UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from                      to
 Commission File Number 000-51064
 
 GREAT WOLF RESORTS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of incorporation or organization)
    
    51-0510250(I.R.S. Employer Identification No.)122 West Washington Avenue 
Madison, Wisconsin 53703(Address of principal executive offices)
    
    53703(Zip Code)
 (608) 661-4700
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



Great Wolf Resorts, Inc.
 Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2008
 INDEX
 PageNo.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the
three and nine months ended September 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended September 30,
2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4. Controls and Procedures
    
    
    39PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    41Item 1A. Risk Factors
    
    
    41Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3. Defaults Upon Senior Securities
    
    
    42Item 4. Submission of Matters to a Vote of Security Holders
    
    
    43Item 5. Other Information
    
    
    43Item 6. Exhibits
    
    
    43Signatures
    
    
    45
  2




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##### 



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,884
    
    
    $
    18,597Accounts receivable, net of allowance for doubtful accounts of $103 and $113
    
    
    2,253
    
    
    
    2,373Accounts receivable  unconsolidated affiliates
    
    
    1,861
    
    
    
    3,973Inventory
    
    
    4,437
    
    
    
    4,632Other current assets
    
    
    7,188
    
    
    
    2,869Total current assets
    
    
    41,623
    
    
    
    32,444Property and equipment, net
    
    
    694,057
    
    
    
    617,697Investments in and advances to unconsolidated affiliates
    
    
    63,502
    
    
    
    59,148Other assets
    
    
    25,795
    
    
    
    20,257Other intangible assets
    
    
    23,829
    
    
    
    23,829Goodwill
    
    
    17,430
    
    
    
    17,430Total assets
    
    $
    866,236
    
    
    $
    770,805LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    81,118
    
    
    $
    78,752Accounts payable
    
    
    22,132
    
    
    
    18,471Accrued payroll
    
    
    1,785
    
    
    
    3,644Accrued expenses
    
    
    24,175
    
    
    
    17,132Accrued expenses  unconsolidated affiliates
    
    
    798
    
    
    
    124Advance deposits
    
    
    8,841
    
    
    
    8,211Gift certificates payable
    
    
    3,759
    
    
    
    4,670Total current liabilities
    
    
    142,608
    
    
    
    131,004Mortgage debt
    
    
    315,821
    
    
    
    225,042Other long-term debt
    
    
    92,360
    
    
    
    92,508Other long-term liabilities
    
    
    1,523
    
    
    
    2,232Deferred tax liability
    
    
    4,506
    
    
    
    7,597Deferred compensation liability
    
    
    1,399
    
    
    
    2,029Total liabilities
    
    
    558,217
    
    
    
    460,412Commitments and contingenciesStockholders equity:Common stock, $0.01 par value; 250,000,000 shares authorized;
30,949,708 and 30,698,683 shares issued and outstanding, at
September 30, 2008, and December 31, 2007, respectively
    
    
    309
    
    
    
    307Additional paid-in-capital
    
    
    399,409
    
    
    
    399,759Preferred stock, $0.01 par value, 10,000,000 shares authorized, no
shares issued or outstanding at September 30, 2008 and December 31,
2007
    
    
    
    
    
    
    Accumulated deficit
    
    
    (91,332
    )
    
    
    (87,086
    )Deferred compensation
    
    
    (200
    )
    
    
    (2,200
    )Accumulated other comprehensive loss, net of tax
    
    
    (167
    )
    
    
    (387
    )Total stockholders equity
    
    
    308,019
    
    
    
    310,393Total liabilities and stockholders equity
    
    $
    866,236
    
    
    $
    770,805
  3




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##### 



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited; dollars in thousands, except share and per share data)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Rooms
    
    $
    40,994
    
    
    $
    30,754
    
    
    $
    115,801
    
    
    $
    87,659Food and beverage
    
    
    10,088
    
    
    
    7,577
    
    
    
    30,751
    
    
    
    22,621Other hotel operations
    
    
    9,759
    
    
    
    7,407
    
    
    
    28,439
    
    
    
    20,990Management and other fees
    
    
    863
    
    
    
    983
    
    
    
    2,292
    
    
    
    2,231Management and other fees  affiliates
    
    
    1,767
    
    
    
    1,162
    
    
    
    4,363
    
    
    
    3,29563,471
    
    
    
    47,883
    
    
    
    181,646
    
    
    
    136,796Other revenue from managed properties  affiliates
    
    
    5,942
    
    
    
    3,015
    
    
    
    14,993
    
    
    
    8,852Total revenues
    
    
    69,413
    
    
    
    50,898
    
    
    
    196,639
    
    
    
    145,648Operating expenses by department:Rooms
    
    
    5,407
    
    
    
    4,158
    
    
    
    15,827
    
    
    
    12,147Food and beverage
    
    
    8,176
    
    
    
    6,273
    
    
    
    24,311
    
    
    
    19,383Other
    
    
    7,832
    
    
    
    6,024
    
    
    
    22,573
    
    
    
    17,615Other operating expenses:Selling, general and administrative
    
    
    11,637
    
    
    
    10,005
    
    
    
    41,729
    
    
    
    34,582Property operating costs
    
    
    8,642
    
    
    
    6,553
    
    
    
    28,556
    
    
    
    20,726Depreciation and amortization
    
    
    11,995
    
    
    
    9,105
    
    
    
    34,755
    
    
    
    26,567Loss on disposition of property
    
    
    19
    
    
    
    128
    
    
    
    19
    
    
    
    12853,708
    
    
    
    42,246
    
    
    
    167,770
    
    
    
    131,148Other expenses from managed properties  affiliates
    
    
    5,942
    
    
    
    3,015
    
    
    
    14,993
    
    
    
    8,852Total operating expenses
    
    
    59,650
    
    
    
    45,261
    
    
    
    182,763
    
    
    
    140,000Net operating income
    
    
    9,763
    
    
    
    5,637
    
    
    
    13,876
    
    
    
    5,648Investment income  affiliates
    
    
    (625
    )
    
    
    (281
    )
    
    
    (1,629
    )
    
    
    (336
    )Interest income
    
    
    (279
    )
    
    
    (551
    )
    
    
    (1,178
    )
    
    
    (2,365
    )Interest expense
    
    
    6,808
    
    
    
    3,829
    
    
    
    20,599
    
    
    
    11,104Income (loss) before income taxes, minority interests, and equity
in earnings (losses) of unconsolidated affiliates
    
    
    3,859
    
    
    
    2,640
    
    
    
    (3,916
    )
    
    
    (2,755
    )Income tax expense (benefit)
    
    
    1,755
    
    
    
    784
    
    
    
    (1,282
    )
    
    
    (1,157
    )Minority interests, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (443
    )Equity in loss (earnings) of unconsolidated affiliates, net of tax
    
    
    (67
    )
    
    
    95
    
    
    
    1,612
    
    
    
    745Net income (loss)
    
    $
    2,171
    
    
    $
    1,761
    
    
    $
    (4,246
    )
    
    $
    (1,900
    )Other comprehensive income (loss), net of tax:Unrealized (gain) loss on interest rate swaps
    
    
    (271
    )
    
    
    329
    
    
    
    (220
    )
    
    
    170Comprehensive income (loss)
    
    $
    2,442
    
    
    $
    1,432
    
    
    $
    (4,026
    )
    
    $
    (2,070
    )Net income (loss) per share-basic
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    (0.14
    )
    
    $
    (0.06
    )Net income (loss) per share-diluted
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    (0.14
    )
    
    $
    (0.06
    )Weighted average common shares outstanding:Basic
    
    
    30,840,691
    
    
    
    30,570,719
    
    
    
    30,793,822
    
    
    
    30,521,022Diluted
    
    
    30,840,691
    
    
    
    30,570,719
    
    
    
    30,793,822
    
    
    
    30,521,022
  4




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##### 



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; dollars in thousands)
 Nine months endedSeptember 30,2008
    
    
    2007Operating activities:Net loss
    
    $
    (4,246
    )
    
    $
    (1,900
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    34,755
    
    
    
    26,567Non-cash employee compensation and professional fees (revenue) expense
    
    
    (7
    )
    
    
    2,004Loss on disposition of property
    
    
    19
    
    
    
    128Equity in losses of unconsolidated affiliates
    
    
    2,620
    
    
    
    1,285Minority interests
    
    
    
    
    
    
    (764
    )Deferred tax benefit
    
    
    (2,290
    )
    
    
    (1,375
    )Changes in operating assets and liabilities:Accounts receivable and other assets
    
    
    (3,790
    )
    
    
    (4,950
    )Accounts payable, accrued expenses and other liabilities
    
    
    204
    
    
    
    (5,333
    )Net cash provided by operating activities
    
    
    27,265
    
    
    
    15,662Investing activities:Capital expenditures for property and equipment
    
    
    (98,811
    )
    
    
    (130,095
    )Loan repayment from unconsolidated affiliates
    
    
    2,500
    
    
    
    Investments in unconsolidated affiliates
    
    
    (9,823
    )
    
    
    (16,981
    )Investment in development
    
    
    (2,288
    )
    
    
    (20,245
    )Purchase of minority interest
    
    
    
    
    
    
    (6,900
    )Issuance of notes receivable
    
    
    
    
    
    
    (3,266
    )Decrease in restricted cash
    
    
    58
    
    
    
    1,133(Increase) decrease in escrows
    
    
    (607
    )
    
    
    842Net cash used in investing activities
    
    
    (108,971
    )
    
    
    (175,512
    )Financing activities:Principal payments on long-term debt
    
    
    (56,667
    )
    
    
    (1,008
    )Proceeds from issuance of long-term debt
    
    
    149,663
    
    
    
    86,538Payment of loan costs
    
    
    (4,003
    )
    
    
    (925
    )Net cash provided by financing activities
    
    
    88,993
    
    
    
    84,605Net increase (decrease) in cash and cash equivalents
    
    
    7,287
    
    
    
    (75,245
    )Cash and cash equivalents, beginning of period
    
    
    18,597
    
    
    
    96,778Cash and cash equivalents, end of period
    
    $
    25,884
    
    
    $
    21,533Supplemental Cash Flow Information-Cash paid for interest, net of capitalized interest
    
    $
    20,381
    
    
    $
    9,761Cash paid for income taxes, net of refunds
    
    $
    365
    
    
    $
    266Non-cash items:Construction in process accruals
    
    $
    10,180
    
    
    $
    11,391Guarantee on loan for related party
    
    
    
    
    
    $
    1,371
  5




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##### 



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; dollars in thousands, except per share amounts)
 1. ORGANIZATION
  Business Summary
 ® tm
   Number
    
    Numberof
    
    of
    
    IndoorOwnership
    
    Opened/
    
    Guest
    
    Condo
    
    EntertainmentPercentage
    
    Opening
    
    Suites
    
    Units (1)
    
    Area (2)(Approx. ft2)Existing Resorts:Wisconsin Dells, WI (3)
    
    
    30.32
    %
    
    
    1997
    
    
    
    308
    
    
    
    77
    
    
    
    102,000Sandusky, OH (3)
    
    
    30.32
    %
    
    
    2001
    
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI
    
    
    100
    %
    
    
    2003
    
    
    
    280
    
    
    
    
    
    
    
    57,000Kansas City, KS
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    57,000Sheboygan, WI
    
    
    100
    %
    
    
    2004
    
    
    
    182
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    
    2005
    
    
    
    405
    
    
    
    
    
    
    
    87,000Pocono Mountains, PA
    
    
    100
    %
    
    
    2005
    
    
    
    401
    
    
    
    
    
    
    
    101,000Niagara Falls, ONT (4)
    
    
    
    
    
    
    2006
    
    
    
    406
    
    
    
    
    
    
    
    104,000Mason, OH
    
    
    100
    %
    
    
    2006
    
    
    
    401
    
    
    
    
    
    
    
    105,000Grapevine, TX (5)
    
    
    100
    %
    
    
    2007
    
    
    
    402
    
    
    
    
    
    
    
    110,000Grand Mound, WA (6)
    
    
    49
    %
    
    
    2008
    
    
    
    398
    
    
    
    
    
    
    
    74,000Resorts Under Construction:Concord, NC (7)
    
    
    100
    %
    
    Spring 2009
    
    
    402
    
    
    
    
    
    
    
    97,000
 6




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##### 



(1)
    
    Condominium units are individually owned by third parties and are managed by us.(2)
    
    Our indoor entertainment areas generally include our indoor waterpark, game
arcade, childrens activity room, family tech center, MagiQuest and fitness
room, as well as our Aveda® spa in the resorts that have such
amenities.(3)
    
    These properties are owned by a joint venture. CNL Lifestyle Properties, Inc.
(CNL), a real estate investment trust focused on leisure and lifestyle
properties, owns a 69.68% interest in the joint venture, and we own a 30.32%
interest. We operate the properties and license the Great Wolf Lodge brand to
the joint venture under long-term agreements through October 2020, subject to
earlier termination in certain situations.(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)
    
    In late 2007, we began construction on an additional 203 suites and
20,000 square feet of meeting space as an expansion of this resort. Expected
completion of the expansion is in early 2009.(6)
    
    This property is owned by a joint venture. The Confederated Tribes of the
Chehalis Reservation (Chehalis) owns a 51% interest in the joint venture, and
we own a 49% interest. We operate the property and license the Great Wolf Lodge
brand to the joint venture under long-term agreements through April 2057,
subject to earlier termination in certain situations. Chehalis has leased the
land needed for the resort to the joint venture.(7)
    
    We are developing a Great Wolf Lodge resort in Concord, North Carolina. The
Northwoods-themed, approximately 402-suite resort will provide a comprehensive
package of first-class destination lodging amenities and activities.
Construction on the resort began in October 2007 with expected completion in
Spring 2009. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 General
  Principles of Consolidation
 Investments in and Advances to Affiliates
 §
    
    A 30.32% interest in a joint venture that owns Great Wolf Lodge resorts in Wisconsin
Dells, Wisconsin and Sandusky, Ohio.§
    
    A 49% interest in a joint venture that owns the Great Wolf Lodge resort in Grand
Mound, Washington.
 7




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##### 



Minority Interests 
 Income Taxes
 Other Comprehensive Income
 Segments
 
    
    resort ownership/operation-revenues derived from our consolidated owned resorts;
    
    resort third-party management-revenues derived from management, license and other
related fees from unconsolidated managed resorts; and
    
    condominium sales-revenues derived from sales of condominium units to third-party
owners.
   8




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##### 



Resort
    
    
    Resort
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Third-Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsThree months ended September
30, 2008Revenues
    
    $
    60,841
    
    
    $
    8,572
    
    
    $
    
    
    
    $
    
    
    
    $
    69,413EBITDA, excluding certain items
    
    
    17,211
    
    
    
    2,630
    
    
    
    
    
    
    
    1,917
    
    
    $
    21,758Depreciation and amortization
    
    
    (11,660
    )
    
    
    
    
    
    
    
    
    
    
    (335
    )
    
    
    (11,995
    )Investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    625Interest expense, net of
interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,529
    )Income before income taxes,
minority interests, and Equity
in losses of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,859Additions to long-lived assets
    
    
    43,285
    
    
    
    
    
    
    
    
    
    
    
    254
    
    
    $
    43,539
 Resort
    
    
    Resort
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Third-Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsNine months ended September
30, 2008Revenues
    
    $
    174,991
    
    
    $
    21,648
    
    
    $
    
    
    
    $
    
    
    
    $
    196,639EBITDA, excluding certain items
    
    
    44,147
    
    
    
    6,654
    
    
    
    
    
    
    
    (2,170
    )
    
    $
    48,631Depreciation and amortization
    
    
    (33,689
    )
    
    
    
    
    
    
    
    
    
    
    (1,066
    )
    
    
    (34,755
    )Investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,629Interest expense, net of
interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,421
    )Loss before income taxes,
minority interests, and Equity
in losses of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,916
    )Additions to long-lived assets
    
    
    98,019
    
    
    
    
    
    
    
    
    
    
    
    792
    
    
    $
    98,811Total assets
    
    
    730,802
    
    
    
    1,999
    
    
    
    
    
    
    
    133,435
    
    
    $
    866,236
 Resort
    
    
    Resort
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Third-Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsThree months ended September
30, 2007Revenues
    
    $
    45,738
    
    
    $
    5,160
    
    
    $
    
    
    
    $
    
    
    
    $
    50,898EBITDA, excluding certain items
    
    
    12,132
    
    
    
    2,145
    
    
    
    
    
    
    
    465
    
    
    $
    14,742Depreciation and amortization
    
    
    (8,940
    )
    
    
    
    
    
    
    
    
    
    
    (165
    )
    
    
    (9,105
    )Investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    281Interest expense, net of
interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,278
    )Loss before income taxes,
minority interests, and equity
in losses of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,640
    )Additions to long-lived assets
    
    
    37,361
    
    
    
    
    
    
    
    
    
    
    
    140
    
    
    $
    37,501
 9




---



##### 



Resort
    
    
    Resort
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Third-Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsNine months ended September
30, 2007Revenues
    
    $
    131,270
    
    
    $
    14,378
    
    
    $
    
    
    
    $
    
    
    
    $
    145,648EBITDA, excluding certain items
    
    
    29,638
    
    
    
    5,526
    
    
    
    
    
    
    
    (2,949
    )
    
    $
    32,215Depreciation and amortization
    
    
    (26,109
    )
    
    
    
    
    
    
    
    
    
    
    (458
    )
    
    
    (26,567
    )Investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    336Interest expense, net of
interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,739
    )Loss before income taxes,
minority interests, and equity
in losses of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,755
    )Additions to long-lived assets
    
    
    129,613
    
    
    
    
    
    
    
    
    
    
    
    482
    
    
    $
    130,095Total assets
    
    
    617,786
    
    
    
    2,507
    
    
    
    
    
    
    
    125,333
    
    
    $
    745,626
  Recent Accounting Pronouncements
    10




---



##### 



3. SHARE-BASED COMPENSATION
      Stock Options
  11




---



##### 



WeightedAverageExercise
    
    Weighted Average RemainingShares
    
    Price
    
    Contractual LifeNumber of shares under option:Outstanding at beginning of period
    
    
    987,000
    
    
    $
    17.29Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    (357,000
    )
    
    $
    17.00Outstanding at end of period
    
    
    630,000
    
    
    $
    17.46
    
    
    6.31 yearsExercisable at end of period
    
    
    620,000
    
    
    $
    17.46
    
    
    6.25 years
  Market Condition Share Awards
    
    
    84,748 are based on our common stocks performance in 2008 relative to a stock
index, as designated by the Compensation Committee of the Board of Directors. These shares vest ratably over a three-year period, 2008-2010. The per share fair value
of these market condition shares was $1.63.The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    2.05
    %Expected stock price volatility
    
    
    34.98
    %Expected stock price volatility (small-cap stock index)
    
    
    20.08
    %
 12




---



##### 




    
    53,006 were based on our common stocks performance in 2007 relative to a stock
index, as designated by the Compensation Committee of the Board of Directors. These
shares vest ratably over a three-year period, 2007-2009. The per share fair value
of these market condition shares was $7.25.The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    5.05
    %Expected stock price volatility
    
    
    42.13
    %Expected stock price volatility (small-cap stock index)
    
    
    16.64
    %
  
    
    81,293 are based on our common stocks absolute performance during the three-year
period 2007-2009. For shares that are earned, half of the shares vest on December
31, 2009, and the other half vest on December 31, 2010. The per share fair value of
these market condition shares was $6.65.The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    4.73
    %Expected stock price volatility
    
    
    42.13
    %
  
    
    81,293 were based on our common stocks performance in 2007-2009 relative to a
stock index, as designated by the Compensation Committee of the Board of Directors.
For shares that are earned, half of the shares vest on December 31, 2009, and the
other half vest on December 31, 2010. The per share fair value of these market
condition shares was $8.24.The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 13




---



##### 



Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    4.73
    %Expected stock price volatility
    
    
    42.13
    %Expected stock price volatility (small-cap stock index)
    
    
    16.64
    %
  Performance Share Awards
   Deferred Compensation Awards
   Non-vested Shares
 14




---



##### 



WeightedAverageGrant DateShares
    
    Fair ValueNon-vested shares balance at beginning of period
    
    
    333,111
    
    
    $
    12.37Granted
    
    
    201,351
    
    
    $
    6.81Forfeited
    
    
    (147,874
    )
    
    $
    10.70Vested
    
    
    (71,011
    )
    
    $
    12.79Non-vested shares balance at end of period
    
    
    315,577
    
    
    $
    9.22
   Vested Shares
 . .
  4. PROPERTY AND EQUIPMENT
  September 30,
    
    
    December 31,2008
    
    
    2007Land and improvements
    
    $
    51,684
    
    
    $
    51,398Building and improvements
    
    
    329,089
    
    
    
    289,768
 15




---



##### 



September 30,
    
    
    December 31,2008
    
    
    2007Furniture, fixtures and equipment
    
    
    313,164
    
    
    
    334,836Construction in process
    
    
    110,895
    
    
    
    19,737804,832
    
    
    
    695,739Less accumulated depreciation
    
    
    (110,775
    )
    
    
    (78,042
    )Property and equipment, net
    
    $
    694,057
    
    
    $
    617,697
  5. LONG-TERM DEBT
  September 30,
    
    
    December 31,2008
    
    
    2007Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    70,559
    
    
    $
    71,542Mason mortgage loan
    
    
    76,800
    
    
    
    76,800Pocono Mountains mortgage loan
    
    
    96,843
    
    
    
    97,000Williamsburg mortgage loan
    
    
    64,625
    
    
    
    Grapevine construction loan
    
    
    78,709
    
    
    
    58,260Concord construction loan
    
    
    9,195
    
    
    
    Junior subordinated debentures
    
    
    80,545
    
    
    
    80,545Other Debt:City of Sheboygan bonds
    
    
    8,472
    
    
    
    8,465City of Sheboygan loan
    
    
    3,551
    
    
    
    3,690489,299
    
    
    
    396,302Less current portion of long-term debt
    
    
    (81,118
    )
    
    
    (78,752
    )Total long-term debt
    
    $
    408,181
    
    
    $
    317,550
 Traverse City/Kansas City Mortgage Loan
 Mason Mortgage Loan
  16




---



##### 



Pocono Mountains Mortgage Loan 
 Williamsburg Mortgage Loan 
 Grapevine Construction Loan
  Concord Construction Loan
 Junior Subordinated Debentures
 17




---



##### 



City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughSeptember 30,2009
    
    $
    81,1182010
    
    
    5,6822011
    
    
    82,1772012
    
    
    72,4052013
    
    
    3,606Thereafter
    
    
    244,311Total
    
    $
    489,299
 18




---



##### 



6. COMPREHENSIVE INCOME
  7. EARNINGS PER SHARE
     Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Net income (loss)
    
    $
    2,171
    
    
    $
    1,761
    
    
    $
    (4,246
    )
    
    $
    (1,900
    )Weighted average common shares outstanding  basic
    
    
    30,840,691
    
    
    
    30,570,719
    
    
    
    30,793,822
    
    
    
    30,521,022Weighted average common shares outstanding  diluted
    
    
    30,840,691
    
    
    
    30,570,719
    
    
    
    30,793,822
    
    
    
    30,521,022Net income (loss) per share  basic
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    (0.14
    )
    
    $
    (0.06
    )Net income (loss) per share  diluted
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    (0.14
    )
    
    $
    (0.06
    )
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this report. We make statements in this section that are
forward-looking statements within the meaning of the federal securities laws. For a complete
discussion of forward-looking statements, see the section in Item 1 of our Annual Report on Form
10-K entitled, Forward-Looking Statements. All dollar amounts in this discussion, except for per
share data and operating statistics, are in thousands.
 19




---



##### 



Overview
  Business. ®
   Number
    
    Numberof
    
    of
    
    IndoorOwnership
    
    Opened/
    
    Guest
    
    Condo
    
    EntertainmentPercentage
    
    Opening
    
    Suites
    
    Units (1)
    
    Area (2)(Approx. ft2)Existing Resorts:Wisconsin Dells, WI (3)
    
    
    30.32
    %
    
    
    1997
    
    
    
    308
    
    
    
    77
    
    
    
    102,000Sandusky, OH (3)
    
    
    30.32
    %
    
    
    2001
    
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI
    
    
    100
    %
    
    
    2003
    
    
    
    280
    
    
    
    
    
    
    
    57,000Kansas City, KS
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    57,000Sheboygan, WI
    
    
    100
    %
    
    
    2004
    
    
    
    182
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    
    2005
    
    
    
    405
    
    
    
    
    
    
    
    87,000Pocono Mountains, PA
    
    
    100
    %
    
    
    2005
    
    
    
    401
    
    
    
    
    
    
    
    101,000Niagara Falls, ONT (4)
    
    
    
    
    
    
    2006
    
    
    
    406
    
    
    
    
    
    
    
    104,000Mason, OH
    
    
    100
    %
    
    
    2006
    
    
    
    401
    
    
    
    
    
    
    
    105,000Grapevine, TX (5)
    
    
    100
    %
    
    
    2007
    
    
    
    402
    
    
    
    
    
    
    
    110,000Grand Mound, WA (6)
    
    
    49
    %
    
    March 2008
    
    
    398
    
    
    
    
    
    
    
    74,000Resorts Under Construction:Concord, NC (7)
    
    
    100
    %
    
    Spring 2009
    
    
    402
    
    
    
    
    
    
    
    97,000
 
 (1)
    
    Condominium units are individually owned by third parties and are managed by us.(2)
    
    Our indoor entertainment areas generally include our indoor waterpark, game
arcade, childrens activity room, family tech center, MagiQuest and fitness
room, as well as our Aveda® spa in the resorts that have such
amenities.(3)
    
    These properties are owned by a joint venture. CNL Lifestyle Properties, Inc.
(CNL), a real estate investment trust focused on leisure and lifestyle
properties, owns a 69.68% interest in the joint venture, and we own a 30.32% 20




---



##### 



interest. We operate the properties and license the Great Wolf Lodge brand to
the joint venture under long-term agreements through October 2020, subject to
earlier termination in certain situations.(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)
    
    In late 2007, we began construction on an additional 203 suites and
20,000 square feet of meeting space as an expansion of this resort. Expected
completion of the expansion is in early 2009.(6)
    
    This property is owned by a joint venture. The Confederated Tribes of the
Chehalis Reservation (Chehalis) owns a 51% interest in the joint venture, and
we own a 49% interest. We operate the property and license the Great Wolf Lodge
brand to the joint venture under long-term agreements through April 2057,
subject to earlier termination in certain situations. Chehalis has leased the
land needed for the resort to the joint venture.(7)
    
    We are developing a Great Wolf Lodge resort in Concord, North Carolina. The
Northwoods-themed, approximately 402-suite resort will provide a comprehensive
package of first-class destination lodging amenities and activities.
Construction on the resort began in October 2007 with expected completion in
Spring 2009. Industry Trends.
    Outlook.
  21




---



##### 




    
    record prices for many commodities, most notably oil, that resulted in increased
costs for gasoline and other consumer staples;
    
    severe turbulence in the banking and lending sectors, which has led to a general
lessening of the availability of credit to consumers;
    
    an increased national unemployment rate;
    
    a continuing decline in the national average of home prices; and
    
    high volatility in the stock market that led to substantial declines in leading
market averages and aggregate household savings.
  
    
    We believe that our Traverse City and Sandusky resorts have been and will
continue to be affected by especially adverse general economic circumstances in the
Michigan/Northern Ohio region (such as bankruptcies of several major companies
and/or large announced layoffs by major employers) and increased competition that
has occurred in these markets over the past three years. The Michigan/Northern Ohio
region includes cities that have historically been the Traverse City and Sandusky
resorts largest suppliers of customers. We believe the adverse general economic
circumstances in the region have negatively impacted overall discretionary consumer
spending in that region over the past few years and may continue to do so going
forward. We believe this has and may continue to have an impact on the operating
performance of our Traverse City and Sandusky resorts.
    
    We have experienced a much slower-than-expected occupancy ramp-up and
lower-than-expected average daily room rates at our Sheboygan, Wisconsin property
since its opening in 2004. We believe this operating weakness has been primarily
attributable to the fact that the overall development of Sheboygan as a tourist
destination continues to lag materially behind our initial expectations. We believe
this has
 22




---



##### 



materially impacted and will likely continue to impact the consumer demand for our
indoor waterpark resort in that market and the operations of the resort.
    
    Our Mason resort opened its first phase in December 2006 and is ramping up more
slowly than we had projected, which we believe is due, in part, to the opening of
competitive properties in the region and to negative publicity from perceived
operating issues at the resort in early 2007.
   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.
   
    
    Occupancy;
 23




---



##### 




    
    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 total available rooms.
    
    Total Rev POR is calculated by dividing total revenue by total occupied rooms.
    Critical Accounting Policies and Estimates
  24




---



##### 



Recent Accounting Pronouncements
     25




---



##### 



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
 26




---



##### 




    
    as one measure in determining the value of other acquisitions and dispositions.
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    2,171
    
    
    $
    1,761
    
    
    $
    (4,246
    )
    
    $
    (1,900
    )Adjustments:Interest expense, net of interest income
    
    
    6,529
    
    
    
    3,278
    
    
    
    19,421
    
    
    
    8,739Income tax expense (benefit)
    
    
    1,825
    
    
    
    715
    
    
    
    (2,290
    )
    
    
    (1,376
    )Depreciation and amortization
    
    
    11,995
    
    
    
    9,105
    
    
    
    34,755
    
    
    
    26,567EBITDA
    
    $
    22,520
    
    
    $
    14,859
    
    
    $
    47,640
    
    
    $
    32,030
 Results of Operations
 General
   
    
    our subsidiary entity that provides resort development and management/licensing services;
    
    our Traverse City, Kansas City, Sheboygan, Williamsburg, Pocono Mountains, Mason and
Grapevine operating 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 consolidate.
 Revenues.
 
    
    lodging revenue, which includes rooms, food and beverage, and other department revenues from
our resorts;
    
    management fee and other revenue from resorts, which includes fees received under our
management, license, development and construction management agreements; and
    
    other revenue from managed properties. We employ the staff at our managed properties
(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),
 27




---



##### 



establishes standards for accounting for reimbursable expenses in our statements of
operations. Under this pronouncement, the reimbursement of payroll, benefits and costs is
recorded as revenue on our statements of operations, with a corresponding expense recorded as
other expenses from managed properties.
 Operating Expenses.
  
    
    selling, general and administrative expenses, which are associated with the operations
and management of resorts and which consist primarily of expenses such as corporate payroll
and related benefits, operations management, sales and marketing, finance, legal,
information technology support, human resources and other support services, as well as
general corporate expenses;
    
    property operation and maintenance expenses, such as utility costs and property taxes;
    
    depreciation and amortization; and
    
    other expenses from managed properties, which are recorded as an expense in accordance
with EITF 01-14.
 Three months ended September 30, 2008, compared with the three months ended September 30, 2007
  All Properties (a)
    
    Same Store Comparison (b)Three months
    
    Three months
    
    Three monthsended
    
    ended
    
    endedSeptember 30,
    
    September 30,
    
    September 30,
    
    Increase (Decrease)2008
    
    2008
    
    2007
    
    $
    
    %Occupancy
    
    
    72.1
    %
    
    
    71.1
    %
    
    
    69.9
    %
    
    
    N/A
    
    
    
    1.7
    %ADR
    
    $
    255.83
    
    
    $
    244.73
    
    
    $
    248.36
    
    
    $
    (3.63
    )
    
    
    (1.5
    )%RevPAR
    
    $
    184.52
    
    
    $
    173.91
    
    
    $
    173.55
    
    
    $
    0.36
    
    
    
    0.2
    %Total RevPOR
    
    $
    385.42
    
    
    $
    364.39
    
    
    $
    371.06
    
    
    $
    (6.67
    )
    
    
    (1.8
    )%Total RevPAR
    
    $
    277.98
    
    
    $
    258.95
    
    
    $
    259.29
    
    
    $
    (0.34
    )
    
    
    (0.1
    )%
 
 (a)
    
    Includes results for properties that were open for any portion of the period, for all owned
and/or managed resorts.(b)
    
    Same store comparison includes properties that were open for the full periods in 2008 and
2007 (that is, our Wisconsin Dells, Sandusky, Traverse City, Kansas City, Sheboygan,
Williamsburg, Poconos, Niagara Falls and Mason resorts).   28




---



##### 



Three months endedSeptember 30,2008
    
    2007
    
    IncreaseRevenues
    
    $
    69,413
    
    
    $
    50,898
    
    
    $
    18,515Operating expenses:Departmental operating expenses
    
    
    21,415
    
    
    
    16,455
    
    
    
    4,960Selling, general and administrative
    
    
    11,637
    
    
    
    10,005
    
    
    
    1,632Property operating costs
    
    
    8,642
    
    
    
    6,553
    
    
    
    2,089Depreciation and amortization
    
    
    11,995
    
    
    
    9,105
    
    
    
    2,890Net operating income
    
    
    9,763
    
    
    
    5,637
    
    
    
    4,126Interest expense, net of interest income
    
    
    6,529
    
    
    
    3,278
    
    
    
    3,251Income tax expense
    
    
    1,755
    
    
    
    784
    
    
    
    971Net income
    
    
    2,171
    
    
    
    1,761
    
    
    
    410
 Revenues.
 Operating expenses.
 
    
    Departmental expenses increased by $4,960 for the three months ended September 30, 2008,
as compared to the three months ended September 30, 2007, due primarily to the opening of
our Grapevine resort.
    
    Total selling, general and administrative expenses increased by $1,632 in three months
ended September 30, 2008, as compared to the three months ended September 30, 2007, due
primarily to the opening of our Grapevine resort.
    
    Total property operating costs (exclusive of opening-related costs) increased $2,977
for the three months ended September 30, 2008, as compared to the three months ended
September 30, 2007, due primarily to the opening of our Grapevine resort. For the three
months ended September 30, 2008, our opening-related costs related to our resorts were
$403, as compared to $1,291 for the three months ended September 30, 2007.
    
    Total depreciation and amortization increased for the three months ended September 30,
2008, as compared to the three months ended September 30, 2007, primarily due to the opening
of our Grapevine resort and the write off of loan fees of $615 related to our Williamsburg
mortgage loan that we paid off in August 2008. We had no similar loan fee write offs during
the three months ended September 30, 2007.
 Net operating income.
 Net income.
 
    
    An increase in net interest expense of $3,251 mainly due to interest expense on mortgage
debt related to our Williamsburg and Grapevine resorts, and having less interest expense
capitalized to development projects; and
    
    An increase of $971 in income tax expense recorded in the three months ended September
30, 2008, as compared to the three months ended September 30, 2007.
 Nine months ended September 30, 2008, compared with the nine months ended September 30, 2007
 29




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##### 



All Properties (a)
    
    Same Store Comparison (b)Nine months ended
    
    Nine months ended
    
    Nine months ended
    
    Increase (Decrease)September 30, 2008
    
    September 30, 2008
    
    September 30, 2007
    
    $
    
    %Occupancy
    
    
    67.8
    %
    
    
    66.6
    %
    
    
    65.1
    %
    
    
    N/A
    
    
    
    2.3
    %ADR
    
    $
    252.66
    
    
    $
    246.02
    
    
    $
    244.90
    
    
    $
    1.12
    
    
    
    0.5
    %RevPAR
    
    $
    171.39
    
    
    $
    163.78
    
    
    $
    159.52
    
    
    $
    4.26
    
    
    
    2.7
    %Total RevPOR
    
    $
    386.67
    
    
    $
    372.04
    
    
    $
    369.58
    
    
    $
    2.46
    
    
    
    0.7
    %Total RevPAR
    
    $
    262.30
    
    
    $
    247.68
    
    
    $
    240.73
    
    
    $
    6.95
    
    
    
    2.9
    %
 
 (a)
    
    Includes results for properties that were open for any portion of the period, for all owned
and/or managed resorts.(b)
    
    Same store comparison includes properties that were open for the full periods in 2008 and
2007 (that is, our Wisconsin Dells, Sandusky, Traverse City, Kansas City, Sheboygan,
Williamsburg, Poconos, Niagara Falls and Mason resorts).   Nine months endedSeptember 30,Increase2008
    
    2007
    
    (Decrease)Revenues
    
    $
    196,639
    
    
    $
    145,648
    
    
    $
    50,991Operating expenses:Departmental operating expenses
    
    
    62,711
    
    
    
    49,145
    
    
    
    13,566Selling, general and administrative
    
    
    41,729
    
    
    
    34,582
    
    
    
    7,147Property operating costs
    
    
    28,556
    
    
    
    20,726
    
    
    
    7,830Depreciation and amortization
    
    
    34,755
    
    
    
    26,567
    
    
    
    8,188Net operating income
    
    
    13,876
    
    
    
    5,648
    
    
    
    8,228Net interest expense
    
    
    19,421
    
    
    
    8,739
    
    
    
    10,682Income tax benefit
    
    
    (1,282
    )
    
    
    (1,157
    )
    
    
    (125
    )Net loss
    
    
    (4,246
    )
    
    
    (1,900
    )
    
    
    (2,346
    )
 Revenues.
 Operating expenses.
 30




---



##### 




    
    Departmental expenses increased by $13,566 for the nine months ended September 30, 2008,
as compared to the nine months ended September 30, 2007, mainly due to the opening of our
Grapevine resort and the expansion of our Williamsburg resort.
    
    Total selling, general and administrative expenses increased by $7,147 for the nine
months ended September 30, 2008, as compared to the nine months ended September 30, 2007.
Selling, general and administrative expenses increased by $4,080 due to the opening of our
Grapevine resort and increased sales and marketing expenses at our Traverse City and Mason
resorts of $714. This increase was also due to an increase in corporate selling, general
and administrative expenses of $2,039, which was due primarily to separation costs of $1,258
for former officers in the nine months ended September 30, 2008, as compared to the nine
months ended September 30, 2007.
    
    Total property operating costs (exclusive of opening-related costs) increased $8,194
for the nine months ended September 30, 2008, as compared to September 30, 2007, mainly due
to the opening of our Grapevine resort, as well as increased repairs and maintenance
expense, and increased utilities expense related to the expansion of our Williamsburg
resort and amenity additions to several of our other resorts. Opening-related costs
related to our resorts were $4,350 for the nine months ended September 30, 2008, as
compared to $4,713 for the nine months ended September 30, 2007.
    
    Total depreciation and amortization increased mainly due to the opening of our Grapevine
resort and the expansion at our Williamsburg resort and the write off of loan fees related
to our Williamsburg mortgage loan . The total increase in depreciation and amortization
at our Grapevine and Williamsburg resorts was $7,027. Loan fees written off during the
nine months ended September 30, 2008 were $1,333. We had no similar loan fees write offs in
the nine months ended September 30, 2007.
 Net operating income.
 Net loss.
  
    
    An increase in operating income from $5,648 for the nine months ended September
30, 2007, to $13,876 for the nine months ended September 30, 2008; and
    
    An increase of $125 in income tax benefit recorded in the nine months ended September
30, 2008, as compared to the nine months ended September 30, 2007.
 Segments
  
    
    resort ownership/operation-revenues derived from our consolidated owned resorts;
    
    resort third-party management-revenues derived from management, license and other
related fees from unconsolidated managed resorts; and
    
    condominium sales-revenues derived from sales of condominium units to third-party
owners.
 31




---



##### 



Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2008
    
    2007
    
    Increase
    
    2008
    
    2007
    
    IncreaseResort Ownership/OperationRevenues
    
    $
    60,841
    
    
    $
    45,738
    
    
    $
    15,103
    
    
    $
    174,991
    
    
    $
    131,270
    
    
    $
    43,721EBITDA, excluding certain items
    
    
    17,211
    
    
    
    12,132
    
    
    
    5,079
    
    
    
    44,147
    
    
    
    29,638
    
    
    
    14,509Resort Third-Party MgmtRevenues
    
    
    8,572
    
    
    
    5,160
    
    
    
    3,412
    
    
    
    21,648
    
    
    
    14,378
    
    
    
    7,270EBITDA, excluding certain items
    
    
    2,630
    
    
    
    2,145
    
    
    
    485
    
    
    
    6,654
    
    
    
    5,526
    
    
    
    1,128Condominium SalesRevenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EBITDA, excluding certain items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherRevenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EBITDA, excluding certain items
    
    
    1,917
    
    
    
    465
    
    
    
    1,452
    
    
    
    (2,170
    )
    
    
    (2,949
    )
    
    
    779
  Liquidity and Capital Resources
  September 30,
    
    
    December 31,2008
    
    
    2007Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    70,559
    
    
    $
    71,542Mason mortgage loan
    
    
    76,800
    
    
    
    76,800Pocono Mountains mortgage loan
    
    
    96,843
    
    
    
    97,000Williamsburg mortgage loan
    
    
    64,625
    
    
    
    Grapevine construction loan
    
    
    78,709
    
    
    
    58,260Concord construction loan
    
    
    9,195
    
    
    
    Junior subordinated debentures
    
    
    80,545
    
    
    
    80,545Other Debt:City of Sheboygan bonds
    
    
    8,472
    
    
    
    8,465City of Sheboygan loan
    
    
    3,551
    
    
    
    3,690489,299
    
    
    
    396,302Less current portion of long-term debt
    
    
    (81,118
    )
    
    
    (78,752
    )Total long-term debt
    
    $
    408,181
    
    
    $
    317,550
 Traverse City/Kansas City Mortgage Loan
 32




---



##### 



Mason Mortgage Loan
  Pocono Mountains Mortgage Loan 
 Williamsburg Mortgage Loan 
 Grapevine Construction Loan
 33




---



##### 



Concord Construction Loan
 Junior Subordinated Debentures
      City of Sheboygan Bonds
 34




---



##### 



City of Sheboygan Loan
 Future Maturities
 ThroughSeptember 30,2009
    
    $
    81,1182010
    
    
    5,6822011
    
    
    82,1772012
    
    
    72,4052013
    
    
    3,606Thereafter
    
    
    244,311Total
    
    $
    489,299
 Short-Term Liquidity Requirements
  
    
    recurring maintenance, repairs and other operating expenses necessary to properly
maintain and operate our resorts;
    
    debt maturities within the next year;
    
    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
  35




---



##### 




    
    scheduled debt maturities;
    
    costs associated with the development of new resorts;
    
    renovations, expansions and other non-recurring capital expenditures that need to be
made periodically to our resorts; and
    
    capital contributions and loans to unconsolidated joint ventures.
    
    
    Net book value of property and equipment of $106,330
    
    Secured debt of $76,800
    
    Total revenues of $24,116
    
    EBITDA of $5,696
    
    Interest expense of $3,665
    
    Depreciation and amortization of $6,021
   Off Balance Sheet Arrangements
  
    
    Our joint venture with CNL Income Properties, Inc. (CNL) owns two resorts, Great Wolf
Lodge-Wisconsin Dells, Wisconsin and Great Wolf Lodge-Sandusky, Ohio. We are a limited
partner in the CNL joint venture with a 30.32% ownership interest. At September 30, 2008,
the joint venture had aggregate outstanding indebtedness to third parties of $63,000. This
loan is a mortgage loan that is non-recourse to us.
    
    We entered into our joint venture with The Confederated Tribes of the Chehalis
Reservation to develop a Great Wolf Lodge resort and conference center on a 39-acre land
parcel in Grand Mound, Washington. This resort opened in March 2008. This joint venture
is a limited liability company. We are a member of that limited liability company with a
49% ownership interest. At September 30, 2008, the joint venture had aggregate outstanding
indebtedness to third parties of $102,000. We have provided a 49% guarantee on mortgage
debt obtained by the Grand Mound joint venture. As of September 30, 2008, we have made
combined loan and equity
 36




---



##### 



contributions, net of loan repayments, of $33,593 to the joint venture to fund a portion of
construction costs of the resort.
   Contractual Obligations
  Payment TermsMoreLess Than
    
    
    
    
    
    
    
    
    
    
    ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsDebt obligations (1)
    
    $
    566,076
    
    
    $
    92,026
    
    
    $
    109,162
    
    
    $
    96,577
    
    
    $
    268,311Operating lease obligations
    
    
    1,236
    
    
    
    568
    
    
    
    382
    
    
    
    232
    
    
    
    54Construction contracts
    
    
    42,358
    
    
    
    42,358
    
    
    
    
    
    
    
    
    
    
    
    Affiliate guarantee (2)
    
    
    838
    
    
    
    457
    
    
    
    381
    
    
    
    
    
    
    
    Reserve on unrecognized tax benefits
    
    
    1,268
    
    
    
    
    
    
    
    
    
    
    
    1,268
    
    
    
    Total
    
    $
    611,776
    
    
    $
    135,409
    
    
    $
    109,925
    
    
    $
    98,077
    
    
    $
    268,365
 
 (1)
    
    Includes $8,742 of fixed rate debt recognized as a liability related to certain bonds
issued by the City of Sheboygan and $3,551 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.(2)
    
    We have provided a partial guarantee on mortgage debt obtained by one of our joint
ventures.  Working Capital
  Cash Flows
 Nine months ended September 30, 2008, compared with the nine months ended September 30, 2007
 2008
    
    2007
    
    IncreaseNet cash provided by operating activities
    
    $
    27,265
    
    
    $
    15,662
    
    
    $
    11,603Net cash used in investing activities
    
    
    (108,971
    )
    
    
    (175,512
    )
    
    
    66,541Net cash provided by financing activities
    
    
    88,993
    
    
    
    84,605
    
    
    
    4,388
 37




---



##### 



Operating Activities.
 Investing Activities.
 Financing Activities.
 Inflation
  
 ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    $70,559 of fixed rate debt secured by two of our resorts. This debt bears interest at
6.96%.
    
    $76,800 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. $71,000 of this debt
is effectively fixed at a rate of 7.65% due to the interest rate swap described above.
Taking into account the effect of this interest rate swap, the total blended rate on this
loan was 7.57% as of September 30, 2008.
    
    $96,843 of fixed rate debt secured by one of our resorts. This debt bears interest at
6.10%.
 38




---



##### 




    
    $64,625 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 350 basis points, with a minimum rate of
6.25% per annum. The total rate was 7.43% at September 30, 2008.
    
    $78,709 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 260 basis points. The total rate was
6.53% at September 30, 2008.
    
    $9,195 of variable rate debt secured by one of our resorts. This debt bears interest
at a floating annual rate of LIBOR plus a spread of 345 basis points during the construction
period and LIBOR plus a spread of 310 basis points once the resort is open, with a minimum
rate (floor) of 6.50% per annum. The total rate was 7.38% at September 30, 2008.
    
    $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.
    
    $28,995 of subordinated debentures that bear interest at a fixed rate of 7.90% through
June 2012 and then at a floating rate of LIBOR plus 300 basis points thereafter. The
securities mature in June 2017.
    
    $8,472 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 $3,551 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.
    
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  39




---



##### 



Changes In Internal Control
  40




---



##### 



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 We may be unable to secure an extension of our borrowings under the Mason mortgage loan, which
matures on November 30, 2008. If we do not meet certain renewal conditions, there could be a
material adverse affect on our business operations.
   Our business is largely dependent upon family vacation patterns, which may cause fluctuations in
our revenues.
  The current slowdown in the lodging industry and the economy generally will continue to impact our
financial results and growth.
  41




---



##### 



The recent downturn in the credit markets has increased the cost of borrowing and has made
financing difficult to obtain, each of which may have a material adverse effect on our results of
operations and business.
  The failure of any bank in which we deposit our funds could reduce the amount of cash we have
available to pay distributions and make additional investments.
  The failure of a bank to fund a request (or any portion of such request) by us to borrow money
under our Concord construction loan facility could reduce our ability to make additional
investments.
   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  42




---



##### 



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 Form 10-Q.
 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
December 20, 2004 (incorporated herein by reference to Exhibit 3.2 to the
Companys Registration Statement on Form S-1 filed August 12, 2004)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 JP Morgan 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;
JP Morgan 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)4.4
    
    Junior Subordinated Debenture, dated as of June 15, 2007, between Great
Wolf Resorts, Inc. and JP Morgan 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 June 19, 2007)
 43




---



##### 



ExhibitNumber
    
    Description4.5
    
    Amended and Restated Trust Agreement, dated as of June 15, 2007, by and
among Great Wolf Resorts, Inc., as depositor, Wells Fargo Bank, N.A., as
property trustee, Wells Fargo Delaware Trust Company, as Delaware trustee,
and James A. Calder, Alex P. 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 June 19, 2007)31.1*
    
    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)32.1*
    
    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. 44




---



##### 



SIGNATURE
  GREAT WOLF RESORTS, INC./s/ James A. CalderJames A. CalderChief Financial Officer
(Duly authorized officer)
(Principal Financial and Accounting Officer)  45