Organizational Analysis

PRT 503

Kira C. Stewart

Fall, 2010

Table of Contents

Executive Summary…………………………………………………………………………………………………………………………………3

Company Profile & Mission Statement……………………………………………………………………………………………………4

Economic Issues………………………………………………………………………………………………………………………………………5

Revenue & Expenditure Summary………………………………………………………………………………………………………….6

Quarterly………………………………………………………………………………………………6

Yearly……………………………………………………………………………………………………7

Assets & Liabilities Summary………………………………………………………………………………………………………………...8

Quarterly………………………………………………………………………………………………8

Yearly……………………………………………………………………………………………………9

Financial Analysis and Ratios……………………………………………………………………………………………………………..…10

Current Ratio……………………………………………………………………………………….10

Total Debt Ratio…………………………………………………………………………………..10

Receivable Turnover & Days’ Sales in Receivables………………………………11

Profit Margin……………………………………………………………………………………….11

Future Trends……………………………………………………………………………………………………………………………………..12

Appendix………………………………………………………………………………………………………………………………………………..

Annual Balance Sheet…………………………………………………………………………13

Quarterly Balance Sheet…………………………………………………………………….14

Annual Cash Flow……………………………………………………………………………….15

Quarterly Cash Flow.……………………………………………………………………….…16

Annual Income Statement…………………………………………………………………17

Quarterly Income Statement…………………………………………………………….18

References………………………………………………………………………………………..19

Executive Summary

Great Wolf Lodge has struggled over the past three years, ending 2009 with a profit margin -22.1%, it’s lowest profit margin in that three year period. In some ways, they are the victim of bad timing. The success of their first endeavors in the late 1990s and early 2000s encouraged them to move ahead with new construction, building facilities at an average of one per year across the country during the first decade of the 20th century. They took on high levels of debt to finance these new construction projects. Unfortunately, an economic recession in the late 2000s caused lower revenues than projected for these new facilities and severe financial distress for the original facilities. This combination of factors has caused them to incur much higher levels of liabilities than their levels of assets.

Over the last four quarters, Great Wolf Lodge has started to see a stabilization in their financees. Their revenues versus expenditures in the last four quarters were near equal to each other, a big improvement from the previous three years. Their liabilities, however, continue to out pace their assets.

In moving ahead, Great Wolf Lodge is exploring alternative, less financially risky methods of operating, including joint ventures and acting as a operator rather than an owner of new facilities. They have demonstrated a commitment to all of their facilities and continue to believe in their brand of family vacation of a viable, cost-effective alternative in current economic times and beyond. By staying true to what has been successful for them – their brand – while exploring alternatives to owning and operating new facilites, I believe that Great Wolf Lodge will be able to stay afloat and continue to operate, and will see measures of success in the years ahead.

Company Profile

The first Great Wolf Lodge opened in 1997 in Wisconsin Dells, Wisconsin. The concept was to provide a self-contained vacation experience; family recreational activities with quality lodging accomodations under one roof. The first Great Wolf Lodge provided a hotel and a complete indoor waterpark. It quickly became a popular vacation spot and based on this success, other Great Wolf Lodges were developed in locations across the country. These locations, as of 2010, are:

Wisconsin Dells, WI (1997) Sandusky, OH (2001) Traverse City, MI (2003) Kansas City, KS (2003) Sheboygan, WI (2004) Williamsburg, VA (2005) Pocono Mountains, PA (2005) Niagara Falls, ON (2006) Mason, OH (2006) Grapevine, TX (2007) Grand Mound, WA (2008) Concord, NC (2009)

In addition, entertainment offerings beyond the waterpark were developed in subsequent Great Wolf Lodges, such as specialty restaurants, spas, arcades, and children’s activity areas.

Great Wolf Lodge’s mission statement is “Creating Family Traditions, One Family At A Time.”

To support their mission statement, they have developed a custom training program for both licensing and hotel/waterpark management that emphasises:

Accountability and discipline; Focus on efficiency in operations and on an optimal guest experience; and Environmental sustainability – Great Wolf Lodge is the first and only national hotel chain to be

100% Green Seal certified.

Economic Issues

The tourism industry as a whole has affected by the economic recession of recent years, and Great Wolf Lodge is no exception. In times of financial uncertainty and instability, people “tighten their belts” and focus their spending on necessities, not discretionary items. In addition, the current unemployment rate is 9.6% (www.bls.gov). With so many Americans out of work, these are people that are most likely not spending money on family vacations. In addition, even those who are in a stable job situation and are not facing unemployment are finding that they have less discretionary income available. This may have to do with increased mortgage payments due changing interest rates by mortgage lenders, or people that have had to try to sell their home in a poor housing market. People have lost savings due to the volatility in the stock market. People also have less credit available to them as credit card companies and banks place stricter criteria on who is able to apply for credit. However, because Great Wolf Lodge, at approximately $225 per night for lodging and waterpark entertainment for a family of four, is relatively inexpensive as a vacation option, they have not been as affected by the current economic situation as other vacation locations. In the United States, cheaper vacations become more popular (Wall Street Journal, 11/10/10). Their resorts are also close to major metropolitan areas, so they are easily accessible.

What has affected Great Wolf Lodge is the amount of debt they have taken on as they have continued to expand and add new facilities to their corporation. As noted in their company timeline, after opening their first Great Wolf Lodge in 1997, they have built continually over the past ten years, adding 7 new facilities since 2005 alone. They took on the debt of new construction, expecting to see success on the same levels as their first successful ventures, only to have to face a significant downturn in the economy, which has caused them to continue to carry a large amount of debt. The stock of Great Wolf Lodge has also dropped, from a high of $24/share in 2005 to a current price of about $2.30/share (Wall Street Journal, 11/10/10). Additionally, their first three resorts, in Wisconsin, Ohio and Michigan are performing poorly due to especially poor economic conditions in Ohio and Michigan and competing waterparks in Wisconsin.

All of these factors, both national issues and issues within their own company, are causing Great Wolf Lodge to operate under severe financial stress. While they are out-performing the hotel industry as a whole, they are weakened by their high levels of liabilities.

Revenue and Expenditure Summary

Both revenues and expenditures have gradually increased over the past year, with the exception of a slight dip over the March, 2010 to June, 2010 time period. This may be attributed to people choosing alternative vacation locations in the spring and early summer time period as the weather gets warmer. In comparing revenues with expenditures over this time period, it appears they are more or less equal to each other. While this is not an ideal scenario – companies strive to have higher revenues than expenditures – when compared to the years 2009 through 2007, it is an improvement for Great Wolf Lodge. Over that 3 year time period, while revenues did increase as new facilities came online, expenditures greatly outpaced revenues as the organization continued to invest money in new construction. All of this has left Great Wolf Lodge at a loss of tens of millions of dollars each year.

September 2010 June 2010 March 2010 December 09Revenues $81,118,000 $68,428,000 $70,679,000 $56,273,000Expenditures $81,118,993 $68,440,760 $70,687,000 $56,283,202

2009 2008 2007Revenues $264,032,000 $245,538,000 $187,580,000Expenditures $322,508,000 $286,263,000 $197,161,000

Assets and Liabilities Summary

In examining assets and liabilities, it is apparent that Great Wolf Lodge owes a great deal more than it owns. While its’ assets have increased in the past year from $40 million to over $62 million, giving the company its greatest amount of assets, it has increased its’ liabilities even more. The amount that Great Wolf Lodge has owed over the period from 2007 to present has fluctuated wildly, from highs of $124 to $141 million (2008 and present) to lows of $56 million (December 2009). The current lows may be an indication that Great Wolf Lodge has refinanced its debt at a lower interest rate. However, overall their liability growth exceeds the growth of their assets, which means that they have to borrow money to cover daily operations.

September 2010 June 2010 March 2010 December 09Assets $62,091,000 $52,208,000 $46,687,000 $40,700,000Liabilities $124,507,000 $59,817,000 $68,943,000 $56,234,000

2009 2008 2007Assets $40,700,000 $24,643,000 $32,444,000Liabilities $56,234,000 $141,966,000 $131,004,000

Financial Analysis and Ratios

Current Ratio

The Current Ratio examines assets and liabilities and measures if a company has enough in current assets to pay current debt over the next 12 months. Ideally, Current Ratio should be 2:1. As indicated in the Current Ratios below, over the last 3 years, Great Wolf has not been able to secure anything close to a 2:1 ratio. While their Current Ratio in 2009 was the highest over the 3-year period and their level of current liabilities have decreased substantially; overall, they are still carrying more liabilities than assets.

2009Current Assets / Current Liabilities = Current Ratio$40,700,000 / $56,234,000 = 0.72 times

2008Current Assets / Current Liabilities = Current Ratio$24,643,000 / $141,966,000 = 0.17 times

2007Current Assets / Current Liabilities = Current Ratio$32,444,000 / $131,004,000 = 0.25 times

Total Debt Ratio

The Total Debt Ratio measures the percentage of debt for every dollar in assets. Over the 3-year period, their total debt ratio has steadily increased. In 2007, they had $0.60 in debt for every $1.00 in assets; in 2009 they had $0.73 in debt for over $1.00 in assets.

2009Total Debt Ratio = Total Assets – Total Equity / Total Assets$805,744,000 - $214,756,000 / $805,744,000 = 0.73 times

2008Total Debt Ratio = Total Assets – Total Equity / Total Assets$840,061,000 - $271,940,000 / $840,061,000 = 0.68 times

2007Total Debt Ratio = Total Assets – Total Equity / Total Assets$770,805,000 - $310,393,000 / $770,805,000 = 0.60 times

Receivable Turnover and Days’ Sales in Receivables

Receivable Turnover is a measure of a company’s effectiveness in extending credit and collecting debts. Days’ Sales in Receivables refers to the number of days within a year that inventory sits before it is sold. Great Wolf Lodge has improved in this regard; as of 2009, it was taking only 7 days to collect on sales as opposed to 13 days in 2007.

2009Receivable Turnover = Sales / Accounts Receivable

Days’ Sales in Receivables = 365 Days / Receivables Turnover $264,032,000 / $4,806,000 = 54.94 times

365 days / 54.94 times = 7 days

2008Receivable Turnover = Sales / Accounts Receivable

Days’ Sales in Receivables = 365 Days / Receivables Turnover $245,538,000 / $3,092,000 = 79.41 times

365 days / 79.41 times = 5 days

2007Receivable Turnover = Sales / Accounts Receivable

Days’ Sales in Receivables = 365 Days / Receivables Turnover $187,580,000 / $6,346,000 = 29.56 times

365 days / 29.56 times = 13 days* all Days’ Sales in

Receivables are rounded to the next day

Profit Margin

Profit margin is an indicator of profitability; the higher the percentage, the better. Great Wolf Lodge has not had a positive profit margin over the last 3 year period. In fact, it has become increasingly negative. In 2009, Great Wolf Lodge was losing about $.22 per dollar.

2009Profit Margin = Net Income / Sales

($58,476,000) / $264,032,000 = -.221 = -22.1%

2008Profit Margin = Net Income / Sales

($40,725,000) / $245,538,000 = -.166 = -16.6%

2007Profit Margin = Net Income / Sales

($9,581,000) / $187,580,000 = -.051 = -5.1%

Future Trends

Great Wolf Lodge continues to believe in the success of their corporation and the type of vacation it provides to families. They have slowed new construction; the last new facility that they opened was in Concord, N.C. in April of 2009, and their quarterly 2010 data does show an increase in revenue and stabilization in operating income. They have also indicated a commitment to all of their current facilities, including those that are under financial stress (Great Wolf Lodge 2009 Annual Report).

In looking ahead, Great Wolf Lodge is continuing to move ahead with their brand, although in a different way. They are exploring the option of entering into partnerships for future development, working more as an operator of resorts rather than an owner-operator. In that way they will be able to expand their brand without incurring as much of the financial risk of property ownership. In January, 2010 they entered into an agreement with a real estate developer to create a Great Wolf Lodge outside of Pittsburgh, Pennsylvania as a joint venture (Great Wolf Lodge 2009 Annual Report). They also signed a license and management agreement in June, 2010 for a Great Wolf Lodge near Anaheim, California (Wall Street Journal, 11/10/10).

Another way they are expanding their brand is by taking one of the entertainment options in their resorts, the Scooops Kids Spa, and opening them as a freestanding business. The first one opened at the Mall of America in August 2010.

Although Great Wolf Lodge has had to struggle with the poor timing of a business expansion just prior to and during an overall economic downtown, they continue to move ahead. They are exploring other ways to increase revenue and their brand while capitalizing on their strengths – resort management and inclusive customer experiences. The economic forecast is also becoming more stable, which means that while spending is not at pre-recession levels, consumers are cautiously spending again. I believe these factors will ensure that Great Wolf Lodge does not go under, and that they will continue to move their company out of the red and into the black.

References

http://finance.yahoo.com/q/is?s=WOLF

www.bls.gov. Economic News Release, November 5, 2010.

“Wolf at Resorts’ Doors,” Wall Street Journal, November 10, 2010. http://online.wsj.com/article/SB10001424052748703585004575604570647228344.html

www.corp.greatwolfresorts.com, Company Overview

www.sec.g ov , Great Wolf Lodge 10Q,filed November 4, 2010.