##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 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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##### 



Great Wolf Resorts, Inc.
 Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2007
 INDEX
 PageNo.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    36PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37Signatures
    
    
    39CertificationCertificationCertificationCertification
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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)
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,533
    
    
    $
    96,778Accounts receivable, net of allowance for doubtful accounts of $141 and $205
    
    
    2,388
    
    
    
    2,680Accounts receivable  related parties
    
    
    2,143
    
    
    
    2,223Inventory
    
    
    3,823
    
    
    
    2,825Other current assets
    
    
    5,808
    
    
    
    4,638Total current assets
    
    
    35,695
    
    
    
    109,144Property and equipment, net
    
    
    583,093
    
    
    
    489,968Investments in and advances to related parties
    
    
    53,596
    
    
    
    25,028Other assets
    
    
    31,486
    
    
    
    19,450Other intangible assets
    
    
    23,829
    
    
    
    23,829Goodwill
    
    
    17,927
    
    
    
    16,020Total assets
    
    $
    745,626
    
    
    $
    683,439LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    1,654
    
    
    $
    1,432Accounts payable
    
    
    10,433
    
    
    
    25,882Accrued payroll
    
    
    1,199
    
    
    
    2,768Accrued expenses
    
    
    12,346
    
    
    
    12,740Accrued expenses  related parties
    
    
    378
    
    
    
    443Advance deposits
    
    
    7,927
    
    
    
    7,165Gift certificates payable
    
    
    2,648
    
    
    
    3,349Total current liabilities
    
    
    36,585
    
    
    
    53,779Mortgage debt
    
    
    280,737
    
    
    
    224,161Other long-term debt
    
    
    92,528
    
    
    
    63,796Other long-term liabilities
    
    
    2,060
    
    
    
    391Deferred tax liability
    
    
    14,428
    
    
    
    15,846Deferred compensation liability
    
    
    2,331
    
    
    
    2,200Total liabilities
    
    
    428,669
    
    
    
    360,173Minority interest
    
    
    
    
    
    
    5,757Commitments and contingenciesStockholders equity:Common stock, $0.01 par value; 250,000,000 shares authorized;
30,700,003 and 30,509,320 shares issued and outstanding, at
September 30, 2007, and December 31, 2006, respectively
    
    
    307
    
    
    
    305Additional paid in capital
    
    
    398,425
    
    
    
    396,909Preferred stock, $0.01 par value, 10,000,000 shares authorized, no
shares issued or outstanding
    
    
    
    
    
    
    Accumulated deficit
    
    
    (79,405
    )
    
    
    (77,505
    )Deferred compensation
    
    
    (2,200
    )
    
    
    (2,200
    )Accumulated other comprehensive loss, net of tax
    
    
    (170
    )
    
    
    Total stockholders equity
    
    
    316,957
    
    
    
    317,509Total liabilities and stockholders equity
    
    $
    745,626
    
    
    $
    683,439
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##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 AND COMPREHENSIVE INCOME (LOSS)
 (Unaudited; dollars in thousands, except per share data)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Rooms
    
    $
    30,754
    
    
    $
    24,363
    
    
    $
    87,659
    
    
    $
    68,503Food and beverage
    
    
    7,577
    
    
    
    5,723
    
    
    
    22,621
    
    
    
    16,695Other hotel operations
    
    
    7,407
    
    
    
    5,805
    
    
    
    20,990
    
    
    
    16,234Management and other fees
    
    
    983
    
    
    
    888
    
    
    
    2,231
    
    
    
    1,629Management and other fees  related parties
    
    
    1,162
    
    
    
    853
    
    
    
    3,295
    
    
    
    2,25047,883
    
    
    
    37,632
    
    
    
    136,796
    
    
    
    105,311Other revenue from managed properties
    
    
    3,015
    
    
    
    3,147
    
    
    
    8,852
    
    
    
    9,131Total revenues
    
    
    50,898
    
    
    
    40,779
    
    
    
    145,648
    
    
    
    114,442Operating expenses by department:Rooms
    
    
    4,158
    
    
    
    3,134
    
    
    
    12,147
    
    
    
    9,008Food and beverage
    
    
    6,273
    
    
    
    4,682
    
    
    
    19,383
    
    
    
    14,037Other
    
    
    6,024
    
    
    
    4,529
    
    
    
    17,615
    
    
    
    12,868Other operating expenses:Selling, general and administrative
    
    
    10,005
    
    
    
    9,382
    
    
    
    34,582
    
    
    
    31,983Property operating costs
    
    
    6,553
    
    
    
    5,313
    
    
    
    20,726
    
    
    
    14,888Depreciation and amortization
    
    
    9,105
    
    
    
    6,430
    
    
    
    26,567
    
    
    
    18,697Loss on sale of property
    
    
    128
    
    
    
    375
    
    
    
    128
    
    
    
    95342,246
    
    
    
    33,845
    
    
    
    131,148
    
    
    
    102,434Other expenses from managed properties
    
    
    3,015
    
    
    
    3,147
    
    
    
    8,852
    
    
    
    9,131Total operating expenses
    
    
    45,261
    
    
    
    36,992
    
    
    
    140,000
    
    
    
    111,565Net operating income
    
    
    5,637
    
    
    
    3,787
    
    
    
    5,648
    
    
    
    2,877Investment income
    
    
    (281
    )
    
    
    
    
    
    
    (336
    )
    
    
    Interest income
    
    
    (551
    )
    
    
    (863
    )
    
    
    (2,365
    )
    
    
    (2,315
    )Interest expense
    
    
    3,829
    
    
    
    1,817
    
    
    
    11,104
    
    
    
    5,399Income/(loss) before income taxes, minority interests, and equity in
losses of unconsolidated related parties
    
    
    2,640
    
    
    
    2,833
    
    
    
    (2,755
    )
    
    
    (207
    )Income tax expense (benefit)
    
    
    784
    
    
    
    1,102
    
    
    
    (1,157
    )
    
    
    (83
    )Minority interests, net of tax
    
    
    
    
    
    
    (77
    )
    
    
    (443
    )
    
    
    (114
    )Equity in loss (earnings) of unconsolidated related parties, net of tax
    
    
    95
    
    
    
    (280
    )
    
    
    745
    
    
    
    247Net income (loss)
    
    $
    1,761
    
    
    $
    2,088
    
    
    $
    (1,900
    )
    
    $
    (257
    )Other comprehensive income (loss), net of tax:Unrealized loss on interest rate swaps
    
    
    (329
    )
    
    
    
    
    
    
    (170
    )
    
    
    Comprehensive income (loss)
    
    $
    1,432
    
    
    $
    2,088
    
    
    $
    (2,070
    )
    
    $
    (257
    )Net income (loss) per share-basic
    
    $
    0.06
    
    
    $
    0.07
    
    
    $
    (0.06
    )
    
    $
    (0.01
    )Net income (loss) per share-diluted
    
    $
    0.06
    
    
    $
    0.07
    
    
    $
    (0.06
    )
    
    $
    (0.01
    )Weighted average common shares outstanding:Basic
    
    
    30,570,719
    
    
    
    30,370,229
    
    
    
    30,521,022
    
    
    
    30,272,674Diluted
    
    
    30,570,719
    
    
    
    30,370,229
    
    
    
    30,521,022
    
    
    
    30,272,674
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##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited; dollars in thousands)
 Nine months endedSeptember 30,2007
    
    
    2006Operating activities:Net loss
    
    $
    (1,900
    )
    
    $
    (257
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    26,567
    
    
    
    18,697Non-cash employee compensation expense
    
    
    2,004
    
    
    
    2,392Loss on sale of property
    
    
    128
    
    
    
    953Equity in losses of unconsolidated related parties
    
    
    1,285
    
    
    
    411Minority interests
    
    
    (764
    )
    
    
    (190
    )Deferred tax benefit
    
    
    (1,375
    )
    
    
    (176
    )Changes in operating assets and liabilities:Accounts receivable and other assets
    
    
    (4,950
    )
    
    
    1,956Accounts payable, accrued expenses and other liabilities
    
    
    (5,333
    )
    
    
    (7,716
    )Net cash provided by operating activities
    
    
    15,662
    
    
    
    16,070Investing activities:Capital expenditures for property and equipment
    
    
    (130,095
    )
    
    
    (77,197
    )Cash distributions from unconsolidated related parties
    
    
    
    
    
    
    18,902Investments in and advances to related parties
    
    
    (16,981
    )
    
    
    (357
    )Investment in development
    
    
    (20,245
    )
    
    
    Purchase of minority interest
    
    
    (6,900
    )
    
    
    Issuance of notes receivable
    
    
    (3,266
    )
    
    
    Proceeds from sale of assets
    
    
    
    
    
    
    2,045Increase (decrease) in restricted cash
    
    
    1,133
    
    
    
    (1,257
    )Decrease in escrows
    
    
    842
    
    
    
    554Net cash used in investing activities
    
    
    (175,512
    )
    
    
    (57,310
    )Financing activities:Principal payments on long-term debt
    
    
    (1,008
    )
    
    
    (1,360
    )Proceeds from issuance of long-term debt
    
    
    86,538
    
    
    
    37,938Payment of loan costs
    
    
    (925
    )
    
    
    (1,160
    )Net cash provided by financing activities
    
    
    84,605
    
    
    
    35,418Net decrease in cash and cash equivalents
    
    
    (75,245
    )
    
    
    (5,822
    )Cash and cash equivalents, beginning of period
    
    
    96,778
    
    
    
    54,782Cash and cash equivalents, end of period
    
    $
    21,533
    
    
    $
    48,960Supplemental Cash Flow Information-Cash paid for interest, net of capitalized interest
    
    $
    9,761
    
    
    $
    4,527Cash paid for income taxes, net of refunds
    
    $
    266
    
    
    $
    329Non-cash items:Change in construction in process accruals
    
    $
    11,391
    
    
    $
    5,785Guarantee on loan for related party
    
    $
    1,371
    
    
    $
    
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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. ft2)Existing Resorts:Wisconsin Dells, WI (2)
    
    
    30.32
    %
    
    
    1997
    
    
    
    308
    
    
    
    77
    
    
    
    102,000Sandusky, OH (2)
    
    
    30.32
    %
    
    
    2001
    
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI (3)
    
    
    100
    %
    
    
    2003
    
    
    
    280
    
    
    
    
    
    
    
    51,000Kansas City, KS
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    49,000Sheboygan, WI
    
    
    100
    %
    
    
    2004
    
    
    
    182
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    
    2005
    
    
    
    405
    
    
    
    
    
    
    
    78,000Pocono Mountains, PA
    
    
    100
    %
    
    
    2005
    
    
    
    401
    
    
    
    
    
    
    
    91,000Niagara Falls, ONT (4)
    
    
    
    
    
    
    2006
    
    
    
    406
    
    
    
    
    
    
    
    94,000Mason, OH (5)
    
    
    100
    %
    
    
    2006
    
    
    
    401
    
    
    
    
    
    
    
    93,000Resorts Under Construction:Grapevine, TX (6)
    
    
    100
    %
    
    Late 2007
    
    
    402
    
    
    
    
    
    
    
    98,000Grand Mound, WA (7)
    
    
    49
    %
    
    Early 2008
    
    
    398
    
    
    
    
    
    
    
    78,000Concord, NC (8)
    
    
    100
    %
    
    Early 2009
    
    
    400
    
    
    
    
    
    
    
    95,000
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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® 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 69.68% interest in
the joint venture, and we have a 30.32% 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 a 9,000 square foot conference center space began in May
2007. We expect to complete the expansion in late 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 initially entered into a joint venture agreement with a subsidiary of CBS Corporation
(CBS) to build this resort and attached conference center. In June 2007 we purchased CBSs
equity interest in this joint venture, and we now own 100% of the resort.(6)
    
    We are developing a Great Wolf Lodge resort in Grapevine, Texas. The northwoods-themed,
402-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. In 2007, we announced plans to build an
additional 203 suites and
20,000 square feet of meeting space as an expansion of this resort. Construction on the
expansion is scheduled to begin in late 2007 and be completed in December 2008.(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 March 2008.(8)
    
    We have announced plans to develop a Great Wolf Lodge resort in Concord, North Carolina. The
northwoods-themed, approximately 400-suite resort will provide a comprehensive package of
first-class destination lodging amenities and activities. Construction on the resort began in
October 2007 with expected completion in early 2009. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 General
  7




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##### Table of Contents



Principles of Consolidation
 Investments in and Advances to Related Parties
 §
    
    A 30.32% interest in a joint venture that owns Great Wolf Lodge resorts in Wisconsin
Dells, Wisconsin and Sandusky, Ohio.§
    
    A 49% interest in a joint venture that owns a Great Wolf Lodge resort under
construction in Grand Mound, Washington.
   Guarantee

 Minority Interest 
 Income Taxes
 Other Comprehensive Income
 8




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##### Table of Contents



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
September 30, 2007Revenues
    
    $
    45,738
    
    
    $
    5,160
    
    
    $
    
    
    
    $
    
    
    
    $
    50,898EBITDA, excluding
certain items
    
    
    12,132
    
    
    
    2,145
    
    
    
    
    
    
    
    465
    
    
    $
    14,742Depreciation and
amortization
    
    
    (8,843
    )
    
    
    
    
    
    
    
    
    
    
    (262
    )
    
    
    (9,105
    )Investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    281Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,278
    )Income before income
taxes, minority
interests, and
equity in loss
of unconsolidated
related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,640Additions to
long-lived assets
    
    
    37,361
    
    
    
    
    
    
    
    
    
    
    
    140
    
    
    $
    37,501
 Resort
    
    
    Resort
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Third-Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsNine months ended September
30, 2007Revenues
    
    $
    131,270
    
    
    $
    14,378
    
    
    $
    
    
    
    $
    
    
    
    $
    145,648EBITDA, excluding certain items
    
    
    29,638
    
    
    
    5,526
    
    
    
    
    
    
    
    (2,949
    )
    
    $
    32,215Depreciation and amortization
    
    
    (26,109
    )
    
    
    
    
    
    
    
    
    
    
    (458
    )
    
    
    (26,567
    )Investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    336Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,739
    )Loss before income taxes,
minority interests, and equity
in loss of unconsolidated
related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,755
    )Additions to long-lived assets
    
    
    129,613
    
    
    
    
    
    
    
    
    
    
    
    482
    
    
    $
    130,095Total assets
    
    
    618,095
    
    
    
    2,507
    
    
    
    
    
    
    
    125,024
    
    
    $
    745,626
 9




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##### Table of Contents



Resort
    
    
    Resort
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Third-Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsThree months ended September
30, 2006Revenues
    
    $
    35,891
    
    
    $
    4,888
    
    
    $
    
    
    
    $
    
    
    
    $
    40,779EBITDA, excluding certain items
    
    
    9,865
    
    
    
    1,741
    
    
    
    (120
    )
    
    
    (1,269
    )
    
    $
    10,217Depreciation and amortization
    
    
    (6,294
    )
    
    
    
    
    
    
    
    
    
    
    (136
    )
    
    
    (6,430
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (954
    )Loss before income taxes,
minority interests, and equity
in earnings of unconsolidated
related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,833
    )Additions to long-lived assets
    
    
    27,248
    
    
    
    
    
    
    
    
    
    
    
    194
    
    
    $
    27,442
 Resort
    
    
    Resort
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Third-Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsNine months ended September
30, 2006Revenues
    
    $
    101,432
    
    
    $
    13,010
    
    
    $
    
    
    
    $
    
    
    
    $
    114,442EBITDA, excluding certain
items
    
    
    25,910
    
    
    
    3,879
    
    
    
    (268
    )
    
    
    (7,947
    )
    
    $
    21,574Depreciation and amortization
    
    
    (18,336
    )
    
    
    
    
    
    
    
    
    
    
    (361
    )
    
    
    (18,697
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,084
    )Loss before income taxes,
minority interests, and
equity in loss of
unconsolidated related
parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (207
    )Additions to long-lived assets
    
    
    76,682
    
    
    
    
    
    
    
    
    
    
    
    515
    
    
    $
    77,197Total assets
    
    
    527,692
    
    
    
    607
    
    
    
    
    
    
    
    114,338
    
    
    $
    642,637
  Recent Accounting Pronouncements
  10




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3. SHARE-BASED COMPENSATION
 Share-Based Payment Accounting
for Stock Issued to Employees
    Stock Options
  11




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##### Table of Contents



WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    ContractualShares
    
    
    Price
    
    
    LifeNumber of shares under option:Outstanding at beginning of period
    
    
    1,064,500
    
    
    $
    17.55Granted
    
    
    Exercised
    
    
    (167
    )
    
    $
    12.40Forfeited
    
    
    (76,833
    )
    
    $
    20.90Outstanding at end of period
    
    
    987,500
    
    
    $
    17.29
    
    
    7.28 yearsExercisable at end of period
    
    
    648,348
    
    
    $
    17.36
    
    
    7.25 years
  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.
 12




---



##### Table of Contents




    
    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 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
    %
 13




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##### Table of Contents



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
   Deferred Compensation Awards
  Non-vested Shares
   14




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##### Table of Contents



WeightedAverageGrant Date
    
    
    AggregateShares
    
    
    Fair Value
    
    
    Intrinsic ValueNon-vested shares balance at beginning of period
    
    
    245,000Granted
    
    
    143,711
    
    
    $
    13.47Forfeited
    
    
    (5,000
    )
    
    $
    10.79Vested
    
    
    (46,600
    )
    
    $
    12.75Non-vested shares balance at end of period
    
    
    337,111
    
    
    $
    12.35
    
    
    $
    167
  4. PROPERTY AND EQUIPMENT
  September 30,
    
    
    December 31,2007
    
    
    2006Land and improvements
    
    $
    38,121
    
    
    $
    38,058Building and improvements
    
    
    219,499
    
    
    
    178,464Furniture, fixtures and equipment
    
    
    258,436
    
    
    
    243,991Construction in process
    
    
    135,468
    
    
    
    71,848651,524
    
    
    
    532,361Less accumulated depreciation
    
    
    (68,431
    )
    
    
    (42,393
    )Property and equipment, net
    
    $
    583,093
    
    
    $
    489,968
  5. LONG-TERM DEBT
  September 30,
    
    
    December 31,2007
    
    
    2006Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    71,869
    
    
    $
    72,801Mason mortgage loan
    
    
    75,858
    
    
    
    55,792Pocono Mountains mortgage loan
    
    
    97,000
    
    
    
    97,000Grapevine construction loan
    
    
    37,477
    
    
    
    Junior subordinated debentures
    
    
    80,545
    
    
    
    51,550Other Debt:City of Sheboygan bonds
    
    
    8,437
    
    
    
    8,383City of Sheboygan loan
    
    
    3,733
    
    
    
    3,863374,919
    
    
    
    289,389Less current portion of long-term debt
    
    
    (1,654
    )
    
    
    (1,432
    )Total long-term debt
    
    $
    373,265
    
    
    $
    287,957
 Traverse City/Kansas City Mortgage Loan
 15




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Mason Mortgage Loan
  Pocono Mountains Mortgage Loan 
 Grapevine Construction Loan
 Junior Subordinated Debentures
   16




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##### Table of Contents



City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughSeptember
30,2008
    
    $
    1,6542009
    
    
    3,7182010
    
    
    5,3082011
    
    
    113,0462012
    
    
    3,306Thereafter
    
    
    247,887Total
    
    $
    374,919
 6. COMPREHENSIVE INCOME
 17




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##### Table of Contents



7. EARNINGS PER SHARE
   Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Net income (loss) attributable to common shares
    
    $
    1,761
    
    
    $
    2,088
    
    
    $
    (1,900
    )
    
    $
    (257
    )Weighted average common shares outstanding  basic
    
    
    30,570,719
    
    
    
    30,370,229
    
    
    
    30,521,022
    
    
    
    30,272,674Weighted average common shares outstanding 
diluted
    
    
    30,570,719
    
    
    
    30,370,229
    
    
    
    30,521,022
    
    
    
    30,272,674Net income (loss) per share  basic
    
    $
    0.06
    
    
    $
    0.07
    
    
    $
    (0.06
    )
    
    $
    (0.01
    )Net income (loss) per share  diluted
    
    $
    0.06
    
    
    $
    0.07
    
    
    $
    (0.06
    )
    
    $
    (0.01
    )
  
 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.
 18




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##### Table of Contents



®
   IndoorOwnership
    
    
    
    Guest
    
    Condo
    
    EntertainmentPercentage
    
    Opening
    
    Suites
    
    Units
    
    Area (1)(Approx. ft2)Existing Resorts:Wisconsin Dells, WI (2)
    
    
    30.32
    %
    
    1997
    
    
    308
    
    
    
    77
    
    
    
    102,000Sandusky, OH (2)
    
    
    30.32
    %
    
    2001
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI (3)
    
    
    100
    %
    
    2003
    
    
    280
    
    
    
    
    
    
    
    51,000Kansas City, KS
    
    
    100
    %
    
    2003
    
    
    281
    
    
    
    
    
    
    
    49,000Sheboygan, WI
    
    
    100
    %
    
    2004
    
    
    182
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    2005
    
    
    405
    
    
    
    
    
    
    
    78,000Pocono Mountains, PA
    
    
    100
    %
    
    2005
    
    
    401
    
    
    
    
    
    
    
    91,000Niagara Falls, ONT (4)
    
    
    
    
    
    2006
    
    
    406
    
    
    
    
    
    
    
    94,000Mason, OH (5)
    
    
    100
    %
    
    2006
    
    
    401
    
    
    
    
    
    
    
    93,000Resorts Under Construction:Grapevine, TX (6)
    
    
    100
    %
    
    Late 2007
    
    
    402
    
    
    
    
    
    
    
    98,000Grand Mound, WA (7)
    
    
    49
    %
    
    Early 2008
    
    
    398
    
    
    
    
    
    
    
    78,000Concord, NC (8)
    
    
    100
    %
    
    Early 2009
    
    
    400
    
    
    
    
    
    
    
    95,000
 
 (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 69.68% interest in
the joint venture, and we have a 30.32% 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 a 9,000 square foot conference center space began in May
2007. We expect to complete the expansion in late 2007. 19




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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 initially entered into a joint venture agreement with a subsidiary of CBS Corporation
(CBS) to build this resort and attached conference center. In June 2007 we purchased CBSs
equity interest in this joint venture, and we now own 100% of the resort.(6)
    
    We are developing a Great Wolf Lodge resort in Grapevine, Texas. The northwoods-themed,
402-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. In 2007, we announced plans to build an
additional 203 suites and
20,000 square feet of meeting space as an expansion of this resort. Construction on the
expansion is scheduled to begin in late 2007 and be completed in
December 2008.(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 March 2008.(8)
    
    We have announced plans to develop a Great Wolf Lodge resort in Concord, North Carolina. The
northwoods-themed, approximately 400-suite resort will provide a comprehensive package of
first-class destination lodging amenities and activities. Construction on the resort began in
October 2007 with expected completion in early 2009. Industry Trends.
    Outlook.
 20




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##### Table of Contents



Revenue and Key Performance Indicators.
 21




---



##### Table of Contents




    
    Monitoring our historical trends for occupancy and estimating our high occupancy nights;
    
    Offering the highest discounts to previous guests in off-peak periods to build customer
loyalty and enhance our ability to charge higher rates in peak periods;
    
    Structuring rates to allow us to offer our previous guests the best rate while
simultaneously working with a promotional partner or offering internet specials;
    
    Monitoring sales of room types daily to evaluate the effectiveness of offered discounts;
and
    
    Offering specials on standard suites and yielding better rates on larger suites when
standard suites sell out.
   
    
    Occupancy;
    
    Average daily room rate, or ADR;
    
    Revenue per available room, or RevPAR;
    
    Total revenue per available room, or Total RevPAR;
    
    Total revenue per occupied room, or Total RevPOR; and
    
    Earnings before interest, taxes, depreciation and amortization, or EBITDA.
  
    
    Occupancy is calculated by dividing total occupied rooms by total available rooms.
    
    ADR is calculated by dividing total rooms revenue by total occupied rooms.
    
    RevPAR is the product of occupancy and ADR.Total RevPAR and Total RevPOR are defined as follows:
    
    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.
  22




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##### Table of Contents



Recent Accounting Pronouncements
      23




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##### Table of Contents



Non-GAAP Financial Measures
    
    
    a significant portion of our assets consists of property and equipment that are
depreciated over their remaining useful lives in accordance with GAAP. Because depreciation
and amortization are non-cash items, we believe that presentation of EBITDA is a useful
measure of our operating performance;
    
    it is widely used in the hospitality and entertainment industries to measure operating
performance without regard to items such as depreciation and amortization; and
    
    we believe it helps investors meaningfully evaluate and compare the results of our
operations from period to period by removing the impact of items directly resulting from our
asset base, primarily depreciation and amortization, from our operating results.
  
    
    as a measurement of operating performance because it assists us in comparing our
operating performance on a consistent basis as it removes the impact of items directly
resulting from our asset base, primarily depreciation and amortization, from our operating
results;
    
    for planning purposes, including the preparation of our annual operating budget;
    
    as a valuation measure for evaluating our operating performance and our capacity to incur
and service debt, fund capital expenditures and expand our business; and
    
    as one measure in determining the value of other acquisitions and dispositions.
   24




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    1,761
    
    
    $
    2,088
    
    
    $
    (1,900
    )
    
    $
    (257
    )Adjustments:Interest expense, net
    
    
    3,278
    
    
    
    954
    
    
    
    8,739
    
    
    
    3,084Income tax expense (benefit)
    
    
    715
    
    
    
    1,340
    
    
    
    (1,376
    )
    
    
    (172
    )Depreciation and amortization
    
    
    9,105
    
    
    
    6,430
    
    
    
    26,567
    
    
    
    18,697EBITDA
    
    $
    14,859
    
    
    $
    10,812
    
    
    $
    32,030
    
    
    $
    21,352
 Results of Operations
 General
   
    
    our subsidiary entity that provides resort development and management/licensing 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,
 25




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##### Table of Contents



sales and marketing, finance, legal, information technology support, human resources and other
support services, as well as general corporate expenses;
    
    property operation and maintenance expenses, such as utility costs and property taxes;
    
    depreciation and amortization; and
    
    other expenses from managed properties, which are recorded as an expense in accordance
with EITF 01-14.
 Three months ended September 30, 2007, compared with the three months ended September 30, 2006
  All Properties (a)
    
    Same Store Comparison (b)Three months
    
    Three months
    
    Three monthsended
    
    ended
    
    endedSeptember 30,
    
    September 30,
    
    September 30,
    
    Increase (Decrease)2007
    
    2007
    
    2006
    
    $
    
    %Occupancy
    
    
    69.9
    %
    
    
    73.0
    %
    
    
    73.4
    %
    
    
    N/A
    
    
    
    (0.5
    )%ADR
    
    $
    248.36
    
    
    $
    248.75
    
    
    $
    242.67
    
    
    $
    6.08
    
    
    
    2.5
    %RevPAR
    
    $
    173.55
    
    
    $
    181.63
    
    
    $
    178.17
    
    
    $
    3.46
    
    
    
    1.9
    %Total RevPOR
    
    $
    371.06
    
    
    $
    370.81
    
    
    $
    358.76
    
    
    $
    12.05
    
    
    
    3.4
    %Total RevPAR
    
    $
    259.29
    
    
    $
    270.76
    
    
    $
    263.40
    
    
    $
    7.36
    
    
    
    2.8
    %
 
 (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, Poconos, and Niagara Falls resorts).   Three months endedSeptember 30,Increase2007
    
    2006
    
    (Decrease)Revenues
    
    $
    50,898
    
    
    $
    40,779
    
    
    $
    10,119Operating expenses:Departmental operating expenses
    
    
    16,455
    
    
    
    12,345
    
    
    
    4,110Selling, general and administrative
    
    
    10,005
    
    
    
    9,382
    
    
    
    623Property operating costs
    
    
    6,553
    
    
    
    5,313
    
    
    
    1,240Depreciation and amortization
    
    
    9,105
    
    
    
    6,430
    
    
    
    2,675Net operating income
    
    
    5,637
    
    
    
    3,787
    
    
    
    1,850Net interest expense
    
    
    3,278
    
    
    
    954
    
    
    
    2,324Income tax expense
    
    
    784
    
    
    
    1,102
    
    
    
    (318
    )Net income
    
    
    1,761
    
    
    
    2,088
    
    
    
    (327
    )
 26




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##### Table of Contents



Revenues.
 Operating expenses.
 
    
    Departmental expenses increased by $4,095 for the three months ended September 30, 2007,
as compared to the three months ended September 30, 2006, due primarily to the opening of
our Mason resort, the expansion of our Williamsburg resort and increased revenues at our
Williamsburg and Pocono Mountains resorts.
    
    Selling, general and administrative expenses increased by $2,326 due primarily to the
opening of our Mason resort, the expansion of our Williamsburg resort and increased
marketing efforts at our Williamsburg and Pocono Mountains resorts, while corporate selling,
general and administrative expenses decreased by $1,114 due primarily to decreased legal
costs, and more capitalizable labor, due to increased development activity for the three
months ended September 30, 2007, as compared to the three months ended September 30, 2006.
    
    Total property operating costs (exclusive of opening costs) increased $1,232 for the
three months ended September 30, 2007, as compared to the three months ended September 30,
2006, due primarily to the opening of our Mason resort, as well as increased repairs and
maintenance expense and increased utilities expense related to the expansion of our
Williamsburg resort and amenity additions to several of our other resorts. Opening costs
related to our resorts were $1,291 for the three months ended September 30, 2007, as
compared to $1,282 for the three months ended September 30, 2006.
    
    Total depreciation and amortization increased mainly due to the opening of our Mason
resort and the expansion at our Williamsburg resort. The total increase in depreciation and
amortization at these two resorts was $2,352 during the three months ended September 30,
2007 as compared to three months ended September 30, 2006.
 Net operating income.
 Net income.
 
    
    An increase in net interest expense of $2,324 mainly due to mortgage debt related our
Pocono Mountains and Mason resorts.
  
    
    An increase in operating income from $3,787 for the three months ended September 30,
2006, to $5,637 for the three months ended September 30, 2007; and
    
    An decrease of $318 in income tax expense recorded in the three months ended September
30, 2007, as compared to the three months ended September 30, 2006.
 Nine months ended September 30, 2007, compared with the nine months ended September 30, 2006
  27




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##### Table of Contents



All Properties (a)
    
    Same Store Comparison (b)Nine months
    
    Nine months
    
    Nine monthsended
    
    ended
    
    endedSeptember 30,
    
    September 30,
    
    September 30,
    
    Increase (Decrease)2007
    
    2007
    
    2006
    
    $
    
    %Occupancy
    
    
    65.1
    %
    
    
    67.0
    %
    
    
    67.8
    %
    
    
    N/A
    
    
    
    (1.2
    )%ADR
    
    $
    244.90
    
    
    $
    240.32
    
    
    $
    237.85
    
    
    $
    2.47
    
    
    
    1.0
    %RevPAR
    
    $
    159.52
    
    
    $
    160.93
    
    
    $
    161.29
    
    
    $
    (0.36
    )
    
    
    (0.2
    )%Total RevPOR
    
    $
    369.58
    
    
    $
    360.69
    
    
    $
    355.82
    
    
    $
    4.87
    
    
    
    1.4
    %Total RevPAR
    
    $
    240.73
    
    
    $
    241.53
    
    
    $
    241.29
    
    
    $
    0.24
    
    
    
    0.1
    %
 
 (a)
    
    Includes results for properties that were open for any portion of the period, for all owned
and/or managed resorts.(b)
    
    Same store comparison includes properties that were open for the full periods in 2007 and
2006 (that is, our Wisconsin Dells, Sandusky, Traverse City, Kansas City, Sheboygan,
Williamsburg, and Poconos resorts).   Nine months endedSeptember 30,Increase2007
    
    2006
    
    (Decrease)Revenues
    
    $
    145,648
    
    
    $
    114,442
    
    
    $
    31,206Operating expenses:Departmental operating expenses
    
    
    49,145
    
    
    
    35,913
    
    
    
    13,232Selling, general and administrative
    
    
    34,582
    
    
    
    31,983
    
    
    
    2,599Property operating costs
    
    
    20,726
    
    
    
    14,888
    
    
    
    5,838Depreciation and amortization
    
    
    26,567
    
    
    
    18,697
    
    
    
    7,870Net operating income
    
    
    5,648
    
    
    
    2,877
    
    
    
    2,771Net interest expense
    
    
    8,739
    
    
    
    3,084
    
    
    
    5,655Income tax benefit
    
    
    (1,157
    )
    
    
    (83
    )
    
    
    (1,074
    )Net loss
    
    
    (1,900
    )
    
    
    (257
    )
    
    
    (1,643
    )
 Revenues.
 Operating expenses.
 
    
    Departmental expenses increased by $13,568 for the nine months ended September 30, 2007,
as compared to the nine months ended September 30, 2006, due primarily to the opening of our
Mason resort, the expansion of our Williamsburg resort and increased revenues at our
Williamsburg and Pocono Mountains resorts.
 28




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##### Table of Contents




    
    Selling, general and administrative expenses increased by $7,333 due primarily to the
opening of our Mason resort, the expansion of our Williamsburg resort and increased
marketing efforts at our Williamsburg and Pocono Mountains resorts, while corporate selling,
general and administrative expenses decreased by $2,548 due to decreased legal costs, more
capitalizable labor, due to increased development activity, and a higher level of start-up
costs (which are deducted from selling, general and administrative expenses and included in
property operating costs) for the nine months ended September 30, 2007, as compared to the
nine months ended September 30, 2006.
    
    Total property operating costs (exclusive of opening costs) increased $5,111 for the
nine months ended September 30, 2007, as compared to September 30, 2006, mainly due to the
opening of our Mason resort, as well as increased repairs and maintenance expense, and
increased utilities expense related to the expansion of our Williamsburg resort and amenity
additions to several of our other resorts. Opening costs related to our resorts were
$4,713 for the nine months ended September 30, 2007, as compared to $3,986 for the nine
months ended September 30, 2006.
    
    Total depreciation and amortization increased mainly due to the opening of our Mason
resort and the expansion at our Williamsburg resort. The total increase in depreciation and
amortization at these two resorts was $6,839 during the nine months ended September 30,
2007, as compared to nine months ended September 30, 2006.
 Net operating income.
 Net loss.
 
    
    An increase in net interest expense of $5,655 mainly due to mortgage debt related to our
Pocono Mountains and Mason resorts.
  
    
    An increase in operating income from $2,877 for the nine months ended September 30, 2006,
to $5,648 for the nine months ended September 30, 2007.§
    
    An increase of $1,074 in income tax benefit recorded in the nine months ended September
30, 2007, as compared to the nine months ended September 30, 2006.
 Segments
  
    
    resort ownership/operation-revenues derived from our consolidated owned resorts; and
    
    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.
  29




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##### Table of Contents



Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,Increase
    
    
    
    
    
    
    
    
    
    Increase2007
    
    2006
    
    (Decrease)
    
    2007
    
    2006
    
    (Decrease)Resort Ownership/OperationRevenues
    
    $
    45,738
    
    
    $
    35,891
    
    
    $
    9,847
    
    
    $
    131,270
    
    
    $
    101,432
    
    
    $
    29,838EBITDA, excluding certain items
    
    
    12,132
    
    
    
    9,865
    
    
    
    2,267
    
    
    
    29,638
    
    
    
    25,910
    
    
    
    3,728Resort Third-Party MgmtRevenues
    
    
    5,160
    
    
    
    4,888
    
    
    
    272
    
    
    
    14,378
    
    
    
    13,010
    
    
    
    1,368EBITDA, excluding certain items
    
    
    2,145
    
    
    
    1,741
    
    
    
    404
    
    
    
    5,526
    
    
    
    3,879
    
    
    
    1,647Condominium SalesRevenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EBITDA, excluding certain items
    
    
    
    
    
    
    (120
    )
    
    
    120
    
    
    
    
    
    
    
    (268
    )
    
    
    268OtherRevenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EBITDA, excluding certain items
    
    
    465
    
    
    
    (1,269
    )
    
    
    1,734
    
    
    
    (2,949
    )
    
    
    (7,947
    )
    
    
    4,998
  Liquidity and Capital Resources
  September 30,
    
    
    December 31,2007
    
    
    2006Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    71,869
    
    
    $
    72,801Mason mortgage loan
    
    
    75,858
    
    
    
    55,792Pocono Mountains mortgage loan
    
    
    97,000
    
    
    
    97,000Grapevine construction loan
    
    
    37,477
    
    
    
    Junior subordinated debentures
    
    
    80,545
    
    
    
    51,550Other Debt:City of Sheboygan bonds
    
    
    8,437
    
    
    
    8,383City of Sheboygan loan
    
    
    3,733
    
    
    
    3,863374,919
    
    
    
    289,389Less current portion of long-term debt
    
    
    (1,654
    )
    
    
    (1,432
    )Total long-term debt
    
    $
    373,265
    
    
    $
    287,957
 Traverse City/Kansas City Mortgage Loan
 Mason Mortgage Loan
 30




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##### Table of Contents



Pocono Mountains Mortgage Loan 
 Grapevine Construction Loan
 Junior Subordinated Debentures
    31




---



##### Table of Contents



City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 Year EndingSeptember 30,2008
    
    $
    1,6542009
    
    
    3,7182010
    
    
    5,3082011
    
    
    113,0462012
    
    
    3,306Thereafter
    
    
    247,887Total
    
    $
    374,919
 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;
 32




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##### Table of Contents




    
    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.
   Off Balance Sheet Arrangements
  
    
    Our joint venture with CNL Income Properties, Inc. (CNL) owns two resorts, Great Wolf
Lodge-Wisconsin Dells, Wisconsin and Great Wolf Lodge-Sandusky, Ohio. We are a limited
partner in the CNL joint venture with a 30.32% ownership interest. At September 30, 2007,
the joint venture had aggregate outstanding indebtedness to third parties of $63,000.  This
loan is a mortgage loan that is non-recourse to us.
    
    We entered into our joint venture with The Confederated Tribes of the Chehalis
Reservation to develop a Great Wolf Lodge resort and conference center on a 39-acre land
parcel in Grand Mound, Washington. This resort is currently under construction and is
expected to open in early 2008. This joint venture is a limited liability company; we are
a member of that limited liability company with a 49% ownership interest. At September 30,
 33




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##### Table of Contents



2007, the joint venture had aggregate outstanding indebtedness to third parties of $37,846.
We have provided a 49% guarantee on mortgage debt obtained by the Grand Mound joint venture.
  Contractual Obligations
  Payment TermsLess
    
    
    
    
    
    
    
    
    
    
    MoreThan
    
    
    1-3
    
    
    
    
    
    
    ThanTotal
    
    
    1 Year
    
    
    Years
    
    
    3-5 Years
    
    
    5 YearsDebt obligations (1)
    
    $
    374,919
    
    
    $
    1,654
    
    
    $
    9,026
    
    
    $
    116,352
    
    
    $
    247,887Operating lease obligations
    
    
    1,778
    
    
    
    542
    
    
    
    767
    
    
    
    384
    
    
    
    85Construction contracts
    
    
    100,105
    
    
    
    74,298
    
    
    
    25,807
    
    
    
    
    
    
    
    Related party guarantee (2)
    
    
    1,370
    
    
    
    533
    
    
    
    837
    
    
    
    
    
    
    
    Reserve on unrecognized tax benefits
    
    
    1,289
    
    
    
    
    
    
    
    
    
    
    
    1,289
    
    
    
    Total
    
    $
    479,461
    
    
    $
    77,027
    
    
    $
    36,437
    
    
    $
    118,025
    
    
    $
    247,972
 
 (1)
    
    Includes $8,437 of fixed rate debt recognized as a liability related to certain bonds
issued by the City of Sheboygan and $3,733 of fixed rate debt recognized as a liability
related to a loan from the City of Sheboygan. These liabilities will be satisfied by
certain future minimum guaranteed amounts of real and personal property tax payments and
room tax payments to be made by our Sheboygan resort.(2)
    
    We have provided a partial guarantee on mortgage debt obtained by one of our joint
ventures.  Working Capital
  Cash Flows
 Nine months ended September 30, 2007, compared with the nine months ended September 30, 2006
 Increase2007
    
    2006
    
    (Decrease)Net cash provided by operating activities
    
    $
    15,662
    
    
    $
    16,070
    
    
    $
    (408
    )Net cash used in investing activities
    
    
    (175,512
    )
    
    
    (57,310
    )
    
    
    (118,202
    )Net cash provided by financing activities
    
    
    84,605
    
    
    
    35,418
    
    
    
    49,187
 34




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##### Table of Contents



Operating Activities.
 Investing Activities.
 Financing Activities.
 Inflation
  
 ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    $71,869 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.
    
    $28,995 of subordinated debentures that bear interest at a fixed rate of 7.90% through
June 2012 and then at a floating rate of LIBOR plus 300 basis points thereafter. The
securities mature in June 2017.
    
    $97,000 of fixed rate debt secured by one of our resorts. This debt bears interest at
6.10%
 35




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##### Table of Contents




    
    $75,858 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
7.66% at September 30, 2007. $71,000 of this debt is effectively fixed at a rate of 7.65%
due to the interest rate swap described above.
    
    $37,477 of variable rate debt secured by one of our resorts. This debt bears interest
at a floating rate of 30-day LIBOR plus a spread of 260 basis points. The total rate was
7.72% at September 30, 2007.
    
    $8,437 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 $3,733 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
  36




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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
  37




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##### Table of Contents



ExhibitNumber
    
    Description2.1
    
    Form of Merger Agreement (Delaware) (incorporated herein by reference to
Exhibit 2.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)2.2
    
    Form of Merger Agreement (Wisconsin) (incorporated herein by reference to
Exhibit 2.2 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)3.1
    
    Form of Amended and Restated Certificate of Incorporation for Great Wolf
Resorts, Inc. dated December 9, 2004 (incorporated herein by reference to
Exhibit 3.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)3.2
    
    Form of Amended and Restated Bylaws of Great Wolf Resorts, Inc. effective
September 12, 2006 (incorporated herein by reference to Exhibit 4.1 to the
Companys Current Report on Form 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)4.4
    
    Junior Subordinated Indenture, dated as of June 15, 2007, between Great
Wolf Resorts, Inc. and Wells Fargo Bank, N.A., as trustee (incorporated
herein by reference to Exhibit 4.1 to the Companys Current Report on Form
8-K filed June 19, 2007)4.5
    
    Amended and Restated Trust Agreement, dated as of June 15, 2007, by and
among Great Wolf Resorts, Inc., as depositor, Wells Fargo Bank, N.A., as
property trustee, Wells Fargo Delaware Trust Company, as Delaware trustee,
and James A. Calder, Alex P. Lombardo and J. Michael Schroeder, as
administrative trustees (incorporated herein by reference to Exhibit 4.2
to the Companys Current Report on Form 8-K filed June 19, 2007)31.1*
    
    Certification of Chief Executive Officer of Periodic Report Pursuant to
Rule 13a14(a) and Rule 15d14(a)31.2*
    
    Certification of Chief Financial Officer of Periodic Report Pursuant to
Rule 13a14(a) and Rule 15d14(a)32.1*
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 135032.2*
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
 
 *
    
    Filed herewith. 38




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##### Table of Contents



SIGNATURE
  GREAT WOLF RESORTS, INC./s/ James A. Calder

James A. CalderChief Financial Officer(Duly authorized officer)(Principal Financial and Accounting Officer)
  39