##### 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 June 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




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##### 



Great Wolf Resorts, Inc.
 Quarterly Report on Form 10-Q
For the Quarter Ended June 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 June 30, 2006, and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for Great Wolf Resorts, Inc. and
Subsidiaries for the three and six months ended June 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for Great Wolf Resorts, Inc. and
Subsidiaries for the six months ended June 30, 2006 and June 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
    
    
    37Certification of Chief Executive OfficerCertification of Chief Financial OfficerSection 1350 Certification of Chief Executive OfficerSection 1350 Certification of Chief Financial Officer
  2




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##### 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)
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    57,200
    
    
    $
    54,782Accounts receivable, net of allowance for doubtful accounts of $206 and $95
    
    
    2,567
    
    
    
    2,506Accounts receivable  affiliates
    
    
    705
    
    
    
    12,825Inventory
    
    
    2,450
    
    
    
    2,254Other current assets
    
    
    6,697
    
    
    
    1,996Total current assets
    
    
    69,619
    
    
    
    74,363Property and equipment, net
    
    
    420,630
    
    
    
    385,391Investment in affiliates
    
    
    25,243
    
    
    
    43,207Other assets
    
    
    13,396
    
    
    
    11,741Other intangible assets
    
    
    23,829
    
    
    
    23,829Goodwill
    
    
    66,995
    
    
    
    66,995Total assets
    
    $
    619,712
    
    
    $
    605,526LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    1,987
    
    
    $
    1,928Accounts payable
    
    
    9,376
    
    
    
    18,183Accrued expenses
    
    
    11,992
    
    
    
    9,311Accrued expenses  affiliates
    
    
    696
    
    
    
    3,576Advance deposits
    
    
    6,483
    
    
    
    5,680Gift certificates payable
    
    
    1,642
    
    
    
    2,126Other current liabilities
    
    
    103
    
    
    
    126Total current liabilities
    
    
    32,279
    
    
    
    40,930Mortgage debt
    
    
    179,114
    
    
    
    154,092Other long-term debt
    
    
    12,254
    
    
    
    12,308Other long-term liabilities
    
    
    391
    
    
    
    391Deferred tax liability
    
    
    24,288
    
    
    
    25,800Deferred compensation liability
    
    
    1,857
    
    
    
    1,501Total liabilities
    
    
    250,183
    
    
    
    235,022Minority interest
    
    
    6,531
    
    
    
    6,593Commitments and contingenciesStockholders equity:Common stock, $0.01 par value, 250,000,000 shares authorized,
30,485,308 shares, and 30,277,308 issued and outstanding, at June
30, 2006 and December 31, 2005, respectively
    
    
    303
    
    
    
    303Additional paid in capital
    
    
    395,495
    
    
    
    394,212Preferred stock, $0.01 par value, 10,000,000 shares authorized, no
shares issued or outstanding
    
    
    
    
    
    
    Accumulated deficit
    
    
    (30,600
    )
    
    
    (28,255
    )Shares of common stock held in deferred compensation plan
    
    
    (2,200
    )
    
    
    (2,349
    )Total stockholders equity
    
    
    362,998
    
    
    
    363,911Total liabilities and stockholders equity
    
    $
    619,712
    
    
    $
    605,526
  3




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##### 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
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Rooms
    
    $
    21,453
    
    
    $
    17,023
    
    
    $
    44,140
    
    
    $
    35,099Food and beverage
    
    
    5,200
    
    
    
    4,524
    
    
    
    10,971
    
    
    
    9,219Other hotel operations
    
    
    4,908
    
    
    
    4,485
    
    
    
    10,429
    
    
    
    8,710Management and other fees
    
    
    593
    
    
    
    
    
    
    
    741
    
    
    
    Management and other fees  related parties
    
    
    670
    
    
    
    
    
    
    
    1,397
    
    
    
    32,824
    
    
    
    26,032
    
    
    
    67,678
    
    
    
    53,028Other revenue from managed properties
    
    
    3,003
    
    
    
    
    
    
    
    5,985
    
    
    
    Total revenues
    
    
    35,827
    
    
    
    26,032
    
    
    
    73,663
    
    
    
    53,028Operating expenses by department:Rooms
    
    
    2,877
    
    
    
    2,958
    
    
    
    5,874
    
    
    
    5,596Food and beverage
    
    
    4,485
    
    
    
    4,228
    
    
    
    9,355
    
    
    
    7,991Other
    
    
    4,012
    
    
    
    3,979
    
    
    
    8,338
    
    
    
    7,247Other operating expenses:Selling, general and administrative
    
    
    10,952
    
    
    
    7,328
    
    
    
    22,603
    
    
    
    14,565Property operating costs
    
    
    4,699
    
    
    
    4,346
    
    
    
    9,575
    
    
    
    10,403Depreciation and amortization
    
    
    6,169
    
    
    
    6,085
    
    
    
    12,267
    
    
    
    13,234Loss on sale
of property
    
    
    
    
    
    
    
    
    
    
    578
    
    
    
    33,194
    
    
    
    28,924
    
    
    
    68,590
    
    
    
    59,036Other expenses from managed properties
    
    
    3,003
    
    
    
    
    
    
    
    5,985
    
    
    
    Total operating expenses
    
    
    36,197
    
    
    
    28,924
    
    
    
    74,575
    
    
    
    59,036Net operating loss
    
    
    (370
    )
    
    
    (2,892
    )
    
    
    (912
    )
    
    
    (6,008
    )Interest income
    
    
    (769
    )
    
    
    (356
    )
    
    
    (1,452
    )
    
    
    (648
    )Interest expense
    
    
    1,720
    
    
    
    1,968
    
    
    
    3,582
    
    
    
    3,024Loss before income taxes, minority interests, and equity
in earnings unconsolidated affiliates
    
    
    (1,321
    )
    
    
    (4,504
    )
    
    
    (3,042
    )
    
    
    (8,384
    )Income tax benefit
    
    
    (511
    )
    
    
    (1,802
    )
    
    
    (1,185
    )
    
    
    (3,344
    )Minority interests, net of tax
    
    
    (23
    )
    
    
    
    
    
    
    (37
    )
    
    
    Equity in earnings of unconsolidated affiliates, net of tax
    
    
    615
    
    
    
    
    
    
    
    525
    
    
    
    (1,402
    )
    
    
    (2,702
    )
    
    
    (2,345
    )
    
    
    (5,040
    )
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (1,402
    )
    
    $
    (2,702
    )
    
    $
    (2,345
    )
    
    $
    (5,040
    )Net loss per share-basic
    
    $
    (0.05
    )
    
    $
    (0.09
    )
    
    $
    (0.08
    )
    
    $
    (0.17
    )Net loss per share-diluted
    
    $
    (0.05
    )
    
    $
    (0.09
    )
    
    $
    (0.08
    )
    
    $
    (0.17
    )Weighted average common shares outstanding:Basic
    
    
    30,299,896
    
    
    
    30,132,896
    
    
    
    30,223,896
    
    
    
    30,132,896Diluted
    
    
    30,299,896
    
    
    
    30,132,896
    
    
    
    30,223,896
    
    
    
    30,132,896
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##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
 Six months endedJune 30,2006
    
    
    2005Operating activities:Net loss
    
    $
    (2,345
    )
    
    $
    (5,040
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    12,267
    
    
    
    13,234Non-cash employee compensation expense
    
    
    1,672
    
    
    
    (246
    )Loss on sale
of property
    
    
    578
    
    
    
    Equity in unconsolidated affiliates
    
    
    877
    
    
    
    Minority interests
    
    
    (62
    )
    
    
    Deferred tax benefit
    
    
    (1,511
    )
    
    
    (3,344
    )Changes in operating assets and liabilities:Accounts receivable and other assets
    
    
    2,803
    
    
    
    (17,524
    )Accounts payable, accrued expenses and other liabilities
    
    
    (6,690
    )
    
    
    (3,883
    )Net cash provided by (used in) operating activities
    
    
    7,589
    
    
    
    (16,803
    )Investing activities:Capital expenditures for property and equipment
    
    
    (49,755
    )
    
    
    (56,062
    )Cash distributions from unconsolidated affiliates
    
    
    18,816
    
    
    
    Investment in affiliates
    
    
    (357
    )
    
    
    Proceeds
from sale of property
    
    
    2,010
    
    
    
    Increase in restricted cash
    
    
    (836
    )
    
    
    (15
    )Decrease in escrows
    
    
    487
    
    
    
    1,027Net cash used in investing activities
    
    
    (29,635
    )
    
    
    (55,050
    )Financing activities:Principal payments on long-term debt
    
    
    (992
    )
    
    
    (49,151
    )Proceeds from issuance of long-term debt
    
    
    26,019
    
    
    
    75,514Payment of loan costs
    
    
    (563
    )
    
    
    (1,667
    )Net cash provided by financing activities
    
    
    24,464
    
    
    
    24,696Net increase (decrease) in cash and cash equivalents
    
    
    2,418
    
    
    
    (47,157
    )Cash and cash equivalents, beginning of period
    
    
    54,782
    
    
    
    79,409Cash and cash equivalents, end of period
    
    $
    57,200
    
    
    $
    32,252Supplemental Cash Flow Information-Cash paid for interest, net of capitalized interest
    
    $
    3,231
    
    
    $
    2,599Cash paid for income taxes
    
    $
    288
    
    
    $
    1,115Non-cash items:Construction in process accruals
    
    $
    6,425
    
    
    $
    8,998
  5




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##### 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
    IndoorOwnership
    
    
    
    
    
    Guest
    
    Condo
    
    EntertainmentPercentage
    
    Opening
    
    Suites
    
    Units
    
    Area(1)(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
    
    
    
    
    
    
    
    93,000Grand Mound, WA(5)
    
    
    49
    %
    
    Late 2007
    
    
    340
    
    
    
    
    
    
    
    65,000Grapevine, TX(6)
    
    
    100
    %
    
    Late 2007
    
    
    404
    
    
    
    
    
    
    
    98,000
 6




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##### 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, Wileys Woods and
party room 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 in Spring 2007.(3)
    
    An affiliate of Ripley Entertainment, Inc., our licensee, which we refer to as Ripleys, owns
this resort. We assisted Ripleys with construction management and other pre-opening matters
related to the Great Wolf Lodge in Niagara Falls. We have granted Ripleys a license to use
the Great Wolf Lodge name for this resort through April 2016. We manage the resort on behalf
of Ripleys and also provide central reservation services. This resort opened in April 2006.(4)
    
    We have entered into a joint venture agreement with a
wholly-owned subsidiary of CBS
Corporation, 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 position 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 Fall 2006 and the conference center in
early 2007.(5)
    
    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,
and they will have a majority equity interest in the joint venture. Construction on the resort
is expected to begin in Summer 2006 with expected completion in late 2007.(6)
    
    We have announced plans to develop a Great Wolf Lodge resort in Grapevine, Texas. The
northwoods themed, six-story, approximately 400-suite 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 General
  Principles of Consolidation
 7




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##### Table of Contents



Investment in Affiliates
 Minority Interest 
 Income Taxes
 Segments
  Resort
    
    
    Resort Third-
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsThree months ended June 30,
2006Revenues
    
    $
    31,561
    
    
    $
    4,266
    
    
    $
    
    
    
    $
    
    
    
    $
    35,827EBITDA, excluding certain items
    
    
    7,943
    
    
    
    1,263
    
    
    
    
    
    
    
    (3,407
    )
    
    $
    5,799Depreciation and amortization
    
    
    (6,046
    )
    
    
    
    
    
    
    
    
    
    
    (123
    )
    
    
    (6,169
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (951
    )Loss before income taxes,
minority interests, and equity
in earnings of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,321
    )Additions to long-lived assets
    
    
    24,059
    
    
    
    
    
    
    
    
    
    
    
    122
    
    
    $
    24,181
 8




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##### Table of Contents



Resort
    
    
    Resort Third-
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsSix months ended June 30, 2006Revenues
    
    $
    65,540
    
    
    $
    8,123
    
    
    $
    
    
    
    $
    
    
    
    $
    73,663EBITDA, excluding certain items
    
    
    16,608
    
    
    
    2,138
    
    
    
    
    
    
    
    (7,391
    )
    
    $
    11,355Depreciation and amortization
    
    
    (12,041
    )
    
    
    
    
    
    
    
    
    
    
    (226
    )
    
    
    (12,267
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,130
    )Loss before income taxes,
minority interests, and equity
in earnings of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,042
    )Additions to long-lived assets
    
    
    49,443
    
    
    
    
    
    
    
    
    
    
    
    312
    
    
    $
    49,755Total assets
    
    
    499,678
    
    
    
    
    
    
    
    
    
    
    
    120,034
    
    
    $
    619,712
 Resort
    
    
    Resort Third-
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsThree months ended June 30,
2005Revenues
    
    $
    26,032
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    26,032EBITDA, excluding certain items
    
    
    2,841
    
    
    
    
    
    
    
    
    
    
    
    352
    
    
    $
    3,193Depreciation and amortization
    
    
    (5,670
    )
    
    
    
    
    
    
    
    
    
    
    (415
    )
    
    
    (6,085
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,612
    )Loss before income taxes,
minority interests, and equity
in earnings of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (4,504
    )Additions to long-lived assets
    
    
    25,800
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    $
    25,833
 Resort
    
    
    Resort Third-
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsSix months ended June 30, 2005Revenues
    
    $
    53,028
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    53,028EBITDA, excluding certain items
    
    
    8,095
    
    
    
    
    
    
    
    
    
    
    
    (869
    )
    
    $
    7,226Depreciation and amortization
    
    
    (12,927
    )
    
    
    
    
    
    
    
    
    
    
    (307
    )
    
    
    (13,234
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,376
    )Loss before income taxes,
minority interests, and equity
in earnings of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (8,384
    )Additions to long-lived assets
    
    
    55,834
    
    
    
    
    
    
    
    
    
    
    
    228
    
    
    $
    56,062Total assets
    
    
    555,089
    
    
    
    
    
    
    
    
    
    
    
    83,748
    
    
    $
    638,837
  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



Six Months EndedJune 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
    
    
    1,406,834
    
    
    $
    17.25Granted
    
    
    Exercised
    
    
    Forefited
    
    
    (213,832
    )
    
    $
    17.05Outstanding at end of period
    
    
    1,193,002
    
    
    $
    17.29
    
    
    
    8.50Exercisable at end of period
    
    
    398,521
    
    
    $
    17.29
    
    
    
    8.50
  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
    
    
    208,000
    
    
    $
    11.61Vested
    
    
    Non-vested shares balance at end of period
    
    
    223,000
    
    
    $
    11.51
    
    
    $
    111
  12




---



##### Table of Contents



Prior Year Pro Forma Expense
 Accounting for Stock-Based Compensation
 Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005Net loss, as reported
    
    $
    (2,702
    )
    
    $
    (5,040
    )Compensation expense, SFAS 123 fair value method
    
    
    (359
    )
    
    
    (687
    )Pro forma net loss
    
    $
    (3,061
    )
    
    $
    (5,727
    )Pro forma net loss per share  basic
    
    $
    (0.10
    )
    
    $
    (0.19
    )Pro forma net loss per share  diluted
    
    $
    (0.10
    )
    
    $
    (0.19
    )
 5. PROPERTY AND EQUIPMENT
  June 30,
    
    
    December 31,2006
    
    
    2005Land and improvements
    
    $
    31,458
    
    
    $
    38,735Building and improvements
    
    
    147,840
    
    
    
    150,184Furniture, fixtures and equipment
    
    
    180,763
    
    
    
    167,691Construction in process
    
    
    90,647
    
    
    
    46,448450,708
    
    
    
    403,058Less accumulated depreciation
    
    
    (30,078
    )
    
    
    (17,667
    )Property and equipment, net
    
    $
    420,630
    
    
    $
    385,391
  6. LONG-TERM DEBT
  June 30,
    
    
    December 31,2006
    
    
    2005Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    73,392
    
    
    $
    73,979Sheboygan mortgage loan
    
    
    28,666
    
    
    
    28,939Junior subordinated debentures
    
    
    51,550
    
    
    
    51,550Mason construction loan
    
    
    25,970
    
    
    
    Other mortgage debt
    
    
    1,523
    
    
    
    1,552Other Debt:City of Sheboygan bonds
    
    
    8,312
    
    
    
    8,288City of Sheboygan loan
    
    
    3,942
    
    
    
    4,020193,355
    
    
    
    168,328Less current portion of long-term debt
    
    
    (1,987
    )
    
    
    (1,928
    )$
    191,368
    
    
    $
    166,400
 Traverse City/Kansas City Mortgage Loan
 13




---



##### Table of Contents



Sheboygan Mortgage Loan
 Junior Subordinated Debentures
    Mason Construction Loan
 City of Sheboygan Bonds
 14




---



##### Table of Contents



City of Sheboygan Loan
 Future Maturities
 ThroughJune 30,2007
    
    $
    1,9872008
    
    
    29,5322009
    
    
    27,5632010
    
    
    1,7112011
    
    
    1,838Thereafter
    
    
    130,724Total
    
    $
    193,355
 7. EARNINGS PER SHARE
   Three months ended

    Six months endedJune 30, 2006
    
    June 30, 2005

    June 30, 2006

    June 30, 2005Net loss attributable to common shares
    
    $
    (1,402
    )
    
$
(2,702
)

    $
    (2,345
    )

    $
(5,040
)Weighted average common shares outstanding  basic
    
    
    30,299,896
    
    

30,132,896


    
    30,223,896
    


30,132,896Weighted average common shares outstanding  diluted
    
    
    30,299,896
    
    

30,132,896


    
    30,223,896
    


30,132,896Net loss per share  basic
    
    $
    (0.05
    )
    
    $
(0.09
    )

    $
    (0.08
    )

    $
(0.17
    )Net loss per share  diluted
    
    $
    (0.05
    )
    
    $
(0.09
    )

    $
    (0.08
    )

    $
(0.17
    )
  15




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##### Table of Contents



8. SUBSEQUENT EVENT
  
 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.
   16




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##### Table of Contents



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
    
    
    
    
    
    
    
    93,000Grand Mound, WA(5)
    
    
    49
    %
    
    Late 2007
    
    
    340
    
    
    
    
    
    
    
    65,000Grapevine, TX(6)
    
    
    100
    %
    
    Late 2007
    
    
    404
    
    
    
    
    
    
    
    98,000
 
 (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, Wileys Woods and
party room 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 in Spring 2007.(3)
    
    An affiliate of Ripley Entertainment, Inc., our licensee, which we refer to as Ripleys, owns
this resort. We assisted Ripleys with construction management and other pre-opening matters
related to the Great Wolf Lodge in Niagara Falls. We have granted Ripleys a license to use
the Great Wolf Lodge name for this resort through April 2016. We manage the resort on behalf
of Ripleys and also provide central reservation services. This resort opened in April 2006.(4)
    
    We have entered into a joint venture agreement with a
wholly-owned subsidiary of CBS Corporation, 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 position 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 Fall 2006 and the conference center in
early 2007.(5)
    
    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 contribute the land needed for the
resort, and they will have a majority equity interest in the joint venture. Construction on
the resort is expected to begin in Summer 2006 with expected completion in late 2007.(6)
    
    We have announced plans to develop a Great Wolf Lodge resort in Grapevine, Texas. The
northwoods themed, six-story, approximately 400-suite 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. Industry Trends
 17




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##### Table of Contents



Outlook.
    18




---



##### Table of Contents



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;
    
    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.
 19




---



##### Table of Contents




    
    ADR is calculated by dividing total rooms revenue by total occupied rooms.
    
    RevPAR is the product of occupancy and ADR.
  
    
    Total RevPAR is calculated by dividing total revenue by rooms available.
    
    Total Rev POR is calculated by dividing total revenue by occupied rooms.
    Recent Accounting Pronouncements
  Non-GAAP Financial Measures
   20




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##### 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
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss
    
    $
    (1,402
    )
    
    $
    (2,702
    )
    
    $
    (2,345
    )
    
    $
    (5,040
    )Adjustments:Interest expense, net
    
    
    951
    
    
    
    1,612
    
    
    
    2,130
    
    
    
    2,376Income tax benefit
    
    
    (906
    )
    
    
    (1,802
    )
    
    
    (1,511
    )
    
    
    (3,344
    )Depreciation and amortization
    
    
    6,169
    
    
    
    6,085
    
    
    
    12,267
    
    
    
    13,234EBITDA
    
    $
    4,812
    
    
    $
    3,193
    
    
    $
    10,541
    
    
    $
    7,226
 21




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##### 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.
 22




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##### Table of Contents



Three months ended June 30, 2006 compared with the three months ended June 30, 2005
  All Properties (a)
    
    Same Store Comparison (b)Three months
    
    Three months
    
    Three monthsended
    
    ended
    
    ended
    
    Increase (Decrease)June 30, 2006
    
    June 30, 2006
    
    June 30, 2005
    
    $
    
    %Occupancy
    
    
    62.9
    %
    
    
    64.9
    %
    
    
    58.7
    %
    
    
    N/A
    
    
    
    10.6
    %ADR
    
    $
    234.95
    
    
    $
    205.91
    
    
    $
    195.92
    
    
    $
    9.99
    
    
    
    5.1
    %RevPAR
    
    $
    147.67
    
    
    $
    133.71
    
    
    $
    115.05
    
    
    $
    18.66
    
    
    
    16.2
    %Total RevPOR
    
    $
    352.45
    
    
    $
    305.95
    
    
    $
    297.52
    
    
    $
    8.43
    
    
    
    2.8
    %Total RevPAR
    
    $
    221.52
    
    
    $
    198.70
    
    
    $
    174.72
    
    
    $
    23.98
    
    
    
    13.7
    %
 
 (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, Sheboygan, and
Williamsburg resorts).
   Three months endedJune 30,Increase2006
    
    2005
    
    (Decrease)Revenues
    
    $
    35,827
    
    
    $
    26,032
    
    
    $
    9,795Operating expenses:Departmental operating expenses
    
    
    11,374
    
    
    
    11,165
    
    
    
    209Selling, general and administrative
    
    
    10,952
    
    
    
    7,328
    
    
    
    3,624Property operating costs
    
    
    4,699
    
    
    
    4,346
    
    
    
    353Depreciation and amortization
    
    
    6,169
    
    
    
    6,085
    
    
    
    84Net operating loss
    
    
    (370
    )
    
    
    (2,892
    )
    
    
    2,522Net interest expense
    
    
    951
    
    
    
    1,612
    
    
    
    (661
    )Income tax benefit
    
    
    (511
    )
    
    
    (1,802
    )
    
    
    1,291Net loss
    
    
    (1,402
    )
    
    
    (2,702
    )
    
    
    1,300
 Revenues.
 
    
    Total revenues for the Pocono Mountains resort was $11,330 for the three months ended
June 30, 2006. Our Williamsburg resort revenues increased $2,631 for the three months
ended June 30, 2006 as compared to June 30, 2005 due to increased marketing efforts.
 23




---



##### Table of Contents




    
    Total management and other fees related to the CNL joint venture were $670 for the
three months ended June 30, 2006.
    
    Other revenue from managed properties was $3,003 for the three months ended June 30,
2006. There was no similar revenue for the three months ended June 30, 2005.
    
    Total revenues for the Wisconsin Dells and Sandusky resorts were $7,917 for the three
months ended June 30, 2005.
 Operating expenses.
 
    
    Total departmental operating expenses for the Pocono Mountains resort was $4,199 for the
three months ended June 30, 2006. Total departmental expenses for the Wisconsin Dells and
Sandusky resorts were $3,388 for the three months ended June 30, 2005.
    
    Total selling, general and administrative expenses for the Pocono Mountain resort was
$2,388 for the three months ended June 30, 2006. Total selling, general and administrative
expenses for the Wisconsin Dells and Sandusky resorts were $2,600 for the three months ended
June 30, 2005. Total selling, general and administrative expenses for our resort in
Williamsburg increased by $723 mainly due to increased marketing efforts. During the three
months ended June 30, 2006 our corporate selling, general and administrative expenses
included increases over the three months ended June 30, 2005 related to share based
compensation of $1,441, and incentive compensation of $1,150.
    
    Total property operating costs (exclusive of opening costs) for the Pocono Mountains
resort were $1,131 for the three months ended June 30, 2006. Total property operating costs
for the resorts in Wisconsin Dells and Sandusky were $1,404 for the three months ended June
30, 2005. Opening costs related to our Mason Family and Grapevine resorts and for the
resort in Niagara Falls was $724 for the three months ended June 30, 2006, as compared to
$535 for the six months ended June 30, 2005 related to our resorts in Williamsburg and the
Pocono Mountains.
    
    Total depreciation increased due to the opening of our resort in Pocono Mountains and
additional property and equipment purchases at our other resorts. Total depreciation and
amortization for the Pocono Mountains resort was $1,823 for the three months ended June 30,
2006. Total depreciation and amortization for the Wisconsin Dells and Sandusky resorts was
$2,120 for the three months ended June 30, 2005.
 Net operating loss.
 Net loss.
 
    
    A decrease in operating loss from $(2,892) for the three months ended June 30, 2005 to
$(370) for the three months ended June 30, 2006.
    
    An decrease in net interest expense of $661 mainly due to more interest being capitalized
to construction in process during the three months ended June 30, 2006 as compared to the
three months ended June 30, 2005.
 24




---



##### Table of Contents




    
    A reduction of $1,291 in income tax benefit recorded in the three months ended June 30,
2006 as compared to the three months ended June 30, 2005.
 Six months ended June 30, 2006 compared with the six months ended June 30, 2005
  All Properties (a)
    
    Same Store Comparison (b)Six months ended
    
    Six months ended
    
    Six months ended
    
    Increase (Decrease)June 30, 2006
    
    June 30, 2006
    
    June 30, 2005
    
    $
    
    %Occupancy
    
    
    64.7
    %
    
    
    63.9
    %
    
    
    64.8
    %
    
    
    N/A
    
    
    
    (1.4
    )%ADR
    
    $
    236.42
    
    
    $
    194.81
    
    
    $
    199.94
    
    
    $
    (5.13
    )
    
    
    (2.6
    )%RevPAR
    
    $
    152.85
    
    
    $
    124.44
    
    
    $
    129.48
    
    
    $
    (5.04
    )
    
    
    (3.9
    )%Total RevPOR
    
    $
    356.49
    
    
    $
    297.39
    
    
    $
    300.79
    
    
    $
    (3.40
    )
    
    
    (1.1
    )%Total RevPAR
    
    $
    230.48
    
    
    $
    189.96
    
    
    $
    194.79
    
    
    $
    (4.83
    )
    
    
    (2.5
    )%
 
 (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).   Six months endedJune 30,Increase2006
    
    2005
    
    (Decrease)Revenues
    
    $
    73,663
    
    
    $
    53,028
    
    
    $
    20,635Operating expenses:Departmental operating expenses
    
    
    23,567
    
    
    
    20,834
    
    
    
    2,733Selling, general and administrative
    
    
    22,603
    
    
    
    14,565
    
    
    
    8,038Property operating costs
    
    
    9,575
    
    
    
    10,403
    
    
    
    (828
    )Depreciation and amortization
    
    
    12,267
    
    
    
    13,234
    
    
    
    (967
    )Loss on sale
of property
    
    
    578
    
    
    
    
    
    
    
    578Net operating loss
    
    
    (912
    )
    
    
    (6,008
    )
    
    
    5,096Net interest expense
    
    
    2,130
    
    
    
    2,376
    
    
    
    (246
    )Income tax benefit
    
    
    (1,185
    )
    
    
    (3,344
    )
    
    
    2,159Net loss
    
    
    (2,345
    )
    
    
    (5,040
    )
    
    
    2,695
 Revenues.
 25




---



##### Table of Contents




    
    Total revenues for the Williamsburg and Pocono Mountains resorts were $39,136 for the
six months ended June 30, 2006 as compared to $6,104 for the six months ended June 30,
2005.
    
    Total management and other fees related to the CNL joint venture were $1,397 for the
six months ended June 30, 2006.
    
    Other revenue from managed properties was $5,985 for the six months ended June 30,
2006. There was no similar revenue for the six months ended June 30, 2005.
    
    Total revenues for the Wisconsin Dells and Sandusky resorts were $18,645 for the six
months ended June 30, 2005.
 Operating expenses.
 
    
    Total departmental operating expenses for the Williamsburg and Pocono Mountains resorts
were $13,882 for the six months ended June 30, 2006 as compared to $2,996 for the six months
ended June 30, 2005. Total departmental expenses for the Wisconsin Dells and Sandusky
resorts were $7,148 for the six months ended June 30, 2005.
    
    Total selling, general and administrative expenses for the Williamsburg and Pocono
Mountains resorts were $8,483 for the six months ended June 30, 2006 as compared to $1,264
for the six months ended June 30, 2005. Total selling, general and administrative expenses
for the Wisconsin Dells and Sandusky resorts were $4,784 for the six months ended June 30,
2005. During the six months ended June 30, 2006 our corporate selling, general and
administrative expenses included increases over that of the six months ended June 30, 2005
related to share based compensation of $1,899 and compensation-related expenses of $2,888
due to increased staffing at our corporate office.
    
    Total property operating costs (exclusive of opening costs) for the Williamsburg and
Pocono Mountains resorts were $3,555 for the three months ended June 30, 2006. Total
property operating costs (exclusive of opening costs) for the resorts in Wisconsin Dells and
Sandusky were $2,694 for the six months ended June 30, 2005. Opening costs related to our
Pocono Mountains and Mason Family and Grapevine resorts and the resort in Niagara Falls were
$1,262 for the six months ended June 30, 2006, as compared to $3,105 for the six months
ended June 30, 2005 related to our resorts in Williamsburg and the Pocono Mountains.
    
    Total depreciation and amortization for the Williamsburg and Pocono Mountains resorts was
$6,363 for the six months ended June 30, 2006 as compared to $4,024 for the six months ended
June 30, 2005. Total depreciation and amortization for the Wisconsin Dells and Sandusky
resorts was $3,828 for the six months ended June 30, 2005. During the six months ended June
30, 2005 we also had amortization expense of $2,116 related to loan fee write offs. There
were no similar write offs during the six months ended June 30, 2006.
    
    Loss on sale of real estate of $578 during the six months ended June 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 six
months ended June 30, 2005.
 26




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##### Table of Contents



Net operating loss.
 Net loss.
 
    
    A decrease in operating loss from $(6,008) for the six months ended June 30, 2005 to
$(912) for the six months ended June 30, 2006.
    
    An decrease in net interest expense of $246 mainly due to more interest being capitalized
to construction in process during the six months ended June 30, 2006 as compared to the six
months ended June 30, 2005.
  
    
    A reduction of $2,159 in income tax benefit recorded in the six months ended June 30,
2006 as compared to the six months ended June 30, 2005.
 Segments
  Three months ended June 30,
    
    Six months ended June 30,Increase
    
    
    
    
    
    
    
    
    
    Increase2006
    
    2005
    
    (Decrease)
    
    2006
    
    2005
    
    (Decrease)Resort Ownership/OperationRevenues
    
    $
    31,561
    
    
    $
    26,032
    
    
    $
    5,529
    
    
    $
    65,540
    
    
    $
    53,028
    
    
    $
    12,512EBITDA, excluding
certain items
    
    
    7,943
    
    
    
    2,841
    
    
    
    5,102
    
    
    
    16,608
    
    
    
    8,095
    
    
    
    8,513Resort Third-Party MgmtRevenues
    
    
    4,266
    
    
    
    
    
    
    
    4,266
    
    
    
    8,123
    
    
    
    
    
    
    
    8,123EBITDA, excluding
certain items
    
    
    1,263
    
    
    
    
    
    
    
    1,263
    
    
    
    2,138
    
    
    
    
    
    
    
    2,138OtherRevenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EBITDA, excluding
certain items
    
    
    (3,407
    )
    
    
    352
    
    
    
    (3,759
    )
    
    
    (7,391
    )
    
    
    (869
    )
    
    
    (6,522
    )
  Liquidity and Capital Resources
  27




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##### Table of Contents



June 30,
    
    
    December 31,2006
    
    
    2005Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    73,392
    
    
    $
    73,979Sheboygan mortgage loan
    
    
    28,666
    
    
    
    28,939Junior subordinated debentures
    
    
    51,550
    
    
    
    51,550Mason construction loan
    
    
    25,970
    
    
    
    Other mortgage debt
    
    
    1,523
    
    
    
    1,552Other Debt:City of Sheboygan bonds
    
    
    8,312
    
    
    
    8,288City of Sheboygan loan
    
    
    3,942
    
    
    
    4,020193,355
    
    
    
    168,328Less current portion of long-term debt
    
    
    (1,987
    )
    
    
    (1,928
    )Total long-term debt
    
    $
    191,368
    
    
    $
    166,400
 Traverse City/Kansas City Mortgage Loan
 Sheboygan Mortgage Loan
 Junior Subordinated Debentures
    28




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##### Table of Contents



Mason Construction Loan
 City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughJune 30,2007
    
    $
    1,9872008
    
    
    29,5322009
    
    
    27,5632010
    
    
    1,7112011
    
    
    1,838Thereafter
    
    
    130,724Total
    
    $
    193,355
 Short-Term Liquidity Requirements
  
    
    recurring maintenance, repairs and other operating expenses necessary to properly
maintain and operate our resorts;
    
    property taxes and insurance expenses;
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##### Table of Contents




    
    interest expense and scheduled principal payments on outstanding indebtedness;
    
    general and administrative expenses; and
    
    income taxes.
  Long-Term Liquidity Requirements
  
    
    scheduled debt maturities;
    
    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.
   Off Balance Sheet Arrangements
  30




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##### Table of Contents



Contractual Obligations
  Payment TermsLess
    
    
    
    
    
    
    
    
    
    
    MoreThan
    
    
    1-3
    
    
    3-5
    
    
    ThanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsDebt Obligations(1)
    
    $
    193,355
    
    
    $
    1,987
    
    
    $
    57,095
    
    
    $
    3,548
    
    
    $
    130,725Operating Lease Obligations
    
    
    1,372
    
    
    
    423
    
    
    
    813
    
    
    
    136
    
    
    
    Construction Contracts
    
    
    62,843
    
    
    
    46,221
    
    
    
    16,622
    
    
    
    
    
    
    
    Total
    
    $
    257,570
    
    
    $
    48,631
    
    
    $
    74,530
    
    
    $
    3,684
    
    
    $
    130,725
 
 (1)
    
    Includes $8,312 of fixed rate debt recognized as a liability related to certain bonds issued
by the City of Sheboygan and $3,942 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
 Six months ended June 30, 2006 compared with the six months ended June 30, 2005
 Increase2006
    
    2005
    
    (Decrease)Net cash provided by (used in) operating activities
    
    $
    7,589
    
    
    $
    (16,803
    )
    
    $
    24,392Net cash used in investing activities
    
    
    (29,635
    )
    
    
    (55,050
    )
    
    
    25,415Net cash provided by financing activities
    
    
    24,464
    
    
    
    24,696
    
    
    
    (232
    )
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Inflation
  31




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##### Table of Contents



ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
    
    $73,392 of fixed rate debt secured by two of our resorts. This debt bears interest at
6.96%.
    
    $28,666 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 10.14% at June 30,
2006.
    
    $51,550 of 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.
    
    $25,970 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
7.86% at June 30, 2006.
    
    $8,312 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 $3,942 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
  32




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##### Table of Contents



Remediation of Material Weaknesses
   Changes In Internal Control
  33




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##### 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
  
 34




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  FOR
    
    WITHHELDBruce D. Neviaser
    
    23,311,246 votes
    
    614,122 votesJohn Emery
    
    23,685,356 votes
    
    240,012 votesElan Blutinger
    
    23,702,719 votes
    
    222,649 votesRandy Churchey
    
    23,171,315 votes
    
    754,053 votesMichael M. Knetter
    
    23,172,005 votes
    
    753,363 votesAlissa N. Nolan
    
    23,733,075 votes
    
    192,293 votesHoward Silver
    
    23,113,278 votes
    
    812,090 votes
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description2.1
    
    Form of Merger Agreement (Delaware) (incorporated herein by reference to
Exhibit 2.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)2.2
    
    Form of Merger Agreement (Wisconsin) (incorporated herein by reference to
Exhibit 2.2 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)3.1
    
    Form of Amended and Restated Certificate of Incorporation for Great Wolf
Resorts, Inc. dated December 9, 2004 (incorporated herein by reference to
Exhibit 3.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)3.2
    
    Form of Amended and Restated Bylaws of Great Wolf Resorts, Inc. effective
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)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. 35




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##### Table of Contents



SIGNATURE
  GREAT WOLF RESORTS, INC./s/ James A. CalderJames A. CalderChief Financial Officer
(Duly authorized officer)
(Principal Financial and Accounting Officer)  36