##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly period ended March 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 000-51064
 
 GREAT WOLF RESORTS, INC.
 (Exact name of registrant as specified in its charter)
 
 Delaware(State or other jurisdiction of
incorporation or organization)
    
    51-0510250(I.R.S. Employer
Identification No.)122 West Washington Avenue
Madison, Wisconsin 53703(Address of principal executive offices)
    
    53703(Zip Code)
 Registrants telephone number, including area code
608 661-4700
 þ o
  Large accelerated filer o
    
    Accelerated filer
þ
    
    Non-accelerated filer
o
 o þ




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##### 



Great Wolf Resorts, Inc.
 Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2006
 INDEX
 PageNo.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets for Great Wolf Resorts, Inc. and subsidiaries
as of March 31, 2006, and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for Great Wolf Resorts, Inc. and
Subsidiaries for the three months ended March 31, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for Great Wolf Resorts, Inc. and
Subsidiaries for the three months ended March 31, 2006 and March 31, 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    29PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    32Certification of Chief Executive OfficerCertification of Chief Financial Officer1350 Certification of Chief Executive Officer1350 Certification of Chief Financial Officer
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)(Dollars in thousands, except pershare amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    56,793
    
    
    $
    54,782Accounts receivable, net of allowance for doubtful accounts of $125 and $95
    
    
    2,023
    
    
    
    2,506Accounts receivable  affiliates
    
    
    3,692
    
    
    
    12,825Inventory
    
    
    2,220
    
    
    
    2,254Other current assets
    
    
    5,773
    
    
    
    1,996Total current assets
    
    
    70,501
    
    
    
    74,363Property and equipment, net
    
    
    401,891
    
    
    
    385,391Investment in affiliates
    
    
    25,592
    
    
    
    43,207Other assets
    
    
    13,736
    
    
    
    11,741Other intangible assets
    
    
    23,829
    
    
    
    23,829Goodwill
    
    
    66,995
    
    
    
    66,995Total assets
    
    $
    602,544
    
    
    $
    605,526LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    1,897
    
    
    $
    1,928Accounts payable
    
    
    10,721
    
    
    
    18,183Accrued expenses
    
    
    10,440
    
    
    
    9,311Accrued expenses  affiliates
    
    
    2,271
    
    
    
    3,576Advance deposits
    
    
    8,301
    
    
    
    5,680Gift certificates payable
    
    
    1,782
    
    
    
    2,126Other current liabilities
    
    
    117
    
    
    
    126Total current liabilities
    
    
    35,529
    
    
    
    40,930Mortgage debt
    
    
    157,182
    
    
    
    154,092Other long-term debt
    
    
    12,319
    
    
    
    12,308Other long-term liabilities
    
    
    391
    
    
    
    391Deferred tax liability
    
    
    25,194
    
    
    
    25,800Deferred compensation liability
    
    
    1,764
    
    
    
    1,501Total liabilities
    
    
    232,379
    
    
    
    235,022Minority Interest
    
    
    6,569
    
    
    
    6,593Commitments and contingenciesStockholders Equity:Common stock, $0.01 par value, 250,000,000 shares authorized,
30,277,308 shares issued and outstanding, at March 31, 2006 and
December 31, 2005
    
    
    303
    
    
    
    303Additional paid in capital
    
    
    394,693
    
    
    
    394,212Preferred stock, $0.01 par value, 10,000,000 shares authorized, no
shares issued or outstanding
    
    
    
    
    
    
    Accumulated deficit
    
    
    (29,200
    )
    
    
    (28,255
    )Shares of common stock held in deferred compensation plan
    
    
    (2,200
    )
    
    
    (2,349
    )Total stockholders equity
    
    
    363,596
    
    
    
    363,911Total liabilities and stockholders equity
    
    $
    602,544
    
    
    $
    605,526
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GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months endedMarch 31,2006
    
    
    2005(Unaudited, dollars in thousands, except pershare data)Revenues:Rooms
    
    $
    22,687
    
    
    $
    18,076Food and beverage
    
    
    5,771
    
    
    
    4,695Other hotel operations
    
    
    5,521
    
    
    
    4,225Management and other fees
    
    
    148
    
    
    
    Management and other fees  related parties
    
    
    727
    
    
    
    34,854
    
    
    
    26,996Other revenue from managed properties
    
    
    2,982
    
    
    
    Total revenues
    
    
    37,836
    
    
    
    26,996Operating expenses by department:Rooms
    
    
    2,997
    
    
    
    2,638Food and beverage
    
    
    4,871
    
    
    
    3,763Other
    
    
    4,327
    
    
    
    3,268Other operating expenses:Selling, general and administrative
    
    
    11,650
    
    
    
    7,238Property operating costs
    
    
    4,877
    
    
    
    6,057Depreciation and amortization
    
    
    6,098
    
    
    
    7,148Loss on sale of assets
    
    
    578
    
    
    
    35,398
    
    
    
    30,112Other expenses from managed properties
    
    
    2,982
    
    
    
    Total operating expenses
    
    
    38,380
    
    
    
    30,112Net operating loss
    
    
    (544
    )
    
    
    (3,116
    )Interest income
    
    
    (683
    )
    
    
    (292
    )Interest expense
    
    
    1,862
    
    
    
    1,056Loss before income taxes, minority interests, and equity in earnings unconsolidated affiliates
    
    
    (1,723
    )
    
    
    (3,880
    )Income tax benefit
    
    
    (675
    )
    
    
    (1,542
    )Minority interests, net of tax
    
    
    (14
    )
    
    
    Equity in earnings of unconsolidated affiliates, net of tax
    
    
    (89
    )
    
    
    Net loss
    
    $
    (945
    )
    
    $
    (2,338
    )Net loss per share-basic
    
    $
    (0.03
    )
    
    $
    (0.08
    )Net loss per share-diluted
    
    $
    (0.03
    )
    
    $
    (0.08
    )Weighted average common shares outstanding:Basic
    
    
    30,147,896
    
    
    
    30,132,896Diluted
    
    
    30,147,896
    
    
    
    30,132,896
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GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three months endedMarch 31,2006
    
    
    2005(Unaudited, dollars in thousands)Operating activities:Net loss
    
    $
    (945
    )
    
    $
    (2,338
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    6,098
    
    
    
    7,148Non-cash employee compensation expense
    
    
    796
    
    
    
    338Loss on sale of assets
    
    
    578
    
    
    
    Equity in unconsolidated affiliates
    
    
    (148
    )
    
    
    Minority interests
    
    
    (24
    )
    
    
    Deferred tax benefit
    
    
    (606
    )
    
    
    (1,542
    )Changes in operating assets and liabilities:Accounts receivable and other assets
    
    
    2,913
    
    
    
    (10,870
    )Accounts payable, accrued expenses and other liabilities
    
    
    (2,790
    )
    
    
    (2,023
    )Net cash provided by (used in) operating activities
    
    
    5,872
    
    
    
    (9,287
    )Investing activities:Capital expenditures for property and equipment
    
    
    (25,574
    )
    
    
    (30,229
    )Cash distributions from unconsolidated affiliates
    
    
    18,816
    
    
    
    Investment in affiliates
    
    
    (357
    )
    
    
    Proceeds from sale of assets
    
    
    1,540Increase in restricted cash
    
    
    (977
    )
    
    
    (96
    )(Increase) decrease in escrows
    
    
    (379
    )
    
    
    248Net cash used in investing activities
    
    
    (6,931
    )
    
    
    (30,077
    )Financing activities:Principal payments on long-term debt
    
    
    (510
    )
    
    
    (48,715
    )Proceeds from issuance of long-term debt
    
    
    3,580
    
    
    
    75,483Payment of loan costs
    
    
    
    
    
    
    (1,572
    )Net cash provided by financing activities
    
    
    3,070
    
    
    
    25,196Net increase (decrease) in cash and cash equivalents
    
    
    2,011
    
    
    
    (14,168
    )Cash and cash equivalents, beginning of period
    
    
    54,782
    
    
    
    79,409Cash and cash equivalents, end of period
    
    $
    56,793
    
    
    $
    65,241Supplemental Cash Flow Information-Cash paid for interest, net of capitalized interest
    
    $
    1,681
    
    
    $
    552Cash paid for income taxes
    
    $
    192
    
    
    $
    1,058Non-cash items:Construction in process accruals
    
    $
    5,846
    
    
    $
    14,090
  5




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##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 1. ORGANIZATION
  Business Summary
    IndoorOwnership
    
    
    
    
    
    Guest
    
    Condo
    
    EntertainmentPercentage
    
    Opening
    
    Suites
    
    Units
    
    Area(1)(Approx. sq.ft)Existing Resorts:Wisconsin Dells, WI
    
    
    30
    %
    
    
    1997
    
    
    
    309
    
    
    
    77
    
    
    
    102,000Sandusky, OH
    
    
    30
    %
    
    
    2001
    
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    51,000Kansas City, KS
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    49,000Sheboygan, WI
    
    
    100
    %
    
    
    2004
    
    
    
    183
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    
    2005
    
    
    
    301
    (2)
    
    
    
    
    
    
    66,000Pocono Mountains, PA
    
    
    100
    %
    
    
    2005
    
    
    
    401
    
    
    
    
    
    
    
    91,000Resorts Announced or Under Construction:Niagara Falls, ONT (3)
    
    
    
    
    
    April 2006
    
    
    406
    
    
    
    
    
    
    
    94,000Mason, OH (4)
    
    
    84
    %
    
    Fall 2006
    
    
    401
    
    
    
    
    
    
    
    92,000Grand Mound, WA(5)
    
    
    49
    %
    
    Late 2007
    
    
    317
    
    
    
    
    
    
    
    65,000Grapevine, TX(6)
    
    
    100
    %
    
    Late 2007
    
    
    400
    
    
    
    
    
    
    
    80,000
 6




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##### Table of Contents



(1)
    
    Our indoor entertainment areas generally include our indoor waterpark, game arcade,
childrens activity room and fitness room, as well as our Aveda concept spa, Wileys Woods and
party room in the resorts that have such amenities.(2)
    
    We plan to add an additional 103 guest suites as well as new waterpark attractions at our
Williamsburg property. Construction for the expansion is expected to start in Spring 2006
with expected completion in Spring 2007.(3)
    
    An affiliate of Ripley Entertainment, Inc., our licensee, which we refer to as Ripleys, owns
this resort. We assisted Ripleys with construction management and other pre-opening matters
related to the Great Wolf Lodge in Niagara Falls. We have granted Ripleys a license to use
the Great Wolf Lodge name for this resort through April 2016. We manage the resort on behalf
of Ripleys and also provide central reservation services. This resort opened on April 14,
2006.(4)
    
    We have entered into a joint venture agreement with Paramount Parks, Inc., a unit of CBS
Corporation, to build this resort and attached conference center. We will operate the resort
under our Great Wolf Lodge brand and have a majority of the equity position in the project.
Paramount has a minority equity interest in the development. Construction on the resort began
in July 2005 with expected completion of the resort in Fall 2006 and the conference center in
early 2007.(5)
    
    We have entered into a joint venture agreement with The Confederated Tribes of the Chehalis
Reservation to build this resort. We will operate the resort under our Great Wolf Lodge brand.
The Confederated Tribes of the Chehalis Reservation will contribute the land needed for the
resort, and they will have a majority equity interest in the joint venture. Construction on
the resort is expected to begin in Summer 2006 with expected completion in late 2007.(6)
    
    We have announced plans to develop a Great Wolf Lodge resort in Grapevine, Texas. The
northwoods themed, six-story, approximately 400-suite resort will provide a comprehensive
package of first-class destination lodging amenities and activities. Construction on the
resort is expected to begin in Spring 2006 with expected completion in late 2007. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 General
  Principles of Consolidation
 7




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##### Table of Contents



Minority Interest 
 Income Taxes
 Segments
  Resort
    
    
    Resort Third-
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsQuarter ended March 31, 2006Revenues
    
    $
    33,979
    
    
    $
    3,857
    
    
    $
    
    
    
    $
    
    
    
    $
    37,836EBITDA, excluding certain items
    
    
    8,103
    
    
    
    875
    
    
    
    
    
    
    
    (3,424
    )
    
    $
    5,554Depreciation and amortization
    
    
    (5,995
    )
    
    
    
    
    
    
    
    
    
    
    (103
    )
    
    
    (6,098
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,179
    )Loss before income taxes,
minority interests, and equity
in earnings of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,723
    )Additions to long-lived assets
    
    
    25,574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,574Total assets
    
    
    485,589
    
    
    
    
    
    
    
    
    
    
    
    116,955
    
    
    $
    602,544
 Resort
    
    
    Resort Third-
    
    
    
    
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    Condominium
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Sales
    
    
    Other
    
    
    StatementsQuarter ended March 31, 2005Revenues
    
    $
    26,996
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    26,996EBITDA, excluding certain items
    
    
    5,280
    
    
    
    
    
    
    
    
    
    
    
    (1,248
    )
    
    $
    4,032Depreciation and amortization
    
    
    (6,961
    )
    
    
    
    
    
    
    
    
    
    
    (187
    )
    
    
    (7,148
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (764
    )Loss before income taxes,
minority interests, and equity
in earnings of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,880
    )Additions to long-lived assets
    
    
    30,229
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    30,229Total assets
    
    
    536,801
    
    
    
    
    
    
    
    
    
    
    
    114,738
    
    
    $
    651,539
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Recent Accounting Pronouncements
 3. INVESTMENT IN AFFILIATES
  4. SHARE-BASED COMPENSATION
 Share-Based Payment Accounting for Stock Issued to Employees
    Stock Options
   9




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##### Table of Contents



ThreeMonthsEndedMarch 31,2005Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    3.65
    %Weighted average, expected life of option
    
    6.0 yearsExpected stock price volatility
    
    
    40.00
    %
   Weighted
    
    Weighted AverageAverage
    
    RemainingExercise
    
    ContractualShares
    
    Price
    
    LifeNumber of shares under option:Outstanding at beginning of period
    
    
    1,405,834
    
    
    $
    17.25Granted
    
    
    Exercised
    
    
    Forefited
    
    
    (143,166
    )
    
    $
    17.08Outstanding at end of period
    
    
    1,262,668
    
    
    $
    17.27
    
    
    
    8.75Exercisable at end of period
    
    
    443,852
    
    
    $
    17.03
    
    
    
    8.75
  Market Condition Share Awards
   10




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##### Table of Contents



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
    %
  Performance Share Awards
  Deferred Compensation Awards
  Non-vested Shares
   WeightedAverageGrant Date
    
    AggregateShares
    
    Fair Value
    
    Intrinsic ValueNon-vested shares balance at beginning of period
    
    
    15,000
    
    
    $
    10.09Granted
    
    
    Vested
    
    
    Non-vested shares balance at end of period
    
    
    15,000
    
    
    $
    10.09
    
    
    
    $23
 11




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Prior Year Pro Forma Expense
 Accounting for Stock-Based Compensation
 Three Months EndedMarch 31, 2005Net loss, as reported
    
    $
    (2,338
    )Compensation expense, SFAS 123 fair value method
    
    
    (328
    )Pro forma net loss
    
    $
    (2,666
    )Pro forma net loss per share  basic
    
    $
    (0.09
    )Pro forma net loss per share  diluted
    
    $
    (0.09
    )
 5. PROPERTY AND EQUIPMENT
  March 31,
    
    
    December 31,2006
    
    
    2005Land and improvements
    
    $
    38,874
    
    
    $
    38,735Building and improvements
    
    
    150,735
    
    
    
    150,184Furniture, fixtures and equipment
    
    
    169,029
    
    
    
    167,691Construction in process
    
    
    67,264
    
    
    
    46,448425,902
    
    
    
    403,058Less accumulated depreciation
    
    
    (24,011
    )
    
    
    (17,667
    )Property and equipment, net
    
    $
    401,891
    
    
    $
    385,391
  6. LONG-TERM DEBT
  March 31,
    
    
    December 31,2006
    
    
    2005Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    73,674
    
    
    $
    73,979Sheboygan mortgage loan
    
    
    28,801
    
    
    
    28,939Junior subordinated debentures
    
    
    51,550
    
    
    
    51,550Mason construction loan
    
    
    3,531
    
    
    
    Other mortgage debt
    
    
    1,523
    
    
    
    1,552Other Debt:City of Sheboygan bonds
    
    
    8,337
    
    
    
    8,288City of Sheboygan loan
    
    
    3,982
    
    
    
    4,020171,398
    
    
    
    168,328Less current portion of long-term debt
    
    
    (1,897
    )
    
    
    (1,928
    )$
    169,501
    
    
    $
    166,400
 12




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##### Table of Contents



Traverse City/Kansas City Mortgage Loan
 Sheboygan Mortgage Loan
 Junior Subordinated Debentures
    Mason Construction Loan
 13




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##### Table of Contents



City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughMarch 31,2007
    
    $
    1,8972008
    
    
    29,6972009
    
    
    1,5592010
    
    
    5,2062011
    
    
    1,799Thereafter
    
    
    131,240Total
    
    $
    171,398
 7. EARNINGS PER SHARE
   Three months endedMarch 31,2006
    
    2005Net loss attributable to common shares
    
    $
    (945
    )
    
    $
    (2,338
    )Weighted average common shares outstanding  basic
    
    
    30,147,896
    
    
    
    30,132,896Weighted average common shares outstanding  diluted
    
    
    30,147,896
    
    
    
    30,132,896Net loss per share  basic
    
    $
    (0.03
    )
    
    $
    (0.08
    )Net loss per share  diluted
    
    $
    (0.03
    )
    
    $
    (0.08
    )
 14




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this report. We make statements in this section that are
forward-looking statements within the meaning of the federal securities laws. For a complete
discussion of forward-looking statements, see the section in Item 1 of our Annual Report on Form
10-K entitled, Forward-Looking Statements. All dollar amounts in this discussion, except for per
share data and operating statistics, are in thousands.
 Overview
  Business.
   IndoorOwnership
    
    
    
    
    
    Guest
    
    Condo
    
    EntertainmentPercentage
    
    Opening
    
    Suites
    
    Units
    
    Area(1)(Approx. sq.ft)Existing Resorts:Wisconsin Dells, WI
    
    
    30
    %
    
    
    1997
    
    
    
    309
    
    
    
    77
    
    
    
    102,000Sandusky, OH
    
    
    30
    %
    
    
    2001
    
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    51,000Kansas City, KS
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    49,000Sheboygan, WI
    
    
    100
    %
    
    
    2004
    
    
    
    183
    
    
    
    64
    
    
    
    54,000
 15




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##### Table of Contents



IndoorOwnership
    
    
    
    
    
    Guest
    
    Condo
    
    EntertainmentPercentage
    
    Opening
    
    Suites
    
    Units
    
    Area(1)(Approx. sq.ft)Williamsburg, VA
    
    
    100
    %
    
    
    2005
    
    
    
    301
    (2)
    
    
    
    
    
    
    66,000Pocono Mountains, PA
    
    
    100
    %
    
    
    2005
    
    
    
    401
    
    
    
    
    
    
    
    91,000Resorts Announced or Under Construction:Niagara Falls, ONT (3)
    
    
    
    
    
    April 2006
    
    
    406
    
    
    
    
    
    
    
    94,000Mason, OH (4)
    
    
    84
    %
    
    Fall 2006
    
    
    401
    
    
    
    
    
    
    
    92,000Grand Mound, WA(5)
    
    
    49
    %
    
    Late 2007
    
    
    317
    
    
    
    
    
    
    
    65,000Grapevine, TX(6)
    
    
    100
    %
    
    Late 2007
    
    
    400
    
    
    
    
    
    
    
    80,000
 
 (1)
    
    Our indoor entertainment areas generally include our indoor waterpark, game arcade,
childrens activity room and fitness room, as well as our Aveda concept spa, Wileys Woods and
party room in the resorts that have such amenities.(2)
    
    We plan to add an additional 103 guest suites as well as new waterpark attractions at our
Williamsburg property. Construction for the expansion is expected to start in Spring 2006
with expected completion in Spring 2007.(3)
    
    An affiliate of Ripley Entertainment, Inc., our licensee, which we refer to as Ripleys, owns
this resort. We assisted Ripleys with construction management and other pre-opening matters
related to the Great Wolf Lodge in Niagara Falls. We have granted Ripleys a license to use
the Great Wolf Lodge name for this resort through April 2016. We manage the resort on behalf
of Ripleys and also provide central reservation services. This resort opened on April 14,
2006.(4)
    
    We have entered into a joint venture agreement with Paramount Parks, Inc., a unit of CBS
Corporation, to build this resort and attached convention center. We will operate the resort
under our Great Wolf Lodge brand and will maintain a majority of the equity position in the
project. Paramount will have a minority equity interest in the development. Construction on
the resort began in July 2005 with expected completion of the resort in Fall 2006 and the
conference center in Early 2007.(5)
    
    We have entered into a joint venture agreement with The Confederated Tribes of the Chehalis
Reservation to build this resort. We will operate the resort under our Great Wolf Lodge brand.
The Confederated Tribes of the Chehalis Reservation will contribute the land needed for the
resort, and they will have a majority equity interest in the joint venture. Construction on
the resort is expected to begin in Summer 2006 with expected completion in late 2007.(6)
    
    We have announced plans to develop a Great Wolf Lodge resort in Grapevine, Texas. The
northwoods themed, six-story, approximately 400-suite resort will provide a comprehensive
package of first-class destination lodging amenities and activities. Construction on the
resort is expected to begin in Spring 2006 with expected completion in late 2007. Industry Trends
  16




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##### Table of Contents



Outlook.
    Revenue and Key Performance Indicators.
 17




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##### Table of Contents




    
    Monitoring our historical trends for occupancy and estimating our high occupancy nights;
    
    Offering the highest discounts to previous guests in off-peak periods to build customer
loyalty and enhance our ability to charge higher rates in peak periods;
    
    Structuring rates to allow us to offer our previous guests the best rate while
simultaneously working with a promotional partner or offering internet specials;
    
    Monitoring sales of room types daily to evaluate the effectiveness of offered discounts; and
    
    Offering specials on standard suites and yielding better rates on larger suites when standard suites sell out.
   
    
    Occupancy;
    
    Average daily room rate, or ADR;
    
    Revenue per available room, or RevPAR;
    
    Total revenue per available room, or Total RevPAR;
    
    Total revenue per occupied room, or Total RevPOR; and
    
    earnings before interest, taxes, depreciation and amortization, or EBITDA.
  
    
    Occupancy is calculated by dividing total occupied rooms by total available rooms.
    
    ADR is calculated by dividing total rooms revenue by total occupied rooms.
    
    RevPAR is the product of occupancy and ADR.
  
    
    Total RevPAR is calculated by dividing total revenue by rooms available
    
    Total Rev POR is calculated by dividing total revenue by occupied rooms
 18




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##### Table of Contents



Recent Accounting Pronouncements
  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;
 19




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##### Table of Contents




    
    it is widely used in the hospitality and entertainment industries to measure operating
performance without regard to items such as depreciation and amortization; and
    
    we believe it helps investors meaningfully evaluate and compare the results of our
operations from period to period by removing the impact of items directly resulting from our
asset base, primarily depreciation and amortization, from our operating results.
  
    
    as a measurement of operating performance because it assists us in comparing our
operating performance on a consistent basis as it removes the impact of items directly
resulting from our asset base, primarily depreciation and amortization, from our operating
results;
    
    for planning purposes, including the preparation of our annual operating budget;
    
    as a valuation measure for evaluating our operating performance and our capacity to incur
and service debt, fund capital expenditures and expand our business; and
    
    as one measure in determining the value of other acquisitions and dispositions.
   Three months endedMarch 31,2006
    
    
    2005Net loss
    
    $
    (945
    )
    
    $
    (2,338
    )Adjustments:Interest expense, net
    
    
    1,179
    
    
    
    764Income tax benefit
    
    
    (606
    )
    
    
    (1,542
    )Depreciation and amortization
    
    
    6,098
    
    
    
    7,148EBITDA
    
    $
    5,726
    
    
    $
    4,032
 Results of Operations
 General
   20




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##### Table of Contents




    
    our corporate entity that provides resort development and management services;
    
    our Wisconsin Dells, Sandusky, Traverse City, Kansas City, Sheboygan, Williamsburg, and
Pocono Mountains operating resorts (we sold 70% interests in each of our Wisconsin Dells and
Sandusky resorts in October 2005);
    
    equity interests in resorts in which we have ownership interests but which we do not consolidate; and
    
    our resorts that are under construction which we will consolidate.
 Revenues.
 
    
    lodging revenue, which includes rooms, food and beverage, and other department revenues from our resorts;
    
    management fee and other revenue from resorts, which includes fees received under our
management and license agreements; and
    
    other revenue from managed properties. We employ the staff at our managed properties
(except for the Niagara Falls resort). Under our management agreements, the resort owners
reimburse us for payroll, benefits and certain other costs related to the operations of the
managed properties. Emerging Issues Task Force, or EITF, Issue No. 01-14, Income Statement
Characteristics of Reimbursements for Out-of-Pocket Expenses (EITF 01-14), establishes
standards for accounting for reimbursable expenses in our statements of operations. Under
this pronouncement, the reimbursement of payroll, benefits and costs is recorded as revenue
on our statements of operations, with a corresponding expense recorded as other expenses
from managed properties.
 Operating Expenses.
  
    
    selling, general and administrative expenses, which are associated with the operations
and management of resorts and which consist primarily of expenses such as corporate payroll
and related benefits, operations management, sales and marketing, finance, legal,
information technology support, human resources and other support services, as well as
general corporate expenses;
    
    property operation and maintenance expenses, such as utility costs and property taxes;
    
    depreciation and amortization; and
    
    other expenses from managed properties (except for the Niagara Falls resort), which are
recorded as an expense in accordance with EITF 01-14.
 Three months ended March 31, 2006 compared with the three months ended March 31, 2005
  21




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##### Table of Contents



All Properties (a)
    
    Same Store Comparison (b)Three months
    
    Three months
    
    Three monthsended
    
    ended
    
    ended
    
    Increase (Decrease)March 31, 2006
    
    March 31, 2006
    
    March 31, 2005
    
    $
    
    %Occupancy
    
    
    66.8
    %
    
    
    65.1
    %
    
    
    70.2
    %
    
    
    N/A
    
    
    
    (7.3
    )%ADR
    
    $
    238.04
    
    
    $
    202.76
    
    
    $
    209.95
    
    
    $
    (7.19
    )
    
    
    (3.4
    )%RevPAR
    
    $
    158.92
    
    
    $
    132.01
    
    
    $
    147.34
    
    
    $
    (15.33
    )
    
    
    (10.4
    )%Total RevPOR
    
    $
    360.95
    
    
    $
    311.02
    
    
    $
    313.35
    
    
    $
    (2.33
    )
    
    
    (0.7
    )%Total RevPAR
    
    $
    240.98
    
    
    $
    202.49
    
    
    $
    219.91
    
    
    $
    (17.42
    )
    
    
    (7.9
    )%
 
 (a)
    
    Includes results for properties that were open for any portion of the period, for all owned
and managed resorts.(b)
    
    Same store comparison includes properties that were open for the full periods in 2006 and
2005 (that is, our Wisconsin Dells, Sandusky, Traverse City, Kansas City, and Sheboygan
resorts).   Three months endedMarch 31,Increase2006
    
    2005
    
    (Decrease)Revenues
    
    $
    37,836
    
    
    $
    26,996
    
    
    $
    10,840Operating expenses:Departmental operating expenses
    
    
    12,195
    
    
    
    9,669
    
    
    
    2,526Selling, general and administrative
    
    
    11,650
    
    
    
    7,238
    
    
    
    4,412Property operating costs
    
    
    4,877
    
    
    
    6,057
    
    
    
    (1,180
    )Depreciation and amortization
    
    
    6,098
    
    
    
    7,148
    
    
    
    (1,050
    )Loss on sale of real estate
    
    
    578
    
    
    
    
    
    
    
    578Net operating loss
    
    
    (544
    )
    
    
    (3,116
    )
    
    
    2,572Net interest expense
    
    
    1,179
    
    
    
    764
    
    
    
    415Income tax benefit
    
    
    (675
    )
    
    
    (1,542
    )
    
    
    867Net loss
    
    
    (945
    )
    
    
    (2,338
    )
    
    
    1,393
 Revenues.
 
    
    Total revenues for the Williamsburg and Pocono Mountains resorts were $19,815 for the
three months ended March 31, 2006 as compared to $745 for the three months ended March
31, 2005.
    
    Total management and other fees related to the CNL joint venture were $727 for the
three months ended March 31, 2006.
    
    Other revenue from managed properties was $2,982 for the three months ended March 31,
2006. There was no similar revenue for the three months ended March 31, 2005.
 22




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##### Table of Contents




    
    Total revenues for the Wisconsin Dells and Sandusky resorts were $10,728 for the
three months ended March 31, 2005.
 Operating expenses.
 
    
    Total departmental operating expenses for the Williamsburg and Pocono Mountains resorts
were $7,100 for the three months ended March 31, 2006 as compared to $424 for the three
months ended March 31, 2005. Total departmental expenses for the Wisconsin Dells and
Sandusky resorts were $3,760 for the three months ended March 31, 2005.
    
    Total selling, general and administrative expenses for the Williamsburg and Pocono
Mountains resorts were $4,261 for the three months ended March 31, 2006 as compared to $153
for the three months ended March 31, 2005. Total selling, general and administrative
expenses for the Wisconsin Dells and Sandusky resorts were $2,185 for the three months ended
March 31, 2005. Our corporate selling, general and administrative expenses included share
based compensation expense of $796 for the three months ended March 31, 2006 as compared to
$338 for the three months ended March 31, 2005, along with an additional $860 in
professional fees and travel expenses recorded in the three months ended March 31, 2006 in
excess of the amount recorded in the three months ended March 31, 2005.
    
    Total property operating costs (exclusive of opening costs) for the Williamsburg and
Pocono Mountains resorts were $1,876 for the three months ended March 31, 2006. Total
property operating costs for the resorts in Wisconsin Dells and Sandusky were $1,345 for the
three months ended March 31, 2005. Opening costs related to our Pocono Mountains and Mason
resorts and the resort in Niagara Falls were $726 for the three months ended March 31, 2006,
as compared to $2,600 for the three months ended March 31, 2005 related to our resort in
Williamsburg.
    
    Total depreciation and amortization for the Williamsburg and Pocono Mountains resorts was
$3,165 for the three months ended March 31, 2006. Total depreciation and amortization for
the Wisconsin Dells and Sandusky resorts was $1,708 for the three months ended March 31,
2005. During the three months ended March 31, 2005 we also had amortization expense of
$2,116 related to loan fee write offs.
    
    Loss on sale of real estate of $578 relates to finalization of the accounting for the
sale of 70% of our equity interests in the Wisconsin Dells and Sandusky resorts in October
2005. No similar loss was recognized during the three months ended March 31, 2005.
 Net operating loss.
 Net loss.
 
    
    A decrease in operating loss from $(3,116) for the three months ended March 31, 2005 to
$(544) for the three months ended March 31, 2006.
  
    
    A reduction of $867 in income tax benefit recorded in the three months ended March 31,
2006 as compared to the three months ended March 31, 2005.
 23




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##### Table of Contents




    
    An increase in net interest expense of $415 mainly due to less interest being capitalized
to construction in process during the three months ended March 31, 2006 as compared to the
three months ended March 31, 2005.
 Segments
  Three months ended March 31,Increase2006
    
    2005
    
    (Decrease)Resort Ownership/OperationRevenues
    
    $
    33,979
    
    
    $
    26,996
    
    
    $
    6,983EBITDA, excluding certain items
    
    
    8,103
    
    
    
    5,280
    
    
    
    2,823Resort Third-Party MgmtRevenues
    
    
    3,857
    
    
    
    
    
    
    
    3,857EBITDA, excluding certain items
    
    
    875
    
    
    
    
    
    
    
    875OtherRevenues
    
    
    
    
    
    
    
    
    
    
    EBITDA, excluding certain items
    
    
    (3,424
    )
    
    
    (1,248
    )
    
    
    (2,176
    )
  Liquidity and Capital Resources
  March 31,
    
    
    December 31,2006
    
    
    2005Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    73,674
    
    
    $
    73,979Sheboygan mortgage loan
    
    
    28,801
    
    
    
    28,939Junior subordinated debentures
    
    
    51,550
    
    
    
    51,550Mason construction loan
    
    
    3,531
    
    
    
    Other mortgage debt
    
    
    1,523
    
    
    
    1,552Other Debt:City of Sheboygan bonds
    
    
    8,337
    
    
    
    8,288City of Sheboygan loan
    
    
    3,982
    
    
    
    4,020171,398
    
    
    
    168,328Less current portion of long-term debt
    
    
    (1,897
    )
    
    
    (1,928
    )Total long-term debt
    
    $
    169,501
    
    
    $
    166,400
 24




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##### Table of Contents



Traverse City/Kansas City Mortgage Loan
 Sheboygan Mortgage Loan
 Junior Subordinated Debentures
    Mason Construction Loan
 25




---



##### Table of Contents



City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughMarch 31,2007
    
    $
    1,8972008
    
    
    29,6972009
    
    
    1,5592010
    
    
    5,2062011
    
    
    1,799Thereafter
    
    
    131,240Total
    
    $
    171,398
 Short-Term Liquidity Requirements
  
    
    recurring maintenance, repairs and other operating expenses necessary to properly
maintain and operate our resorts;
    
    property taxes and insurance expenses;
    
    interest expense and scheduled principal payments on outstanding indebtedness;
    
    general and administrative expenses; and
    
    income taxes.
  Long-Term Liquidity Requirements
  
    
    scheduled debt maturities;
 26




---



##### Table of Contents




    
    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
  Contractual Obligations
  Payment TermsLess
    
    
    
    
    
    
    
    
    
    
    MoreThan
    
    
    1-3
    
    
    3-5
    
    
    ThanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsDebt Obligations(1)
    
    $
    171,398
    
    
    $
    1,897
    
    
    $
    31,256
    
    
    $
    7,005
    
    
    $
    131,240Operating Lease Obligations
    
    
    1,482
    
    
    
    434
    
    
    
    808
    
    
    
    240
    
    
    
    Construction Contracts
    
    
    46,769
    
    
    
    46,769
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    219,649
    
    
    $
    49,100
    
    
    $
    32,064
    
    
    $
    7,245
    
    
    $
    131,240
 
 (1)
    
    Includes $8,337 of fixed rate debt recognized as a liability related to certain bonds issued
by the City of Sheboygan and $3,982 of fixed rate debt recognized as a liability related to a
loan from the City of Sheboygan. These liabilities will be satisfied by certain future minimum
guaranteed amounts of real and personal property tax payments and room tax payments to be made
by our Sheboygan resort.  Working Capital
  Cash Flows
 Three months ended March 31, 2006 compared with the three months ended March 31, 2005
 27




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##### Table of Contents



Increase2006
    
    2005
    
    (Decrease)Net cash provided by (used in) operating activities
    
    $
    5,872
    
    
    $
    (9,287
    )
    
    $
    15,159Net cash used in investing activities
    
    
    (6,931
    )
    
    
    (30,077
    )
    
    
    23,146Net cash provided by financing activities
    
    
    3,070
    
    
    
    25,196
    
    
    
    (22,126
    )
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Inflation
  
 ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
    
    $73,674 of fixed rate debt secured by two of our resorts. This debt bears interest at
6.96%.
    
    $28,801 of variable rate debt secured by one of our resorts. This debt bears interest at
a floating rate equal to prime plus 200 basis points. The total rate was 9.632% at March 31,
2006.
    
    $51,550 of debentures that bear interest at a fixed rate of 7.80% through March 2015 and
then at a floating rate of LIBOR plus 310 basis points thereafter. The securities mature in
March 2035.
    
    $3,531 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 7.48% at
March 31, 2006.
    
    $8,337 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 $3,982 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
 28




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##### Table of Contents




    
    $1,523 of other fixed rate debt.
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Remediation of Material Weaknesses
  29




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##### Table of Contents



Changes In Internal Control
  30




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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
  31




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##### Table of Contents



ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 
 ExhibitNumber
    
    Description2.1
    
    
    Form of Merger Agreement (Delaware) (incorporated herein by reference to
Exhibit 2.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)2.2
    
    
    Form of Merger Agreement (Wisconsin) (incorporated herein by reference to
Exhibit 2.2 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)3.1
    
    
    Form of Amended and Restated Certificate of Incorporation for Great Wolf
Resorts, Inc. dated December 9, 2004 (incorporated herein by reference to
Exhibit 3.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)3.2
    
    
    Form of Amended and Restated Bylaws of Great Wolf Resorts, Inc. effective
December 20, 2004 (incorporated herein by reference to Exhibit 3.2 to the
Companys Registration Statement on Form S-1 filed August 12, 2004)4.1
    
    
    Form of the Common Stock Certificate of Great Wolf Resorts, Inc.
(incorporated herein by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-1 filed October 21, 2004)4.2
    
    
    Junior Subordinated Indenture, dated as of March 15, 2005, between Great
Wolf Resorts, Inc. and JPMorgan 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;
JPMorgan Chase Bank, National Association, as property trustee; Great Wolf
Resorts, Inc., as depositor; and James A. Calder, Alex G. Lombardo and J.
Michael Schroeder, as administrative trustees (incorporated herein by
reference to Exhibit 4.2 to the Companys Current Report on Form 8-K filed
March 18, 2005)10.1
    
    
    Loan Agreement by and among CNL Income GW W-DEL, LP., CNL Income GW
Sandusky, LP, and NSPL, Inc. (incorporated by reference to Exhibit 1.1 to
the Companys current report on Form 8-K filed March 2, 2006).
 32




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##### Table of Contents



ExhibitNumber
    
    Description31.1*
    
    
    Certification of Chief Executive Officer of Periodic Report Pursuant to
Rule 13a14(a) and Rule 15d14(a)31.2*
    
    
    Certification of Chief Financial Officer of Periodic Report Pursuant to
Rule 13a14(a) and Rule 15d14(a)32.1*
    
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 135032.2*
    
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
 
 *
    
    Filed herewith. 33




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##### Table of Contents



SIGNATURE
  GREAT WOLF RESORTS, INC./s/ James A. CalderJames A. Calder
Chief Financial Officer

(Duly authorized officer)
 (Principal Financial and Accounting Officer)
  34