##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-K
      (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal period ended
    December 31, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   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
    incorporation or organization)

(I.R.S. Employer
    Identification No.)122 West Washington
    Avenue

53703Madison, 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 the
    Act:
 None
  Securities registered pursuant to Section 12(g) of the
    Act:
   Title Of Each Class

Name of Exchange on Which RegisteredCommon Stock, par value
    $0.01 per share

NASDAQ National Market   o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 



Great
    Wolf Resorts, Inc.
  Annual
    Report on
    Form 10-K
 For the
    Year Ended December 31, 2006
  
  INDEX
  PageNo.PART IItem 1.


Business


2Item 1A.


Risk
    Factors


20Item 1B.


Unresolved Staff
    Comments


31Item 2.


Properties


31Item 3.


Legal
    Proceedings


31Item 4.


Submission of
    Matters to a Vote of Security Holders


32PART IIItem 5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


32Item 6.


Selected Financial
    Data


34Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


36Item 7A.


Quantitative and
    Qualitative Disclosures About Market Risk


55Item 8.


Financial
    Statements and Supplementary Data


56Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


84Item 9A.


Controls and
    Procedures


84Item 9B.


Other
    Information


87PART IIIItem 10.


Directors and
    Executive Officers of the Registrant


87Item 11.


Executive
    Compensation


87Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


87Item 13.


Certain
    Relationships and Related Transactions


87Item 14.


Principal
    Accountant Fees and Services


87PART IVItem 15.


Exhibits and
    Financial Statement Schedules


87Signatures


88List of SubsidiariesConsent of Deloitte & Touche LLPCertification of Chief Executive OfficerCertification of Chief Financial OfficerSection 1350 Certification of Chief Executive OfficerSection 1350 Certification of Chief Financial Officer   1




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##### Table of Contents



PART I  ITEM 1.
    BUSINESS  Overview
    and Development
  Form 10-K
  ®
        Form 10-K
   2




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##### Table of Contents



Properties 
    Overview
    IndoorOwnership










EntertainmentPercentage


Opening

Guest Suites


Condo Units


Area(1)(Approx.
    ft2)Existing Resorts:Wisconsin Dells, WI(2)


30
%

1997


309



77



102,000Sandusky, OH(2)


30
%

2001


271







41,000Traverse City, MI


100
%

2003


281







51,000Kansas City, KS


100
%

2003


281







49,000Sheboygan, WI


100
%

2004


182



64



54,000Williamsburg, VA


100
%

2005


301
(3)






78,000Pocono Mountains, PA


100
%

2005


401







91,000Niagara Falls, ONT(4)





April 2006


406







94,000Mason, OH(5)


84
%

December 2006


401







93,000Resorts Under
    Construction:Grapevine, TX(6)


100
%

Late 2007


404







98,000Grand Mound, WA(7)


49
%

Early 2008


398







78,000     (1)
    
    Our indoor entertainment areas generally include our indoor
    waterpark, game arcade, childrens activity room and
    fitness room, as well as our Aveda spa in the resorts that have
    such amenities.(2)
    
    In 2005, we formed a joint venture with CNL Income Properties,
    Inc. (CNL), a real estate investment trust focused on leisure
    and lifestyle properties. The joint venture acquired our
    Wisconsin Dells and Sandusky resorts. CNL owns a 70% interest in
    the joint venture, and we retained a 30% interest. CNL paid us
    approximately $80 million for its 70% ownership interest.
    We continue to operate the properties and license the Great Wolf
    Lodge brand to the joint venture under
    25-year
    agreements, subject to earlier termination in certain situations.(3)
    
    Construction for the expansion of 104 additional guest suites,
    conference center space and waterpark attractions began in May
    2006. The additional waterpark attractions were completed in
    December 2006. We expect to complete the additional guest suites
    and conference center space in Spring 2007.(4)
    
    An affiliate of Ripley Entertainment, Inc. (Ripley), our
    licensee, owns this resort. We have granted Ripley a license to
    use the Great Wolf Lodge name for this resort through April
    2016. We manage the resort on behalf of Ripley and also provide
    central reservation services.(5)
    
    We have entered into a joint venture agreement with a subsidiary
    of CBS Corporation (CBS), to build this resort and attached
    conference center. We operate the resort under our Great Wolf
    Lodge brand and have a majority of the equity in the project.
    CBS has a minority equity interest in the development. This
    resort opened in December 2006. The conference center is
    expected to be completed in March 2007.(6)
    
    We are developing a Great Wolf Lodge resort in Grapevine, Texas.
    The northwoods themed, eight-story resort will provide a
    comprehensive package of first-class destination lodging
    amenities and activities. Construction on the resort began in
    June 2006 with expected completion in late 2007.(7)
    
    We have entered into a joint venture agreement with The
    Confederated Tribes of the Chehalis Reservation to build this
    resort. We will operate the resort under our Great Wolf Lodge
    brand. The Confederated Tribes of the Chehalis Reservation will
    lease the land needed for the resort to the joint venture, and
    they will have a majority equity interest in the joint venture.
    Construction on the resort began in October 2006 with expected
    completion in early 2008. 3




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##### Table of Contents



Northwoods Lodge Theme.
  Guest Suites. ® pay-per-view pay-per-play
  Indoor Waterparks.
       4




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##### Table of Contents



Amenities.
  
    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 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.
    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 approximately 40,000 Cub Club members. Our
    Blue Harbor Resort features a Crew Club frequent guest program
    and activities that are similar to our Cub Club. 5




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##### Table of Contents




    Animated Clocktower.  Each of our Great Wolf
    Lodge resorts 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, Niagara,
    Williamsburg, and Pocono Mountains resorts. Our resorts under
    development or construction will have meeting, or conference
    space ranging in size from approximately 9,000 to
    40,000 square feet.
    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.
    Our Mason resort will feature a
    state-of-the-art
    40,000 square-foot conference center, which will include an
    expansive Grand Ballroom, flexible meeting spaces, an executive
    boardroom, audio visual systems, and multiple pre-function
    concourses including an outdoor patio.
    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.
    MagiQuest.  Our Pocono Mountains and
    Williamsburg resorts feature a
    MagiQuest®
    attraction. MagiQuest is a high-tech, interactive fantasy
    entertainment game that guests can play throughout the resort.
    We are evaluating the desirability of adding this attraction to
    some of our other resorts.
    Minigolf.  Our Niagara and Kansas City resorts
    features a custom-designed, outdoor 18 hole miniature golf
    course. We are evaluating the desirability of adding this
    attraction to some of our other resorts.  Operating
    Properties
    Great
    Wolf Lodge of Wisconsin Dells, Wisconsin
    one-hour two-hour
 6




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six-acre
    Great
    Wolf Lodge of Sandusky, Ohio
  ®
  one-hour two-hour three-hour
    Great
    Wolf Lodge of Traverse City, Michigan
  three-hour four-hour
   7




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Great
    Wolf Lodge of Kansas City, Kansas
  one-hour three-hour
    Blue
    Harbor Resort of Sheboygan, Wisconsin
  12-acre one-hour two-hour three-hour four-hour
      Great
    Wolf Lodge of Williamsburg, Virginia
  83-acre one-hour three-hour
 8




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##### Table of Contents



10,000 square-feet.
  Great
    Wolf Lodge of the Pocono Mountains
  95-acre four-hour
    Great
    Wolf Lodge of Niagara Falls, Ontario
  start-up
     9




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Great
    Wolf Lodge of Mason, Ohio
  39-acre
  state-of-the-art
  Properties
    Under Construction
  Great
    Wolf Lodge of Grapevine, Texas
  51-acre 60-mile
    Great
    Wolf Lodge of Grand Mound, Washington
  39-acre
   10




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##### Table of Contents



Business
    and Growth Strategies
    
    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 intelligent sales, marketing and
    public relations efforts, by increasing our 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, weekends, 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 of our resorts generally
    contains at least one themed restaurant, an ice cream shop and
    confectionery, snack shop, an Aveda spa, gift shop and game
    arcade. The average non-room revenue, including the revenue from
    these amenities, was approximately $122 per occupied room
    night for the year ended December 31, 2006. 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 expect to 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 increasing 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. We have entered into an
    arrangement with a nationally-recognized hospitality procurement
    company to further leverage our buying power. In addition, we
    intend to continue to manage increases and fluctuations in the
    cost of electricity, water and natural gas for our resorts by
    entering into volume-based contracts where we are able to do so.
    Centralized Services:  By centralizing certain
    of our services, we 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 144 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 should 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 exterior, to our signature treehouse
    waterfort, 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. 11




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
    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 additional resorts, including resorts in major domestic
    markets with us as the sole or majority owner, as well as
    licensed or minority-owned resorts in secondary U.S. and/or
    international markets. 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.
    Selective Sales of Ownership Interests/Recycling of
    Capital:  We will selectively consider
    opportunities to sell partial or whole interests in one or more
    of our owned and operated properties, as we did in our CNL joint
    venture. We intend to continue to manage all of our branded
    Great Wolf Lodge resorts, and we will consider transactions that
    allow us to maintain our management/licensing position at a
    resort while realizing value created through our development
    expertise. In those situations, we expect then to recycle
    capital generated by such transactions for investment in future
    growth opportunities.
    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 entered into joint ventures with a unit of
    CBS Corporation, CNL Income Properties, and The
    Confederated Tribes of the Chehalis Reservation.
    Expanding and Enhancing Existing Resorts:  We
    intend to continue 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 continue to evaluate 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. 12




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##### Table of Contents



Our
    Competitive Strengths
    
    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, 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 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, 2006,
    we generated approximately 49% 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 1,970 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 $700, 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 have increased in recent 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 has a population 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 North America 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. 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 in excess of $100,000.
    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 significant
    experience in the hospitality, family resort and real estate
    development industries and 13




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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.  Industry
    Overview
        Resort
    Operations
     14




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Training
    and Development
    Sales and
    Marketing
          Maintenance
    and Inspections
  On-site
 15




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##### Table of Contents



build-up,
    Development
    Criteria
    
    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 both emerging and 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 generally
    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.      Competition
   16




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Governmental
    Regulation
       17




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time-to-time,
    Environmental
    Matters
       18




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and/or clean-up clean-up, clean-up
    Insurance
      Intellectual
    Property
   19




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##### Table of Contents



Employees
    Offices
    Domestic
    and Foreign Operations
    Code
    of Business Conduct and Ethics
  www.greatwolf.com
 ITEM 1A.  RISK
    FACTORS    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.
    
    development costs may exceed budgeted or contracted amounts;
    increases in the costs of materials or supplies used in
    construction of our resorts; 20




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
    changes in construction materials or methodologies may increase
    development costs;
    delays in architectural or other design-related services, or in
    the commencement or 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;
    scarcity of suitable development sites, due to existing
    development, physical limitation or competition for 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.    We
    compete with other family vacation travel destinations and
    resorts.
      We may
    not be able to manage our expected growth, which could adversely
    affect our operating results.
   21




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##### Table of Contents



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.
      We and
    our predecessor entities have a history of losses and we may not
    be able to achieve or sustain profitability.
    Our
    business is dependent upon family vacation patterns, which may
    cause fluctuations in our revenues.
   22




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##### Table of Contents



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.
    Because
    we concentrate in a single industry segment, we may be adversely
    affected by a downturn in that industry segment.
    Changes
    in consumer spending habits may affect our growth, financial
    condition and 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.
           23




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##### Table of Contents



We may
    not be able to obtain additional financing on favorable terms,
    if at all.
    
    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.    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
    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.
   24




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##### Table of Contents



We may
    not be able to adequately protect our intellectual property,
    which could harm the value of our brands and adversely affect
    our business.
          Our
    operations may be adversely affected by extreme weather
    conditions and the impact of disasters.
    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.
     25




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##### Table of Contents



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.
  out-of-compliance
       26




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##### Table of Contents



and/or clean-up clean-up, clean-up
    Regulation
    of the marketing and sale of condominiums, including a prior
    offer of condominiums at our Blue Harbor Resort, could adversely
    affect our business.
     27




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##### Table of Contents



The
    illiquidity of real estate may make it difficult for us to
    dispose of one or more of our resorts.
    The
    covenants in our mortgage loan agreements impose significant
    restrictions on us.
    
    incurring or guaranteeing additional indebtedness;
    transferring or selling assets currently held by us;
    transferring ownership interests in certain of our
    subsidiaries; and
    reducing our tangible net worth below specified levels.    Certain
    of our insiders exercise considerable influence over the
    company.
  Form 10-K,
  We may
    have assumed unknown liabilities in connection with the
    formation transactions.
   28




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##### Table of Contents



We may
    issue partnership interests in the future that may be dilutive
    to, and may have preferential rights over, our common
    stockholders.
    Our
    stock price has been volatile in the past and may be volatile in
    the future.
    
    variations in our quarterly operating results;
    changes in market valuations of companies in the resort or
    entertainment industries, generally, and the family
    entertainment resort segment, specifically;
    fluctuations in stock market prices and volumes;
    issuances of common stock or other securities in the future;
    the addition or departure of key personnel; and
    announcements by us or our competitors of new properties,
    acquisitions or joint ventures, or our failure to announce new
    properties of a type or in a quantity deemed desirable by
    participants in the public market.    The
    sale of a substantial number of shares of our common stock may
    cause the market price of our common stock to
    decline.
   29




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##### Table of Contents



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.
    
    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
  Form 10-K
    Available
    Information
  http://www.greatwolf.com Form 10-K, Form 10-Q, Form 8-K http://www.sec.gov
 30




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##### Table of Contents



ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES    
    Great Wolf Lodge of Wisconsin Dells is located on 16 acres
    in Wisconsin Dells, Wisconsin, all of which have been developed.
    This property is owned by a joint venture of which Great Wolf
    Resorts has a 30% minority interest and CNL Income Properties,
    Inc. has a 70% majority interest.
    Great Wolf Lodge of Sandusky is located on 15 acres in
    Sandusky, Ohio, all of which have been developed. This property
    is owned by a joint venture of which Great Wolf Resorts has a
    30% minority interest and CNL Income Properties, Inc. has a 70%
    majority interest.
    Great Wolf Lodge of Traverse City is located on 48 acres in
    Traverse City, Michigan, of which 22 acres have been
    developed and 26 acres remain undeveloped.
    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 leased
    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 have been
    developed or are under development and 47 acres remain
    undeveloped.
    Great Wolf Lodge of the Pocono Mountains is located on 95 acres
    in Pocono Township, near Stroudsburg, Pennsylvania, of which
    45 acres are developed and 50 acres remain undeveloped.
    Great Wolf Lodge of Mason is located on 39 acres in Mason,
    Ohio. We have an 84% ownership in the joint venture that owns
    this resort. All 39 acres of this property are developed.
    Great Wolf Lodge of Grapevine which is currently under
    construction, will be located on 51 acres in Grapevine,
    Texas, of which 30 acres are being developed and
    21 acres will remain undeveloped.
    Great Wolf Lodge of Grand Mound, which is under construction,
    will be located on 39 leased acres in Grand Mound,
    Washington. This property is owned by a joint venture of which
    Great Wolf Resorts has a 49% minority interest and The
    Confederated Tribes of the Chehalis Reservation has a 51%
    majority interest.      ITEM 3.
    LEGAL
    PROCEEDINGS   31




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##### Table of Contents



ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES    Stock PriceHigh


LowFiscal 2005:First Quarter

$
25.88


$
20.07Second Quarter

$
25.25


$
17.80Third Quarter

$
22.82


$
9.20Fourth Quarter

$
10.82


$
8.00Fiscal 2006:First Quarter

$
11.68


$
9.80Second Quarter

$
12.72


$
10.70Third Quarter

$
12.71


$
10.16Fourth Quarter

$
14.22


$
11.54Fiscal 2007:First Quarter through
    March 2, 2007

$
14.73


$
12.91      32




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##### Table of Contents



30-year
    Dividend
    Policy
    Performance
    Graph
    
  33




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##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA    Great
    Wolf Resorts Financial Information
    
    our corporate entity that provides resort development and
    management services;
    our Traverse City, Kansas City, Sheboygan, Williamsburg, Pocono
    Mountains and Mason operating resorts;
    for all periods prior to October 2005, the Wisconsin Dells and
    Sandusky resorts;
    equity interests in resorts in which we have ownership interests
    but which we do not consolidate; and
    our resorts that are under construction which we will
    consolidate.  Great
    Lakes Predecessor Financial Information
    
    The Great Lakes Companies, Inc. (GLC) 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 were under construction.     34




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##### Table of Contents



Form 10-K.
  December 21,Year Ended


Year Ended


2004-



January 1,December 31,


December 31,


December 31,



2004-


Year Ended


Year Ended2006


2005


2004



December 20,


December 31,


December 31,Great Wolf


Great Wolf


Great Wolf



2004


2003


2002Resorts, Inc.


Resorts, Inc.


Resorts, Inc.



Predecessor


Predecessor


Predecessor(Dollars in thousands, except per share amounts)Statement of
    Operations:Revenues:Rooms

$
87,775


$
73,207


$
3,261



$
31,438


$
18,801


$
Food, beverage and other


43,137



36,846



1,289




16,110



9,439



Sales of condominiums






25,862
















Management and other fees


2,087



494



79




3,157



3,109



3,410Management and other fees-related
    parties


3,729



482
















Other revenue from managed
    properties(1)


11,920



2,524








14,553



14,904



14,808Total revenues


148,648



139,415



4,629




65,258



46,253



18,218Operating expenses by department:Rooms


11,914



10,944



298




4,917



3,265



Food, beverage and other


35,923



31,407



958




13,678



8,580



Other operating expenses:Selling, general and administrative


41,421



26,894



7,372




18,613



11,376



4,159Property operating costs


23,217



24,798



295




8,810



5,283



631Depreciation and amortization


25,903



26,248



1,897




12,925



7,744



212Costs of sales of condominiums






16,780
















Goodwill impairment


50,975




















Loss on sale of property


1,066



26,161
















Other expenses from managed
    properties(1)


11,920



2,524








14,553



14,904



14,808Total operating expenses


202,339



165,756



10,820




73,496



51,152



19,810Net operating loss


(53,691
)


(26,341
)


(6,191
)



(8,238
)


(4,899
)


(1,592
)Interest income


(3,105
)


(1,623
)


(66
)



(224
)


(55
)


(88
)Interest expense


7,169



6,728



280




6,748



4,413



217(Gain) loss on sale of investments
    and securities















(1,653
)






13Interest on mandatorily redeemable
    shares















1,761



(3,136
)


4,479Loss before income taxes, minority
    interest, and equity in unconsolidated affiliates


(57,755
)


(31,446
)


(6,405
)



(14,870
)


(6,121
)


(6,213
)Income tax benefit


(8,764
)


(7,199
)


(2,563
)











Minority interests, net of tax


(502
)


(4
)















Equity in unconsolidated
    affiliates, net of tax


761



170
















Loss from continuing operations


(49,250
)


(24,413
)


(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


(49,250
)


(24,413
)


(3,842
)



(12,942
)


(5,003
)


(6,755
)Cumulative effect of change in
    accounting principle



















460



Net loss

$
(49,250
)

$
(24,413
)

$
(3,842
)


$
(12,942
)

$
(4,543
)

$
(6,755
)Basic loss per share

$
(1.63
)

$
(0.81
)

$
(0.13
)Diluted loss per share

$
(1.63
)

$
(0.81
)

$
(0.13
)Weighted average common shares
    outstanding  Basic


30,299,647
(2)


30,134,146
(2)


30,132,896
(2)Diluted


30,299,647
(2)


30,134,146
(2)


30,132,896
(2) 35




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##### Table of Contents



December 21,Year Ended


Year Ended


2004-



January 1,December 31,


December 31,


December 31,



2004-


Year Ended


Year Ended2006


2005


2004



December 20,


December 31,


December 31,Great Wolf


Great Wolf


Great Wolf



2004


2003


2002Resorts, Inc.


Resorts, Inc.


Resorts, Inc.



Predecessor


Predecessor


Predecessor(Dollars in thousands, except per share amounts)Cash Flows:Cash flows from:Operating activities

$
29,723


$
17,788


$
762



$
3,637


$
8,126


$
376Investing activities


(107,123
)


(65,496
)


(97,583
)



(64,472
)


(64,280
)


(46,276
)Financing activities


119,396



23,081



172,151




61,424



54,854



49,797Balance Sheet Data (end of
    period):Total assets

$
683,439


$
605,526


$
622,025







$
173,494


$
106,751Total long-term debt


289,389



168,328



142,665








93,733



37,710Long-term debt secured by assets of
    spun-off entities



















12,108



5,054Long-term debt secured by assets
    held for sale



















14,220



31,564Non-GAAP financial
    Measures:EBITDA

$
(28,221
)(3)

$
(369
)(3)

$
(4,294
)(3)


$
6,507
(3)

$
7,559


$
334     (1)
    
    Reflects reimbursement of payroll, benefits and costs related to
    the operations of properties managed by us in
    2005-2006
    and the Predecessor in
    2001-2004.(2)
    
    Included in the total shares outstanding of our common stock 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 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 with
    the financial statements and notes thereto appearing elsewhere
    in this report. Where appropriate, the following discussion
    includes analysis of the effects of our IPO, the Formation
    Transactions and related refinancing transactions and certain
    other transactions. We make statements in this section that are
    forward-looking statements within the meaning of the federal
    securities laws. For a complete discussion of forward-looking
    statements, see the section in Item 1A of this Annual
    Report on
    Form 10-K
    report entitled Forward-Looking Statements. Certain
    risk factors may cause our actual results, performance or
    achievements to differ materially from those expressed or
    implied by the following discussion. For a discussion of such
    risk factors, see the sections in Item 1A of this Annual
    Report on
    Form 10-K
    report entitled Risk Factors and
    Forward-Looking Statements. All dollar amounts in
    this discussion, except for per share data and operating
    statistics, are in thousands.
  Overview
    Formation.
    
    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 36




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##### Table of Contents



then distributed the interests in those subsidiaries to the
    former shareholders of The Great Lakes Companies, Inc. (GLC)
    (one of the Predecessors entities).  
    We acquired GLC and seven resort-owning entities. 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.      Business.
   37




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##### Table of Contents



IndoorOwnership










EntertainmentPercentage


Opening

Guest Suites


Condo Units


Area(1)(Approx.
    ft2)Existing Resorts:Wisconsin Dells, WI(2)


30
%

1997


309



77



102,000Sandusky, OH(2)


30
%

2001


271







41,000Traverse City, MI


100
%

2003


281







51,000Kansas City, KS


100
%

2003


281







49,000Sheboygan, WI


100
%

2004


182



64



54,000Williamsburg, VA


100
%

2005


301
(3)






78,000Pocono Mountains, PA


100
%

2005


401







91,000Niagara Falls, ONT(4)





April 2006


406







94,000Mason, OH(5)


84
%

December 2006


401







93,000Resorts Under
    Construction:Grapevine, TX(6)


100
%

Late 2007


404







98,000Grand Mound, WA(7)


49
%

Early 2008


398







78,000     (1)
    
    Our indoor entertainment areas generally include our indoor
    waterpark, game arcade, childrens activity room and
    fitness room, as well as our Aveda spa in the resorts that have
    such amenities.(2)
    
    In 2005, we formed a joint venture with CNL Income Properties,
    Inc. (CNL), a real estate investment trust focused on leisure
    and lifestyle properties. The joint venture acquired our
    Wisconsin Dells and Sandusky resorts. CNL owns a 70% interest in
    the joint venture, and we retained a 30% interest. CNL paid us
    approximately $80 million for its 70% ownership interest.
    We continue to operate the properties and license the Great Wolf
    Lodge brand to the joint venture under
    25-year
    agreements, subject to earlier termination in certain situations.(3)
    
    Construction for the expansion of 104 additional guest suites,
    conference center space and waterpark attractions began in May
    2006. The additional waterpark attractions were completed in
    December 2006. We expect to complete the additional guest suites
    and conference center space in Spring 2007.(4)
    
    An affiliate of Ripley Entertainment, Inc. (Ripley), our
    licensee, owns this resort. We have granted Ripley a license to
    use the Great Wolf Lodge name for this resort through April
    2016. We manage the resort on behalf of Ripley and also provide
    central reservation services.(5)
    
    We have entered into a joint venture agreement with a subsidiary
    of CBS Corporation (CBS), to build this resort and attached
    conference center. We operate the resort under our Great Wolf
    Lodge brand and have a majority of the equity in the project.
    CBS has a minority equity interest in the development. This
    resort opened in December 2006. The conference center is
    expected to be completed in March 2007.(6)
    
    We are developing a Great Wolf Lodge resort in Grapevine, Texas.
    The northwoods themed, eight-story resort will provide a
    comprehensive package of first-class destination lodging
    amenities and activities. Construction on the resort began in
    June 2006 with expected completion in late 2007.(7)
    
    We have entered into a joint venture agreement with The
    Confederated Tribes of the Chehalis Reservation to build this
    resort. We will operate the resort under our Great Wolf Lodge
    brand. The Confederated Tribes of the Chehalis Reservation will
    lease the land needed for the resort to the joint venture, and
    they will have a majority equity interest in the joint venture.
    Construction on the resort began in October 2006 with expected
    completion in early 2008.  Industry Trends.
 38




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##### Table of Contents



Outlook.
      and/or
 39




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##### Table of Contents



slower-than-expected ramp-up lower-than-expected
  Revenue and Key Performance Indicators.
  
    Monitoring our historical trends for occupancy and estimating
    our high occupancy nights;
    Offering the highest discounts to previous guests in off-peak
    periods to build customer loyalty and enhance our ability to
    charge higher rates in peak periods;
    Structuring rates to allow us to offer our previous guests the
    best rate while simultaneously working with a promotional
    partner or offering internet specials;
    Monitoring sales of room types daily to evaluate the
    effectiveness of offered discounts; and
    Offering specials on standard suites and yielding better rates
    on larger suites when standard suites sell out.  on-site
    
    occupancy;
    average daily room rate, or ADR;
    revenue per available room, or RevPAR;
    total revenue per available room, or Total RevPAR;
    total revenue per occupied room, or Total RevPOR; and
    earnings before interest, taxes, depreciation and amortization,
    or EBITDA.    
    Occupancy is calculated by dividing total occupied rooms by
    total available rooms.
    ADR is calculated by dividing total rooms revenue by total
    occupied rooms.
    RevPAR is the product of occupancy and ADR.    
    Total RevPAR is calculated by dividing total revenue by rooms
    available
    Total Rev POR is calculated by dividing total revenue by
    occupied rooms 40




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##### Table of Contents



Critical
    Accounting Policies and Estimates
    Investments in Property and Equipment.
    Buildings and improvements


20-40 yearsFixtures and equipment, including
    waterpark equipment


5-15 years      41




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##### Table of Contents



Carrying Values of Goodwill, Intangible Assets and Investment
    in Affiliates.
    
    To test goodwill for impairment, we compare the fair value of
    the individual resort to which the goodwill is assigned to the
    carrying value of that resort. If the analysis indicates that
    the fair value is less than the carrying value of the individual
    resort, we compare the implied fair value of the resorts
    goodwill with the carrying amount of that goodwill. The implied
    fair value of the goodwill is determined by allocating the fair
    value of the individual resort to all the assets and liabilities
    of that resort as if it had been acquired in a business
    combination. The excess of the fair value of the individual
    resort over the amounts assigned to its assets and liabilities
    is the implied fair value of the goodwill. If the implied fair
    value of the goodwill is less than its carrying value, an
    impairment loss is recognized. Any impairment losses are
    recorded as operating expenses, which reduce net income. Our
    assessment of the fair value is dependent on the operating
    results of the resorts. Future adverse changes in the
    hospitality and lodging industry, market conditions or poor
    operating results of the underlying real estate assets could
    result in future losses or the inability to recover the carrying
    value of goodwill.
    To test indefinite-lived intangible assets for impairment, we
    compare the fair value of the intangible asset with its carrying
    amount. If the fair value of the intangible asset is less than
    its carrying value, an impairment loss is recognized. Any
    impairment losses are recorded as operating expenses, which
    reduce net income. Future adverse changes in the hospitality and
    lodging industry, market conditions or poor operating results of
    the underlying real estate assets could result in future losses
    or the inability to recover the carrying value of these
    intangibles.
    To test investment in affiliates for impairment, we compare the
    fair value of the investment in affiliates with its carrying
    amount. If the fair value of the investment in affiliate is less
    than its carrying value, an impairment loss is recognized. Any
    impairment losses are recorded as operating expenses, which
    reduce net income. Future adverse changes in the hospitality and
    lodging industry, market conditions or poor operating results of
    the underlying investments could result in future losses or the
    inability to recover the carrying value of this asset.  New
    Accounting Pronouncements
       42




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##### Table of Contents



Non-GAAP Financial
    Measures
        
    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.    
    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.   43




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##### Table of Contents



Great Wolf Resorts, Inc.


PredecessorPeriod


PeriodDecember 21,


January 1,Year Ended


Year Ended


2004 through


2004 throughDecember 31,


December 31,


December 31,


December 20,2006


2005


2004


2004Net loss

$
(49,250
)

$
(24,413
)

$
(3,842
)

$
(12,942
)Adjustments:Interest expense, net


4,064



5,105



214



6,524Income tax benefit


(8,938
)


(7,309
)


(2,563
)


Depreciation and amortization


25,903



26,248



1,897



12,925EBITDA

$
(28,221
)

$
(369
)

$
(4,294
)

$
6,507   Results
    of Operations
  General
    Great
    Wolf Resorts Financial Information
    
    our corporate entity that provides resort development and
    management services;
    our Wisconsin Dells, Sandusky, Traverse City, Kansas City,
    Sheboygan, Williamsburg, Pocono Mountains, Mason, and Niagara
    Falls operating resorts (we sold 70% interests in each of our
    Wisconsin Dells and Sandusky resorts in October 2005);
    equity interests in resorts in which we have ownership interests
    but which we do not consolidate; and
    our resorts that are under construction which we will
    consolidate.  Revenues.
  
    lodging revenue, which includes rooms, food and beverage, and
    other department revenues from our resorts;
    sales of condominiums;
    management fee and other revenue from resorts, which includes
    fees received under our management, license and development
    agreements; and
    other revenue from managed properties. We employ the staff at
    our managed properties (except for the Niagara Falls resort).
    Under our management agreements, the resort owners reimburse us
    for payroll, benefits and certain other costs related to the
    operations of the managed properties. Emerging Issues Task
    Force, or EITF, Issue No.
    01-14,
    Income Statement Characteristics of Reimbursements for
    Out-of-Pocket
    Expenses (EITF
    01-14),
    establishes standards for accounting for reimbursable expenses
    in our statements of operations. Under this pronouncement, the
    reimbursement of payroll, benefits and costs is recorded as
    revenue on our statements of operations, with a corresponding
    expense recorded as other expenses from managed
    properties. 44




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##### Table of Contents



Operating Expenses.
    
    selling, general and administrative expenses, which are
    associated with the operations and management of resorts and
    which consist primarily of expenses such as corporate payroll
    and related benefits, operations management, sales and
    marketing, finance, legal, information technology support, human
    resources and other support services, as well as general
    corporate expenses;
    property operation and maintenance expenses, such as utility
    costs and property taxes;
    cost of sales of condominiums;
    depreciation and amortization;
    impairment losses; and
    other expenses from managed properties, which are recorded as an
    expense in accordance with
    EITF 01-14.  Great
    Lakes Predecessor Financial Information
    
    GLC 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 were under construction.      Revenues.
  
    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;
    other revenue, which consists of accounting fees, development
    fees, central reservation fees, construction management fees and
    other fees; and
    other revenue from managed properties, which are recorded as
    revenue in accordance with EITF
    01-14.  Operating Expenses.
    
    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; 45




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##### Table of Contents




    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.  Year
    Ended December 31, 2006 compared with Year Ended
    December 31, 2005
    All Properties(a)


Same Store Comparison(b)Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,


Increase (Decrease)2006


2006


2005


$


%Occupancy


63.5
%


63.1
%


60.5
%


N/A



4.3
%ADR

$
240.04


$
211.27


$
209.71


$
1.56



0.7
%RevPAR

$
152.41


$
133.41


$
126.93


$
6.48



5.1
%Total RevPOR

$
361.85


$
316.84


$
315.37


$
1.47



0.5
%Total RevPAR

$
229.76


$
200.08


$
190.89


$
9.19



4.8
%     (a)
    
    Includes results for properties that were open for any portion
    of the period.(b)
    
    Same store comparison includes properties that were open for the
    majority of the period in 2005 and 2006 (that is, our Wisconsin
    Dells, Sandusky, Traverse City, Kansas City, Sheboygan, and
    Williamsburg resorts).      Increase2006


2005


(Decrease)Revenues

$
148,648


$
139,415


$
9,233Departmental operating expenses


47,837



42,351



5,486Selling, general and administrative


41,421



26,894



14,527Property operating costs


23,217



24,798



(1,581
)Depreciation and amortization


25,903



26,248



(345
)Goodwill impairment


50,975







50,975Cost of sales of condominiums






16,780



(16,780
)Loss on sale of property


1,066



26,161



(25,095
)Net operating loss


(53,691
)


(26,341
)


(27,350
)Net interest expense


4,064



5,105



(1,041
)Income tax benefit


(8,764
)


(7,199
)


(1,565
)Net loss


(49,250
)


(24,413
)


(24,837
)   Revenues.
 46




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##### Table of Contents




    Total revenues for the Williamsburg, Pocono Mountains and Mason
    resorts were $79,020 and $26,242 for the years ended
    December 31, 2006 and 2005, respectively.
    Total management and other fees related to our joint ventures
    were $3,729 and $482 for the years ended December 31, 2006
    and 2005, respectively.
    Other revenue from managed properties was $11,920 and $2,524 for
    the years ended December 31, 2006 and 2005, respectively.
    Revenue from sales of condominiums at our Wisconsin Dells resort
    was $25,862 for the year ended December 31, 2005. We had no
    similar revenue during the year ended December 31, 2006.
    Total revenues for the Wisconsin Dells and Sandusky resorts were
    $30,212 for the year ended December 31, 2005.  Operating expenses.
  
    Total departmental operating expenses for the Williamsburg,
    Pocono Mountains and Mason resorts were $28,853 and $11,330 for
    the years ended December 31, 2006 and 2005, respectively.
    Total departmental expenses for the Wisconsin Dells and Sandusky
    resorts were $11,169 for the year ended December 31, 2005.
    Total selling, general and administrative expenses for the
    Williamsburg, Pocono Mountains, and Mason resorts were $18,247
    and $5,097 for the years ended December 31, 2006 and 2005,
    respectively. Total selling, general and administrative expenses
    for the Wisconsin Dells and Sandusky resorts were $7,133 for the
    year ended December 31, 2005. During the year ended
    December 31, 2006 our corporate selling, general and
    administrative expenses included increases over that of the year
    ended December 31, 2005 related to share based compensation
    of $5,113, compensation-related expenses of $1,499 due to
    increased staffing at our corporate office and $1,663 related to
    professional fees.
    Total property operating costs (exclusive of opening costs) for
    the Williamsburg, Pocono Mountains, and Mason resorts were
    $7,509 for the year ended December 31, 2006 as compared to
    $6,371 for the year ended December 31, 2005. Total property
    operating costs (exclusive of opening costs) for the resorts in
    Wisconsin Dells and Sandusky were $3,822 for the year ended
    December 31, 2005. Opening costs related primarily to our
    Pocono Mountains, Mason Family, Grapevine and Grand Mound
    resorts and the resort in Niagara Falls were $7,297 for the year
    ended December 31, 2006, as compared to $5,309 for the year
    ended December 31, 2005 related to our resorts in
    Williamsburg and the Pocono Mountains and the condominiums in
    Wisconsin Dells.
    Total depreciation and amortization for the Williamsburg, Pocono
    Mountains and Mason resorts was $13,707 and $8,059 for the years
    ended December 31, 2006 and 2005, respectively. Total
    depreciation and amortization for the Wisconsin Dells and
    Sandusky resorts was $5,769 for the year ended December 31,
    2005.
    For the year ended December 31, 2006 we recorded a goodwill
    impairment charge of $50,975 related to our Traverse City and
    Sheboygan resorts, as the implied fair value of the goodwill was
    deemed less than the carrying value. 47




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##### Table of Contents




    Cost of sales of condominiums of $16,780 relates to the
    condominiums sold at our Wisconsin Dells resort during the year
    ended December 31, 2005. We did not incur a similar charge
    during the year ended December 31, 2006.
    Loss on sale of real estate of $1,066 during the year ended
    December 31, 2006 primarily relates to finalization of the
    accounting for the sale of 70% of our equity interests in the
    Wisconsin Dells and Sandusky resorts in October 2005 as compared
    to the loss on sale of real estate of $26,161 recorded in 2005
    related to the 70% interest sold in our Wisconsin Dells and
    Sandusky resorts.  Net operating loss.
  Net loss.
  
    A increase in net operating loss from $(26,341) for 2005 to
    $(53,691) for 2006.
    A decrease in net interest expense of $1,041 mainly due to
    higher interest income for 2006 as compared to 2005.
    A increase of an income tax benefit of $1,565 for 2006 as
    compared to 2005.  Year
    ended December 31, 2005 for Great Wolf Resorts compared
    with the year ended December 31, 2004 for the Great Wolf
    Resorts/Predecessor
    Great WolfGreat Wolf


Resorts/Resorts


Predecessor


Increase2005


2004


(Decrease)Revenues

$
139,415


$
69,887


$
69,528Departmental operating expenses


42,351



19,851



22,500Selling, general and administrative


26,894



25,985



909Property operating costs


24,798



9,105



15,693Depreciation and amortization


26,248



14,822



11,426Cost of sales of condominiums


16,780







16,780Loss on sale of property


26,161







26,161Net operating loss


(26,341
)


(14,429
)


(11,912
)Net interest expense


5,105



6,738



(1,633
)Income tax benefit


(7,199
)


(2,563
)


(4,636
)Income from discontinued operations






1,928



(1,928
)Net loss


(24,413
)


(16,784
)


(7,629
)   Revenues.
  
    Total revenues for the resorts in Wisconsin Dells, Sandusky,
    Sheboygan, Williamsburg and Pocono Mountains were $68,504 and
    $10,285 for the years ended December 31, 2005 and
    December 31, 2004, respectively.
    Revenue from sales of condominiums at our Wisconsin Dells resort
    was $25,862 for the year ended December 31, 2005. We had no
    similar sales during the year ended December 31, 2004. 48




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##### Table of Contents




    The net increase in resort and condominium revenue for the year
    ended December 31, 2005, versus the year ended
    December 31, 2004, was offset by $12,029 decrease in other
    revenue related to managed properties recorded in the year ended
    December 31, 2005, as compared to the year ended
    December 31, 2004.  Operating expenses.
  
    Total departmental expenses for the resorts in Wisconsin Dells,
    Sandusky, Sheboygan, Williamsburg and Pocono Mountains were
    $28,210 and $4,827 for the years ended December 31, 2005
    and December 31, 2004, respectively.
    Total selling, general and administrative expenses for the
    resorts in Wisconsin Dells, Sandusky, Sheboygan, Williamsburg
    and Pocono Mountains were $16,527 and $4,927 for the years ended
    December 31, 2005 and December 31, 2004, respectively.
    Selling, general and administrative expenses in the year ended
    December 31, 2004 included $6,413 of IPO related charges
    and a $1,147 write off of development related expenses. We did
    not incur similar charges during the year ended
    December 31, 2005. Also, selling, general and
    administrative expenses in the year ending December 31,
    2004, included a non-cash employee compensation expense of $691.
    We recorded non-cash employee compensation income of $1,554 in
    the year ended December 31, 2005.
    Total property operating costs for the resorts in Wisconsin
    Dells, Sandusky, Sheboygan, Williamsburg and Pocono Mountains
    were $17,447 and $3,260 for the years ended December 31,
    2005 and December 31, 2004, respectively. Property
    operating costs include pre-opening costs related to our Pocono
    Mountains and Williamsburg resorts of $7,791 for the year ended
    December 31, 2005, as compared to pre-opening costs related
    to our Sheboygan resort of $1,729 for the year ended
    December 31, 2004.
    Total depreciation and amortization for the resorts in Wisconsin
    Dells, Sandusky, Sheboygan, Williamsburg and Pocono Mountains
    was $17,697 and $3,750 for the years ended December 31,
    2005 and December 31, 2004, respectively. The net increase
    in depreciation and amortization also includes the effect of a
    change made in the first quarter of 2005 to the estimate of
    useful lives used to depreciate our property and equipment,
    which resulted in a decrease in depreciation for our resorts in
    Traverse City and Kansas City in the year ended
    December 31, 2005, as compared to December 31, 2004.
    Cost of sales of condominiums of $16,780 relates to the
    condominiums sold at our Wisconsin Dells resort in 2005. A
    similar type charge was not incurred during 2004.
    A loss of $26,161 recorded related to the 70% interests sold in
    our Wisconsin Dells and Sandusky resorts.  Net operating loss.
  Net loss.
  
    An increase in net operating loss.
    A gain on sale of investments of $1,653 was recorded for the
    year ended December 31, 2004. No comparable gain was
    recorded for the year ended December 31, 2005.
    Income from discontinued operations of $1,928 was recorded for
    the year ended December 31, 2004. No comparable amount was
    recorded for the year ended December 31, 2005.   49




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##### Table of Contents



Segments
  01-14;
  Twelve Months Ended December 31,Increase2006


2005


(Decrease)Resort
    Ownership/OperationRevenues

$
130,912


$
110,053


$
20,859EBITDA, excluding certain items


26,729



(9,353
)


36,082Resort Third-Party
    MgmtRevenues


17,736



3,500



14,236EBITDA, excluding certain items


5,817



976



4,841Condominium SalesRevenues






25,862



(25,862
)EBITDA, excluding certain items


(370
)


9,082



(9,452
)OtherRevenues










EBITDA, excluding certain items


(8,989
)


(798
)


(8,191
)     Liquidity
    and Capital Resources
    Long-Term Debt:Traverse City/Kansas City mortgage
    loan

$
72,801Mason construction loan


55,792Pocono Mountains mortgage loan


97,000Junior subordinated debentures


51,550Other Debt:City of Sheboygan bonds


8,383City of Sheboygan loan


3,863$
289,389   Traverse City/Kansas City Mortgage Loan 25-year
 50




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##### Table of Contents



Mason Construction Loan 3-year 25-year
  Pocono Mountains Mortgage Loan 18-month 30-year
  Junior Subordinated Debentures
  30-year
      City of Sheboygan Bonds No. 91-10,
 51




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##### Table of Contents



City of Sheboygan Loan
  Future Maturities
  ThroughDecember 31,2007

$
1,4322008


1,9522009


2,7642010


58,7492011


3,165Thereafter


221,327Total

$
289,389   Short-Term
    Liquidity Requirements
    
    recurring maintenance, repairs and other operating expenses
    necessary to properly maintain and operate our resorts;
    property taxes and insurance expenses;
    interest expense and scheduled principal payments on outstanding
    indebtedness;
    general and administrative expenses; and
    income taxes.    Long-Term
    Liquidity Requirements
    
    scheduled debt maturities;
    capital contributions and loans to unconsolidated joint ventures;
    renovations, expansions and other non-recurring capital
    expenditures that need to be made periodically to our
    resorts; and
    costs associated with the development of new resorts.   52




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##### Table of Contents



and/or
  Off
    Balance Sheet Arrangements
    39-acre
    Contractual
    Obligations
    Payment TermsLess Than








More ThanTotal


1 Year


1-3 Years


3-5 Years


5 YearsDebt Obligations(1)

$
289,389


$
1,432


$
4,716


$
61,914


$
221,327Operating Lease Obligations


1,218



464



754







Construction Contracts


79,867



79,867











Total

$
370,474


$
81,763


$
5,470


$
61,914


$
221,327     (1)
    
    Includes $8,383 of fixed rate debt recognized as a liability
    related to certain bonds issued by the City of Sheboygan and
    $3,863 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
   53




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##### Table of Contents



Cash
    Flows
  Comparison
    of Year Ended December 31, 2006 to Year Ended
    December 31, 2005
  Year Ended December 31,


Increase2006


2005


(Decrease)Net cash provided by operating
    activities

$
29,723


$
17,788


$
11,935Net cash used in investing
    activities


(107,123
)


(65,496
)


(41,627
)Net cash provided by financing
    activities


119,396



23,081



96,315   Operating Activities.
  Investing Activities.
  Financing Activities.
  Comparison
    of Year Ended December 31, 2005 for the Company to Year
    Ended December 31, 2004 for the Predecessor/Great Wolf
    Resorts
  Great WolfGreat Wolf


Resorts/Resorts


PredecessorYear Ended December 31,


Increase2005


2004


(Decrease)Net cash provided by operating
    activities

$
17,788


$
4,399


$
13,389Net cash used in investing
    activities


(65,496
)


(162,055
)


96,559Net cash provided by financing
    activities


23,081



233,575



(210,494
)   Operating Activities.
  Investing Activities.
  Financing Activities.
  Inflation
   54




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##### Table of Contents



ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      
    $72,801 of fixed rate debt secured by two of our resorts. This
    debt bears interest at 6.96%.
    $51,550 of subordinated debentures that bear interest at
    a fixed rate of 7.80% through March 2015 and then at a floating
    rate of LIBOR plus 310 basis points thereafter. The securities
    mature in March 2035.
    $97,000 of fixed rate debt secured by one of our resorts.
    This debt bears interest at 6.10%
    $55,792 of variable rate debt secured by one of our
    resorts. This debt bears interest at a floating rate of
    30 day LIBOR plus a spread of 265 basis points. The total
    rate was 7.98% at December 31, 2006.
    $8,383 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 $3,863 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; and    and/or
 55




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##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Form 10-K:
  PageNo.Consolidated and Combined
    Financial Statements of Great Wolf Resorts and Subsidiaries and
    Great Lakes Predecessor:Report of
    Independent Registered Public Accounting Firm


57Consolidated
    Balance Sheets for Great Wolf Resorts, Inc. and subsidiaries as
    of December 31, 2006 and 2005


58Consolidated and
    Combined Statements of Operations for Great Wolf Resorts, Inc.
    and subsidiaries for the years ended December 31, 2006 and
    2005 and 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


59Consolidated and
    Combined Statements of Equity for Great Wolf Resorts, Inc. and
    subsidiaries for the years ended December 31, 2006 and 2005
    and 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


60Consolidated and
    Combined Statements of Cash Flows for Great Wolf Resorts, Inc.
    and subsidiaries for the years ended December 31, 2006 and
    2005 and 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


61Notes to Consolidated and Combined
    Financial Statements


62  56




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            Share-Based Payment.
  Internal Control 
    Integrated Framework
       57




---



##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES



CONSOLIDATED
    BALANCE SHEETS  December 31,2006


2005(Dollars in thousands, except per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
96,778


$
54,782Accounts receivable, net of
    allowance for doubtful accounts of $205 and $95


2,680



2,506Accounts receivable 
    affiliates


2,223



12,825Inventory


2,825



2,254Other current assets


4,638



1,996Total current assets


109,144



74,363Property and equipment, net


489,968



385,391Investment in affiliates


25,028



43,207Other assets


19,450



11,741Other intangible assets


23,829



23,829Goodwill


16,020



66,995Total assets

$
683,439


$
605,526LIABILITIES, MINORITY INTERESTS
    AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt

$
1,432


$
1,928Accounts payable


25,882



18,183Accrued payroll


2,768



2,053Accrued expenses


12,740



7,258Accrued expenses 
    affiliates


443



3,576Advance deposits


7,165



5,680Gift certificates payable


3,349



2,126Other current liabilities






126Total current liabilities


53,779



40,930Mortgage debt


275,711



154,092Other long-term debt


12,246



12,308Other long-term liabilities


391



391Deferred tax liability


15,846



25,800Deferred compensation liability


2,200



1,501Total liabilities


360,173



235,022Minority interests


5,757



6,593Commitments and contingenciesStockholders Equity:Common stock, $0.01 par
    value, 250,000,000 shares authorized, 30,509,320 and
    30,277,308 shares issued and outstanding at
    December 31, 2006 and 2005, respectively


305



303Additional paid in capital


396,909



394,212Preferred stock, $0.01 par
    value, 10,000,000 shares authorized, no shares issued or
    outstanding at December 31, 2006 and 2005






Accumulated deficit


(77,505
)


(28,255
)Deferred compensation


(2,200
)


(2,349
)Total stockholders equity


317,509



363,911Total liabilities, minority
    interests and stockholders equity

$
683,439


$
605,526    58




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##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
    (dollars in thousands, except per share data)  Great Wolf Resorts, Inc.



PredecessorPeriod



PeriodDecember 21,



January 1,2004 through



2004 throughYear Ended December 31,


December 31,



December 20,2006


2005


2004



2004(Dollars in thousands, except per share data)Revenues:Rooms

$
87,775


$
73,207


$
3,261



$
31,438Food and beverage


21,930



18,897



776




8,255Other hotel operations


21,207



17,949



513




7,855Sales of condominiums






25,862








Management and other fees


2,087



494








Management and other
    fees  related parties


3,729



482



79




3,157136,728



136,891



4,629




50,705Other revenue from managed
    properties-related parties


11,920



2,524








14,553Total revenues


148,648



139,415



4,629




65,258Operating expenses by department:Rooms


11,914



10,944



298




4,917Food and beverage


18,806



16,532



598




7,370Other


17,117



14,875



360




6,308Other operating expenses:Selling, general and administrative


41,421



26,894



7,372




18,613Property operating costs


23,217



24,798



295




8,810Depreciation and amortization


25,903



26,248



1,897




12,925Cost of sales of condominiums






16,780








Goodwill impairment


50,975












Loss on sale of property


1,066



26,161








190,419



163,232



10,820




58,943Other expenses from managed
    properties-related parties


11,920



2,524








14,553Total operating expenses


202,339



165,756



10,820




73,496Net operating loss


(53,691
)


(26,341
)


(6,191
)



(8,238
)Interest income


(3,105
)


(1,623
)


(66
)



(224
)Interest expense


7,169



6,728



280




6,748Gain on sale of investments















(1,653
)Interest on mandatorily redeemable
    shares















1,761Loss before income taxes, minority
    interests, and equity in unconsolidated affiliates


(57,755
)


(31,446
)


(6,405
)



(14,870
)Income tax benefit


(8,764
)


(7,199
)


(2,563
)



Minority interests, net of tax


(502
)


(4
)







Equity in unconsolidated
    affiliates, net of tax


761



170








Loss from continuing operations


(49,250
)


(24,413
)


(3,842
)



(14,870
)Income from discontinued operations















1,928Net loss

$
(49,250
)

$
(24,413
)

$
(3,842
)


$
(12,942
)Basic loss per share

$
(1.63
)

$
(0.81
)

$
(0.13
)Diluted loss per share

$
(1.63
)

$
(0.81
)

$
(0.13
)Weighted average common shares
    outstanding:Basic


30,299,647



30,134,146



30,132,896Diluted


30,299,647



30,134,146



30,132,896    59




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##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY  MembersAdditional








Equity ofCommon


Common


Paid in


Accumulated


Deferred


Combined


Treasury


TotalShares


Stock


Capital


Deficit


Compensation


Entities


Stock


Equity(Dollars in thousands)Predecessor:Balance, January 1, 2004





$



$



$
(1,256
)

$



$
31,263


$
(824
)

$
29,183Contributions














643







25,145







25,788Distributions














(3,170
)






(7,534
)






(10,704
)Net income (loss)














1,582







(14,524
)






(12,942
)Balance, December 20, 2004





$



$



$
(2,201
)

$



$
34,350


$
(824
)

$
31,325Great Wolf Resorts,
    Inc.:Reclassification, net of effect of
    spin-off, of Predecessors equity, mandatorily redeemable
    ownership interests and minority interests





$
50


$
45,727


$



$



$



$



$
45,777Net proceeds from sale of common
    stock


16,100,000



161



248,506



















248,667Issuance of common
    stock  acquisition of resorts


14,032,896



91



97,628



















97,719Issuance of common
    stock  deferred compensation plan


129,412



1



2,199







(2,200
)










Net loss














(3,842
)














(3,842
)Balance, December 31, 2004


30,262,308



303



394,060



(3,842
)


(2,200
)










388,321Issuance of non-vested equity shares


15,000







152







(152
)










Amortization of non-vested equity
    shares


















3











3Net loss














(24,413
)














(24,413
)Balance, December 31, 2005


30,277,308



303



394,212



(28,255
)


(2,349
)










363,911Issuance of non-vested equity shares


232,012



2























2Reclassification of unearned
    compensation to additional paid-in capital upon the adoption of
    Financial Accounting Standards No. 123(R)  See
    Note 13










(149
)






149











Stock-based compensation










3,052



















3,052Share issuance costs










(206
)


















(206
)Net loss














(49,250
)














(49,250
)Balance, December 31, 2006


30,509,320


$
305


$
396,909


$
(77,505
)

$
(2,200
)

$



$



$
317,509    60




---



##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSORCONSOLIDATED AND COMBINED STATEMENTS OF CASH
    FLOWS
    (dollars in thousands)
  Great Wolf Resorts, Inc.



PredecessorPeriod



PeriodDecember 21,



January 1,2004 through



2004 throughYear Ended December 31,


December 31,



December 20,2006


2005


2004



2004(Dollars in thousands)Operating activities:Net loss

$
(49,250
)

$
(24,413
)

$
(3,842
)


$
(12,942
)Adjustments to reconcile net loss
    to net cash provided by operating activities:Depreciation and amortization


25,903



26,248



1,897




13,107Goodwill impairment


50,975



Non-cash employee compensation
    expenses


3,559



(1,554
)


2,891




(Gain) loss on sale of assets


1,066



26,161








(5,327
)Gain on sale of investments and
    other















(1,653
)Equity in unconsolidated affiliates


1,269



282








Minority interests


(836
)


(7
)







2,729Deferred tax benefit


(9,500
)


(7,504
)


(2,563
)



Changes in operating assets and
    liabilities:Accounts receivable and other assets


4,107



1,349



1,564




(9,236
)Accounts payable, accrued expenses
    and other liabilities


2,430



(2,774
)


815




16,959Net cash provided by operating
    activities


29,723



17,788



762




3,637Investing activities:Capital expenditures for property
    and equipment


(120,523
)


(124,905
)


(115
)



(108,804
)Cash distributions from
    unconsolidated affiliates


18,902












Investment in affiliates


(523
)


(1,519
)







Investment in development


(4,626
)











Proceeds from sale of assets


2,101



59,948








32,174Purchases of owners interest,
    net of cash acquired










(95,460
)



Increase in restricted cash


(1,282
)


(1,305
)


(2,008
)



(Increase) decrease in escrow


(1,172
)


2,285








(1,564
)Decrease in equity escrow















13,722Net cash used in investing
    activities


(107,123
)


(65,496
)


(97,583
)



(64,472
)Financing activities:Proceeds from equity offering










273,700




Payment of offering costs










(21,979
)



(726
)Principal payments on long-term debt


(31,978
)


(50,049
)


(152,417
)



(16,805
)Proceeds from issuance of long-term
    debt


153,039



75,712



75,000




68,330Payment of loan costs


(1,665
)


(2,582
)


(2,153
)



(2,569
)Member contributions















25,788Member distributions















(11,370
)Changes in mandatorily redeemable
    ownership interests















1,761Net distributions to minority
    investors















(2,985
)Net cash provided by financing
    activities


119,396



23,081



172,151




61,424Net increase (decrease) in cash and
    cash equivalents


41,996



(24,627
)


75,330




589Cash and cash equivalents,
    beginning of period


54,782



79,409



4,079




3,490Cash and cash equivalents, end of
    period

$
96,778


$
54,782


$
79,409



$
4,079Supplemental Cash Flow InformationCash paid for interest, net of
    capitalized interest

$
6,036


$
3,605


$
698



$
6,317Cash paid (refunds) for income taxes

$
(471
)

$
1,128


$




$
Non-cash items:Land contributed for minority
    interest

$



$
6,600


$




$
Construction in process accruals

$
10,101


$
8,648


$
18,578



$
Escrow funds receivable

$



$
12,825


$




$
    61




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##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSORNOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS
    (dollars in thousands, except per share amounts)
  1.
    ORGANIZATION    Formation
        
    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 Great Lakes Companies, Inc. (GLC)
    (one of the Predecessors entities).
    We acquired GLC and seven resort-owning entities. 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.      Business
    Summary
   62




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##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
        IndoorOwnership




Guest


Condo


EntertainmentPercentage


Opening

Suites


Units


Area(1)(Approx.
    ft2)Existing Resorts:Wisconsin Dells, WI(2)


30
%

1997


309



77



102,000Sandusky, OH(2)


30
%

2001


271







41,000Traverse City, MI


100
%

2003


281







51,000Kansas City, KS


100
%

2003


281







49,000Sheboygan, WI


100
%

2004


182



64



54,000Williamsburg, VA


100
%

2005


301
(3)






78,000Pocono Mountains, PA


100
%

2005


401







91,000Niagara Falls, ONT(4)





April 2006


406







94,000Mason, OH(5)


84
%

December 2006


401







93,000Resorts Under
    Construction:Grapevine, TX(6)


100
%

Late 2007


404







98,000Grand Mound, WA(7)


49
%

Early 2008


398







78,000     (1)
    
    Our indoor entertainment areas generally include our indoor
    waterpark, game arcade, childrens activity room and
    fitness room, as well as our Aveda spa in the resorts that have
    such amenities.(2)
    
    In 2005, we formed a joint venture with CNL Income Properties,
    Inc. (CNL), a real estate investment trust focused on leisure
    and lifestyle properties. The joint venture acquired our
    Wisconsin Dells and Sandusky resorts. CNL owns a 70% interest in
    the joint venture, and we retained a 30% interest. CNL paid us
    approximately $80 million for its 70% ownership interest.
    We continue to operate the properties and license the Great Wolf
    Lodge brand to the joint venture under
    25-year
    agreements, subject to earlier termination in certain situations.(3)
    
    Construction for the expansion of 104 additional guest suites,
    conference center space and waterpark attractions began in May
    2006. The additional waterpark attractions were completed in
    December 2006. We expect to complete the additional guest suites
    and conference center space in Spring 2007.(4)
    
    An affiliate of Ripley Entertainment, Inc. (Ripley), our
    licensee, owns this resort. We have granted Ripley a license to
    use the Great Wolf Lodge name for this resort through April
    2016. We manage the resort on behalf of Ripley and also provide
    central reservation services. 63




---



##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
   (5)
    
    We have entered into a joint venture agreement with a subsidiary
    of CBS Corporation (CBS), to build this resort and attached
    conference center. We operate the resort under our Great Wolf
    Lodge brand and have a majority of the equity in the project.
    CBS has a minority equity interest in the development. This
    resort opened in December 2006. The conference center is
    expected to be completed in March 2007.(6)
    
    We are developing a Great Wolf Lodge resort in Grapevine, Texas.
    The northwoods themed, eight-story resort will provide a
    comprehensive package of first-class destination lodging
    amenities and activities. Construction on the resort began in
    June 2006 with expected completion in late 2007.(7)
    
    We have entered into a joint venture agreement with The
    Confederated Tribes of the Chehalis Reservation to build this
    resort. We will operate the resort under our Great Wolf Lodge
    brand. The Confederated Tribes of the Chehalis Reservation will
    lease the land needed for the resort to the joint venture, and
    they will have a majority equity interest in the joint venture.
    Construction on the resort began in October 2006 with expected
    completion in early 2008.  2.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Principles of Consolidation and Combination 
  Cash and Cash Equivalents
  Allowance for Doubtful Accounts
  Inventory
  Property and Equipment
  Buildings and improvements

20-40 yearsFixtures and equipment, including
    waterpark equipment

5-15 years      64




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##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    Loan Fees
  Partially-Owned Entities 78-9, 96-16, 04-5,
  Investment in Affiliates
  Other Intangible Assets
  Goodwill
   65




---



##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    Impairment of Long-Lived Assets
  Revenue Recognition
  contract-to-date
  Sales of Real Estate Assets
  Other Revenue and Other Expenses From Managed
    Properties 01-14 Out-of-Pocket
  Minority Interest
  Income Taxes
 66




---



##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
     Advertising
  IPO Costs paid-in-capital.
  Segments 01-14;
    Resort


Resort Third-








Totals perOwnership/


Party


Condominium





FinancialOperation


Management


Sales


Other


StatementsYear ended December 31,
    2006Revenues

$
130,912


$
17,736


$



$



$
148,648EBITDA, excluding certain items


26,729



5,817



(370
)


(8,989
)

$
23,187Depreciation and amortization


(25,366
)










(537
)


(25,903
)Impairment loss


(50,975
)














(50,975
)Interest expense, net


















(4,064
)Loss before income taxes, minority
    interests, and equity in earnings of unconsolidated affiliates

















$
(57,755
)Additions to long-lived assets


119,686











837


$
120,523Total assets


520,528



2,960







159,951


$
683,439   67




---



##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
  Resort


Resort Third-








Totals perOwnership/


Party


Condominium





FinancialOperation


Management


Sales


Other


StatementsYear ended December 31,
    2005Revenues

$
110,053


$
3,500


$
25,862


$



$
139,415EBITDA, excluding certain items


(9,353
)


976



9,082



(798
)

$
(93
)Depreciation and amortization


(24,576
)










(1,672
)


(26,248
)Interest expense, net


















(5,105
)Loss before income taxes, minority
    interests, and equity in earnings of unconsolidated affiliates

















$
(31,446
)Additions to long-lived assets


124,487











418


$
124,905Total assets


479,170











126,356


$
605,526       Use of Estimates
  Reclassifications
  New Accounting Pronouncements 
     68




---



##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    3.
    INVESTMENT
    IN AFFILIATES  CNL
    Joint Venture
  25-year
        2006


2005Balance sheet data:Total assets

$
116,973


$
120,884Total liabilities

$
69,578


$
9,284Operating data:Revenue

$
37,428


$
6,550Operating Expenses

$
(33,630
)

$
(6,600
)Net loss

$
(2,655
)

$
(1,029
)   2007/2008
   69




---



##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
     Grand
    Mount Joint Venture
  39-acre
  4.
    PURCHASE
    ACCOUNTING IN CONNECTION WITH THE IPO      
    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 values and the tax
    bases of assets acquired from the five 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 estimated fair value of net tangible and
    intangible assets acquired from the five resort-owning entities.  Value of Great Wolf Resorts common
    stock issued

$
80,840Cash paid


73,042Total cost of acquisition


153,882Fair value of debt assumed


181,415Fair value of property and
    equipment acquired


(189,427
)Fair value of intangible assets


(10,296
)Deferred tax liability recorded


11,297Fair value of other assets and
    liabilities


8,325Goodwill

$
155,196    70




---



##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
       
    Recorded all identifiable tangible and intangible assets at
    their estimated fair values as of December 20, 2004;
    Allocated the excess consideration paid over the estimated fair
    value of the net assets acquired to all identifiable tangible
    and intangible assets pro rata based on their estimated fair
    values;
    Recorded a deferred tax liability resulting from the difference
    between the total estimated fair values (including the excess
    amount described in the previous item) and the tax bases of the
    assets acquired from the two resort-owning entities. We recorded
    this liability at our anticipated effective tax rate of 40%. In
    the fourth quarter of 2005, we recorded adjustments to finalize
    the deferred tax liabilities, resulting in a decrease in
    deferred tax liabilities of $6,086, a decrease in property and
    equipment acquired of $10,801, and an increase in intangible
    assets of $4,715.  5.
    PROPERTY
    AND EQUIPMENT    December 31,2006


2005Land and improvements

$
38,058


$
38,735Building and improvements


178,464



151,056Furniture, fixtures and equipment


243,991



167,691Construction in process


71,848



45,024532,361



402,506Less accumulated depreciation


(42,393
)


(17,115
)Property and equipment, net

$
489,968


$
385,391    71




---



##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
   6.
    LONG-TERM
    DEBT    December 31,2006


2005Long-Term Debt:Traverse City/Kansas City mortgage
    loan

$
72,801


$
73,979Sheboygan mortgage loan






28,939Mason construction loan


55,792



Pocono Mountains mortgage loan


97,000



Other mortgage debt






1,552Junior subordinated debentures


51,550



51,550Other Debt:City of Sheboygan bonds


8,383



8,288City of Sheboygan loan


3,863



4,020289,389



168,328Less current portion of long-term
    debt


(1,432
)


(1,928
)Total long-term debt

$
287,957


$
166,400   Traverse City/Kansas City Mortgage Loan 25-year
  Sheboygan Mortgage Loan 
  Mason Construction Loan 3-year 25-year
  Pocono Mountains Mortgage Loan 18-month
 72




---



##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
  30-year
  Junior Subordinated Debentures
  30-year
      City of Sheboygan Bonds No. 91-10,
  City of Sheboygan Loan
 73




---



##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
   Future Maturities
  ThroughDecember 31,2007

$
1,4322008


1,9522009


2,7642010


58,7492011


3,165Thereafter


221,327Total

$
289,389   7.
    FAIR
    VALUE OF FINANCIAL INSTRUMENTS      8.
    INCOME
    TAXES    Current


Deferred


TotalYear ended December 31, 2006U.S. Federal

$



$
(8,768
)

$
(8,768
)State and local


506



(732
)


(226
)Non-U.S.


56







56$
562


$
(9,500
)

$
(8,938
)Year ended December 31, 2005U.S. Federal

$
55


$
(6,566
)

$
(6,511
)State and local


140



(938
)


(798
)$
195


$
(7,504
)

$
(7,309
)Period from December 21, 2004
    to December 31, 2004U.S. Federal

$



$
(2,243
)

$
(2,243
)State and local






(320
)


(320
)$



$
(2,563
)

$
(2,563
)  74




---



##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005


2004Federal statutory income tax
    benefit


(35.0
)%


(35.0
)%


(35.0
)%State income taxes, net of Federal
    income taxes


(0.7
)%


(2.6
)%


(5.0
)%Nondeductible goodwill


19.9
%


13.9
%


Other


0.4
%


0.7
%


(15.4
)%


(23.0
)%


(40.0
)%     2006


2005Deferred tax assets (liabilities):Property and equipment

$
(34,342
)

$
(39,931
)Intangibles


8,740



3,879Investment in affiliates


(1,314
)


(1,320
)Loan fees






318Salaries and wages


2,346



707Prepaid expenses


(717
)


(764
)Other


441



(171
)Net operating loss carryforwards


8,546



11,482Net deferred tax liability

$
(16,300
)

$
(25,800
)         9.
    RELATED-PARTY
    TRANSACTIONS    
    We and the Predecessor previously used an aircraft owned by an
    entity owned by several of our former members of senior
    management. The entity that owns the aircraft also had one
    employee for whom 75




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##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
  Predecessor provided payroll and benefit services, the costs of
    which were reimbursed by the entity. This relationship ended in
    2005. Payments of $43, and $235 were made in the years ended
    December 31, 2005, and 2004, respectively, for the lease of
    the aircraft for company business.  
    A member of our senior management owned a 25% interest in the
    entity that leases space at the Great Wolf Lodge in Wisconsin
    Dells and operates the spa located within that resort. In 2005,
    the member of our senior management divested their ownership
    interest in this entity. That entity made payments of $38 and
    $44 to the resort for the years ended December 31, 2005,
    and 2004, respectively.
    We provided administrative services for a non-resort hotel
    entity and a multifamily housing entity owned by certain current
    and former members of our senior management. This relationship
    ended in 2005. Amounts charged to these entities in 2005 were
    $645; no amounts were charged in 2004.
    We provided administrative services for a development project
    owned by certain current and former members of our senior
    management. Amounts charged to this entity in 2005 were $18; no
    amounts were charged in 2006 and 2004.  10.
    COMMITMENTS
    AND CONTINGENCIES  Legal Matters
  Letters of Credit
    Guarantees
    1 2 5-year
 76




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##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
      Commitments
  2007

$
4642008


7542009


2010


2011


Total

$
1,218       11.
    RETIREMENT
    PLAN    12.
    EQUITY  General
  Members Equity of Combined Entities
  Treasury Stock
  Mandatorily Redeemable
    Ownership Interests
  
    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 77




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##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
  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.    Deferred Compensation
  Earnings per Share
  No. 97-14,
  PeriodDecember 21,2004Year Ended


Year Ended


throughDecember 31,


December 31,


December 31,2006


2005


2004Net loss attributable to common
    shares

$
(49,250
)

$
(24,413
)

$
(3,842
)Weighted average common shares
    outstanding  basic and diluted


30,299,647



30,134,146



30,132,896Net loss per share 
    basic and diluted

$
(1.63
)

$
(0.81
)

$
(0.13
)   13.
    SHARE-BASED
    COMPENSATION  Share-Based
    Payment
 78




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##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
  Accounting for Stock Issued to
    Employees.
        Stock
    Options
      Twelve Months EndedDecember 31,2006


2005


2004Dividend yield










Weighted average, risk free
    interest rate


4.33
%


3.65
%


3.65
%Weighted average, expected life of
    option


6.0 years



6.0 years



5.0 yearsExpected stock price volatility


39.83
%


40.00
%


23.00
%    79




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##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
     WeightedWeighted


AverageAverage


RemainingExercise


ContractualShares


Price


LifeNumber of shares under option:Granted on December 20, 2004


1,656,300


$
17.00Outstanding at December 31,
    2004


1,656,300


$
17.00Granted


184,000


$
21.40Exercised Forfeited


(368,466
)

$
17.42Outstanding at December 31,
    2005


1,471,834


$
17.45Granted


15,000


$
13.18Exercised


Forfeited


(422,334
)

$
17.03Outstanding at December 31,
    2006


1,064,500


$
17.55



8.05 yearsExercisable at December 31,
    2006


653,182


$
17.33



8.00 years     Market
    Condition Share Awards
      Dividend yield


Weighted average, risk free
    interest rate


4.12
%Expected stock price volatility
    (peer group of companies)


31.00
%Expected stock price volatility
    (small-cap stock index)


17.50
%    80




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##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
   Performance
    Share Awards
    Deferred
    Compensation Awards
  No. 97-14, No. 97-14,
  Non-vested
    Shares
      WeightedAverage


AggregateGrant Date


IntrinsicShares


Fair Value


ValueNon-vested shares balance at
    January 1, 2005


Granted


15,000


$
10.09Forfeited


Vested


Non-vested shares balance at
    December 31, 2005


15,000Granted


236,000


$
11.60Forfeited


(3,000
)Vested


(3,000
)

$
10.09Non-vested shares balance at
    December 31, 2006


245,000


$
11.08


$
593  81




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##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
    Prior
    Year Pro Forma Expense
  Accounting for Stock-Based
    Compensation
  PeriodYear Ended


December 21, 2004December 31,


through2005


December 31, 2004Net loss, as reported

$
(24,413
)

$
(3,842
)Compensation expense,
    SFAS 123 fair value method, net of tax


(1,364
)


(48
)Pro forma net loss

$
(25,777
)

$
(3,890
)Pro forma net loss per
    share  basic

$
(0.86
)

$
(0.13
)Pro forma net loss per
    share  diluted

$
(0.86
)

$
(0.13
)Actual net loss per
    share  basic

$
(0.81
)

$
(0.13
)Actual net loss per
    share  diluted

$
(0.81
)

$
(0.13
)   14.
    DISCONTINUED
    OPERATIONS        Revenues

$
4,859Expenses


(5,529
)Gain on sale


5,327Minority interests


(2,729
)Income from discontinued operations

$
1,928    82




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##### Table of Contents



GREAT
    WOLF RESORTS, INC. AND SUBSIDIARIES AND
    GREAT LAKES PREDECESSOR
    NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
    STATEMENTS  (Continued)
   15.
    QUARTERLY
    FINANCIAL DATA (UNAUDITED)    First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter2006:Total Revenues

$
37,836


$
35,827


$
40,779


$
34,206Operating income (loss)


(544
)


(370
)


3,787



(56,564
)Net income (loss)


(945
)


(1,402
)


2,088



(48,991
)Basic earnings (loss) per share

$
(0.03
)

$
(0.05
)

$
0.07


$
(1.61
)Diluted earnings (loss) per share

$
(0.03
)

$
(0.05
)

$
0.07


$
(1.61
)   First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter2005:Total Revenues

$
26,996


$
26,032


$
59,012


$
27,375Operating income (loss)


(3,116
)


(2,892
)


13,084



(33,418
)Net income (loss)


(2,338
)


(2,702
)


7,011



(26,384
)Basic earnings (loss) per share

$
(0.08
)

$
(0.09
)

$
0.23


$
(0.88
)Diluted earnings (loss) per share

$
(0.08
)

$
(0.09
)

$
0.23


$
(0.88
)  83




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##### Table of Contents



ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
    Managements
    Report on Internal Control over Financial
    Reporting
    
    Pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of the assets of the Company;
    Provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with U.S. generally accepted accounting
    principles, and that receipts and expenditures of the Company
    are being made only in accordance with authorizations of our
    management and directors; and
    Provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of our
    assets that could have a material effect on the financial
    statements.   84




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##### Table of Contents



Remediation
    of Material Weakness
  Form 10-K
  Conclusion
    Form 10-K,
  Changes
    In Internal Control
  Form 10-K,
 85




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control-Integrated Framework
        Internal
    Control-Integrated Framework Internal Control-Integrated
    Framework
  Share-Based
    Payment,
      86




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##### Table of Contents



ITEM 9B.
    OTHER
    INFORMATION   PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS CORPORATE GOVERNANCE    ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTION, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES    ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  Financial Statements
  Form 10-K
  Financial Statement Schedules
    Exhibits
   87




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##### Table of Contents



SIGNATURES      /s/  JOHN
    EMERY        Signature

Title

Date/s/  John
    EmeryJohn
    Emery

Chief Executive Officer
    (Principal Executive Officer) and Director

March 7, 2007/s/  James
    A. CalderJames
    A. Calder

Chief Financial Officer
    (Principal Financial and Accounting Officer)

March 7, 2007/s/  Joseph
    VittoriaJoseph
    Vittoria

Chairman of the Board

March 7, 2007/s/  Elan
    BlutingerElan
    Blutinger

Director

March 7, 2007/s/  Randy
    ChurcheyRandy
    Churchey

Director

March 7, 2007Michael
    M. Knetter

Director

March 7, 2007/s/  Alissa
    N. NolanAlissa
    N. Nolan

Director

March 7, 2007/s/  Edward
    RensiEdward
    Rensi

Director

March 7, 2007/s/  Howard
    SilverHoward
    Silver

Director

March 7, 2007  88




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##### Table of Contents



INDEX TO EXHIBITS
  ExhibitNumber
    
    Description2.1
    
    Form of Merger Agreement (Delaware) (incorporated herein by reference to
Exhibit 2.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)2.2
    
    Form of Merger Agreement (Wisconsin) (incorporated herein by reference to
Exhibit 2.2 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)3.1
    
    Form of Amended and Restated Certificate of Incorporation for Great Wolf
Resorts, Inc. dated December 9, 2004 (incorporated herein by reference to
Exhibit 3.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)3.2
    
    Form of Amended and Restated Bylaws of Great Wolf Resorts, Inc. effective
September 12, 2006 (incorporated herein by reference to Exhibit 4.1 to the
Companys Current Report on Form S-1 filed September 18, 2006)4.1
    
    Form of the Common Stock Certificate of Great Wolf Resorts, Inc.
(incorporated herein by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-1 filed October 21, 2004)4.2
    
    Junior Subordinated Indenture, dated as of March 15, 2005, between Great
Wolf Resorts, Inc. and JPMorgan Chase Bank, National Association, as
trustee (incorporated herein by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K filed March 18, 2005)4.3
    
    Amended and Restated Trust Agreement, dated as of March 15, 2005, by and
among Chase Manhattan Bank USA, National Association, as Delaware trustee;
JPMorgan Chase Bank, National Association, as property trustee; Great Wolf
Resorts, Inc., as depositor; and James A. Calder, Alex G. Lombardo and J.
Michael Schroeder, as administrative trustees (incorporated herein by
reference to Exhibit 4.2 to the Companys Current Report on Form 8-K filed
March 18, 2005)10.1
    
    License Agreement, dated January 30, 2004, by and between The Great Lakes
Companies, Inc. and Jim Pattison Entertainment Ltd. (incorporated herein
by reference to Exhibit 10.1 to the Companys Registration Statement on
Form S-1 filed September 23, 2004)10.2
    
    Development Agreement, dated as of July 30, 2003, among the City of
Sheboygan, Wisconsin, the Redevelopment Authority of the City of
Sheboygan, Wisconsin, The Great Lakes Companies, Inc., Blue Harbor Resort
Sheboygan, LLC, and Blue Harbor Resort Condominium, LLC (incorporated
herein by reference to Exhibit 10.2 to the Companys Registration
Statement on Form S-1 filed August 12, 2004)10.3
    
    First Amendment to the Development Agreement, dated June 25, 2004, by and
among the City of Sheboygan, Wisconsin, the Redevelopment Authority of the
City of Sheboygan, Wisconsin, The Great Lakes Companies, Inc., Blue Harbor
Resort Sheboygan, LLC, and Blue Harbor Resort Condominium, LLC
(incorporated herein by reference to Exhibit 10.3 to the Companys
Registration Statement on Form S-1 filed August 12, 2004)10.4
    
    Tall Pines Exclusive License and Royalty Agreement, dated July 25, 2004,
between Tall Pines Development Corporation and The Great Lakes Companies,
Inc. (incorporated herein by reference to Exhibit 10.4 to the Companys
Registration Statement on Form S-1 filed December 7, 2004)10.5+
    
    Form of Employment Agreement (incorporated herein by reference to Exhibit
10.5 to the Companys




---



##### Table of Contents



ExhibitNumber
    
    DescriptionRegistration Statement on Form S-1 filed January 21,
2005)10.6
    
    Form of Noncompete Agreement, Trade Secret and Confidentiality Agreement
(incorporated herein by reference to Exhibit 10.6 to the Companys
Registration Statement on Form S-1 filed January 21, 2005)10.7
    
    Form of Officers and Directors Indemnification Agreement (incorporated
herein by reference to Exhibit 10.7 to the Companys Registration
Statement on Form S-1 filed August 12, 2004)10.8
    
    Form of Indemnity Agreement (incorporated herein by reference to Exhibit
10.8 to the Companys Registration Statement on Form S-1 filed September
23, 2004)10.9+
    
    Form of Great Wolf Resorts, Inc. Employee Stock Purchase Plan
(incorporated herein by reference to Exhibit 10.9 to the Companys
Registration Statement on Form S-1 filed August 12, 2004)10.10+
    
    Form of Great Wolf Resorts, Inc. 2004 Incentive Stock Plan (incorporated
herein by reference to Exhibit 10.10 to the Companys Registration
Statement on Form S-1 filed November 26, 2004)10.11+
    
    Form of Great Wolf Resorts, Inc. Deferred Compensation Plan (incorporated
herein by reference to Exhibit 10.11 to the Companys Registration
Statement on Form S-1 filed August 12, 2004)10.12
    
    Loan Agreement by and among Great Wolf Resorts, Inc., Citigroup Global
Markets Realty Corp. and The Travelers Insurance Company (incorporated
herein by reference to Exhibit 10.16 to Companys Registration Statement
on Form S-1 filed January 21, 2005)10.13
    
    Purchase Agreement, dated as of March 15, 2005, among Great Wolf Resorts,
Inc., Great Wolf Capital Trust I, Taberna Preferred Funding I, Ltd and
Merrill Lynch International (incorporated herein by reference to Exhibit
1.1 to the Companys Current Report on Form 8-K filed March 18, 2005)10.14
    
    Venture formation and Contribution Agreement dated October 3, 2005, among
Great Wolf Resorts, Inc., Great Bear Lodge of Wisconsin Dells, LLC, Great
Bear Lodge of Sandusky, LLC, and CNL Income Partners, LP (incorporated
herein by reference to Exhibit 10.1 to the Companys current Report on
Form 8-K filed October 7, 2005).10.15
    
    Loan Agreement dated March 1, 2006, among CNL Income GW WI-Del, LP and CNL
Income GW Sandusky, LP, as borrowers, and NSPL, Inc., as lender
(incorporated herein by reference to Exhibit 1.1 to the Companys Current
Report on Form 8-K filed March 2, 2006).10.16
    
    Loan Agreement dated July 28, 2006, among Great Wolf Lodge of Grapevine,
LLC, as borrower, and Merrill Lynch Capital and HSH Nordbank, as lenders
(incorporated herein by reference to Exhibit 1.1 to the Companys Current
Report on Form 8-K filed July 31, 2006).10.17
    
    Loan Agreement dated December 6, 2006, between Great Wolf Lodge of the
Poconos, LLC, as borrower, and Citigroup Global Markets Realty Corp., as
lender (incorporated herein by reference to Exhibit 1.1 to the Companys
Current Report on Form 8-K filed December 13, 2006).21.1*
    
    List of Subsidiaries23.1*
    
    Consent of Deloitte & Touche LLP31.1*
    
    Certification of Chief Executive Officer of Periodic Report Pursuant to
Rule 13a14(a) and Rule 15d14(a)31.2*
    
    Certification of Chief Financial Officer of Periodic Report Pursuant to
Rule 13a14(a) and Rule 15d14(a)




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##### Table of Contents



ExhibitNumber
    
    Description32.1*
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 135032.2*
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
 
 *
    
    Filed herewith.+
    
    Indicated management contract or compensatory plan or arrangement required to be filed as an
exhibit pursuant to Item 15(c)
of Form 10-K.