
) |
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(200 |
) |
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Total stockholders equity |
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219,570 |
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271,940 |
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Total liabilities and stockholders equity |
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$ |
819,270 |
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$ |
840,061 |
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See accompanying notes to condensed consolidated financial statements.
3
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited; dollars in thousands, except share and per share data)
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Three months ended |
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Nine months ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Revenues: |
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Rooms |
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$ |
46,214 |
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$ |
40,994 |
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$ |
122,869 |
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$ |
115,801 |
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Food and beverage |
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11,877 |
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10,088 |
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33,084 |
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30,751 |
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Other hotel operations |
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11,333 |
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9,759 |
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30,458 |
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28,439 |
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Management and other fees |
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626 |
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863 |
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1,617 |
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2,292 |
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Management and other fees affiliates |
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1,202 |
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1,767 |
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3,636 |
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4,363 |
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71,252 |
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63,471 |
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191,664 |
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181,646 |
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Other revenue from managed properties affiliates |
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3,966 |
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5,942 |
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14,486 |
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14,993 |
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Other revenue from managed properties |
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1,609 |
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1,609 |
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Total revenues |
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76,827 |
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69,413 |
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207,759 |
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196,639 |
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Operating expenses by department: |
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Rooms |
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6,332 |
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5,407 |
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17,309 |
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15,827 |
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Food and beverage |
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9,226 |
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8,176 |
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25,506 |
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24,311 |
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Other |
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8,926 |
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7,832 |
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24,618 |
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22,573 |
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Other operating expenses: |
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Selling, general and administrative |
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14,911 |
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11,637 |
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46,542 |
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41,729 |
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Property operating costs |
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8,201 |
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8,642 |
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29,657 |
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28,556 |
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Depreciation and amortization |
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15,136 |
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11,995 |
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42,352 |
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34,755 |
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Loss on disposition of property |
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11 |
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19 |
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|
202 |
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19 |
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Asset impairment loss |
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24,000 |
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24,000 |
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86,743 |
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53,708 |
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210,186 |
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167,770 |
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Other expenses from managed properties affiliates |
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3,966 |
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5,942 |
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14,486 |
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14,993 |
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Other expenses from managed properties |
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1,609 |
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1,609 |
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Total operating expenses |
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92,318 |
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59,650 |
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226,281 |
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|
182,763 |
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|
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|
|
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|
|
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Net operating (loss) income |
|
|
(15,491 |
) |
|
|
9,763 |
|
|
|
(18,522 |
) |
|
|
13,876 |
|
Gain on sale of unconsolidated affiliate |
|
|
(962 |
) |
|
|
|
|
|
|
(962 |
) |
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Investment income affiliates |
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(310 |
) |
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(625 |
) |
|
|
(1,030 |
) |
|
|
(1,629 |
) |
Interest income |
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|
(131 |
) |
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|
(279 |
) |
|
|
(467 |
) |
|
|
(1,178 |
) |
Interest expense |
|
|
9,671 |
|
|
|
6,808 |
|
|
|
24,715 |
|
|
|
20,599 |
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|
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|
|
|
|
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|
|
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(Loss) income before income taxes and equity in unconsolidated affiliates |
|
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(23,759 |
) |
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|
3,859 |
|
|
|
(40,778 |
) |
|
|
(3,916 |
) |
Income tax expense (benefit) |
|
|
18,267 |
|
|
|
1,755 |
|
|
|
11,484 |
|
|
|
(1,282 |
) |
Equity in loss (income) of unconsolidated affiliates, net of tax |
|
|
122 |
|
|
|
(67 |
) |
|
|
1,237 |
|
|
|
1,612 |
|
|
|
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|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
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|
Net (loss) income |
|
$ |
(42,148 |
) |
|
$ |
2,171 |
|
|
$ |
(53,499 |
) |
|
$ |
(4,246 |
) |
|
|
|
|
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Other comprehensive (loss) income, net of tax: |
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|
|
|
|
|
|
|
|
|
|
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|
Unrealized gain on interest rate swaps |
|
|
|
|
|
|
(271 |
) |
|
|
|
|
|
|
(220 |
) |
|
|
|
|
|
|
|
|
|
|
|
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|
Comprehensive (loss) income |
|
$ |
(42,148 |
) |
|
$ |
2,442 |
|
|
$ |
(53,499 |
) |
|
$ |
(4,026 |
) |
|
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Net (loss) income per share-basic |
|
$ |
(1.35 |
) |
|
$ |
0.07 |
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|
$ |
(1.72 |
) |
|
$ |
(0.14 |
) |
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|
Net (loss) income per share-diluted |
|
$ |
(1.35 |
) |
|
$ |
0.07 |
|
|
$ |
(1.72 |
) |
|
$ |
(0.14 |
) |
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|
Weighted average common shares outstanding: |
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|
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|
|
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Basic |
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|
31,291,004 |
|
|
|
30,840,691 |
|
|
|
31,179,049 |
|
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|
30,793,822 |
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Diluted |
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|
31,291,004 |
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|
|
30,840,691 |
|
|
|
31,179,049 |
|
|
|
30,793,822 |
|
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|
|
|
|
|
|
|
|
|
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|
See accompanying notes to the condensed consolidated financial statements.
4
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; dollars in thousands)
|
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Nine months ended |
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September 30, |
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|
2009 |
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|
2008 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(53,499 |
) |
|
$ |
(4,246 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
42,352 |
|
|
|
34,755 |
|
Bad debt expense |
|
|
642 |
|
|
|
65 |
|
Non-cash employee compensation and professional fees expense |
|
|
829 |
|
|
|
(7 |
) |
Loss on disposition of property |
|
|
202 |
|
|
|
19 |
|
Asset impairment loss |
|
|
24,000 |
|
|
|
|
|
Gain on sale of unconsolidated affiliate |
|
|
(962 |
) |
|
|
|
|
Equity in losses of unconsolidated affiliates |
|
|
965 |
|
|
|
2,620 |
|
Deferred tax expense (benefit) |
|
|
11,760 |
|
|
|
(2,290 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and other assets |
|
|
(7,711 |
) |
|
|
(3,855 |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
(4,522 |
) |
|
|
204 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
14,056 |
|
|
|
27,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures for property and equipment |
|
|
(48,206 |
) |
|
|
(98,811 |
) |
Loan repayment from unconsolidated affiliates |
|
|
8,833 |
|
|
|
2,500 |
|
Investments in unconsolidated affiliates |
|
|
(303 |
) |
|
|
(9,823 |
) |
Proceeds from sale of interest in unconsolidated affiliate |
|
|
6,000 |
|
|
|
|
|
Investment in development |
|
|
978 |
|
|
|
(2,288 |
) |
Proceeds from sale of assets |
|
|
66 |
|
|
|
|
|
Decrease in restricted cash |
|
|
161 |
|
|
|
58 |
|
Increase in escrows |
|
|
(1,866 |
) |
|
|
(607 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(34,337 |
) |
|
|
(108,971 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Principal payments on long-term debt |
|
|
(5,151 |
) |
|
|
(56,667 |
) |
Proceeds from issuance of long-term debt |
|
|
51,051 |
|
|
|
149,663 |
|
Payment of loan costs |
|
|
(11,856 |
) |
|
|
(4,003 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
34,044 |
|
|
|
88,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
13,763 |
|
|
|
7,287 |
|
Cash and cash equivalents, beginning of period |
|
|
14,231 |
|
|
|
18,597 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
27,994 |
|
|
$ |
25,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid for interest, net of capitalized interest |
|
$ |
24,254 |
|
|
$ |
20,381 |
|
Cash paid for income taxes, net of refunds |
|
$ |
379 |
|
|
$ |
365 |
|
Non-cash items: |
|
|
|
|
|
|
|
|
Construction in process accruals |
|
$ |
15 |
|
|
$ |
10,180 |
|
See accompanying notes to the condensed consolidated financial statements.
5
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; dollars in thousands, except share and per share amounts)
1. ORGANIZATION
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 licensor, 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 300 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 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, 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 resorts. As of September 30,
2009, we operate and/or license eleven Great Wolf Lodge resorts (our signature Northwoods-themed
resorts), and one Blue Harbor Resort (a nautical-themed property).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indoor |
|
|
Ownership |
|
|
|
|
|
Number of |
|
Number of |
|
Entertainment |
|
|
Percentage |
|
Opened |
|
Guest Suites |
|
Condo Units (1) |
|
Area (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Approx. ft2) |
Wisconsin Dells, WI (3) |
|
|
|
|
|
|
1997 |
|
|
|
308 |
|
|
|
77 |
|
|
|
102,000 |
|
Sandusky, OH (3) |
|
|
|
|
|
|
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 |
|
Concord, NC |
|
|
100 |
% |
|
March 2009 |
|
|
402 |
|
|
|
|
|
|
|
97,000 |
|
|
|
|
(1) |
|
Condominium units are individually owned by third parties and are managed by us. |
|
(2) |
|
Our indoor entertainment areas generally include our indoor waterpark, game
arcade, childrens activity room, family tech center, MagiQuest® (an
interactive game attraction) and fitness room, as well as our spa in the
resorts that have such amenities. |
6
|
|
|
(3) |
|
These properties are owned by CNL Lifestyle Properties, Inc. (CNL), a real estate investment trust focused on
leisure and lifestyle properties. Prior to August 2009, these properties were owned by a joint venture between CNL and us. In August 2009 we sold our 30.26% joint
venture interest to CNL for $6,000. We currently manage both properties and license the Great Wolf
Lodge brand to these resorts. |
|
(4) |
|
An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this
resort. We have granted Ripley a license to use the Great Wolf Lodge name for
this resort through April 2016. We managed the resort on behalf of Ripley
through April 2009. |
|
(5) |
|
In late 2007, we began construction on an additional 203 suites and 20,000
square feet of meeting space as an expansion of this resort. The meeting space,
along with 92 rooms, was opened in December 2008, with the rest of the rooms
completed and opened in January 2009. |
|
(6) |
|
This property is owned by a joint venture. The Confederated Tribes of the
Chehalis Reservation (Chehalis) owns a 51% interest in the joint venture, and
we own a 49% interest. We operate the property and license the Great Wolf Lodge
brand to the property under long-term agreements through April 2057, subject to
earlier termination in certain situations. The joint venture leases the land
for the resort from the United States Department of Interior, which is trustee
for Chehalis. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General We have prepared these unaudited condensed consolidated interim financial
statements according to the rules and regulations of the Securities and Exchange Commission (SEC).
Accordingly, we have omitted certain information and footnote disclosures that are normally
included in annual financial statements prepared in accordance with accounting principles generally
accepted in the United States of America. The December 31, 2008 consolidated balance sheet data was
derived from audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. These interim financial statements should be read in
conjunction with the financial statements, accompanying notes and other information included in our
Annual Report on Form 10-K for the year ended December 31, 2008.
The accompanying unaudited condensed consolidated interim financial statements reflect all
adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the
financial condition and results of operations and cash flows for the periods presented. The
preparation of financial statements in accordance with accounting principles generally accepted in
the United States of America requires us to make estimates and assumptions. Such estimates and
assumptions affect the reported amounts of assets and liabilities, as well as the disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Our actual results could differ from those
estimates. The results of operations for the interim periods are not necessarily indicative of the
results to be expected for the entire year. Further, in connection with preparation of the
condensed consolidated interim financial statements, we evaluated subsequent events after the
balance sheet date of September 30, 2009 through November 5, 2009.
Certain 2008 amounts have been reclassified to conform to the 2009 presentation. A
reclassification of accounts payable unconsolidated affiliates which was initially included in
accrued expenses unconsolidated affiliates occurred in the condensed consolidated balance sheet
as well as a reclassification of bad debt expense that was initially included in accounts
receivable and other assets in the condensed consolidated statements of cash flow.
Principles of Consolidation Our consolidated financial statements include our accounts and
the accounts of all of our majority-owned subsidiaries. As part of our consolidation process, we
eliminate all significant intercompany balances and transactions.
Investments In and Advances to Unconsolidated Affiliates We use the equity method to
account for our investment in our unconsolidated joint venture, 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
7
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.
Income Taxes At the end of each interim reporting period, we estimate the effective tax
rate expected to be applicable for the full fiscal year. The rate determined is used in providing
for income taxes on a year-to-date basis.
We recorded a valuation allowance of $28,490 during the period ended September 30, 2009, due
to uncertainties related to our ability to utilize some of our deferred tax assets, primarily
consisting of certain net operating loss carryforwards, before they
expire. In the period ended
September 30, 2009, we determined that due to current conditions in the credit markets, real estate
markets and our current financial position, the tax planning strategy we previously expected to
generate substantial taxable income was no longer feasible. The valuation allowance is based on
our estimates of taxable income solely from the reversal of existing deferred tax liabilities and
the period over which deferred tax assets reverse. In the event that actual results differ from
these estimates or we adjust these estimates in a future period, we may need to increase or
decrease our valuation allowance, which could materially impact our consolidated statement of
operations.
Fair Value of Financial Instruments We include disclosures in the notes to our financial
statements on the fair value of financial instruments whenever summarized financial information for
interim reporting periods is presented. The carrying amounts related to cash and cash equivalents,
other current assets, escrows, accounts payable, gift certificates payable and accrued expenses
approximate fair value due to the relatively short maturities of such instruments.
8
Comprehensive Income We record the effective portion of the interest rate swaps gain or loss to be
initially reported as a component of other comprehensive income (loss) and subsequently
reclassified into earnings when the forecasted transaction affects earnings. The ineffective
portion of the gain or loss is reported in earnings immediately.
Segments We have two reportable segments:
|
|
|
resort ownership/operation-revenues derived from our consolidated owned resorts; and |
|
|
|
|
resort third-party management/license-revenues derived from management, license and other related
fees from unconsolidated managed resorts. |
The following summarizes significant financial information regarding our segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals per |
|
|
|
Resort Ownership/ |
|
|
Resort Third-Party |
|
|
|
|
|
|
Financial |
|
|
|
Operation |
|
|
Management/License |
|
|
Other |
|
|
Statements |
|
Three months ended September
30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
69,424 |
|
|
$ |
7,403 |
|
|
$ |
|
|
|
$ |
76,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(14,932 |
) |
|
|
|
|
|
|
(204 |
) |
|
|
(15,136 |
) |
Asset impairment loss |
|
|
(24,000 |
) |
|
|
|
|
|
|
|
|
|
|
(24,000 |
) |
Operating (loss) income |
|
|
(17,757 |
) |
|
|
1,828 |
|
|
|
438 |
|
|
|
(15,491 |
) |
Gain on sale of
unconsolidated affiliate |
|
|
|
|
|
|
|
|
|
|
(962 |
) |
|
|
(962 |
) |
Investment income affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(310 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
equity in income of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(23,759 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets |
|
|
2,215 |
|
|
|
|
|
|
|
145 |
|
|
$ |
2,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals per |
|
|
|
Resort Ownership/ |
|
|
Resort Third-Party |
|
|
|
|
|
|
Financial |
|
|
|
Operation |
|
|
Management/License |
|
|
Other |
|
|
Statements |
|
Nine months ended September
30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
186,411 |
|
|
$ |
21,348 |
|
|
$ |
|
|
|
$ |
207,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(41,776 |
) |
|
|
|
|
|
|
(576 |
) |
|
|
(42,352 |
) |
Asset impairment loss |
|
|
(24,000 |
) |
|
|
|
|
|
|
|
|
|
|
(24,000 |
) |
Operating (loss) income |
|
|
(21,416 |
) |
|
|
5,253 |
|
|
|
(2,359 |
) |
|
|
(18,522 |
) |
Gain on sale of
unconsolidated affiliate |
|
|
|
|
|
|
|
|
|
|
(962 |
) |
|
|
(962 |
) |
Investment income affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,030 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(467 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
equity in income of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(40,778 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets |
|
|
47,834 |
|
|
|
|
|
|
|
372 |
|
|
$ |
48,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
741,895 |
|
|
|
2,218 |
|
|
|
75,157 |
|
|
$ |
819,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals per |
|
|
|
Resort Ownership/ |
|
|
Resort Third-Party |
|
|
|
|
|
|
Financial |
|
|
|
Operation |
|
|
Management/License |
|
|
Other |
|
|
Statements |
|
Three months ended September
30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
60,841 |
|
|
$ |
8,572 |
|
|
$ |
|
|
|
$ |
69,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(11,796 |
) |
|
|
|
|
|
|
(199 |
) |
|
|
(11,995 |
) |
Operating income (loss) |
|
|
5,416 |
|
|
|
2,630 |
|
|
|
1,717 |
|
|
|
9,763 |
|
Investment income affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(625 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(279 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and equity in losses of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets |
|
|
43,285 |
|
|
|
|
|
|
|
254 |
|
|
$ |
43,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals per |
|
|
|
Resort Ownership/ |
|
|
Resort Third-Party |
|
|
|
|
|
|
Financial |
|
|
|
Operation |
|
|
Management/License |
|
|
Other |
|
|
Statements |
|
Nine months ended September
30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
174,991 |
|
|
$ |
21,648 |
|
|
$ |
|
|
|
$ |
196,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(34,171 |
) |
|
|
|
|
|
|
(584 |
) |
|
|
(34,755 |
) |
Operating income (loss) |
|
|
9,977 |
|
|
|
6,655 |
|
|
|
(2,756 |
) |
|
|
13,876 |
|
Investment income affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,629 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,178 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
equity in losses of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,916 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets |
|
|
98,019 |
|
|
|
|
|
|
|
792 |
|
|
$ |
98,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
730,802 |
|
|
|
1,999 |
|
|
|
133,435 |
|
|
$ |
866,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
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
investments in and advances to affiliates, and intangible assets.
Recent Accounting Pronouncements
In April 2009, the FASB issued guidance on how to determine whether there has been a
significant decrease in the volume and level of activity for an asset or liability when compared
with normal market activity for the asset or liability. In such situations, an entity may conclude
that transactions or quoted prices may not be determinative of fair value, and may adjust the
transactions or quoted prices to arrive at the fair value of the asset or liability. This guidance
is effective for interim and annual reporting periods ending after June 15, 2009, and shall be
applied prospectively. The adoption of this guidance, as of September 30, 2009, did not have a
material impact on our consolidated financial statements.
In April 2009, the FASB issued guidance which requires disclosures about fair value of
financial instruments in interim financial information for periods ending after June 15, 2009. The
adoption of this guidance as of September 30, 2009, did not have a material impact on our
consolidated financial statements.
In June 2009, the FASB issued guidance which changes how a reporting entity determines when an
entity that is insufficiently capitalized or is not controlled through voting (or similar rights)
should be consolidated. The determination of whether a reporting entity is required to consolidate
another entity is based on, among other things, the other entitys purpose and design and the
reporting entitys ability to direct the activities of the other entity that most significantly
impact the other entitys economic performance. The guidance will require a reporting entity to
provide additional disclosures about its involvement with variable interest entities and any
significant changes in risk exposure due to that involvement. A reporting entity will be required
to disclose how its involvement with a variable interest entity affects the reporting entitys
financial statements. The adoption of this guidance is effective for fiscal years beginning after
November 15, 2009, and interim periods within those fiscal years. We are currently evaluating the
impact of this guidance on our consolidated financial statements.
In June 2009, the FASB issued guidance on codification and the hierarchy of Generally Accepted
Accounting Principles. The Codification superseded all non-SEC accounting and reporting standards.
All other nongrandfathered non-SEC accounting literature not included in the Codification will
become nonauthoritative. The guidance is effective for interim quarterly periods beginning July 1,
2009. This adoption of this guidance, as of September 30, 2009, did not have an impact on our
consolidated financial statements.
In August 2009, the FASB issued guidance on measuring liabilities as fair value which provides
clarification on measuring liabilities at fair value when a quoted price in an active market is not
available. The guidance is effective for the first reporting period beginning after issuance. The
adoption of this guidance, as of September 30, 2009, did not have an impact on our consolidated
financial statements.
In October 2009, the FASB issued guidance for revenue recognition with multiple deliverables. This
guidance eliminates the residual method under the current guidance and replaces it with the
relative selling price method when allocating revenue in a multiple deliverable arrangement. The
selling price for each deliverable shall be determined using vendor specific objective evidence of
selling price, if it exists, otherwise third-party evidence of selling price shall be used. If
neither exists for a deliverable, the vendor shall use its best estimate of the selling price for
that deliverable. After adoption, this guidance will also require expanded qualitative and
quantitative disclosures. The guidance is effective for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, although early adoption is
permitted. We are currently evaluating the impact of this guidance on our consolidated financial
statements.
11
3. INVESTMENT IN AFFILIATES
CNL Joint Venture
On August 6, 2009, we sold our 30.26% joint venture interest to CNL for $6,000. We recognized a $962 gain
on this sale.
Summary financial data for this joint venture is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
|
Three |
|
|
|
|
|
Nine |
|
|
|
July 1 through |
|
|
months ended |
|
|
Period January 1 |
|
|
months ended |
|
|
|
August 5, |
|
|
September 30, |
|
|
through August 5, |
|
|
September 30, |
|
Operating data: |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenue |
|
$ |
5,100 |
|
|
$ |
10,120 |
|
|
$ |
19,750 |
|
|
$ |
26,488 |
|
Operating expenses |
|
$ |
(4,383 |
) |
|
$ |
(10,793 |
) |
|
$ |
(24,213 |
) |
|
$ |
(31,978 |
) |
Net income (loss) |
|
$ |
717 |
|
|
$ |
(673 |
) |
|
$ |
(4,463 |
) |
|
$ |
(5,490 |
) |
We had a receivable from the joint venture of $1,465 as of December 31, 2008. At December 31,
2008, we reserved $1,201 against this receivable. We had a payable to the joint venture of $1,225
as of December 31, 2008.
Grand Mound Joint Venture
Summary financial data for this joint venture is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Balance sheet data: |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
148,162 |
|
|
$ |
152,215 |
|
Total liabilities |
|
$ |
114,135 |
|
|
$ |
118,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Operating data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
11,170 |
|
|
$ |
12,253 |
|
|
$ |
31,303 |
|
|
$ |
25,544 |
|
Operating expenses |
|
$ |
(9,165 |
) |
|
$ |
(9,579 |
) |
|
$ |
(26,467 |
) |
|
$ |
(23,861 |
) |
Net income (loss) |
|
$ |
634 |
|
|
$ |
463 |
|
|
$ |
448 |
|
|
$ |
(3,171 |
) |
We have a receivable from the joint venture of $1,923 and $661 that relates primarily to
accrued preferred equity returns as of September 30, 2009 and December 31, 2008, respectively. We
have a payable to the joint venture of $2 and $581 as of September 30, 2009 and December 31, 2008,
respectively.
4. SHARE-BASED COMPENSATION
We recognized share-based compensation expense of $360, and $828, net of estimated
forfeitures, for the three and nine months ended September 30, 2009, respectively. The total
income tax expense recognized related to share-based compensation was $102 and $234 for the three
and nine months ended September 30, 2009, 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 September 30,
2009, total unrecognized compensation cost related to share-based compensation awards was $2,187,
which we expect to recognize over a weighted average period of approximately 3.0 years.
12
The Great Wolf Resorts 2004 Incentive Stock Plan (the Plan) authorizes us to grant up to
3,380,740 stock options, stock appreciation rights or shares of our common stock to employees and
directors. At September 30, 2009, there were 1,117,149 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 with
exercise 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 $8 and $22 for the three and nine months ended September
30, 2009, respectively. There were no stock options granted during the three and nine months ended
September 30, 2009 or 2008. We recorded stock option expense of $8 and $104 for the three and nine
months ended September 30, 2008, respectively.
A summary of stock option activity during the nine months ended September 30, 2009, is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
Weighted Average |
|
|
Remaining |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Contractual Life |
|
Number of shares under option: |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period |
|
|
475,000 |
|
|
$ |
17.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(21,500 |
) |
|
$ |
18.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
453,500 |
|
|
$ |
17.57 |
|
|
5.34 years |
Exercisable at end of period |
|
|
448,500 |
|
|
$ |
17.62 |
|
|
5.25 years |
There was no intrinsic value of our outstanding or exercisable stock options at September 30, 2009
or 2008.
Market Condition Share Awards
Certain officers are eligible to receive shares of our common stock in payment of market
condition share awards granted to them.
We granted 541,863 and 84,748 market condition share awards during the nine months ended
September 30, 2009 and 2008, respectively. We recorded share-based compensation expense of $82 and
$285 for the three and nine months ended September 30, 2009, respectively, related to these grants.
We recorded negative share-based compensation expense of $(129) and $(161) for the three and nine
months ended September 30, 2008, respectively. Included in the 2008 amounts 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 2009 market condition shares granted:
|
|
|
541,863 were based on our common stocks performance in 2009 relative to a stock
index, as designated by the Compensation Committee of the Board of Directors. These shares vest ratably over a three-year
period, 2009-2011. The per share fair value of these market condition shares was
$1.26 as of the grant date. |
13
|
|
|
The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions: |
|
|
|
|
|
Dividend yield |
|
|
|
|
Weighted average, risk free interest rate |
|
|
0.62 |
% |
Expected stock price volatility |
|
|
96.51 |
% |
Expected stock price volatility (small-cap stock index) |
|
|
37.89 |
% |
|
|
|
We used an expected dividend yield of 0% as we do not currently pay a dividend and do
not contemplate paying a dividend in the foreseeable future. The weighted average,
risk free interest rate was based on the one-year T-bill rate. Our expected stock
price volatility was estimated using daily returns data of our stock for a two-year
period ending on the grant date. The expected stock price volatility for the small cap
stock index was estimated using daily returns data for a two-year period ending on the
grant date. |
Of the 2008 market condition shares awards granted:
|
|
|
84,748 were 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 as of the grant date. |
|
|
|
The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions: |
|
|
|
|
|
Dividend yield |
|
|
|
|
Weighted average, risk free interest rate |
|
|
2.05 |
% |
Expected stock price volatility |
|
|
34.98 |
% |
Expected stock price volatility (small-cap stock index) |
|
|
20.08 |
% |
|
|
|
We used an expected dividend yield of 0% as we did not pay a dividend and did not
contemplate paying a dividend in the foreseeable future. The weighted average, risk
free interest rate was based on the one-year T-bill rate. Our expected stock price
volatility was estimated using daily returns data of our stock for a two-year period
ending on the grant date. The expected stock price volatility for the small cap stock
index was estimated using daily returns data for a two-year period ending on the grant
date. Due to resignation of a senior officer in May 2008, 55,046 shares were forfeited. |
|
|
|
The market condition for these shares was not met and therefore no shares related to
this grant were issued. |
Of the 2007 market condition shares awards granted:
|
|
|
81,293 were based on our common stocks absolute performance during the
three-year period 2007-2009. For shares that are earned, half of the shares vest on
December 31, 2009, and the other half vest on December 31, 2010. The per share fair
value of these market condition shares was $6.65. |
|
|
|
The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions: |
14
|
|
|
|
|
Dividend yield |
|
|
|
|
Weighted average, risk free interest rate |
|
|
4.73 |
% |
Expected stock price volatility |
|
|
42.13 |
% |
|
|
|
We used an expected dividend yield of 0% as we do not currently pay a dividend and do
not contemplate paying a dividend in the foreseeable future. The weighted average,
risk free interest rate was based on the four-year T-bill rate. Our expected stock
price volatility was estimated using daily returns data of our stock for a two-year
period ending on the grant date. Due to the resignation of two senior officers in
2008, 58,628 shares were forfeited. |
|
|
|
81,293 were based on our common stocks performance in 2007-2010 relative to a
stock index, as designated by the Compensation Committee of the Board of Directors.
For shares that are earned, half of the shares vest on December 31, 2009, and the
other half vest on December 31, 2010. The per share fair value of these market
condition shares was $8.24. |
|
|
|
The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions: |
|
|
|
|
|
Dividend yield |
|
|
|
|
Weighted average, risk free interest rate |
|
|
4.73 |
% |
Expected stock price volatility |
|
|
42.13 |
% |
Expected stock price volatility (small-cap stock index) |
|
|
16.64 |
% |
|
|
|
We used an expected dividend yield of 0% as we did not pay a dividend and did not
contemplate paying a dividend in the foreseeable future. The weighted average, risk
free interest rate was based on the four-year T-bill rate. Our expected stock price
volatility was estimated using daily returns data of our stock for a two-year period
ending on the grant date. The expected stock price volatility for the small cap stock
index was estimated using daily returns data for a two-year period ending on the grant
date. Due to the resignation of two senior officers in 2008, 58,628 shares were
forfeited. |
Performance Share Awards
Certain officers are eligible to receive shares of our common stock in payment of performance
share awards granted to them in accordance with the terms thereof. We granted 180,622 and 37,386
performance shares during the nine months ended September 30, 2009 and 2008, respectively.
Grantees of performance shares are eligible to receive shares of our common stock based on the
achievement of certain individual and departmental performance goals during the calendar year. The
per share fair value of performance shares granted during the nine months ended September 30, 2009
and 2008, was $1.54 and $7.09, respectively, which represents the fair value of our common stock on
the grant dates. We recorded share-based compensation expense of $46 and $138 for the three and
nine months ended September 30, 2009, respectively. We recorded share-based compensation expense
of $23 and $27 for the three and nine months ended September 30, 2008, respectively, related to
these grants. Included in the 2008 amounts were reversals of expense related to the resignation of
a senior officer in 2008, as the service condition of these shares was not met.
Based on the achievement of certain individual and departmental performance goals, employees
earned and were issued 18,084 performance shares in February 2009 related to 2008 grants and 20,843
performance shares in February 2008 related to 2007 grants. Since all shares originally granted
were not earned, we recorded a reduction in expense of $2 and $10 during the nine months ended
September 30, 2009 and 2008, respectively, related to the shares not earned.
Deferred Compensation Awards
Pursuant to their employment arrangements, certain executives received bonuses upon completion
of our initial public offering (IPO). Executives receiving bonus payments totaling $2,200 elected
to defer those payments pursuant to our
15
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. We 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, 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
of $18 and $(334), for the three and nine months ended September 30, 2009, respectively, related to
these grants. We recorded negative share-based compensation expense of $92 and $796, for the three
and nine months ended September 30, 2008, 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 ratably
over various periods up to five years from the grant date. We valued the non-vested shares at the
closing market value of our common stock on the date of grant.
A summary of non-vested shares activity for the nine months ended September 30, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
|
|
|
Non-vested shares balance at beginning of period |
|
|
300,249 |
|
|
$ |
9.29 |
|
Granted |
|
|
331,179 |
|
|
$ |
2.88 |
|
Forfeited |
|
|
(36,041 |
) |
|
$ |
6.47 |
|
Vested |
|
|
(80,123 |
) |
|
$ |
9.64 |
|
|
|
|
|
|
|
|
|
Non-vested shares balance at end of period |
|
|
515,264 |
|
|
$ |
5.41 |
|
Our non-vested shares had an intrinsic value of $280 at September 30, 2009.
We recorded share-based expense of $186 and $645 for the three and nine months ended September
30, 2009, respectively, related to these shares. We recorded share-based expense of $19 and $463
for the three and nine months ended September 30, 2008, respectively.
Vested Shares
We have an annual short-term incentive plan for certain employees, which provides them the
potential to earn cash bonus payments. For 2007 and 2008, certain of these employees had the
option to elect to have some or all of their annual bonus compensation related to performance in
those years 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 have otherwise
received. Shares issued in lieu of cash bonus payments are fully vested upon issuance.
|
|
|
We issued 17,532 shares in February 2009 related to 2008 bonus amounts. We
valued these shares at $32 based on the closing market value of our common stock on
the date of the grant. |
|
|
|
|
We issued 265,908 shares in February 2008 related to 2007 bonus amounts. These shares were valued at $2,055 based on the closing market value of our common stock
on the date of grant. |
16
In 2008 and 2009, our directors had the option to elect to have some or the entire cash
portion of their annual fees paid in the form of shares of our common stock rather than cash.
Directors making this election can receive 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 $20 and $74 for the three and nine
months ended September 30, 2009, related to these elections to receive shares in lieu of cash. We
issued 9,061 and 31,347 shares in the three and nine months ended September 30, 2009, respectively.
We recorded non-cash professional fees expense of $73 and $365 for the three and nine months ended
September 30, 2008, respectively, related to these elections to receive shares in lieu of cash. We
issued 20,069 and 72,293 shares in the three and nine months ended September 30, 2008,
respectively.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Land and improvements |
|
$ |
60,718 |
|
|
$ |
51,684 |
|
Building and improvements |
|
|
427,524 |
|
|
|
353,537 |
|
Furniture, fixtures and equipment |
|
|
340,323 |
|
|
|
315,577 |
|
Construction in process |
|
|
626 |
|
|
|
117,063 |
|
|
|
|
|
|
|
|
|
|
|
829,191 |
|
|
|
837,861 |
|
Less accumulated depreciation |
|
|
(141,208 |
) |
|
|
(121,688 |
) |
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
687,983 |
|
|
$ |
716,173 |
|
|
|
|
|
|
|
|
Depreciation expense was $13,001 and $10,941 for the three months ended September 30, 2009 and
2008, respectively. Depreciation expense was $37,481 and $32,750 for the nine months ended
September 30, 2009 and 2008, respectively.
Because of triggering events that occurred in the three months ended September 30, 2009,
related to our resort in Sheboygan, including changes in the expectation of how long we will hold
this property, current period and historical operating losses and the deterioration in the current
market conditions, we tested this resort to determine if further assessment for potential
impairment was required. Based on this testing, we determined the carrying value of this resort
was not recoverable. As a result, we recorded a $24,000 impairment charge to decrease the resorts
carrying value to its estimated fair value (net of estimated disposal costs) as of September 30,
2009. To determine the estimated fair value for purposes of calculating the impairment charge, we
used a combination of historical and projected cash flows and other available market
information, such as recent sales prices for similar assets. Although we believe our
estimated fair value for the resort is reasonable, the actual fair value we ultimately realize from
this resort could differ materially from this estimate. The impaired long-lived asset is included
in our Resort Ownership/Operation segment.
6. LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Long-Term Debt: |
|
|
|
|
|
|
|
|
Traverse City/Kansas City mortgage loan |
|
$ |
69,145 |
|
|
$ |
70,211 |
|
Mason mortgage loan |
|
|
74,800 |
|
|
|
76,800 |
|
Pocono Mountains mortgage loan |
|
|
95,746 |
|
|
|
96,571 |
|
Williamsburg mortgage loan |
|
|
63,500 |
|
|
|
64,625 |
|
Grapevine mortgage loan |
|
|
78,709 |
|
|
|
78,709 |
|
Concord construction loan |
|
|
78,549 |
|
|
|
27,594 |
|
17
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Junior subordinated debentures |
|
|
80,545 |
|
|
|
80,545 |
|
Other Debt: |
|
|
|
|
|
|
|
|
City of Sheboygan bonds |
|
|
8,527 |
|
|
|
8,493 |
|
City of Sheboygan loan |
|
|
3,343 |
|
|
|
3,503 |
|
Other |
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
552,950 |
|
|
|
507,051 |
|
Less current portion of long-term debt |
|
|
(14,638 |
) |
|
|
(81,464 |
) |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
538,312 |
|
|
$ |
425,587 |
|
|
|
|
|
|
|
|
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
September 30, 2009.
Mason Mortgage Loan This loan is secured by our Mason resort. On July 31, 2009 the loan
maturity was extended to July 1, 2011. We incurred loan fees of $1,145 related to the extension of
this loan. The loan bears interest at a floating rate of 30 day LIBOR plus a spread of 425 basis
points with an interest rate floor of 6.50% (effective rate of 6.50% as of September 30, 2009).
The LIBOR benchmark changes to 90 day LIBOR on December 1, 2009. The loan requires principal
amortization payments of $1,000 per quarter in 2009 and $2,000 per quarter thereafter. This loan
has customary financial and operating debt compliance covenants associated with an individual
mortgaged property, including a minimum tangible net worth provision for Great Wolf Resorts, Inc.
The loan has no restrictions on the repayment of loan principal and has exit fees that can be paid
upon full repayment of the loan or at maturity. In addition, we have provided the Mason mortgage
lenders with a $30,000 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 $30,000 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 towards the $30,000 mandatory
principal reduction. We were in compliance with all covenants under this loan at September 30,
2009.
In conjunction with the extension of this loan in January 2009, we were required to provide
interest rate protection on a portion of the loan amount through the loans then-maturity date in
November 2009. Therefore, we executed an interest rate cap in the amount of $10 that caps the loan
at 7.25% interest through November 2009. In conjunction with the extension of this loan in July
2009, we are required to execute an interest rate cap on or before November 30, 2009 through the
loans maturity date. We have not executed this interest rate cap as of November 5, 2009.
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
September 30, 2009.
Williamsburg Mortgage Loan This loan is 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 September 30, 2009). 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 no applicable prepayment fees. The loan has customary
covenants associated with an individual mortgaged property. We were in compliance with all
covenants under this loan at September 30, 2009.
In conjunction with the closing of this loan, we were required to provide interest rate
protection on a portion of the loan amount through the loans maturity date. Therefore, we
executed an interest rate cap in the amount of $522 that caps the
18
loan at 8% interest through the
loans maturity date. This interest rate cap was designated as an ineffective cash flow hedge. We
mark the interest rate cap to market and record the change to interest expense.
Grapevine Mortgage Loan This loan is secured by our Grapevine resort. On July 31, 2009 the
loan maturity was extended to July 1, 2011. We incurred loan fees of $1,415 related to the
extension of this loan. The loan bears interest at a floating rate of 90 day LIBOR plus a spread
of 400 basis points with an interest rate floor of 7.00% (effective rate of 7.0% as of September
30, 2009). The loan requires principal amortization payments of $800 per quarter until maturity.
This loan has customary financial and operating debt compliance covenants associated with an
individual mortgaged property, including a minimum tangible net worth provision for Great Wolf
Resorts, Inc. The loan has no restrictions on the repayment of loan principal and has exit fees
that must be paid upon full repayment of the loan or at maturity. We were in compliance with all
covenants under this loan at September 30, 2009.
In conjunction with the extension of this loan in July 2009, we were required to provide
interest rate protection on a portion of the loan amount through the loans maturity date.
Therefore, we executed an interest rate cap in the amount of $205 that caps the loan at 7% interest
through December 2010. This interest rate cap was designated as an ineffective cash flow hedge.
We mark the interest rate cap to market and record the change to interest expense.
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 310 basis points, with a minimum
rate of 6.50% per annum (effective rate of 6.50% as of September 30, 2009). The loan requires
interest only payments until the one-year anniversary of the conversion 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 September 30, 2009. In January 2009, the total commitments under
this loan increased from $63,940 to $79,900. We incurred loan fees in connection with the increase
of our loan commitments.
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 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.
19
Issue trusts, like Trust I and Trust III (collectively, the Trusts), are generally variable
interest. 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, 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:
|
|
|
|
|
Through |
|
|
|
|
September 30, |
|
|
|
|
2010 |
|
$ |
14,638 |
|
2011 |
|
|
210,809 |
|
2012 |
|
|
79,532 |
|
2013 |
|
|
3,606 |
|
2014 |
|
|
3,892 |
|
Thereafter |
|
|
240,473 |
|
|
|
|
|
Total |
|
$ |
552,950 |
|
|
|
|
|
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is defined 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). GAAP 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.
Certain assets and liabilities must be measured at fair value, and disclosures are
required for items measured at fair value.
We
measure our financial instruments 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.
The following table summarizes the Companys financial assets measured at fair value on a
recurring basis as of September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Interest rate caps
|
|
$
|
|
$ |
(23 |
) |
|
$
|
|
$ |
(23 |
) |
Long-term debt
|
|
|
|
|
438,151 |
|
|
|
|
|
438,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
$ |
438,174 |
|
|
$
|
|
$ |
438,174 |
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 assets consist of our interest rate caps and our long-term debt. To determine the
estimated fair value of our interest rate caps we use market information provided by the banks from whom the interest rate
caps were purchased from.
As of September 30, 2009, we estimate the total fair value of our long-term debt to be
$114,662 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. These fair value estimates have not been comprehensively revalued for
purposes of these consolidated financial statements since that date, and current estimates of fair
values may differ significantly.
The following table summarizes the valuation of financial instruments measured at fair value on a
nonrecurring basis in the statement of financial position at September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Property and Equipment
|
|
$
|
|
$
|
|
|
$ 6,000 |
|
|
|
$ 6,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment with a carrying amount of $30,000 were written down to their fair value of
$6,000, resulting in an impairment charge of $24,000. To determine the estimated fair value for
purposes of calculating the impairment charge related to our resort in Sheboygan, we used a
combination of historical and projected cash flows and other available market information, such as
recent sales prices for similar assets.
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.
8. COMPREHENSIVE INCOME
For the three and nine months ended September 30, 2008, we recorded comprehensive loss, net of
tax, of approximately $271 and $220, respectively, related to gain on our interest rate swap. We
had no similar amounts for the three and nine months ended September 30, 2009.
9. EARNINGS PER SHARE
We calculate our basic earnings per common share by dividing net loss available to common
shareholders by the weighted average number of shares of common stock outstanding. Our diluted
earnings per common share assume the issuance of common stock for all potentially dilutive stock
equivalents outstanding using the treasury stock method. 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.
20
The trust that holds the assets to pay obligations under our deferred compensation plan has
11,765 shares of our common stock. We treat those shares of common stock as treasury stock for
purposes of our earnings per share computations and therefore we exclude them from our basic and
diluted earnings per share calculations.
Options to purchase 453,500 shares of common stock were not included in the computations of
diluted earnings per share for the three months ended September 30, 2009, because the exercise
prices of the options were greater than the average market price of the common shares during that
period. There were 767,825 shares of common stock that were not included in the computation of
diluted earnings per share for the three months ended September 30, 2009, because the market and/or
performance criteria related to these shares had not been met at September 30, 2009.
Basic and diluted earnings per common share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
| |
|
Net (loss) income |
|
$ |
(42,148 |
) |
|
$ |
2,171 |
|
|
$ |
(53,499 |
) |
|
$ |
(4,246 |
) |
Weighted average common shares outstanding basic |
|
|
31,291,004 |
|
|
|
30,840,691 |
|
|
|
31,179,049 |
|
|
|
30,793,822 |
|
Weighted average common shares outstanding diluted |
|
|
31,291,004 |
|
|
|
30,840,691 |
|
|
|
31,179,049 |
|
|
|
30,793,822 |
|
Net loss per share basic |
|
$ |
(1.35 |
) |
|
$ |
0.07 |
|
|
$ |
(1.72 |
) |
|
$ |
(0.14 |
) |
Net loss per share diluted |
|
$ |
(1.35 |
) |
|
$ |
0.07 |
|
|
$ |
(1.72 |
) |
|
$ |
(0.14 |
) |
|
|
|
ITEM 2. |
|
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. We make statements in this section that are
forward-looking statements within the meaning of the federal securities laws. For a complete
discussion of forward-looking statements, see the section in Item 1 of our Annual Report on Form
10-K entitled, Forward-Looking Statements. All dollar amounts in this discussion, except for per
share data and operating statistics, are in thousands.
Overview
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 300 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 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, ice cream shop and
confectionery, full-service spa, kids spa, game arcade, gift shops, MagiQuest (an interactive game
attraction), mini golf, gr8_space and meeting space. We also
21
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 resorts. As of September 30,
2009, we operate and/or license eleven Great Wolf Lodge resorts (our signature Northwoods-themed
resorts), and one Blue Harbor Resort (a nautical-themed property).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
Number |
|
Indoor |
|
|
Ownership |
|
|
|
of |
|
of |
|
Entertainment |
|
|
Percentage |
|
Opened |
|
Guest Suites |
|
Condo Units (1) |
|
Area (2) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Approx. ft2) |
Wisconsin Dells, WI (3) |
|
|
|
|
|
1997 |
|
|
308 |
|
|
|
77 |
|
|
|
102,000 |
|
Sandusky, OH (3) |
|
|
|
|
|
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 |
|
Concord, NC |
|
|
100 |
% |
|
March 2009 |
|
|
402 |
|
|
|
|
|
|
|
97,000 |
|
|
|
|
(1) |
|
Condominium units are individually owned by third parties and are managed by us. |
|
(2) |
|
Our indoor entertainment areas generally include our indoor waterpark, game
arcade, childrens activity room, family tech center, MagiQuest and fitness
room, as well as our spa in the resorts that have such amenities. |
|
(3) |
|
These properties are owned by CNL Lifestyle Properties, Inc. (CNL), a real estate investment trust focused on
leisure and lifestyle properties. Prior to August 2009, these properties were owned by a joint venture between CNL and us. In August 2009 we sold our 30.26% joint
venture interest to CNL for $6,000. We currently manage both properties and license the Great Wolf
Lodge brand to these resorts. |
|
(4) |
|
An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this
resort. We have granted Ripley a license to use the Great Wolf Lodge name for
this resort through April 2016. We managed the resort on behalf of Ripley
through April 2009. |
|
(5) |
|
In late 2007, we began construction on an additional 203 suites and 20,000
square feet of meeting space as an expansion of this resort. The meeting space,
along with 92 rooms, was opened in December 2008, with the rest of the rooms
completed and opened in January 2009. |
|
(6) |
|
This property is owned by a joint venture. The Confederated Tribes of the
Chehalis Reservation (Chehalis) owns a 51% interest in the joint venture, and
we own a 49% interest. We operate the property and license the Great Wolf Lodge
brand to the property under long-term agreements through April 2057, subject to
earlier termination in certain situations. The joint venture leases the land
for the resort from the United States Department of the Interior, which is
trustee for Chehalis. |
Industry Trends. 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 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
22
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 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 these trends will continue. We believe
indoor waterpark resorts are generally less affected by changes in economic cycles, as drive-to
destinations are generally 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 that feature indoor waterparks. We intend to continue to
expand our portfolio of resorts throughout the United States and to selectively seek licensing and
management opportunities domestically and internationally. The resorts we 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 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 by targeting 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 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.
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 two years, the slowing
U.S. economy has led to a decrease in credit for consumers and a related decrease in consumer
discretionary spending. This trend continued through the third quarter of 2009 as consumers experienced
several negative economic impacts, including:
23
|
|
|
severe turbulence in the banking and lending sectors, which has led to a general
lessening of the availability of credit to consumers; |
|
|
|
|
an increased national unemployment rate; |
|
|
|
|
a continuing decline in the national average of home prices; and |
|
|
|
|
high volatility in the stock market that led to substantial declines in leading
market averages and aggregate household savings from 2007 to 2009. |
These and other 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 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:
|
|
|
We believe that our Traverse City and Sandusky resorts have been and will continue to
be affected by especially adverse general economic circumstances in the Michigan/Northern
Ohio region (such as bankruptcies of several major companies and/or large announced layoffs
by major employers) and increased competition that has occurred in these markets over the
past few years. The Michigan/Northern Ohio region includes cities that have historically
been the Traverse City and Sandusky resorts largest origin of customers. We believe the
adverse general economic circumstances in the region have negatively impacted overall
discretionary consumer spending in that region over the past few years and may continue to
do so going forward. Although we have taken steps to reduce our operating costs at these
resorts, we believe the general regional economic downturn has and may continue to have an
impact on the operating performance of our Traverse City and Sandusky resorts. |
|
|
|
|
The Wisconsin Dells property has been significantly impacted by the abundance of
competing indoor waterpark resorts in that market. The Wisconsin Dells market has
approximately 16 indoor waterpark resorts that compete with us. We believe this large number
of competing properties in a relatively small tourist destination location has and will
likely continue to have an impact on the operating performance of the Wisconsin Dells
resort. |
|
|
|
|
We have experienced much lower-than-expected occupancy and lower-than-expected average
daily room rates at our Sheboygan, Wisconsin property since its opening in 2004. We believe
this operating weakness has been primarily attributable to the fact that the overall
development of Sheboygan as a tourist destination continues to lag materially behind our
initial expectations. We believe this has materially impacted and will likely continue to
impact the consumer demand for our indoor waterpark resort in that market and the operations
of the resort. |
|
|
|
|
Because of triggering events that occurred in the three months ended September 30, 2009,
related to our resort in Sheboygan, including changes in the expectation of how long we will
hold this property, current period and historical operating losses and the deterioration in the
current market conditions, we tested this resort to determine if further assessment for
potential impairment was required. Based on this testing, we determined the carrying value of
this resort was not recoverable. As a result, we recorded a $24,000 impairment charge to
decrease the resorts carrying value to its estimated fair value (net of estimated disposal
costs) as of September 30, 2009. To determine the estimated fair value for purposes of
calculating the impairment charge, we used a combination of historical and projected cash flows
and other available market information, such as recent sales prices for similar
assets. Although we believe our estimated fair value for the resort is reasonable, the actual
fair value we ultimately realize from this resort could differ materially from this estimate.
The impaired long-lived asset is included in our Resort Ownership/Operation segment. |
|
|
|
|
Our Mason resort opened its first phase in December 2006 and has experienced
lower-than-expected occupancy and lower-than-expected average daily room rates. We believe
this is due, in part, to the opening of competitive properties in the region. |
24
Our external growth strategies are based primarily on developing additional indoor waterpark
resorts (in conjunction with joint venture partners) or 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
to us and other investors has decreased significantly over the past two years. Also, we expect
that the terms of construction financing may be less favorable than we have experienced
historically. We believe that we and other investors 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 consolidated resort
revenue for the nine months ended September 30, 2009. We employ sales and marketing efforts to
increase overall demand for rooms at our resorts. We seek to optimize the relationship between room
rates and occupancies through the use of yield management techniques that attempt to project demand
in order to selectively increase room rates during peak demand. These techniques are designed to
assist us in managing our higher occupancy nights to achieve maximum rooms revenue and include such
practices as:
|
|
|
Monitoring our historical trends for occupancy and estimating our high occupancy nights; |
|
|
|
|
Offering the highest discounts to previous guests in off-peak periods to build customer
loyalty and enhance our ability to charge higher rates in peak periods; |
|
|
|
|
Structuring rates to allow us to offer our previous guests the best rate while
simultaneously working with a promotional partner or offering internet specials; |
|
|
|
|
Monitoring sales of room types daily to evaluate the effectiveness of offered discounts;
and |
|
|
|
|
Offering specials on standard suites and yielding better rates on larger suites when
standard suites sell out. |
In addition, we seek to maximize the amount of time and money spent on-site by our guests by
providing a variety of revenue-generating amenities.
We have several key indicators that we use to evaluate the performance of our business. These
indicators include the following:
|
|
|
Occupancy; |
|
|
|
|
Average daily room rate, or ADR; |
|
|
|
|
Revenue per available room, or RevPAR; |
|
|
|
|
Total revenue per available room, or Total RevPAR; |
|
|
|
|
Total revenue per occupied room, or Total RevPOR; and |
25
|
|
|
Earnings before interest, taxes, depreciation and amortization, or EBITDA. |
Occupancy, ADR and RevPAR are commonly used measures within the hospitality industry to
evaluate hotel operations and are defined as follows:
|
|
|
Occupancy is calculated by dividing total occupied rooms by total available rooms. |
|
|
|
|
ADR is calculated by dividing total rooms revenue by total occupied rooms. |
|
|
|
|
RevPAR is the product of occupancy and ADR. |
Total RevPAR and Total RevPOR are defined as follows:
|
|
|
Total RevPAR is calculated by dividing total revenue by total available rooms. |
|
|
|
|
Total Rev POR is calculated by dividing total revenue by total occupied rooms. |
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 nine months ended September 30, 2009, approximately 34% of
our total consolidated 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 (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
This discussion and analysis of our financial condition and results of operations is based on
our condensed consolidated financial statements, which have been prepared in accordance with GAAP.
The preparation of these condensed consolidated financial statements requires management to make
estimates and judgments that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the unconsolidated financial
statements, as well as revenue and expenses during the reporting periods. We evaluate our
estimates and judgments on an ongoing basis. We base our estimates on historical experience and on
various other factors we believe are reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results could therefore differ materially from those estimates under
different assumptions or conditions.
26
For a description of our critical accounting policies and estimates, please refer to Critical
Accounting Policies and Estimates section of our Managements Discussion and Analysis of
Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the
year ended December 31, 2008. There have been no material changes in any of our accounting
policies since December 31, 2008.
Recent Accounting Pronouncements
In April 2009, the FASB issued guidance on how to determine whether there has been a
significant decrease in the volume and level of activity for an asset or liability when compared
with normal market activity for the asset or liability. In such situations, an entity may conclude
that transactions or quoted prices may not be determinative of fair value, and may adjust the
transactions or quoted prices to arrive at the fair value of the asset or liability. This guidance
is effective for interim and annual reporting periods ending after June 15, 2009, and shall be
applied prospectively. The adoption of this guidance, as of September 30, 2009, did not have a
material impact on our consolidated financial statements.
In April 2009, the FASB issued guidance which requires disclosures about fair value of
financial instruments in interim financial information for periods ending after June 15, 2009. The
adoption of this guidance as of September 30, 2009, did not have a material impact on our
consolidated financial statements.
In June 2009, the FASB issued guidance which changes how a reporting entity determines when an
entity that is insufficiently capitalized or is not controlled through voting (or similar rights)
should be consolidated. The determination of whether a reporting entity is required to consolidate
another entity is based on, among other things, the other entitys purpose and design and the
reporting entitys ability to direct the activities of the other entity that most significantly
impact the other entitys economic performance. The guidance will require a reporting entity to
provide additional disclosures about its involvement with variable interest entities and any
significant changes in risk exposure due to that involvement. A reporting entity will be required
to disclose how its involvement with a variable interest entity affects the reporting entitys
financial statements. The adoption of this guidance is effective for fiscal years beginning after
November 15, 2009, and interim periods within those fiscal years. We are currently evaluating the
impact of this guidance on our consolidated financial statements.
In June 2009, the FASB issued guidance on codification and the hierarchy of Generally Accepted
Accounting Principles. The Codification superseded all non-SEC accounting and reporting standards.
All other nongrandfathered non-SEC accounting literature not included in the Codification will
become nonauthoritative. The guidance is effective for interim quarterly periods beginning July 1,
2009. This adoption of this guidance, as of September 30, 2009, did not have an impact on our
consolidated financial statements.
In August 2009, the FASB issued guidance on measuring liabilities as fair value which provides
clarification on measuring liabilities at fair value when a quoted price in an active market is not
available. The guidance is effective for the first reporting period beginning after issuance. The
adoption of this guidance, as of September 30, 2009, did not have an impact on our consolidated
financial statements.
In October 2009, the FASB issued guidance for revenue recognition with multiple deliverables. This
guidance eliminates the residual method under the current guidance and replaces it with the
relative selling price method when allocating revenue in a multiple deliverable arrangement. The
selling price for each deliverable shall be determined using vendor specific objective evidence of
selling price, if it exists, otherwise third-party evidence of selling price shall be used. If
neither exists for a deliverable, the vendor shall use its best estimate of the selling price for
that deliverable. After adoption, this guidance will also require expanded qualitative and
quantitative disclosures. The guidance is effective for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, although early adoption is permitted.
We are currently evaluating the impact of this guidance on our consolidated financial statements.
27
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:
|
|
|
a significant portion of our assets consists of property and equipment that are
depreciated over their remaining useful lives in accordance with GAAP. Because depreciation
and amortization are non-cash items, we believe that presentation of EBITDA is a useful
measure of our operating performance; |
|
|
|
|
it is widely used in the hospitality and entertainment industries to measure operating
performance without regard to items such as depreciation and amortization; and |
|
|
|
|
we believe it helps investors meaningfully evaluate and compare the results of our
operations from period to period by removing the impact of items directly resulting from our
asset base, primarily depreciation and amortization, from our operating results. |
Our management uses EBITDA:
|
|
|
as a measurement of operating performance because it assists us in comparing our
operating performance on a consistent basis as it removes the impact of items directly
resulting from our asset base, primarily depreciation and amortization, from our operating
results; |
|
|
|
|
for planning purposes, including the preparation of our annual operating budget; |
|
|
|
|
as a valuation measure for evaluating our operating performance and our capacity to incur
and service debt, fund capital expenditures and expand our business; and |
|
|
|
|
as one measure in determining the value of other acquisitions and dispositions. |
Using a measure such as EBITDA has material limitations. These limitations include the
difficulty associated with comparing results among companies and the inability to analyze certain
significant items, including depreciation and interest expense, which directly affect our net
income or loss. Management compensates for these limitations by considering the economic effect of
the excluded expense items independently, as well as in connection with its analysis of net income.
The following table reconciles net loss to EBITDA for the periods presented.
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net (loss) income |
|
$ |
(42,148 |
) |
|
$ |
2,171 |
|
|
$ |
(53,499 |
) |
|
$ |
(4,246 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
|
9,540 |
|
|
|
6,529 |
|
|
|
24,248 |
|
|
|
19,421 |
|
Income tax expense (benefit) |
|
|
19,278 |
|
|
|
1,825 |
|
|
|
11,756 |
|
|
|
(2,290 |
) |
Depreciation and amortization |
|
|
15,136 |
|
|
|
11,995 |
|
|
|
42,352 |
|
|
|
34,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
1,806 |
|
|
$ |
22,520 |
|
|
$ |
24,857 |
|
|
$ |
47,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
General
Our financial information includes:
|
|
|
our subsidiary entity that provides resort development and management/licensing services; |
|
|
|
|
our Traverse City, Kansas City, Sheboygan, Williamsburg, Pocono Mountains, Mason,
Grapevine and Concord operating resorts; and |
|
|
|
|
our equity interests in resorts in which we have ownership interests but which we do not
consolidate. |
Revenues. 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.
Under our management agreements, the resort owners reimburse us for payroll, benefits and
certain other costs related to the operations of the managed properties. We include the
reimbursement of payroll, benefits and costs on our condensed consolidated statements of
operations as other revenue from managed properties, with a corresponding expense recorded
as other expenses from managed properties. |
Operating Expenses. 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, operations management, sales and marketing, finance, legal,
information technology support, human resources and other support services, as well as
general corporate expenses; |
|
|
|
|
property operation and maintenance expenses, such as utility costs, insurance and
property taxes; |
|
|
|
|
depreciation and amortization; and |
29
|
|
|
other expenses from managed properties. |
Three months ended September 30, 2009, compared with the three months ended September 30, 2008
The following table shows key operating statistics for our resorts for the three months ended
September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Properties (a) |
|
|
Three months |
|
Three months |
|
|
|
|
ended |
|
ended |
|
Decrease |
|
|
September 30, 2009 |
|
September 30, 2008 |
|
$ |
|
% |
Occupancy |
|
|
69.1 |
% |
|
|
72.2 |
% |
|
|
N/A |
|
|
|
(4.3 |
)% |
ADR |
|
$ |
246.42 |
|
|
$ |
255.39 |
|
|
$ |
(8.97 |
) |
|
|
(3.5 |
)% |
RevPAR |
|
$ |
170.26 |
|
|
$ |
184.52 |
|
|
$ |
(14.26 |
) |
|
|
(7.7 |
)% |
Total RevPOR |
|
$ |
374.36 |
|
|
$ |
384.75 |
|
|
$ |
(10.39 |
) |
|
|
(2.7 |
)% |
Total RevPAR |
|
$ |
258.67 |
|
|
$ |
277.98 |
|
|
$ |
(19.31 |
) |
|
|
(6.9 |
)% |
|
|
|
(a) |
|
Includes results for properties that were open for any portion of the period, for all owned
and/or managed resorts. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store Comparison (b) |
|
|
Three months |
|
Three months |
|
|
|
|
ended |
|
ended |
|
Decrease |
|
|
September 30, 2009 |
|
September 30, 2008 |
|
$ |
|
% |
Occupancy |
|
|
69.9 |
% |
|
|
71.9 |
% |
|
|
N/A |
|
|
|
(2.8 |
)% |
ADR |
|
$ |
240.01 |
|
|
$ |
247.20 |
|
|
$ |
(7.19 |
) |
|
|
(2.9 |
)% |
RevPAR |
|
$ |
167.87 |
|
|
$ |
177.76 |
|
|
$ |
(9.89 |
) |
|
|
(5.6 |
)% |
Total RevPOR |
|
$ |
363.87 |
|
|
$ |
372.68 |
|
|
$ |
(8.81 |
) |
|
|
(2.4 |
)% |
Total RevPAR |
|
$ |
254.50 |
|
|
$ |
268.00 |
|
|
$ |
(13.50 |
) |
|
|
(5.0 |
)% |
|
|
|
(b) |
|
Same store comparison includes properties that were open for the full periods and with
comparable number of rooms in 2009 and 2008 (that is, our Wisconsin Dells, Sandusky, Traverse
City, Kansas City, Sheboygan, Williamsburg, Poconos, Niagara Falls, Mason and Grand Mound
resorts). |
We believe that, consistent with other hospitality and entertainment companies experience in
2009, the decreases in occupancy and RevPAR were due in part to the effect of the overall economic
downturn on consumer discretionary spending. We perform an analysis for possible impairment for
each of our operating properties when we believe a triggering event has occurred that would require
an impairment analysis. Because of triggering events that occurred in the three months ended
September 30, 2009, related to our resort in Sheboygan, including changes in the expectation of how
long we will hold this property, current period and historical operating losses and the
deterioration in the current market conditions, we tested this resort to determine if further
assessment for potential impairment was required. Based on this testing, we determined the
carrying value of this resort was not recoverable. As a result, we recorded a $24,000 impairment
charge to decrease the resorts carrying value to its estimated fair value (net of estimated
disposal costs) as of September 30, 2009. To determine the estimated fair value for purposes of
calculating the impairment charge, we used a combination of historical and projected cash flows and
other available market information, such as recent sales prices for similar assets.
Although we believe our estimated fair value for the resort is reasonable, the actual fair value we
ultimately realize from this resort could differ materially from this estimate. No other
triggering events were noted for the three months ended September 30, 2009.
30
Presented below are selected amounts from the statements of operations for the three months
ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
2009 |
|
2008 |
|
(Decrease) |
Revenues |
|
$ |
76,827 |
|
|
$ |
69,413 |
|
|
$ |
7,414 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Departmental operating expenses |
|
|
24,484 |
|
|
|
21,415 |
|
|
|
3,069 |
|
Selling, general and administrative |
|
|
14,911 |
|
|
|
11,637 |
|
|
|
3,274 |
|
Property operating costs |
|
|
8,201 |
|
|
|
8,642 |
|
|
|
(441 |
) |
Depreciation and amortization |
|
|
15,136 |
|
|
|
11,995 |
|
|
|
3,141 |
|
Asset impairment loss |
|
|
24,000 |
|
|
|
|
|
|
|
24,000 |
|
Net operating (loss) income |
|
|
(15,491 |
) |
|
|
9,763 |
|
|
|
(25,254 |
) |
Gain on sale of unconsolidated affiliate |
|
|
(962 |
) |
|
|
|
|
|
|
(962 |
) |
Interest expense, net of interest income |
|
|
9,540 |
|
|
|
6,529 |
|
|
|
3,011 |
|
Income tax expense |
|
|
18,267 |
|
|
|
1,755 |
|
|
|
16,512 |
|
Net (loss) income |
|
|
(42,148 |
) |
|
|
2,171 |
|
|
|
(44,319 |
) |
Revenues. Total revenues increased due to the following:
|
|
|
An increase in revenue from our Grapevine resort, due to the completion of its
expansion in early 2009; and |
|
|
|
|
An increase in revenue from our Concord resort, which opened in March 2009. |
This increase was partially offset by decreases in revenues at our resorts due to the overall
downturn in consumer discretionary spending.
Operating expenses. Total operating expenses increased primarily due to the opening of our
Concord resort in March 2009, as well as our expansion at our Grapevine resort, which was completed
in January 2009.
|
|
|
Departmental expenses increased by $3,069 for the three months ended September 30, 2009,
as compared to the three months ended September 30, 2008, due primarily to the opening of
our Concord resort. |
|
|
|
|
Total selling, general and administrative expenses increased by $3,274 in three months
ended September 30, 2009, as compared to the three months ended September 30, 2008, due
primarily to the opening of our Concord resort and less
labor and overhead expenses allocated to development properties during the three months
ended September 30, 2009 than in the three months ended September 30, 2008. |
|
|
|
|
Opening-related costs (included in total property operating costs) related to our
resorts were $9 for the three months ended September 30, 2009, as compared to $402 for the
three months ended September 30, 2008, due primarily to the opening of our Concord resort
in March 2009. |
|
|
|
|
Total depreciation and amortization increased for the three months ended September 30,
2009, as compared to the three months ended September 30, 2008, primarily due to the
expansion of our Grapevine resort as well as the opening of our Concord resort. Also, loan
fees incurred during the three months ended September 30, 2009 as compared to the three
months ended September 30, 2008 were higher due to fees incurred in connection with the
extensions of our Mason and Grapevine mortgage loans. |
31
|
|
|
We recorded a $24,000 asset impairment loss related to our resort in Sheboygan during the
three months ended September 30, 2009. We had no similar loss in the three months ended
September 30, 2008. |
Net operating (loss) income . During the three months ended September 30, 2009, we had net
operating loss of $15,491 as compared to a net operating income of $9,763 for the three months
ended September 30, 2008.
Net (loss) income. Net loss increased due to:
|
|
|
A decrease in net operating loss of $25,254 for the three months ended September 30,
2009, as compared to the three months ended September 30, 2008, |
|
|
|
|
An increase in net interest expense of $3,011, mainly due to interest expense on our
Concord loan, and less interest being capitalized to development properties in 2009 as
compared to 2008; and |
|
|
|
|
An increase in income tax expense mainly due to a $28,490 income tax expense related
to our net operating loss valuation allowance, which was partially offset by the tax
impact of our impairment loss. |
These increases were partially offset by the gain on sale of unconsolidated affiliate in the
amount of $962 recorded in the three months ended September 30, 2009. We had no similar gain in
the three months ended September 30, 2008.
Nine months ended September 30, 2009, compared with the nine months ended September 30, 2008
The following table shows key operating statistics for our resorts for the nine months ended
September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Properties (a) |
|
|
Nine months |
|
Nine months |
|
|
|
|
ended |
|
ended |
|
Increase (Decrease) |
|
|
September 30, 2009 |
|
September 30, 2008 |
|
$ |
|
% |
Occupancy |
|
|
63.4 |
% |
|
|
67.9 |
% |
|
|
N/A |
|
|
|
(6.6 |
)% |
ADR |
|
$ |
243.00 |
|
|
$ |
252.64 |
|
|
$ |
(9.64 |
) |
|
|
(3.8 |
)% |
RevPAR |
|
$ |
154.12 |
|
|
$ |
171.58 |
|
|
$ |
(17.46 |
) |
|
|
(10.2 |
)% |
Total RevPOR |
|
$ |
373.87 |
|
|
$ |
386.66 |
|
|
$ |
(12.79 |
) |
|
|
(3.3 |
)% |
Total RevPAR |
|
$ |
237.12 |
|
|
$ |
262.59 |
|
|
$ |
(25.47 |
) |
|
|
(9.7 |
)% |
|
|
|
(a) |
|
Includes results for properties that were open for any portion of the period, for all owned
and/or managed resorts. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store Comparison (b) |
|
|
Nine months |
|
Nine months |
|
|
|
|
ended |
|
ended |
|
Increase (Decrease) |
|
|
September 30, 2009 |
|
September 30, 2008 |
|
$ |
|
% |
Occupancy |
|
|
63.4 |
% |
|
|
66.7 |
% |
|
|
N/A |
|
|
|
(4.9 |
)% |
ADR |
|
$ |
235.56 |
|
|
$ |
246.00 |
|
|
$ |
(10.44 |
) |
|
|
(4.2 |
)% |
RevPAR |
|
$ |
149.28 |
|
|
$ |
164.01 |
|
|
$ |
(14.73 |
) |
|
|
(9.0 |
)% |
Total RevPOR |
|
$ |
358.47 |
|
|
$ |
372.04 |
|
|
$ |
(13.57 |
) |
|
|
(3.6 |
)% |
Total RevPAR |
|
$ |
227.17 |
|
|
$ |
248.04 |
|
|
$ |
(20.87 |
) |
|
|
(8.4 |
)% |
|
|
|
(b) |
|
Same store comparison includes properties that were open for the full periods and with
comparable number of rooms in 2009 and 2008 (that is, our Wisconsin Dells, Sandusky, Traverse
City, Kansas City, Sheboygan, Williamsburg, Poconos, Niagara Falls and Mason resorts). |
32
We believe that consistent with other hospitality and entertainment companies experience in
2009, the decreases in occupancy and RevPAR were due in part to the effect of the overall economic
downturn on consumer discretionary spending. We perform an analysis for possible impairment for
each of our operating properties when we believe a triggering event has occurred that would require
an impairment analysis. Because of triggering events that occurred in the three months ended
September 30, 2009, related to our resort in Sheboygan, including changes in the expectation of how
long we will hold this property, current period and historical operating losses and the
deterioration in the current market conditions, we tested this resort to determine if further
assessment for potential impairment was required. Based on this testing, we determined the
carrying value of this resort was not recoverable. As a result, we recorded a $24,000 impairment
charge to decrease the resorts carrying value to its estimated fair value (net of estimated
disposal costs) as of September 30, 2009. To determine the estimated fair value for purposes of
calculating the impairment charge, we used a combination of historical and projected cash flows and
other available market information, such as recent sales prices for similar assets.
Although we believe our estimated fair value for the resort is reasonable, the actual fair value we
ultimately realize from this resort could differ materially from this estimate. No other
triggering events were noted in the period ended September 30, 2009.
Presented below are selected amounts from the statements of operations for the nine months
ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
2009 |
|
2008 |
|
(Decrease) |
Revenues |
|
$ |
207,759 |
|
|
$ |
196,639 |
|
|
$ |
11,120 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Departmental operating expenses |
|
|
67,433 |
|
|
|
62,711 |
|
|
|
4,722 |
|
Selling, general and administrative |
|
|
46,542 |
|
|
|
41,729 |
|
|
|
4,813 |
|
Property operating costs |
|
|
29,657 |
|
|
|
28,556 |
|
|
|
1,101 |
|
Depreciation and amortization |
|
|
42,352 |
|
|
|
34,755 |
|
|
|
7,597 |
|
Asset impairment loss |
|
|
24,000 |
|
|
|
|
|
|
|
24,000 |
|
Net operating (loss) income |
|
|
(18,522 |
) |
|
|
13,876 |
|
|
|
(32,398 |
) |
Gain on sale of unconsolidated affiliate |
|
|
(962 |
) |
|
|
|
|
|
|
(962 |
) |
Interest expense, net of interest income |
|
|
24,248 |
|
|
|
19,421 |
|
|
|
4,827 |
|
Income tax expense (benefit) |
|
|
11,484 |
|
|
|
(1,282 |
) |
|
|
12,766 |
|
Net loss |
|
|
(53,499 |
) |
|
|
(4,246 |
) |
|
|
(49,253 |
) |
Revenues. Total revenues increased due to the following:
|
|
|
An increase in revenue from our Grapevine resort, due to the completion of its
expansion in early 2009; and |
|
|
|
|
An increase in revenue from our Concord resort, which opened in March 2009. |
This increase was partially offset by decreases in revenues at our resorts due to the overall
downturn in consumer discretionary spending.
Operating expenses. Total operating expenses increased primarily due to the opening of our
Concord resort in March 2009, as well as our expansion at our Grapevine resort, which was completed
in January 2009.
|
|
|
Departmental expenses increased by $4,722 for the nine months ended September 30, 2009,
as compared to the nine months ended September 30, 2008, due primarily to the opening of our
Concord resort. |
33
|
|
|
Total selling, general and administrative expenses increased by $4,813 in nine months
ended September 30, 2009, as compared to the nine months ended September 30, 2008, due
primarily to the opening of our Concord resort, the expansion of our
Grapevine resort,
and less labor and overhead expenses allocated to
development.
Separation costs for former officers were
$791 less in the nine months ended September 30, 2009 than in the nine months ended
September 30, 2008. |
|
|
|
|
Opening-related costs (included in total property operating costs) related to our
resorts were $5,592 for the nine months ended September 30, 2009, as compared to $4,350 for
the nine months ended September 30, 2008, due primarily to the expansion of our Grapevine
resort in early 2009 and the opening of our Concord resort in March 2009. |
|
|
|
|
Total depreciation and amortization increased for the nine months ended September 30,
2009, as compared to the nine months ended September 30, 2008, primarily due to the
expansion of our Grapevine resort, as well as the opening of our Concord resort. Also, loan
fees incurred during the nine months ended September 30, 2009 as compared to the nine months
ended September 30, 2008 were higher due to fees incurred in connection with the extensions
of our Mason and Grapevine mortgage loans. |
|
|
|
|
We recorded a $24,000 asset impairment loss related to our resort in Sheboygan during the
nine months ended September 30, 2009. We had no similar loss in the nine months ended
September 30, 2008. |
Net operating (loss) income. During the nine months ended September 30, 2009, we had net
operating loss of $18,522 as compared to a net operating income of $13,876 for the nine months
ended September 30, 2008.
Net loss. Net loss increased due to:
|
|
|
The decrease in operating income of $32,398 for the nine months ended September 30,
2009 as compared to the nine months ended September 30, 2008; |
|
|
|
|
An increase in net interest expense of $4,827 mainly due to interest expense on our
Concord loan and less interest being capitalized to development properties; and |
|
|
|
|
An increase in income tax expense mainly due to a $28,490 income tax expense related
to our net operating loss valuation allowance, which was partially offset by the tax
impact of our impairment loss. |
These amounts were partially offset by the gain on sale of unconsolidated affiliate in the
amount of $962 recorded in the nine months ended September 30, 2009. We recognized this gain on
the sale of our interest in the joint venture that owned the Wisconsin Dells and Sandusky resorts.
We had no similar gain in the nine months ended September 30, 2008.
Segments
We have two reportable segments in 2009 and 2008:
|
|
|
resort ownership/operation-revenues derived from our consolidated owned resorts; and |
|
|
|
|
resort third-party management/license-revenues derived from management, license and other related
fees from unconsolidated managed resorts. |
See our Segments section in our Summary of Significant Accounting Policies, in Note 2 of our
condensed consolidated financial statements.
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
|
|
|
|
|
|
|
|
|
Increase / |
|
|
|
|
|
|
|
|
|
Increase / |
|
|
2009 |
|
2008 |
|
(Decrease) |
|
2009 |
|
2008 |
|
(Decrease) |
Resort Ownership/Operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
69,424 |
|
|
$ |
60,841 |
|
|
$ |
8,583 |
|
|
$ |
186,411 |
|
|
$ |
174,991 |
|
|
$ |
11,420 |
|
EBITDA |
|
|
(2,823 |
) |
|
|
17,211 |
|
|
|
(20,034 |
) |
|
|
20,362 |
|
|
|
44,147 |
|
|
|
(23,785 |
) |
|
Resort Third-Party Management/License |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
7,403 |
|
|
|
8,572 |
|
|
|
(1,169 |
) |
|
|
21,348 |
|
|
|
21,648 |
|
|
|
(300 |
) |
EBITDA |
|
|
1,828 |
|
|
|
2,631 |
|
|
|
(803 |
) |
|
|
5,252 |
|
|
|
6,655 |
|
|
|
(1,403 |
) |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
2,801 |
|
|
|
2,678 |
|
|
|
123 |
|
|
|
(757 |
) |
|
|
(3,162 |
) |
|
|
2,405 |
|
The Other items in the table above represent corporate-level activities that do not constitute a
reportable segment.
Liquidity and Capital Resources
We had total indebtedness of $552,950 and $507,051 as of September 30, 2009, and December 31,
2008, respectively, summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Long-Term Debt: |
|
|
|
|
|
|
|
|
Traverse City/Kansas City mortgage loan |
|
$ |
69,145 |
|
|
$ |
70,211 |
|
Mason mortgage loan |
|
|
74,800 |
|
|
|
76,800 |
|
Pocono Mountains mortgage loan |
|
|
95,746 |
|
|
|
96,571 |
|
Williamsburg mortgage loan |
|
|
63,500 |
|
|
|
64,625 |
|
Grapevine mortgage loan |
|
|
78,709 |
|
|
|
78,709 |
|
Concord construction loan |
|
|
78,549 |
|
|
|
27,594 |
|
Junior subordinated debentures |
|
|
80,545 |
|
|
|
80,545 |
|
Other Debt: |
|
|
|
|
|
|
|
|
City of Sheboygan bonds |
|
|
8,527 |
|
|
|
8,493 |
|
City of Sheboygan loan |
|
|
3,343 |
|
|
|
3,503 |
|
Other |
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
552,950 |
|
|
|
507,051 |
|
Less current portion of long-term debt |
|
|
(14,638 |
) |
|
|
(81,464 |
) |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
538,312 |
|
|
$ |
425,587 |
|
|
|
|
|
|
|
|
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
September 30, 2009.
Mason Mortgage Loan This loan is secured by our Mason resort. On July 31, 2009 the loan
maturity was extended to July 1, 2011. We incurred loan fees of $1,145 related to the extension of
this loan. The loan bears interest at a floating rate of 30 day LIBOR plus a spread of 425 basis
points with an interest rate floor of 6.50% (effective rate of 6.50% as of September 30, 2009).
The LIBOR benchmark changes to 90 day LIBOR on December 1, 2009. The loan requires principal amortization payments of $1,000 per quarter in 2009 and $2,000 per quarter
thereafter. This loan has customary
35
financial and operating debt compliance covenants associated
with an individual mortgaged property, including a minimum tangible net worth provision for Great
Wolf Resorts, Inc. The loan has no restrictions on the repayment of loan principal and has exit
fees that can be paid upon full repayment of the loan or at maturity. In addition, we have
provided the Mason mortgage lenders with a $30,000 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 $30,000 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
towards the $30,000 mandatory principal reduction. We were in compliance with all covenants under
this loan at September 30, 2009.
In conjunction with the extension of this loan in January 2009, we were required to provide
interest rate protection on a portion of the loan amount through the loans then-maturity date in
November 2009. Therefore, we executed an interest rate cap in the amount of $10 that caps the loan
at 7.25% interest through November 2009. In conjunction with the extension of this loan in July
2009, we are required to execute an interest rate cap on or before November 30, 2009 through the
loans maturity date. We have not executed this interest rate cap as of November 5, 2009.
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
September 30, 2009.
Williamsburg Mortgage Loan This loan is 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 September 30, 2009). 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 no applicable prepayment fees. The loan has customary
covenants associated with an individual mortgaged property. We were in compliance with all
covenants under this loan at September 30, 2009.
In conjunction with the closing of this loan, we were required to provide interest rate
protection on a portion of the loan amount through the loans maturity date. Therefore, we
executed an interest rate cap in the amount of $522 that caps the loan at 8% interest through the
loans maturity date. This interest rate cap was designated as an ineffective cash flow hedge. We
mark the interest rate cap to market and record the change to interest expense.
Grapevine Mortgage Loan This loan is secured by our Grapevine resort. On July 31, 2009 the
loan maturity was extended to July 1, 2011. We incurred loan fees of $1,415 related to the
extension of this loan. The loan bears interest at a floating rate of 90 day LIBOR plus a spread
of 400 basis points with an interest rate floor of 7.00% (effective rate of 7.0% as of September
30, 2009). The loan requires principal amortization payments of $800 per quarter until maturity.
This loan has customary financial and operating debt compliance covenants associated with an
individual mortgaged property, including a minimum tangible net worth provision for Great Wolf
Resorts, Inc. The loan has no restrictions on the repayment of loan principal and has exit fees
that must be paid upon full repayment of the loan or at maturity. We were in compliance with all
covenants under this loan at September 30, 2009.
In conjunction with the extension of this loan in July 2009, we were required to provide
interest rate protection on a portion of the loan amount through the loans maturity date.
Therefore, we executed an interest rate cap in the amount of $205 that caps the loan at 7% interest
through December 2010. This interest rate cap was designated as an ineffective cash flow hedge.
We mark the interest rate cap to market and record the change to interest expense.
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
36
310 basis points, with a minimum rate of 6.50% per annum (effective rate
of 6.50% as of September 30, 2009). The loan requires interest only payments until the one-year
anniversary of the conversion 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 September 30, 2009. In January 2009, the total commitments under this loan increased from
$63,940 to $79,900. We incurred loan fees in connection with the increase of our loan commitments.
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 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.
Issue trusts, like Trust I and Trust III (collectively, the Trusts), are generally variable
interest. 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, 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
37
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:
|
|
|
|
|
Through |
|
|
|
|
September 30, |
|
|
|
|
2010 |
|
$ |
14,638 |
|
2011 |
|
|
210,809 |
|
2012 |
|
|
79,532 |
|
2013 |
|
|
3,606 |
|
2014 |
|
|
3,892 |
|
Thereafter |
|
|
240,473 |
|
|
|
|
|
Total |
|
$ |
552,950 |
|
|
|
|
|
Short-Term Liquidity Requirements
Our short-term liquidity requirements generally 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 a combination of
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.
Long-Term Liquidity Requirements
Our long-term liquidity requirements generally 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 a combination of:
38
|
|
|
Existing working capital, |
|
|
|
Cash provided by operations, |
|
|
|
Proceeds from investing activities, including sales of partial or whole ownership
interests in certain of our resorts; and |
|
|
|
Proceeds from financing activities, including mortgage additional or replacement
borrowings under future credit facilities, contributions from joint venture partners, and
the issuance of equity instruments, including common stock, or additional or replacement
debt, as market conditions permit. |
We believe these sources of capital will be sufficient to provide for our long-term capital
needs.
Our largest long-term expenditures (other than debt maturities) are expected to be for capital
expenditures for development of future resorts, routine capital expenditures for our existing
resorts, and capital contributions or loans to joint ventures owning resorts under construction or
development. Such expenditures were $48,509 for the nine months ended September 30, 2009. We
expect to have approximately $300 of such expenditures for the rest of 2009. As discussed above,
we expect to meet these requirements through a combination of cash provided by operations and cash
on hand.
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 or to make
capital contributions to new joint ventures that would develop resorts that we would license and
manage. Also, due to the current state of the capital markets, which are marked by the general
unavailability of debt financing for large commercial real estate construction projects, we do not
expect to have 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 ventures
that develop future resorts.
Off Balance Sheet Arrangements
In August 2009 we sold our 30.26% joint venture interest in the joint venture that owns two
resorts, Great Wolf Lodge-Wisconsin Dells, Wisconsin and Great Wolf Lodge-Sandusky, Ohio to CNL
Income Properties, Inc. We currently manage both properties and license the Great Wolf Lodge
brand.
We have one unconsolidated joint venture arrangement at September 30, 2009. We account for
our unconsolidated joint venture using the equity method of accounting.
Our joint venture with The Confederated Tribes of the Chehalis Reservation owns the Great Wolf
Lodge resort and conference center on a 39-acre land parcel in Grand Mound, 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 September 30, 2009, the joint
venture had aggregate outstanding indebtedness to third parties of $101,765. As of September 30,
2009, we have made combined loan and equity contributions, net of loan repayments, of $30,092 to
the joint venture to fund a portion of construction costs of the resort. In January 2009, the
other member of the joint venture purchased $5,991 of our loan at par.
39
Based on the nature of the activities conducted in the joint venture, 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 the joint venture will have a material
adverse effect on our financial condition, as we currently do not expect to make any significant
future capital contributions to this joint venture.
Contractual Obligations
The following table summarizes our contractual obligations as of September 30, 2009:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Terms |
|
|
|
|
|
|
|
Less Than |
|
|
|
|
|
|
|
|
|
|
More Than |
|
|
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
Debt obligations (1) |
|
$ |
618,826 |
|
|
$ |
25,383 |
|
|
$ |
311,305 |
|
|
$ |
27,612 |
|
|
$ |
254,526 |
|
Operating lease obligations |
|
|
766 |
|
|
|
424 |
|
|
|
326 |
|
|
|
16 |
|
|
|
|
|
Reserve on unrecognized tax benefits |
|
|
1,268 |
|
|
|
|
|
|
|
|
|
|
|
1,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
620,860 |
|
|
$ |
25,807 |
|
|
$ |
311,631 |
|
|
$ |
28,896 |
|
|
$ |
254,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts include interest (for fixed rate debt) and principal. They also include $8,527 of fixed rate debt
recognized as a liability related to certain bonds issued by the City of Sheboygan and $3,343 of fixed rate
debt recognized as a liability related to a loan from the City of Sheboygan. These liabilities will be
satisfied by certain future minimum guaranteed amounts of real and personal property tax payments and room tax
payments to be made by our Sheboygan resort. |
If we develop future resorts where we are the majority owner, we expect to incur significant
additional debt and construction contract obligations.
Working Capital
We had $27,994 of available cash and cash equivalents and working capital deficit of $4,738
(current assets less current liabilities) at September 30, 2009, compared to the $14,231 of
available cash and cash equivalents and a working capital deficit of $117,323 at December 31, 2008.
The primary reasons for the working capital deficit at September 30, 2009 are:
|
|
|
The use of cash for capital expenditures and investments in and advances to
affiliates and of our properties that were under development, and |
|
|
|
Less proceeds from issuances of long-term debt. |
Cash Flows
Nine months ended September 30, 2009, compared with the nine months ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
2009 |
|
2008 |
|
(Decrease) |
Net cash provided by operating activities |
|
$ |
14,056 |
|
|
$ |
27,265 |
|
|
$ |
(13,209 |
) |
Net cash used in investing activities |
|
|
(34,337 |
) |
|
|
(108,971 |
) |
|
|
74,634 |
|
Net cash provided by financing activities |
|
|
34,044 |
|
|
|
88,993 |
|
|
|
(54,949 |
) |
Operating Activities. The decrease in net cash provided by operating activities resulted
primarily from a decrease in operating income and accounts payable, accrued expenses and other
liabilities during the nine months ended September 30, 2009 as compared to the nine months ended
September 30, 2008.
40
Investing Activities. The decrease in net cash used in investing activities for the nine
months ended September 30, 2009, as compared to the nine months ended September 30, 2008, resulted
primarily from a decrease in contributions to our investments in affiliates offset by proceeds from
the sale of our interest in a joint venture as well as an increase in loan repayments received from
our affiliate. This net decrease is also due to a decrease in capital expenditures related to our
properties that are in service and in development.
Financing Activities. The decrease in net cash provided by financing activities resulted
primarily from receiving fewer loan proceeds during the nine months ended September 30, 2009 as
compared to the nine months ended September 30, 2008.
Inflation
Our resort properties are able to change room and amenity rates on a daily basis, so the
impact of higher inflation can often be passed along to customers. However, a weak economic
environment that decreases overall demand for our products and services could restrict our ability
to raise room and amenity rates to offset rising costs.
|
|
|
ITEM 3. |
|
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 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 September 30, 2009, we had total indebtedness of $552,950. This debt consisted of:
|
|
|
$69,145 of fixed rate debt secured by two of our resorts. This debt bears interest at
6.96%. |
|
|
|
$74,800 of variable rate debt secured by one of our resorts. This debt bears interest at
a floating rate of 30-day LIBOR plus a spread of 425 basis points, with a minimum rate of
6.50% per annum. The effective rate was 6.50% at September 30, 2009. |
|
|
|
|
$95,746 of fixed rate debt secured by one of our resorts. This debt bears interest at
6.10%. |
|
|
|
|
$63,500 of variable rate debt secured by one of our resorts. This debt bears interest at
a floating rate of 30-day LIBOR plus a spread of 350 basis points, with a minimum rate of
6.25% per annum. The effective rate was 6.25% at September 30, 2009. |
|
|
|
|
$78,709 of variable rate debt secured by one of our resorts. This debt bears interest at
a floating rate of 90-day LIBOR plus a spread of 400 basis points, with a minimum rate of
7.00% per annum. The effective rate was 7.00% at September 30, 2009. |
|
|
|
|
$78,549 of variable rate debt secured by one of our resorts. This debt bears interest at
a floating annual rate of LIBOR plus a spread of 310 basis points, with a minimum rate of
6.50% per annum. The effective rate was 6.50% at September 30, 2009. |
|
|
|
|
$51,550 of subordinated debentures that bear interest at a fixed rate of 7.80% through
March 2015 and then at a floating rate of LIBOR plus 310 basis points thereafter. The
securities mature in March 2035. |
41
|
|
|
$28,995 of subordinated debentures that bear interest at a fixed rate of 7.90% through
June 2012 and then at a floating rate of LIBOR plus 300 basis points thereafter. The
securities mature in June 2017. |
|
|
|
|
$8,527 of fixed rate debt (effective interest rate of 10.67%) recognized as a liability
related to certain bonds issued by the City of Sheboygan and $3,343 of non-interest bearing
debt recognized as a liability related to a loan from the City of Sheboygan. These
liabilities will be satisfied by certain future minimum guaranteed amounts of real and
personal property tax payments and room tax payments to be made by the Sheboygan resort. |
|
|
|
|
$86 related to a capital lease that was entered into in June 2009. The lease matures in
May 2012. |
As of September 30, 2009, we estimate the total fair value of the indebtedness described above
to be $114,662 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.
At September 30, 2009, all of our variable rate debt is subject to minimum rate floors. If
LIBOR were to increase or decrease by 1% or 100 basis points, the would be no change in interest
expense on our variable rate debt based on our debt balances outstanding and current interest rates
in effect as of September 30, 2009, as LIBOR plus the loans basis points would not increase or
decrease above the minimum rate floor.
During the nine months ended September 30, 2009, there were no other material changes in our
market risk exposure. For a complete discussion of our market risk associated with interest rate
risk as of September 30, 2009, see Item 7A. Quantitative and Qualitative Disclosures about Market
Risk in our Annual Report on Form 10-K for the year ended December 31, 2008.
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|
|
ITEM 4. |
|
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.
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 third
quarter of 2009. We have concluded that our disclosure controls and procedures were effective as
of September 30, 2009.
Changes in Internal Control over Financial Reporting
During the period covered by this quarterly report on Form 10-Q, there have been no changes to
our internal control over financial reporting that are reasonably likely to materially affect our
internal control over financial reporting.
42
PART II. OTHER INFORMATION
|
|
|
ITEM 1. |
|
LEGAL PROCEEDINGS |
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 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, materially adverse to the Company, could occur.
A
regional, national or global outbreak of influenza or other disease,
such as the recent international outbreak of influenza A(H1N1), could
adversely affect our business and results of operations.
An outbreak of
influenza or other communicable disease can impact places of public accommodation, such as our resorts. On June 11, 2009
the World Health Organization (WHO) raised its pandemic alert level, related to influenza A(H1N1), to Level 6, meaning
that the disease has reached pandemic levels.
In the primary markets of at least three of our resorts, localized public-health measures have been implemented as a
result of outbreaks of influenza A(H1N1), including travel bans, the closings of schools and businesses, and cancellations
of events. These measures, especially if they become more geographically widespread or sustained over significant time
periods, or if public perception of the safety or desirability of visiting our resorts is adversely impacted by these
measures or by media coverage of the outbreak, could materially reduce demand for our rooms and meeting spaces and,
correspondingly, reduce our revenue, negatively affecting our business and results of operations.
In addition to the
other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors
in our Annual Report on Form 10-K for the year ended December 31, 2008, and subsequent Quarterly Reports on Form 10-Q,
which could materially affect our business, financial condition or future results. The risks described in our Annual
Report on Form 10-K, and subsequent Quarterly Reports on Form 10-Q, are not the only risks facing us. Additional risks
and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect
our business, financial condition and/or operating results.
|
|
|
ITEM 2. |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
We did not make any unregistered sales of equity securities during the applicable period.
|
|
|
ITEM 3. |
|
DEFAULTS UPON SENIOR SECURITIES |
We were not in default of our obligations upon any senior securities during the applicable period.
|
|
|
ITEM 4. |
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
We did not submit any matters to vote by security holders during the applicable period.
|
|
|
ITEM 5. |
|
OTHER INFORMATION |
None.
The exhibits listed below are incorporated herein by reference to prior SEC filings by the
Registrant or are included as exhibits in this Form 10-Q.
|
|
|
|
|
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) |
43
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
3.1 |
|
|
Form of Amended and Restated Certificate of Incorporation for Great Wolf
Resorts, Inc. dated December 9, 2004 (incorporated herein by reference to
Exhibit 3.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004) |
|
|
|
|
|
|
3.2 |
|
|
Form of Amended and Restated Bylaws of Great Wolf Resorts, Inc. effective
December 20, 2004 (incorporated herein by reference to Exhibit 3.2 to the
Companys Registration Statement on Form S-1 filed August 12, 2004) |
|
|
|
|
|
|
4.1 |
|
|
Form of the Common Stock Certificate of Great Wolf Resorts, Inc.
(incorporated herein by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-1 filed October 21, 2004) |
|
|
|
|
|
|
4.2 |
|
|
Junior Subordinated Indenture, dated as of March 15, 2005, between Great
Wolf Resorts, Inc. and JP Morgan 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;
JP Morgan Chase Bank, National Association, as property trustee; Great
Wolf Resorts, Inc., as depositor; and James A. Calder, Alex G. Lombardo
and J. Michael Schroeder, as administrative trustees (incorporated herein
by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K
filed March 18, 2005) |
|
|
|
|
|
|
4.4 |
|
|
Junior Subordinated Debenture, dated as of June 15, 2007, between Great
Wolf Resorts, Inc. and JP Morgan Chase Bank, National Association, as
trustee (incorporated herein by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K filed June 19, 2007) |
|
|
|
|
|
|
4.5 |
|
|
Amended and Restated Trust Agreement, dated as of June 15, 2007, by and
among Great Wolf Resorts, Inc., as depositor, Wells Fargo Bank, N.A., as
property trustee, Wells Fargo Delaware Trust Company, as Delaware trustee,
and James A. Calder, Alex P. Lombardo and J. Michael Schroeder, as
administrative trustees (incorporated herein by reference to Exhibit 4.2
to the Companys Current Report on Form 8-K filed June 19, 2007) |
|
|
|
|
|
|
4.6 |
|
|
Purchase Agreement, dated April 29, 2009, by and among Great Bear Lodge of
Wisconsin Dells, LLC, a Delaware limited liability company, Great Lakes
Services, LLC, a Delaware limited liability company and CNL Income
Partners, LP, a Delaware limited partnership (incorporated herein by
reference to Exhibit 4.6 to the Companys Current Quarterly Report on Form
10-Q filed August 5, 2009) |
|
|
|
|
|
|
31.1* |
|
|
Certification of Chief Executive Officer of Periodic Report Pursuant to
Rule 13a14(a) and Rule 15d14(a) |
|
|
|
|
|
|
31.2* |
|
|
Certification of Chief Financial Officer of Periodic Report Pursuant to
Rule 13a14(a) and Rule 15d14(a) |
|
|
|
|
|
|
32.1* |
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 |
|
|
|
|
|
|
32.2* |
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 |
44
SIGNATURE
Pursuant to the requirements 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.
|
|
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|
|
|
GREAT WOLF RESORTS, INC.
|
|
|
/s/ James A. Calder
|
|
|
James A. Calder |
|
|
Chief Financial Officer
(Duly authorized officer)
(Principal Financial and Accounting Officer) |
|
|
Dated: November 5, 2009
45