Share-Based Compensation

6 Months Ended

Jun. 30, 2011

Share-Based Compensation [Abstract]

SHARE-BASED COMPENSATION

6. SHARE-BASED COMPENSATION

     We recognized share-based compensation expense of $547 and $1,130, net of estimated forfeitures, for the three and six months ended June 30, 2011, respectively. The total income tax expense recognized related to share-based compensation was $12 and $25 for the three and six months ended June 30, 2011, respectively.

     We recognized share-based compensation expense of $516 and $1,061, net of estimated forfeitures, for the three and six months ended June 30, 2010, respectively. The total income tax expense recognized related to share-based compensation was $9 and $19 for the three and six months ended June 30, 2010, 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, 2011, total unrecognized compensation cost related to share-based compensation awards was $2,542, which we expect to recognize over a weighted average period of approximately 2.8 years.

     The Great Wolf Resorts 2004 Incentive Stock Plan (the Plan) authorizes us to grant up to 3,380,740 options, stock appreciation rights or shares of our common stock to employees and directors. At June 30, 2011, there were 325,896 shares available for future grants under the Plan.

     We anticipate having to issue new shares of our common stock for stock option exercises.

Stock Options

     We have granted non-qualified stock options to purchase our common stock under the Plan at prices equal to the fair market value of the common stock on the grant dates. The exercise price for 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 no stock option expense for the three and six months ended June 30, 2011 or 2010. There were no stock options granted during the three and six months ended June 30, 2011 or 2010. During the six months ended June 30, 2011, certain employees surrendered and cancelled 5,500 previously granted stock options.

     A summary of stock option activity during the six months ended June 30, 2011 is:

						Weighted
				Weighted		Average
				Average		Remaining
				Exercise		Contractual
	Shares			Price		Life
Number of shares under option:
Outstanding at beginning of period		36,000		$	19.03	4.15 years
Exercised		—
Forfeited		(5,500	)	$	18.17
Outstanding at end of period		30,500		$	19.19	3.68 years
Exercisable at end of period		30,500		$	19.19	3.68 years

     At June 30, 2011 and 2010, the exercise prices of all of our outstanding and exercisable stock options were above our stock price. Therefore, there was no intrinsic value for our outstanding and exercisable stock options at June 30, 2011 or 2010.

Market Condition Share Awards

     Certain employees are eligible to receive shares of our common stock in payment of market condition share awards granted to them in accordance with the terms thereof.

     We granted 444,002 and 515,986 market condition share awards during the six months ended June 30, 2011 and 2010, respectively. We recorded share-based compensation expense of $183 and $388 for the three and six months ended June 30, 2011, respectively. We recorded share-based compensation expense of $178 and $387 for the three and six months ended June 30, 2010, respectively.

     Of the 2011 market condition shares granted:

• 277,894 were based on our common stock’s performance in 2011 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, 2011-2013. The per share fair value of these market condition shares was $2.35 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	0.25	%
Expected stock price volatility	64.73	%
Expected stock price volatility (small-cap stock index)	29.39	%

     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 10.6-month treasury constant maturity. Our expected stock price volatility and the expected stock price volatility for the small cap stock index was estimated using daily returns data of our stock and the index for the period February 11, 2009 through February 10, 2011.

• 83,054 were based on our common stock’s absolute performance during the three-year period 2010-2012. For shares that are earned, half of the shares vest on December 31, 2012, and the other half vest on December 31, 2013. The per share fair value of these market condition shares was $2.15 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	0.58	%
Expected stock price volatility	64.73	%

     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 1.89-year treasury constant maturity. Our expected stock price volatility was estimated using daily returns data of our stock for the period February 11, 2009 through February 10, 2011.

• 83,054 were based on our common stock’s performance in 2010-2012 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, 2012, and the other half vest on December 31, 2013. The per share fair value of these market condition shares was $2.19 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	0.58	%
Expected stock price volatility	64.73	%
Expected stock price volatility (small-cap stock index)	29.39	%

     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 1.89-year treasury constant maturity. Our expected stock price volatility and the expected stock price volatility for the small cap stock index was estimated using daily returns data of our stock and the index for the period February 11, 2009 through February 10, 2011.

Of the 2010 market condition shares granted:

• 333,060 were based on our common stock’s performance in 2010 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, 2010-2012. The per share fair value of these market condition shares was $2.43 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	0.26	%
Expected stock price volatility	108.06	%
Expected stock price volatility (small-cap stock index)	40.92	%

     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 9-month treasury constant maturity. 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.

     The market condition for these shares was not met and therefore no shares related to this grant were issued.

• 91,463 were based on our common stock’s absolute performance during the three-year period 2010-2012. For shares that are earned, half of the shares vest on December 31, 2012, and the other half vest on December 31, 2013. The per share fair value of these market condition shares was $2.53 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	1.27	%
Expected stock price volatility	95.21	%

     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 2.75-year treasury constant maturity. Our expected stock price volatility was estimated using daily returns data of our stock for the period June 29, 2007 through March 30, 2010.

• 91,463 were based on our common stock’s performance in 2010-2012 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, 2012, and the other half vest on December 31, 2013. The per share fair value of these market condition shares was $2.61 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	1.27	%
Expected stock price volatility	95.21	%
Expected stock price volatility (small-cap stock index)	37.51	%

     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 2.75-year treasury constant maturity. Our expected stock price volatility and the expected stock price volatility for the small cap stock index was estimated using daily returns data of our stock for the period June 29, 2007 through March 30, 2010.

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.

     Based on our common stock performance in 2009, employees earned all of these market condition shares.

Performance Share Awards

     Certain employees are eligible to receive shares of our common stock in payment of performance share awards granted to them. Grantees of performance shares are eligible to receive shares of our common stock based on the achievement of certain individual and departmental performance criteria during the calendar year in which the shares were granted. We granted 92,633 and 111,020 performance shares during the six months ended June 30, 2011 and 2010, respectively. Shares granted in 2011 vest over a three year period, 2011-2013; and shares granted in 2010 vest over a three year period, 2010-2012.

     The per share fair value of performance shares granted during the six months ended June 30, 2011 and 2010 was $3.23 and $3.18, respectively, which represents the fair value of our common stock on the grant date. We recorded share-based compensation expense of $71 and $142 for the three and six months ended June 30, 2011, respectively. We recorded share-based compensation expense of $61 and $122 for the three and six months ended June 30, 2010, respectively. Since all shares originally granted were not earned, we recorded a reduction in expense of $16 and $9 during the six months ended June 30, 2011 and 2010, respectively, related to the shares not issued.

     Based on their achievement of certain individual and departmental performance goals:

• Employees earned and were issued 96,305 performance shares in February 2011 related to the 2010 grants and

• Employees earned and were issued 162,559 performance shares in March 2010 related to 2009 grants.

Deferred Compensation Awards

     Pursuant to their employment arrangements, certain executives received bonuses upon completion of our initial public offering. 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. We have recorded the fair value of the shares of common stock, at the date the shares were contributed to the trust, as a reduction of our stockholders’ equity. In 2008, one of the executives who had deferred a bonus payment resigned from our company. As a result, we have reclassified $2,000 previously recorded as deferred compensation to additional paid-in-capital.

     We account for the change in fair value of the shares held in the trust as a charge to compensation cost. We recorded share-based compensation expense of $11 and $5, for the three and six months ended June 30, 2011, respectively. We recorded negative share-based compensation expense of $13 and $3, for the three and six months ended June 30, 2010, respectively.

Non-vested Shares

     We have granted non-vested shares as follows:

• We have granted non-vested shares to certain employees and our directors. These shares vest over time periods between three and five years. We valued these non-vested shares at the closing market value of our common stock on the date of grant.

• We have granted non-vested shares to certain employees for shares earned under the Market Condition Share Awards as described above. These shares vest ratably over a three-year period. We valued the non-vested shares related to Market Condition Shares using a Monte Carlo simulation as described above.

• We have granted non-vested shares to certain employees for shares earned under the Performance Share Awards as described above. These shares vest ratably over a three-year period. We valued the non-vested shares related to Performance Share Awards at the closing market value of our common stock on the date of grant of the Performance Share Awards.

     A summary of non-vested shares activity for the six months ended June 30, 2011 is as follows:

				Weighted
				Average
				Grant Date
	Shares			Fair Value
Non-vested shares balance at beginning of period		1,163,379		$	3.12
Granted		292,365		$	2.41
Forfeited		(42,000	)	$	4.67
Vested		(230,057	)	$	3.65
Non-vested shares balance at end of period		1,183,687	)	$	3.11

     We recorded share-based compensation expense related to non-vested shares of $260 and $588 for the three and six months ended June 30, 2011, respectively. We recorded share-based compensation expense related to non-vested shares of $290 and $544 for the three and six ended June 30, 2010, respectively.

     Our non-vested shares had an intrinsic value of $631 and $353 at June 30, 2011 and 2010, respectively.

     Vested Shares

     We have an annual short-term incentive plan for certain employees, in which they are provided the potential to earn cash bonus payments. In 2010 and 2009, certain of these employees had the option to elect to have some or all of their annual bonus compensation paid in the form of shares of our common stock rather than cash. Employees making this election received shares having a market value equal to 125% of the cash they would otherwise receive. Shares issued in lieu of cash bonus payments are fully vested upon issuance.

• In connection with the elections related to 2010 bonus amounts, we issued 33,545 shares in February 2011. We valued these shares at $96 based on the closing market value of our common stock on the date of the grant.

• There were no shares issued in the six months ended June 30, 2010 related to 2009 bonus amounts.

     In 2011 and 2010, 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 received shares having a market value equal to 125% of the cash they would otherwise receive. Shares issued in lieu of cash fee payments are fully vested upon issuance. We recorded non-cash professional fees expense of $22 for the six months ended June 30, 2011, related to these elections to receive shares in lieu of cash. We recorded non-cash professional fees expense of $20 for the six months ended June 30, 2010, related to these elections to receive shares in lieu of cash. We issued 10,118 and 7,574 shares in the six months ended June 30, 2011 and 2010, respectively, related these elections.