##### 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 March 31, 2007
 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
    
    51-0510250(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)122 West Washington Avenue
    
    53703Madison, Wisconsin 53703
    
    (Zip Code)(Address of principal executive offices)
 (608) 661-4700
 þ o
  o þ o
 o þ




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##### Table of Contents



Great Wolf Resorts, Inc.
 Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2007
 INDEX
 PageNo.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets for Great Wolf Resorts, Inc. and Subsidiaries as of March 31, 2007 and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations for Great Wolf Resorts, Inc. and Subsidiaries for the three months ended March 31, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for Great Wolf Resorts, Inc. and Subsidiaries for the three months ended March 31, 2007 and 2006
    
    
    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 OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
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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)
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    62,718
    
    
    $
    96,778Accounts receivable, net of allowance for doubtful accounts of $100 and $205
    
    
    2,128
    
    
    
    2,680Accounts receivable  affiliates
    
    
    1,491
    
    
    
    2,223Inventory
    
    
    3,403
    
    
    
    2,825Other current assets
    
    
    6,593
    
    
    
    4,638Total current assets
    
    
    76,333
    
    
    
    109,144Property and equipment, net
    
    
    524,405
    
    
    
    489,968Investment in affiliates
    
    
    24,931
    
    
    
    25,028Other assets
    
    
    26,926
    
    
    
    19,450Other intangible assets
    
    
    23,829
    
    
    
    23,829Goodwill
    
    
    16,020
    
    
    
    16,020Total assets
    
    $
    692,444
    
    
    $
    683,439LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    1,444
    
    
    $
    1,432Accounts payable
    
    
    22,156
    
    
    
    25,882Accrued payroll
    
    
    1,391
    
    
    
    2,768Accrued expenses
    
    
    13,706
    
    
    
    12,740Accrued expenses  affiliates
    
    
    378
    
    
    
    443Advance deposits
    
    
    10,879
    
    
    
    7,165Gift certificates payable
    
    
    2,947
    
    
    
    3,349Total current liabilities
    
    
    52,901
    
    
    
    53,779Mortgage debt
    
    
    288,982
    
    
    
    275,711Other long-term debt
    
    
    12,044
    
    
    
    12,246Other long-term liabilities
    
    
    391
    
    
    
    391Deferred tax liability
    
    
    14,923
    
    
    
    15,846Deferred compensation liability
    
    
    2,353
    
    
    
    2,200Total liabilities
    
    
    371,594
    
    
    
    360,173Minority interest
    
    
    5,296
    
    
    
    5,757Commitments and contingenciesStockholders equity:Common stock, $0.01 par value, 250,000,000 shares authorized,
30,604,607 and 30,509,320 shares, issued and outstanding, at March
31, 2007 and December 31, 2006, respectively
    
    
    306
    
    
    
    305Additional paid in capital
    
    
    396,958
    
    
    
    396,909Preferred stock, $0.01 par value, 10,000,000 shares authorized, no
shares issued or outstanding
    
    
    
    
    
    
    Accumulated deficit
    
    
    (79,510
    )
    
    
    (77,505
    )Deferred compensation
    
    
    (2,200
    )
    
    
    (2,200
    )Total stockholders equity
    
    
    315,554
    
    
    
    317,509Total liabilities and stockholders equity
    
    $
    692,444
    
    
    $
    683,439
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GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited; dollars in thousands, except per share data)
 Three months endedMarch 31,2007
    
    
    2006Revenues:Rooms
    
    $
    28,872
    
    
    $
    22,687Food and beverage
    
    
    7,790
    
    
    
    5,771Other hotel operations
    
    
    6,984
    
    
    
    5,521Management and other fees
    
    
    607
    
    
    
    148Management and other fees  related parties
    
    
    1,171
    
    
    
    72745,424
    
    
    
    34,854Other revenue from managed properties
    
    
    3,035
    
    
    
    2,982Total revenues
    
    
    48,459
    
    
    
    37,836Operating expenses by department:Rooms
    
    
    4,155
    
    
    
    2,997Food and beverage
    
    
    6,653
    
    
    
    4,871Other
    
    
    5,712
    
    
    
    4,327Other operating expenses:Selling, general and administrative
    
    
    13,122
    
    
    
    11,650Property operating costs
    
    
    7,883
    
    
    
    4,877Depreciation and amortization
    
    
    8,644
    
    
    
    6,098Loss on sale of property
    
    
    
    
    
    
    57846,169
    
    
    
    35,398Other expenses from managed properties
    
    
    3,035
    
    
    
    2,982Total operating expenses
    
    
    49,204
    
    
    
    38,380Net operating loss
    
    
    (745
    )
    
    
    (544
    )Interest income
    
    
    (1,155
    )
    
    
    (683
    )Interest expense
    
    
    3,693
    
    
    
    1,862Loss before income taxes, minority interests, and equity in
earnings of unconsolidated affiliates
    
    
    (3,283
    )
    
    
    (1,723
    )Income tax benefit
    
    
    (1,026
    )
    
    
    (675
    )Minority interests, net of tax
    
    
    (316
    )
    
    
    (14
    )Equity in (earnings) loss of unconsolidated affiliates, net of tax
    
    
    64
    
    
    
    (89
    )Net loss
    
    $
    (2,005
    )
    
    $
    (945
    )Net loss per share-basic
    
    $
    (0.07
    )
    
    $
    (0.03
    )Net loss per share-diluted
    
    $
    (0.07
    )
    
    $
    (0.03
    )Weighted average common shares outstanding:Basic
    
    
    30,426,130
    
    
    
    30,147,896Diluted
    
    
    30,426,130
    
    
    
    30,147,896
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GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited; dollars in thousands)
 Three months endedMarch 31,2007
    
    
    2006Operating activities:Net loss
    
    $
    (2,005
    )
    
    $
    (945
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    8,644
    
    
    
    6,098Non-cash employee compensation expense
    
    
    629
    
    
    
    796Loss on sale of property
    
    
    
    
    
    
    578Equity in earnings (loss) of unconsolidated affiliates
    
    
    94
    
    
    
    (148
    )Minority interests
    
    
    (461
    )
    
    
    (24
    )Deferred tax benefit
    
    
    (911
    )
    
    
    (606
    )Changes in operating assets and liabilities:Accounts receivable and other assets
    
    
    (1,816
    )
    
    
    2,913Accounts payable, accrued expenses and other liabilities
    
    
    155
    
    
    
    (2,790
    )Net cash provided by operating activities
    
    
    4,329
    
    
    
    5,872Investing activities:Capital expenditures for property and equipment
    
    
    (43,592
    )
    
    
    (25,574
    )Cash distributions from unconsolidated affiliates
    
    
    
    
    
    
    18,816Investment in affiliates
    
    
    
    
    
    
    (357
    )Investment in development
    
    
    (8,571
    )
    
    
    Proceeds from sale of assets
    
    
    
    
    
    
    1,540Increase in restricted cash
    
    
    (19
    )
    
    
    (977
    )Increase (decrease) in escrows
    
    
    638
    
    
    
    (379
    )Net cash used in investing activities
    
    
    (51,544
    )
    
    
    (6,931
    )Financing activities:Principal payments on long-term debt
    
    
    (348
    )
    
    
    (510
    )Proceeds from issuance of long-term debt
    
    
    13,503
    
    
    
    3,580Net cash provided by financing activities
    
    
    13,155
    
    
    
    3,070Net increase (decrease) in cash and cash equivalents
    
    
    (34,060
    )
    
    
    2,011Cash and cash equivalents, beginning of period
    
    
    96,778
    
    
    
    54,782Cash and cash equivalents, end of period
    
    $
    62,718
    
    
    $
    56,793Supplemental Cash Flow Information-Cash paid for interest, net of capitalized interest
    
    $
    3,377
    
    
    $
    1,681Cash paid for income taxes
    
    $
    147
    
    
    $
    192Non-cash items:Construction in process accruals
    
    $
    895
    
    
    $
    5,846
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GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands, except per share amounts)
 1. ORGANIZATION
  Business Summary
    IndoorOwnership
    
    
    
    Guest
    
    Condo
    
    EntertainmentPercentage
    
    Opening
    
    Suites
    
    Units
    
    Area(1)(Approx. ft2)Existing Resorts:Wisconsin Dells, WI (2)
    
    
    30
    %
    
    1997
    
    
    309
    
    
    
    77
    
    
    
    102,000Sandusky, OH (2)
    
    
    30
    %
    
    2001
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI
    
    
    100
    %
    
    2003
    
    
    281
    
    
    
    
    
    
    
    51,000Kansas City, KS
    
    
    100
    %
    
    2003
    
    
    281
    
    
    
    
    
    
    
    49,000Sheboygan, WI
    
    
    100
    %
    
    2004
    
    
    182
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    2005
    
    
    405
    (3)
    
    
    
    
    
    
    78,000Pocono Mountains, PA
    
    
    100
    %
    
    2005
    
    
    401
    
    
    
    
    
    
    
    91,000Niagara Falls, ONT (4)
    
    
    
    
    
    2006
    
    
    406
    
    
    
    
    
    
    
    94,000Mason, OH (5)
    
    
    84
    %
    
    2006
    
    
    401
    
    
    
    
    
    
    
    93,000Resorts Under Construction:Grapevine, TX(6)
    
    
    100
    %
    
    Late 2007
    
    
    404
    
    
    
    
    
    
    
    98,000Grand Mound, WA(7)
    
    
    49
    %
    
    Early 2008
    
    
    398
    
    
    
    
    
    
    
    78,000
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(1)
    
    Our indoor entertainment areas generally include our indoor waterpark, game arcade,
childrens activity room and fitness room, as well as our Aveda spa in the resorts that have
such amenities.(2)
    
    These properties are owned by a joint venture. CNL Income Properties, Inc. (CNL), a real
estate investment trust focused on leisure and lifestyle properties, owns a 70% interest in
the joint venture, and we have a 30% interest. We operate the properties and license the
Great Wolf Lodge brand to the joint venture under long-term agreements, subject to earlier
termination in certain situations.(3)
    
    Construction for the expansion of 104 additional guest suites, conference center space and
waterpark attractions began in May 2006. The additional waterpark attractions were completed
in December 2006. The additional guest suites were completed in March 2007. We expect to
complete the conference center space in Summer 2007.(4)
    
    An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this resort. We have
granted Ripley a license to use the Great Wolf Lodge name for this resort through April 2016.
We manage the resort on behalf of Ripley and also provide central reservation services.(5)
    
    We entered into a joint venture agreement with a subsidiary of CBS Corporation (CBS), to
build this resort and attached conference center. We operate the resort under our Great Wolf
Lodge brand and have a majority of the equity in the project. CBS has a minority equity
interest in the resort. This resort opened in December 2006 and the conference center was
completed in March 2007.(6)
    
    We are developing a Great Wolf Lodge resort in Grapevine, Texas. The northwoods themed,
eight-story resort will provide a comprehensive package of first-class destination lodging
amenities and activities. Construction on the resort began in June 2006 with expected
completion in late 2007.(7)
    
    We have entered into a joint venture agreement with The Confederated Tribes of the Chehalis
Reservation (Chehalis) to build this resort. We will operate the resort under our Great Wolf
Lodge brand. Chehalis 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
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Principles of Consolidation
 Investment in Affiliates
 Minority Interest 
 Income Taxes
 Segments
 
    
    resort ownership/operation-revenues derived from our consolidated owned resorts;
    
    resort third-party management-revenues derived from management, license and other
related fees from unconsolidated managed resorts; and
    
    condominium sales-revenues derived from sales of condominium units to third-party
owners.
   Resort
    
    
    Resort Third-
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsThree months ended March 31,
2007Revenues
    
    $
    43,646
    
    
    $
    4,813
    
    
    $
    
    
    
    $
    
    
    
    $
    48,459EBITDA, excluding certain items
    
    
    8,422
    
    
    
    1,778
    
    
    
    
    
    
    
    (2,301
    )
    
    $
    7,899Depreciation and amortization
    
    
    (8,489
    )
    
    
    
    
    
    
    
    
    
    
    (155
    )
    
    
    (8,644
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,538
    )Loss before income taxes,
minority interests, and equity
in earnings of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,283
    )Additions to long-lived assets
    
    
    43,323
    
    
    
    
    
    
    
    
    
    
    
    269
    
    
    $
    43,592Total assets
    
    
    555,532
    
    
    
    1,976
    
    
    
    
    
    
    
    134,936
    
    
    $
    692,444
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##### Table of Contents



Resort
    
    
    Resort Third-
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsThree months ended March 31,
2006Revenues
    
    $
    33,979
    
    
    $
    3,857
    
    
    $
    
    
    
    $
    
    
    
    $
    37,836EBITDA, excluding certain items
    
    
    8,103
    
    
    
    875
    
    
    
    
    
    
    
    (3,424
    )
    
    $
    5,554Depreciation and amortization
    
    
    (5,995
    )
    
    
    
    
    
    
    
    
    
    
    (103
    )
    
    
    (6,098
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,179
    )Loss before income taxes,
minority interests, and equity
in loss of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,723
    )Additions to long-lived assets
    
    
    25,452
    
    
    
    
    
    
    
    
    
    
    
    122
    
    
    $
    25,574Total assets
    
    
    481,895
    
    
    
    4,137
    
    
    
    
    
    
    
    116,512
    
    
    $
    602,544
  Recent Accounting Pronouncements
     9




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3. SHARE-BASED COMPENSATION
 Share-Based Payment Accounting for Stock Issued to Employees
    Stock Options
    WeightedWeighted
    
    AverageAverage
    
    RemainingExercise
    
    ContractualShares
    
    Price
    
    LifeNumber of shares under option:Outstanding at beginning of period
    
    
    1,064,500
    
    
    $
    17.55Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    (833
    )
    
    $
    15.16Outstanding at end of period
    
    
    1,063,667
    
    
    $
    17.55
    
    
    7.79 yearsExercisable at end of period
    
    
    702,514
    
    
    $
    17.62
    
    
    7.75 years
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##### Table of Contents



Market Condition Share Awards
    
    
    53,006 are based on our common stocks performance in 2007 relative to a stock
index, as designated by the Compensation Committee of the Board of Directors. These shares vest ratably over a three-year period, 2007-2009. The per share fair value
of these market condition shares was $7.25.The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    5.05
    %Expected stock price volatility
    
    
    42.13
    %Expected stock price volatility (small-cap stock index)
    
    
    16.64
    %
 We used an expected dividend yield of 0% as we do not currently pay a dividend and do
not contemplate paying a dividend in the foreseeable future. The weighted average,
risk free interest rate is based on the one-year T-bill rate. Our expected stock price
volatility was estimated using daily returns data of our stock for a two-year period
ending on the grant date. The expected stock price volatility for the small cap stock
index was estimated using daily returns data for a two-year period ending on the grant
date.
    
    81,293 are based on our common stocks absolute performance during the three-year
period 2007-2009. Half of these shares vest on December 31, 2009, and the other
half vest on December 31, 2010. The per share fair value of these market condition shares was $6.65.The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    4.73
    %Expected stock price volatility
    
    
    42.13
    %
 We used an expected dividend yield of 0% as we do not currently pay a dividend and do
not contemplate paying a dividend in the foreseeable future. The weighted average,
risk free interest rate is based on the four-year T-bill rate. Our expected stock
price volatility was estimated using daily returns data of our stock for a two-year
period ending on the grant date.
    
    81,293 are based on our common stocks performance in 2007-2009 relative to a
stock index, as designated by the Compensation Committee of the Board of Directors.
Half of these shares vest on
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##### Table of Contents



December 31, 2009, and the other half vest on December 31, 2010. The per share fair value of these market condition shares was $8.24.The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    4.73
    %Expected stock price volatility
    
    
    42.13
    %Expected stock price volatility (small-cap stock index)
    
    
    16.64
    %
 We used an expected dividend yield of 0% as we do not currently pay a dividend and do
not contemplate paying a dividend in the foreseeable future. The weighted average,
risk free interest rate is based on the four-year T-bill rate. Our expected stock
price volatility was estimated using daily returns data of our stock for a two-year
period ending on the grant date. The expected stock price volatility for the small
cap stock index was estimated using daily returns data for a two-year period ending on
the grant date.
  
    
    81,820 were based on our common stocks performance in 2006 relative to
a stock index, as designated by the Compensation Committee of the Board of
Directors. The per share fair value of these market condition shares was $5.76.The fair value of the market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 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
    %
 We used an expected dividend yield of 0% as we do not currently pay a dividend and do
not contemplate paying a dividend in the foreseeable future. The weighted average,
risk free interest rate is based on the one year T-bill rate. Our expected stock
price volatility was estimated using daily returns data for the three-year period
ending on the grant date for peer group companies. The expected stock price
volatility for the small cap stock index was estimated using three-year return
averages.Based on our common stock performance in 2006, employees earned and were issued 81,820
market condition shares in February 2007.
 Performance Share Awards
  12




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Deferred Compensation Awards
  Non-vested Shares
   WeightedAverageGrant Date
    
    AggregateShares
    
    Fair Value
    
    Intrinsic ValueNon-vested shares balance at beginning of period
    
    
    245,000Granted
    
    
    42,078
    
    
    $
    13.18Forfeited
    
    
    (5,000
    )Vested
    
    
    (38,000
    )
    
    $
    11.60Non-vested shares balance at end of period
    
    
    244,078
    
    
    $
    11.81
    
    
    $
    408
  4. PROPERTY AND EQUIPMENT
  March 31,
    
    
    December 31,2007
    
    
    2006Land and improvements
    
    $
    38,058
    
    
    $
    38,058Building and improvements
    
    
    214,373
    
    
    
    178,464Furniture, fixtures and equipment
    
    
    247,762
    
    
    
    243,991Construction in process
    
    
    75,055
    
    
    
    71,848575,248
    
    
    
    532,361Less accumulated depreciation
    
    
    (50,843
    )
    
    
    (42,393
    )Property and equipment, net
    
    $
    524,405
    
    
    $
    489,968
 13




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##### Table of Contents



5. LONG-TERM DEBT
  March 31,
    
    
    December 31,2007
    
    
    2006Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    72,477
    
    
    $
    72,801Mason construction loan
    
    
    69,221
    
    
    
    55,792Pocono Mountains mortgage loan
    
    
    97,000
    
    
    
    97,000Junior subordinated debentures
    
    
    51,550
    
    
    
    51,550Other Debt:City of Sheboygan bonds
    
    
    8,402
    
    
    
    8,383City of Sheboygan loan
    
    
    3,820
    
    
    
    3,863302,470
    
    
    
    289,389Less current portion of long-term debt
    
    
    (1,444
    )
    
    
    (1,432
    )Total long-term debt
    
    $
    301,026
    
    
    $
    287,957
 Traverse City/Kansas City Mortgage Loan
 Mason Construction Loan
 Pocono Mountains Mortgage Loan 
 14




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##### Table of Contents



Junior Subordinated Debentures
    City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughMarch 31,2008
    
    $
    1,4442009
    
    
    2,2852010
    
    
    2,8102011
    
    
    72,2282012
    
    
    3,195Thereafter
    
    
    220,508Total
    
    $
    302,470
 15




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##### Table of Contents



6. EARNINGS PER SHARE
   Three months endedMarch 31,2007
    
    2006Net income (loss) attributable to common shares
    
    $
    (2,005
    )
    
    $
    (945
    )Weighted average common shares outstanding  basic
    
    
    30,426,130
    
    
    
    30,147,896Weighted average common shares outstanding  diluted
    
    
    30,426,130
    
    
    
    30,147,896Net income (loss) per share  basic
    
    $
    (0.07
    )
    
    $
    (0.03
    )Net income (loss) per share  diluted
    
    $
    (0.07
    )
    
    $
    (0.03
    )
  7. SUBSEQUENT EVENTS
  
 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



IndoorOwnership
    
    
    
    
    
    
    
    
    
    Condo
    
    EntertainmentPercentage
    
    Opening
    
    Guest Suites
    
    Units
    
    Area(1)(Approx. ft2)Existing Resorts:Wisconsin Dells, WI (2)
    
    
    30
    %
    
    
    1997
    
    
    
    309
    
    
    
    77
    
    
    
    102,000Sandusky, OH (2)
    
    
    30
    %
    
    
    2001
    
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    51,000Kansas City, KS
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    49,000Sheboygan, WI
    
    
    100
    %
    
    
    2004
    
    
    
    182
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    
    2005
    
    
    
    405
    (3)
    
    
    
    
    
    
    78,000Pocono Mountains, PA
    
    
    100
    %
    
    
    2005
    
    
    
    401
    
    
    
    
    
    
    
    91,000Niagara Falls, ONT (4)
    
    
    
    
    
    
    2006
    
    
    
    406
    
    
    
    
    
    
    
    94,000Mason, OH (5)
    
    
    84
    %
    
    
    2006
    
    
    
    401
    
    
    
    
    
    
    
    93,000Resorts Under Construction:Grapevine, TX(6)
    
    
    100
    %
    
    Late 2007
    
    
    404
    
    
    
    
    
    
    
    98,000Grand Mound, WA(7)
    
    
    49
    %
    
    Early 2008
    
    
    398
    
    
    
    
    
    
    
    78,000
 
 (1)
    
    Our indoor entertainment areas generally include our indoor waterpark, game arcade,
childrens activity room and fitness room, as well as our Aveda spa in the resorts that have
such amenities.(2)
    
    These properties are owned by a joint venture. CNL Income Properties, Inc. (CNL), a real
estate investment trust focused on leisure and lifestyle properties, owns a 70% interest in
the joint venture, and we have a 30% interest. We operate the properties and license the
Great Wolf Lodge brand to the joint venture under long-term agreements, subject to earlier
termination in certain situations.(3)
    
    Construction for the expansion of 104 additional guest suites, conference center space and
waterpark attractions began in May 2006. The additional waterpark attractions were completed
in December 2006. The additional guest suites were completed in March 2007. We expect to
complete the conference center space in Summer 2007. 17




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##### Table of Contents



(4)
    
    An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this resort. We have
granted Ripley a license to use the Great Wolf Lodge name for this resort through April 2016.
We manage the resort on behalf of Ripley and also provide central reservation services.(5)
    
    We entered into a joint venture agreement with a subsidiary of CBS Corporation (CBS), to
build this resort and attached conference center. We operate the resort under our Great Wolf
Lodge brand and have a majority of the equity in the project. CBS has a minority equity
interest in the resort. This resort opened in December 2006 and the conference center was
completed in March 2007.(6)
    
    We are developing a Great Wolf Lodge resort in Grapevine, Texas. The northwoods themed,
eight-story resort will provide a comprehensive package of first-class destination lodging
amenities and activities. Construction on the resort began in June 2006 with expected
completion in late 2007.(7)
    
    We have entered into a joint venture agreement with The Confederated Tribes of the Chehalis
Reservation (Chehalis) to build this resort. We will operate the resort under our Great Wolf
Lodge brand. Chehalis will lease the land needed for the resort to the joint venture, and they
will have a majority equity interest in the joint venture. Construction on the resort began in
October 2006 with expected completion in early 2008. Industry Trends.
    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.
 19




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##### Table of Contents




    
    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.
   20




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##### Table of Contents



Recent Accounting Pronouncements
      Non-GAAP Financial Measures
   21




---



##### 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 endedMarch 31,2007
    
    
    2006Net loss
    
    $
    (2,005
    )
    
    $
    (945
    )Adjustments:Interest expense, net
    
    
    2,538
    
    
    
    1,179Income tax benefit
    
    
    (911
    )
    
    
    (606
    )Depreciation and amortization
    
    
    8,644
    
    
    
    6,098EBITDA
    
    $
    8,266
    
    
    $
    5,726
 Results of Operations
 22




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##### Table of Contents



General
   
    
    our corporate entity that provides resort development and management services;
    
    our Traverse City, Kansas City, Sheboygan, Williamsburg, Pocono Mountains, and Mason operating resorts;
    
    equity interests in resorts in which we have ownership interests but which we do not consolidate; and
    
    our resorts that are under construction which we 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, license, development and construction management agreements; and
    
    other revenue from managed properties. We employ the staff at our managed properties
(except for the Niagara Falls resort). Under our management agreements, the resort owners
reimburse us for payroll, benefits and certain other costs related to the operations of the
managed properties. Emerging Issues Task Force, or EITF, Issue No. 01-14, Income Statement
Characteristics of Reimbursements for Out-of-Pocket Expenses (EITF 01-14), 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;
    
    cost of sales of condominiums;
    
    depreciation and amortization; and
    
    other expenses from managed properties, which are recorded as an expense in accordance with EITF 01-14.
 Three months ended March 31, 2007 compared with the three months ended March 31, 2006
  23




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##### Table of Contents



All Properties (a)
    
    Same Store Comparison (b)Three months
    
    Three months
    
    Three monthsended
    
    ended
    
    ended
    
    Increase (Decrease)March 31, 2007
    
    March 31, 2007
    
    March 31, 2006
    
    $
    
    %Occupancy
    
    
    64.2
    %
    
    
    65.6
    %
    
    
    66.8
    %
    
    
    N/A
    
    
    
    (1.8
    )%ADR
    
    $
    253.99
    
    
    $
    247.61
    
    
    $
    238.04
    
    
    $
    9.57
    
    
    
    4.0
    %RevPAR
    
    $
    163.17
    
    
    $
    162.43
    
    
    $
    158.92
    
    
    $
    3.51
    
    
    
    2.2
    %Total RevPOR
    
    $
    387.63
    
    
    $
    375.87
    
    
    $
    360.95
    
    
    $
    14.92
    
    
    
    4.1
    %Total RevPAR
    
    $
    249.03
    
    
    $
    246.56
    
    
    $
    240.98
    
    
    $
    5.58
    
    
    
    2.3
    %
 
 (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 2007 and
2006 (that is, our Wisconsin Dells, Sandusky, Traverse City, Kansas City, Sheboygan,
Williamsburg, and Poconos resorts).   Three months endedMarch 31,Increase2007
    
    2006
    
    (Decrease)Revenues
    
    $
    48,459
    
    
    $
    37,836
    
    
    $
    10,623Operating expenses:Departmental operating expenses
    
    
    16,520
    
    
    
    12,195
    
    
    
    4,325Selling, general and administrative
    
    
    13,122
    
    
    
    11,650
    
    
    
    1,472Property operating costs
    
    
    7,883
    
    
    
    4,877
    
    
    
    3,006Depreciation and amortization
    
    
    8,644
    
    
    
    6,098
    
    
    
    2,546Loss on sale of real estate
    
    
    
    
    
    
    578
    
    
    
    (578
    )Net operating loss
    
    
    (745
    )
    
    
    (544
    )
    
    
    201Net interest expense
    
    
    2,538
    
    
    
    1,179
    
    
    
    1,359Income tax benefit
    
    
    (1,026
    )
    
    
    (675
    )
    
    
    351Net loss
    
    
    (2,005
    )
    
    
    (945
    )
    
    
    1,060
 Revenues.
 Operating expenses.
 
    
    Total departmental expenses increased primarily due to the impact of our Mason resort.
 24




---



##### Table of Contents




    
    Total selling, general and administrative expenses increased primarily due to the impact of our Mason resort.
    
    Total property operating costs (exclusive of opening costs) increased primarily due to
the impact of our Mason resort. Property operating costs (exclusive of opening costs) for
our Williamsburg and Pocono Mountains resorts increased $781, primarily due to increased
repairs and maintenance expense, and increased utilities expense related to expansions.
Opening costs primarily related to our Williamsburg, Mason, Grapevine and Grand Mound
resorts were $2,313 for the three months ended March 31, 2007, as compared to $725 for the
three months ended March 31, 2006 related to our Pocono Mountains, Mason, Grapevine and our
managed property in Niagara.
    
    Total depreciation and amortization increased due to the opening of our Mason resort and
additional property and equipment purchases at our other resorts. Our Williamsburg and
Pocono Mountains resorts had increased deprecation during the three months ended March 31,
2007 as compared to March 31, 2006 of $584 which relates to added amenities and expansions
at these resorts.
 Net operating loss.
 Net loss.
 
    
    A increase in operating loss from $(544) for the three months ended March 31, 2006 to
$(745) for the three months ended March 31, 2007.
    
    An increase in net interest expense of $1,359 mainly due to mortgage debt related our
Pocono Mountains and Mason resorts.
  Segments
  
    
    resort ownership/operation-revenues derived from our consolidated owned resorts;
    
    resort third-party management-revenues derived from management, license and other
related fees from unconsolidated managed resorts; and
    
    condominium sales-revenues derived from sales of condominium units to third-party
owners.
  Three months ended March 31,Increase2007
    
    2006
    
    (Decrease)Resort Ownership/OperationRevenues
    
    $
    43,646
    
    
    $
    33,979
    
    
    $
    9,667EBITDA, excluding certain items
    
    
    8,422
    
    
    
    8,103
    
    
    
    319Resort Third-Party MgmtRevenues
    
    
    4,813
    
    
    
    3,857
    
    
    
    956EBITDA, excluding certain items
    
    
    1,778
    
    
    
    875
    
    
    
    903
 25




---



##### Table of Contents



Three months ended March 31,Increase2007
    
    2006
    
    (Decrease)Condominium SalesRevenues
    
    
    
    
    
    
    
    
    
    
    EBITDA, excluding certain items
    
    
    
    
    
    
    
    
    
    
    OtherRevenues
    
    
    
    
    
    
    
    
    
    
    EBITDA, excluding certain items
    
    
    (2,301
    )
    
    
    (3,424
    )
    
    
    1,123
  Liquidity and Capital Resources
  March 31,
    
    
    December 31,2007
    
    
    2006Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    72,477
    
    
    $
    72,801Mason construction loan
    
    
    69,221
    
    
    
    55,792Pocono Mountains mortgage loan
    
    
    97,000
    
    
    
    97,000Junior subordinated debentures
    
    
    51,550
    
    
    
    51,550Other Debt:City of Sheboygan bonds
    
    
    8,402
    
    
    
    8,383City of Sheboygan loan
    
    
    3,820
    
    
    
    3,863302,470
    
    
    
    289,389Less current portion of long-term debt
    
    
    (1,444
    )
    
    
    (1,432
    )Total long-term debt
    
    $
    301,026
    
    
    $
    287,957
 Traverse City/Kansas City Mortgage Loan
 Mason Construction Loan
 26




---



##### Table of Contents



Pocono Mountains Mortgage Loan 
 Junior Subordinated Debentures
    City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 27




---



##### Table of Contents



ThroughMarch 31,2008
    
    $
    1,4442009
    
    
    2,2852010
    
    
    2,8102011
    
    
    72,2282012
    
    
    3,195Thereafter
    
    
    220,508Total
    
    $
    302,470
 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.
   28




---



##### Table of Contents



Off Balance Sheet Arrangements
  
    
    Our joint venture with CNL Income Properties, Inc. (CNL) owns two resorts, Great Wolf
Lodge-Wisconsin Dells, Wisconsin and Great Wolf Lodge-Sandusky, Ohio. We are a limited
partner in the CNL joint venture with a 30% ownership interest. At March 31, 2007, the
joint venture had aggregate outstanding indebtedness to third parties of approximately
$63,000. This loan is a mortgage loan that is non-recourse to us.
    
    We entered into our joint venture with The Confederated Tribes of the Chehalis
Reservation to develop a Great Wolf Lodge resort and conference center on a 39-acre land
parcel in Grand Mound, Washington. This joint venture is a limited liability company; we
are a member of that limited liability company with a 49% ownership interest.
  Contractual Obligations
  Payment TermsLess
    
    
    
    
    
    
    
    
    
    
    MoreThan
    
    
    1-3
    
    
    3-5
    
    
    ThanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsDebt obligations(1)
    
    $
    302,470
    
    
    $
    1,444
    
    
    $
    5,095
    
    
    $
    75,423
    
    
    $
    220,508Operating lease obligations
    
    
    1,053
    
    
    
    405
    
    
    
    648
    
    
    
    
    
    
    
    Construction contracts
    
    
    57,113
    
    
    
    57,113
    
    
    
    
    
    
    
    
    
    
    
    Reserve on unrecognized tax benefits
    
    
    978
    
    
    
    
    
    
    
    
    
    
    
    978
    
    
    
    Total
    
    $
    361,614
    
    
    $
    58,962
    
    
    $
    5,743
    
    
    $
    76,401
    
    
    $
    220,508
 
 (1)
    
    Includes $8,402 of fixed rate debt recognized as a liability related to certain bonds issued
by the City of Sheboygan and $3,820 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.  29




---



##### Table of Contents



Working Capital
  Cash Flows
 Three months ended March 31, 2007 compared with the three months ended March 31, 2006
 Increase2007
    
    2006
    
    (Decrease)Net cash provided by operating activities
    
    $
    4,329
    
    
    $
    5,872
    
    
    $
    (1,543
    )Net cash used in investing activities
    
    
    (51,544
    )
    
    
    (6,931
    )
    
    
    44,613Net cash provided by financing activities
    
    
    13,155
    
    
    
    3,070
    
    
    
    10,085
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Inflation
  
 ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   30




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##### Table of Contents




    
    $72,477 of fixed rate debt secured by two of our resorts. This debt bears interest at
6.96%.
    
    $51,550 of subordinated debentures that bear interest at a fixed rate of 7.80% through
March 2015 and then at a floating rate of LIBOR plus 310 basis points thereafter. The
securities mature in March 2035.
    
    $97,000 of fixed rate debt secured by one of our resorts. This debt bears interest at
6.10%
    
    $69,221 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 March 31, 2007.
    
    $8,402 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 $3,820 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
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes In Internal Control
  31




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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
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 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)
 32




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##### 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 8-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)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. 33




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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)  34