##### Table of Contents



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, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 Commission File Number 000-51064
 GREAT WOLF RESORTS, INC.
 (Exact name of 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
  o þ o
 o þ




---



##### 



Great Wolf Resorts, Inc.
 Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2006
 INDEX
 PageNo.PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited)Condensed Consolidated Balance Sheets for Great Wolf Resorts, Inc. and Subsidiaries
as of September 30, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for Great Wolf Resorts, Inc. and
Subsidiaries for the three and nine months ended September 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for Great Wolf Resorts, Inc. and
Subsidiaries for the nine months ended September 30, 2006 and September 30, 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    32Item 4.
    
    Controls and Procedures
    
    
    32PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    34Item 1A.
    
    Risk Factors
    
    
    34Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3.
    
    Defaults Upon Senior Securities
    
    
    34Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    35Item 5.
    
    Other Information
    
    
    35Item 6.
    
    Exhibits
    
    
    35Signatures
    
    
    37CertificationCertificationCertificationCertification
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 September 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    48,960
    
    
    $
    54,782Accounts receivable, net of allowance for doubtful accounts of $204 and $95
    
    
    1,965
    
    
    
    2,506Accounts
receivable  affiliates
    
    
    1,108
    
    
    
    12,825Inventory
    
    
    2,316
    
    
    
    2,254Other current assets
    
    
    6,907
    
    
    
    1,996Total current assets
    
    
    61,256
    
    
    
    74,363Property and equipment, net
    
    
    449,863
    
    
    
    385,391Investment in affiliates
    
    
    25,709
    
    
    
    43,207Other assets
    
    
    14,985
    
    
    
    11,741Other intangible assets
    
    
    23,829
    
    
    
    23,829Goodwill
    
    
    66,995
    
    
    
    66,995Total assets
    
    $
    642,637
    
    
    $
    605,526LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    2,000
    
    
    $
    1,928Accounts payable
    
    
    17,397
    
    
    
    18,183Accrued expenses
    
    
    11,964
    
    
    
    9,311Accrued
expenses  affiliates
    
    
    494
    
    
    
    3,576Advance deposits
    
    
    6,150
    
    
    
    5,680Gift certificates payable
    
    
    1,605
    
    
    
    2,126Other current liabilities
    
    
    
    
    
    
    126Total current liabilities
    
    
    39,610
    
    
    
    40,930Mortgage debt
    
    
    139,107
    
    
    
    102,542Junior
subordinated debentures
    
    
    51,550
    
    
    
    51,550Other long-term debt
    
    
    12,249
    
    
    
    12,308Other long-term liabilities
    
    
    391
    
    
    
    391Deferred tax liability
    
    
    25,623
    
    
    
    25,800Deferred compensation liability
    
    
    1,891
    
    
    
    1,501Total liabilities
    
    
    270,421
    
    
    
    235,022Minority interest
    
    
    6,404
    
    
    
    6,593Commitments and contingenciesStockholders equity:Common stock, $0.01 par value, 250,000,000 shares authorized,
30,505,308 shares, and 30,277,308 issued and outstanding, at
September 30, 2006 and December 31, 2005, respectively
    
    
    305
    
    
    
    303Additional paid in capital
    
    
    396,219
    
    
    
    394,212Preferred stock, $0.01 par value, 10,000,000 shares authorized, no
shares issued or outstanding
    
    
    
    
    
    
    Accumulated deficit
    
    
    (28,512
    )
    
    
    (28,255
    )Deferred compensation
    
    
    (2,200
    )
    
    
    (2,349
    )Total stockholders equity
    
    
    365,812
    
    
    
    363,911Total liabilities and stockholders equity
    
    $
    642,637
    
    
    $
    605,526
  3




---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited; dollars in thousands, except per share data)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Rooms
    
    $
    24,363
    
    
    $
    22,459
    
    
    $
    68,503
    
    
    $
    57,559Food and beverage
    
    
    5,723
    
    
    
    5,268
    
    
    
    16,695
    
    
    
    14,487Other hotel operations
    
    
    5,805
    
    
    
    5,423
    
    
    
    16,234
    
    
    
    14,132Management and other fees
    
    
    888
    
    
    
    
    
    
    
    1,629
    
    
    
    Management and other fees  related parties
    
    
    853
    
    
    
    
    
    
    
    2,250
    
    
    
    Sales of condominiums
    
    
    
    
    
    
    25,862
    
    
    
    
    
    
    
    25,86237,632
    
    
    
    59,012
    
    
    
    105,311
    
    
    
    112,040Other revenue from managed properties
    
    
    3,147
    
    
    
    
    
    
    
    9,131
    
    
    
    Total revenues
    
    
    40,779
    
    
    
    59,012
    
    
    
    114,442
    
    
    
    112,040Operating expenses by department:Rooms
    
    
    3,134
    
    
    
    2,884
    
    
    
    9,008
    
    
    
    8,478Food and beverage
    
    
    4,682
    
    
    
    4,454
    
    
    
    14,037
    
    
    
    12,444Other
    
    
    4,529
    
    
    
    3,958
    
    
    
    12,868
    
    
    
    11,204Other operating expenses:Selling, general and administrative
    
    
    9,382
    
    
    
    5,173
    
    
    
    31,983
    
    
    
    19,738Property operating costs
    
    
    5,313
    
    
    
    6,393
    
    
    
    14,888
    
    
    
    16,799Depreciation and amortization
    
    
    6,430
    
    
    
    6,286
    
    
    
    18,697
    
    
    
    19,520Cost of sales of condominiums
    
    
    
    
    
    
    16,780
    
    
    
    
    
    
    
    16,780Loss on sale of property
    
    
    375
    
    
    
    
    
    
    
    953
    
    
    
    33,845
    
    
    
    45,928
    
    
    
    102,434
    
    
    
    104,963Other expenses from managed properties
    
    
    3,147
    
    
    
    
    
    
    
    9,131
    
    
    
    Total operating expenses
    
    
    36,992
    
    
    
    45,928
    
    
    
    111,565
    
    
    
    104,963Net operating income
    
    
    3,787
    
    
    
    13,084
    
    
    
    2,877
    
    
    
    7,077Interest income
    
    
    (863
    )
    
    
    (319
    )
    
    
    (2,315
    )
    
    
    (967
    )Interest expense
    
    
    1,817
    
    
    
    1,720
    
    
    
    5,399
    
    
    
    4,744Income (loss) before income taxes, minority interests, and equity
in loss (earnings) of unconsolidated affiliates
    
    
    2,833
    
    
    
    11,683
    
    
    
    (207
    )
    
    
    3,300Income tax expense (benefit)
    
    
    1,102
    
    
    
    4,674
    
    
    
    (83
    )
    
    
    1,330Minority interests, net of tax
    
    
    (77
    )
    
    
    (2
    )
    
    
    (114
    )
    
    
    (2
    )Equity in loss (earnings) of unconsolidated affiliates, net of tax
    
    
    (280
    )
    
    
    
    
    
    
    247
    
    
    
    Net income (loss)
    
    $
    2,088
    
    
    $
    7,011
    
    
    $
    (257
    )
    
    $
    1,972Net income (loss) per share-basic
    
    $
    0.07
    
    
    $
    0.23
    
    
    $
    (0.01
    )
    
    $
    0.07Net income (loss) per share-diluted
    
    $
    0.07
    
    
    $
    0.23
    
    
    $
    (0.01
    )
    
    $
    0.07Weighted average common shares outstanding:Basic
    
    
    30,370,229
    
    
    
    30,132,896
    
    
    
    30,272,674
    
    
    
    30,132,896Diluted
    
    
    30,370,229
    
    
    
    30,132,936
    
    
    
    30,272,674
    
    
    
    30,234,887
  4




---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited; dollars in thousands)
 Nine months endedSeptember 30,2006
    
    
    2005Operating activities:Net income (loss)
    
    $
    (257
    )
    
    $
    1,972Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    18,697
    
    
    
    19,520Non-cash employee compensation expense (revenue)
    
    
    2,392
    
    
    
    (1,553
    )Loss on sale of property
    
    
    953
    
    
    
    Equity in loss of unconsolidated affiliates
    
    
    411
    
    
    
    Minority interests
    
    
    (190
    )
    
    
    (3
    )Deferred tax
(benefit) expenses
    
    
    (176
    )
    
    
    1,331Changes in operating assets and liabilities:Accounts receivable and other assets
    
    
    1,956
    
    
    
    (2,727
    )Accounts payable, accrued expenses and other liabilities
    
    
    (7,716
    )
    
    
    (9,741
    )Net cash provided by operating activities
    
    
    16,070
    
    
    
    8,799Investing activities:Capital expenditures for property and equipment
    
    
    (77,197
    )
    
    
    (95,692
    )Cash distributions from unconsolidated affiliates
    
    
    18,902
    
    
    
    Investment in affiliates
    
    
    (357
    )
    
    
    Proceeds from sale of assets
    
    
    2,045
    
    
    
    Increase in restricted cash
    
    
    (1,257
    )
    
    
    (1,295
    )Decrease in escrows
    
    
    554
    
    
    
    1,024Net cash used in investing activities
    
    
    (57,310
    )
    
    
    (95,963
    )Financing activities:Principal payments on long-term debt
    
    
    (1,360
    )
    
    
    (49,597
    )Proceeds from issuance of long-term debt
    
    
    37,938
    
    
    
    75,677Payment of loan costs
    
    
    (1,160
    )
    
    
    (1,678
    )Net cash provided by financing activities
    
    
    35,418
    
    
    
    24,402Net decrease in cash and cash equivalents
    
    
    (5,822
    )
    
    
    (62,762
    )Cash and cash equivalents, beginning of period
    
    
    54,782
    
    
    
    79,409Cash and cash equivalents, end of period
    
    $
    48,960
    
    
    $
    16,647Supplemental Cash Flow Information-Cash paid for interest, net of capitalized interest
    
    $
    4,527
    
    
    $
    3,595Cash paid for income taxes
    
    $
    329
    
    
    $
    1,128Non-cash items:Land contributed for minority interest
    
    $
    
    
    
    $
    6,660Construction in process accruals
    
    $
    5,785
    
    
    $
    11,534
  5




---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands, except per share amounts)
 1. ORGANIZATION
  Business Summary
    IndoorEntertainmentOwnership
    
    
    
    
    
    Guest
    
    Condo
    
    Area(1)Percentage
    
    Opening
    
    Suites
    
    Units
    
    (Approx. sq.ft)Existing Resorts:Wisconsin Dells, WI
    
    
    30
    %
    
    
    1997
    
    
    
    309
    
    
    
    77
    
    
    
    102,000Sandusky, OH
    
    
    30
    %
    
    
    2001
    
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    51,000Kansas City, KS
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    49,000Sheboygan, WI
    
    
    100
    %
    
    
    2004
    
    
    
    183
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    
    2005
    
    
    
    301
    (2)
    
    
    
    
    
    
    66,000Pocono Mountains, PA
    
    
    100
    %
    
    
    2005
    
    
    
    401
    
    
    
    
    
    
    
    91,000Niagara Falls, ONT (3)
    
    
    
    
    
    April 2006
    
    
    406
    
    
    
    
    
    
    
    94,000Resorts Announced or Under Construction:Mason, OH (4)
    
    
    84
    %
    
    Late 2006
    
    
    401
    
    
    
    
    
    
    
    93,000Grapevine, TX(5)
    
    
    100
    %
    
    Late 2007
    
    
    404
    
    
    
    
    
    
    
    98,000Grand Mound, WA(6)
    
    
    49
    %
    
    Early 2008
    
    
    393
    
    
    
    
    
    
    
    78,000
 6




---



##### Table of Contents



(1)
    
    Our indoor entertainment areas generally include our indoor waterpark, game arcade,
childrens activity room and fitness room, as well as our Aveda concept spa in the resorts
that have such amenities.(2)
    
    We plan to add an additional 103 guest suites as well as new waterpark attractions at our
Williamsburg property. Construction for the expansion began in May 2006 with expected
completion of the waterpark attractions in late 2006 and the additional guest suites in early
2007.(3)
    
    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.(4)
    
    We have entered into a joint venture agreement with a subsidiary of CBS Corporation (CBS), to
build this resort and attached conference center. We will 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. Construction on the resort began in July 2005 with expected
completion of the resort in late 2006 and the conference center in early 2007.(5)
    
    We are developing a Great Wolf Lodge resort in Grapevine, Texas. The northwoods themed,
six-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.(6)
    
    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
 General
  Principles of Consolidation
 Investment
in Affiliates
 7




---



##### Table of Contents



Minority Interest 
 Income Taxes
 Segments
  Resort
    
    
    Resort Third-
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsThree months ended September
30, 2006Revenues
    
    $
    35,891
    
    
    $
    4,888
    
    
    $
    
    
    
    $
    
    
    
    $
    40,779EBITDA, excluding certain items
    
    
    9,865
    
    
    
    1,741
    
    
    
    (120
    )
    
    
    (1,269
    )
    
    $
    10,217Depreciation and amortization
    
    
    (6,294
    )
    
    
    
    
    
    
    
    
    
    
    (136
    )
    
    
    (6,430
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (954
    )Income before income taxes,
minority interests, and equity
in earnings of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,833Additions to long-lived assets
    
    
    27,248
    
    
    
    
    
    
    
    
    
    
    
    194
    
    
    $
    27,442
 8




---



##### Table of Contents



Resort
    
    
    Resort Third-
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsNine months ended September
30, 2006Revenues
    
    $
    101,432
    
    
    $
    13,010
    
    
    $
    
    
    
    $
    
    
    
    $
    114,442EBITDA, excluding certain items
    
    
    26,473
    
    
    
    3,879
    
    
    
    (268
    )
    
    
    (8,510
    )
    
    $
    21,574Depreciation and amortization
    
    
    (18,336
    )
    
    
    
    
    
    
    
    
    
    
    (361
    )
    
    
    (18,697
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,084
    )Loss before income taxes,
minority interests, and equity
in loss of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (207
    )Additions to long-lived assets
    
    
    76,682
    
    
    
    
    
    
    
    
    
    
    
    515
    
    
    $
    77,197Total assets
    
    
    527,692
    
    
    
    
    
    
    
    
    
    
    
    114,945
    
    
    $
    642,637
 Resort
    
    
    Resort Third-
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsThree months ended September
30, 2005Revenues
    
    $
    33,150
    
    
    $
    
    
    
    $
    25,862
    
    
    $
    
    
    
    $
    59,012EBITDA, excluding certain items
    
    
    18,032
    
    
    
    
    
    
    
    9,082
    
    
    
    (7,744
    )
    
    $
    19,370Depreciation and amortization
    
    
    (6,128
    )
    
    
    
    
    
    
    
    
    
    
    (158
    )
    
    
    (6,286
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,401
    )Income before income taxes,
minority interests, and equity
in unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    11,683Additions to long-lived assets
    
    
    39,526
    
    
    
    
    
    
    
    
    
    
    
    104
    
    
    $
    39,630
 Resort
    
    
    Resort Third-
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsNine months ended September
30, 2005Revenues
    
    $
    86,178
    
    
    $
    
    
    
    $
    25,862
    
    
    $
    
    
    
    $
    112,040EBITDA, excluding certain items
    
    
    26,131
    
    
    
    
    
    
    
    9,082
    
    
    
    (8,616
    )
    
    $
    26,597Depreciation and amortization
    
    
    (19,055
    )
    
    
    
    
    
    
    
    
    
    
    (465
    )
    
    
    (19,520
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,777
    )Income before income taxes,
minority interests, and equity
in unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,300Additions to long-lived assets
    
    
    95,283
    
    
    
    
    
    
    
    
    
    
    
    409
    
    
    $
    95,692Total assets
    
    
    625,756
    
    
    
    
    
    
    
    
    
    
    
    23,891
    
    
    $
    649,647
  9




---



##### Table of Contents



Recent Accounting Pronouncements
  3. INVESTMENT IN AFFILIATES
  4. SHARE-BASED COMPENSATION
 Share-Based Payment Accounting for Stock Issued to Employees
    Stock Options
   10




---



##### Table of Contents



Nine months endedSeptember 30, 2005Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    3.65
    %Weighted average, expected life of option
    
    6.0 yearsExpected stock price volatility
    
    
    40.00
    %
   WeightedWeighted
    
    AverageAverage
    
    RemainingExercise
    
    ContractualShares
    
    Price
    
    LifeNumber of shares under option:Outstanding at beginning of period
    
    
    1,471,834
    
    
    $
    17.45Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    (353,333
    )
    
    $
    17.03Outstanding at end of period
    
    
    1,118,501
    
    
    $
    17.58
    
    
    8.25 yearsExercisable at end of period
    
    
    418,853
    
    
    $
    17.51
    
    
    8.25 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
    %
 11




---



##### Table of Contents



Performance Share Awards
  Deferred Compensation Awards
  Non-vested Shares
   WeightedAverageGrant Date
    
    AggregateShares
    
    Fair Value
    
    Intrinsic ValueNon-vested shares balance at beginning of period
    
    
    15,000
    
    
    $
    10.09Granted
    
    
    231,000
    
    
    $
    11.43Forfeited
    
    
    (3,000
    )Vested
    
    
    Non-vested shares balance at end of period
    
    
    243,000
    
    
    $
    11.47
    
    
    $
    99
 12




---



##### Table of Contents



Prior Year Pro Forma Expense
 Accounting for Stock-Based Compensation
 Three Months Ended
    
    
    Nine months endedSeptember 30, 2005
    
    
    September 30, 2005Net income, as reported
    
    $
    7,011
    
    
    $
    1,972Compensation expense, SFAS 123 fair value method
    
    
    (382
    )
    
    
    (1,069
    )Pro forma net income
    
    $
    6,629
    
    
    $
    903Pro forma net income per share  basic
    
    $
    0.22
    
    
    $
    0.03Pro forma net income per share  diluted
    
    $
    0.22
    
    
    $
    0.03Actual net
income per share  basic
    
    $
    0.23
    
    
    $
    0.07Actual net
income per share  diluted
    
    $
    0.23
    
    
    $
    0.07
 5. PROPERTY AND EQUIPMENT
  September 30,
    
    
    December 31,2006
    
    
    2005Land and improvements
    
    $
    31,458
    
    
    $
    38,735Building and improvements
    
    
    147,986
    
    
    
    150,184Furniture, fixtures and equipment
    
    
    183,433
    
    
    
    167,691Construction in process
    
    
    123,390
    
    
    
    46,448486,267
    
    
    
    403,058Less accumulated depreciation
    
    
    (36,404
    )
    
    
    (17,667
    )Property and equipment, net
    
    $
    449,863
    
    
    $
    385,391
  6. LONG-TERM DEBT
  September 30,
    
    
    December 31,2006
    
    
    2005Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    73,106
    
    
    $
    73,979Sheboygan mortgage loan
    
    
    28,541
    
    
    
    28,939Mason construction loan
    
    
    37,937
    
    
    
    Other mortgage debt
    
    
    1,523
    
    
    
    1,552Junior subordinated debentures
    
    
    51,550
    
    
    
    51,550Other Debt:City of Sheboygan bonds
    
    
    8,346
    
    
    
    8,288City of Sheboygan loan
    
    
    3,903
    
    
    
    4,020204,906
    
    
    
    168,328Less current portion of long-term debt
    
    
    (2,000
    )
    
    
    (1,928
    )$
    202,906
    
    
    $
    166,400
 13




---



##### Table of Contents



Traverse City/Kansas City Mortgage Loan
 Sheboygan Mortgage Loan
 Mason Construction Loan
 14




---



##### Table of Contents



Junior Subordinated Debentures
    City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughSeptember 30,2007
    
    $
    2,0002008
    
    
    29,4452009
    
    
    39,5592010
    
    
    1,7422011
    
    
    1,872Thereafter
    
    
    130,288Total
    
    $
    204,906
 7. EARNINGS PER SHARE
   Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Net income (loss) attributable to common shares
    
    $
    2,088
    
    
    $
    7,011
    
    
    $
    (257
    )
    
    $
    1,972Weighted average common shares outstanding  basic
    
    
    30,370,229
    
    
    
    30,132,896
    
    
    
    30,272,674
    
    
    
    30,132,896Weighted average common shares outstanding 
diluted
    
    
    30,370,229
    
    
    
    30,132,936
    
    
    
    30,272,674
    
    
    
    30,234,887Net income (loss) per share  basic
    
    $
    0.07
    
    
    $
    0.23
    
    
    $
    (0.01
    )
    
    $
    0.07Net income (loss) per share  diluted
    
    $
    0.07
    
    
    $
    0.23
    
    
    $
    (0.01
    )
    
    $
    0.07
  15




---



##### Table of Contents



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.
 Overview
  Business.
   IndoorEntertainmentOwnership
    
    
    
    
    
    
    Guest
    
    
    Condo
    
    
    Area(1)Percentage
    
    
    Opening
    
    
    Suites
    
    
    Units
    
    
    (Approx. sq.ft)Existing Resorts:Wisconsin Dells, WI
    
    
    30
    %
    
    
    1997
    
    
    
    309
    
    
    
    77
    
    
    
    102,000Sandusky, OH
    
    
    30
    %
    
    
    2001
    
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    51,000Kansas City, KS
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    49,000Sheboygan, WI
    
    
    100
    %
    
    
    2004
    
    
    
    183
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    
    2005
    
    
    
    301
    (2)
    
    
    
    
    
    
    66,000Pocono Mountains, PA
    
    
    100
    %
    
    
    2005
    
    
    
    401
    
    
    
    
    
    
    
    91,000Niagara Falls, ONT (3)
    
    
    
    
    
    April 2006
    
    
    406
    
    
    
    
    
    
    
    94,000Resorts Announced or Under Construction:Mason, OH (4)
    
    
    84
    %
    
    Late 2006
    
    
    401
    
    
    
    
    
    
    
    93,000Grapevine, TX(5)
    
    
    100
    %
    
    Late 2007
    
    
    404
    
    
    
    
    
    
    
    98,000Grand Mound, WA(6)
    
    
    49
    %
    
    Early 2008
    
    
    393
    
    
    
    
    
    
    
    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 concept spa in the resorts
that have such amenities.(2)
    
    We plan to add an additional 103 guest suites as well as new waterpark attractions at our
Williamsburg property. Construction for the expansion began in May 2006 with expected
completion of the waterpark attractions in late 2006 and the additional guest suites in early
2007.(3)
    
    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.(4)
    
    We have entered into a joint venture agreement with a subsidiary of CBS Corporation (CBS), to
build this resort and attached conference center. We will 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. Construction on the resort began in July 2005 with expected
completion of the resort in late 2006 and the conference center in early 2007.(5)
    
    We are developing a Great Wolf Lodge resort in Grapevine, Texas. The northwoods themed,
six-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.(6)
    
    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. 16




---



##### Table of Contents



Industry Trends
  17




---



##### Table of Contents



Outlook.
    Revenue and Key Performance Indicators.
 18




---



##### Table of Contents




    
    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;
    
    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.
 19




---



##### Table of Contents



Recent Accounting Pronouncements
   Non-GAAP Financial Measures
    20




---



##### Table of Contents




    
    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.
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    2,088
    
    
    $
    7,011
    
    
    $
    (257
    )
    
    $
    1,972Adjustments:Interest expense, net
    
    
    954
    
    
    
    1,401
    
    
    
    3,084
    
    
    
    3,777Income tax expense (benefit)
    
    
    1,340
    
    
    
    4,675
    
    
    
    (172
    )
    
    
    1,332Depreciation and amortization
    
    
    6,430
    
    
    
    6,286
    
    
    
    18,697
    
    
    
    19,520EBITDA
    
    $
    10,812
    
    
    $
    19,373
    
    
    $
    21,352
    
    
    $
    26,601
 21




---



##### Table of Contents



Results of Operations
 General
   
    
    our corporate entity that provides resort development and management services;
    
    our Wisconsin Dells, Sandusky, Traverse City, Kansas City, Sheboygan, Williamsburg,
Pocono Mountains, 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;
    
    management fee and other revenue from resorts, which includes fees received under our
management and license 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.
 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, 2006 compared with the three months ended September 30, 2005
  22




---



##### Table of Contents



All Properties (a)
    
    Same Store Comparison (b)Three months
    
    Three months
    
    Three monthsended
    
    ended
    
    ended
    
    Increase (Decrease)September 30,
    
    September 30,
    
    September 30,
    
    $
    
    %2006
    
    2006
    
    2005Occupancy
    
    
    73.4
    %
    
    
    73.7
    %
    
    
    67.3
    %
    
    
    N/A
    
    
    
    9.5
    %ADR
    
    $
    242.67
    
    
    $
    218.21
    
    
    $
    223.19
    
    
    $
    (4.98
    )
    
    
    (2.2
    )%RevPAR
    
    $
    178.17
    
    
    $
    160.76
    
    
    $
    150.13
    
    
    $
    10.63
    
    
    
    7.1
    %Total RevPOR
    
    $
    358.76
    
    
    $
    320.43
    
    
    $
    327.60
    
    
    $
    (7.17
    )
    
    
    (2.2
    )%Total RevPAR
    
    $
    263.40
    
    
    $
    236.07
    
    
    $
    220.37
    
    
    $
    15.70
    
    
    
    7.1
    %
 
 (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 2006 and
2005 (that is, our Wisconsin Dells, Sandusky, Traverse City, Kansas City, Sheboygan, and
Williamsburg resorts).   Three months endedSeptember 30,Increase2006
    
    2005
    
    (Decrease)Revenues
    
    $
    40,779
    
    
    $
    59,012
    
    
    $
    (18,233
    )Operating expenses:Departmental operating expenses
    
    
    12,345
    
    
    
    11,296
    
    
    
    1,049Selling, general and administrative
    
    
    9,382
    
    
    
    5,173
    
    
    
    4,209Property operating costs
    
    
    5,313
    
    
    
    6,393
    
    
    
    (1,080
    )Depreciation and amortization
    
    
    6,430
    
    
    
    6,286
    
    
    
    144Cost of sales of condominiums
    
    
    
    
    
    
    16,780
    
    
    
    (16,780
    )Net operating income
    
    
    3,787
    
    
    
    13,084
    
    
    
    (9,297
    )Net interest expense
    
    
    954
    
    
    
    1,401
    
    
    
    (447
    )Income tax expense
    
    
    1,102
    
    
    
    4,674
    
    
    
    (3,572
    )Net income
    
    
    2,088
    
    
    
    7,011
    
    
    
    (4,923
    )
 Revenues.
 
    
    Revenue from sales of condominiums at our Wisconsin Dells resort was $25,862 for the
three months ended September 30, 2005. We had no similar revenue during the three
months ended September 30, 2006.
 23




---



##### Table of Contents




    
    Total revenues for the Pocono Mountains resort for the three months ended September
30, 2006 were $1,210 greater than total revenues for the Wisconsin Dells and Sandusky
resorts for the three months ended September 30, 2005. Our Williamsburg resort revenues
increased $1,702 for the three months ended September 30, 2006 as compared to September
30, 2005 due to increased marketing efforts.
    
    Total management and other fees related to the CNL joint venture were $853 for the
three months ended September 30, 2006.
    
    Other revenue from managed properties was $3,147 for the three months ended September
30, 2006. We had no similar revenue for the three months ended September 30, 2005.
 Operating expenses.
 
    
    Total departmental operating expenses for the Pocono Mountains resort for the three
months ended September 30, 2006 were $559 greater than total departmental expenses for the
Wisconsin Dells and Sandusky resorts for the three months ended September 30, 2005.
    
    Total selling, general and administrative expenses for the Pocono Mountains resort for
the three months ended September 30, 2006 were $733 greater than total selling, general and
administrative expenses for the Wisconsin Dells and Sandusky resorts for the three months
ended September 30, 2005. During the three months ended September 30, 2006 our corporate
selling, general and administrative expenses included increases over the three months ended
September 30, 2005 related to share based compensation of $2,027.
    
    Total property operating costs (exclusive of opening costs) for the Pocono Mountains
resort for the three months ended September 30, 2006 were $712 less than total property
operating costs (exclusive of opening costs) for the resorts in Wisconsin Dells and Sandusky
for the three months ended September 30, 2005. Opening costs primarily related to our Mason
Family, Grapevine and Grand Mound resorts were $1,282 for the three months ended September
30, 2006, as compared to $2,142 for the three months ended September 30, 2005 related to our
resorts in the Pocono Mountains and the condominiums in Wisconsin Dells.
    
    Total depreciation increased due to the opening of our resort in the Pocono Mountains and
additional property and equipment purchases at our other resorts. Total depreciation and
amortization for the Pocono Mountains resort for the three months ended September 30, 2006
was $101 greater than total depreciation and amortization for the Wisconsin Dells and
Sandusky resorts for the three months ended September 30, 2005.
    
    Cost of sales of condominiums of $16,780 relates to the condominiums sold at our
Wisconsin Dells resort during the three months ended September 30, 2005. We did not incur
similar charges during the three months ended September 30, 2006.
 Net operating income.
 Net income.
 
    
    A decrease in operating income from $13,084 for the three months ended September 30, 2005
to $3,787 for the three months ended September 30, 2006.
 24




---



##### Table of Contents




    
    A decrease in net interest expense of $447 mainly due to higher interest income in the
three months ended September 30, 2006 as compared to the three months ended September 30,
2005.
    
    A reduction of $3,572 in income tax expense recorded in the three months ended September
30, 2006 as compared to the three months ended September 30, 2005.
 Nine months ended September 30, 2006 compared with the nine months ended September 30, 2005
  All Properties (a)
    
    Same Store Comparison (b)Nine months
    
    Nine months
    
    Nine months
    
    Increase (Decrease)ended
    
    ended
    
    endedSeptember 30,
    
    September 30,
    
    September 30,
    
    $
    
    %2006
    
    2006
    
    2005Occupancy
    
    
    67.8
    %
    
    
    66.6
    %
    
    
    65.5
    %
    
    
    N/A
    
    
    
    1.7
    %ADR
    
    $
    237.85
    
    
    $
    198.48
    
    
    $
    206.12
    
    
    $
    (7.64
    )
    
    
    (3.7
    )%RevPAR
    
    $
    161.29
    
    
    $
    132.22
    
    
    $
    135.01
    
    
    $
    (2.79
    )
    
    
    (2.1
    )%Total RevPOR
    
    $
    355.76
    
    
    $
    299.71
    
    
    $
    306.99
    
    
    $
    (7.28
    )
    
    
    (2.4
    )%Total RevPAR
    
    $
    241.24
    
    
    $
    199.66
    
    
    $
    201.08
    
    
    $
    (1.42
    )
    
    
    (0.7
    )%
 
 (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 2006 and
2005 (that is, our Wisconsin Dells, Sandusky, Traverse City, Kansas City, and Sheboygan
resorts).   Nine months endedSeptember 30,Increase2006
    
    2005
    
    (Decrease)Revenues
    
    $
    114,442
    
    
    $
    112,040
    
    
    $
    2,402Operating expenses:Departmental operating expenses
    
    
    35,913
    
    
    
    32,126
    
    
    
    3,787Selling, general and administrative
    
    
    31,983
    
    
    
    19,738
    
    
    
    12,245Property operating costs
    
    
    14,888
    
    
    
    16,799
    
    
    
    (1,911
    )Depreciation and amortization
    
    
    18,697
    
    
    
    19,520
    
    
    
    (823
    )Cost of sales of condominiums
    
    
    
    
    
    
    16,780
    
    
    
    (16,780
    )Loss on sale of assets
    
    
    953
    
    
    
    
    
    
    
    953Net operating income
    
    
    2,877
    
    
    
    7,077
    
    
    
    (4,200
    )Net interest expense
    
    
    3,084
    
    
    
    3,777
    
    
    
    (693
    )Income tax expense (benefit)
    
    
    (83
    )
    
    
    1,330
    
    
    
    (1,413
    )Net income (loss)
    
    
    (257
    )
    
    
    1,972
    
    
    
    (2,229
    )
 25




---



##### Table of Contents



Revenues.
 
    
    Total revenues for the Williamsburg and Pocono Mountains resorts were $59,955 for the
nine months ended September 30, 2006 as compared to $13,049 for the nine months ended
September 30, 2005.
    
    Total management and other fees related to the CNL joint venture were $2,250 for the
nine months ended September 30, 2006.
    
    Other revenue from managed properties was $9,131 for the nine months ended September
30, 2006. We had no similar revenue for the nine months ended September 30, 2005.
    
    Revenue from sales of condominiums at our Wisconsin Dells resort was $25,862 for the
nine months ended September 30, 2005. We had no similar revenue during the nine months
ended September 30, 2006.
    
    Total revenues for the Wisconsin Dells and Sandusky resorts were $29,607 for the nine
months ended September 30, 2005.
 Operating expenses.
 
    
    Total departmental operating expenses for the Williamsburg and Pocono Mountains resorts
were $21,154 for the nine months ended September 30, 2006 as compared to $5,563 for the nine
months ended September 30, 2005. Total departmental expenses for the Wisconsin Dells and
Sandusky resorts were $10,892 for the nine months ended September 30, 2005.
    
    Total selling, general and administrative expenses for the Williamsburg and Pocono
Mountains resorts were $12,782 for the nine months ended September 30, 2006 as compared to
$2,644 for the nine months ended September 30, 2005. Total selling, general and
administrative expenses for the Wisconsin Dells and Sandusky resorts were $6,620 for the
nine months ended September 30, 2005. During the nine months ended September 30, 2006 our
corporate selling, general and administrative expenses included increases over that of the
nine months ended September 30, 2005 related to share based compensation of $3,945,
compensation-related expenses of $1,646 due to increased staffing at our corporate office
and $1,811 related to professional fees.
    
    Total property operating costs (exclusive of opening costs) for the Williamsburg and
Pocono Mountains resorts were $5,405 for the nine months ended September 30, 2006. Total
property operating costs (exclusive of opening
 26




---



##### Table of Contents



costs) for the resorts in Wisconsin Dells and Sandusky were $4,144 for the nine months ended
September 30, 2005. Opening costs related primarily to our Pocono Mountains, Mason Family,
Grapevine and Grand Mound resorts and the resort in Niagara Falls were $3,021 for the nine
months ended September 30, 2006, as compared to $6,282 for the nine months ended September 30,
2005 related to our resorts in Williamsburg and the Pocono Mountains and the condominiums in
Wisconsin Dells.
    
    Total depreciation and amortization for the Williamsburg and Pocono Mountains resorts was
$9,791 for the nine months ended September 30, 2006 as compared to $5,390 for the nine
months ended September 30, 2005. Total depreciation and amortization for the Wisconsin Dells
and Sandusky resorts was $5,772 for the nine months ended September 30, 2005. During the
nine months ended September 30, 2005 we also had amortization expense of $2,116 related to
loan fee write offs. There were no similar write offs during the nine months ended
September 30, 2006.
    
    Cost of sales of condominiums of $16,780 relates to the condominiums sold at our
Wisconsin Dells resort during the nine months ended September 30, 2005. We did not incur a
similar charge during the nine months ended September 30, 2006.
    
    Loss on sale of real estate of $953 during the nine months ended September 30, 2006
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. No similar loss was recognized during
the nine months ended September 30, 2005.
 Net operating income.
 Net loss.
 
    
    A decrease in operating income from $7,077 for the nine months ended September 30, 2005
to $2,877 for the nine months ended September 30, 2006.
  
    
    A decrease in net interest expense of $693 mainly due to higher interest income during
the nine months ended September 30, 2006 as compared to the nine months ended September 30,
2005.
    
    A reduction of $1,413 in income tax expense recorded in the nine months ended September
30, 2006 as compared to the nine months ended September 30, 2005.
 Segments
  27




---



##### Table of Contents



Three months ended September 30,
    
    Nine months ended September 30,Increase
    
    
    
    
    
    
    
    
    
    Increase2006
    
    2005
    
    (Decrease)
    
    2006
    
    2005
    
    (Decrease)Resort Ownership/OperationRevenues
    
    $
    35,891
    
    
    $
    33,150
    
    
    $
    2,741
    
    
    $
    101,432
    
    
    $
    86,178
    
    
    $
    15,254EBITDA, excluding
certain items
    
    
    9,865
    
    
    
    18,032
    
    
    
    (8,167
    )
    
    
    26,473
    
    
    
    26,131
    
    
    
    342Resort Third-Party MgmtRevenues
    
    
    4,888
    
    
    
    
    
    
    
    4,888
    
    
    
    13,010
    
    
    
    
    
    
    
    13,010EBITDA, excluding
certain items
    
    
    1,741
    
    
    
    
    
    
    
    1,741
    
    
    
    3,879
    
    
    
    
    
    
    
    3,879Condominium SalesRevenues
    
    
    
    
    
    
    25,862
    
    
    
    (25,862
    )
    
    
    
    
    
    
    25,862
    
    
    
    (25,862
    )EBITDA, excluding
certain items
    
    
    (120
    )
    
    
    9,082
    
    
    
    (9,202
    )
    
    
    (268
    )
    
    
    9,082
    
    
    
    (9,350
    )OtherRevenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EBITDA, excluding
certain items
    
    
    (1,269
    )
    
    
    (7,744
    )
    
    
    6,475
    
    
    
    (8,510
    )
    
    
    (8,616
    )
    
    
    106
  Liquidity and Capital Resources
  September 30,
    
    
    December 31,2006
    
    
    2005Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    73,106
    
    
    $
    73,979Sheboygan mortgage loan
    
    
    28,541
    
    
    
    28,939Mason construction loan
    
    
    37,937
    
    
    
    Other mortgage debt
    
    
    1,523
    
    
    
    1,552Junior subordinated debentures
    
    
    51,550
    
    
    
    51,550Other Debt:City of Sheboygan bonds
    
    
    8,346
    
    
    
    8,288City of Sheboygan loan
    
    
    3,903
    
    
    
    4,020204,906
    
    
    
    168,328Less current portion of long-term debt
    
    
    (2,000
    )
    
    
    (1,928
    )Total long-term debt
    
    $
    202,906
    
    
    $
    166,400
 Traverse City/Kansas City Mortgage Loan
 Sheboygan Mortgage Loan
 28




---



##### Table of Contents



Mason Construction Loan
 Junior Subordinated Debentures
    City of Sheboygan Bonds
 City of Sheboygan Loan
 29




---



##### Table of Contents



Future Maturities
 ThroughSeptember 30,2007
    
    $
    2,0002008
    
    
    29,4452009
    
    
    39,5592010
    
    
    1,7422011
    
    
    1,872Thereafter
    
    
    130,288Total
    
    $
    204,906
 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.
  30




---



##### Table of Contents



Off Balance Sheet Arrangements
  Contractual Obligations
  Payment TermsLess
    
    
    
    
    
    
    
    
    
    
    MoreThan
    
    
    1-3
    
    
    3-5
    
    
    ThanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsDebt Obligations(1)
    
    $
    204,906
    
    
    $
    2,000
    
    
    $
    69,004
    
    
    $
    3,614
    
    
    $
    130,288Operating Lease Obligations
    
    
    1,274
    
    
    
    426
    
    
    
    818
    
    
    
    30
    
    
    
    Construction Contracts
    
    
    65,995
    
    
    
    52,950
    
    
    
    13,045
    
    
    
    
    
    
    
    Total
    
    $
    272,175
    
    
    $
    55,376
    
    
    $
    82,867
    
    
    $
    3,644
    
    
    $
    130,288
 
 (1)
    
    Includes $8,346 of fixed rate debt recognized as a liability related to certain bonds issued
by the City of Sheboygan and $3,903 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
  Cash Flows
 31




---



##### Table of Contents



Nine months ended September 30, 2006 compared with the nine months ended September 30, 2005
 Increase2006
    
    2005
    
    (Decrease)Net cash provided by operating activities
    
    $
    16,070
    
    
    $
    8,799
    
    
    $
    7,271Net cash used in investing activities
    
    
    (57,310
    )
    
    
    (95,963
    )
    
    
    38,653Net cash provided by financing activities
    
    
    35,418
    
    
    
    24,402
    
    
    
    11,016
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Inflation
  
 ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
    
    $73,106 of fixed rate debt secured by two of our resorts. This debt bears interest at
6.96%.
    
    $28,541 of variable rate debt secured by one of our resorts. This debt bears interest at
a floating rate equal to prime plus 200 basis points. The total rate was 10.25% at September
30, 2006.
    
    $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.
    
    $37,937 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
7.97% at September 30, 2006.
 32




---



##### Table of Contents




    
    $8,346 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 $3,903 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
    
    $1,523 of other fixed rate debt.
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Remediation of Material Weaknesses
  33




---



##### Table of Contents



Changes In Internal Control
  34




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 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)
 35




---



##### Table of Contents



ExhibitNumber
    
    Description3.1
    
    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 9-K 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 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 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 March 18, 2005)10.1
    
    Loan Agreement, dated July 28, 2006, between Great Wolf Lodge of
Grapevine, LLC, as borrower and Merrill Lynch Capital and HSH Nordbank, as
lender (incorporate by reference to Exhibit 99.1 to the Companys Current
Report on Form 9-K filed July 31, 2006)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. 36




---



##### Table of Contents



SIGNATURE
  GREAT WOLF RESORTS, INC./s/ James A. CalderJames A. CalderChief Financial Officer(Duly authorized officer)(Principal Financial and Accounting Officer)
  37