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  **UNITED STATES SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549** **Form 10-K**    (Mark One)  **þ** **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE    SECURITIES EXCHANGE ACT OF 1934**  **For the fiscal period ended December 31, 2004****OR** **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 issuer as specified in its charter)*   **Delaware** **51-0510250***(State or other jurisdiction of* *(I.R.S. Employer**incorporation or organization)* *Identification No.)* **122 West Washington Avenue** **53703****Madison, Wisconsin 53703** *(Zip Code)**(Address of principal executive offices)*  **Registrant’s telephone number, including area code****608 661-4700****Securities registered pursuant to Section 12(b) of theAct:****None****Securities registered pursuant to Section 12(g) of theAct:**   **Title of Each Class** **Name of Exchange on Which Registered**       Common Stock, par value $0.01 per share     Nasdaq National Market     Indicate by check mark whether the registrant (1) has filedall reports required to be filed by section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has beensubject to such filing requirements for the past90 days.     Yes þ          No o     Indicate by check mark if disclosure of delinquent filerspursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best ofregistrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.     þ     Indicate by check mark whether the registrant is an acceleratedfiler (as defined in Rule 12b-2 of the ExchangeAct).     Yes o          No þ     As of March 16, 2005, the aggregate market value of thevoting and non-voting stock held by non-affiliates of theRegistrant was approximately $724,782,000 based on the closingprice on the Nasdaq for such shares.     The number of shares outstanding of the issuer’s commonequity was 30,262,308 as of March 16, 2005.**DOCUMENTS INCORPORATED BY REFERENCE**     Portions of the Proxy Statement for the 2005 Annual Meeting ofStockholders are incorporated by reference into Part III. Adefinitive Proxy Statement pursuant to Regulation 14A willbe filed with the Commission no later than May 2, 2005.  

**Great Wolf Resorts, Inc.****Annual Report on Form 10-K****For the Year Ended December 31, 2004****INDEX**           **Page**    **No.**     ** PART I**     Item 1.      Business  2      Item 2.      Properties  30      Item 3.      Legal Proceedings  30      Item 4.      Submission of Matters to a Vote of Security    Holders  30  ** PART II**     Item 5.      Market for Registrant’s Common Equity    and Related Stockholder Matters  31      Item 6.      Selected Financial Data  32      Item 7.      Management’s Discussion and Analysis    of Financial Condition and Results of Operations  34     Item 7A.     Quantitative and Qualitative Disclosures About Market Risk  48      Item 8.      Financial Statements and Supplementary    Data  50      Item 9.      Changes in and Disagreements with    Accountants on Accounting and Financial Disclosure  73      Item 9A.      Controls and Procedures  73      Item 9B.      Other Information  73  ** PART III**     Item 10.      Directors and Executive Officers of the    Registrant  73      Item 11.      Executive Compensation  73      Item 12.      Security Ownership of Certain Beneficial    Owners and Management  73      Item 13.      Certain Relationships and Related    Transactions  74      Item 14.      Principal Accountant Fees and Services  74  **PART IV**     Item 15.      Exhibits and, Financial Statement    Schedules  74      Signatures  75  List of Subsidiaries Consent Certification Certification Certification Certification
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**PART I****ITEM 1.*****BUSINESS*****Overview and Development**     As used herein, the terms “we,” “our” and“us” refer to Great Wolf Resorts, Inc., a Delawarecorporation, and its subsidiaries. All dollar amounts used inthis Annual Report on Form 10-K are in thousands, exceptper share amounts and operating statistics.     We are a family entertainment resort company that provides ourguests with a high-quality vacation at an affordable price. Weare the largest owner, operator and developer in the UnitedStates of drive-to family resorts featuring indoor waterparksand other family-oriented entertainment activities, based on thenumber of resorts in operation. We provide a full-serviceentertainment resort experience to our target customer base:families with children ranging in ages from 2 to 14 yearsold that live within a convenient driving distance from ourresorts. Our resorts provide a consistent and comfortableenvironment throughout the year where our guests can enjoy ourvarious amenities and activities. We are a fully integratedresort company with in-house expertise and resources in resortand indoor waterpark development, management, marketing andfinancing.     We own and operate four existing Great Wolf Lodge® resorts,our signature northwoods-themed resorts, and one Blue HarborResort, a nautical-themed property. In addition, we own twoGreat Wolf Lodge resorts that are under construction andscheduled to open for business during 2005. We are also thelicensor and manager of an additional Great Wolf Lodge resort inNiagara Falls, Ontario that is owned and under development by anaffiliate of Ripley Entertainment Inc., or Ripley’s. We arecurrently evaluating 12 to 14 additional markets for potentialfuture development of Great Wolf Lodge resorts, six of which arein active site negotiation. We anticipate that most of ourfuture resorts will be developed under our Great Wolf Lodgebrand, but we may develop additional nautical-themed resorts inother appropriate markets.     We were formed in May 2004 to succeed to the familyentertainment resort business of our predecessor companies, TheGreat Lakes Companies, Inc., and a number of its relatedentities. We refer to these entities collectively as GreatLakes. Great Lakes developed and operated hotels between 1995and December 2004. In 1999, Great Lakes began its resortoperations by purchasing Great Wolf Lodge in Wisconsin Dells,Wisconsin and developing the Great Wolf Lodge in Sandusky, Ohio,which opened in 2001. In 2003, Great Lakes opened two additionalGreat Wolf Lodge resorts, one in Traverse City, Michigan and theother in Kansas City, Kansas. In June 2004, Great Lakes openedthe Blue Harbor Resort in Sheboygan, Wisconsin. Immediatelyprior to the closing of our initial public offering of commonstock, which we refer to in this Form 10-K report as theIPO, Great Lakes had two additional Great Wolf Lodge resortsunder construction, one in Williamsburg, Virginia and the otherin the Pocono Mountains region of Pennsylvania. These resortsare scheduled to open in late March and October of 2005,respectively.     On December 20, 2004, in connection with the closing of theIPO, we acquired each of these resorts and the resorts currentlyunder construction, as well as certain resort development andmanagement operations, in exchange for an aggregate of14,032,896 shares of our common stock and $97,600, in aseries of transactions we refer to in this Form 10-K reportas the formation transactions. We also realized net proceeds of$248,700 from the sale of 16,100,000 shares of our commonstock in the IPO.
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**Properties — Overview**     We have five family entertainment resorts that are currentlyoperating and two additional resorts that are underconstruction, and we will manage one resort under constructionthat is owned by a third-party licensee. We also have identifiedadditional target markets for future resort development and arein negotiations with respect to sites in six of these markets.The following table presents an overview of our existingportfolio of resorts:                                         **Year Ended December 31, 2004(1)**                   **Other** **Total**      **Indoor**   **Average** **Revenue per** **Revenue per** **Revenue per**  **Opened/Target**   **Entertainment**   **Daily** **Available** **Occupied** **Occupied****Location** **Opening** **Rooms** **Area(2)** **Occupancy** **Rate** **Room(3)** **Room** **Room(4)**                       **(Approx. ft2)** **(%)** **($)** **($)** **($)** **($)****Existing Resorts:**                                    Wisconsin Dells, WI  May 1997(5)   309(6)  64,000   62.2   188.76   117.47   78.44   267.20     Sandusky, OH(7)  March 2001   271   41,000   68.0   231.45   157.50   94.33   325.78     Traverse City, MI  March 2003   281   51,000   69.4   223.43   155.04   97.25   320.68     Kansas City, KS  May 2003   281   49,000   64.4   196.18   126.31   89.67   285.85     Sheboygan, WI(8)  June 2004   183(9)  54,000   58.3   190.35   110.93   161.26   351.61 **Resorts Under Construction:**                                    Williamsburg, VA  March 2005   301   66,000   —   —   —   —   —     Pocono Mountains, PA  Fall 2005   400   91,000   —   —   —   —   —     Niagara Falls, ONT(10)  Spring 2006   404   94,000   —   —   —   —   —    (1)     Information for our Sheboygan resort reflects operating results    from the resort’s opening in June 2004 through    December 31, 2004.   (2)     Our indoor entertainment areas generally include our indoor    waterpark, game arcade, children’s activity room and    fitness room, as well as our Aveda concept spa, 3D virtual    reality theater, Wiley’s Woods and party room in the    resorts that have such amenities.   (3)     Revenue per available room represents the total room revenue per    total available rooms for the year ended December 31, 2004,    calculated by multiplying the occupancy by the average daily    rate.   (4)     Total revenue per occupied room is calculated by adding the    average daily rate and other revenue per occupied room.   (5)     Great Lakes purchased this property in November 1999.   (6)     Our Wisconsin Dells property also features 77 condominium units    currently under construction.   (7)     Prior to May 2004, we operated this resort as a Great Bear Lodge.   (8)     Our Sheboygan property is branded as a Blue Harbor Resort. This    resort is subject to a 98-year and 11-month ground lease with    the Redevelopment Authority of the City of Sheboygan.   (9)     Our Blue Harbor Resort also features 64 individually owned two    and four bedroom condominium units.(10)     An affiliate of Ripley Entertainment, Inc., our licensee, which    we refer to as Ripley’s, owns this resort. We are assisting    Ripley’s with construction management and other pre-opening    matters related to the Great Wolf Lodge in Niagara Falls. We    have granted Ripley’s a license to use the Great Wolf Lodge    name for this resort for ten years after opening. We have agreed    to enter into a management agreement, pursuant to which we    expect to operate the resort on behalf of Ripley’s for five    years, and a central reservation services agreement. In    conjunction with this project, we expect to receive a one-time    construction fee and ongoing license, central reservation    services and management fees.
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     *Northwoods Lodge Theme.* Each of our Great Wolf Lodgeresorts has a northwoods lodge theme, with a rustic log exteriorand cultured stone veneer that provides a dramatic and authenticlog cabin appearance. Our three-story, approximately 5,000 to7,800 square-foot atrium lobbies are designed in anorthwoods cabin motif with exposed timber beams, massive stonefireplaces, mounted wolves and other northwoods creatures,Native American art and an animated two-story clocktower thatprovides theatrical entertainment for our younger guests.Throughout the common areas and in each guest suite, we usesturdy, rustic furniture that complements the northwoods theme.We believe that this consistent theme throughout our resortscreates a comfortable and relaxing environment and provides asense of adventure and exploration that the entire family canenjoy.     *Guest Suites.* All of our guest suites are themed luxurysuites ranging in size from approximately 385 square feetto 1,900 square feet. Substantially all of our rooms alsoinclude a private deck or patio. Our resorts offer up to nineroom styles to meet the needs and preferences of our guests,including a selection of rooms with lofts, jacuzzis andfireplaces. Our standard rooms include two queen beds and athird queen bed in the sleeper sofa, a wet bar, microwave oven,refrigerator and dining and sitting area, and can accommodate upto six people. Our specialty rooms can accommodate up to sevenpeople and provide a separate area for children, including ourKidCabin Suites that feature a log cabin bunk bed room, our WolfDen Suites that feature a themed den enclosure with bunk bedsand our KidKamp Suites that feature bunk beds in a themed tentenclosure. We also offer larger rooms, such as our Majestic BearSuite, which has a separate bedroom with a king bed, a largedining and living area and can accommodate up to eight people.Our guest suites have wallpaper, artwork and linens thatcontinue the northwoods theme and provide for full room service,pay-per-view movies and pay-per-play video games.     *Indoor Waterparks.* Our existing Great Wolf Lodge indoorwaterparks are maintained at a warm and comfortable temperature,range in size from approximately 34,000 to 43,000 squarefeet and have a northwoods, totemic theme, including four-storytotem poles, decorative rockwork and plantings, all of which iscontained in a five-story wooden beam structure. The focus ofeach Great Wolf Lodge waterpark is our signature 12-leveltreehouse water fort. The fort is an interactive waterexperience for the entire family that features over 60 watereffects, including spray guns, fountains, valves and hoses, hascargo netting and suspension bridges and is capped by anoversized bucket that dumps between 700 and 1,000 gallons ofwater every five minutes. Our Blue Harbor Resort has a43,000 square-foot Breaker Bay waterpark including our12-level Lighthouse Pier water fort featuring a 1,000 gallontipping ship. Our waterparks also feature high-speed body slidesand inner tube waterslides that wind in and out of the buildinginto a splash-down pool, smaller slides for younger children,zero-depth water activity pools for small children with geysers,a water curtain, fountains and tumble buckets, a lazy river,additional activity pools for basketball, open swimming andother water activities and two large free-form hot tubs, one ofwhich is for adults-only. Each waterpark is constructed with aspecial nonslip floor surface for maximum traction and has ampledeck space and good sight lines to enhance parental oversight.Our resorts under construction will have indoor waterparksranging in size from approximately 55,000 to 82,000 squarefeet with additional attractions such as wave pools and waterrollercoasters.     Approximately one million gallons of water are cycled througheach of our waterparks every hour in order to ensurecleanliness. Our primary operating equipment includes standardwater pumps, tanks and filters, located in separate spaces toallow for quick repairs or replacement. The water and airquality of our waterparks is continuously monitored bycomputerized water and air treatment systems and highly trainedtechnicians in order to ensure a clean and safe environment. Weseek to minimize the use of chlorine. Most of the waterpurification is performed by an advanced ozone water treatmentsystem, which ensures the highest water quality and an absenceof the typical chlorine odor found in indoor pools. In addition,the water within each area circulates every hour to maximizehygiene. Each waterpark area has its own water system so that aproblem with any one area can be quickly contained and does notaffect the operations of the rest of the waterpark.     We expect recurring annual capital expenditures for each resortto be approximately 3-4% of the resort’s revenues,including the repair and maintenance of our waterpark equipment.As much of the equipment used in our waterparks is designed foroutdoor application and capable of withstanding intense physicaluse and the
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elements year-round, wear and tear is minimal and we believe ourequipment has a long useful life. In addition, our waterpurification system minimizes airborne chemicals and theirpotentially corrosive effects on materials and equipment andhelps extend the life of our equipment.     The safety of our guests is a primary focus in our waterparks.Our lifeguards receive one of the highest levels of training andcertification in the industry, provided by Jeff Ellis &Associates, Inc., an international aquatic safety consultingcompany. Ellis & Associates conducts quarterlyunannounced safety inspections at each of our resorts to ensurethat proper safety measures and procedures are maintained. Allof our on duty lifeguards perform daily training exercises underthe supervision of a certified instructor. We also encourage ourlifeguards to obtain EMT certification, and we reimburse themfor the costs of the training.     Our indoor waterparks are open from 8:30 a.m. until10:00 p.m. seven days a week and admission is generallyonly available to resort guests. Our general guests-only policy,at all of our resorts other than our Sheboygan resort, allowsour guests to avoid the long lines and other inconveniences ofdaily admission-based waterparks.     *Amenities.* Each of our existing resorts features, andeach of our resorts under construction will feature, acombination of the following amenities. Our Blue Harbor resortamenities have similar appropriate nautical-themed names. • *Themed Restaurants.* Our resorts feature one or more    full-service, themed restaurants and a themed bar and grille    that serves alcoholic beverages and sandwiches. Our themed    restaurants include the Gitchigoomie Grill, with a life-sized    sea plane suspended over the dining area, Lumber Jack’s    Cook Shanty, the Loose Moose Bar & Grill, and the Camp    Critter Bar & Grille, which features a two-story    realistic tree with a canopy of leaves and canvas-topped booths    with hanging lanterns, giving guests the impression that they    are dining in a northwoods forest campsite. Our Blue Harbor    Resort features our On the Rocks Bar & Grille and Rusty    Anchor Buffet.  • *Ice Cream Shop and Confectionery.* Each of our Great Wolf    Lodge resorts, with the exception of our Sandusky resort, has a    Bear Claw Café ice cream shop and confectionery that    provides sandwiches, Starbucks® coffee, pastries, ice    cream, candies, home-made fudge and other snacks that families    can share together. Our Blue Harbor Resort has a Sweetshop    Landing confectionery.  • *Snack Bar.* Each of our waterparks has a snack bar that    offers a variety of sandwiches, pizzas and similar foods with    ample seating so that our guests do not have to leave the warmth    and comfort of the waterparks.  • *Gift Shop.* Each of our resorts has a Buckhorn Exchange or    Precious Cargo gift shop that provides unique themed gifts,    including Great Wolf Lodge logo merchandise, souvenirs,    collectibles and stuffed animals. The gift shop also offers    resort toys, swimwear and personal necessities.  • *Full-Service Spa.* Each of our resorts, with the exception    of our Sandusky resort, has an Aveda concept or Cameo spa that    provides a relaxing get-a-way with a full complement of    massages, facials, manicures, pedicures and other spa    treatments, as well as yoga classes and a wide selection of    Aveda products. We intend to add an Aveda concept spa to our    Sandusky Great Wolf Lodge resort.  • *Game Arcade.* Our Youkon Jack’s or Northern Lights    game arcades range in size from approximately 3,900 to    7,000 square feet, have over 70 games of skill and are    divided into distinct areas with video and skill games that    appeal to children of different ages. Tickets won from the games    may be exchanged for a wide selection of merchandise that    appeals to our younger guests.  • *Cub Club.* Our Cub Club rooms are professionally staffed    children’s activity rooms with programmed activities,    including arts and crafts, games and nature hikes. Cub Club is a    frequent guest program for our younger guests. Cub Club    membership is open to all children who have stayed at one of our    resorts and includes a periodic newsletter, exclusive offers,    rewards for each stay and a free meal and dessert when members    visit during their birthday month. We currently have more than    10,000 Cub Club members. Our Blue Harbor Resort features a Crew    Club frequent guest program and activities that are similar to    our Cub Club.
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 • *Animated Clocktower.* Each of our Great Wolf Lodge    resorts, with the exception of our Sandusky resort, has a    two-story animated clocktower located in the resort’s main    atrium lobby. The clocktower provides daily theatrical    entertainment through talking and singing trees, animals and    northwoods figures. Our Blue Harbor Resort features a 2,000    gallon water fountain featuring a hand-blown glass sculpture and    a music and light show located in its main atrium lobby.  • *Outdoor Water Amenities.* Outdoor water amenities    complement our indoor waterpark facilities and allow our guests    to take advantage of favorable weather conditions. Our outdoor    water amenities include activity pools and a large deck or patio    area and are generally open from May until September. Our    Wisconsin Dells resort also has outdoor waterslides.  • *Fitness Room.* Our fitness rooms contain aerobic exercise    equipment and weight-lifting machines with numerous televisions    for active viewing.  • *Meeting Space.* Our resorts offer meeting rooms ranging    from approximately 3,000 to over 7,000 square feet that are    available for guest meetings, including a 99-seat,    state-of-the-art, symposium-style room at our Traverse City    resort.  • *Conference Facility.* Our Blue Harbor Resort features an    approximately 21,000 square-foot attached conference    facility that provides spaces ranging from approximately    1,000 square feet to 10,000 square feet for a number    of different types of conferences and conventions.  • *Biko’s 3D Theatre.* Our 3D theatres, located at our    Wisconsin Dells and Traverse City resorts, provide a 12-minute    virtual reality adventure for children and their parents.  • *Wiley’s Woods.* Wiley’s Woods is an interactive    indoor live video game in a four-story, approximately    16,000 square-foot structure located at our Wisconsin Dells    resort. Children ages three and older wear electronic wrist    bands and gain points by navigating slides, bridges, nets and    mazes and performing a variety of tasks on over 60 machines and    gadgets. Admission to Wiley’s Woods is free for all resort    guests and is open to the public for a fee of $6 for children    and $9 for adults, with free admission for children under the    age of three.**Operating Properties**     Our operating resorts are currently located in Wisconsin Dells,Wisconsin; Sandusky, Ohio; Traverse City, Michigan; Kansas City,Kansas; and Sheboygan, Wisconsin.***Great Wolf Lodge of Wisconsin Dells, Wisconsin***     Our Great Wolf Lodge, located on 25 acres in WisconsinDells, Wisconsin, was originally constructed in 1997 andacquired by Great Lakes in 1999.     Wisconsin Dells is a renowned family vacation destination thatfeatures a number of entertainment options, including amusementparks, museums, live entertainment and other indoor waterparks.According to its Visitor and Convention Bureau, the WisconsinDells area attracts over two and a half million visitors eachyear and in 2003 attracted over $840,000 of vacation-relatedexpenditures. Wisconsin Dells is within a one-hour drive fromMadison, Wisconsin; a two-hour drive from Milwaukee, Wisconsin;and a three and one-half hour drive from Chicago, Illinois.According to Third Wave Research, there are approximately16.0 million people who live within 180 miles of theresort.     Great Wolf Lodge of Wisconsin Dells has 309 guest suites and anapproximately 38,000 square-foot indoor waterpark thatincludes our signature treehouse water fort. The resort offers anumber of revenue-enhancing amenities, including a themedrestaurant, Loose Moose Bar & Grill, Bear ClawCafé ice cream shop and confectionery, Youkon Jack’sgame arcade, Buckhorn Exchange gift shop, full-service Avedaconcept spa, Wiley’s Woods, Biko’s 3-D virtual realityadventure theater and meeting rooms. The resort also includesnon- revenue-generating amenities, such as an animated two-storyclocktower, Cub Club room and Iron Horse fitness center. InSeptember 2004, we began construction of 77 condominium units.In connection with this project, we intend to expand our indoorwaterpark accordingly, which we expect would be complete
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in 2005. In Summer 2005, we expect to begin construction onenhancements to our indoor waterpark at this resort to add awave pool and other new attractions.***Great Wolf Lodge of Sandusky, Ohio***     In March 2001, we opened our Great Bear Lodge in Sandusky, Ohio,which has the same theming as each of our Great Wolf Lodgeresorts and was re-named the Great Wolf Lodge of Sandusky in May2004. Sandusky is a family destination near Cleveland, Ohio thatis well known for its amusement parks. According to theSandusky/ FIB Erie County Visitors and Convention Bureau,Sandusky attracts approximately seven million visitors eachyear. Sandusky is within a one-hour drive from Cleveland, Ohio;a two-hour drive from Detroit, Michigan; a two and one-half-hourdrive from Columbus, Ohio; and a three-hour drive fromPittsburgh, Pennsylvania. According to Third Wave Research,there are approximately 23.7 million people who live within180 miles of the resort.     Great Wolf Lodge of Sandusky is located on approximately15 acres and has 271 guest suites and an approximately34,000 square-foot indoor waterpark that includes oursignature treehouse water fort, tube slides, body slides, hottubs and a lazy river. The resort offers a number ofrevenue-enhancing amenities, including our Gitchigoomie Grilland Lumber Jack’s Cook Shanty themed restaurants, NorthernLights game arcade, Buckhorn Exchange gift shop and meetingrooms. The resort also includes non-revenue-generating amenitiessuch as our Cub Club room and Iron Horse fitness center.***Great Wolf Lodge of Traverse City, Michigan***     In March 2003, we opened our Great Wolf Lodge in Traverse City,Michigan. Traverse City is a traditional family vacationdestination with skiing and lake activities. According to theTraverse City Convention and Visitors Bureau, Traverse Cityattracts approximately two million visitors each year. TraverseCity is within a three-hour drive from Grand Rapids, Michiganand the Saginaw/ Flint, Michigan area and a four-hour drive fromDetroit, Michigan. This resort also draws guests from NorthernIndiana and Ohio. According to Third Wave Research, there areapproximately 7.6 million people who live within180 miles of the resort.     Great Wolf Lodge of Traverse City is located on approximately48 acres and has 281 guest suites and an approximately40,000 square-foot indoor waterpark that includes oursignature treehouse fort and Howling Wolf family raft. Theresort offers a number of revenue-enhancing amenities, includingour Camp Critter Bar & Grille and Loose Moose Cottagethemed restaurants, Northern Lights game arcade, full-serviceAveda concept spa, Bear Claw Café ice cream shop andconfectionery, Biko’s 3D virtual reality adventure theater,Buckhorn Exchange gift shop and meeting rooms. The resort alsoincludes non-revenue-generating amenities such as our animatedtwo-story clocktower, Cub Club room and Iron Horse fitnesscenter.***Great Wolf Lodge of Kansas City, Kansas***     In May 2003, we opened our Great Wolf Lodge in Kansas City,Kansas as part of the Village West tourist district thatincludes a Cabela’s superstore, Nebraska Furniture Mart andthe Kansas Nascar Speedway. According to the Kansas CityConvention and Visitors Bureau, Kansas City attractsapproximately five million visitors each year. Kansas City iswithin a one-hour drive from Topeka, Kansas; a two and one-halfhour drive from Jefferson City, Missouri; and a three-hour drivefrom Lincoln, Nebraska. According to Third Wave Research, thereare approximately 7.0 million people who live within180 miles of the resort.     Great Wolf Lodge of Kansas City is located on approximately17 acres and has 281 guest suites and an approximately40,000 square-foot indoor waterpark that includes oursignature treehouse water fort. The resort offers a number ofrevenue-enhancing amenities, including our Camp CritterBar & Grille themed restaurant, Bear Claw Café icecream shop and confectionery, full-service Aveda concept spa,Northern Lights game arcade, Buckhorn Exchange gift shop andmeeting rooms. The resort also includes non-revenue-generatingamenities such as our animated two-story clocktower, Cub Clubroom and Iron Horse fitness center.
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***Blue Harbor Resort of Sheboygan, Wisconsin***     In June 2004, we opened our Blue Harbor Resort on anapproximately 12-acre property on the shores of Lake Michigan inSheboygan, Wisconsin. Sheboygan is a traditional family vacationdestination featuring lake activities and golf. Due to thenature of Sheboygan as a family vacation destination on thewater, we decided that a nautical theme would be moreappropriate than our typical northwoods lodge theme. This resortis modeled after a grand beach resort and decorated in a mannerconsistent with that theme, including a nautical themed lobbyand specialty rooms such as the KidAquarium Suite with bunk bedssurrounded by walls of deep blue sea and schools of fish and theBoathouse Suite with rowboat bunk beds. According to theSheboygan Convention and Visitors Bureau, visitors to Sheboyganspent approximately $260,000 in 2002. Sheboygan is within aone-hour drive from Milwaukee and Green Bay, Wisconsin; atwo-hour drive from Madison, Wisconsin; a three-hour drive fromChicago, Illinois; and a four-hour drive from Dubuque, Iowa.According to Third Wave Research, there are approximately18.4 million people who live within 180 miles of theresort.     Blue Harbor Resort has 183 guest suites, with an additional 64individually-owned, two and four bedroom condominium unitslocated adjacent to the resort, and an approximately43,000 square-foot Breaker Bay indoor waterpark with a12-level Lighthouse Pier water fort. The resort offers a numberof revenue-enhancing amenities, including our nautical-themed Onthe Rocks Bar & Grille and Rusty Anchor Buffetrestaurants, Sweetshop Landing ice cream shop and confectionery,full-service Aveda concept spa, Northern Lights game arcade andPrecious Cargo gift shop. This resort also has an approximately21,000 square-foot attached conference facility capable ofseating 1,000 people. The resort offers non-revenue-generatingamenities such as our 2,000 gallon hand-blown glass waterfountain featuring a music and light show, Crew Club for kidsand Ship Shape Place fitness center. Admission to the indoorwaterpark is available to residents of Sheboygan County for afee. We currently manage the rental of substantially all of thecondominium units at this resort. We receive a rental managementfee of approximately 40% of net room revenue after the deductionof certain expenses. In addition, we receive reimbursement ofcertain waterpark expenses through the condominium association.**Properties Under Construction*****Great Wolf Lodge of Williamsburg, Virginia***     In December 2003, we began construction of our Great Wolf Lodgein Williamsburg, Virginia on a 83-acre site. Williamsburg is apopular family vacation destination with amusement parks andwaterparks and other entertainment attractions. Williamsburg isa one-hour drive from Richmond, Virginia; a two andone-half-hour drive from Washington, D.C.; a three-hourdrive from Baltimore, Maryland and a three and one-half-hourdrive from Raleigh, North Carolina. According to Third WaveResearch, there are approximately 16.7 million people wholive within 180 miles of the resort.     The resort will occupy approximately 36 acres of the site.We may sell up to 11 acres of the excess land as out-lotsand plan to retain the remaining acreage to support futureexpansion of the resort.     Upon completion, Great Wolf Lodge of Williamsburg will have 301guest suites and an approximately 55,000 square-foot indoorwaterpark that includes our signature treehouse water fort. Weare constructing a relatively large indoor waterpark inWilliamsburg because we believe that the demand for this resortwill support an expansion, including an additional number ofrooms, over the next several years. The resort will offer anumber of revenue-enhancing amenities, including themedrestaurants, a full-service Aveda concept spa, game arcade, BearClaw Café ice cream shop and confectionery, gift shop andapproximately 7,000 square feet of meeting rooms. Theresort will also include non-revenue-generating amenities suchas a two-story animated clocktower, Cub Club room and fitnesscenter. We anticipate that this resort will open in late March2005.***Great Wolf Lodge of the Pocono Mountains***     In April 2004, we began construction of a Great Wolf Lodge inthe Pocono Mountains on a 95-acre site near Stroudsburg,Pennsylvania. The Pocono Mountains area is a popular familyvacation destination featuring
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family-oriented attractions and recreational activities.According to the Official Convention and Visitors Bureau ofPennsylvania’s Pocono Mountains, the Pocono Mountainsregion attracts approximately three million visitors each year.The resort will be located within a one and one-half-hour drivefrom New York, New York; a two-hour drive from Philadelphia,Pennsylvania; a three and one-half hour drive from Baltimore,Maryland and a four-hour drive from Washington, D.C.According to Third Wave Research, there are approximately43.6 million people who live within 180 miles of theresort.     Upon completion, Great Wolf Lodge of the Pocono Mountains willhave 400 guest suites and an approximately78,000 square-foot indoor waterpark that includes oursignature treehouse water fort. The resort will offer a numberof revenue-enhancing amenities, including a themed restaurantand bar and grille, full-service Aveda concept spa, game arcade,gift shop and approximately 7,900 square feet of meetingrooms. The resort will also include non-revenue-generatingamenities such as a two-story animated clocktower, Cub Club roomand fitness center. We anticipate that this resort will open inthe fall of 2005.***Great Wolf Lodge of Niagara Falls, Ontario***     In January 2004, Great Lakes entered into a license agreementwith Ripley’s that authorizes Ripley’s to develop andoperate a Great Wolf Lodge resort in Niagara Falls, Ontario. Inaddition, the agreement allows Ripley’s to use certainlicensed trademarks, such as “Cub Club,”“KidCabin,” “Wiley’s Woods” and“Great Wolf Lodge.” The term of the license agreementis ten years, with the possibility of up to four successivefive-year automatic renewals. Under the license agreement,Ripley’s is required to pay a monthly license fee, a brandmarketing fee that we are obligated to contribute to a marketingprogram and a fee related to furniture, fixtures and equipmentstart-up costs. We may terminate the license agreement at anytime, upon notice, if Ripley’s fails to meet its materialobligations under the agreement. These obligations requireRipley’s to meet payment obligations in a timely manner,maintain and operate the resort in a manner consistent with ouroperating standards and obtain our approval prior to the use ofany of our licensed trademarks. In addition, these materialobligations restrict Ripley’s to selling only products,goods and services that we approve and from developing ormanaging a hotel with an indoor waterpark within the UnitedStates until, at the earliest, January 2016.     We have also entered into a construction consulting agreement inconnection with Ripley’s construction of the resort. Underthe agreement, we are providing construction management andconsulting services for a fee. In addition, we are currentlynegotiating a management services agreement and a reservationsystem agreement for this resort under which we will manage theresort and provide central reservation systems services.     Ripley’s began construction of the Niagara Falls resort inSeptember 2004. Niagara Falls is a popular family vacationdestination. According to the City of Niagara Falls, Ontariowebsite, Niagara Falls attracts over 14 million visitorseach year. Niagara Falls is less than a one hour drive fromBuffalo, New York; a one and one-half-hour drive from Toronto,Ontario; and a two and one-half-hour drive from Syracuse, NewYork. Pursuant to the management services agreement, we willoperate the resort once it is completed.     Upon completion, Great Wolf Lodge of Niagara Falls will have 404guest suites with an approximately 82,000 square-footindoor waterpark. The resort will offer a number ofrevenue-enhancing amenities, including themed restaurants, icecream shop and confectionery, full-service Aveda concept spa,game arcade, gift shop and meeting space. The resort will alsoinclude non-revenue-generating amenities such as a two-storyanimated clocktower, Cub Club room and fitness center. Weanticipate that this resort will open in the Spring of 2006.
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**Business and Growth Strategies**     Our primary business objective is to increase long-termstockholder value by executing our internal and external growthstrategies. Our primary internal growth strategies are to: • **Increase Total Resort Revenue.** We intend to increase    total resort revenue by increasing: • *Average Room Rate:* We plan to increase our average    room rate over time by driving demand for our resorts and    focusing on yield management techniques. We intend to increase    demand through aggressive sales and marketing and increased    visibility and by enhancing our brand image. We plan to employ    our yield management techniques to project demand in order to    effectively direct our sales and marketing efforts and    selectively increase room rates. We believe that our focus on    optimizing the relationship between room rates and occupancies    will allow us to maximize profitability.  • *Average Occupancy:* We intend to maintain high occupancy    levels during peak times and will focus on increasing our    off-peak occupancies. Our off-peak occupancy levels generally    occur in May, September and during the middle of the week. Our    occupancy levels are affected by school calendars, with the    summer months, spring break period and other school holidays    achieving the highest occupancy levels. We will continue to seek    to improve off-peak occupancy levels by holding special events    and targeting group sales and conferences.  • *Other Revenue:* We provide our guests with a    self-contained vacation experience and attempt to capture a    significant portion of their spending on food and beverage,    entertainment and merchandise. Each Great Wolf Lodge generally    contains at least one themed restaurant, an ice cream shop and    confectionery, snack shop, an Aveda concept spa, gift shop and    game arcade. The average non-room revenue, including the revenue    from these amenities, was approximately $95 per occupied    room night for the year ended December 31, 2004. By    providing these additional revenue-generating amenities, we seek    to maximize the amount of time and money spent on-site by our    guests. We have also entered into a number of co-marketing    agreements with strategic partners and will enter into    additional co-marketing agreements in the future in order to    increase other revenue. • **Leverage Our Economies of Scale.** We will take advantage    of the following economies of scale: • *Increased Purchasing Power:* We intend to capitalize on    our increased purchasing power with respect to operating    supplies, food and beverage, insurance and employee benefits. As    the number of resorts we own and operate increases, we expect to    be able to leverage our increased buying volume and power to    obtain more advantageous and predictable pricing on commodity    goods and services. In addition, we intend to manage increases    and fluctuations in the cost of electricity, water and natural    gas for each of our resorts by entering into volume-based    contracts.  • *Centralized Services:* By centralizing certain of our    services, we will focus on decreasing our per unit costs,    increasing our control over those services and be in a position    to deliver a greater quality of service to our customers. For    example, our central reservations call center operates every day    of the year, has approximately 75 full and part-time employees    and accepts reservations for all of our resorts. The call center    also has the capacity to efficiently handle high call volumes    and will require only limited additional incremental costs over    the next several years as we increase our portfolio of resorts. • **Build Upon Our Existing Brand Awareness and Loyalty.** Our    Great Wolf Lodge brand is symbolized by our distinctive and    easily identifiable theming, from our captivating northwoods log    cabin exterior, to our Native American totemic waterpark theme    and signature treehouse water fort, to our mascots and    recognizable logos and merchandise. We believe we have fostered    strong customer and brand loyalty, which is evidenced by our    high levels of repeat and referral guests. We will continue to    focus on ensuring that each of our guests associates the Great    Wolf Lodge brand with a memorable and consistent family vacation    experience.
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     Our primary external growth strategies are to: • **Capitalize on First-Mover Advantage.** We intend to be the    first to develop and operate family entertainment resorts    featuring indoor waterparks in our selected target markets. We    intend to continue to leverage our development expertise,    existing platform and model and our access to capital to take    advantage of the significant barriers to entry associated with    the development of large family entertainment resorts with    indoor waterparks like our Great Wolf Lodge resorts. We will    seek to set the standard for quality, build on visible sites and    capitalize on the opportunity to be located near other popular    local attractions that draw our target customers. We believe    that the combination of our first mover advantage and the    significant barriers to entry in our target markets provide us    with a competitive advantage.  • **Focus on Development and Strategic Growth Opportunities.**    Family entertainment resorts featuring indoor waterparks are a    relatively new concept and a growing segment of the resort and    entertainment industries. We intend to focus on this growth    opportunity by: • *Building in Target Markets:* We intend to develop and open    at least two new owned resorts each year for the next several    years. We have already identified potential development    locations in 12 to 14 of these target markets that meet our    other criteria for successful development. We are in    negotiations for sites in six of these markets that, if    appropriate, will provide ample land for us to expand or sell    out-lots in the future for complementary uses. A new resort,    from market selection to opening, can take over four years to    develop and build. We believe that our experience will enable us    to more efficiently develop and build new resorts in our target    markets.  • *Licensing Our Resort Concept Internationally:* We plan to    selectively seek licensing and management opportunities    internationally. Similar to our arrangement with Ripley’s    in Niagara Falls, Ontario, we intend to enter into license and    management agreements with reputable companies that have local    market knowledge in order to increase revenues and expand the    reach of our Great Wolf Lodge brand.  • *Forming Strategic Partnerships:* We will consider    strategic partnerships on a selective basis. For example, we    have had discussions with several established companies that    control superior sites in certain of our target markets and have    indicated an interest in jointly developing a Great Wolf Lodge    at or near one of their existing entertainment venues.  • *Expanding and Enhancing Existing Resorts:* We intend to    focus on growth opportunities at our existing resorts by adding    revenue-enhancing features that drive ancillary vacation    spending to certain of our resorts and meet our target returns,    including non-water based attractions. We also intend to pursue    incremental revenue-generating opportunities, such as expanding    the number of rooms and adding condominium units at certain of    our resorts. In addition, we will consider adding conference    centers at existing resorts to capture convention and other    business travel revenue. • **Continue to Innovate.** We intend to leverage our in-house    expertise, in conjunction with the knowledge and experience of    our third-party suppliers and designers, to develop and    implement the latest innovations in family entertainment    activities and amenities, including waterpark attractions. We    have received numerous industry awards for our guests’    experiences, our operations, innovative development, sales and    marketing initiatives and materials, and employee retention.**Our Competitive Strengths**     We are the market leader for family entertainment resorts thatfeature indoor waterparks and other family-oriented amenities inthe United States. Our competitive strengths include: • **Unforgettable Family Resort Experience.** Each of our    resorts provides a welcome opportunity for families to spend    quality time together, relax and reconnect. In addition to our    indoor waterparks, our resorts provide other activities and    amenities that the entire family can enjoy together. Our family    amenities and activities include themed restaurants, a game    arcade, ice cream shop and confectionery,
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     gift shop, snack shop, animated clocktower and fireside bedtime    stories. We also have amenities and activities tailored to each    member of the family, including our full-service Aveda concept    spa, Cub Club for kids and fitness room. Our resorts also offer    special events, including seasonal and holiday activities, wild    animal and nature educational programs and other special events.    We believe that our focus on delivering an unforgettable family    resort experience appeals to our target customers and results in    repeat visits and referrals. For the year ended    December 31, 2004, we generated approximately 48% of our    room revenue from repeat visitors and referral guests.  • **Value, Comfort and Convenience.** Guest rooms at each of    our resorts are spacious and comfortable suites that generally    range in size from approximately 385 square feet to    1,900 square feet and include a wet bar, microwave,    refrigerator and dining and sitting area. Many of the suites    have specific themes that are geared toward enhancing our    younger guests’ experience, including our KidCabin®    and Wolf Den Suites, which have a partitioned room with bunk    beds designed as log cabins and northwoods forest dens,    respectively. All of our resorts are within a convenient driving    distance of our large target customer bases. Because our indoor    waterparks and our other amenities generally are not impacted by    weather conditions, we offer our guests a reliable experience.    On average, a two-night stay at our resorts costs a family of    four approximately $600, making it a very affordable family    vacation option.  • **Favorable Market Trends.** We believe recent vacation    trends favor our Great Wolf Lodge concept as the number of    families choosing to take shorter, more frequent vacations that    they can drive to has increased over the past several years. We    believe that these trends will continue and that we are well    positioned to take advantage of them. We believe our resorts are    less affected by changes in economic cycles, as drive-to    destinations are less expensive and more convenient than    destinations that require air travel. In addition, we have    identified over 50 markets in the United States that, according    to Third Wave Research, each have populations in excess of five    million people located within a convenient driving distance.  • **Market Presence and Barriers to Entry.** We are the largest    owner and operator of family entertainment resorts with indoor    waterparks in the United States based on the number of resorts    in operation. We believe this market presence gives us a    significant competitive advantage in attracting guests and    efficiently developing additional resorts. We believe our    closest competitor has one operating themed indoor waterpark    resort and another under construction. In addition, we believe    the significant barriers to entry present in our industry    segment, including operational complexity, substantial capital    requirements, availability of suitable sites in desirable    markets and a difficult, multi-year permitting process,    discourage other companies in the lodging and entertainment    industries from developing similar family entertainment resorts.    A new Great Wolf Lodge resort typically takes from one to three    years to develop, which includes market selection, site    selection and permitting, an additional 15 to 18 months to    build and costs approximately $65,000 to $95,000.  • **Focus on Safety.** We invest heavily in safety measures in    the design and operation of our resorts. For example, we    specifically design our waterparks with attention to sightlines    and safety precautions and use one of the most respected    training methods in the water safety industry to train each of    our lifeguards. We design and construct our indoor waterparks    with state-of-the-art air quality and water treatment systems.    We also maintain and periodically upgrade our facilities to    ensure that we provide our guests with best-in-class safety    measures and systems.  • **Experienced Management Team and Committed and Motivated    Staff.** Our senior management team has an average of    approximately 14 years of experience in the hospitality,    family resort and real estate development industries and has    significant expertise in operating complex, themed, family    entertainment resorts featuring indoor waterparks. In addition,    we have a team of skilled, loyal and committed employees at each    of our resorts. We offer our resort employees a number of    benefits, including a pleasant and rewarding work environment,    career-oriented training, the ability to obtain consistent    year-round work, which is uncommon in the resort industry, and    career growth opportunities. As a result, we believe our    employees are committed to delivering a superb customer    experience and personally assuring that our guests fully enjoy    their family vacation.
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**Industry Overview**     We operate in the family entertainment resort segment of thetravel and leisure industry.     The concept of a family entertainment resort with an indoorwaterpark was first introduced in Wisconsin Dells, Wisconsin andhas evolved there over the past 15 years. In an effort toboost occupancy and daily rates, as well as capture off-seasondemand, hotel operators in the Wisconsin Dells market beganexpanding indoor pools and adding waterslides and otherwater-based attractions to existing hotels and resorts. Thesuccess of these efforts prompted several local operators tobuild new, larger destination resorts based primarily on thisconcept, including the Wilderness Hotel & Golf Resort,Treasure Island, Raintree Resort, Kalahari and the Great WolfLodge (formerly known as the Black Wolf Lodge), which GreatLakes purchased in 1999.     We believe that these properties, which typically are themed andinclude other resort features such as arcades, retail shops andfull food and beverage service in addition to the indoorwaterpark, have historically outperformed standard hotels in themarket. According to United States Realty Consultants, Inc., orUSRC, the six largest waterpark resorts in the Wisconsin Dellshad a premium of 15 occupancy points and an ADR premium of $110in 2003 as compared to the franchised non-waterpark hotels inthe market. We believe that the rate premiums and increasedmarket share in the Wisconsin Dells for hotels and resorts withsome form of an indoor waterpark can be attributed to severalfactors, including the ability to provide a year-round vacationdestination without weather-related risks, the wide appeal ofwater-based recreation and the favorable trends in leisuretravel discussed below. Although the rate premiums and increasedmarket share in Wisconsin Dells have been significant, nooperator or developer other than Great Lakes has established aregional portfolio of family entertainment resorts featuringindoor waterparks.     No standard industry definition for a family entertainmentresort featuring an indoor waterpark has developed. A recentUSRC survey identified a total of 45 hotels with indoorwaterpark facilities in the United States and Canada, of which17 meet USRC’s definition of an indoor waterparkdestination resort. We do not believe that the non-destinationresorts in the USRC survey offer a comparable experience andquality level to compete with our resorts. Most of our resortsare located in well-established, traditional drive-to familyvacation destinations, which allows us to leverage thepopularity of these destinations by offering a complementaryentertainment option to existing venues and a high-qualityfamily resort alternative. In addition, many of thesedestinations offer beaches, theme parks, waterparks, amusementparks and many other forms of outdoor activities that are onlyavailable on a seasonal basis. Within our enclosed resortenvironment, our guests can enjoy a total resort experience yearround, regardless of weather conditions.     We believe there are characteristics of the domestic travel andleisure industry that indicate families favor frequent, short,drive-to vacations. According to the Travel Industry Associationof America, or TIA, from 1994 to 2003 the number of domesticleisure trips taken by families grew from approximately96 million trips in 1994 to 154 million trips in 2003.In 2003, approximately 45% of leisure trips lasted one to twonights. The primary mode of transportation for 77% of theovernight leisure trips in 2003 was by automobile. We believethese statistics provide evidence that our segment of the traveland leisure industry has strong demand characteristics that makeour family entertainment resorts attractive to leisuretravelers. As a result, we expect these demand characteristicsto continue to support the expansion of the indoor waterparkconcept. According to USRC, the indoor waterpark resort conceptis expanding outside of its traditional base in Wisconsin Dells,Wisconsin.**Resort Operations**     Each resort employs a general manager who is responsible for theoperations of the particular resort and who typically has20-25 years of experience in the hospitality or familyentertainment industry. Our general managers oversee a staff ofapproximately 300 resort employees and are assisted by anassistant general manager and directors for each of humanresources, food and beverage, housekeeping, aquatics,maintenance, sales and marketing and front office. Acorporate-level liaison for each department ensures consistencythroughout our resorts while allowing a particular resort totailor its operations to best meet the needs of its guests.
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     Prior to assuming responsibility for a resort, general managersand assistant general managers undergo a management trainingprogram designed to familiarize each trainee with various facetsof our management, operations and development programs. Theprogram also emphasizes our guest service policies and provideshands-on operating experience at the resort level. Ourmanagement training program is intended to train assistantmanagers to become future general managers.     We strive to provide our guests with a fun and convenientexperience in a warm and family-friendly environment from thefirst day a new resort opens. To achieve this, a team ofexperienced management members from our existing resorts, alongwith corporate liaisons, begins training personnel at our newresorts one month prior to a resort’s opening and is onsite at the new resort for a month after opening. We believethat this process ensures that the opening of a new resort isefficient and that our culture of high quality and friendlycustomer service is carried over to our new resorts, includingour guests’ interactions with our front desk, housekeeping,waterpark, restaurant and other staff members. In addition, wetrain our maintenance personnel to minimize any operationalproblems that occur during the opening of a new resort,including the operation of our waterparks. We believe that theseefforts help to minimize any problems associated with opening anew resort and give our first guests a favorable, memorableexperience that will build brand loyalty.***Training and Development***     We believe that our ability to provide a warm family atmospherewhere families can relax, play and reconnect begins with ourpeople and their ability to deliver quality customer service. Weseek to recruit, train and retain employees who will make surethat our guests enjoy their stay, and we seek to promote fromwithin our company. Each new resort employee undergoes aweek-long orientation program and is paired with a more veteranemployee for a month so that the new employee can learn moreabout our resorts, our culture and how we strive to provide thebest possible customer service. Our employees are invested inour success and focused on ensuring a memorable experience foreach of our guests. We believe that our high level of customerservice sets us apart and promotes valuable referrals and repeatvisits.***Sales and Marketing***     We place a significant emphasis on the sales and marketing ofour unique, family-focused resorts. We work together with athird-party consulting firm to analyze the demographics of ourmarkets and to identify potential guests for targeted marketing,both within our primary market areas and beyond those areas toattract occasional or seasonal travelers. We market to thesepotential customers through a combination of television, radio,newspaper and direct mail advertising, including advertisingthrough local chambers of commerce and convention and visitorsbureaus. We also rely upon repeat guests and guest referrals, aswell as brand recognition and the visibility of the resortsthemselves, which are located along major highways in hightraffic areas. In addition, our engaging website offers detailedinformation about our resorts, including virtual tours and roomlayouts.     For new resorts, our marketing efforts begin before constructioncommences and we establish sales offices to generate advancebookings. Reservations may be made at our resorts, through ourweb site or through our central reservations call center. Ourcall center and highly trained staff allow us to offerconsistent specials throughout our resorts, better track roomoccupancy levels and room rates and handle the high volume ofcalls that are usually associated with the opening of a resort.     We maintain an in-house sales force and graphic arts departmentcomprised of 10 employees. Our experienced staff developsproducts and promotions for use in merchandising and marketingpromotions. We also engage in cross-marketing, promotions andco-marketing arrangements with major vendors. We have receivednumerous awards for our general advertising, website, printmedia, radio commercials and sales presentations.     We have developed Cub Club, a frequent guest program forchildren. Membership is available to all children who havestayed at one of our resorts. The benefits of the programinclude coupons and other incentives, a periodic newsletter,access to the Cub Club activity rooms at each of our resorts andspecial offers
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to children who visit during their birthday month. Our BlueHarbor Resort features a Crew Club program for children similarto the Great Wolf Lodge resorts’ Cub Club.***Maintenance and Inspections***     Each of our resorts has an aquatics manager who is trained inall aspects of water quality and safety. Our waterparks arefrequently inspected by on-site maintenance personnel. Theseinspections include safety checks of the equipment in thewaterpark, as well as analyses of water and air quality. Ourwater quality levels are constantly monitored and tested bycomputers and by a full-time aquatics maintenance engineer, whoworks with an additional assistant during our busiest months.Our air quality system is designed to minimize humidity andmoisture build-up, which materially reduces maintenance costs.Furthermore, we use Ellis & Associates as water safetyconsultants at our resorts in order to train lifeguards andaudit safety procedures.     Our senior management and the individual resort personnelevaluate the risk aspects of each resort’s operation,including potential risks to the public and employees and staff.Each resort has six full time maintenance employees on staffthat ensure building quality and three fulltime aquaticsmaintenance employees that ensure the ride safety and air andwater quality inside the resort’s indoor waterpark. We usea state of the art filtration system and ozonators to balancethe water and air quality within the waterpark in order toaccommodate fluctuating quantities of visitors.**Development Criteria**     We choose sites for the development of new resorts based upon anumber of factors, including: • *Large target customer base.* We select development sites    that generally have a minimum of five million target customers    within a convenient driving distance. Because we offer an    affordable vacation experience, we appeal to families in a    variety of income ranges.  • *Recognized tourist destination.* We focus on drive-to    destinations that attract a large number of tourists, including    traditional family vacation markets. We believe we can charge    premium rates in these markets due to the high quality of our    resorts and our family-oriented amenities and activities. In    addition, the indoor nature of many of our amenities and    activities allows us to reduce the impact of seasonality that    negatively affects other attractions in these areas. These areas    also often have active and effective local visitors and    convention bureaus that complement our marketing and advertising    efforts at little or no cost to us.  • *Highly visible and large sites.* We develop resorts in    highly visible locations along major roadways. Visibility from    highways enhances easy drive-to access, provides marketing    benefits due to high volumes of traffic and often produces    synergies from adjacent land uses or complementary developments.    We generally choose sites that have enough acreage to allow for    potential expansions and future sales of out-lots.     Based upon these criteria, we have identified over 50 marketsthat have populations of at least five million people locatedwithin a convenient driving distance. We have already identifiedpotential development locations in 12 to 14 of these targetmarkets that meet our other criteria for successful development.We are in negotiations for sites in six of these markets. Inaddition, our licensee, Ripley’s, is developing a GreatWolf Lodge in Niagara Falls, Ontario that we will operatepursuant to our license and management agreement withRipley’s.     Once we have identified a market that meets our developmentcriteria, we search for potential sites, which may be difficultto find in some areas. We then perform initial analyses of thepermitting process and access to utilities, before acquiring asufficient amount of land from one or more landowners. Basedupon the target customer base of the market, we develop initialspecifications for the resort, such as the number of guestsuites and size of the indoor waterpark and other amenities. Wealso formally begin the potentially lengthy and difficultprocess of obtaining the necessary approvals and permits fromthe appropriate local governmental bodies, including thenecessary water rights and environmental permits. Once thepermitting process is
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complete, we secure financing for the project and beginconstruction on the resort. This overall development processtypically takes from two and one-half to four years.**Our Customers**     Our target customer base consists of families with childrenranging in age from 2 to 14 years old who live within aconvenient driving distance from our resorts. We believe thatmost families choose our resorts either for taking a primaryvacation during the year or for weekend or holiday getaways.According to research conducted by Third Wave Research at ourWisconsin Dells and Sandusky resorts, families choosing us astheir primary vacation destination account for approximately 60%of our annual room nights and approximately 40% of our totalrevenue, while families choosing us for weekend and holidaygetaways account for approximately 25% of our annual room nightsand approximately 30% of our total revenue. Although we have nothad studies performed at our other resorts, we believe our otherresorts would have similar statistics.     In addition, meeting facilities at our resorts allow us toattract other types of customers, such as small companies,business groups and social clubs. We believe that the21,000 square foot conference center located at ourSheboygan resort will allow us to attract larger companies andindustry groups to that resort.**Competition**     Our resorts compete with other forms of family vacation travel,including theme parks, waterparks, amusement parks and otherrecreational activities, including other resorts located nearthese types of attractions. Our business is also subject tofactors that affect the recreation and leisure and resortindustries generally, such as general economic conditions andchanges in consumer spending habits. We believe that theprincipal competitive factors of a family entertainment resortinclude location, room rates, name recognition, reputation, theuniqueness and perceived quality of the attractions andamenities, the atmosphere and cleanliness of the attractions andamenities, the quality of the lodging accommodations, thequality of the food and beverage service, convenience, servicelevels and reservation systems.     A recent US Realty Consultants, Inc. (USRC) surveyidentified 24 existing properties in the United States andCanada meeting their definition of an indoor waterparkdestination resort that are currently open and 14 additionaldestination resorts expected to open in 2005. Two additionalwaterparks are identified as under construction and expected toopen in 2006 and additional resorts currently in development areconsidered likely to begin construction in 2005 and open in2006. Based on the USRC survey, our eight resorts that we expectto be open at the end of 2005 will comprise approximately 21% ofthe supply of existing destination waterpark resorts in thismarket segment.     As a result of our market presence and our managementteam’s substantial experience, we believe we have anopportunity to capitalize on our first-mover advantage in thisindustry segment and to achieve significant brand recognition.While we believe that our first-mover advantage is verybeneficial to us, it does provide our competitors with anopportunity to monitor our success in our chosen markets. Assuch, a competitor may choose not to enter one of our marketsbased on our performance, or may subsequently develop a resortin our markets that is newer, has additional amenities, oroffers more, larger or more exciting waterpark attractions thanour resorts.     In most of our markets, there are few, if any, other familyentertainment resorts featuring indoor waterparks. However, inWisconsin Dells, Wisconsin, where indoor waterparks were firstintroduced, there are approximately 16 other resorts and hotelswith some type of indoor water-related activity or amenity. As aresult, we face significant competition from both lower pricedunthemed waterparks and larger, more expensive waterparks withthrill rides and other attractions in the Wisconsin Dellsmarket. While the Wisconsin Dells market has a significantnumber of resorts with indoor waterparks, we believe thecompetitive landscape in that small, regional market is notrepresentative of the competition we may face as we furtherexpand our portfolio of resorts. The vast majority of indoorwaterpark resorts in Wisconsin Dells are family-owned orprivately operated businesses that have yet to developadditional resorts outside of Wisconsin Dells. In addition, webelieve our ability to compete effectively in this highlycompetitive market will enable us to more effectively compete inother markets where we may not be the only family entertainmentresort.
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     We anticipate that competition within some of our markets willincrease in the foreseeable future. We believe that a number ofother resort operators are developing or considering thedevelopment of family entertainment resorts with indoorwaterparks, which will compete with our resorts. One of theseresorts is being constructed by a competitor in Sandusky andanother resort is being constructed by a competitor nearTraverse City.**Governmental Regulation**     The ownership and management of our resorts, as well as ourdevelopment and construction of new resorts, subjects us tocomprehensive federal, state and local laws regulating zoning,land development, land use, building design and construction,and other real estate-related laws and regulations. In addition,a number of states regulate the permitting and licensing ofresorts by requiring registration, disclosure statements andcompliance with specific standards of conduct. Our failure tomaintain or acquire the requisite licenses, permits andauthorizations required by such laws and regulations, as well asany failure on our part to comply with registration, disclosureand standards of conduct required by such laws and regulationscould impact the operation, profitability and success of ourcurrent resorts or the development, completion and success ofany resorts we may develop in the future.     We believe that each of our resorts has the necessary permitsand approvals to operate its business and is in materialcompliance with all applicable registration, disclosure andconduct requirements. We intend to continue to obtain suchpermits and approvals for any resorts we may develop in thefuture or additions or renovations to current resorts and toensure that such resorts and additions or renovations complywith applicable registration, disclosure and conductrequirements.     We are also subject to laws and regulations governing ourrelationship with employees, including minimum wagerequirements, overtime, working conditions and work permitrequirements. An increase in the minimum wage rate, employeebenefit costs or other costs associated with employees couldincrease our overall labor costs.     The operation of our waterparks subjects us to state and localregulations governing the quality of the water we use in ourwaterparks, including bacteriological, chemical, physical andradiological standards. In addition to inspections we conduct onour own, state and local authorities may also conductinspections of our waterparks to determine our compliance withapplicable standards. If we are found to be in violation of suchregulations we could be subject to various penalties, including,but not limited to, monetary fines and the temporary closure ofour waterparks. Changes in state or local regulations couldimpose more stringent standards with which we would have tocomply.     We are subject to both federal and state environmental laws andregulations, including laws and regulations governing thedischarge of water from our waterparks. Specifically, under therequirements of the Federal Clean Water Act, we must obtainNational Pollutant Discharge Elimination System permits from theEnvironmental Protection Agency or from the state environmentalagency to which the permit program has been delegated fordischarges into waterways and comply with the permit termsregarding wastewater quality and discharge limits. Such permitsmust be renewed from time-to-time, as required by regulation andadditional capital expenditures for wastewater treatment systemsassociated with the renewal of our water discharge permits maybe required. Importantly, changes in federal or statelegislation or regulations could impose more stringent releasestandards with which we would have to comply. Currently, ourdevelopment in the Pocono Mountains is our only property subjectto such laws and regulations governing the discharge of waterand we intend to comply with these laws and regulations as wedevelop that property.     As a place of public accommodation, our resorts are subject tothe requirements of the Americans with Disabilities Act of 1990,which we refer to as the ADA. As such, our resorts are requiredto meet certain federal requirements related to access and useby disabled persons. While we believe that our resorts aresubstantially in compliance with these requirements, we have notconducted an audit or investigation of all of our resorts todetermine our compliance. Further, federal legislation orregulations may amend the ADA to impose more stringentrequirements with which we would have to comply.
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**Environmental Matters**     Our operations and properties are subject to federal, state andlocal laws and regulations relating to the protection of theenvironment, natural resources and worker health and safety,including laws and regulations governing and creating liabilityrelating to the management, storage and disposal of hazardoussubstances and other regulated materials. Our properties arealso subject to various environmental laws and regulations thatgovern certain aspects of our on-going operations. These lawsand regulations control such things as the nature and volume ofour wastewater discharges, quality of our water supply and ourwaste management practices. The costs of complying with theserequirements, as they now exist or may be altered in the future,could adversely affect our financial condition and results ofoperations.     Because we own and operate real property, various federal, stateand local laws may impose liability on us for the costs ofremoving or remediating various hazardous substances, includingsubstances that may be currently unknown to us, that may havebeen released on or in our property or disposed by us atthird-party locations. The principal federal laws relating toenvironmental contamination and associated liabilities thatcould affect us are the Resource Conservation and Recovery Actand the Comprehensive Environmental Response, Compensation andLiability Act; state and local governments have also adoptedseparate but similar environmental laws and regulations thatvary from state to state and locality to locality. These lawsmay impose liability jointly and severally, without regard tofault and whether or not we knew of or caused the release. Thepresence of hazardous substances on a property or the failure tomeet environmental regulatory requirements may materiallyadversely affect our ability to use or sell the property, or touse the property as collateral for borrowing, and may cause usto incur substantial remediation or compliance costs. Inaddition, if hazardous substances are located on or releasedfrom one of our properties, we could incur substantialliabilities through a private party personal injury claim, aclaim by an adjacent property owner for property damage or aclaim by a governmental entity for other damages, such asnatural resource damages. This liability may be imposed on usunder environmental laws or common-law principles.     We obtain environmental assessment reports on the properties weown or operate as we deem appropriate. These reports have notrevealed any environmental liability or compliance concerns thatwe believe would materially adversely affect our financialcondition or results of operations. However, the environmentalassessments that we have undertaken might not have revealed allpotential environmental liabilities or claims for suchliabilities. It is also possible that future laws, ordinances orregulations or changed interpretations of existing laws andregulations will impose material environmental liability orcompliance costs on us, that the current environmentalconditions of properties we own or operate will be affected byother properties in the vicinity or by the actions of thirdparties unrelated to us or that our guests could introducehazardous or toxic substances into the resorts we own or managewithout our knowledge and expose us to liability under federalor state environmental laws. The costs of defending theseclaims, complying with as yet unidentified requirements,conducting this environmental remediation or responding to suchchanged conditions could adversely affect our financialcondition and results of operations.     Some of our resort properties may have contained, or areadjacent to or near other properties that have contained orcurrently contain underground storage tanks for the storage ofpetroleum products or other hazardous or toxic substances. Ifhazardous or toxic substances were released from these tanks, wecould incur significant costs or, with respect to tanks on ourproperty, be liable to third parties with respect to thereleases.     On occasion, we may elect to develop properties that have had ahistory of industrial activities and/or historical environmentalcontamination. Where such opportunities arise, we engagethird-party experts to evaluate the extent of contamination, thescope of any needed environmental clean-up work, and availablemeasures (such as creation of barriers over residualcontamination and deed restrictions prohibiting groundwater useor disturbance of the soil) for ensuring that planneddevelopment and future property uses will not presentunacceptable human health or environmental risks or exposure toliabilities. If those environmental assessments indicate thatthe development opportunities are acceptable, we also work withappropriate governmental agencies and obtain their approvals ofplanned site clean-up, development activities, and the proposedfuture property uses. We have followed that process inconnection with the development of our Blue Harbor Resort inSheboygan, Wisconsin where the City of Sheboygan has arrangedfor environmental
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clean-up work and ongoing groundwater monitoring and we haveagreed to the use of a barrier preventing contact with residualcontamination and implementation of a deed restriction limitingsite activities. To our knowledge, our work at our Sheboyganresort has been conducted in accordance with requirementsimposed by the Wisconsin Department of Natural Resources. Basedon these efforts, we are not aware of any environmentalliability or compliance concerns at our Sheboygan resort that webelieve would materially adversely affect our financialconditions or results of operations. It is possible, however,that our efforts have not identified all environmentalconditions at the property or that environmental conditions andliabilities associated with the property could change in thefuture.     Future acquisitions of properties subject to environmentalrequirements or affected by environmental contamination couldrequire us to incur substantial costs relating to such matters.In addition, environmental laws, regulations, wetlands,endangered species and other land use and natural resourceissues affecting either currently owned properties or sitesidentified as possible future acquisitions may increase costsassociated with future site development and constructionactivities or business or expansion opportunities, prevent,delay, alter or interfere with such plans or otherwise adverselyaffect such plans.**Insurance**     We believe that our properties are covered by adequate fire,flood and property insurance, as well as commercial liabilityinsurance with what we believe are commercially reasonabledeductibles and limits for our industry. Changes in theinsurance market since September 11, 2001 have causedsignificant increases in insurance costs and deductibles, andhave increased the risk that affordable insurance may not beavailable to us in the future.     While our management believes that our insurance coverage isadequate, if we were held liable for amounts and claimsexceeding the limits of our insurance coverage or outside thescope of our insurance coverage, our business, results ofoperations and financial condition could be materially andadversely affected.**Intellectual Property**     We have registered, applied for the registration of or claimownership of a variety of trade names, service marks, copyrightsand trademarks for use in our business, including Biko the Bear,Blue Harbor Resort, Boathouse Suite, Breaker Bay, Crew Club, CubClub, Great Wolf Lodge, Great Wolf Resorts, KidAquarium Suite,KidCabin and Wiley the Wolf in the United States and, whereappropriate, in foreign countries. There can be no assurancethat we can obtain the registration for the marks whereregistration has been sought. We are not aware of any facts thatwould negatively impact our continuing use of any of the abovetrade names, service marks or trademarks. We consider ourintellectual property rights to be important to our business andactively defend and enforce them.**Employees**     As of December 31, 2004, we had approximately 120 corporateemployees, including our central reservations center employees,and approximately 1,600 resort-level employees, approximately700 of whom were part-time employees. Unlike more seasonalresorts and attractions, we are open year-round and are able toattract and retain high quality employees throughout the year.However, we do have fewer part-time employees during the wintermonths. None of our employees is covered by a collectivebargaining agreement. We believe that our relationship with ouremployees is good.**Offices**     We lease approximately 13,800 square feet of office spacefor our corporate headquarters office and approximately2,500 square feet of office space for our centralreservations call center operations in Madison, Wisconsin. Wealso lease approximately 3,800 square feet of office spacein Falls Church, Virginia. We believe these facilities areadequate for our current needs.
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**Code of Business Conduct and Ethics**     We have adopted a Code of Business Conduct and Ethics thatapplies to our principal executive officer and senior financialofficers. It is available in the investor relations section ofour website, which is located atwww.greatwolfresorts.com. In the event that we makechanges to or provide waivers from the provisions of our Code ofBusiness Conduct and Ethics that the SEC requires us todisclose, we intend to disclose these events in the investorrelations section of our website.**Risk Factors**     The risk factors set forth below are applicable to Great WolfResorts. You should carefully consider the following factors inevaluating our company, our properties and our business. Theoccurrence of any of the following risks could materiallyadversely affect, among other things, our business, financialcondition and results of operations.**Risk Factors Related to Our Business*****We may not be able to develop new resorts or further    develop existing resorts on a timely or cost efficient basis,    which would adversely affect our growth strategy.***     As part of our growth strategy, we intend to develop additionalresorts and to further expand our existing resorts. Developmentinvolves substantial risks, including the following risks: •     development costs may exceed budgeted or contracted amounts;  •     delays in completion of construction;  •     failure to obtain all necessary zoning, land use, occupancy,    construction, operating and other required governmental permits    and authorizations;  •     changes in real estate, zoning, land use, environmental and tax    laws;  •     unavailability of financing on favorable terms;  •     failure of developed properties to achieve desired revenue or    profitability levels once opened;  •     competition for suitable development sites from competitors that    may have greater financial resources or risk tolerance than we    do; and  •     the incurrence of substantial costs in the event a development    project must be abandoned prior to completion.In particular, resort construction projects entail significantrisks, including shortages of design and construction expertise,materials or skilled labor, unforeseen engineering,environmental or geological problems, work stoppages, weatherinterference, floods and unanticipated cost increases. There arealso a limited number of suppliers and manufacturers of theequipment we use in our indoor waterparks. We may not be able tosuccessfully manage our development to minimize these risks, andthere can be no assurance that present or future developmentswill perform in accordance with our previous developments or ourexpectations.***We compete with other family vacation travel destinations    and resorts.***     Our resorts compete with other forms of family vacation travel,including theme, water and amusement parks and otherrecreational activities. Our business is also subject to factorsthat affect the recreation and leisure and resort industriesgenerally, such as general economic conditions and changes inconsumer spending habits. We believe the principal competitivefactors of a family entertainment resort include location, roomrates, name recognition, reputation, the uniqueness andperceived quality of the attractions and amenities, theatmosphere and cleanliness of the attractions and amenities, thequality of the lodging accommodations, the quality of the foodand beverage service, convenience, service levels andreservation systems.
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     We anticipate that competition within some of our markets willincrease in the foreseeable future. A number of other resortoperators are developing family entertainment resorts withindoor waterparks that will compete with some or all of ourresorts. In particular, one of our current competitors isconstructing a resort in the Sandusky market. We compete forguests and for new development sites with certain of theseentities that may have greater financial resources than we doand better relationships with lenders and sellers of realestate. These entities may be able to accept more risk than wecan prudently manage and may have greater marketing andfinancial resources. Further, there can be no assurance that newor existing competitors will not significantly reduce theirrates or offer greater convenience, services or amenities,significantly expand or improve resorts, including the additionof “thrill rides,” in markets in which we operate.Such events could materially adversely affect our business andresults of operations.***We may not be able to manage our expected growth, which    could adversely affect our operating results.***     Since 1999, we have experienced substantial growth as we havegrown from operating one resort to currently owning andoperating five resorts with two additional owned resortsscheduled to open in 2005 and a licensed resort that we willmanage scheduled to open in 2006. We intend to continue todevelop additional resorts and manage additional licensedresorts owned by third parties. Our anticipated growth couldplace a strain on our management, employees and operations. Ourgrowth has increased our operating complexity and the level ofresponsibility for new and existing management. Our ability tocompete effectively and to manage our recent and future growtheffectively will depend on our ability to implement and improvefinancial and management information systems on a timely basisand to effect changes in our business, such as implementinginternal controls to handle the increased size of our operationsand hiring, training, developing and managing an increasingnumber of experienced management-level and other employees.Unexpected difficulties during expansion, the failure to attractand retain qualified employees or our inability to respondeffectively to recent growth or plan for future expansion, couldadversely affect our results of operations.***Accidents or injuries in our resorts, particularly in our    waterparks, may subject us to liability, and accidents or    injuries at our resorts or at competing resorts with waterparks    could adversely affect our safety reputation and attendance,    which would harm our business, financial condition and results    of operations.***     There are inherent risks of accidents or injuries at familyentertainment resorts, including accidents or injuries atwaterparks, particularly for small children if their parents donot provide appropriate supervision. Despite our emphasis onsafety, the lifeguards in our indoor waterparks and our otherresort staff cannot prevent every accident or injury. Potentialwaterpark accidents and injuries include falls, cuts or otherabrasions, sickness from contaminated water, injuries resultingfrom equipment malfunctions and drownings. One or more accidentsor injuries at any of our waterparks or at other waterparkscould reduce attendance at our resorts, adversely affect oursafety reputation among our potential customers, decrease ouroverall occupancy rates and increase our costs by requiring usto take additional measures to make our safety precautions evenmore visible and effective.     If accidents or injuries occur at any of our resorts, we may beheld liable for costs related to the injuries. We maintaininsurance of the type and in the amounts that we believe arecommercially reasonable and that are available to businesses inour industry, but there can be no assurance that our liabilityinsurance will be adequate or available at all times and in allcircumstances to cover any liability for these costs. Ourbusiness, financial condition and results of operations would beadversely affected to the extent claims and associated expensesresulting from accidents or injuries exceed our insurancerecoveries.***Our predecessor entities have a history of losses and we    may not be able to achieve or sustain profitability.***     Our predecessor entities incurred net losses in the period endedDecember 20, 2004 and in each of the years endedDecember 31, 2003 and 2002. We cannot guarantee that wewill become profitable. Given the increasing competition in ourindustry and capital intensive nature of our business, we maynot be able to
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sustain or increase profitability on a quarterly or annualbasis, and our failure to do so would adversely affect ourbusiness and financial condition.***Our business is dependent upon family vacation patterns,    which may cause fluctuations in our revenues.***     Since most families with small children choose to take vacationsduring school breaks and on weekends, our occupancy is higheston the weekends and during months with prolonged school breaks,such as the summer months and spring break weeks in March andApril. Our occupancy is lowest during May and September aschildren return to school following these prolonged breaks. As aresult of these family vacation patterns, our revenues mayfluctuate. We may be required to enter into short-termborrowings in slower periods in order to offset suchfluctuations in revenues and to fund our anticipatedobligations. In addition, adverse events occurring during ourpeak occupancy periods would have an increased impact on ourresults of operations.***We may not be able to attract a significant number of    customers from our key target markets, which would adversely    affect our business, financial condition and results of    operations.***     Our strategy emphasizes attracting and retaining customers fromthe local, or drive-to, markets within a convenient drivingdistance from each of our resorts. Any resorts we develop in thefuture are similarly likely to be dependent primarily on themarkets in the immediate vicinity of such resorts. There can beno assurance that we will be able to continue to attract asufficient number of customers in our local markets to make ourresort operations profitable. If we fail to do so, our business,financial condition and results of operations would be adverselyaffected.***Because we concentrate in a single industry segment, we    may be adversely affected by a downturn in that industry    segment.***     Our assets and operations are concentrated in a single industrysegment — family entertainment resorts. Our currentstrategy is to expand the number of our resorts and improve ourexisting resorts. Therefore, a downturn in the entertainment,travel or vacation industries, in general, and the familyentertainment resort segment, in particular, could have anadverse effect on our business and financial condition.***Changes in consumer spending habits may affect our growth,    financial condition and results of operations.***     The success of our operations depends to a significant extentupon a number of factors relating to discretionary consumerspending, including economic conditions affecting disposableconsumer income such as employment, business conditions,interest rates and taxation. There can be no assurance thatconsumer spending will not be adversely affected by economicconditions, thereby impacting our growth, financial conditionand results of operations.***Increases in operating costs and other expense items could    reduce our operating margins and adversely affect our growth,    financial condition and results of operations.***     Increases in operating costs due to inflation and other factorsmay not be directly offset by increased room and other revenue.Our most significant operating costs are our labor, energy,insurance and property taxes. Many, and in some cases all, ofthe factors affecting these costs are beyond our control.     Labor is our primary resort-level operating expense. As ofDecember 31, 2004, we employed approximately1,600 hourly-wage and salaried employees in our resorts. Ifwe face labor shortages or increased labor costs because ofincreased competition for employees, higher employee turnoverrates or increases in the federal minimum wage or other employeebenefits costs (including costs associated with health insurancecoverage), our operating expenses could increase and our growthcould be adversely affected. Our success depends in part uponour ability to attract, motivate and retain a sufficient numberof qualified employees, including resort managers, lifeguards,waterpark maintenance professionals and resort staff, necessaryto keep pace with our expansion schedule. The number ofqualified individuals needed to fill these positions is in short
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supply in some areas. Although we have not yet experienced anysignificant problems in recruiting or retaining employees, anyfuture inability to recruit and retain sufficient individualsmay delay the planned openings of new resorts. Competition forqualified employees could also require us to pay higher wages toattract a sufficient number of employees.     Energy costs also account for a significant portion of our totalresort-level operating expenses. The price of energy isvolatile, and shortages sometimes occur. Significant increasesin the cost of energy, or shortages of energy, could interruptor curtail our operations and lower our operating margins.     The costs for maintaining adequate insurance coverage fluctuateand are generally beyond our control. If insurance ratesincrease and we are not able to pass along those increased coststo our customers through higher room rates and amenity costs,our operating margins could suffer.     Each of our resorts is subject to real and personal propertytaxes. The real and personal property taxes on our resorts mayincrease or decrease as tax rates change and as our resorts areassessed or reassessed by taxing authorities. If property taxesincrease and we are unable to pass these increased costs alongto our customers through higher room rates and amenity costs,our financial condition and results of operations may beadversely affected.***Uninsured losses or losses in excess of our insurance    coverage could adversely affect our financial condition and our    cash flow, and there are a limited number of insurers that will    underwrite coverage for resorts with indoor waterparks.***     We maintain comprehensive liability, fire, flood (whereappropriate) and extended coverage insurance with respect to ourresorts with policy specifications, limits and deductibles thatwe believe are commercially reasonable for our operations andare available to businesses in our industry. Certain types oflosses, however, may be either uninsurable or not economicallyinsurable, such as losses due to earthquakes, riots, acts of waror terrorism. Should an uninsured loss occur, we could lose bothour investment in, and anticipated profits and cash flow from, aresort. If any such loss is insured, we may be required to pay asignificant deductible on any claim for recovery of such a lossprior to our insurer being obligated to reimburse us for theloss or the amount of the loss may exceed our coverage for theloss. In addition, we may not be able to obtain insurance in thefuture at acceptable rates, or at all, and insurance may not beavailable to us on favorable terms or at all, includinginsurance for the construction and development of our resorts,especially since there are a limited number of insurancecompanies that underwrite insurance for indoor waterparks.***We will be required to make certain capital expenditures    to maintain the quality of our resorts, which could adversely    affect our financial condition and results of operations.***     Our resorts have an ongoing need for renovations and othercapital improvements, including periodic replacement offurniture, fixtures and equipment. The cost of such capitalimprovements could have an adverse effect on our financialcondition and results of operations. Such renovations involvecertain risks, including the possibility of environmentalproblems, construction cost overruns and delays, the possibilitythat we will not have available cash to fund renovations or thatfinancing for renovations will not be available on favorableterms, if at all, uncertainties as to market demand ordeterioration in market demand after commencement of renovationand the emergence of unanticipated competition from otherentities. If we are unable to meet our capital expenditureneeds, we may not be able to maintain the quality of our resorts.***We may not be able to adequately protect our intellectual    property, which could harm the value of our brands and adversely    affect our business.***     The success of our resorts depends in part on our brands, logosand branded merchandise. We rely on a combination of trademarks,copyrights, service marks, trade secrets and similarintellectual property rights to protect our brands, logos,branded merchandise and other intellectual property. The successof our growth strategy depends on our continued ability to useour existing trademarks and service marks in order to increasebrand awareness and further develop our brand in both domesticand international markets. We also use our trademarks and otherintellectual property on the Internet. If our efforts to protectour intellectual property are
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not adequate, or if any third party misappropriates or infringeson our intellectual property, either in print or on theInternet, the value of our brands may be harmed, which couldhave a material adverse effect on our business, including thefailure of our brands, logos and branded merchandise to achieveand maintain market acceptance.     We have licensed our Great Wolf Lodge brand and intend tofurther license the brand in international markets. While we tryto ensure that the quality of our brand is maintained by ourcurrent licensee, and will be maintained by any futurelicensees, we cannot assure you that these licensees will nottake actions that adversely affect the value of our intellectualproperty or reputation.     We have registered certain trademarks and have other trademarkregistrations pending in the United States and foreignjurisdictions. There is no guarantee that our trademarkregistration applications will be granted. In addition, thetrademarks that we currently use have not been registered in allof the countries in which we do, or intend to do, business andmay never be registered in all of these countries. We cannotassure you that we will be able to adequately protect ourtrademarks or that our use of these trademarks will not resultin liability for trademark infringement, trademark dilution orunfair competition.     We cannot assure you that all of the steps we have taken toprotect our intellectual property in the United States andforeign countries will be adequate. In addition, the laws ofsome foreign countries do not protect intellectual propertyrights to the same extent as the laws of the United States.***Our operations may be adversely affected by extreme    weather conditions and the impact of disasters.***     We currently operate, and in the future intend to operate, ourresorts in a number of different markets, each of which issubject to local weather patterns and their effects on ourresorts, especially our guests’ ability to travel to ourresorts. Extreme weather conditions can from time to time havean adverse impact upon individual resorts or particular regions.Our resorts are also vulnerable to the effects of destructiveforces, such as fire, storms, high winds and flooding and anyother occurrence that could affect the supply of water orelectricity to our resorts. Although our resorts are insuredagainst property damage, damages resulting from acts of God orotherwise may exceed the limits of our insurance coverage or beoutside the scope of that coverage.***Compliance with the Americans with Disabilities Act and    other governmental regulations and changes in governmental rules    and regulations may adversely affect our financial condition and    results of operations.***     Under the Americans with Disabilities Act of 1990, or the ADA,all public accommodations are required to meet certain federalrequirements related to access and use by disabled persons.While we believe that our resorts are substantially incompliance with these requirements, we have not conducted anaudit or investigation of all of our resorts to determine ourcompliance. A determination that we are not in compliance withthe ADA could result in the imposition of fines or an award ofdamages to private litigants. We cannot predict the ultimatecost of compliance with the ADA.     The resort industry is also subject to numerous federal, stateand local governmental regulations including those related tobuilding and zoning requirements, and we are subject to lawsgoverning our relationship with our employees, including minimumwage requirements, overtime, working conditions and work permitrequirements. In addition, changes in governmental rules andregulations or enforcement policies affecting the use andoperation of our resorts, including changes to building codesand fire and life safety codes, may occur. If we were requiredto make substantial modifications at our resorts to comply withthe ADA, other governmental regulations or changes ingovernmental rules and regulations, our financial condition andresults of operations could be adversely affected.***We face possible liability for environmental cleanup costs    and damages for contamination related to our properties, which    could adversely affect our business, financial condition and    results of operations.***     Our operations and properties are subject to federal, state andlocal laws and regulations relating to the protection of theenvironment, natural resources and worker health and safety,including laws and regulations
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governing and creating liability relating to the management,storage and disposal of hazardous substances and other regulatedmaterials. Our properties are also subject to variousenvironmental laws and regulations that govern certain aspectsof our on-going operations. These laws and regulations controlsuch things as the nature and volume of our wastewaterdischarges, quality of our water supply and our waste managementpractices. The costs of complying with these requirements, asthey now exist or may be altered in the future, could adverselyaffect our financial condition and results of operations.     Because we own and operate real property, various federal, stateand local laws may impose liability on us for the costs ofremoving or remediating various hazardous substances, includingsubstances that may be currently unknown to us, that may havebeen released on or in our property or disposed by us atthird-party locations. The principal federal laws relating toenvironmental contamination and associated liabilities thatcould affect us are the Resource Conservation and Recovery Actand the Comprehensive Environmental Response, Compensation andLiability Act; state and local governments have also adoptedseparate but similar environmental laws and regulations thatvary from state to state and locality to locality. These lawsmay impose liability jointly and severally, without regard tofault and whether or not we knew of or caused the release. Thepresence of hazardous substances on a property or the failure tomeet environmental regulatory requirements may materiallyadversely affect our ability to use or sell the property, or touse the property as collateral for borrowing, and may cause usto incur substantial remediation or compliance costs. Inaddition, if hazardous substances are located on or releasedfrom one of our properties, we could incur substantialliabilities through a private party personal injury claim, aclaim by an adjacent property owner for property damage or aclaim by a governmental entity for other damages, such asnatural resource damages. This liability may be imposed on usunder environmental laws or common-law principles.     We obtain environmental assessment reports on the properties weown or operate as we deem appropriate. These reports have notrevealed any environmental liability or compliance concerns thatwe believe would materially adversely affect our financialcondition or results of operations. However, the environmentalassessments that we have undertaken might not have revealed allpotential environmental liabilities or claims for suchliabilities. It is also possible that future laws, ordinances orregulations or changed interpretations of existing laws andregulations will impose material environmental liability orcompliance costs on us, that the current environmentalconditions of properties we own or operate will be affected byother properties in the vicinity or by the actions of thirdparties unrelated to us or that our guests could introducehazardous or toxic substances into the resorts we own or managewithout our knowledge and expose us to liability under federalor state environmental laws. The costs of defending theseclaims, complying with as yet unidentified requirements,conducting this environmental remediation or responding to suchchanged conditions could adversely affect our financialcondition and results of operations.     Some of our resort properties may have contained, or areadjacent to or near other properties that have contained orcurrently contain underground storage tanks for the storage ofpetroleum products or other hazardous or toxic substances. Ifhazardous or toxic substances were released from these tanks, wecould incur significant costs or, with respect to tanks on ourproperty, be liable to third parties with respect to thereleases.     On occasion, we may elect to develop properties that have had ahistory of industrial activities and/or historical environmentalcontamination. Where such opportunities arise, we engagethird-party experts to evaluate the extent of contamination, thescope of any needed environmental clean-up work, and availablemeasures (such as creation of barriers over residualcontamination and deed restrictions prohibiting groundwater useor disturbance of the soil) for ensuring that planneddevelopment and future property uses will not presentunacceptable human health or environmental risks or exposure toliabilities. If those environmental assessments indicate thatthe development opportunities are acceptable, we also work withappropriate governmental agencies and obtain their approvals ofplanned site clean-up, development activities and the proposedfuture property uses. We have followed that process inconnection with the development of our Blue Harbor Resort inSheboygan, Wisconsin where the City of Sheboygan has arrangedfor environmental clean-up work and ongoing groundwatermonitoring and we have agreed to the use of a barrier preventingcontact with residual contamination and implementation of a deedrestriction limiting site activities. To our knowledge, our workat our Sheboygan resort has been conducted in accordance withrequirements imposed by the Wisconsin Department of NaturalResources. Based on these efforts, we are not aware of any
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environmental liability or compliance concerns at our Sheboyganresort that we believe would materially adversely affect ourfinancial conditions or results of operations. It is possible,however, that our efforts have not identified all environmentalconditions at the property or that environmental conditions andliabilities associated with the property could change in thefuture.     Future acquisitions of properties subject to environmentalrequirements or affected by environmental contamination couldrequire us to incur substantial costs relating to such matters.In addition, environmental laws, regulations, wetlands,endangered species and other land use and natural resourceissues affecting either currently owned properties or sitesidentified as possible future acquisitions may increase costsassociated with future site development and constructionactivities or business or expansion opportunities, prevent,delay, alter or interfere with such plans or otherwise adverselyaffect such plans.***Regulation of the marketing and sale of condominiums,    including a prior offer of condominiums at our Blue Harbor    Resort, could adversely affect our business.***     Our marketing and sales of condominium units are subject toextensive regulation by the federal government and the states inwhich our condominiums are marketed and sold. On a federallevel, the Federal Trade Commission Act prohibits unfair ordeceptive acts or competition in interstate commerce. Otherfederal legislation to which we are or may be subject includesthe Interstate Land Sales Full Disclosure Act, the Real EstateSettlement Practices Act and the Fair Housing Act. In addition,many states have adopted specific laws and regulations regardingthe sale of condominiums. For example, certain state laws grantthe purchaser the right to cancel a contract of purchase withina specified period following the earlier of the date thecontract was signed or the date the purchaser has received thelast of the documents required to be provided by the seller. Noassurance can be given that the cost of qualifying undercondominium regulations in all jurisdictions in which we desireto conduct sales will not be significant. The failure to complywith such laws or regulations could adversely affect ourbusiness, financial condition and results of operations.     There can be no assurance that prior or future sales of ourcondominium units will not be considered offers or sales of“securities” under federal law or the state law in thestates where we desire to, or do, conduct sales or in which ourproperties are located. If such interests were considered to besecurities, we would be required to comply with applicable stateand federal securities laws, including laws pertaining toregistration or qualification of securities, licensing ofsalespeople and other matters. There can be no assurance that wewill be able to comply with the applicable state and federalsecurities requirements, and if the offers or sales of ourcondominium units are deemed to be offers or sales ofsecurities, such a determination may create liabilities orcontingencies that could have an adverse effect on ouroperations, including possible rescission rights relating to theunits that have been sold, which, if exercised, could result inlosses and would adversely affect our business, financialcondition and results of operations.     In particular, it is possible that the prior offer ofcondominiums at our Sheboygan resort by Blue Harbor ResortCondominium, LLC, a former subsidiary of Great Lakes that werefer to as Condo LLC, may not have been in compliance withfederal and state securities laws. Prior to the initial publicoffering and the completion of the formation transactions,interests in Condo LLC held by Great Lakes were distributed toGreat Lakes’ shareholders. We did not acquire Condo LLC asa part of the formation transactions. Although Condo LLC hastaken steps to correct any potential securities laws issues inconnection with these offers, we cannot assure you that we wouldnot be held liable to some extent for the offers made by CondoLLC or that the indemnification obligations of the GreatLakes’ principals to us would be sufficient to cover anysuch liabilities.***The illiquidity of real estate may make it difficult for    us to dispose of one or more of our resorts.***     We may from time to time decide to dispose of one or more of ourreal estate assets. Because real estate holdings generally, andfamily entertainment resorts like ours in particular, arerelatively illiquid, we may not be able to dispose of one ormore real estate assets on a timely basis or at a favorableprice. The illiquidity of our real estate assets could mean thatwe continue to operate a facility that management has identifiedfor disposition. Failure to dispose of a real estate asset in atimely fashion, or at all, could adversely affect our business,financial condition and results of operations.
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**Risk Factors Related to Our Capital Structure*****The covenants in our revolving credit facility and    mortgage loan agreement impose significant restrictions on    us.***     The terms of our revolving credit facility impose significantoperating and financial restrictions on us and our subsidiariesand require us to meet certain financial tests. Theserestrictions could also have a negative impact on our business,financial condition and results of operations by significantlylimiting or prohibiting us from engaging in certaintransactions, including: •     incurring or guaranteeing additional indebtedness;  •     paying dividends or making distributions or certain other    restricted payments;  •     making capital expenditures and other investments;  •     creating liens on our assets;  •     issuing or selling capital stock of our subsidiaries;  •     transferring or selling assets currently held by us;  •     repurchasing stock and certain indebtedness;  •     engaging in transactions with affiliates;  •     entering into any agreements that restrict dividends from our    subsidiaries; and  •     engaging in mergers or consolidations.     The failure to comply with any of these covenants could cause adefault under our other debt agreements. Furthermore, ourrevolving credit facility contains certain financial covenants,including establishing a maximum leverage ratio and requiring usto maintain a minimum interest coverage ratio, which, if notmaintained by us, would cause us to be in default under therevolving credit facility. Any of these defaults, if not waived,could result in the acceleration of all of our debt, in whichcase the debt would become immediately due and payable. If thisoccurs, we may not be able to repay our debt or borrowsufficient funds to refinance it.***We may not be able to obtain additional financing on    favorable terms, if at all.***     We expect that we will require additional financing over time,the amount of which will depend on a number of factors,including the number of resorts we construct, additions to ourcurrent resorts and the cash flow generated by our resorts. Theterms of any additional financing we may be able to procure areunknown at this time. Our access to third-party sources ofcapital depends, in part, on: •     general market conditions;  •     the market’s perception of our growth potential;  •     our then-current debt levels;  •     our then-current and expected future earnings;  •     our cash flow; and  •     the market price per share of our common stock.Any future debt financing or issuances of preferred stock thatwe may make will be senior to the rights of holders of ourcommon stock, and any future issuances of common stock willresult in the dilution of the then-existing stockholders’proportionate equity interest.
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**Risk Factors Related to the Ownership of Our Company*****Certain of our insiders exercise considerable influence    over the company.***     As of the date of this Form 10-K report, our executiveofficers and directors, as a group, beneficially ownapproximately 16.3% of the outstanding shares of our commonstock (taking into account the resignations of two of ourexecutive officers effective March 31, 2005). By reason ofsuch holdings, these stockholders acting as a group will be ableto exercise significant influence over our affairs and policies,including the election of our board of directors and matterssubmitted to a vote of our stockholders such as mergers andsignificant asset sales, and their interests might not beconsistent with the interests of other stockholders.***We may have assumed unknown liabilities in connection with    the formation transactions.***     As part of the formation transactions, we acquired ourpredecessor companies subject to existing liabilities, some ofwhich may have been unknown at the time of the closing thereof.Unknown liabilities might include liabilities for cleanup orremediation of undisclosed environmental conditions, claims ofvendors or other persons dealing with the entities prior to theclosing of the formation transactions (that had not beenasserted or threatened prior thereto), tax liabilities andaccrued but unpaid liabilities incurred in the ordinary courseof business. The founding shareholders of our predecessorcompanies agreed to indemnify us with respect to claims forbreaches of representations and warranties brought by us withinone year following the completion of the IPO and the formationtransactions, subject to certain limitations. Many liabilitiesmay not be identified within the one-year period and we may haveno recourse against the founding shareholders or these entitiesfor such liabilities.     With respect to each founding shareholder, the maximumindemnification obligation under these agreements will notexceed 35% of the value of the shares of our common stockreceived by that founding shareholder in the formationtransactions based on the IPO price of $17.00 per share.The maximum amount of the indemnification obligations underthese agreements equals approximately $45,200 in the aggregate.To the extent required, these founding shareholders may fulfillthe indemnity obligations under the agreements solely throughdelivery of shares of common stock that they own, valued at thetime of delivery, or an equivalent amount of cash. However, ifany of these founding shareholders chooses to fulfill theindemnity obligation under the agreement through the delivery ofshares, the maximum number of shares such shareholder will beobligated to deliver is 35% of the number of shares suchfounding shareholder received in the formation transactions. Asa result, there may be a significant shortfall in relation tothe actual costs incurred from the indemnifiable event for whichwe will have no recourse against these founding shareholders.Three of the founding shareholders received personal loans thatare secured by a pledge of all the shares of our common stockreceived by each such founding shareholder in the formationtransactions. Accordingly, as these shares may not be availableto these founding shareholders, these founding shareholders maybe required to satisfy any indemnification obligations underthese agreements in cash. There is no assurance that thefounding shareholders will have adequate cash resources tosatisfy their indemnification obligations under these agreementsif necessary.***We may issue partnership interests in the future that may    be dilutive to, and may have preferential rights over, our    common stockholders.***     We have formed a wholly owned operating partnership to serve asthe parent entity of each of the surviving resort-owningentities. We are the limited partner of the partnership and thesole general partner of the partnership is a new wholly ownedsubsidiary that we have formed for that purpose. We formed theoperating partnership to provide flexibility for futuretransactions as we execute our growth strategy. We believe thatthe ability to issue partnership units will enable us to acquireassets from sellers seeking certain tax treatment. While we donot anticipate issuing any interests in the operatingpartnership in the foreseeable future, we may issue suchinterests in the future. These additional interests may includepreferred limited partnership units. Any partnership intereststhat we issue may be entitled to distributions of available cashthat might otherwise be allocated to the execution of ourbusiness plan or generally available for future dividends, ifany. In addition, any partnership interests may be convertibleinto our common stock, thus having a dilutive
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impact to our common stockholders, and may have voting or otherpreferential rights relative to those of our common stockholders.***The sale of a substantial number of shares of our common    stock may cause the market price of our common stock to    decline.***     As of the date of this Form 10-K report, we haveoutstanding 30,262,308 shares of common stock. Of theseshares, the 16,100,000 shares sold in the IPO are freelytradable. The 14,032,896 shares issued in connection withour formation transactions are subject to lock-up provisions inour bylaws that prohibit the sale of any of these shares untilJune 18, 2005, without the prior written consent of ourboard of directors or chief executive officer. Subject tocertain restrictions, after the end of the lock-up period all ofthese shares will be freely tradable pursuant to an effectiveRegistration Statement previously filed under the Securities Actof 1933, as amended. If our stockholders sell substantialamounts of shares of common stock in the public market,including the shares issued in connection with our formationtransactions, or upon the exercise of outstanding options, or ifthe market perceives that these sales could occur, the marketprice of our common stock could decline. These sales also mightmake it more difficult for us to sell equity or equity-relatedsecurities in the future at a time and price that we deemappropriate, or to use equity as consideration for futureacquisitions.***Provisions in our certificate of incorporation, bylaws,    employment agreements and Delaware law have anti-takeover    effects that could prevent a change in control that could be    beneficial to our stockholders, which could depress the market    price of our common stock.***     Our certificate of incorporation, bylaws, employment agreementsand Delaware corporate law contain provisions that could delay,defer, increase the costs of or prevent a change in control ofus or our management that could be beneficial to ourstockholders. These provisions could also discourage proxycontests and make it more difficult for you and otherstockholders to elect directors and take other corporateactions. As a result, these provisions could limit the pricethat investors are willing to pay in the future for shares ofour common stock. These provisions might also discourage apotential acquisition proposal or tender offer, even if theacquisition proposal or tender offer is at a price above thethen current market price for our common stock. These provisions: •     authorize our board of directors to issue “blank    check” preferred stock and determine the powers,    preferences and privileges of those shares without prior    stockholder approval;  •     prohibit the right of our stockholders to act by written consent;  •     limit the calling of special meetings of stockholders;  •     impose a requirement that holders of 50% of the outstanding    shares of common stock are required to amend the provisions    relating to actions by written consent of stockholders and the    limitations of calling special meetings; and  •     provide for payments to certain of our executive officers upon    termination of employment within certain time periods before or    after a change of control.**Forward-Looking Statements**     Certain information included in this Form 10-K reportcontains, and other materials filed or to be filed by us withthe Securities and Exchange Commission, or the SEC, contain orwill contain, forward-looking statements. All statements, otherthan statements of historical facts, including, among others,statements regarding our future financial position, businessstrategy, projected levels of growth, projected costs andprojected financing needs, are forward-looking statements. Thosestatements include statements regarding the intent, belief orcurrent expectations of Great Wolf Resorts, Inc. and members ofour management team, as well as the assumptions on which suchstatements are based, and generally are identified by the use ofwords such as “may,” “will,”“seeks,” “anticipates,”“believes,” “estimates,”“expects,” “plans,” “intends,”“should” or similar expressions. Forward-lookingstatements are not guarantees of future performance and
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involve risks and uncertainties that actual results may differmaterially from those contemplated by such forward-lookingstatements. Important factors currently known to our managementthat could cause actual results to differ materially from thosein forward-looking statements include those set forth aboveunder the section entitled “Risk Factors.”     We believe these forward-looking statements are reasonable;however, undue reliance should not be placed on anyforward-looking statements, which are based on currentexpectations. All written and oral forward-looking statementsattributable to us or persons acting on our behalf are qualifiedin their entirety by these cautionary statements. Further,forward-looking statements speak only as of the date they aremade, and we undertake no obligation to update or reviseforward-looking statements to reflect changed assumptions, theoccurrence of unanticipated events or changes to futureoperating results over time unless required by law.**ITEM 2.*****PROPERTIES***     We have five family entertainment resorts that are currentlyoperating and two additional resorts that are underconstruction. Information on our properties is as follows: •     Great Wolf Lodge of Wisconsin Dells, is located on 25 acres    in Wisconsin Dells, Wisconsin, all of which have been developed    or are under development.  •     Great Wolf Lodge of Sandusky, is located on 15 acres in    Sandusky, Ohio, all of which have been developed.  •     Great Wolf Lodge of Traverse City, Michigan, is located on    48 acres in Traverse City, Michigan, of which 22 acres    have been developed and 26 acres remain available for    future expansion.  •     Great Wolf Lodge of Kansas City, is located on 17 acres in    Kansas City, Kansas, all of which have been developed.  •     Blue Harbor Resort of Sheboygan, is located on 12 acres in    Sheboygan, Wisconsin, all of which have been developed.  •     Great Wolf Lodge of Williamsburg, is located on 83 acres in    Williamsburg, Virginia, of which 36 acres are being    developed and 47 acres remain available for future    expansion.  •     Great Wolf Lodge of the Pocono Mountains, is located on    95 acres in Pocono Township, near Stroudsburg,    Pennsylvania, of which 45 acres are being developed and    50 acres remain available for future expansion.For additional information regarding our resort properties see“Item 1. Business — OperatingProperties” and “Item 1. Business —Properties Under Construction” above.     In addition, we lease approximately 13,800 square feet ofoffice space for our corporate offices and approximately2,500 square feet of office space for our centralreservations call center operations in Madison, Wisconsin. Wealso lease approximately 3,800 square feet of office spacein Falls Church, Virginia. We believe these facilities areadequate for our current needs.**ITEM 3.*****LEGAL PROCEEDINGS***     We are party to various legal actions in the ordinary course ofour business. We believe that these actions are routine innature and incidental to the operation of our business. Whilethe outcome of these actions cannot be predicted with certainty,we believe that the ultimate resolution of these matters willnot have a material, adverse impact on our business, financialcondition or prospects.**ITEM 4.*****SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS***     No matters were submitted to a vote of our stockholders duringthe period December 15, 2004 (the date we began trading asa public company) through December 31, 2004.
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**PART II****ITEM 5.*****MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED    STOCKHOLDER MATTERS***     In conjunction with the completion of our IPO, our common sharesbegan trading on Nasdaq National Market under the symbol“WOLF.” As of December 31, 2004, there were 507record holders of our common stock. The following table setsforth the high and low closing prices for Great WolfResort’s Common Stock.           **High** **Low**         December 15, 2004 through December 31, 2004 $23.00  $18.65     January 1, 2005 through March 16, 2005 $25.49  $20.07      As of March 1, 2005, there were 516 record holders of ourcommon stock. The closing price of our common stock on theNasdaq National Market on March 16, 2005, was $23.95.     In connection with our formation transactions, we issued commonstock to certain holders of securities, who, among other things,have certified to us as to their status as “accreditedinvestors,” in each of GLC and its resort relatedsubsidiaries, in an offering exempt from registration under theSecurities Act pursuant to Section 4(2) and Rule 506of Regulation D. In total, we issued an aggregate of13,901,947 shares of our common stock to such investors. Inexchange, we received all or a portion of each suchinvestor’s interest in either GLC or the applicable resortrelated GLC subsidiary and such entities became wholly ownedsubsidiaries of our company.     Also in connection with our formation transactions, we issued(1) 64,038 shares of our common stock to the holder ofa tenant in common interest in our Poconos resort and(2) 67,516 shares of our common stock to the holder ofa tenant in common interest in our Willimsburg resort. Theseshares were issued in offerings exempt from registration underthe Securities Act pursuant to Section 4(2) and Rulte 506of Regulation D.     In addition, we issued 100 shares of common stock, parvalue $0.01 per share, to GLC upon our formation onMay 10, 2004. We received an aggregate of $1,000 in cash inexchange for these shares. We redeemed these shares inconnection with the formation transactions. This issuance wasexempt from registration under the Securities Act pursuant toSection 4(2) of the Securities Act.     The issuances described above were exempt from registrationunder the Securities Act, pursuant to Section 4(2) of theSecurities Act and Regulation D promulgated there under asa transaction by an issuer not involving a public offering. Eachinvestor receiving shares in the formation transactions was anaccredited investor, with knowledge and experience in financialand business matters sufficient for evaluating the associatedmerits and risks, has represented its intention to acquire thesecurities for investment purposes only and not with a viewtowards distribution and received or had access to adequateinformation about us. Appropriate legends were affixed to thestock certificates in connection with these transactions andthere was no general solicitation or advertising.**Use of Proceeds from the IPO**     On December 20, 2004, we closed our IPO. The shares ofcommon stock sold in our IPO were registered under theSecurities Act of 1933, as amended, on a Registration Statement(Registration No. 333-118148) on Form S-1 that wasdeclared effective by the Securities and Exchange Commission onDecember 14, 2004. All 16,100,000 shares of commonstock registered under such Registration Statement were sold ata price to the public of $17.00 per share, generating grossproceeds of $273,700. The net proceeds to us were approximately$248,700 after deducting an aggregate of $19,200 in underwritingdiscounts and commissions paid to the underwriters and $5,800 inother expenses incurred in connection with our IPO. The managingunderwriter for the IPO was Citigroup Global Markets, Inc.     The net proceeds from our IPO were used to pay an aggregate of$97,600 of the cash consideration in connection with theformation transactions; repay certain indebtedness in theaggregate amount of approximately $75,700; and fund $75,400 ofour future resort development costs.
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     In addition, upon the closing of our IPO, two of our resortsrefinanced existing mortgage indebtedness with a totaloutstanding debt of $72,300, and our operating partnershipentered into a $75,000 revolving credit facility secured by twoof our resorts. As of March 1, 2005, based on the financialand debt service rations contained in the revolving creditfacility, approximately $50,000 of the facility is available forborrowing.**Dividend Policy**     We have never declared or paid any cash dividends on our capitalstock, and we do not anticipate paying cash dividends in theforeseeable future. We are prohibited from paying cash dividendsunder covenants contained in the credit facility. We currentlyintend to retain our earnings, if any, for future growth. Futuredividends on our common stock, if any, will be at the discretionof our board of directors and will depend on, among otherthings, our operations, capital requirements and surplus,general financial condition, contractual restrictions and suchother factors as our board of directors may deem relevant.**ITEM 6.*****SELECTED FINANCIAL DATA***     The following table sets forth selected consolidated financialand operating data on a historical basis for Great Wolf Resorts,and on a combined historical basis for Great Lakes Predecessor(the Predecessor). The Predecessor was the predecessoraccounting entity to Great Wolf Resorts. We have not presentedhistorical information for Great Wolf Resorts prior toDecember 20, 2004, the date on which we closed the IPO,because we did not have any material corporate operatingactivity during the period from our formation until the closingof the IPO.Great Lakes Predecessor Financial Information     The Predecessor’s combined historical financial informationincluded the following: •     The Great Lakes Companies, Inc. and its consolidated    subsidiaries, including development of, ownership interests in,    and management contracts with respect to, resorts and certain    non-resort hotels and multifamily housing development and    management assets;  •     the entities that owned our Traverse City, Kansas City and    Sheboygan operating resorts; and  •     the entities that owned our Williamsburg and Pocono Mountains    resorts that are under construction.     The Traverse City, Kansas City and Sheboygan resorts opened inMarch 2003, May 2003 and June 2004, respectively. Therefore, thePredecessor’s historical results of operations onlyreflected operating results for the Traverse City, Kansas Cityand Sheboygan resorts for those periods after the resort openingdates, and only through the closing of the IPO (that is, throughDecember 20, 2004).     The Predecessor’s financial statements did not include theentities that owned the Wisconsin Dells and Sandusky operatingresorts as those entities were controlled by affiliates of AIGSunAmerica.Great Wolf Resorts Financial Information     Great Wolf Resorts’ financial information includes: •     our corporate entity that provides resort development and    management services;  •     our Wisconsin Dells, Sandusky, Traverse City, Kansas City and    Sheboygan operating resorts; and  •     our Williamsburg and Pocono Mountains resorts that are under    construction.
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     The following data should be read in conjunction with ourfinancial statements and notes thereto and“Management’s Discussion and Analysis of FinancialCondition and Results of Operations” included elsewhere inthis Form  10-K.                             **December 21,**             **2004-**  **January 1,**    **December 31,**  **2004-** **Year Ended December 31,**  **2004**  **December 20,**    **Great Wolf**  **2004** **2003** **2002** **2001** **2000**  **Resorts**  **Predecessor** **Predecessor** **Predecessor** **Predecessor** **Predecessor**                **(Dollars in thousands, except per share amounts)****Statement of Operations:**                             Revenues:                              Rooms $3,261   $31,438  $18,801  $—  $—  $—      Food, beverage and other  1,289    16,110   9,439   —   312   —      Management and other fees  79    3,157   3,109   3,329   3,022   4,070      Other revenue from managed properties(1)  —    14,553   14,904   14,889   13,286   9,456                         Total revenues  4,629    65,258   46,253   18,218   16,620   13,526                         Operating expenses:                             Departmental expenses                              Rooms  298    4,917   3,265   —   —   —      Food, beverage and other  958    13,678   8,580   —   —   —     Other operating expenses:                              Selling, general and administrative  7,372    18,613   11,376   4,159   3,853   5,168      Property operating costs  295    8,810   5,283   631   —   —      Depreciation and amortization  1,897    12,925   7,744   212   73   51      Other expenses from managed properties(1)  —    14,553   14,904   14,808   13,286   9,456                         Total operating expenses  10,820    73,496   51,152   19,810   17,212   14,675                         Operating income (loss)  (6,191)   (8,238)  (4,899)  (1,592)  (592)  (1,149)    Interest income  (66)   (224)  (55)  (88)  (76)  2     Interest expense  280    6,748   4,413   217   366   578     (Gain) loss on sale of investments and securities  —    (1,653)  —   13   (96)  (11)    Interest on mandatorily redeemable shares  —    1,761   (3,136)  4,479   390   —                         Income (loss) before income taxes  (6,405)   (14,870)  (6,121)  (6,213)  (1,176)  (1,718)    Income tax benefit  (2,563)   —   —   —   —   —                         Income (loss) from continuing operations  (3,842)   (14,870)  (6,121)  (6,213)  (1,176)  (1,718)    Income (loss) from discontinued operations  —    1,928   1,118   (542)  332   (1,037)                        Income (loss) before cumulative effect of change in accounting    principle  (3,842)   (12,942)  (5,003)  (6,755)  (844)  (2,755)    Cumulative effect of change in accounting principle  —    —   460   —   (333)  —                         Net income (loss) $(3,842)  $(12,942) $(4,543) $(6,755) $(1,177) $(2,755)                        Basic loss per share $(0.13)                         Diluted loss per share $(0.13)                         Weighted average common shares outstanding —                              Basic  30,132,896(2)                          Diluted  30,132,896(2)                     **Cash Flows:**                             Cash flows from:                             Operating activities $762    6,049  $8,126  $376             Investing activities  (95,575)   (66,884)  (64,280)  (46,276)            Financing activities  172,151    61,424   54,854   49,797         
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                            **December 21,**             **2004-**  **January 1,**    **December 31,**  **2004-** **Year Ended December 31,**  **2004**  **December 20,**    **Great Wolf**  **2004** **2003** **2002** **2001** **2000**  **Resorts**  **Predecessor** **Predecessor** **Predecessor** **Predecessor** **Predecessor**                **(Dollars in thousands, except per share amounts)****Balance Sheet Data (end of period):**                             Total assets $592,414       $173,494  $106,751  $54,191  $51,342     Total long-term debt $142,665       $93,733  $37,710  $9,466  $5,679     Long-term debt secured by assets of spun-off entities  —        12,108   5,054   5,177   5,100     Long-term debt secured by assets held for sale  —       $14,220  $31,564  $34,193  $33,084 **Non-GAAP financial measures:**                             EBITDA $(4,294)(3)  $7,559(3) $12,439(3) $334(3) $6,287  $431  (1)     Reflects reimbursement of payroll, benefits and costs related to    the operations of properties managed by the Predecessor. (2)     We currently have 30,262,308 shares of our common stock    outstanding. Included in that total are 129,412 shares held in a    trust that holds the assets to pay obligations under our    deferred compensation plan. Under applicable accounting rules,    the shares of common stock held in that trust are treated as    treasury stock for purposes of our earnings per share    computations and are therefore excluded from the basic and    diluted earnings per share calculations. (3)     See reconciliation to net income (loss) in    “Management’s Discussion and Analysis of Financial    Condition and Results of Operation — Non-GAAP    Financial Measures.”**ITEM 7.*****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL    CONDITION AND RESULTS OF OPERATIONS***     *The following discussion should be read in conjunction withthe financial statements and notes thereto appearing elsewherein this report. Where appropriate, the following discussionincludes analysis of the effects of our IPO, the formationtransactions and related refinancing transactions and certainother transactions. We make statements in this section that areforward-looking statements within the meaning of the federalsecurities laws. For a complete discussion of forward-lookingstatements, see the section in Item 1 of thisForm 10-K report entitled “Forward-LookingStatements.” Certain risk factors may cause our actualresults, performance or achievements to differ materially fromthose expressed or implied by the following discussion. For adiscussion of such risk factors, see the sections in Item 1of this Form  10-K report entitled “RiskFactors” and “Forward-Looking Statements.” Alldollar amounts in this discussion, except for per share data andoperating statistics, are in thousands.***Overview**     *Formation.* The terms “Great Wolf Resorts,”“us,” “we” and “our” are used inthis report refer to Great Wolf Resorts, Inc. Through ourcontrolling interest in Great Wolf Resort Operating Partnership,L.L.L.P., or the “Operating Partnership,” of which weare the sole general partner, and the subsidiaries of theOperating Partnership, we develop, own and operate familyentertainment resorts.     We were formed to succeed to certain businesses of the GreatLakes Predecessor (the Predecessor), which was not a legalentity but rather a combination of numerous entities. ThePredecessor consisted of the following, all of which were undercommon management: •     The Great Lakes Companies, Inc. (GLC) and its consolidated    subsidiaries;  •     Great Wolf Lodge of Traverse City, LLC;  •     Great Wolf Lodge of Kansas City, LLC;
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 •     Blue Harbor Resort Sheboygan, LLC;  •     Great Wolf Lodge of Williamsburg, LLC; and  •     Great Wolf Lodge of the Poconos, LLC     The Predecessor financial statements did not include entitiesthat owned Great Wolf Lodges in Wisconsin Dells, Wisconsin andSandusky, Ohio. These entities, although they were managed byGLC, were controlled by affiliates of AIG SunAmerica, Inc.     The Predecessor developed and operated hotels since 1995. In1999, the Predecessor began its resort operations by purchasingthe Great Wolf Lodge in Wisconsin Dells, Wisconsin anddeveloping the Great Wolf Lodge in Sandusky, Ohio, which openedin 2001. In 2003, the Predecessor opened two additional GreatWolf Lodge resorts, one in Traverse City, Michigan and the otherin Kansas City, Kansas. In June 2004, the Predecessor opened theBlue Harbor Resort in Sheboygan, Wisconsin. Subsequently, thePredecessor had two additional Great Wolf Lodge resorts underconstruction, one in Williamsburg, Virginia and the other in thePocono Mountains region of Pennsylvania, and had licensed aresort owned by a third party that was under construction inNiagara Falls, Ontario (Canada).     We were incorporated in May 2004 as a Delaware corporation inanticipation of our initial public offering of common stock (theIPO). The IPO closed on December 20, 2004, concurrentlywith the completion of various formation transactions (theFormation Transactions).     Pursuant to the Formation Transactions: •     The Predecessor contributed its hotel management and multifamily    housing management and development assets, which were unrelated    to the resort business, to two subsidiaries of the Predecessor    and then distributed the interests in those subsidiaries to the    former shareholders of the Predecessor.  •     We effected, through our Operating Partnership, the acquisition    of GLC and each resort-owning entity. Pursuant to these    acquisitions, investors of GLC and the resort-owning entities    received cash, unregistered shares of our common stock or a    combination of cash and unregistered shares of our common stock.    We issued 13,901,947 shares of our common stock and paid    approximately $97,600 in cash in connection with these    acquisitions.  •     We issued an aggregate of 130,949 shares of unregistered    common stock to holders of tenant in common interests in two of    our resorts.These transactions consolidated the ownership of our resortproperties and property interests to Great Wolf Resorts. Duringthe period from our formation until we commenced operations uponclosing of our IPO on December 20, 2004, we did not haveany material corporate activity.     The IPO consisted of the sale of 16,100,000 shares ofcommon stock at a price per share of $17.00, generating grossproceeds of $273,700. The net proceeds to us were approximately$248,700 after deducting an aggregate of $19,200 in underwritingdiscounts and commissions paid to the underwriters and $5,800 inother expenses incurred in connection with the IPO.     As of December 31, 2004, we develop, own and operate fourGreat Wolf Lodge resorts, our signature northwoods-themedresorts, and one Blue Harbor Resort, a nautical-themed property.In addition, we own two Great Wolf Lodge resorts that are underconstruction and scheduled to open for business during 2005. Weare also the licensor and manager of an additional Great WolfLodge resort in Niagara Falls, Ontario that is owned and underdevelopment by an affiliate of Ripley Entertainment Inc., orRipley’s.     *Business.* We are a family entertainment resort companythat provides our guests with a high-quality vacation at anaffordable price. We are the largest owner, operator anddeveloper in the United States of drive-to family resortsfeaturing indoor waterparks and other family-orientedentertainment activities. We provide a full-serviceentertainment resort experience to our target customer base:families with children ranging in ages from 2 to 14 yearsold that live within a convenient driving distance from ourresorts. Our resorts are open
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year-round and provide a consistent and comfortable environmentwhere our guests can enjoy our various amenities and activities.     We provide our guests with a self-contained vacation experienceand focus on capturing a significant portion of their totalvacation spending. We earn revenues through the sale of rooms,which includes admission to our indoor waterpark, and otherrevenue-generating resort amenities. Each of our resortsfeatures a combination of the following revenue-generatingamenities: themed restaurants, an ice cream shop andconfectionery, full-service spa, game arcade, gift shop andmeeting space. We also expect to generate revenues fromlicensing arrangements, management fees and construction feeswith respect to properties owned by third parties, such as thelicensing agreement we have entered into and managementarrangement we have agreed to enter into with Ripley’s inconnection with the Niagara Falls, Ontario resort.     The following table presents an overview of our portfolio ofoperating resorts and resorts under construction (including theNiagara resort that will be owned by a third party licensee):                   **Indoor**  **Opened/Target**   **Entertainment****Location** **Opening** **Rooms** **Area(1)**             **(Approx. ft2)****Existing Resorts:**                Wisconsin Dells, WI  May 1997(2)   309(3)  64,000     Sandusky, OH(4)  March 2001   271   41,000     Traverse City, MI  March 2003   281   51,000     Kansas City, KS  May 2003   281   49,000     Sheboygan, WI(5)  June 2004   183(6)  54,000 **Resorts Under Construction:**                Williamsburg, VA  March 2005   301   66,000     Pocono Mountains, PA  Fall 2005   400   91,000     Niagara Falls, ONT(7)  Spring 2006   404   94,000  (1)     Our indoor entertainment areas generally include our indoor    waterpark, game arcade, children’s activity room and    fitness room, as well as our Aveda concept spa, 3D virtual    reality theatre, Wiley’s Woods and party room in the    resorts that have such amenities. (2)     We purchased this property in November 1999. (3)     Our Wisconsin Dells property also features 77 condominium units    currently under construction. (4)     Prior to May 2004, we operated this resort as a Great Bear Lodge. (5)     Our Sheboygan property is branded as a Blue Harbor Resort. This    resort is subject to a 98-year and 11-month ground lease with    the Redevelopment Authority of the City of Sheboygan. (6)     Our Sheboygan resort includes an additional 64 individually    owned two and four bedroom condominium units. (7)     Ripley’s, our licensee, owns this resort. We are assisting    Ripley’s with construction management and other pre-opening    matters related to the Great Wolf Lodge in Niagara Falls. We    have granted Ripley’s a license to use the Great Wolf Lodge    name for this resort and other intellectual property for ten    years after opening. We have agreed to enter into a management    agreement, pursuant to which we expect to operate the resort on    behalf of Ripley’s for five years, and a central    reservations agreement. In conjunction with this project, we    expect to receive a one-time construction fee and ongoing    license, central reservation and management fees.     *Industry Trends and Outlook.* While no standard industrydefinition for a family entertainment resort featuring an indoorwaterpark has developed, we generally consider resorts with atleast 200 rooms featuring indoor waterparks larger than25,000 square feet, as well as a variety of water slidesand other water-based attractions, to be competitive with ourresorts. The concept of a family entertainment resort with anindoor waterpark was first introduced in Wisconsin Dells,Wisconsin and has evolved there over the past 15 years. We
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believe those resorts have historically outperformed standardhotels in that market. We believe that the rate premiums andincreased market share in Wisconsin Dells have been significantand that no other operator or developer other than Great WolfResorts has established a regional portfolio of familyentertainment resorts featuring indoor waterparks. We intend tocontinue to expand our portfolio of owned resorts throughout theUnited States and to selectively seek licensing and managementopportunities domestically and internationally. The resorts weare currently constructing and plan to develop in the futurerequire significant industry knowledge and substantial capitalresources. We believe that a number of other resort operatorsare developing or considering the development of familyentertainment resorts that will compete directly with ourresorts. In particular, one of our current competitors isconstructing a resort in Sandusky and another competitor isconstructing a resort near Traverse City.     We believe there are characteristics of the domestic travel andleisure industry that indicate families favor frequent, short,drive-to vacations. According to the Travel Industry Associationof America, or TIA, from 1994 to 2003 the number of domesticleisure trips taken by families grew from approximately96 million trips in 1994 to 154 million trips in 2003.In 2003, approximately 45% of leisure trips lasted one to twonights. The primary mode of transportation for 77% of theovernight leisure trips in 2003 was by automobile. We believethese statistics provide evidence that our segment of the traveland leisure industry has strong demand characteristics that makeour family entertainment resorts attractive to leisure travelers.     Our primary business objective is to increase long-termstockholder value. We believe we can increase stockholder valueby executing our internal and external growth strategies. Ourprimary internal growth strategies are to: maximize total resortrevenue; minimize costs by leveraging our economies of scale;and build upon our existing brand awareness and loyalty in orderto compete more effectively. Our primary external growthstrategies are to: capitalize on our first-mover advantage bybeing the first to develop and operate family entertainmentresorts featuring indoor waterparks in our selected targetmarkets; focus on development and strategic growth opportunitiesby seeking to develop and open at least two new owned resorts intarget markets each year for the next several years and targetselected licensing opportunities; and continue to innovate byleveraging our in-house expertise, in conjunction with theknowledge and experience of our third-party suppliers anddesigners.     In attempting to execute our internal and external growthstrategies, we are subject to a variety of business challengesand risks. These challenges include: development and licensingof properties; increases in costs of constructing, operating andmaintaining our resorts; competition from other entertainmentcompanies, both within and outside our industry segment; andexternal economic risks, including family vacation patterns andtrends. We seek to meet these challenges by providing sufficientmanagement oversight to site selection, development and resortoperations, concentrating on growing and strengthening awarenessof our brand and demand for our resorts, and maintaining ourfocus on safety.     *Revenue and Key Performance Indicators.* We seek togenerate positive cash flows and net income from each of ourowned resorts. Our rooms revenue represents sales to guests ofroom nights at our resorts, and is the largest contributor toour cash flows and profitability. Rooms revenue accounted forapproximately 67% of our total resort revenue for the year endedDecember 31, 2004. We employ sales and marketing efforts toincrease overall demand for rooms at our resorts. We seek tooptimize the relationship between room rates and occupanciesthrough the use of yield management techniques that attempt toproject demand in order to selectively increase room ratesduring peak demand. These techniques are designed to assist usin managing our higher occupancy nights to achieve maximum roomsrevenue, and include such practices as: monitoring ourhistorical trends for occupancy and estimating our highoccupancy nights; offering the highest discounts to previousguests in off-peak periods to build customer loyalty and enhanceour ability to charge higher rates in peak periods; structuringrates to allow us to offer our previous guests the best ratewhile simultaneously working with a promotional partner oroffering internet specials; monitoring sales of room types dailyto evaluate the effectiveness of offered discounts; and offeringspecials on standard suites and yielding better rates on largersuites when standard suites sell out. In addition, we seek tomaximize the amount of time and money spent on-site by ourguests by providing a variety of revenue-generating amenities.
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     We have several key indicators that we use to evaluate theperformance of our business. These indicators include thefollowing: •     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  •     EBITDA.     Occupancy, ADR and RevPAR are commonly used measures within thehospitality industry to evaluate hotel operations and aredefined 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.     Occupancy allows us to measure the general overall demand forrooms at our resorts and the effectiveness of our sales andmarketing strategies. ADR allows us to measure the effectivenessof our yield management strategies. ADR and RevPAR only includerooms revenue. Total RevPOR and Total RevPAR include both roomsrevenue and other revenue derived from food and beverage andother amenities at our resorts. We consider Total RevPOR andTotal RevPAR to be key performance indicators for our businessbecause we derive a significant portion of our revenue from foodand beverage and other amenities. For the year endedDecember 31, 2004, approximately 33% of our total resortrevenues consisted of non-rooms revenue.     We use RevPAR and Total RevPAR to evaluate the blended effectthat changes in occupancy, ADR and Total RevPOR have on ourprofitability. We focus on increasing ADR and Total RevPORbecause those increases can have the greatest positive impact onour profitability. In addition, we seek to maximize occupancy,as increases in occupancy generally lead to greater totalrevenues at our resorts, and maintaining certain occupancylevels is key to covering our fixed costs. Increases in totalrevenues as a result of higher occupancy are, however, typicallyaccompanied by additional incremental costs (includinghousekeeping services, utilities and room amenity costs). Incontrast, increases in total revenues from higher ADR and TotalRevPOR are typically accompanied by lower incremental costs, andresult in a greater increase in profitability.     We also use EBITDA as a measure of the operating performance ofeach of our resorts. EBITDA is a supplemental financial measure,and is not defined by accounting principles generally acceptedin the United States of America, or GAAP. See “Non-GAAPFinancial Measures” for further discussion of our use ofEBITDA and a reconciliation to net income.**Critical Accounting Policies and Estimates**     The preparation of our consolidated financial statements and ourfinancial reporting process involve the use of accountingestimates based on our current judgments. Certain accountingestimates are particularly sensitive because of theirsignificance to our consolidated financial statements andbecause of the possibility that future events affecting them maydiffer from our current judgments.     *Investments in Property and Equipment.* We recordinvestments in property and equipment at cost. Improvements andreplacements are capitalized when they extend the useful life,increase capacity or improve the efficiency of the asset.Repairs and maintenance are charged to expense as incurred.
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     Depreciation and amortization are recorded on a straight-linebasis over the estimated useful lives of the assets as follows:         Buildings and improvements  40 years     Land improvements  15 years     Fixtures and equipment, including waterpark equipment  3-10 years      We are required to make subjective assessments as to theseuseful lives for purposes of determining the amount ofdepreciation and amortization to record annually with respect toour investments in property and equipment. These assessmentshave a direct impact on our net income because if we were toshorten the expected useful lives of our investments in propertyand equipment we would depreciate and amortize such investmentsover fewer years, resulting in more depreciation andamortization expense and lower net income on an annual basis. Weperiodically review the estimated useful lives we have assignedto our depreciable assets to determine whether those usefullives are reasonable and appropriate.     When circumstances, such as adverse market conditions, indicatethe carrying values of a long-lived asset may be impaired, weperform an analysis to review the recoverability of theasset’s carrying value. We make estimates of theundiscounted cash flows (excluding interest charges) from theexpected future operations of the asset. These estimatesconsider factors such as expected future operating income,operating trends and prospects, as well as the effects ofdemand, competition and other factors. If the analysis indicatesthat the carrying value is not recoverable from future cashflows, an impairment loss is recognized to the extent that thecarrying value exceeds the estimated fair value. Any impairmentlosses are recorded as operating expenses, which reduce netincome.     We are required to make subjective assessments as to the fairvalue of assets and liabilities in connection with purchaseaccounting adjustments recorded related to real estate weacquire, including the resorts acquired through the FormationTransactions which are accounted for by the purchase method ofaccounting. Purchase accounting requires allocation of theacquisition value among the property and equipment andidentifiable intangible assets acquired.     *Carrying Value of Goodwill.* As a result of the FormationTransactions, we recorded approximately $218,727 of goodwill onour consolidated balance sheet. On an annual basis, we performan analysis to determine any impairment of the carrying value ofgoodwill. To test goodwill for impairment, we analyze the fairvalue of the individual resort to which the goodwill is assignedto the carrying value of that resort. If the analysis indicatesthat the carrying value is less than the fair value of theindividual resort, we compare the implied fair value of theresort’s goodwill with the carrying amount of thatgoodwill. The implied fair value of the goodwill is determinedby allocating the fair value of the individual resort to all theassets and liabilities of that resort as if it had been acquiredin a business combination. The excess of the fair value of theindividual resort over the amounts assigned to its assets andliabilities is the implied fair value of the goodwill. If theimplied fair value of the goodwill is less than the carryingvalue, an impairment loss is recognized. Any impairment lossesare recorded as operating expenses, which reduce net income.**New Accounting Pronouncements**     In December 2004, the FASB issued Statement No. 123(revised 2004), “Share-Based Payment”(SFAS 123R), that requires companies to expense the valueof employee stock options, discounts on employee stock purchaseplans and the similar awards. Under SFAS 123R, share-abasedpayment awards result in compensation expense that will bemeasured at fair value on the awards’ grant date, based onthe estimated number of awards that are expected to vest.SFAS 123R is effective for periods beginning afterJuly 1, 2005, and applies to all outstanding and unvestedshare-based payment awards at the adoption date. We have notcompleted our evaluation of the impact of adoptingSFAS 124R.
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**Non-GAAP Financial Measures**     We use EBITDA as a measure of our operating performance. EBITDAis a supplemental non-GAAP financial measure. EBITDA is commonlydefined as net income plus (a) interest expense,(b) income taxes and (c) depreciation and amortization.     EBITDA as calculated by us is not necessarily comparable tosimilarly titled measures presented by other companies. Inaddition, EBITDA (a) does not represent net income or cashflows from operations as defined by GAAP; (b) is notnecessarily indicative of cash available to fund our cash flowneeds; and (c) should not be considered as an alternativeto net income, operating income, cash flows from operatingactivities or our other financial information as determinedunder GAAP.     We believe EBITDA is useful to an investor in evaluating ouroperating 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.Covenants in our revolving credit facility also require us tomeet financial tests based upon EBITDA as adjusted for certainitems.     Using a measure such as EBITDA has material limitations. Theselimitations include the difficulty associated with comparingresults among companies and the inability to analyze certainsignificant items, including depreciation and interest expense,which directly affect our net income or loss. Managementcompensates for these limitations by considering the economiceffect of the excluded expense items independently, as well asin connection with its analysis of net income.
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     The tables shown below reconcile net loss to EBITDA for theperiods presented.                    **Great Wolf**    **Resorts** **Predecessor**       **Period** **Period**    **December 21,** **January 1,**    **2004** **2004** **Year Ended**  **through** **through** **December 31,**  **December 31,** **December 20,**    **2004** **2004** **2003** **2002**             Net loss $(3,842) $(12,942) $(4,543) $(6,755)    Adjustments:                     Interest expense, net  214   7,394   6,542   2,920      Income tax benefit  (2,563)  —   —   —      Depreciation and amortization  1,897   13,107   10,440   4,169                  EBITDA $(4,294) $7,559  $12,439  $334              **Results of Operations*****General***     Our and the Predecessor’s results of operations for theyears ended December 31, 2004 and 2003 are not directlycomparable due primarily to the impact of the IPO and theFormation Transactions, our new debt and the repayment of debtupon the consummation of the IPO. To facilitate a meaningfulanalysis of the results of operations, amounts for the yearended December 31, 2004, are labeled as “Company”and include both the historical operations of the Predecessor in2004 (for the period January 1, 2004 throughDecember 20, 2004) and our operations since the IPO (forthe period December 21, 2004 through December 31,2004). The Company results are compared to Predecessor resultsfrom prior years. The Predecessor results were combined with ourresults in 2004 because we believe that a discussion of ourresults for the eleven-day period from December 21, 2004through December 31, 2004 would not be meaningful.***Great Lakes Predecessor Financial Information***     The Predecessor combined historical financial informationincluded the following: •     The Great Lakes Companies, Inc. and its consolidated    subsidiaries, including development of, ownership interests in,    and management contracts with respect to, resorts and certain    non-resort hotels and multifamily housing development and    management assets;  •     the entities that owned our Traverse City, Kansas City and    Sheboygan operating resorts; and  •     the entities that owned our Williamsburg and Pocono Mountains    resorts that are under construction.     The Traverse City, Kansas City and Sheboygan resorts opened inMarch 2003, May 2003 and June 2004, respectively. Therefore,Predecessor’s historical results of operations onlyreflected operating results for Traverse City, Kansas City andSheboygan for those periods after the resort opening dates.     The Predecessor’s financial information did not include theentities that own the Wisconsin Dells and Sandusky operatingresorts as those entities were controlled by affiliates of AIGSunAmerica.     *Revenues.* The Predecessor’s revenues consisted ofthe following: •     lodging revenue, which consists of rooms, food and beverage and    other department revenues from its consolidated and combined    hotels and resorts;  •     management fee revenue from both resort activity and non-resort    activity, which includes fees received under its management    agreements; and  •     other revenue, which consists of accounting fees, development    fees, central reservation fees, construction management fees and    other fees.
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     The Predecessor employed the staff at its managed properties.Under its management agreements, the hotel and resort ownersreimbursed Predecessor for payroll, benefits and certain othercosts related to the operations of the managed properties.Emerging Issues Task Force, or EITF, Issue No. 01-14,“Income Statement Characteristics of Reimbursements forOut-of-pocket Expenses, (EITF 01-14)” establishesstandards for accounting for reimbursable expenses inPredecessor’s income statement. Under this pronouncement,the reimbursement of payroll, benefits and costs is recorded asrevenue on Predecessor’s statements of operations, with acorresponding expense recorded as “other expenses frommanaged properties.”     *Operating Expenses.* The Predecessor’s departmentaloperating expenses consisted of rooms, food and beverage andother department expenses.     The Predecessor’s other operating expenses included thefollowing items: •     selling, general and administrative expenses, which were    associated with the management of hotels and 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;  •     depreciation and amortization; and  •     other expenses from managed properties, which are recorded as an    expense in accordance with EITF 01-14.***Great Wolf Resorts Financial Information***     Great Wolf Resorts’ financial information includes: •     our corporate entity that provides resort development and    management services;  •     our Wisconsin Dells, Sandusky, Traverse City, Kansas City and    Sheboygan operating resorts; and  •     our Williamsburg and Pocono Mountains resorts that are under    construction.     *Revenues.* Our revenues consist of lodging revenue, whichincludes rooms, food and beverage, and other department revenuesfrom our resorts.     *Operating Expenses.* Our departmental operating expensesconsist of rooms, food and beverage and other departmentexpenses.     Our other operating expenses include the following items: •     selling, general and administrative expenses, which are    associated with the 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; and  •     depreciation and amortization.***Year Ended December 31, 2004 for the Company Compared    with Year Ended December 31, 2003 for the    Predecessor***     The Traverse City, Kansas City and Sheboygan resorts opened inMarch 2003, May 2003 and June 2004, respectively. We acquiredthe Wisconsin Dells and Sandusky resorts as part of the IPO inDecember 2004. As a result, comparisons of changes in totalrevenue, rooms revenue and other revenue between the twelvemonth periods ended December 31, 2004 (during which tworesorts were open for the entire period, one resort opened, andwe purchased two resorts) and December 31, 2003 (duringwhich two resorts opened) are not meaningful.
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     *Revenues.* Total revenues increased $23,634 to $69,887 for2004 compared to $46,253 for 2003. This increase was primarilydue to: •     The commencement of operations at the Great Wolf Lodge in    Traverse City, Michigan, which opened in March 2003. This resort    had revenues of $22,885 for 2004 compared to $18,232 for 2003,    an increase of $4,653;  •     The commencement of operations at the Great Wolf Lodge in Kansas    City, Kansas, which opened in May 2003. This resort had revenues    of $18,929 for 2004 compared to $9,971 for 2003, an increase of    $8,958; and  •     The commencement of operations at the Blue Harbor Resort in    Sheboygan, Wisconsin, which opened in June 2004. This resort had    revenues of $8,350 for 2004.     *Operating expenses.* Total departmental expenses increased$8,006 to $19,851 for 2004 compared to $11,845 for 2003,primarily due to the opening of the Traverse City, Kansas Cityand Sheboygan resorts in March 2003, May 2003 and June 2004,respectively.     Total other operating expenses increased $25,158 to $64,465 for2004 compared to $39,307 for 2003. This increase was primarilydue to: •     Selling, general and administrative expenses increased $14,609    to $25,985 for 2004 compared to $11,376 for 2003, primarily due    to the effect of the Traverse City and Kansas City resorts    opening in 2003 and the Sheboygan resort opening in 2004, the    effect of additional labor costs at GLC due to increases in    staffing, and $6,413 of IPO-related expenses incurred in 2004.  •     Property operating costs increased $3,822 to $9,105 for 2004    compared to $5,283 for 2003, primarily due to the effect of the    Traverse City and Kansas City resorts opening in 2003 and the    Sheboygan resort opening in 2004.  •     Depreciation and amortization expense increased $7,078 to    $14,822 for 2004 compared to $7,744 for 2003. This increase    resulted from: •     the purchases or placement into service of property and    equipment during 2003, primarily at the Traverse City and Kansas    City resorts that opened in 2003, and the related increase in    depreciation taken on those assets; and  •     the purchases or placement into service of property and    equipment in 2004, primarily at the Sheboygan resort that opened    in 2004, and the related increase in depreciation taken on those    assets.     *Operating loss.* Operating loss for 2004 increased $9,530to $(14,429) from $(4,899) for 2003.     *Net loss.* Net loss increased $12,241 to $(16,784) for2004 from ($4,543) for 2003. This increase was due to theincrease in operating loss, as explained above, as well as theeffect of the following: •     Net interest expense increased $2,380 to $6,738 for 2004 from    $4,358 for 2003. This increase was due primarily to increased    debt levels as a result of finishing construction of the    Traverse City and Kansas City resorts during 2003 and the    Sheboygan resort in 2004.  •     Interest on mandatorily redeemable ownership interests increased    $4,897 to $1,761 for 2004 from $(3,136) for 2003. This increase    was due to an increase in the redemption value of certain    mandatorily redeemable equity interests in 2004. The Predecessor    treated the following as mandatorily redeemable financial    instruments: •     Class A and Class B shares of GLC that were obligated    to be redeemed in cash if a shareholder died or incurred certain    triggering events. The redemption price was calculated based on    a formula with GLC’s net operating income and a multiple    based on the type of triggering event. The shares contained    restrictions on transfers and sales by the shareholders.
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 •     Class B Units of Great Wolf Lodge of Kansas City, LLC that    were required to be redeemed in cash no later than the fifth    anniversary date of the operating commencement date of the    Kansas City resort. The redemption price was based on the    greater of fair value or an internal rate of return. •     A cumulative effect of change in accounting principle of $460    related to the adoption of Statement of Financial Accounting    Standards No. 150 “Accounting for Certain Financial    Instruments with Characteristics of Both Debt and Equity”    (SFAS 150) was recorded in 2003. This gain resulted from    recording at fair market value the value of certain mandatorily    redeemable equity interests.     This increase was partially offset by: •     A net gain on sale of real estate of $1,653 in 2004 due to the    sales of land owned in Ontario, Canada and Beckley, West    Virginia.  •     An income tax benefit of $2,563 recorded in 2004 related to the    net loss incurred since the IPO date. The Predecessor was not a    taxable entity and therefore had no income tax provision    recorded prior to the IPO.  •     Income from discontinued operations increased $810 to $1,928 in    2004 from $1,118 in 2003, due to lower minority interest expense    in 2004.***Year Ended December 31, 2003 for the Predecessor    Compared with Year Ended December 31, 2002 for the    Predecessor***     *Revenues.* Total revenues increased $28,035 to $46,253 for2003 compared to $18,218 for 2002. This increase was primarilydue to: •     the commencement of operations at the Great Wolf Lodge in    Traverse City, Michigan, which opened in March 2003. This    property produced revenues of $18,232 in 2003; and  •     the commencement of operations at the Great Wolf Lodge in Kansas    City, Kansas, which opened in May 2003. This property produced    revenues of $9,971 in 2003.     *Operating expenses.* Total departmental expenses for 2003were $11,845 as a result of the commencement of operations ofthe Traverse City and Kansas City resorts during 2003. TheTraverse City resort had $7,167 of rooms, food and beverage andother expenses in 2003. The Kansas City resort had $5,054 ofsimilar departmental expenses in 2003. There were no comparativedepartmental expenses in 2002.     Total other operating expenses increased $19,497 to $39,307 for2003, compared to $19,810 for 2002. This increase was primarilydue to: •     Selling, general and administrative expenses increased by $7,217    to $11,376 for 2003 from $4,159 for 2002, primarily due to the    effect of the Traverse City and Kansas City resorts commencing    operations in 2003.  •     Property operating costs increased $4,652 to $5,283 for 2003    from $631 in 2002, primarily due to the effect of the Traverse    City and Kansas City resorts commencing operations in 2003.  •     Depreciation and amortization expense increased by $7,532 to    $7,744 for 2003 from $212 for 2002. This increase resulted from    the purchases or placement into service of property and    equipment during 2003, primarily at the Traverse City and Kansas    City resorts that commenced operations in 2003, and the related    increase in depreciation taken on those assets.  •     Other expenses from managed properties increased $96 to $14,904    for 2003 from $14,808 for 2002 due to increased payroll costs at    managed properties.     *Operating loss.* Operating loss for 2003 increased $3,307to $(4,899) from $(1,592) for 2002.
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     *Net loss.* Net loss decreased $2,212 to $(4,543) in 2003from $(6,755) in 2002. This decrease was primarily due to thefollowing: •     Interest on mandatorily redeemable ownership interests decreased    by $7,615 to $(3,136) in 2003 and $4,479 in 2002, due to the    adoption of SFAS No. 150 on July 1, 2003 and the    marking to fair value of the derivative instruments related to    the mandatorily redeemable ownership interests.  •     Income (loss) from discontinued operations increased $1,660 to    $1,118 for 2003 from $(542) for 2002. SFAS No. 144    requires the net activity of assets held for sale or disposed of    during a fiscal period to be classified as discontinued    operations. The income from discontinued operations increased    significantly in 2003 as a result of gains on the sales of the    Manassas Country Inn & Suites, the Manassas Fairfield    Inn and the Hampton Inn & Suites Warwick during 2003.  •     A cumulative effect of change in accounting principle of $460    related to the adoption of SFAS No. 150 was recorded    in 2003. This gain resulted from recording at fair market value    the value of certain mandatorily redeemable equity interests.     This decrease was partially offset by the increase in operatingloss, as well as: •     Net interest expense increased $4,229 to $4,358 in 2003 from    $129 in 2002. This increase was due primarily to increased debt    levels as a result of finishing construction of the Traverse    City and Kansas City resorts during 2003.**Liquidity and Capital Resources**     As of December 31, 2004, we had total indebtedness of$142,665 summarized as follows:          Mortgage Debt:         Senior credit facility $—      Mortgage Loan  75,000      Sheboygan Construction Loan  29,475      Williamsburg Construction Loan  19,011      Poconos Construction Loan  5,598      Other  1,523     Other Debt:         City of Sheboygan bonds  8,063      City of Sheboygan loan  3,995       $142,665          *Senior Credit Facility* — Upon closing the IPO,we entered into a $75,000 senior secured revolving creditfacility with a syndicate of banks. The loan is secured by ourWisconsin Dells and Sandusky resorts and is not drawn as ofDecember 31, 2004. Future borrowings under this facilitywill bear interest at LIBOR plus a margin of 2.25% to 3.00%depending upon our leverage ratio from time to time. The maximumamount of indebtedness we may incur under the facility is equalto 3.75 multiplied by the combined EBITDA (adjusted fornon-recurring items, unusual items, infrequent items and assetimpairment charges) of the two resorts securing the facilityplus up to $5,400 relating to enhancements to the waterparkfacility for the Wisconsin Dells property. The facility hascustomary bank covenants including limiting the maximum level oftotal debt, the minimum level of interest coverage, and theminimum level of fixed charge coverage. As of March 1,2005, based on the financial and debt service ratios containedin the revolving credit facility, approximately $50,000 of thefacility is available for borrowing. The facility also includesan annual unused commitment fee of 0.5%.     *Mortgage Loan* — Upon closing the IPO, weentered into a $75,000, ten-year loan secured by our TraverseCity and Kansas City resorts. The loan bears interest at a fixedrate of 6.96% and is subject to a 25-year principal amortizationschedule. The loan has customary financial and operating debtcompliance
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covenants, including a minimum debt service coverage ratio,representing the combined EBITDA (adjusted for non-recurringitems, unusual items, infrequent items and asset impairmentcharges) of the two resorts divided by their combined annualinterest expense and principal amortization. The loan also hascustomary prohibitions on our ability to prepay the loan priorto maturity.     *Sheboygan Mortgage Loan* — The Sheboyganmortgage loan is secured by our Sheboygan resort. The loanmatures in January 2008 and bears interest at a floating rate ofprime plus 200 basis points and is subject to a 20-yearprincipal and amortization schedule. The loan has customarycovenants associated with a single asset mortgage. There are noprohibitions or fees associated with the repayment of the loanprincipal.     *Williamsburg Construction Loan* — TheWilliamsburg construction loan was incurred to construct theWilliamsburg resort property. In February 2005, after drawing anadditional $10,242 on this loan, we retired the loan in fullusing cash on hand.     *Poconos Construction Loan* — The Poconosconstruction loan was incurred to construct the Poconos resortproperty. In March 2005, after drawing an additional $13,550 onthis loan, we retired the loan in full using cash on hand andthe proceeds of junior subordinated debentures we issued inMarch 2005.     *City of Sheboygan bonds* — The City of Sheboygan(the City) bonds amount represents the face amount of bondanticipation notes (BANs) issued by the City in November 2003 inconjunction with the Predecessor’s construction of the BlueHarbor Resort in Sheboygan, Wisconsin. In accordance with theprovisions of EITF Issue No. 91-10 “Accounting forSpecial Assessments and Tax Increment Financing”, we haverecognized as a liability the obligations for these BANs. Thenotes bear interest at 3.95% and mature in 2008. The notes arenot a general obligation of the City and are payable from(a) the proceeds of bond anticipation notes or other fundsappropriated by the City for the payment of interest on the BANsand (b) the proceeds to be delivered from the issuance andsale of securities by the City. We have an obligation to fundpayment of these BANs. Our obligation to fund repayment of thenotes will be satisfied by certain minimum guaranteed amounts ofroom tax payments to be made by the Blue Harbor Resort through2028.     *City of Sheboygan loan* — The City of Sheboyganloan amount represents a loan made by the City in 2004 to thePredecessor in conjunction with the Predecessor’sconstruction of the Blue Harbor Resort in Sheboygan, Wisconsin.The loan is noninterest-bearing and matures in 2018. Ourobligation to repay the loan will be satisfied by certainminimum guaranteed amounts of real and personal property taxpayments to be made by the Blue Harbor Resort through 2018.     *Junior Subordinated Debentures* — Subsequent toyear-end, we completed a private offering of $50,000 of trustpreferred securities by Great Wolf Capital Trust I (theTrust), a Delaware statuatory trust which is our subsidiary. Thesecurities pay holders cumulative cash distributions at anannual rate which is fixed at 7.80% through March 2015 and thenfloats at LIBOR plus 310 basis points. The securitiesmature in March 2035. In addition, we invested $1,500 in thetrust’s common securities, representing 3% of the totalcapitalization of the trust.     The Trust used the proceeds of the offering and our investmentto purchase from us $51,500 of our junior subordinateddebentures with payment terms that mirror the distribution termsof the trust securities. The cost of the trust preferredoffering totaled $1,600, including $1,500 of underwritingcommissions and expenses and $100 of costs incurred directly bythe Trust. The Trust paid these costs utilizing an investmentfrom us. The proceeds from our debenture sale, net of the costsof the trust preferred offering and our investment in the Trust,were $48,400. We used the net proceeds to retire the Poconosconstruction loan.***Short-Term Liquidity Requirements***     Our short-term liquidity requirements consist primarily of fundsnecessary to pay operating expenses including: •     recurring maintenance, repairs and other operating expenses    necessary to properly maintain our resorts;  •     property taxes and insurance expenses;
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 •     interest expense and scheduled principal payments on outstanding    indebtedness; and  •     general and administrative expenses.     Historically, we have satisfied our short-term liquidityrequirements through operating cash flows, proceeds fromborrowings and equity contributions from investors. In thefuture, we believe that cash provided by our operations,together with borrowing capacity under our line of credit, willbe sufficient to fund our requirements for working capital,capital expenditures and debt service for the next twelve months.***Long-Term Liquidity Requirements***     Our long-term liquidity requirements consist primarily of fundsnecessary to pay for scheduled debt maturities, renovations,expansion and other non-recurring capital expenditures that needto be made periodically to our resorts as well as the costsassociated with the development of new resorts. We expect tomeet these needs through existing working capital, cash providedby operations and a combination of mortgage financing onproperties being developed, additional borrowings under ourrevolving credit facility, and the issuance of equityinstruments, including common stock, or additional orreplacement debt, if market conditions permit. We believe thesesources of capital will be sufficient to provide for ourlong-term capital needs.     Our revolving credit facility and secured mortgage financing arematerial sources to satisfy our long-term liquidityrequirements. As such, compliance with their financial andoperating debt compliance covenants is material to ourliquidity. Non-compliance with the covenants would have amaterial adverse effect on our financial condition and liquidity.     As we develop future resorts, we expect to finance a portion ofthe total construction cost of each resort through a stand-aloneconstruction loan on the resort. We expect to fund the remainderof the total construction cost through cash provided from acombination of sources, including our revolving credit facility,cash on hand and cash provided by operating activities. Weexpect to consider converting stand-alone construction loans tolonger-term permanent financing after each resort commencesoperations.***Contractual Obligations***     The following table summarizes our contractual obligations as ofDecember 31, 2004:                       **Payment Terms**       **Less Than**   **More Than**  **Total** **1 Year** **1-3 Years** **3-5 Years** **5 Years**               Long-Term Debt Obligations(1) $142,665  $27,794  $4,069  $30,290  $80,512     Operating Lease Obligations  1,944   371   824   749   —     Construction Contracts  45,282   45,282   —   —   —                     Total $189,891   73,447  $4,893  $31,039  $80,512                  (1)     Includes $8,063 of fixed rate debt recognized as a liability    related to certain bonds issued by the City of Sheboygan and    $3,995 of fixed rate debt recognized as a liability related to a    loan from the City of Sheboygan. These liabilities will be    satisfied by certain future minimum guaranteed amounts of real    and personal property tax payments and room tax payments to be    made by our Sheboygan resort.***Working Capital***     We had $79,417 of available cash and cash equivalent assets and$11,034 of working capital (current assets less currentliabilities) at December 31, 2004, compared to thePredecessor’s $3,490 of cash and cash equivalents and itsworking capital deficit of $(15,231) at December 31, 2003.This increase to cash and working capital, as compared toPredecessor historical amounts, are primarily due to net cashprovided by the IPO.
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**Cash Flows*****Comparison of Twelve Months Ended December 31, 2004    for the Company to Year Ended December 31, 2003 for the    Predecessor***                   **Increase**  **2004** **2003** **(Decrease)**           Net cash provided by operating activities $6,811  $8,126  $(1,315)    Net cash used in investing activities  (162,459)  (64,280)  (98,179)    Net cash provided by financing activities  233,575   54,854   178,721      *Operating Activities.* The decrease in net cash providedby operating activities for the year ended December 31,2004, as compared to the year ended December 31, 2003,resulted primarily from an increase in net loss in 2004.     *Investing Activities.* The increase in net cash used ininvesting activities for the year ended December 31, 2004,as compared to the year ended December 31, 2003, resultedprimarily from the purchase of the resorts as part of the IPOand increased capital expenditures in the 2004 period ascompared to the 2003 period, offset by a decrease in equityescrow and an increase in proceeds from sales of assets in the2004 period.     *Financing Activities.* Net cash provided by financingactivities increased for the year ended December 31, 2004,as compared to the year ended December 31, 2003 primarilydue to the IPO and additional borrowings incurred in 2004.***Comparison of Year Ended December 31, 2003 for the    Predecessor to Year Ended December 31, 2002 for the    Predecessor***                   **Increase/**  **2003** **2002** **(Decrease)**           Net cash provided by operating activities $8,126  $376  $7,750     Net cash used in investing activities  (64,280)  (46,276)  (18,004)    Net cash provided by financing activities  54,854   49,797   5,057      *Operating Activities.* The increase in net cash providedby operating activities for the year ended December 31,2003, as compared the year ended December 31, 2002,resulted primarily from higher levels of depreciation andamortization in 2003, and a smaller net loss in 2003.     *Investing Activities.* The increase in net cash used ininvesting activities for the year ended December 31, 2003as compared to the year ended December 31, 2002, resultedprimarily from higher levels of capital expenditures in 2003compared to 2002.     *Financing Activities.* The increase in net cash providedby financing activities for the year ended December 31,2003, as compared to the year ended December 31, 2002, wasprimarily due to increased amounts of proceeds from long-termdebt in 2003 compared to 2002.**Inflation**     Our resort properties are able to change room and amenity rateson a daily basis, so the impact of higher inflation can often bepassed along to customers. However, a weak economic environmentthat decreased overall demand for our products and servicescould restrict our ability to raise room and amenity rates tooffset rising costs.**Item 7A.****QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**     Our future income, cash flows and fair values relevant tofinancial instruments are dependent upon prevailing marketinterest rates. Market risk refers to the risk of loss fromadverse changes in market prices and interest rates. In thefuture, we intend to use derivative financial instruments tomanage or hedge interest
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rate risks related to our borrowings. We do not intend to usederivatives for trading or speculative purposes and anticipateentering into derivative contracts only with major financialinstitutions with investment grade credit ratings.     As of December 31, 2004, we had total indebtedness ofapproximately $142,665. This debt consisted of: •     $75,000 of fixed rate debt secured by two of our resorts. This    debt bears interest at 6.96%.  •     $29,475 of variable rate debt secured by one of our resorts.    This debt bears interest at a floating rate equal to prime plus    200 basis points. The total rate was 7.25% at    December 31, 2004.  •     $8,063 of fixed rate debt (effective interest rate of 10.67%)    recognized as a liability related to certain bonds issued by the    City of Sheboygan and $3,995 of noninterest bearing debt    recognized as a liability related to a loan from the City of    Sheboygan. These liabilities will be satisfied by certain future    minimum guaranteed amounts of real and personal property tax    payments and room tax payments to be made by the Sheboygan    resort;  •     $19,011 of variable rate debt secured by our Williamsburg resort    that is under construction;  •     $5,598 of variable rate debt secured by our Pocono Mountains    resort that is under construction; and  •     $1,523 of other fixed rate debt.     As of December 31, 2004, the fair values of the mortgageloans and other secured loans approximate the carrying values asthe terms are similar to those currently available to us fordebt with similar risks and remaining maturities.     In February and March 2005, we retired the Williamsburg andPoconos construction loans, respectively. In March 2005, we alsoissued $51,500 of junior subordinated debentures, bearinginterest at a fixed rate of 7.80% through 2015. Giving pro formaeffect to the retirements of the Williamsburg and Poconosconstruction loans and the issuance of the junior subordinateddebentures, we had $169,556 of total debt, of which 83% wassubject to fixed interest rates and 17% was variable rate debt.     If the prime rate were to increase by 100 basis points, theincrease in interest expense on our variable rate debt (givingeffect to the repayment of the Williamsburg and Poconosconstruction loans in 2005, as discussed above) would decreasefuture earnings and cash flows by approximately $295 annually.If the prime rate were to decrease by 1% or 100 basispoints, the decrease in interest expense on our variable ratedebt would be approximately $295 annually.
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**ITEM 8.*****FINANCIAL STATEMENTS***     The following consolidated and combined financial statements arefiled as part of this Annual Report on Form 10-K:        **Page**  **No.**   **Consolidated and Combined Financial Statements of Great Wolf    Resorts, Inc. and Subsidiaries and Great Lakes Predecessor:**          Report of Independent Registered Public    Accounting Firm  51       Consolidated and Combined Balance Sheets    for Great Wolf Resorts, Inc. and subsidiaries as of    December 31, 2004 and for Great Lakes Predecessor as of    December 31, 2003  52       Consolidated and Combined Statements of    Operations for Great Wolf Resorts, Inc. and Subsidiaries for the    period from December 21, 2004 through December 31,    2004 and for Great Lakes Predecessor for the period from    January 1, 2004 through December 20, 2004 and for the    years ended December 31, 2003 and 2002  53       Consolidated and Combined Statements of    Equity for Great Wolf Resorts, Inc. and Subsidiaries for the    period from December 21, 2004 through December 31,    2004 and for Great Lakes Predecessor for the period from    January 1, 2004 through December 20, 2004 and for the    years ended December 31, 2003 and 2002  54       Consolidated and Combined Statements of    Cash Flows for the years ended December 31, 2004, 2003 and    2002  55       Notes to Consolidated and Combined    Financial Statements  56 
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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**The Board of Directors and ShareholdersGreat Wolf Resorts, Inc.Madison, Wisconsin     We have audited the accompanying consolidated balance sheet ofGreat Wolf Resorts, Inc. and subsidiaries (Great Wolf Resorts)and the combined balance sheet of Great Lakes Predecessor, asdefined in Note 1 to the combined financial statements, asof December 31, 2004 and 2003, respectively, and therelated consolidated statements of operations, cash flows andstockholders’ equity of Great Wolf Resorts for the periodfrom December 21, 2004 (commencement of operations) throughDecember 31, 2004, the related combined statements ofoperations, cash flows and equity of Great Lakes Predecessor forthe period from January 1, 2004 through December 20,2004 and the years ended December 31, 2003 and 2002. Theseconsolidated and combined financial statements are theresponsibility of Great Wolf Resorts’s management. Ourresponsibility is to express an opinion on these consolidatedand combined financial statements based on our audits.     We conducted our audits in accordance with the standards of thePublic Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements arefree of material misstatement. Great Wolf Resorts is notrequired to have, nor were we engaged to perform, an audit ofits internal control over financial reporting. Our auditincluded consideration of internal control over financialreporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of Great WolfResorts’s and Great Lakes Predecessor’s internalcontrol over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluatingthe overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion.     In our opinion, such financial statements present fairly, in allmaterial respects, the consolidated financial position of GreatWolf Resorts and the combined financial position of Great LakesPredecessor as December 31, 2004 and 2003, respectively,the consolidated results of operations and cash flows of GreatWolf Resorts for the period from December 21, 2004(commencement of operations) through December 31, 2004, thecombined results of operations and cash flows of Great LakesPredecessor for the period from January 1, 2004 throughDecember 20, 2004 and the years ended December 31,2003 and 2002, in conformity with accounting principlesgenerally accepted in the United States of America.     As discussed in Note 2 to the combined financialstatements, effective July 1, 2003, Great Lakes Predecessoradopted SFAS No. 150, “Accounting for CertainFinancial Instruments with Characteristics of Both Liabilitiesand Equity.” DELOITTE & TOUCHE    LLP    Milwaukee, WisconsinMarch 22, 2005
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****CONSOLIDATED AND COMBINED BALANCE SHEETS**               **Great Wolf**    **Resorts, Inc.** **Predecessor**       **December 31,**     **2004** **2003**       **(Dollars in thousands,**  **except per share amounts)****ASSETS**    Current assets:             Cash and cash equivalents $81,417  $3,490      Accounts receivable, net of allowance for doubtful accounts of    $183 and $655  881   1,877      Inventory  1,848   850      Other current assets  3,921   134      Assets of spun-off entities  —   10,382      Assets held for sale  —   15,467              Total current assets  88,067   32,200     Property and equipment, net  275,758   120,874     Equity escrow  1,564   13,722     Other assets  8,298   5,288     Goodwill  218,727   1,410              Total assets $592,414  $173,494         **LIABILITIES, MINORITY INTERESTS AND EQUITY**    Current liabilities:             Current portion of long-term debt $27,794  $9,632      Accounts payable  31,506   4,550      Accrued expenses  10,466   5,057      Advance deposits  3,129   1,153      Other current liabilities  2,138   711      Long-term debt secured by assets of spun-off entities  —   12,108      Long-term debt secured by assets held for sale  —   14,220              Total current liabilities  75,033   47,431     Mortgage debt  102,813   82,637     Other long-term debt  12,058   1,464     Deferred tax liability  11,298   —     Deferred compensation liability  2,891   —     Mandatorily redeemable ownership interests  —   11,194              Total liabilities  204,093   142,726     Minority interests  —   1,585     Commitments and contingencies            Equity:             Predecessor:               Class A voting Shares, no par value; 450 shares    authorized, 329 shares issued and 300 shares    outstanding at December 31, 2003      —        Class B non-voting Shares, no par value; 8,550 shares    authorized, 6,251 shares issued and 5,700 shares    outstanding at December 31, 2003      —        Treasury stock      (824)       Members’ equity of combined entities      31,263        Accumulated deficit      (1,256)     Great Wolf Resorts, Inc.:               Common stock, $0.01 par value, 250,000,000 shares    authorized, 30,262,308 shares issued and outstanding at    December 31, 2004  303            Additional paid in capital  394,060            Preferred stock, $0.01 par value, 10,000,000 shares    authorized, no shares issued or outstanding at December 31,    2004  —            Accumulated deficit  (3,842)           Shares of common stock held in deferred compensation plan  (2,200)                   Total equity  388,321   29,183              Total liabilities, minority interests and equity $592,414  $173,494        See accompanying notes to consolidated and combined financialstatements.
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS**                     **Great Wolf**       **Resorts, Inc.**  **Predecessor** **Predecessor**          **Period**  **Period**    **December 21,**  **January 1,**    **2004**  **2004** **Year Ended**  **through**  **through** **December 31,**  **December 31,**  **December 20,**    **2004**  **2004** **2003** **2002**            **(Dollars in thousands, except per share data)**    Revenues:                      Rooms $3,261   $31,438  $18,801  $—      Food and beverage  776    8,255   4,833   —      Other hotel operations  513    7,855   4,606   —      Management fees — related parties  —    1,700   2,190   2,574      Development and other fees — related parties  79    1,457   919   836                  4,629    50,705   31,349   3,410      Other revenue from managed properties  —    14,553   14,904   14,808                   Total revenues  4,629    65,258   46,253   18,218                   Operating expenses by department:                      Rooms  298    4,917   3,265   —      Food and beverage  598    7,370   4,528   —      Other  360    6,308   4,052   —     Other operating expenses:                      Selling, general and administrative  7,372    18,613   11,376   4,159      Property operating costs  295    8,810   5,283   631      Depreciation and amortization  1,897    12,925   7,744   212                  10,820    58,943   36,248   5,002      Other expenses from managed properties  —    14,553   14,904   14,808                   Total operating expenses  10,820    73,496   51,152   19,810                   Net operating loss  (6,191)   (8,238)  (4,899)  (1,592)    Interest income  (66)   (224)  (55)  (88)    Interest expense  280    6,748   4,413   217     (Gain) loss on sale of investments  —    (1,653)  —   13     Interest on mandatorily redeemable shares  —    1,761   (3,136)  4,479                   Loss before income taxes  (6,405)   (14,870)  (6,121)  (6,213)    Income tax benefit  (2,563)   —   —   —                   Loss from continuing operations  (3,842)   (14,870)  (6,121)  (6,213)    Income (loss) from discontinued operations  —    1,928   1,118   (542)                  Loss before cumulative effect of change in accounting principle  (3,842)   (12,942)  (5,003)  (6,755)    Cumulative effect of change in accounting principle  —    —   460   —                   Net loss $(3,842)  $(12,942) $(4,543) $(6,755)                  Basic loss per share $(0.13)                               Diluted loss per share $(0.13)                               Weighted average common shares outstanding:                      Basic  30,132,896                                 Diluted  30,132,896                            See accompanying notes to consolidated and combined financialstatements.
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY**                                       **Members’**        **Additional**     **Equity of**      **Common** **Paid in** **Accumulated** **Deferred** **Combined** **Treasury** **Total**  **Stock** **Capital** **Deficit** **Compensation** **Entities** **Stock** **Equity**                 **(Dollars in thousands, except per share data)****Predecessor:**                                Balance, December 31, 2001 $2  $—  $(2,960) $—  $452  $(354) $(2,860)    Contributions  —   —   —   —   28,648   —   28,648     Distributions  —   —   (710)  —   —   —   (710)    Net loss  —       (513)      (6,242)  —   (6,755)    Accretion of mandatorily redeemable equity interests  —   —   —   —   (6,496)  —   (6,496)    Treasury shares repurchased  —   —   —   —   —   (470)  (470)                          Balance, December 31, 2002  2       (4,183)      16,362   (824)  11,357     Contributions  —   —   —   —   29,318   —   29,318     Distributions  —   —   (318)  —   (3,538)  —   (3,856)    Net income (loss)  —   —   3,705   —   (8,248)  —   (4,543)    Accretion of mandatorily redeemable equity interests  (2)      (460)      (2,631)  —   (3,093)                          Balance, December 31, 2003  —   —   (1,256)  —   31,263   (824)  29,183     Contributions  —   —   643   —   25,145   —   25,788     Distributions  —   —   (3,170)  —   (7,534)  —   (10,704)    Net income (loss)  —   —   1,582   —   (14,524)  —   (12,942)                          Balance, December 20, 2004 $—  $ —  $(2,201) $—  $34,350  $(824) $31,325                       **Great Wolf Resorts, Inc.:**                                Reclassification, net of effect of spin-off, of    Predecessor’s equity, mandatorily redeemable ownership    interests and minority interests $50  $45,727  $—  $—  $—  $—  $45,777     Net proceeds from sale of common stock  161   248,506   —   —   —   —   248,667     Issuance of common stock — acquisition of resorts  91   97,628   —   —   —   —   97,719     Issuance of common stock — deferred compensation plan  1   2,199       (2,200)  —   —   —     Net loss  —   —   (3,842)  —   —   —   (3,842)                          Balance, December 31, 2004 $303  $394,060  $(3,842) $(2,200) $—  $ —  $388,321                       See accompanying notes to consolidated and combined financialstatements.
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS**                     **Great Wolf**        **Resorts, Inc.** **Predecessor**                 **Predecessor**  **Period** **Period**    **December 21,** **January 1,**    **2004** **2004** **Year Ended**  **through** **through** **December 31,**  **December 31,** **December 20,**    **2004** **2004** **2003** **2002**           **(Dollars in thousands)**    Operating activities:                     Net loss $(3,842) $(12,942) $(4,543) $(6,755)     Adjustments to reconcile net loss to net cash provided by    operating activities:                      Depreciation and amortization  1,897   13,107   10,440   4,169       Non-cash employee compensation expenses  2,891   —   —   —       (Gain) loss on sale of assets  —   (5,327)  (10,967)  —       (Gain) loss on sale of investments and other  —   (1,653)  —   13       Minority interests  —   2,729   10,247   (26)      Cumulative effect of change in accounting principle  —   —   (460)  —       Deferred tax benefit  (2,563)  —               Changes in operating assets and liabilities:                      Prepaid expenses and other assets  1,564   (6,824)  (883)  (675)      Accounts payable, accrued expenses and other liabilities  815   16,959   4,292   3,650                  Net cash provided by operating activities  762   6,049   8,126   376                  Investing activities:                     Capital expenditures for property and equipment  (115)  (111,216)  (77,060)  (46,224)     Proceeds from sale of assets  —   32,174   26,451   —      Purchases of owners’ interest, net of cash acquired  (95,460)  —              (Increase) decrease in equity escrow  —   12,158   (13,671)  (52)                 Net cash used in investing activities  (95,575)  (66,884)  (64,280)  (46,276)                 Financing activities:                     Proceeds from equity offering  273,700   —   —   —      Payment of offering costs  (21,979)  (726)  —   —      Principal payments on long-term debt  (152,417)  (16,805)  (17,765)  (3,523)     Proceeds from issuance of long-term debt  75,000   68,330   63,496   29,018      Payment of loan costs  (2,153)  (2,569)  (2,351)  (1,897)     Member contributions  —   25,788   29,318   24,648      Member distributions  —   (11,370)  (3,856)  (710)     Purchase of treasury stock  —   —   —   (470)     Changes in mandatorily redeemable ownership interests  —   1,761   (3,136)  4,479      Net distributions to minority investors  —   (2,985)  (10,852)  (1,748)                 Net cash provided by financing activities  172,151   61,424   54,854   49,797                  Net increase (decrease) in cash and cash equivalents  77,338   589   (1,300)  3,897     Cash and cash equivalents, beginning of period  4,079   3,490   4,790   893                  Cash and cash equivalents, end of period $81,417  $4,079  $3,490  $4,790                  Supplemental Cash Flow Information                     Cash paid for interest, net of capitalized interest $698  $6,317  $4,786  $493      Land contributed for membership interest $—  $—  $—  $4,000 See accompanying notes to consolidated and combined financialstatements.
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS****(Dollars in thousands, except per share amounts)****1.****ORGANIZATION**     The terms “Great Wolf Resorts,” “us,”“we” and “our” are used in this report torefer to Great Wolf Resorts, Inc. Through our controllinginterest in Great Wolf Resort Operating Partnership, L.L.L.P.,or the “Operating Partnership,” of which we are thesole general partner, and the subsidiaries of the OperatingPartnership, we develop, own and operate family entertainmentresorts.     We were formed to succeed to certain businesses of the GreatLakes Predecessor (the Predecessor), which was not a legalentity but rather a combination of numerous entities. ThePredecessor consisted of the following, all of which were undercommon management: •     The Great Lakes Companies, Inc. (GLC), and its consolidated    subsidiaries;  •     Great Wolf Lodge of Traverse City, LLC;  •     Great Wolf Lodge of Kansas City, LLC;  •     Blue Harbor Resort Sheboygan, LLC;  •     Great Wolf Lodge of Williamsburg, LLC; and  •     Great Wolf Lodge of the Poconos, LLC     The Predecessor financial statements do not include entitiesthat owned Great Wolf Lodges in Wisconsin Dells, Wisconsin andSandusky, Ohio. These entities, although they were managed byGLC, were controlled by affiliates of AIG SunAmerica, Inc.     The Predecessor has developed and operated hotels andmultifamily housing projects since 1995. In 1999, thePredecessor began its resort operations by purchasing the GreatWolf Lodge in Wisconsin Dells, Wisconsin and developing theGreat Wolf Lodge in Sandusky, Ohio, which opened in 2001. In2003, the Predecessor opened two additional Great Wolf Lodgeresorts, one in Traverse City, Michigan and the other in KansasCity, Kansas. In June 2004, the Predecessor opened the BlueHarbor Resort in Sheboygan, Wisconsin. Additionally in 2004, thePredecessor had two additional Great Wolf Lodge resorts underconstruction, one in Williamsburg, Virginia and the other in thePocono Mountains region of Pennsylvania, and had licensed aresort owned by a third party that was under construction inNiagara Falls, Ontario (Canada).     We were incorporated in May 2004 as a Delaware corporation inanticipation of the initial public offering of our common stock(the IPO). The IPO closed on December 20, 2004,concurrently with the completion of various formationtransactions (the Formation Transactions).     Pursuant to the Formation Transactions: •     The Predecessor contributed its hotel management and multifamily    housing management and development assets, which were unrelated    to the resort business, to two subsidiaries of the Predecessor    and then distributed the interests in those subsidiaries to the    former shareholders of GLC.  •     We effected, through our Operating Partnership, the acquisition    of GLC and each resort-owning entity. Pursuant to these    acquisitions, investors of GLC and the resort-owning entities    received cash, unregistered shares of our common stock or a    combination of cash and unregistered shares of our common stock.    We issued 13,901,947 shares of our common stock and paid    approximately $97,600 in cash in connection with these    acquisitions.  •     We issued an aggregate of 130,949 shares of unregistered    common stock to holders of tenant in common interests in two of    our resorts.
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)**     These transactions consolidated the ownership of our resortproperties and property interests to Great Wolf Resorts. Duringthe period from our formation until we commenced operations uponclosing of the IPO on December 20, 2004, we did not haveany material corporate activity.     The IPO consisted of the sale of 16,100,000 shares ofcommon stock at a price per share of $17.00, generating grossproceeds of $273,700. The net proceeds to us were approximately$248,700 after deducting an aggregate of $19,200 in underwritingdiscounts and commissions paid to the underwriters and $5,800 inother expenses directly related to the issuance of common stock(such as professional fees and printing fees) incurred inconnection with the IPO.     As of December 31, 2004, we develop, own and operate fourGreat Wolf Lodge resorts, our signature northwoods-themedresorts, and one Blue Harbor Resort, a nautical-themed property.In addition, we own two Great Wolf Lodge resorts that we aredeveloping and that are under construction and scheduled to openfor business during 2005. We are also the licensor and managerof an additional Great Wolf Lodge resort in Niagara Falls,Ontario that is owned and under development by an affiliate ofRipley Entertainment Inc., or Ripley’s.**2.****SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**     *Principles of Consolidation and Combination* —For the period subsequent to the IPO, the accompanyingconsolidated financial statements include all of the accounts ofGreat Wolf Resorts, Inc., the Operating Partnership and thesubsidiaries of the Operating Partnership. Property interests(other than property contributed by GLC) contributed to theOperating Partnership by the Predecessor and other investorshave been accounted for as purchases, and the excess of thepurchase price over the related historical cost bases has beenallocated to the assets acquired and liabilities assumed. Forthe period prior to our IPO, the accompanying combined financialstatements include all of the accounts of the Predecessor. Allsignificant intercompany balances and transactions have beeneliminated in the consolidated and combined financial statements.     *Cash and Cash Equivalents* — Cash and cashequivalents consist of highly liquid investments with anoriginal maturity of three months or less when acquired. Cash isinvested with quality federally insured institutions that aremembers of the FDIC. Cash balances with institutions may be inexcess of federally insured limits or may be invested in timedeposits that are not insured by the institution, the FDIC orany other government agency. We have not realized any losses insuch cash investments and we believe that these investments arenot exposed to any significant credit risk.     *Allowance for Doubtful Accounts* — An allowancefor doubtful accounts is provided when it is determined that itis more likely than not a specific account will not becollected. Bad debt expense for the period January 1, 2004through December 20, 2004 and the years endedDecember 31, 2003 and 2002 was $239, $524, and $110,respectively, and writeoffs of accounts receivable for theperiod January 1, 2004 through December 20, 2004 andthe years ended December 31, 2003 and 2002 were $116, $136,and $22, respectively. There was no bad debt expense orwriteoffs during the period December 21, 2004 throughDecember 31, 2004.     *Inventory* — Inventories are recorded at thelower of cost or market.     *Property and Equipment —*Investments inproperty and equipment are recorded at cost, except in the caseof acquired property and equipment, which is record at itsestimated fair value. These assets are depreciated using thestraight-line method over their estimated useful lives asfollows:         Buildings and improvements  40 years     Land improvements  15 years     Furniture, fixtures and equipment, including waterpark equipment  3-10  years 
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)** We periodically review the estimated useful lives we haveassigned to our depreciable assets to determine whether thoseuseful lives are reasonable and appropriate.     Improvements and replacements are capitalized when they extendthe useful life, increase capacity or improve the efficiency ofthe asset. Repairs and maintenance are expensed as incurred.Construction in process includes costs such as site work,permitting and construction related to resorts underdevelopment. Interest is capitalized on construction in processbalances during the construction period. Interest capitalizedtotaled $1,918, $1,381, and $574 for the years endedDecember 31, 2004, 2003 and 2002, respectively.     *Loan Fees* — Loan fees are capitalized andamortized over the term of the loan using a method thatapproximates the effective interest method. Loan fees, net ofaccumulated amortization, were $5,174, $2,938 and $1,724 as ofDecember 31, 2004, 2003 and 2002, respectively.Amortization of loan fees was $1,386, $1,698, $1,137, and $984for the period December 21, 2004 through December 31,2004, the period January 1, 2004 through December 20,2004, and the years ended December 31, 2003 and 2002,respectively. Included in loan fee amortization for the periodDecember 21, 2004 through December 31, 2004, were$1,283 of loan fees that were written off due to repayment ofdebt in conjunction with the IPO.     *Assets Held for Sale* — The Predecessorclassified as held for sale those properties that were activelymarketed for sale. A property classified as held for sale wascarried at the lower of its book value or estimated fair valueless costs to sell. Depreciation of the held for saleproperty’s assets was ceased at the time the property isclassified as held for sale. The Predecessor segregated theproperty and equipment, and long-term debt relating to the heldfor sale properties on its combined balance sheets. ThePredecessor segregated the operating activity and any gains orlosses upon disposition relating to the held for sale propertiesin income (loss) from discontinued operations in its combinedstatements of operations.     *Equity Escrow* — For certain of the entitiesincluded in the accompanying combined financial statement, thePredecessor raised equity from members through privateplacements. Equity amounts raised through these privateplacements are held in escrow and used in construction ofresorts. We are only permitted to use these funds for theconstruction of the applicable resorts. The funds are held in abank account which exceeds the FDIC insurance limit.     *Goodwill* — The excess of the purchase priceover the estimated fair value of tangible and identifiableintangible assets acquired is recorded as goodwill. We recordedgoodwill in connection with the Formation Transactions. ThePredecessor’s goodwill resulted from the acquisition of ahotel in 2000. Effective January 1, 2002, the Predecessoradopted Statement of Financial Accounting Standards (SFAS)No. 142, which states that goodwill should not be amortizedbut instead tested for impairment and adjusted, if applicable.Accordingly, the Predecessor ceased amortization of goodwill asof January 1, 2002.     In connection with SFAS 142, we are required to assessgoodwill and intangible assets for impairment annually, or morefrequently if circumstances indicate impairment may haveoccurred. We assess goodwill for such impairment by comparingthe carrying value of our reporting units to their fair values.The Predecessor performed its initial goodwill impairmentassessment on January 1, 2002 in connection with theadoption of SFAS 142 and determined that the carryingamounts of its reporting units did not exceed their respectivefair values. Accordingly, the initial implementation of thisstandard did not result in a charge and, as such, did not impactthe Predecessor’s results of operations during 2002.Subsequent to the initial assessment, an assessment of goodwillhas been performed annually, or more frequently if circumstancesindicated impairment may have occurred, and during the yearsended December 31, 2004, 2003 and 2002 determined that nosuch impairment had occurred.     *Impairment of Long-Lived Assets* — Whencircumstances, such as adverse market conditions, indicate thatthe carrying value of a long — lived asset may beimpaired, we perform an analysis to review the recoverability ofthe asset’s carrying value. We make estimates of theundiscounted cash flows (excluding
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)**interest charges) from the expected future operations of theasset. These estimates consider factors such as expected futureoperating income, operating trends and prospects, as well as theeffects of demand, competition and other factors. If theanalysis indicates that the carrying value is not recoverablefrom future cash flows, an impairment loss is recognized to theextent that the carrying value exceeds the estimated fair value.Any impairment losses are recorded as operating expenses, whichreduce net income. There were no impairment losses in any of theperiods presented.     *Minority Interests* — The Predecessor recordedthe non-owned equity interests of its consolidated subsidiariesas minority interests on the combined balance sheets. ThePredecessor recognized losses that exceed the minority interestparty’s capital in a consolidated entity. Distributionsthat exceed the minority interest partner’s capital in aconsolidated entity were recorded as distributions in excess ofminority interest capital expense.     *Derivative Instruments* —SFAS No. 133, “Accounting for DerivativeInstruments and Hedging Activities,” requires an entity torecognize all derivatives as either assets or liabilities in thebalance sheet and measure those instruments at fair value.SFAS 137 and SFAS 138 amended certain provisions ofSFAS 133. The Predecessor did not generally enter intoderivative instruments; certain of the Predecessor’scontracts, however, contained derivative instruments as definedin SFAS 133. The Predecessor’s implementation ofSFAS 133 resulted in the classification of certainderivative instruments as liabilities.     *Revenue Recognition* — We earn revenue from ourresort operations, and from development and other relatedservices. The Predecessor also earned revenue from its hoteloperations and hotel and multifamily management and developmentservices. We also recognize revenue from rooms, food andbeverage, and other operating departments at the resorts asearned at the time of sale or rendering of service. Cashreceived in advance of the sale or rendering of services isrecorded as advance deposits on the balance sheets. We recognizedevelopment fees as earned under the completed contract methodfor projects with a short duration, and the percentage ofcompletion method (based on contract-to-date costs incurredcompared to total expected costs) for longer-term projects.     *Gains on Sales of Real Estate* —SFAS No. 66, “Accounting for Sales of RealEstate,” requires an entity to recognize gains on sales ofreal estate only when a sale is consummated, the buyer’sinitial and continuing investments are adequate to demonstrate acommitment to pay, and risks and rewards of ownership aretransferred to the buyer. The Predecessor accounted for gains onsales of real estate in accordance with the provisions ofSFAS 66. In the period from January 1, 2004 throughDecember 20, 2004, the Predecessor recognized a gain onsale of real estate of $1,072 from the sale of land owned inOntario, Canada and $581 from the sale of land in Beckley, WestVirginia. No gains or losses on sales of real estate wererecognized between December 21, 2004 and December 31,2004.     *Income Taxes* — The Predecessor was comprised ofa Subchapter S Corporation and limited liability companies.Under applicable federal and state income tax rules, the netincome or loss of each of these entities was reportable in theincome tax returns of the stockholders, partners and members ofthe entities. Accordingly, no income tax provision was includedin the accompanying combined financial statements.     Subsequent to the IPO, we and our subsidiaries file aconsolidated federal income tax return and separate state incometax returns. Under the liability method prescribed bySFAS 109, income taxes are deferred for all temporarydifferences between pretax financial and taxable income andbetween the book and tax bases of assets and liabilities usingthe tax rates scheduled by law to be in effect when thetemporary differences reverse. Future tax benefits arerecognized to the extent that realization of such benefits ismore likely than not. A valuation allowance is recorded forthose benefits that do not meet this criterion.     *Advertising* — Advertising costs are expensed asincurred. Advertising expense for the period December 21,2004 through December 31, 2004, the period January 1,2004 through December 20, 2004 and the year
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)**ended December 31, 2003 was $135, $3,148, and $2,218,respectively; advertising expense for 2002 was insignificant.     *IPO Costs* — Underwriting commissions and othercosts directly related to sale of our common stock in the IPOare reflected as a reduction of additional paid-in-capital.Included in selling, general and administrative expenses are$5,550 and $863 of other expenses incurred as a result of theIPO transactions, for the period January 1, 2004 throughDecember 20, 2004 and December 21, 2004 throughDecember 31, 2004, respectively. These expenses include adebt prepayment penalty, write-offs of loan fees related to debtrepaid or refinanced in conjunction with the IPO and bonuses dueto certain executives, pursuant to their employmentarrangements, as a result of the IPO.     *Segments* — We view our operations asprincipally one segment and the financial information disclosedherein represents all of the financial information related toour principal segment.     *Stock Based Compensation* — We have issued stockoptions under our 2004 Stock Incentive Plan. As permitted underStatement of Financial Accounting Standards No. 123,“Accounting for Stock Based Compensation,” we haveelected to account for such options in accordance withAPB Opinion No. 25 (APB 25), “Accounting forStock Issued to Employees.” Under APB 25, the totalcompensation expense recognized is equal to the differencebetween the award’s exercise price and the underlyingstock’s market prices at the measurement date. Stockoptions were granted at their fair market value; therefore nocompensation expense was recorded in the periodDecember 21, 2004 through December 31, 2004. Hadcompensation costs been determined under the fair value methodas set forth in SFAS 123, the Company’s pro forma netloss and net loss per share for the period December 21,2004 through December 31, 2004, would have been as follows:          Net loss, as reported $(3,842)    Compensation expense, SFAS 123 fair value method  (48)         Pro forma net loss $(3,890)         Pro forma net loss per share — Basic $(0.13)     Pro forma net loss per share — Diluted $(0.13)     The weighted average fair value for the options granted in 2004was $4.82. The SFAS 123 fair value of options granted in2004 was estimated using a Black-Scholes option-pricing modelwith the following assumptions:       Dividend yield     —    Weighted-average, risk free interest rate     3.65%    Weighted-average, expected life of option     5.0 years    Expected stock price volatility     23%     *Use of Estimates* — To prepare financialstatements in conformity with accounting principles generallyaccepted in the United States of America, we must make estimatesand assumptions. These estimates and assumptions affect thereported amounts in the financial statements, and the disclosureof contingent assets and liabilities at the date of thefinancial statements. Actual results could differ from thoseestimates.     *New Accounting Pronouncements* — In June 2001,the Financial Accounting Standards Board (FASB) issuedSFAS No. 142. SFAS 142 eliminates theamortization of goodwill and replaces it with a requirement toconduct an impairment analysis of the carrying value of thegoodwill at least annually, and more often as circumstanceswarrant. The provisions of SFAS 142 are required to beapplied starting with fiscal years beginning afterDecember 15, 2001. The Predecessor adopted SFAS 142 onJanuary 1, 2002.
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)**     In August 2001, the FASB issued SFAS No. 144,“Accounting for the Impairment or Disposal of Long-LivedAssets.” SFAS 144 addresses financial accounting andreporting for the impairment and disposal of long-lived assets.SFAS 144 requires the current and prior period operatingresults of any asset that has been classified as held for saleor has been disposed of after January 1, 2002 and where thePredecessor had no continuing involvement to be recorded asdiscontinued operations. Any gains or losses on finaldisposition are also included in discontinued operations. Theprovisions of SFAS 144 are effective for financialstatements issued for fiscal years beginning afterDecember 15, 2001. The Predecessor adopted SFAS 144 onJanuary 1, 2002. Certain of the Predecessor’s hotelproperties were classified as held for sale in the accompanyingcombined balance sheets and, accordingly, the operating resultsof those properties were recorded in discontinued operations inthe combined statements of operations. A long-lived asset to bedistributed to owners in a spinoff is disposed of when it isdistributed. In a period in which a component of an entity hasbeen disposed of, the results of operations of the entity forcurrent and prior periods are reported in discontinuedoperations. Certain assets of subsidiaries of the Predecessorthat have been spun off in connection with the FormationTransactions are classified as assets of spun-off entities. Theresults of operations for these spun-off entities are recordedin discontinued operations in the combined statements ofoperations.     Effective January 1, 2002, the Predecessor adopted theprovisions of Emerging Issues Task Force (EITF) IssueNo. 01-14 “Income Statement Characterization ofReimbursements Received for Out-of-Pocket ExpensesIncurred.” EITF 01-14 establishes standards foraccounting for reimbursements received for out-of-pocketexpenses incurred and the characterization as revenue andexpense in the statements of operations. In accordance withEITF 01-14, the Predecessor included in operating revenuesand expenses the reimbursement of costs it incurs on behalf ofthe third-party owners of hotels managed by GLC. These costsrelate primarily to payroll and benefit costs at managed hotelswhere GLC is the employer. The Predecessor receivedreimbursements for these costs based upon its costs with noadded margin. Therefore, the adoption of EITF 01-14 did notimpact its operating results, cash flows or financial position.The Predecessor adopted EITF 01-14 by retroactivelyapplying it to all periods presented in the accompanyingcombined financial statements. The effect of adoptingEITF 01-14 was an increase in operating revenues andexpenses of $14,553, $14,904 and $14,808 for the periodJanuary 1, 2004 through December 20, 2004, and theyears ended December 31, 2003 and 2002, respectively.     FASB Interpretation No. 45, “Guarantor’sAccounting and Disclosure Requirements for Guarantees, IncludingIndirect Guarantees of Indebtedness of Others, an interpretationof FASB Statements No. 5, 57 and 107 and rescission of FASBInterpretation No. 34” (FIN 45), was issued inNovember 2002. FIN 45 elaborates on the disclosures to bemade by a guarantor in its interim and annual financialstatements about its obligations under certain guarantees thatit has issued. It also clarifies that a guarantor is required torecognize, at the inception of a guarantee, a liability for thefair value of the obligation undertaken in issuing theguarantee. The initial recognition and initial measurementprovisions of FIN 45 are applicable on a prospective basisto guarantees issued or modified after December 31, 2002,irrespective of the guarantor’s fiscal year-end. Thedisclosure requirements in FIN 45 are effective forfinancial statements of interim or annual periods ending afterDecember 15, 2002. There was no financial statement impactfrom the adoption of FIN 45.     In January 2003, the FASB issued FASB InterpretationNo. 46, “Consolidation of Variable InterestEntities,” an interpretation of Accounting ResearchBulletin No. 51, “Consolidated FinancialStatements.” FIN 46 prescribes how to identifyvariable interest entities and how an enterprise assesses itsinterests in a variable interest entity to decide whether toconsolidate the entity. FIN 46 requires existingunconsolidated variable interest entities to be consolidated bytheir primary beneficiaries if the entities do not effectivelydisperse risks among parties involved. The original provisionsof FIN 46 were effective February 1, 2003 for allarrangements entered into after January 31, 2003. Forarrangements entered into before February 1, 2003, theprovisions of FIN 46 applied in the first fiscal year orinterim period beginning after June 15, 2003.
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)**     In December 2003, the FASB issued a revision of FIN 46(FIN 46R) to clarify some of its provisions. FIN 46Rdeferred the effective date for FIN 46 for arrangementsentered into before February 1, 2003 and results inmultiple effective dates based on the nature as well as thecreation date of the variable interest entity. Variable interestentities created after January 31, 2003 but prior toDecember 24, 2003, may be accounted for either based on theoriginal or the revised interpretations. Variable interestentities created after December 24, 2003 must be accountedfor under the revised interpretations. FIN 46R is effectivefor periods ending after March 15, 2004. The Predecessorapplied FIN 46 to variable interest entities created afterJanuary 31, 2003 for the year ended December 31, 2003.The Predecessor applied FIN 46R to variable interestentities effective January 1, 2004. Prior to theimplementation of FIN 46 and FIN 46R, the Predecessorconsolidated entities for which it controlled major managementand operating decisions. There was no financial statement impactfrom the adoption of FIN 46 and FIN 46R.     In May 2003, the FASB issued SFAS No. 150“Accounting for Certain Financial Instruments withCharacteristics of Both Liabilities and Equity.”SFAS 150 requires the classification of certain financialinstruments that were previously classified as equity to beclassified as liabilities. The implementation of SFAS 150is effective for financial instruments issued or modified afterMay 31, 2003, and otherwise is effective at the beginningof the first interim period beginning after June 15, 2003.The Predecessor’s implementation of SFAS 150 resultedin the classification of certain mandatorily redeemableinterests as liabilities, resulting in a cumulative effect of achange in accounting principle of $460 for the year endedDecember 31, 2003.     In December 2004, the FASB issued Statement No. 123(revised 2004), “Share-Based Payment”(SFAS 123R), that requires companies to expense the valueof employee stock options, discounts on employee stock purchaseplans and similar awards. Under SFAS 123R, share-basedpayment awards result in compensation expense that will bemeasured at fair value on the awards’ grant date, based onthe estimated number of awards that are expected to vest.SFAS 123R is effective for periods beginning afterJuly 1, 2005, and applies to all outstanding and unvestedshare-based payment awards at the adoption date. We have notcompleted our evaluation of the impact of adoptingSFAS 123R.**3.****PURCHASE ACCOUNTING IN CONNECTION WITH THE IPO**     The IPO closed on December 20, 2004. In conjunction withthe Formation Transactions completed on that date, we issued atotal of 14,032,896 shares of our common stock. We alsopaid cash of approximately $97,600 to buy-out certain investorsin the resort-owning entities and interests held by AIGSunAmerica, Inc. in the Wisconsin Dells and Sandusky entities.     We recorded the Formation Transactions by applying the purchasemethod of accounting in connection with GLC’s acquisitionof the seven resort-owning entities. Through the exchanges ofshares of GLC for shares of our common stock, GLC’sshareholders as a group had the largest minority portion of anyorganized group of shareholder interest in our company, andGLC’s former senior management comprises our seniormanagement. Accordingly, as prescribed bySFAS No. 141, “Business Combinations,” GLCwas identified as the accounting acquirer. We issued9,123,819 shares of our common stock with a value of$155,104 to the owners of the seven resort-owning entities. Thevalue of our shares issued was determined based on the IPO priceof $17.00 per share. Net of the effects of the carryover inbook value from the Predecessor to us of (1) theresorts’ equity included in the Predecessor’sDecember 20, 2004 equity balance, (2) theresorts’ mandatorily redeemable ownership interests and(3) the resorts’ minority interests, the totalincrease in our equity from the issuance of these9,123,819 shares was $97,719.     We also issued 4,909,077 shares of our common stock to theshareholders of GLC, the accounting acquirer. As GLC’sequity was carried forward to us at historical cost, theissuance of these shares did not
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)**affect our total equity balance, but instead resulted in areclassification of $50 from additional paid-in capital tocommon stock.     In conjunction with purchase accounting we: •     Recorded property and equipment, other assets, debt and other    liabilities at their preliminarily estimated fair values;  •     Recorded a deferred tax liability resulting from the difference    between the preliminarily estimated fair value and the tax basis    of assets acquired from the seven resort-owning entities. We    recorded this liability at our anticipated effective tax rate of    40%;  •     Eliminated mandatorily redeemable interests of the Predecessor    due to the conversion of those ownership interests to our common    stock in conjunction with the Formation Transactions; and  •     Recorded as goodwill the excess of consideration in the purchase    transaction over the fair value of net tangible assets acquired    from the seven resort-owning entities.     The following summarizes the purchase accounting piece of theFormation Transactions:         Value of Great Wolf Resorts common stock issued $155,104     Cash paid  97,615         Total cost of acquisition  252,719     Fair value of debt assumed  207,547     Fair value of property and equipment acquired  (276,424)    Deferred tax liability recorded  11,298     Fair value of other assets and liabilities  23,587         Goodwill $218,727          Some of the values and amounts used in the application ofpurchase accounting for our consolidated balance sheet are basedon preliminary estimates and assumptions. These estimates andassumptions are subject to possible change as we finalize themin 2005.     The following pro forma information is presented assuming theIPO and Formation Transactions had been completed as ofJanuary 1, 2003. In management’s opinion, all proforma adjustments necessary to reflect the material effects ofthese transactions have been made. The pro forma informationdoes not purport to present what the actual results ofoperations would have been if the IPO and Formation Transactionshad occurred on such date, nor to project the results ofoperations for any future period.**Pro Forma Information**           **2004** **2003**       **(Unaudited)**    Total revenues $91,036  $68,920     Net loss  (9,331)  (646)    Loss per basic and diluted share $(0.31) $(0.02)
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)****4.****PROPERTY AND EQUIPMENT**     Property and equipment consist of the following:            **December 31,**     **2004** **2003**         Land and improvements $21,242  $16,455     Building and improvements  80,116   32,778     Furniture, fixtures and equipment  82,470   51,488     Construction in process  92,544   25,933           276,372   126,654      Less accumulated depreciation  (614)  (5,780)           Property and equipment, net $275,758  $120,874        **5.****LONG-TERM DEBT**     Long-term debt consists of the following:            **December 31,**     **2004** **2003**         Mortgage Debt:             Senior credit facility $—  $—      Traverse City/ Kansas City Mortgage Loan  75,000   —      Sheboygan Construction Loan  29,475   10,326      Williamsburg Construction Loan  19,011   554      Poconos Construction Loan  5,598   —      Pre-IPO Mortgage Loans  —   74,470      Other mortgage debt  1,523   —     Other Debt:             City of Sheboygan bonds  8,063   1,468      City of Sheboygan loan  3,995   —      Lines of credit  —   6,682      Notes payable  —   233           142,665   93,733     Less current portion of long-term debt  (27,794)  (9,632)         $114,871  $84,101             *Senior Credit Facility* — Upon closing the IPO,we entered into a $75,000 senior secured revolving creditfacility with a syndicate of banks. The loan is secured by ourWisconsin Dells and Sandusky resorts and is not drawn as ofDecember 31, 2004. Future borrowings under this facilitywill bear interest at LIBOR plus a margin of 2.25% to 3.00%depending upon our leverage ratio from time to time. The maximumamount of indebtedness we may incur under the facility is equalto 3.75 multiplied by the combined EBITDA (adjusted fornon-recurring items, unusual items, infrequent items and assetimpairment charges) of the two resorts securing the facilityplus up to $5,400 relating to enhancements to the waterparkfacility for the Wisconsin Dells property. The facility hascustomary bank covenants including limiting the maximum level oftotal debt,
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)**the minimum level of interest coverage, and the minimum level offixed charge coverage. The facility also includes an annualunused commitment fee of 0.5%.     *Traverse City/ Kansas City Mortgage Loan* — Uponclosing the IPO, we entered into a $75,000, ten-year loansecured by our Traverse City and Kansas City resorts. The loanbears interest at a fixed rate of 6.96% and is subject to a25-year principal amortization schedule. The loan has customaryfinancial and operating debt compliance covenants, including aminimum debt service coverage ratio, representing the combinedEBITDA (adjusted for non-recurring items, unusual items,infrequent items and asset impairment charges) of the tworesorts divided by their combined annual interest expense andprincipal amortization. The loan also has customary prohibitionson our ability to prepay the loan prior to maturity. We were incompliance with all mortgage loan covenants at December 31,2004.     *Sheboygan Construction Loan* — The Sheboyganmortgage loan is secured by our Sheboygan resort. The loanmatures in January 2008 and bears interest at a floating rate ofprime plus 200 basis points and is subject to a 20-yearprincipal amortization schedule. The loan has customarycovenants associated with a single asset mortgage. There are noprohibitions or fees associated with the repayment of the loanprincipal. We were in compliance with the construction loancovenants at December 31, 2004.     *Williamsburg Construction Loan* — TheWilliamsburg construction loan was incurred to construct theWilliamsburg resort property. In February 2005, after drawing anadditional $10,242 on this loan, we retired the loan in fullusing cash on hand.     *Poconos Construction Loan* — The Poconosconstruction loan was incurred to construct the Poconos resortproperty. In March 2005, after drawing an additional $13,550 onthis loan, we retired the loan in full using cash on hand andthe proceeds of junior subordinated debentures we issued inMarch 2005.     *Pre-IPO Mortgage Loans* — Prior to the IPO, thePredecessor maintained mortgage loans on each of the TraverseCity and Kansas City resorts. Those loans, totaling $72,298 atthe IPO, were repaid using a portion of the proceeds from theIPO.     Also, as part of the Formation Transactions, we assumed $75,648of debt from the Wisconsin Dells and Sandusky resorts. This debtwas paid off using a portion of the proceeds from the IPO.     *City of Sheboygan bonds* — The City of Sheboygan(the City) bonds amount represents the face amount of bondanticipation notes (BANs) issued by the City in November 2003 inconjunction with the Predecessor’s construction of the BlueHarbor Resort in Sheboygan, Wisconsin. In accordance with theprovisions of EITF Issue No. 91-10, we have recognized as aliability the obligations for these BANs. The notes bearinterest at 3.95% and mature in 2008. The notes are not ageneral obligation of the City and are payable from (a) theproceeds of bond anticipation notes or other funds appropriatedby the City for the payment of interest on the BANs and(b) the proceeds to be delivered from the issuance and saleof securities by the City. We have an obligation to fund paymentof these BANs. Our obligation to fund repayment of the noteswill be satisfied by certain minimum guaranteed amounts of roomtax payments to be made by the Blue Harbor Resort through 2028.     *City of Sheboygan loan* — The City of Sheboyganloan amount represents a loan made by the City in 2004 to thePredecessor in conjunction with the Predecessor’sconstruction of the Blue Harbor Resort in Sheboygan, Wisconsin.The loan is noninterest-bearing and matures in 2018. Ourobligation to repay the loan will be satisfied by certainminimum guaranteed amounts of real and personal property taxpayments to be made by the Blue Harbor Resort through 2018.     *Lines of Credit* — The lines of credit wereborrowings of GLC and were generally secured by businesssecurity agreements, which pledged as collateral GLC’sassets, assignments of stockholder interests of GLC’sprincipals and guarantees of GLC’s stockholders. Theseborrowings were terminated as of the IPO.
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)**     *Junior Subordinated Debentures* — In March 2005,we completed a private offering of $50,000 of trust preferredsecurities through Great Wolf Capital Trust I (the Trust),a Delaware statutory trust which is our subsidiary. Thesecurities pay holders cumulative cash distributions at anannual rate which is fixed at 7.80% through March 2015 and thenfloats at LIBOR + 310 basis points. The securities maturein March 2035. In addition, we invested $1,500 in thetrust’s common securities, representing 3% of the totalcapitalization of the trust.     The Trust used the proceeds of the offering and our investmentto purchase from us $51,500 of our junior subordinateddebentures with payment terms that mirror the distribution termsof the trust securities. The cost of the trust preferredoffering totaled $1,600, including $1,500 of underwritingcommissions and expenses and $100 of costs incurred directly bythe Trust. The Trust paid these costs utilizing an investmentfrom us. The proceeds from our debenture sale, net of the costsof the trust preferred offering and our investment in the Trust,were $48,400. We used the net proceeds to retire the Poconosconstruction loan.     *Future Maturities* — Future principalrequirements on long-term debt are as follows:         2005 $27,794     2006  1,925     2007  2,144     2008  28,721     2009  1,569     Thereafter  80,512         Total $142,665     **6.****FAIR VALUE OF FINANCIAL INSTRUMENTS**     As of December 31, 2004 and 2003, the fair values of themortgage loans and other secured loans approximate the carryingvalues as the terms are similar to those currently available tous for debt with similar risks and remaining maturities.     The carrying amounts for cash and cash equivalents, othercurrent assets, equity escrows and accounts payable and accruedexpenses approximate fair value because of the short-term natureof these instruments.**7.****INCOME TAXES**     For the period December 21, 2004 through December 31,2004, we incurred a pre-tax loss of $(6,405) and recorded anincome tax benefit of $(2,563) on that pre-tax loss. That incometax benefit amount differs from the federal statutory income taxrate due to the effect of state and local taxes. Our income taxbenefit for that period consists of a deferred federal amount of$2,243 and a deferred state amount of $320. Our deferred taxasset of $2,563 results from the effect of recording thisbenefit on our net operating loss carryforward of $(6,405) inthe period and is included in other current assets in theconsolidated balance sheet. That carryforward expires in 2019.We believe all of the net operating loss carryforwards will berealized; therefore we have not established any valuationallowance on the deferred tax asset as of December 31, 2004.     Our deferred tax liability of $11,298 as of December 31,2004 was recorded in conjunction with purchase accountingentries associated with the IPO and the Formation Transactions.As required by SFAS No. 141, we recorded a deferredtax liability resulting from the tax-effected difference betweenthe fair value and the tax basis of assets acquired from theseven resort-owning entities. We recorded this liability at ouranticipated effective tax rate of 40%. The deferred liabilityresults substantially from the effects of accelerateddepreciation and amortization of fixed assets.
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)****8.****RELATED-PARTY TRANSACTIONS**     The Predecessor provided management, development, accounting,central reservations and other services to the real estateentities invested in by the Predecessor and to affiliates of theowners of the Predecessor. All management, development and otherfees were earned from entities for which GLC or its stockholdersare the managing members or investees. Amounts due from relatedparties were $1,521 at December 31, 2003.     We and the Predecessor have regularly used an aircraft owned byan entity owned by several of our stockholders. Payments of$235, $149, and $122 were made in the period January 1,2004 through December 20, 2004, and the years endedDecember 31, 2003 and 2002, respectively, for the lease ofthe aircraft for company business. There were no payments madein the period December 21, 2004 through December 31,2004. The entity that owns the aircraft also had one employeefor whom Predecessor provided payroll and benefit services, thecosts of which were reimbursed by the entity.     A member of our senior management owns a 25% interest in theentity that leases space at the Great Wolf Lodge in WisconsinDells and operates the spa located within that resort. Thatentity made payments of $44, $35 for the period January 1,2004 through December 20, 2004 and the year endedDecember 31, 2003, respectively, to the resort and nopayment in 2002 or the period December 21, 2004 throughDecember 31, 2004.     The Predecessor received fees from an affiliate in connectionwith arranging the financing transactions for certain of thePredecessor’s resorts. Total fees received by thePredecessor from this entity were $604, $395 and $432 for theperiod January 1, 2004 through December 20, 2004, andthe years ended December 31, 2003 and 2002, respectively.There were no fees received for the period December 21,2004 through December 31, 2004.     We provide administrative services for a non-resort hotel entityand a multifamily housing entity owned by certain current andformer members of our senior management. Amounts due to us atDecember 31, 2004 were insignificant. At December 31,2004, we owed the multifamily housing entity $472 for amountsthey had provided to us. This amount was repaid in January 2005.     At December 31, 2004, we owed an affiliate $3,202 foramounts collected on behalf of the affiliate. This amount wasrepaid in January 2005.**9.****COMMITMENTS AND CONTINGENCIES**     *Legal Matters* — In the course of normalbusiness activities, various lawsuits, claims and proceedingshave been or may be instituted or asserted against us. Based oncurrently available facts, we believe that the disposition ofmatters pending or asserted will not have a material adverseeffect on our consolidated financial position, results ofoperations or liquidity.     *Letter of Credit* — In connection with theconstruction of the Blue Harbor Resort, we have supplied a$2,000 letter of credit in favor of the City of Sheboygan. Theletter of credit expires on December 31, 2005. There havebeen no draws on this letter of credit. We have made a $2,000deposit with a bank as collateral for this letter of credit. Thedeposit is considered restricted cash and is included in cashand cash equivalents on the consolidated balance sheet atDecember 31, 2004.     *Guarantees* — Based on certain criteria,FIN 45 requires a guarantor to recognize, at the inceptionof a guarantee, a liability for that guarantee. The objective ofthe initial measurement of the liability is the fair value ofthe guarantee at its inception. In connection with theconstruction of the Blue Harbor Resort in Sheboygan, Wisconsin,Blue Harbor Resort Sheboygan, LLC (BH Resort LLC) entered intoagreements with the City of Sheboygan and The RedevelopmentAuthority of the City of Sheboygan, Wisconsin (collectively, theCity) whereby the City funded certain costs of construction. TheCity funded $4,000 toward
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)**the construction of the Blue Harbor Resort and related publicimprovements and $8,200 toward construction of a conventioncenter connected to the resort.     In exchange for the $4,000 funding, BH Resort LLC guaranteedreal and personal property tax payments over a fourteen-yearperiod totaling $16,400. This obligation is also guaranteedjointly by us and by three of our stockholders. The guaranteewas entered into on July 30, 2003.     In exchange for the $8,200 funding, BH Resort LLC entered into alease for the convention center with the City. The initial termof the lease is251/2 yearswith 15, 5-year renewal options. Under the lease, BH ResortLLC will satisfy repayment of the $8,200 funding by makingguaranteed room tax payments totaling $25,944 over the initialterm of the lease. This obligation is also guaranteed jointly byus and by three of our stockholders. This guarantee was alsoentered into on July 30, 2003.     As Blue Harbor Resort is a consolidated subsidiary, the debtrelated to the $4,000 and $8,200 fundings is included in theaccompanying consolidated balance sheet and we have not recordedany liability related to the guarantees on those fundings.     *Commitments* — We lease office space, storagespace and office equipment under various operating leases. Mostof the leases include renewal options. Future minimum paymentson these operating leases are as follows:         2005 $371     2006  424     2007  400     2008  406     2009  343         Total $1,944          Rent expense for the years ended December 31, 2004, 2003and 2002 was not significant.     We also have commitments on contracts to build thePredecessor’s resorts under construction. Commitments onthese contracts total $45,282 for periods subsequent toDecember 31, 2004.     Under a program available in the State of Kansas, thePredecessor entered into a transaction with a local governmentfor the sole purpose of enabling the Predecessor to saveapproximately $800 in sales and compensation use taxes thatwould have been otherwise payable on materials and equipmentincorporated into the Predecessor’s resort in Kansas City,Kansas. To effect the transaction, the Predecessor transferredtitle to the site and the resort to the local government, whichleased the resort back to the Predecessor with an option (andultimately the obligation) to purchase for a nominal amount atthe end of the lease term. The local government issued $42,260of industrial revenue bonds (“IRBs”), which werepurchased by the Predecessor. The purchase of the IRBs wasfunded by the deposit of proceeds of a third-party constructionloan with the bond trustee for application to payment of costsof the resort. In connection with the IPO, the Predecessor gavenotice of the exercise of its option to purchase the KansasCity, Kansas resort and tendered the IRBs plus the nominaloption price to effect the purchase. The local governmentauthorized the transfer of title back to Predecessor, andexecuted and delivered a deed and bill of sale.**10.****RETIREMENT PLAN**     We maintain a 401(k) profit sharing plan for our employees.Eligibility for participation in the plan is based on anemployee meeting certain minimum age and service requirements.Participants may make voluntary, pre-tax contributions throughsalary deferrals to the plan. Employer matching contributions are
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)**discretionary and are based on a percentage of employeecontributions. Contributions to the plan were $193, $166, and$131 for the period January 1, 2004 throughDecember 20, 2004, and the years ended December 31,2003 and 2002, respectively. There were no contributions for theperiod December 21, 2004 through December 31, 2004.**11.****EQUITY**     *General* — The Predecessor was comprised of aSubchapter S Corporation and limited liability companies.As a result, equity for the Predecessor included par value andretained earnings (for the Subchapter S Corporation) andmembers’ equity (for the limited liability companies). Theentities included in the Predecessor’s combined historicalfinancial statements conducted business under various operatingagreements. These agreements governed the various classes ofmembers, distribution preferences, payment of dividends,liquidation preferences and voting rights.     *Members’ Equity of Combined Entities* — ThePredecessor’s combined financial statements includedcertain entities that were under common management by GLC.Members’ equity of combined entities on the combinedbalance sheets represents the portion of owners’ equity ofthose combined entities not owned by GLC.     *Treasury Stock* — The Predecessor accounted forrepurchases of treasury shares under the cost method. Treasurystock consisted of 29 Series A shares and 551 Series Bshares at December 31, 2003.     *Mandatorily RedeemableOwnership Interests* — In accordance with theprovisions of SFAS 150, the Predecessor identified thefollowing items as meeting the criteria of a mandatorilyredeemable financial instrument: • *Class A and Class B shares of GLC.* GLC was    obligated to redeem in cash the A Shares and B Shares of a    shareholder who died or incurred certain triggering events (as    defined in the Term Sheet of Buy and Sell Provisions for Shares    in The Great Lakes Companies, Inc.). The redemption price was    calculated by a formula using GLC’s net operating income    and a multiple based on the type of triggering event, as    described in the Term Sheet. Both the A Shares and the B shares    contained restrictions on transfers and sales by the    stockholders.  • *Class B Units of Great Wolf Lodge of Kansas City,    LLC.* In accordance with provisions in the Kansas City LLC    Agreement, the LLC was required to redeem in cash the    Class B Units no later than the fifth anniversary date of    the operating commencement date of the Kansas City resort. The    redemption price was based on the greater of fair value or an    internal rate of return.     The rights of GLC’s shareholders and Great Wolf Lodge ofKansas City’s Class B unitholders to require thePredecessor to redeem these equity instruments representedembedded derivative instruments. The Predecessor recorded thesederivative instruments at their estimated fair values at each ofthe reporting dates in the Predecessor’s accompanyingcombined balance sheets. The fair values of the derivativeinstruments were included in mandatorily redeemable ownershipinterests. For each period presented, the Predecessor marked theunderlying derivative to its estimated fair value. The change inthe estimated fair value between periods was included ininterest on mandatorily redeemable ownership interests in theaccompanying combined statements of operations.     The Predecessor adopted the provisions of SFAS 150effective July 1, 2003. Prior to the adoption ofSFAS 150, the Predecessor accounted for the Kansas CityClass B units under the provisions of EITF IssueNo. D-98. In accordance with that pronouncement, thePredecessor accounted for the Kansas City Class B units asa mandatorily redeemable security and classified the redemptionamount outside of equity in the combined balance sheet. Thesecurity was initially recorded at its fair value at date ofissue, using accepted
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)**valuation techniques, and the security was adjusted to itsestimated redemption amount at each balance sheet date andrecorded as mandatorily redeemable ownership interests. OnNovember 7, 2003, the FASB issued FASB Staff PositionNo. 150-3, or FSP 150-3, indefinitely deferring themeasurement provisions of SFAS 150 with respect to certainminority interests in consolidated ventures entered into priorto November 5, 2003. As a result, the Predecessorthereafter continued to account for the Kansas City securityunder the provisions of EITF D-98.     As of December 31, 2003, the Predecessor has classified$11,194 related to these mandatorily redeemable items asliabilities in the combined balance sheet.     *Deferred Compensation Plan* — In 2004, weestablished a deferred compensation plan for certain of ourexecutives. The plan allows for contributions by both theparticipants and us. Pursuant to their employment arrangements,certain executives received bonuses upon completion of the IPO.Executives receiving bonus payments totaling $2,200 elected todefer those payments pursuant to our deferred compensation plan.To satisfy this obligation, we contributed 129,412 sharesof our common stock to the trust that holds the assets to payobligations under our deferred compensation plan. The fair valueof that stock at the date of contribution was $2,200. Inaccordance with the provisions of EITF Issue No. 97-14,“Accounting for Deferred Compensation Arrangements WhereAmounts earned Are Held in a Rabbi Trust and Invested,” wehave recorded the fair value of the shares of common stock, atthe date the shares were contributed to the trust, as areduction of our stockholders’ equity. Also, as prescribedby EITF 97-14, we account for the change in fair value ofthe shares held in the trust as a charge to compensation cost.Accordingly, we recorded $691 of non-cash employee compensationin the period December 21, 2004 through December 31,2004.     *Earnings per Share* — We calculate our basicearnings per common share by dividing net loss available tocommon shareholders by the weighted average number of shares ofcommon stock outstanding. Our diluted earnings per common shareassumes the issuance of common stock for all potentiallydilutive stock equivalents outstanding. In periods in whichthere is a loss, potentially dilutive stock equivalents areexcluded from the computation of diluted weighted average sharesoutstanding as the effect of those potentially dilutive items isanti-dilutive. In accordance with the provisions ofEITF 97-14, the shares of common stock held in our deferredcompensation plan are treated as treasury stock for purposes ofour earnings per share computations and therefore excluded fromthe basic and diluted earnings per share calculations. Basic anddiluted earnings per common share are as follows:       **Period**  **December 21,**  **2004**  **through**  **December 31,**  **2004**       Net loss attributable to common shares $(3,842)    Weighted average common shares outstanding — basic and    diluted  30,133     Net loss per share — basic and diluted $(0.13)**12.****STOCK OPTIONS**     Under the Great Wolf Resorts, Inc. 2004 Incentive Stock Plan, wegrant incentive stock options and/or nonqualified stock optionsto employees and directors. The Plan authorizes us to grant upto 3,380,520 options, stock appreciation rights or shares of ourcommon stock. Each option entitles the holder to purchase oneshare of common stock at the specified option price. The optionsvest over a three-year period and expire after ten years. Forall options granted to date, the exercise price was equal to thefair market value of the underlying stock on the date of grant.
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)**     As of December 31, 2004, we have granted 1,656,300 stockoptions, all at an exercise price of $17.00. No options wereexercisable during the period from December 21, 2004through December 31, 2004.**13.****DISCONTINUED OPERATIONS**     As of December 31, 2001, an office building held by one ofthe Predecessor’s subsidiaries was classified as held forsale. The building was sold in 2002. The gain realized upon salewas not recognized because GLC had continuing involvement in thereal estate after the sale. In May 2004, GLC was released fromthe guarantee of the buyer’s mortgage and the sale wasrecognized, resulting in a gain of $548. The operating activityof this office building and the related gain is included indiscontinued operations in the combined statements of operations.     As of December 31, 2002, the Predecessor had five hotelsclassified as held for sale. Three of these hotels were sold in2003, resulting in a gain of $10,967, and the remaining twohotels were sold in 2004, resulting in a gain of $4,779.Operating results and the gain on disposition for the hotelsclassified as held for sale are included in income (loss) fromdiscontinued operations in the combined statements of operationsfor the period January 1, 2004 through December 20,2004 and the years ended December 31, 2003, and 2002.     On December 20, 2004, in connection with the FormationTransactions, the Predecessor spun-off its non-resort intereststo the existing shareholders of GLC. As a result, we haveincluded the operations of the spun-off entities in discontinuedoperations for all periods.     Operating activity of the discontinued operations consisted ofthe following:               **Period**      **January 1,**      **2004**    **through** **Year Ended December 31,**  **December 20,**    **2004** **2003** **2002**           Revenues $4,859  $10,896  $16,596     Expenses  (5,529)  (10,498)  (17,164)    Gain on sale  5,327   10,967   —     Minority interests  (2,729)  (10,247)  26               Income (loss) from discontinued operations $1,928  $1,118  $(542)               Interest on mortgage debt related to properties sold or spun offhas been included in the operating results above.
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**GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND****GREAT LAKES PREDECESSOR****NOTES TO CONSOLIDATED AND COMBINED FINANCIALSTATEMENTS — (Continued)****14.****QUARTERLY FINANCIAL DATA (UNAUDITED)**     The following tables sets forth certain items included in ourand the Predecessor’s consolidated and combined financialstatements for each quarter of the years ended December 31,2004 and 2003.                   **Predecessor**     **First** **Second** **Third** **Fourth****2003:** **Quarter** **Quarter** **Quarter** **Quarter**             Total Revenues $5,082  $13,030  $15,659  $12,482     Operating income (loss)  (2,092)  (298)  1,149   (3,658)    Net income (loss) before cumulative effect of change in    accounting principle  (373)  (116)  1,185   (5,699)    Cumulative effect of change in accounting principle          460         Net income (loss)  (373)  (116)  1,645   (5,699)                         **Great Wolf**  **Predecessor** **Resorts, Inc.**         **Period** **Period**    **October 1,** **December 21,**    **2004** **2004**    **through** **through**  **First** **Second** **Third** **December 20,** **December 31,****2004:** **Quarter** **Quarter** **Quarter** **2004** **2004**               Total Revenues $14,752  $15,344  $22,158  $13,004  $(4,629)    Operating income (loss)  (84)  (4,385)  1,593   (5,362)  (6,191)    Net income (loss)  (1,830)  (4,993)  1,953   (8,072)  (3,842)    Basic and diluted earnings per share                 $(0.13)
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**ITEM 9.*****CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON    ACCOUNTING AND FINANCIAL DISCLOSURE***     None.**ITEM 9A.*****CONTROLS AND PROCEDURES*****Evaluation of Disclosure Controls and Procedures**     We have adopted and maintain disclosure controls and proceduresthat are designed to provide reasonable assurance thatinformation required to be disclosed in our reports under theSecurities Exchange Act of 1934, as amended, is recorded,processed, summarized and reported within the time periodsspecified in the Securities and Exchange Commission’s rulesand forms and that such information is accumulated andcommunicated to our management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate, to allowfor timely decisions regarding required disclosure. In designingand evaluating the disclosure controls and procedures,management recognizes that any controls and procedures, nomatter how well designed and operated, can provide onlyreasonable assurance of achieving the desired controlobjectives, and management is required to apply its judgment inevaluating the cost-benefit relationship of possible controlsand procedures.     As required by the Securities and Exchange Commission’srules, we have carried out an evaluation, under the supervisionand with the participation of management, including our ChiefExecutive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of our disclosurecontrols and procedures as of the end of the period covered bythis Form 10-K report. Based on the foregoing, our ChiefExecutive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective at thereasonable assurance level.**Changes in Internal Control Over Financial Reporting**     There has been no change in our internal control over financialreporting that has occurred during the fiscal quarter endedDecember 31, 2004, that materially affected, or isreasonably likely to materially affect, our internal controlsover financial reporting.**ITEM 9B.*****OTHER INFORMATION***     None.**PART III****ITEM 10.*****DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT***     This information is hereby incorporated by reference from theProxy Statement (under the headings “The Election ofDirectors” and “The Executive Officers”).**ITEM 11.*****EXECUTIVE COMPENSATION***     This information is hereby incorporated by reference from theProxy Statement (under the heading “ExecutiveCompensation”).**ITEM 12.*****SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND    MANAGEMENT***     This information is hereby incorporated by reference from theProxy Statement (under the heading “Ownership Of Our CommonStock”).
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**ITEM 13.*****CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS***     This information is hereby incorporated by reference from theProxy Statement (under the heading “Certain RelationshipsAnd Related Transactions”).**ITEM 14.*****PRINCIPAL ACCOUNTANT FEES AND SERVICES***     This information is hereby incorporated by reference from theProxy Statement (under the heading “Relationship WithIndependent Public Accountants”).**ITEM 15.*****EXHIBITS AND FINANCIAL STATEMENT SCHEDULES***     **(a)(1) Financial Statements**     The financial statements included in this Annual Report onForm 10-K are provided under Item 8.     **(a)(2) Financial Statement Schedules**     All schedules are omitted since the required information is notpresent in amounts sufficient to require submission to theschedule or because the information required is included in thefinancial statements and notes thereto.     **(a)(3) Exhibits**     See Index to Exhibits.
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**SIGNATURES**     Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, as amended, the registrant hasduly cause this report to be signed on its behalf by theundersigned, thereunto duly authorized.Dated: March 22, 2005       **Signature** **Title** **Date**          /s/ John Emery