UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-51064

 

GREAT WOLF RESORTS, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		51-0510250 (I.R.S. Employer Identification No.)
122 West Washington Avenue Madison, Wisconsin 53703 (Address of principal executive offices)		53703 (Zip Code)

(608) 661-4700
(Registrant’s 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):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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 issuer’s common stock was 31,307,542 as of August 5, 2009.

 

 

Great Wolf Resorts, Inc.

Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2009

INDEX

		Page
		No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008			3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2009 and 2008			4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			42
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			43
Item 1A. Risk Factors			43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 3. Defaults Upon Senior Securities			43
Item 4. Submission of Matters to a Vote of Security Holders			43
Item 5. Other Information			44
Item 6. Exhibits			45
Signature			47

PART I. FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

GREAT WOLF RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)

		June 30,				December 31,
		2009				2008
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	23,035			$	14,231
Accounts receivable, net of allowance for doubtful accounts of $98 and $114			2,847				2,167
Accounts receivable — unconsolidated affiliates, net of allowance for doubtful accounts of $1,638 and $1,201			2,353				925
Inventory			5,636				4,265
Other current assets			8,634				3,055
Total current assets			42,505				24,643
Property and equipment, net			722,939				716,173
Investments in and advances to unconsolidated affiliates			34,207				43,855
Other assets			39,586				31,561
Other intangible assets			23,829				23,829
Total assets		$	863,066			$	840,061
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	81,964			$	81,464
Accounts payable			6,810				23,217
Accounts payable — unconsolidated affiliates			9				622
Accrued expenses			22,682				22,565
Accrued expenses — unconsolidated affiliates			1,475				1,184
Advance deposits			11,867				7,498
Gift certificates payable			4,180				5,416
Total current liabilities			128,987				141,966
Mortgage debt			379,728				333,259
Other long-term debt			92,320				92,328
Deferred compensation liability			678				568
Total liabilities			601,713				568,121
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value; 250,000,000 shares authorized; 31,298,676 and 30,982,646 shares issued and outstanding			313				310
Additional paid-in-capital			400,402				399,641
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding			—				—
Accumulated deficit			(139,162	)			(127,811	)
Deferred compensation			(200	)			(200	)
Total stockholders’ equity			261,353				271,940
Total liabilities and stockholders’ equity		$	863,066			$	840,061

See accompanying notes to condensed consolidated financial statements.

(GREAT WOLF RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited; dollars in thousands, except share and per share data)

		Three months ended								Six months ended
		June 30,								June 30,
		2009				2008				2009				2008
Revenues:
Rooms		$	40,310			$	35,941			$	76,655			$	74,807
Food and beverage			11,305				10,235				21,207				20,663
Other hotel operations			10,160				9,110				19,125				18,680
Management and other fees			402				663				991				1,429
Management and other fees — affiliates			1,210				1,501				2,434				2,596
			63,387				57,450				120,412				118,175
Other revenue from managed properties — affiliates			5,238				5,568				10,520				9,051
Total revenues			68,625				63,018				130,932				127,226
Operating expenses by department:
Rooms			5,948				5,273				10,977				10,420
Food and beverage			8,865				8,142				16,280				16,135
Other			8,424				7,464				15,692				14,741
Other operating expenses:
Selling, general and administrative			16,987				16,694				31,631				30,092
Property operating costs			9,114				8,085				21,456				19,914
Depreciation and amortization			14,630				11,741				27,216				22,760
Loss on disposition of property			—				—				191				—
			63,968				57,399				123,443				114,062
Other expenses from managed properties — affiliates			5,238				5,568				10,520				9,051
Total operating expenses			69,206				62,967				133,963				123,113
Net operating (loss) income			(581	)			51				(3,031	)			4,113
Investment income — affiliates			(336	)			(553	)			(720	)			(1,004	)
Interest income			(148	)			(409	)			(336	)			(899	)
Interest expense			8,777				6,884				15,044				13,791
Loss before income taxes and equity in losses of unconsolidated affiliates			(8,874	)			(5,871	)			(17,019	)			(7,775	)
Income tax benefit			(3,635	)			(2,232	)			(6,783	)			(3,037	)
Equity in losses of unconsolidated affiliates, net of tax			467				451				1,115				1,679
Net loss		$	(5,706	)		$	(4,090	)		$	(11,351	)		$	(6,417	)
Other comprehensive loss, net of tax:
Unrealized (gain) loss on interest rate swaps			—				(356	)			—				51
Comprehensive loss		$	(5,706	)		$	(3,734	)		$	(11,351	)		$	(6,468	)
Net loss per share-basic		$	(0.18	)		$	(0.13	)		$	(0.36	)		$	(0.21	)
Net loss per share-diluted		$	(0.18	)		$	(0.13	)		$	(0.36	)		$	(0.21	)
Weighted average common shares outstanding:
Basic			31,263,487				30,875,615				31,123,072				30,770,388
Diluted			31,263,487				30,875,615				31,123,072				30,770,388

See accompanying notes to the condensed consolidated financial statements.

GREAT WOLF RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; dollars in thousands)

		Six months ended
		June 30,
		2009				2008
Operating activities:
Net loss		$	(11,351	)		$	(6,417	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			27,216				22,760
Bad debt expense			457				41
Non-cash employee compensation and professional fees expense			469				90
Loss on disposition of property			191				—
Equity in losses of unconsolidated affiliates			1,854				2,756
Deferred tax benefit			(7,582	)			(4,115	)
Changes in operating assets and liabilities:
Accounts receivable and other assets			(5,025	)			(6,476	)
Accounts payable, accrued expenses and other liabilities			2,106				6,292
Net cash provided by operating activities			8,335				14,931
Investing activities:
Capital expenditures for property and equipment			(45,846	)			(55,272	)
Loan repayment from unconsolidated affiliates			8,098				—
Investments in unconsolidated affiliates			(303	)			(9,823	)
Investment in development			1,086				(1,811	)
Proceeds from sale of assets			66				—
Decrease in restricted cash			163				37
Increase in escrows			(1,379	)			(1,857	)
Net cash used in investing activities			(38,115	)			(68,726	)
Financing activities:
Principal payments on long-term debt			(3,112	)			(758	)
Proceeds from issuance of long-term debt			50,073				72,957
Payment of loan costs			(8,377	)			(2,314	)
Net cash provided by financing activities			38,584				69,885
Net increase in cash and cash equivalents			8,804				16,090
Cash and cash equivalents, beginning of period			14,231				18,597
Cash and cash equivalents, end of period		$	23,035			$	34,687
Supplemental Cash Flow Information:
Cash paid for interest, net of capitalized interest		$	14,599			$	13,602
Cash paid for income taxes		$	36			$	155
Non-cash items:
Construction in process accruals		$	319			$	17,884

See accompanying notes to the condensed consolidated financial statements.

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 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^TM 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 June 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
										Of				Of				Indoor
		Ownership				Opened/				Guest				Condo				Entertainment
		Percentage				Opening				Suites				Units (1)				Area (2)
																		(Approx. ft2)
Wisconsin Dells, WI (3)			30.26	%			1997				308				77				102,000
Sandusky, OH (3)			30.26	%			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

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 and in accordance with the recently issued Statement of Financial Accounting Standards (SFAS) 165 “Subsequent Events,” we evaluated subsequent events after the balance sheet date of June 30, 2009 through August 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 investments in unconsolidated joint ventures, as we do not have a controlling interest. Net income or loss is allocated between the partners in the joint ventures based on the hypothetical liquidation at book value method (HLBV). Under the HLBV method, net income or loss is allocated between the partners based on the difference between each partner’s claim on the net assets of the partnership at the end and beginning of the period, after taking into account contributions and distributions. Each partner’s 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.

     Fair Value of Financial Instruments — Effective for the interim reporting period ended June 30, 2009, we adopted FSP 107-1 and Accounting Principles Board Opinion 28-1, “Interim Disclosures About Fair Value of Financial Instruments,” which require disclosures about 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. As of June 30, 2009, we estimate the total fair value of our long-term debt to be $162,447 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.

     Comprehensive Income — We record unrealized gain and loss on interest rate swaps in accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” which requires the effective portion of the swap’s 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 revenues derived from management, license and other related fees from unconsolidated managed resorts.

The following summarizes significant financial information regarding our segments:

		Resort				Resort								Totals per
		Ownership/				Third-Party								Financial
		Operation				Management				Other				Statements
Three months ended June 30, 2009
Revenues		$	61,775			$	6,850			$	—			$	68,625
Depreciation and amortization			(14,474	)			—				(156	)			(14,630	)
Operating income (loss)			(777	)			1,612				(1,416	)			(581	)
Investment income — affiliates			—				—				—				(336	)
Interest income															(148	)
Interest expense			—				—				—				8,777
Loss before income taxes and equity in losses of unconsolidated affiliates			—				—				—			$	(8,874	)
Additions to long-lived assets			16,064				—				104			$	16,168

		Resort				Resort								Totals per
		Ownership/				Third-Party								Financial
		Operation				Management				Other				Statements
Six months ended June 30, 2009
Revenues		$	116,987			$	13,945			$	—			$	130,932
Depreciation and amortization			(26,845	)			—				(371	)			(27,216	)
Operating income (loss)			(3,659	)			3,425				(2,797	)			(3,031	)

		Resort				Resort								Totals per
		Ownership/				Third-Party								Financial
		Operation				Management				Other				Statements
Investment income — affiliates															(720	)
Interest income			—				—				—				(336	)
Interest expense			—				—				—				15,044
Loss before income taxes and equity in losses of unconsolidated affiliates			—				—				—			$	(17,019	)
Additions to long-lived assets			45,619				—				227			$	45,846
Total assets			754,162				2,459				106,445			$	863,066

		Resort				Resort								Totals per
		Ownership/				Third-Party								Financial
		Operation				Management				Other				Statements
Three months ended June 30, 2008
Revenues		$	55,286			$	7,732			$	—			$	63,018
Depreciation and amortization			(11,531	)			—				(210	)			(11,741	)
Operating income (loss)			1,571				2,164				(3,684	)			51
Investment income — affiliates			—				—				—				(553	)
Interest income			—				—				—				(409	)
Interest expense			—				—				—				6,884
Loss before income taxes and equity in losses of unconsolidated affiliates			—				—				—			$	(5,871	)
Additions to long-lived assets			35,184				—				228			$	35,412

		Resort				Resort								Totals per
		Ownership/				Third-Party								Financial
		Operation				Management				Other				Statements
Six months ended June 30, 2008
Revenues		$	114,150			$	13,076			$	—			$	127,226
Depreciation and amortization			(22,376	)			—				(384	)			(22,760	)
Operating income (loss)			4,561				4,024				(4,472	)			4,113
Investment income — affiliates			—				—				—				(1,004	)
Interest income			—				—				—				(899	)
Interest expense			—				—				—				13,791
Loss before income taxes and equity in losses of unconsolidated affiliates			—				—				—			$	(7,775	)
Additions to long-lived assets			54,734				—				538			$	55,272
Total assets			709,853				5,326				140,800			$	855,979

     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 September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The adoption of SFAS 157 in 2008 did not have an impact on our results of operations or financial position. Effective January 1, 2009, SFAS 157 requires disclosure for non-financial assets and liabilities that are not measured or disclosed on a recurring basis. Our long-lived assets held for use are subject to nonrecurring measurement when certain triggering events occur. At June 30, 2009, no fair value measurements were required.

     In April 2009, the FASB issued FASB Staff Position (FSP) SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP 157-4). FSP 157-4 provides guidance regarding how to determine whether there has been a significant decrease in the volume and level of activity for the 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. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The adoption of this FSP did not have a material impact on our consolidated financial statements.

     In December 2007, the FASB issued SFAS 141 (Revised 2007), “Business Combinations.” SFAS 141(R) significantly changes the accounting for business combinations. Under SFAS 141(R), an acquiring entity is required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141(R) also includes a substantial number of new disclosure requirements. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of SFAS 141(R) did not have a material impact on our consolidated financial statements.

     In December 2007, the FASB issued SFAS 160, “Non-controlling Interests in Consolidated Financial Statements-an Amendment of Accounting Research Bulletin No. 51.” SFAS 160 establishes new accounting and reporting standards for a non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a non-controlling interest (minority interest) as equity in the consolidated financial statements separate from the parent’s equity. The amount of the net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The adoption of SFAS 160 did not have a material impact on our consolidated financial statements.

     In April 2008, the FASB issued FSP SFAS 142-3, “Determination of the Useful Life of Intangible Assets” (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible Assets.” FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The adoption of FSP 142-3 did not have a material impact on our consolidated financial statements.

     In November 2008, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 08-6, “Equity Method Investment Accounting Considerations” (EITF 08-6). EITF 08-6 clarifies the accounting for certain transactions and impairment considerations involving equity method investments. EITF 08-6 is effective for fiscal years beginning after December 15, 2008. The adoption of this EITF did not have a material impact on our consolidated financial statements.

     In April 2009, the FASB issued FSP SFAS 107-1, “Interim Disclosures about Fair Value of Financial Instruments, an amendment of FASB Statement No. 107” (FSP 107-1). FSP 107-1 requires disclosures about fair value of financial instruments in interim financial information for periods ending after June 15, 2009. The adoption of this FSP did not have a material impact on our consolidated financial statements.

     In June 2009, the FASB issued SFAS 167, “Amendments to FASB Interpretation (“FIN”) No. 46(R),” 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 entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. SFAS 167 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 entity’s financial statements. SFAS 167 is effective for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years. We believe the adoption of SFAS 167 will not have a material impact on our consolidated financial statements.

     In June 2009, the FASB issued SFAS 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162.” SFAS 168 will become the source of authoritative United States Generally Accepted Accounting Principles (GAAP) to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification will supersede all non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. SFAS 168 is effective for interim quarterly periods beginning July 1, 2009. We do not expect the adoption of SFAS 168 to have an impact on our consolidated financial statements.

3. INVESTMENT IN AFFILIATES

CNL Joint Venture

     Summary financial data for this joint venture is as follows:

		June 30,				December 31,
		2009				2008
Balance sheet data:
Total assets		$	101,940			$	104,712
Total liabilities		$	70,919			$	69,612

		For the three months ended								For the six months ended
		June 30,								June 30,
		2009				2008				2009				2008
Operating data:
Revenue		$	7,041			$	7,006			$	14,650			$	16,368
Operating expenses		$	(9,592	)		$	(10,307	)		$	(19,830	)		$	(21,185	)
Net loss		$	(2,551	)		$	(3,301	)		$	(5,180	)		$	(4,817	)

     We have a receivable from the joint venture of $2,211 and $1,465 that relates primarily to license fees as of June 30, 2009 and December 31, 2008, respectively. At June 30, 2009 and December 31, 2008, we have reserved $1,638 and $1,201, respectively, against this receivable. We have a payable to the joint venture of $1,484 and $1,225 as of June 30, 2009 and December 31, 2008, respectively.

     In April 2009, we signed an agreement to sell our 30.26% joint venture interest to CNL. The sale is contingent upon, among other things, receiving consent from the lender in the joint venture’s two properties. We expect to close the sale during the third quarter of 2009.

Grand Mound Joint Venture

     Summary financial data for this joint venture is as follows:

		June 30,				December 31,
		2009				2008
Balance sheet data:
Total assets		$	150,043			$	152,215
Total liabilities		$	116,651			$	118,636

		For the three months ended								For the six months ended
		June 30,								June 30,
		2009				2008				2009				2008
Operating data:
Revenue		$	10,156			$	11,383			$	20,133			$	13,291
Operating expenses		$	(8,718	)		$	(9,610	)		$	(17,302	)		$	(14,282	)
Net loss		$	(22	)		$	(15	)		$	(186	)		$	(3,634	)

     We have a receivable from the joint venture of $1,779 and $661 that relates primarily to accrued preferred equity returns as of June 30, 2009 and December 31, 2008, respectively. We have a payable to the joint venture of $581 as of December 31, 2008; there is no similar payable as of June 30, 2009.

4. SHARE-BASED COMPENSATION

          We account for share-based compensation in accordance with SFAS 123(R), “Share-Based Payment.” We recognized share-based compensation expense of $435, and $469, net of estimated forfeitures, for the three and six months ended June 30, 2009, respectively. The total income tax benefit recognized related to share-based compensation was $174 and $187 for the three and six months ended June 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 June 30, 2009, total unrecognized compensation cost related to share-based compensation awards was $2,464, which we expect to recognize over a weighted average period of approximately 3.2 years.

          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 June 30, 2009, there were 1,104,519 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 $7 and $14 for the three and six months ended June 30, 2009, respectively. There were no stock options granted during the three and six months ended June 30, 2009 or 2008. We recorded stock option expense of $34 and $96 for the three and six months ended June 30, 2008, respectively.

A summary of stock option activity during the six months ended June 30, 2009, is:

						Weighted
						Average
						Exercise				Weighted Average Remaining
		Shares				Price				Contractual Life
Number of shares under option:
Outstanding at beginning of period			475,000			$	17.59
Granted			—
Exercised			—
Forfeited			(9,000	)		$	17.00
Outstanding at end of period			466,000			$	17.60			5.59 years
Exercisable at end of period			461,000			$	17.65			5.50 years

There was no intrinsic value of our outstanding or exercisable stock options at June 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 six months ended June 30, 2009 and 2008, respectively. We recorded share-based compensation expense of $82 and $204 for the three and six months ended June 30, 2009, respectively, related to these grants. We recorded negative share-based compensation expense of $140 and $32 for the three and six months ended June 30, 2008, respectively. Included in the 2008 amounts were reversals of expense related to the resignation of a senior officer in May 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 stock’s performance in 2009 relative to a stock index, as designated by the Compensation Committee of the Board of Directors. These shares vest ratably over a three-year period, 2009-2011. The per share fair value of these market condition shares was $1.26 as of the grant date.
			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 stock’s performance in 2008 relative to a stock index, as designated by the Compensation Committee of the Board of Directors. These shares vest ratably over a three-year period, 2008-2010. The per share fair value of these market condition shares was $1.63 as of the grant date.
			The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			2.05	%
Expected stock price volatility			34.98	%
Expected stock price volatility (small-cap stock index)			20.08	%

			We used an expected dividend yield of 0% as we did not pay a dividend and did not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the one-year T-bill rate. Our expected stock price volatility was estimated using daily returns data of our stock for a two-year period ending on the grant date. The expected stock price volatility for the small cap stock index was estimated using daily returns data for a two-year period ending on the grant date. Due to resignation of a senior officer in May 2008, 55,046 shares were forfeited.
			The market condition for these shares was not met and therefore no shares related to this grant were issued.

Of the 2007 market condition shares awards granted:

	•		81,293 were based on our common stock’s absolute performance during the three-year period 2007-2009. For shares that are earned, half of the shares vest on December 31, 2009, and the other half vest on December 31, 2010. The per share fair value of these market condition shares was $6.65.
			The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			4.73	%
Expected stock price volatility			42.13	%

			We used an expected dividend yield of 0% as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the four-year T-bill rate. Our expected stock price volatility was estimated using daily returns data of our stock for a two-year period ending on the grant date. Due to the resignation of two senior officers in 2008, 58,628 shares were forfeited.
	•		81,293 were based on our common stock’s performance in 2007-2010 relative to a stock index, as designated by the Compensation Committee of the Board of Directors. For shares that are earned, half of the shares vest on December 31, 2009, and the other half vest on December 31, 2010. The per share fair value of these market condition shares was $8.24.
			The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			4.73	%

Expected stock price volatility			42.13	%
Expected stock price volatility (small-cap stock index)			16.64	%

We used an expected dividend yield of 0% as we did not pay a dividend and did not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the four-year T-bill rate. Our expected stock price volatility was estimated using daily returns data of our stock for a two-year period ending on the grant date. The expected stock price volatility for the small cap stock index was estimated using daily returns data for a two-year period ending on the grant date. Due to the resignation of two senior officers in 2008, 58,628 shares were forfeited.

Performance Share Awards

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 six months ended June 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 six months ended June 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 $92 for the three and six months ended June 30, 2009, respectively. We recorded share-based compensation expense of ($41) and $4 for the three and six months ended June 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 May 2008, as the service condition of these shares was not met.

          Based on our 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 six months ended June 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 deferred compensation plan. To satisfy this obligation, we contributed 129,412 shares of our common stock to the trust that holds the assets to pay obligations under our deferred compensation plan. The fair value of that stock at the date of contribution was $2,200. In accordance with the provisions of EITF 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested,” 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, as prescribed by EITF 97-14, we account for the change in fair value of the shares held in the trust as a charge to compensation cost. We recorded negative share-based compensation expense of $3 and $352, for the three and six months ended June 30, 2009, respectively, related to these grants. We recorded negative share-based compensation of $260 and $704, for the three and six months ended June 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 six months ended June 30, 2009 is as follows:

						Weighted Average
						Grant Date Fair
		Shares				Value
Non-vested shares balance at beginning of period			300,249			$	9.29
Granted			331,179			$	2.88
Forfeited			(27,367	)		$	7.25
Vested			(78,523	)		$	9.62
Non-vested shares balance at end of period			525,538			$	5.31

          Our non-vested shares had no intrinsic value at June 30, 2009.

          We recorded share-based expense of $249 and $459 for the three and six months ended June 30, 2009, respectively, related to these shares. We recorded share-based expense of $179 and $444 for the three and six months ended June 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.

     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 $54 for the three and six months ended June 30, 2009, related to these elections to receive shares in lieu of cash. We issued 22,286 shares in the three and six months ended June 30, 2009. We recorded non-cash professional fees expense of $235 and $292 for the three and six months ended June 30, 2008, respectively, related to these elections to receive shares in lieu of cash. We issued 45,704 and 52,224 shares in the three and six months ended June 30, 2008, respectively.

5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

		June 30,				December 31,
		2009				2008
Land and improvements		$	60,718			$	51,684
Building and improvements			445,626				353,537
Furniture, fixtures and equipment			361,641				315,577
Construction in process			480				117,063

		June 30,				December 31,
		2009				2008
			868,465				837,861
Less accumulated depreciation			(145,526	)			(121,688	)
Property and equipment, net		$	722,939			$	716,173

Depreciation expense was $12,975 and $11,216 for the three months ended June 30, 2009 and 2008, respectively. Depreciation expense was $24,480 and $21,809 for the six months ended June 20, 2009 and 2008, respectively.

6. LONG-TERM DEBT

     Long-term debt consists of the following:

		June 30,				December 31,
		2009				2008
Long-Term Debt:
Traverse City/Kansas City mortgage loan		$	69,498			$	70,211
Mason mortgage loan			75,800				76,800
Pocono Mountains mortgage loan			96,015				96,571
Williamsburg mortgage loan			63,875				64,625
Grapevine mortgage loan			78,709				78,709
Concord construction loan			77,571				27,594
Junior subordinated debentures			80,545				80,545
Other Debt:
City of Sheboygan bonds			8,510				8,493
City of Sheboygan loan			3,396				3,503
Other			93				—
			554,012				507,051
Less current portion of long-term debt			(81,964	)			(81,464	)
Total long-term debt		$	472,048			$	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 June 30, 2009.

     Mason Mortgage Loan — This loan is secured by our Mason resort. The loan bears interest at a floating rate of 30-day LIBOR plus a spread of 425 basis points, with a minimum rate of 6.50% per annum (effective rate of 6.50% as of June 30, 2009). The loan initially matured in November 30, 2008. On January 23, 2009, the maturity date was extended to November 30, 2009. We incurred loan fees related to the extension of this loan. This loan has customary financial and operating debt compliance covenants associated with an individual mortgaged property, including a minimum consolidated tangible net worth provision. In addition, we have provided the Mason mortgage loan lenders with a $15,000 corporate guaranty and cross-collateralization on our Grapevine resort. The corporate guaranty and cross-collateralization on the Grapevine property will remain in place until we make a $15,000 principal reduction of the Mason loan over the remaining term of the loan. Should there be certain liquidity-producing events, including the sale of majority-owned equity interest in any of our existing properties or the refinance of a mortgage loan on an existing property, we will be required to use 50 percent of the net proceeds toward the $15,000 mandatory principal reduction. We were in compliance with all covenants under this loan at June 30, 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 June 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 June 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 June 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 loan’s maturity date. Therefore, we executed an interest rate cap in the amount of $522 that will cap the loan at 8% interest through the loan’s maturity date. This interest rate cap was designated as an ineffective cash flow hedge and we are amortizing the cost of the hedge to expense over the life of the interest rate cap.

     Grapevine Mortgage Loan — This loan is secured by our Grapevine resort. The loan bears interest at a floating rate of 30-day LIBOR plus a spread of 260 basis points (effective rate of 2.92% as of June 30, 2009). In April 2009, we notified the lender of our election to exercise an extension option which extended the loan’s maturity date to July 2010 for a fee of $197. The loan also has an additional one-year extension available at our option, provided that the property meets an operating performance threshold. The loan is interest-only during its initial three-year term and then is subject to a 25-year amortization schedule in the extension periods. This loan has customary financial and operating debt compliance covenants associated with an individual mortgaged property, including a minimum consolidated tangible net worth provision. The loan has no restrictions or fees associated with the repayment of the loan principal. We were in compliance with all covenants under this loan at June 30, 2009.

     In December 2007, we entered into an interest rate cap that hedged our entire Grapevine loan in accordance with our original loan document. This interest rate cap matured in July 2009 and fixed the maximum annual interest rate on this loan at 10%.

     Concord Construction Loan — In April 2008 we closed on a $63,940 construction loan to fund a portion of the total costs of our Great Wolf Lodge resort under construction in Concord. The four-year loan was potentially expandable to a maximum principal amount of up to $79,900. The loan bears interest at a floating annual rate of LIBOR plus a spread of 310 basis points, with a minimum rate of 6.50% per annum (effective rate of 6.50% as of June 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 June 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 I’s 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 Trust’s common securities, representing 3% of the total capitalization of Trust III.

     Trust III used the proceeds of the offering and our investment to purchase from us $28,995 of our junior subordinated debentures with payment terms that mirror the distribution terms of the trust securities. The costs of the TPS offering totaled $932, including $870 of underwriting commissions and expenses and $62 of costs incurred directly by Trust III. Trust III paid these costs utilizing an investment from us. These costs are being amortized over a 10-year period. The proceeds from our debenture sales, net of the costs of the TPS offering and our investment in Trust III, were $27,193. We used the net proceeds for development costs.

     As a result of the issuance of FIN No. 46R, “Consolidation of Variable Interest Entities” and the accounting profession’s application of the guidance provided by the FASB, issue trusts, like Trust I and Trust III (collectively, the Trusts), are generally variable interest entities. We have determined that we are not the primary beneficiary under the Trusts, and accordingly we do not include the financial statements of the Trusts in our consolidated financial statements.

     Based on the foregoing accounting authority, our consolidated financial statements present the debentures issued to the Trusts as long-term debt. Our investments in the Trusts are accounted as cost investments and are included in other assets on our consolidated balance sheet. For financial reporting purposes, we record interest expense on the corresponding debentures in our condensed consolidated statements of operations.

     City of Sheboygan Bonds — The City of Sheboygan (the City) bonds represent the face amount of bond anticipation notes (BANs) issued by the City in November 2003 in conjunction with the construction of the Blue Harbor Resort in Sheboygan, Wisconsin. In accordance with the provisions of EITF 91-10, we have recognized as a liability the obligations for the BANs. We have an obligation to fund certain minimum guaranteed amounts of room tax payments to be made by the Blue Harbor Resort through 2028, which obligation is indirectly related to the payments by the City on the BANs.

     City of Sheboygan Loan — The City of Sheboygan loan amount represents a loan made by the City in 2004 in conjunction with the construction of the Blue Harbor Resort in Sheboygan, Wisconsin. The loan is noninterest bearing and matures in 2018. Our obligation to repay the loan will be satisfied by certain minimum guaranteed amounts of real and personal property tax payments to be made by the Blue Harbor Resort through 2018.

     Future Maturities — Future principal requirements on long-term debt are as follows:

Through
June 30,
2010		$	81,964
2011			8,894
2012			214,363
2013			3,538
2014			3,818
Thereafter			241,435
Total		$	554,012

7. COMPREHENSIVE INCOME

     SFAS 130, “Reporting Comprehensive Income,” requires the disclosure of the components included in comprehensive income. For the three and six months ended June 30, 2008, we recorded comprehensive (loss)/income, net of tax of approximately $(356) and $51, related to unrealized (gain)/ loss on our interest rate swap. We had no similar amount for the three and six months ended June 30, 2009.

8. 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.

     The trust that holds the assets to pay obligations under our deferred compensation plan has 11,765 shares of our common stock. In accordance with the provisions of EITF 97-14, 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 466,000 shares of common stock were not included in the computations of diluted earnings per share for the three and six months ended June 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 six months ended June 30, 2009, because the market and/or performance criteria related to these shares had not been met at June 30, 2009.

     Basic and diluted earnings per common share are as follows:

		Three months ended								Six months ended
		June 30,								June 30,
		2009				2008				2009				2008
Net loss		$	(5,706	)		$	(4,090	)		$	(11,351	)		$	(6,417	)
Weighted average common shares outstanding — basic			31,263,487				30,875,615				31,123,072				30,770,388
Weighted average common shares outstanding — diluted			31,263,487				30,875,615				31,123,072				30,770,388
Net loss per share — basic		$	(0.18	)		$	(0.13	)		$	(0.36	)		$	(0.21	)
Net loss per share — diluted		$	(0.18	)		$	(0.13	)		$	(0.36	)		$	(0.21	)

9. SUBSEQUENT EVENTS

On July 31, 2009, we executed amendments to our Mason and Grapevine mortgage loans that provide for the following:

	•		The maturity date of each loan is extended to July 1, 2011.
	•		Required principal paydowns on the Mason loan are set at $1,000 each quarter in 2009, and $2,000 each quarter in 2010 and 2011.
	•		Required principal paydowns on the Grapevine loan are set at $800 each quarter in 2009, 2010 and 2011.
	•		We have provided the Mason mortgage loan 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 (in addition to the quarterly

required principal payments, as described above) over the remaining term of the loan. Should there be certain liquidity-producing events, including the sale of an equity interest in any of our majority-owned resorts or the refinance of a mortgage loan on an existing property, we will be required to use 50 percent of the net proceeds toward the $30,000 mandatory principal reduction.

	•		Payment quarterly of a variable fee of 0.25% of the principal balance outstanding on the Mason mortgage.
	•		The interest rate on the Grapevine loan is adjusted to a floating rate of LIBOR plus a spread of 400 basis points, with a minimum rate of 7.00% per annum.
	•		The interest rate on the Mason loan is maintained at a floating rate of LIBOR plus a spread of 425 basis points, with a minimum rate of 6.50% per annum.

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in Item 1 of our Annual Report on Form 10-K entitled, “Forward-Looking Statements.” All dollar amounts in this discussion, except for per share data and operating statistics, are in thousands.

Overview

     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 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 June 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				Opened/				Number of				Number of				Entertainment
		Percentage				Opening				Guest Suites				Condo Units (1)				Area (2)
																		(Approx. ft2)
Wisconsin Dells, WI (3)			30.26	%			1997				308				77				102,000
Sandusky, OH (3)			30.26	%			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 (7)			100	%		March 2009					402				—				97,000

     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 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 develop and operate family entertainment resorts featuring indoor waterparks in our selected target markets; focus on development and strategic growth opportunities by seeking to develop additional resorts 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 second quarter of 2009 as consumers experienced several negative economic impacts, including:

	•		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.

     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.
	•		Our Wisconsin Dells property has been significantly impacted by the abundance of competing indoor waterpark resorts in that market. The Wisconsin Dells market has approximately 16 indoor waterpark resorts that compete with us. We believe this large number of competing properties in a relatively small tourist destination location has and will likely continue to have an impact on the operating performance of our Wisconsin Dells resort.
	•		We have experienced much lower-than-expected occupancy and lower-than-expected average daily room rates at our Sheboygan, Wisconsin property since its opening in 2004. We believe this operating weakness has been primarily attributable to the fact that the overall development of Sheboygan as a tourist destination continues to lag 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.
	•		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.

          Our external growth strategies are based primarily on developing additional indoor waterpark resorts (in conjunction with joint venture partners) or by licensing our intellectual property and proprietary systems to others. Developing resorts of the size and scope of our family entertainment resorts generally requires obtaining financing for a significant portion of a project’s 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 to us and other investors of construction financing may be lessened in the future and that terms of construction financing may be less favorable than we have seen 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 six months ended June 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
	•		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 six months ended June 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.

     For a description of our critical accounting policies and estimates, please refer to “Critical Accounting Policies and Estimates” section of our “Management’s 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 September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The adoption of SFAS 157 in 2008 did not have an impact on our results of operations or financial position. Effective January 1, 2009, SFAS 157 requires disclosure for non-financial assets and liabilities that are not measured or disclosed on a recurring basis. Our long-lived assets held for use are subject to nonrecurring measurement when certain triggering events occur. At June 30, 2009, no fair value measurements were required.

     In April 2009, the FASB issued FASB Staff Position (FSP) SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP 157-4). FSP 157-4 provides guidance regarding how to determine whether there has been a significant decrease in the volume and level of activity for the 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. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The adoption of this FSP did not have a material impact on our consolidated financial statements.

     In December 2007, the FASB issued SFAS 141 (Revised 2007), “Business Combinations.” SFAS 141(R) significantly changes the accounting for business combinations. Under SFAS 141(R), an acquiring entity is required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141(R) also includes a substantial number of new disclosure requirements. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of SFAS 141(R) did not have a material impact on our consolidated financial statements.

     In December 2007, the FASB issued SFAS 160, “Non-controlling Interests in Consolidated Financial Statements-an Amendment of Accounting Research Bulletin No. 51.” SFAS 160 establishes new accounting and reporting standards for a non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a non-controlling interest (minority interest) as equity in the consolidated financial statements separate from the parent’s equity. The amount of the net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The adoption of SFAS 160 did not have a material impact on our consolidated financial statements.

     In April 2008, the FASB issued FSP SFAS 142-3, “Determination of the Useful Life of Intangible Assets” (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible Assets.” FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The adoption of FSP 142-3 did not have a material impact on our consolidated financial statements.

     In November 2008, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 08-6, “Equity Method Investment Accounting Considerations” (EITF 08-6). EITF 08-6 clarifies the accounting for certain transactions and impairment considerations involving equity method investments. EITF 08-6 is effective for fiscal years beginning after December 15, 2008. The adoption of this EITF did not have a material impact on our consolidated financial statements.

     In April 2009, the FASB issued FSP SFAS 107-1, “Interim Disclosures about Fair Value of Financial Instruments, an amendment of FASB Statement No. 107” (FSP 107-1). FSP 107-1 requires disclosures about fair value of financial instruments in interim financial information for periods ending after June 15, 2009. The adoption of this FSP did not have a material impact on our consolidated financial statements.

     In May 2009, the FASB issued SFAS 165, “Subsequent Events.” SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The adoption of SFAS 165 did not impact our financial position or results of operations. In connection with preparation of

the condensed consolidated interim financial statements we evaluated subsequent events after the balance sheet date of June 30, 2009 through August 4, 2009.

     In June 2009, the FASB issued SFAS 167, “Amendments to FASB Interpretation (“FIN”) No. 46(R),” 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 entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. SFAS 167 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 entity’s financial statements. SFAS 167 is effective for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years. We believe the adoption of SFAS 167 will not have a material impact on our consolidated financial statements.

     In June 2009, the FASB issued SFAS 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162.” SFAS 168 will become the source of authoritative United States Generally Accepted Accounting Principles (GAAP) to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification will supersede all non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. SFAS 168 is effective for interim quarterly periods beginning July 1, 2009. We do not expect the adoption of SFAS 168 to have an impact on our consolidated financial statements.

Non-GAAP Financial Measures

We use EBITDA as a measure of our operating performance. EBITDA is a supplemental non-GAAP financial measure. EBITDA is commonly defined as net income plus (a) net interest expense; (b) income taxes; and (c) depreciation and amortization.

     EBITDA as calculated by us is not necessarily comparable to similarly titled measures presented by other companies. In addition, EBITDA (a) does not represent net income or cash flows from operations as defined by GAAP; (b) is not necessarily indicative of cash available to fund our cash flow needs; and (c) should not be considered as an alternative to net income, operating income, cash flows from operating activities or our other financial information as determined under GAAP.

     We believe EBITDA is useful to an investor in evaluating our operating performance because:

	•		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.

		Three months ended								Six months ended
		June 30,								June 30,
		2009				2008				2009				2008
Net loss		$	(5,706	)		$	(4,090	)		$	(11,351	)		$	(6,417	)
Adjustments:
Interest expense, net of interest income			8,629				6,475				14,708				12,892
Income tax benefit			(3,966	)			(2,410	)			(7,523	)			(4,115	)
Depreciation and amortization			14,630				11,741				27,216				22,760
EBITDA		$	13,587			$	11,716			$	23,050			$	25,120

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 three 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. Emerging Issues Task Force, or EITF, Issue No. 01-14, “Income Statement Characteristics of Reimbursements for Out-of-Pocket Expenses” (EITF 01-14), establishes standards for accounting for reimbursable expenses in our statements of operations. Under this pronouncement, the reimbursement of payroll, benefits and costs is recorded as revenue on our statements of operations, with a corresponding expense recorded as “other expenses from managed properties.”

     Operating Expenses. Our departmental operating expenses consist of rooms, food and beverage and other department expenses.

     Our other operating expenses include the following items:

	•		selling, general and administrative expenses, which are associated with the operations and management of resorts and which consist primarily of expenses such as corporate payroll and related benefits, operations management, sales and marketing, finance, legal, information technology support, human resources and other support services, as well as general corporate expenses;
	•		property operation and maintenance expenses, such as utility costs and property taxes;
	•		depreciation and amortization; and
	•		other expenses from managed properties, which are recorded as an expense in accordance with EITF 01-14.

Three months ended June 30, 2009, compared with the three months ended June 30, 2008

The following table shows key operating statistics for our resorts for the three months ended June 30, 2009 and 2008:

		All Properties (a)
		Three months				Three months
		ended				ended				Decrease
		June 30, 2009				June 30, 2008				$				%
Occupancy			61.5	%			67.2	%			N/A				(8.5	)%
ADR		$	231.29			$	235.31			$	(4.02	)			(1.7	)%
RevPAR		$	142.36			$	158.09			$	(15.73	)			(10.0	)%
Total RevPOR		$	360.23			$	366.41			$	(6.18	)			(1.7	)%
Total RevPAR		$	221.72			$	246.17			$	(24.45	)			(9.9	)%

		Same Store Comparison (b)
		Three months				Three months
		ended				ended				Decrease
		June 30, 2009				June 30, 2008				$				%
Occupancy			61.7	%			66	.2%			N/A				(6.8	)%
ADR		$	226.99			$	230.	89		$	(3.90	)			(1.7	)%
RevPAR		$	139.95			$	152.	93		$	(12.98	)			(8.5	)%
Total RevPOR		$	353.08			$	358.	89		$	(5.81	)			(1.6	)%
Total RevPAR		$	217.69			$	237.	71		$	(20.02	)			(8.4	)%

     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.

     Presented below are selected amounts from the statements of operations for the three months ended June 30, 2009 and 2008:

		Three months ended
		June 30,
										Increase/
		2009				2008				(Decrease)
Revenues		$	68,625			$	63,018			$	5,607
Operating expenses:
Departmental operating expenses			23,237				20,879				2,358
Selling, general and administrative			16,987				16,694				293
Property operating costs			9,114				8,085				1,029
Depreciation and amortization			14,630				11,741				2,889
Net operating (loss) income			(581	)			51				(632	)
Interest expense, net of interest income			8,629				6,475				2,154
Income tax benefit			(3,635	)			(2,232	)			(1,403	)
Net loss			(5,706	)			(4,090	)			(1,616	)