##### Table of Contents



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




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##### 



Great Wolf Resorts, Inc.
  
 Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2008
 INDEX
 PageNo.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007
    
    3Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and
six months ended June 30, 2008 and 2007
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    37Item 4. Controls and Procedures
    
    38PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    40Item 1A. Risk Factors
    
    40Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    40Item 3. Defaults Upon Senior Securities
    
    40Item 4. Submission of Matters to a Vote of Security Holders
    
    40Item 5. Other Information
    
    40Item 6. Exhibits
    
    41Signatures
    
    43Separation, Consulting and Non-Competition AgreementEX-31.1EX-31.2EX-32.1EX-32.2
 2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    34,687
    
    
    $
    18,597Accounts receivable, net of allowance for doubtful accounts of $99 and $113
    
    
    3,501
    
    
    
    2,373Accounts receivable  unconsolidated related parties
    
    
    5,083
    
    
    
    3,973Inventory
    
    
    4,845
    
    
    
    4,632Other current assets
    
    
    5,919
    
    
    
    2,869Total current assets
    
    
    54,035
    
    
    
    32,444Property and equipment, net
    
    
    669,099
    
    
    
    617,697Investments in and advances to unconsolidated related parties
    
    
    65,979
    
    
    
    59,148Other assets
    
    
    25,607
    
    
    
    20,257Other intangible assets
    
    
    23,829
    
    
    
    23,829Goodwill
    
    
    17,430
    
    
    
    17,430Total assets
    
    $
    855,979
    
    
    $
    770,805LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    134,378
    
    
    $
    78,752Accounts payable
    
    
    31,928
    
    
    
    18,471Accrued payroll
    
    
    4,013
    
    
    
    3,644Accrued expenses
    
    
    23,918
    
    
    
    17,132Accrued expenses  unconsolidated related parties
    
    
    49
    
    
    
    124Advance deposits
    
    
    11,506
    
    
    
    8,211Gift certificates payable
    
    
    3,965
    
    
    
    4,670Total current liabilities
    
    
    209,757
    
    
    
    131,004Mortgage debt
    
    
    241,729
    
    
    
    225,042Other long-term debt
    
    
    92,394
    
    
    
    92,508Other long-term liabilities
    
    
    2,088
    
    
    
    2,232Deferred tax liability
    
    
    3,047
    
    
    
    7,597Deferred compensation liability
    
    
    1,379
    
    
    
    2,029Total liabilities
    
    
    550,394
    
    
    
    460,412Commitments and contingencies
Stockholders equity:Stockholders equity:Common stock, $0.01 par value; 250,000,000 shares authorized;
31,036,556 and 30,698,683 shares issued and outstanding, at June
30, 2008, and December 31, 2007, respectively
    
    
    310
    
    
    
    307Additional paidin-capital
    
    
    399,416
    
    
    
    399,759Preferred stock, $0.01 par value, 10,000,000 shares authorized, no
shares issued or outstanding at June 30, 2008 and December 31, 2007
    
    
    
    
    
    
    Accumulated deficit
    
    
    (93,503
    )
    
    
    (87,086
    )Deferred compensation
    
    
    (200
    )
    
    
    (2,200
    )Accumulated other comprehensive loss, net of tax
    
    
    (438
    )
    
    
    (387
    )Total stockholders equity
    
    
    305,585
    
    
    
    310,393Total liabilities and stockholders equity
    
    $
    855,979
    
    
    $
    770,805
  3




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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
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Rooms
    
    $
    35,941
    
    
    $
    28,033
    
    
    $
    74,807
    
    
    $
    56,905Food and beverage
    
    
    10,235
    
    
    
    7,254
    
    
    
    20,663
    
    
    
    15,044Other hotel operations
    
    
    9,110
    
    
    
    6,600
    
    
    
    18,680
    
    
    
    13,584Management and other fees
    
    
    663
    
    
    
    641
    
    
    
    1,429
    
    
    
    1,248Management and other fees  related parties
    
    
    1,501
    
    
    
    1,017
    
    
    
    2,596
    
    
    
    2,18857,450
    
    
    
    43,545
    
    
    
    118,175
    
    
    
    88,969Other revenue from managed properties  related parties
    
    
    5,568
    
    
    
    2,802
    
    
    
    9,051
    
    
    
    5,838Total revenues
    
    
    63,018
    
    
    
    46,347
    
    
    
    127,226
    
    
    
    94,807Operating expenses by department:Rooms
    
    
    5,273
    
    
    
    3,834
    
    
    
    10,420
    
    
    
    7,989Food and beverage
    
    
    8,142
    
    
    
    6,457
    
    
    
    16,135
    
    
    
    13,110Other
    
    
    7,464
    
    
    
    5,878
    
    
    
    14,741
    
    
    
    11,591Other operating expenses:Selling, general and administrative
    
    
    16,694
    
    
    
    11,458
    
    
    
    30,092
    
    
    
    24,579Property operating costs
    
    
    8,085
    
    
    
    6,289
    
    
    
    19,914
    
    
    
    14,172Depreciation and amortization
    
    
    11,741
    
    
    
    8,818
    
    
    
    22,760
    
    
    
    17,46257,399
    
    
    
    42,734
    
    
    
    114,062
    
    
    
    88,903Other expenses from managed properties  related parties
    
    
    5,568
    
    
    
    2,802
    
    
    
    9,051
    
    
    
    5,838Total operating expenses
    
    
    62,967
    
    
    
    45,536
    
    
    
    123,113
    
    
    
    94,741Net operating income
    
    
    51
    
    
    
    811
    
    
    
    4,113
    
    
    
    66Investment income  related parties
    
    
    (553
    )
    
    
    
    
    
    
    (1,004
    )
    
    
    Interest income
    
    
    (409
    )
    
    
    (659
    )
    
    
    (899
    )
    
    
    (1,814
    )Interest expense
    
    
    6,884
    
    
    
    3,582
    
    
    
    13,791
    
    
    
    7,275Loss before income taxes, minority interests, and equity in
losses of unconsolidated related parties
    
    
    (5,871
    )
    
    
    (2,112
    )
    
    
    (7,775
    )
    
    
    (5,395
    )Income tax benefit
    
    
    (2,232
    )
    
    
    (917
    )
    
    
    (3,037
    )
    
    
    (1,961
    )Minority interests, net of tax
    
    
    
    
    
    
    (193
    )
    
    
    
    
    
    
    (486
    )Equity in losses of unconsolidated related parties, net of tax
    
    
    451
    
    
    
    654
    
    
    
    1,679
    
    
    
    713Net loss
    
    $
    (4,090
    )
    
    $
    (1,656
    )
    
    $
    (6,417
    )
    
    $
    (3,661
    )Other comprehensive loss, net of tax:Unrealized loss (gain) on interest rate swaps
    
    
    (356
    )
    
    
    (159
    )
    
    
    51
    
    
    
    (159
    )Comprehensive loss
    
    $
    (3,734
    )
    
    $
    (1,497
    )
    
    $
    (6,468
    )
    
    $
    (3,502
    )Net loss per share-basic
    
    $
    (0.13
    )
    
    $
    (0.05
    )
    
    $
    (0.21
    )
    
    $
    (0.12
    )Net loss per share-diluted
    
    $
    (0.13
    )
    
    $
    (0.05
    )
    
    $
    (0.21
    )
    
    $
    (0.12
    )Weighted average common shares outstanding:Basic
    
    
    30,875,615
    
    
    
    30,566,218
    
    
    
    30,770,388
    
    
    
    30,496,174Diluted
    
    
    30,875,615
    
    
    
    30,566,218
    
    
    
    30,770,388
    
    
    
    30,496,174
  4




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GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited; dollars in thousands)
 Six months endedJune 30,2008
    
    
    2007Operating activities:Net loss
    
    $
    (6,417
    )
    
    $
    (3,661
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    22,760
    
    
    
    17,462Non-cash employee compensation and professional fees
    
    
    90
    
    
    
    1,406Equity in losses of unconsolidated related parties
    
    
    2,756
    
    
    
    1,121Minority interests
    
    
    
    
    
    
    (764
    )Deferred tax benefit
    
    
    (4,115
    )
    
    
    (2,091
    )Changes in operating assets and liabilities:Accounts receivable and other assets
    
    
    (6,435
    )
    
    
    (4,914
    )Accounts payable, accrued expenses and other liabilities
    
    
    6,292
    
    
    
    (484
    )Net cash provided by operating activities
    
    
    14,931
    
    
    
    8,075Investing activities:Capital expenditures for property and equipment
    
    
    (55,272
    )
    
    
    (92,594
    )Investments in unconsolidated related parties
    
    
    (9,823
    )
    
    
    (19,455
    )Investment in development
    
    
    (1,811
    )
    
    
    (9,470
    )Purchase of minority interest
    
    
    
    
    
    
    (6,900
    )Issuance of notes receivable
    
    
    
    
    
    
    (3,264
    )Decrease (increase) in restricted cash
    
    
    37
    
    
    
    (2
    )(Increase) decrease in escrows
    
    
    (1,857
    )
    
    
    277Net cash used in investing activities
    
    
    (68,726
    )
    
    
    (131,408
    )Financing activities:Principal payments on long-term debt
    
    
    (758
    )
    
    
    (686
    )Proceeds from issuance of long-term debt
    
    
    72,957
    
    
    
    54,619Payment of loan costs
    
    
    (2,314
    )
    
    
    (899
    )Net cash provided by financing activities
    
    
    69,885
    
    
    
    53,034Net increase (decrease) in cash and cash equivalents
    
    
    16,090
    
    
    
    (70,299
    )Cash and cash equivalents, beginning of period
    
    
    18,597
    
    
    
    96,778Cash and cash equivalents, end of period
    
    $
    34,687
    
    
    $
    26,479Supplemental Cash Flow Information-Cash paid for interest, net of capitalized interest
    
    $
    13,602
    
    
    $
    6,761Cash paid for income taxes
    
    $
    155
    
    
    $
    135Non-cash items:Construction in process accruals
    
    $
    17,884
    
    
    $
    5,203
  5




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##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands, except per share amounts)
 1. ORGANIZATION
  Business Summary
 ® tm
   Number
    
    
    Numberof
    
    
    of
    
    
    IndoorOwnership
    
    
    Opened/

    
    Guest
    
    
    Condo
    
    
    EntertainmentPercentage
    
    
    Opening



    Suites


    Units (1)

   

    Area (2)(Approx. ft2)Existing Resorts:Wisconsin Dells, WI (3)
    
    
    30.32
    %
    
    
    1997
    
    
    
    308
    
    
    
    77
    
    
    
    102,000Sandusky, OH (3)
    
    
    30.32
    %
    
    
    2001
    
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI
    
    
    100
    %
    
    
    2003
    
    
    
    280
    
    
    
    
    
    
    
    57,000Kansas City, KS
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    57,000Sheboygan, WI
    
    
    100
    %
    
    
    2004
    
    
    
    182
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    
    2005
    
    
    
    405
    
    
    
    
    
    
    
    87,000Pocono Mountains, PA
    
    
    100
    %
    
    
    2005
    
    
    
    401
    
    
    
    
    
    
    
    101,000Niagara Falls, ONT (4)
    
    
    
    
    
    
    2006
    
    
    
    406
    
    
    
    
    
    
    
    104,000Mason, OH
    
    
    100
    %
    
    
    2006
    
    
    
    401
    
    
    
    
    
    
    
    105,000Grapevine, TX (5)
    
    
    100
    %
    
    
    2007
    
    
    
    402
    
    
    
    
    
    
    
    110,000Grand Mound, WA (6)
    
    
    49
    %
    
    
    2008
    
    
    
    398
    
    
    
    
    
    
    
    74,000Resorts Under Construction:Concord, NC (7)
    
    
    100
    %
    
    Spring 2009
    
    
    402
    
    
    
    
    
    
    
    97,000
 6




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##### Table of Contents



(1)
    
    Condominium units are individually owned by third parties and are managed by us.(2)
    
    Our indoor entertainment areas generally include our indoor waterpark, game
arcade, childrens activity room, family tech center, MagiQuest and fitness
room, as well as our Aveda® spa in the resorts that have such
amenities.(3)
    
    These properties are owned by a joint venture. CNL 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 own a 30.32%
interest. We operate the properties and license the Great Wolf Lodge brand to
the joint venture under long-term agreements through October 2020, subject to
earlier termination in certain situations.(4)
    
    An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this
resort. We have granted Ripley a license to use the Great Wolf Lodge name for
this resort through April 2016. We manage the resort on behalf of Ripley and
also provide central reservation services.(5)
    
    In late 2007, we began construction on an additional 203 suites and
20,000 square feet of meeting space as an expansion of this resort. Expected
completion of the expansion is early 2009.(6)
    
    This property is owned by a joint venture. The Confederated Tribes of the
Chehalis Reservation (Chehalis) owns a 51% interest in the joint venture, and
we own a 49% interest. We operate the property and license the Great Wolf Lodge
brand to the joint venture under long-term agreements through April 2057,
subject to earlier termination in certain situations. Chehalis has leased the
land needed for the resort to the joint venture.(7)
    
    We are developing a Great Wolf Lodge resort in Concord, North
Carolina. The Northwoods-themed, approximately 402-suite resort will provide a
comprehensive package of first-class destination lodging amenities and
activities. Construction on the resort began in October 2007 with expected
completion in Spring 2009. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 General
  Principles of Consolidation
 Investments in and Advances to 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 the Great Wolf Lodge resort in Grand
Mound, Washington.
 7




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##### Table of Contents



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




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##### Table of Contents



Resort
    
    
    Resort
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Third-Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsThree months ended June 30,
2008Revenues
    
    $
    55,286
    
    
    $
    7,732
    
    
    $
    
    
    
    $
    
    
    
    $
    63,018EBITDA, excluding certain items
    
    
    13,102
    
    
    
    2,164
    
    
    
    
    
    
    
    (3,474
    )
    
    $
    11,792Depreciation and amortization
    
    
    (11,185
    )
    
    
    
    
    
    
    
    
    
    
    (556
    )
    
    
    (11,741
    )Investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    553Interest expense, net of
interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,475
    )Loss before income taxes,
minority interests, and Equity
in losses of unconsolidated
related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (5,871
    )Additions to long-lived assets
    
    
    35,184
    
    
    
    
    
    
    
    
    
    
    
    228
    
    
    $
    35,412
 Resort
    
    
    Resort
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Third-Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsSix months ended June 30, 2008Revenues
    
    $
    114,150
    
    
    $
    13,076
    
    
    $
    
    
    
    $
    
    
    
    $
    127,226EBITDA, excluding certain items
    
    
    26,936
    
    
    
    4,024
    
    
    
    
    
    
    
    (4,087
    )
    
    $
    26,873Depreciation and amortization
    
    
    (22,029
    )
    
    
    
    
    
    
    
    
    
    
    (731
    )
    
    
    (22,760
    )Investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,004Interest expense, net of
interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,892
    )Loss before income taxes,
minority interests, and Equity
in losses of unconsolidated
related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (7,775
    )Additions to long-lived assets
    
    
    54,734
    
    
    
    
    
    
    
    
    
    
    
    538
    
    
    $
    55,272Total assets
    
    
    709,853
    
    
    
    5,326
    
    
    
    
    
    
    
    140,800
    
    
    $
    855,979
 Resort
    
    
    Resort
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Third-Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsThree months ended June 30,
2007Revenues
    
    $
    41,887
    
    
    $
    4,460
    
    
    $
    
    
    
    $
    
    
    
    $
    46,347EBITDA, excluding certain items
    
    
    9,085
    
    
    
    1,658
    
    
    
    
    
    
    
    (1,114
    )
    
    $
    9,629Depreciation and amortization
    
    
    (8,679
    )
    
    
    
    
    
    
    
    
    
    
    (139
    )
    
    
    (8,818
    )Interest expense, net of
interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,923
    )Loss before income taxes,
minority interests, and Equity
in losses of unconsolidated
related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,112
    )Additions to long-lived assets
    
    
    48,898
    
    
    
    
    
    
    
    
    
    
    
    104
    
    
    $
    49,002
 9




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##### Table of Contents



Resort
    
    
    Resort
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Third-Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsSix months ended June 30, 2007Revenues
    
    $
    85,533
    
    
    $
    9,274
    
    
    $
    
    
    
    $
    
    
    
    $
    94,807EBITDA, excluding certain items
    
    
    17,507
    
    
    
    3,436
    
    
    
    
    
    
    
    (3,415
    )
    
    $
    17,528Depreciation and amortization
    
    
    (17,168
    )
    
    
    
    
    
    
    
    
    
    
    (294
    )
    
    
    (17,462
    )Interest expense, net of
interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,461
    )Loss before income taxes,
minority interests, and Equity
in losses of unconsolidated
related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (5,395
    )Additions to long-lived assets
    
    
    92,252
    
    
    
    
    
    
    
    
    
    
    
    342
    
    
    $
    92,594Total assets
    
    
    597,879
    
    
    
    2,437
    
    
    
    
    
    
    
    120,775
    
    
    $
    721,091
  Recent Accounting Pronouncements
    10




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##### Table of Contents



3. SHARE-BASED COMPENSATION
      Stock Options
    WeightedAverageExercise
    
    
    Weighted Average RemainingShares
    
    
    Price
    
    
    Contractual LifeNumber of shares under option:Outstanding at beginning of period
    
    
    987,000
    
    
    $
    17.29
 11




---



##### Table of Contents



WeightedAverageExercise
    
    
    Weighted Average RemainingShares
    
    
    Price
    
    
    Contractual LifeGranted
    
    
    Exercised
    
    
    Forfeited
    
    
    (5,000
    )
    
    $
    17.00Outstanding at end of period
    
    
    982,000
    
    
    $
    17.29
    
    
    6.53 yearsExercisable at end of period
    
    
    972,000
    
    
    $
    17.34
    
    
    6.50 years
  Market Condition Share Awards
    
    
    84,748 are based on our common stocks performance in 2008 relative to a stock
index, as designated by the Compensation Committee of the Board of Directors. These
shares vest ratably over a three-year period, 2008-2010. The per share fair value
of these market condition shares was $1.63.The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    2.05
    %Expected stock price volatility
    
    
    34.98
    %Expected stock price volatility (small-cap stock index)
    
    
    20.08
    %
 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 was 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. Due to the resignation of a senior officer in May 2008, 55,046 shares were
forfeited.
  
    
    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.
 12




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##### Table of Contents



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 was 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 was 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. Due to the resignation of a senior officer in May
2008, 34,452 shares were forfeited.
    
    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 was 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. Due to the resignation of a senior officer in May 2008, 34,452 shares
were forfeited.
 13




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##### Table of Contents



Performance Share Awards
   Deferred Compensation Awards
   Non-vested Shares
   14




---



##### Table of Contents



WeightedAverageGrant DateShares
    
    
    Fair Value
    
    
    Aggregate Intrinsic ValueNon-vested shares balance at beginning of period
    
    
    333,111Granted
    
    
    201,351
    
    
    $
    6.27Forfeited
    
    
    (41,474
    )
    
    $
    8.49Vested
    
    
    (69,411
    )
    
    $
    5.83Non-vested shares balance at end of period
    
    
    423,577
    
    
    $
    9.82
    
    
    $
    
  Vested Shares
 . .
  4. PROPERTY AND EQUIPMENT
  June 30,
    
    
    December 31,2008
    
    
    2007Land and improvements
    
    $
    51,684
    
    
    $
    51,398Building and improvements
    
    
    328,076
    
    
    
    289,768Furniture, fixtures and equipment
    
    
    311,459
    
    
    
    334,836Construction in process
    
    
    77,731
    
    
    
    19,737768,950
    
    
    
    695,739Less accumulated depreciation
    
    
    (99,851
    )
    
    
    (78,042
    )Property and equipment, net
    
    $
    669,099
    
    
    $
    617,697
  5. LONG-TERM DEBT
  15




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##### Table of Contents



June 30,
    
    
    December 31,2008
    
    
    2007Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    70,887
    
    
    $
    71,542Mason mortgage loan
    
    
    76,800
    
    
    
    76,800Pocono Mountains mortgage loan
    
    
    97,000
    
    
    
    97,000Williamsburg mortgage loan
    
    
    55,000
    
    
    
    Grapevine construction loan
    
    
    76,217
    
    
    
    58,260Concord construction loan
    
    
    
    
    
    
    Junior subordinated debentures
    
    
    80,545
    
    
    
    80,545Other Debt:City of Sheboygan bonds
    
    
    8,453
    
    
    
    8,465City of Sheboygan loan
    
    
    3,599
    
    
    
    3,690468,501
    
    
    
    396,302Less current portion of long-term debt
    
    
    (134,378
    )
    
    
    (78,752
    )Total long-term debt
    
    $
    334,123
    
    
    $
    317,550
 Traverse City/Kansas City Mortgage Loan
 Mason Mortgage Loan
  Pocono
Mountains Mortgage Loan 
 16




---



##### Table of Contents



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




---



##### Table of Contents



City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughJune 30,2009
    
    $
    134,3782010
    
    
    3,8592011
    
    
    4,2582012
    
    
    77,2722013
    
    
    3,538Thereafter
    
    
    245,196Total
    
    $
    468,501
 6. COMPREHENSIVE INCOME
  18




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##### Table of Contents



7. EARNINGS PER SHARE
     Three months ended
    
    Six months endedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Net loss attributable to common shares
    
    $
    (4,090
    )
    
    $
    (1,656
    )
    
    $
    (6,417
    )
    
    $
    (3,661
    )Weighted average common shares outstanding  basic
    
    
    30,875,615
    
    
    
    30,566,218
    
    
    
    30,770,388
    
    
    
    30,496,174Weighted average common shares outstanding  diluted
    
    
    30,875,615
    
    
    
    30,566,218
    
    
    
    30,770,388
    
    
    
    30,496,174Net loss per share  basic
    
    $
    (0.13
    )
    
    $
    (0.05
    )
    
    $
    (0.21
    )
    
    $
    (0.12
    )Net loss per share  diluted
    
    $
    (0.13
    )
    
    $
    (0.05
    )
    
    $
    (0.21
    )
    
    $
    (0.12
    )
 8. 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
  19




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##### Table of Contents



Business.
   Number
    
    
    Numberof
    
    
    of
    
    IndoorOwnership
    
    
    Opened/

    
    Guest
    
    
    Condo
    

    EntertainmentPercentage
    
    
    Opening



    Suites


    Units (1)



    Area (2)(Approx. ft2)Existing Resorts:Wisconsin Dells, WI (3)
    
    
    30.32
    %
    
    
    1997
    
    
    
    308
    
    
    
    77
    
    
    
    102,000Sandusky, OH (3)
    
    
    30.32
    %
    
    
    2001
    
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI
    
    
    100
    %
    
    
    2003
    
    
    
    280
    
    
    
    
    
    
    
    57,000Kansas City, KS
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    57,000Sheboygan, WI
    
    
    100
    %
    
    
    2004
    
    
    
    182
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    
    2005
    
    
    
    405
    
    
    
    
    
    
    
    87,000Pocono Mountains, PA
    
    
    100
    %
    
    
    2005
    
    
    
    401
    
    
    
    
    
    
    
    101,000Niagara Falls, ONT (4)
    
    
    
    
    
    
    2006
    
    
    
    406
    
    
    
    
    
    
    
    104,000Mason, OH
    
    
    100
    %
    
    
    2006
    
    
    
    401
    
    
    
    
    
    
    
    105,000Grapevine, TX (5)
    
    
    100
    %
    
    
    2007
    
    
    
    402
    
    
    
    
    
    
    
    110,000Grand Mound, WA (6)
    
    
    49
    %
    
    March 2008
    
    
    398
    
    
    
    
    
    
    
    74,000Resorts Under Construction:Concord, NC (7)
    
    
    100
    %
    
    Spring 2009
    
    
    402
    
    
    
    
    
    
    
    97,000
 
 (1)
    
    Condominium units are individually owned by third parties and are managed by us.(2)
    
    Our indoor entertainment areas generally include our indoor waterpark, game
arcade, childrens activity room, family tech center, MagiQuest and fitness
room, as well as our Aveda® spa in the resorts that have such
amenities.(3)
    
    These properties are owned by a joint venture. CNL 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 own a 30.32%
interest. We operate the properties and license the Great Wolf Lodge brand to
the joint venture under long-term agreements through October 2020, subject to
earlier termination in certain situations.(4)
    
    An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this
resort. We have granted Ripley a license to use the Great Wolf Lodge name for
this resort through April 2016. We manage the resort on behalf of Ripley and
also provide central reservation services. 20




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##### Table of Contents



(5)
    
    In late 2007, we began construction on an additional 203 suites and
20,000 square feet of meeting space as an expansion of this resort. Expected
completion of the expansion is early 2009.(6)
    
    This property is owned by a joint venture. The Confederated Tribes of the
Chehalis Reservation (Chehalis) owns a 51% interest in the joint venture, and
we own a 49% interest. We operate the property and license the Great Wolf Lodge
brand to the joint venture under long-term agreements through April 2057,
subject to earlier termination in certain situations. Chehalis has leased the
land needed for the resort to the joint venture.(7)
    
    We are developing a Great Wolf Lodge resort in Concord, North
Carolina. The Northwoods-themed, approximately 402-suite resort will provide a
comprehensive package of first-class destination lodging amenities and
activities. Construction on the resort began in October 2007 with expected
completion in Spring 2009. Industry Trends.
    Outlook.
  21




---



##### Table of Contents




    
    We believe that our Traverse City and Sandusky resorts have been and will
continue to be affected by adverse general economic circumstances in the
Michigan/Northern Ohio region (such as bankruptcies of several major companies
and/or large announced layoffs by major employers) and increased competition that
has occurred in these markets over the past three years. The Michigan/Northern Ohio
region includes cities that have historically been the Traverse City and Sandusky
resorts largest suppliers of customers. We believe the adverse general economic
circumstances in the region have negatively impacted overall discretionary consumer
spending in that region over the past few years and may continue to do so going
forward. We believe this has and may continue to have an impact on the operating
performance of our Traverse City and Sandusky resorts.
    
    We have experienced a much slower-than-expected occupancy ramp-up and
lower-than-expected average daily room rates at our Sheboygan, Wisconsin property
since its opening in 2004. We believe this operating weakness has been primarily
attributable to the fact that the overall development of Sheboygan as a tourist
destination continues to lag materially behind our initial expectations. We believe
this has materially impacted and will likely continue to impact the consumer demand
for our indoor waterpark resort in that market and the operations of the resort.
    
    Our Mason resort opened its first phase in December 2006 and is ramping up more
slowly than we had projected, which we believe is due, in part, to the opening of
competitive properties in the region and to negative publicity from operating issues
at the resort in early 2007.
   22




---



##### Table of Contents



Revenue and Key Performance Indicators.
 
    
    Monitoring our historical trends for occupancy and estimating our high occupancy nights;
    
    Offering the highest discounts to previous guests in off-peak periods to build customer
loyalty and enhance our ability to charge higher rates in peak periods;
    
    Structuring rates to allow us to offer our previous guests the best rate while
simultaneously working with a promotional partner or offering internet specials;
    
    Monitoring sales of room types daily to evaluate the effectiveness of offered discounts;
and
    
    Offering specials on standard suites and yielding better rates on larger suites when
standard suites sell out.
   
    
    Occupancy;
    
    Average daily room rate, or ADR;
    
    Revenue per available room, or RevPAR;
    
    Total revenue per available room, or Total RevPAR;
    
    Total revenue per occupied room, or Total RevPOR; and
    
    Earnings before interest, taxes, depreciation and amortization, or EBITDA.
  
    
    Occupancy is calculated by dividing total occupied rooms by total available rooms.
    
    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.
 23




---



##### Table of Contents



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




---



##### Table of Contents



Non-GAAP Financial Measures
    25




---



##### Table of Contents




    
    a significant portion of our assets consists of property and equipment that are
depreciated over their remaining useful lives in accordance with GAAP. Because depreciation
and amortization are non-cash items, we believe that presentation of EBITDA is a useful
measure of our operating performance;
    
    it is widely used in the hospitality and entertainment industries to measure operating
performance without regard to items such as depreciation and amortization; and
    
    we believe it helps investors meaningfully evaluate and compare the results of our
operations from period to period by removing the impact of items directly resulting from our
asset base, primarily depreciation and amortization, from our operating results.
  
    
    as a measurement of operating performance because it assists us in comparing our
operating performance on a consistent basis as it removes the impact of items directly
resulting from our asset base, primarily depreciation and amortization, from our operating
results;
    
    for planning purposes, including the preparation of our annual operating budget;
    
    as a valuation measure for evaluating our operating performance and our capacity to incur
and service debt, fund capital expenditures and expand our business; and
    
    as one measure in determining the value of other acquisitions and dispositions.
   Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (4,090
    )
    
    $
    (1,656
    )
    
    $
    (6,417
    )
    
    $
    (3,661
    )Adjustments:Interest expense, net of
interest income
    
    
    6,475
    
    
    
    2,923
    
    
    
    12,892
    
    
    
    5,461Income tax benefit
    
    
    (2,410
    )
    
    
    (1,180
    )
    
    
    (4,115
    )
    
    
    (2,091
    )Depreciation and amortization
    
    
    11,741
    
    
    
    8,818
    
    
    
    22,760
    
    
    
    17,462EBITDA
    
    $
    11,716
    
    
    $
    8,905
    
    
    $
    25,120
    
    
    $
    17,171
 Results of Operations
 General
 26




---



##### Table of Contents




    
    our subsidiary entity that provides resort development and management/licensing services;
    
    our Traverse City, Kansas City, Sheboygan, Williamsburg, Pocono Mountains, Mason and
Grapevine operating resorts;
    
    equity interests in resorts in which we have ownership interests but which we do not
consolidate; and
    
    our resorts that are under construction which we 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;
    
    depreciation and amortization; and
    
    other expenses from managed properties, which are recorded as an expense in accordance
with EITF 01-14.
 Three months ended June 30, 2008, compared with the three months ended June 30, 2007
  27




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##### Table of Contents



All Properties (a)
    
    Same Store Comparison (b)Three months
    
    Three months
    
    Three monthsended
    
    ended
    
    ended
    
    Increase (Decrease)June 30, 2008
    
    June 30, 2008
    
    June 30, 2007
    
    $
    
    %Occupancy
    
    
    67.1
    %
    
    
    64.5
    %
    
    
    61.2
    %
    
    
    N/A
    
    
    
    5.4
    %ADR
    
    $
    234.89
    
    
    $
    228.27
    
    
    $
    237.57
    
    
    $
    (9.30
    )
    
    
    (3.9
    )%RevPAR
    
    $
    157.53
    
    
    $
    147.27
    
    
    $
    145.28
    
    
    $
    1.99
    
    
    
    1.4
    %Total RevPOR
    
    $
    365.75
    
    
    $
    350.56
    
    
    $
    358.72
    
    
    $
    (8.16
    )
    
    
    (2.3
    )%Total RevPAR
    
    $
    245.29
    
    
    $
    226.16
    
    
    $
    219.37
    
    
    $
    6.79
    
    
    
    3.1
    %
 
 (a)
    
    Includes results for properties that were open for any portion of the period, for all owned
and/or managed resorts.(b)
    
    Same store comparison includes properties that were open for the full periods in 2008 and
2007 (that is, our Wisconsin Dells, Sandusky, Traverse City, Kansas City, Sheboygan,
Williamsburg, Poconos, Niagara Falls and Mason resorts).    Three months endedJune 30,Increase2008
    
    2007
    
    (Decrease)Revenues
    
    $
    63,018
    
    
    $
    46,347
    
    
    $
    16,671Operating expenses:Departmental operating expenses
    
    
    20,879
    
    
    
    16,169
    
    
    
    4,710Selling, general and administrative
    
    
    16,694
    
    
    
    11,458
    
    
    
    5,236Property operating costs
    
    
    8,085
    
    
    
    6,289
    
    
    
    1,796Depreciation and amortization
    
    
    11,741
    
    
    
    8,818
    
    
    
    2,923Net operating income
    
    
    51
    
    
    
    811
    
    
    
    (760
    )Interest expense, net of interest income
    
    
    6,475
    
    
    
    2,923
    
    
    
    3,552Income tax benefit
    
    
    (2,232
    )
    
    
    (917
    )
    
    
    (1,315
    )Net loss
    
    
    (4,090
    )
    
    
    (1,656
    )
    
    
    (2,434
    )
 Revenues.
 Operating expenses.
 
    
    Departmental expenses increased by $4,710 for the three months ended June 30, 2008, as
compared to the three months ended June 30, 2007, due primarily to the opening of our
Grapevine resort.
    
    Total selling, general and administrative expenses increased by $5,236 due primarily to
the opening of our Grapevine resort, increased marketing efforts at our Mason resort and an
increase in corporate selling, general and
 28




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##### Table of Contents



administrative expenses. The corporate selling,
general and administrative expense increase was due primarily to separation costs of $1,258
for former officers in the three months ended June 30, 2008, as compared to the three months
ended June 30, 2007.
 
    
    Total property operating costs (exclusive of opening costs) increased $2,525 for the
three months ended June 30, 2008, as compared to the three months ended June 30, 2007, due
primarily to the opening of our Grapevine resort. Opening costs related to our resorts
were $368 for the three months ended June 30, 2008, as compared to $1,097 for the three
months ended June 30, 2007.
    
    Total depreciation and amortization increased mainly due to the opening of our Grapevine
resort and the conference center expansion at our Williamsburg resort in June 2007.
 Net operating income.
 Net loss.
 
    
    An increase in net interest expense of $3,552 mainly due to interest expense on mortgage
debt related to our Williamsburg and Grapevine resorts, hedge fees related to a terminated
debt transaction related to our Williamsburg resort, and interest expense on our junior
subordinated debentures issued in June 2007; and
    
    A decrease in operating income from $811 for the three months ended June 30, 2007, to $51
for the three months ended June 30, 2008.
  Six months ended June 30, 2008, compared with the six months ended June 30, 2007
  All Properties (a)
    
    Same Store Comparison (b)Six months ended
    
    Six months ended
    
    Six months ended
    
    Increase (Decrease)June 30, 2008
    
    June 30, 2008
    
    June 30, 2007
    
    $
    
    %Occupancy
    
    
    65.5
    %
    
    
    64.2
    %
    
    
    62.7
    %
    
    
    N/A
    
    
    
    2.4
    %ADR
    
    $
    251.04
    
    
    $
    246.98
    
    
    $
    242.88
    
    
    $
    4.10
    
    
    
    1.7
    %RevPAR
    
    $
    164.43
    
    
    $
    158.66
    
    
    $
    152.18
    
    
    $
    6.48
    
    
    
    4.3
    %Total RevPOR
    
    $
    387.77
    
    
    $
    376.68
    
    
    $
    368.71
    
    
    $
    7.97
    
    
    
    2.2
    %Total RevPAR
    
    $
    253.99
    
    
    $
    241.98
    
    
    $
    231.02
    
    
    $
    10.96
    
    
    
    4.7
    %
 
 (a)
    
    Includes results for properties that were open for any portion of the period, for all owned
and/or managed resorts.(b)
    
    Same store comparison includes properties that were open for the full periods in 2008 and
2007 (that is, our Wisconsin Dells, Sandusky, Traverse City, Kansas City, Sheboygan,
Williamsburg, Poconos, Niagara Falls and Mason resorts).  29




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##### Table of Contents



Six months endedJune 30,Increase2008
    
    2007
    
    (Decrease)Revenues
    
    $
    127,226
    
    
    $
    94,807
    
    
    $
    32,419Operating expenses:Departmental operating expenses
    
    
    41,296
    
    
    
    32,690
    
    
    
    8,606Selling, general and administrative
    
    
    30,092
    
    
    
    24,579
    
    
    
    5,513Property operating costs
    
    
    19,914
    
    
    
    14,172
    
    
    
    5,742Depreciation and amortization
    
    
    22,760
    
    
    
    17,462
    
    
    
    5,298Net operating income
    
    
    4,113
    
    
    
    66
    
    
    
    4,047Net interest expense
    
    
    12,892
    
    
    
    5,461
    
    
    
    7,431Income tax benefit
    
    
    (3,037
    )
    
    
    (1,961
    )
    
    
    (1,076
    )Net loss
    
    
    (6,417
    )
    
    
    (3,661
    )
    
    
    (2,756
    )
 Revenues.
 Operating expenses.
 
    
    Departmental expenses increased by $8,606 for the six months ended June 30, 2008, as
compared to the six months ended June 20, 2007, mainly due to the opening of our Grapevine
resort and the expansion of our Williamsburg resort.
    
    Total selling, general and administrative expenses increased by $5,513 for the six months
ended June 30, 2008, as compared to the six months ended June 30, 2007. Selling, general
and administrative expenses increased by $4,386 due to the opening of our Grapevine resort
and the expansion of our Williamsburg resort. This increase was also due to an increase in
corporate selling, general and administrative expenses of $2,129 due primarily to separation
costs of $1,258 for former officers in the six months ended June 30, 2008, as compared to
the six months ended June 30, 2007.
    
    Total property operating costs (exclusive of opening costs) increased $5,217 for the
six months ended June 30, 2008, as compared to June 20, 2007, mainly due to the opening of
our Grapevine resort, as well as increased repairs and maintenance expense, and increased
utilities expense related to the expansion of our Williamsburg resort and amenity additions
to several of our other resorts. Opening costs related to our resorts were $3,948 for the
six months ended June 30, 2008, as compared to $3,423 for the six months ended June 30,
2007.
    
    Total depreciation and amortization increased mainly due to the opening of our Grapevine
resort and the expansion at our Williamsburg resort. The total increase in depreciation and
amortization at these two resorts was $4,248 during the six months ended June 30, 2008, as
compared to the six months ended June 30, 2007.
 Net operating income.
 Net
loss.
 30




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##### Table of Contents




    
    An increase in operating income from $66 for the six months ended June 30, 2007, to
$4,113 for the six months ended June 30, 2007.§
    
    An increase of $1,076 in income tax benefit recorded in the six months ended June 30,
2008, as compared to the six months ended June 30, 2007.
 Segments
  
    
    resort ownership/operation-revenues derived from our consolidated owned resorts;
    
    resort third-party management-revenues derived from management, license and other
related fees from unconsolidated managed resorts; and
    
    condominium sales-revenues derived from sales of condominium units to third-party
owners.
  Three months ended
    
    Six months endedJune 30,
    
    June 30,Increase
    
    
    
    
    
    
    
    
    
    Increase2008
    
    2007
    
    (Decrease)
    
    2008
    
    2007
    
    (Decrease)Resort Ownership/OperationRevenues
    
    $
    55,286
    
    
    $
    41,887
    
    
    $
    13,399
    
    
    $
    114,150
    
    
    $
    85,533
    
    
    $
    28,617EBITDA, excluding certain items
    
    
    13,102
    
    
    
    9,085
    
    
    
    4,017
    
    
    
    26,936
    
    
    
    17,507
    
    
    
    9,429Resort Third-Party MgmtRevenues
    
    
    7,732
    
    
    
    4,460
    
    
    
    3,272
    
    
    
    13,076
    
    
    
    9,274
    
    
    
    3,802EBITDA, excluding certain items
    
    
    2,164
    
    
    
    1,658
    
    
    
    506
    
    
    
    4,024
    
    
    
    3,436
    
    
    
    588Condominium SalesRevenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EBITDA, excluding certain items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherRevenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EBITDA, excluding certain items
    
    
    (3,474
    )
    
    
    (1,114
    )
    
    
    (2,360
    )
    
    
    (4,087
    )
    
    
    (3,415
    )
    
    
    (672
    )
  Liquidity and Capital Resources
  31




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##### Table of Contents



June 30,
    
    
    December 31,2008
    
    
    2007Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    70,887
    
    
    $
    71,542Mason mortgage loan
    
    
    76,800
    
    
    
    76,800Pocono Mountains mortgage loan
    
    
    97,000
    
    
    
    97,000Williamsburg mortgage loan
    
    
    55,000
    
    
    
    Grapevine construction loan
    
    
    76,217
    
    
    
    58,260Concord construction loan
    
    
    
    
    
    
    Junior subordinated debentures
    
    
    80,545
    
    
    
    80,545Other Debt:City of Sheboygan bonds
    
    
    8,453
    
    
    
    8,465City of Sheboygan loan
    
    
    3,599
    
    
    
    3,690468,501
    
    
    
    396,302Less current portion of long-term debt
    
    
    (134,378
    )
    
    
    (78,752
    )Total long-term debt
    
    $
    334,123
    
    
    $
    317,550
 Traverse City/Kansas City Mortgage Loan
 Mason Construction Loan
  Pocono
Mountains Mortgage Loan 
 32




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##### Table of Contents



Williamsburg
Mortgage Loan 
 Grapevine Construction Loan
  Concord Construction Loan
 Junior Subordinated Debentures
   33




---



##### Table of Contents



City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughJune 30,2009
    
    $
    134,3782010
    
    
    3,8592011
    
    
    4,2582012
    
    
    77,2722013
    
    
    3,538Thereafter
    
    
    245,196Total
    
    $
    468,501
 Short-Term Liquidity Requirements
  
    
    recurring maintenance, repairs and other operating expenses necessary to properly
maintain and operate our resorts;
 34




---



##### Table of Contents




    
    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;
    
    costs associated with the development of new resorts;
    
    renovations, expansions and other non-recurring capital expenditures that need to be
made periodically to our resorts; and
    
    capital contributions and loans to unconsolidated joint ventures.
    35




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##### 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 30.32% ownership interest. At June 30, 2008, the
joint venture had aggregate outstanding indebtedness to third parties of $63,000.  This
loan is a mortgage loan that is non-recourse to us.
    
    We entered into our joint venture with The Confederated Tribes of the Chehalis
Reservation to develop a Great Wolf Lodge resort and conference center on a 39-acre land
parcel in Grand Mound, Washington. This resort opened in March 2008. This joint venture
is a limited liability company; we are a member of that limited liability company with a
49% ownership interest. At June 30, 2008, the joint venture had aggregate outstanding
indebtedness to third parties of $97,887. We have provided a 49% guarantee on mortgage
debt obtained by the Grand Mound joint venture. As of June 30, 2008, we have made combined
loan and equity contributions of $42,093 to the joint venture to fund a portion of
construction costs of the resort.
   Contractual Obligations
  Payment TermsMoreLess Than
    
    
    
    
    
    
    
    
    
    
    ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsDebt obligations (1)
    
    $
    468,501
    
    
    $
    134,378
    
    
    $
    8,117
    
    
    $
    80,810
    
    
    $
    245,196Operating lease obligations
    
    
    1,372
    
    
    
    561
    
    
    
    479
    
    
    
    274
    
    
    
    58Construction contracts
    
    
    68,804
    
    
    
    68,804
    
    
    
    
    
    
    
    
    
    
    
    Related party guarantee (2)
    
    
    952
    
    
    
    457
    
    
    
    495
    
    
    
    
    
    
    
    Reserve on unrecognized tax benefits
    
    
    1,268
    
    
    
    
    
    
    
    
    
    
    
    1,268
    
    
    
    Total
    
    $
    540,897
    
    
    $
    204,200
    
    
    $
    9,091
    
    
    $
    82,352
    
    
    $
    245,254
 
 (1)
    
    Includes $8,453 of fixed rate debt recognized as a liability related to certain bonds
issued by the City of Sheboygan and $3,599 of fixed rate debt recognized as a liability
related to a loan from the City of Sheboygan. 36




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##### Table of Contents



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
 Six months ended June 30, 2008, compared with the six months ended June 30, 2007
 2008
    
    2007
    
    IncreaseNet cash provided by operating activities
    
    $
    14,931
    
    
    $
    8,075
    
    
    $
    6,856Net cash used in investing activities
    
    
    (68,726
    )
    
    
    (131,408
    )
    
    
    62,682Net cash provided by financing activities
    
    
    69,885
    
    
    
    53,034
    
    
    
    16,851
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Inflation
  
 ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  37




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##### Table of Contents




    
    $70,887 of fixed rate debt secured by two of our resorts. This debt bears interest at
6.96%.
    
    $76,800 of variable rate debt secured by one of our resorts. This debt bears interest
at a floating rate of 30-day LIBOR plus a spread of 265 basis points. $71,000 of this debt
is effectively fixed at a rate of 7.65% due to the interest rate swap described above.
Taking into account the effect of this interest rate swap, the total blended rate on this
loan was 7.46% as of June 30, 2008.
    
    $97,000 of fixed rate debt secured by one of our resorts. This debt bears interest at
6.10%.
    
    $55,000 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 300 basis points, with a minimum rate of
6.50% per annum. The total rate was 6.50% at June 30, 2008.
    
    $76,217 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
5.06% at June 30, 2008.
    
    $51,550 of subordinated debentures that bear interest at a fixed rate of 7.80% through
March 2015 and then at a floating rate of LIBOR plus 310 basis points thereafter. The
securities mature in March 2035.
    
    $28,995 of subordinated debentures that bear interest at a fixed rate of 7.90% through
June 2012 and then at a floating rate of LIBOR plus 300 basis points thereafter. The
securities mature in June 2017.
    
    $8,453 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 $3,599 of noninterest bearing
debt recognized as a liability related to a loan from the City of Sheboygan. These
liabilities will be satisfied by certain future minimum guaranteed amounts of real and
personal property tax payments and room tax payments to be made by the Sheboygan resort.
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 38




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##### Table of Contents



Changes In Internal Control
  39




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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
  FOR
    
    WITHHELDJoseph V. Vittoria
    
    
    23,020,495
    
    
    
    185,582Elan J. Blutinger
    
    
    22,486,978
    
    
    
    719,099Randy L. Churchey
    
    
    22,873,306
    
    
    
    332,771Eric D. Hovde
    
    
    22,904,200
    
    
    
    301,877Michael M. Knetter
    
    
    22,496,814
    
    
    
    709,263Beth B. May
    
    
    22,913,075
    
    
    
    293,002Richard T. Murray
    
    
    22,405,814
    
    
    
    800,263Edward H. Rensi
    
    
    22,974,783
    
    
    
    231,294Howard A. Silver
    
    
    22,358,923
    
    
    
    847,154
 
 ITEM 5. OTHER INFORMATION
  40




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##### Table of Contents



ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description2.1
    
    Form of Merger Agreement (Delaware) (incorporated herein by reference to
Exhibit 2.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)2.2
    
    Form of Merger Agreement (Wisconsin) (incorporated herein by reference to
Exhibit 2.2 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)3.1
    
    Form of Amended and Restated Certificate of Incorporation for Great Wolf
Resorts, Inc. dated December 9, 2004 (incorporated herein by reference to
Exhibit 3.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)3.2
    
    Form of Amended and Restated Bylaws of Great Wolf Resorts, Inc. effective
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)
 41




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##### Table of Contents



ExhibitNumber
    
    Description10.1*
    
    Separation, Consulting and Noncompetition Agreement dated June 16, 2008,
by and between Great Wolf Resorts, Inc., and Hernan Martinez.10.2
    
    Employment Agreement, dated as of May 23, 2008, between the Company and Mr. Randy Churchey
(incorporated herein by reference to Exhibit 10.1 to the Companys Current Report on
Form 8-K filed May 27, 2008).10.3
    
    Agreement, dated as of May 9,
2008, among the Company and certain investors of the Company
parties thereto (incorporated herein by reference to Exhibit 10.1 to the Companys Current Report on
Form 8-K filed May 14, 2008).10.4
    
    Separation, Consulting and Non-competition Agreement, entered into on May 9, 2008, between the Company
and John Emery (incorporated herein by reference to Exhibit 10.2 to the Companys Current Report on
Form 8-K filed May 14, 2008).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 135099.1
    
    Loan Agreement dated April 30, 2008, among Great Wolf Lodge of the Carolinas, LLC, as
borrower, Marshall Financial Group, as Administrative Agent, and the several banks and other
financial institutions from time to time party thereto (incorporated herein by reference to Exhibit 99.1 to the Companys Current Report on
Form 8-K filed May 6, 2008).
 
 *
    
    Filed herewith. 42




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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)  43