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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, 2005 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 000-51064   GREAT WOLF RESORTS, INC. (Exact name of registrant as specified in its charter)
   Delaware
    
    51-0510250(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)122 West Washington Avenue
    
    53703Madison, Wisconsin 53703
    
    (Zip Code)(Address of principal executive offices)
 Registrants telephone number, including area code
608 661-4700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ The number of shares outstanding of the issuers common equity was 30,262,308 as of May 12,
2005.




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##### Table of Contents



Great Wolf Resorts, Inc. Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2005 INDEX PageNo.PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited)
    
    3Condensed Consolidated Balance Sheets for Great Wolf Resorts,
Inc. and subsidiaries as of March 31, 2005 and December 31, 2004
    
    3Condensed Consolidated and Combined Statements of Operations for
Great Wolf Resorts, Inc. and Subsidiaries for the three months
ended March 31, 2005 and for Great Lakes Predecessor for the
three months ended March 31, 2004
    
    4Condensed Consolidated and Combined Statements of Cash Flows for
Great Wolf Resorts, Inc. and Subsidiaries for the three months
ended March 31, 2005 and for Great Lakes Predecessor for the
three months ended March 31, 2004
    
    5Notes to Condensed Consolidated and Combined Financial Statements
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    26Item 4.
    
    Controls and Procedures
    
    26PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    28Item 3.
    
    Defaults Upon Senior Securities
    
    28Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    28Item 5.
    
    Other Information
    
    28Item 6.
    
    Exhibits
    
    28Revolving Credit AgreementCertification of Chief Executive OfficerCertification of Chief Financial OfficerSection 1360 Certification of Chief Executive OfficerSection 1350 Certification of Chief Financial Officer
 2




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PART I. FINANCIAL INFORMATION 
 ITEM 1.FINANCIAL STATEMENTS GREAT WOLF RESORTS, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS March 31,
    
    
    December 31,2005
    
    
    2004(Unaudited)(Dollars in thousands, exceptper share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    67,344
    
    
    $
    81,417Accounts receivable, net of allowance for doubtful accounts of $267 and $183
    
    
    1,380
    
    
    
    881Inventory
    
    
    2,295
    
    
    
    1,848Other current assets
    
    
    6,601
    
    
    
    3,921Total current assets
    
    
    77,620
    
    
    
    88,067Property and equipment, net
    
    
    333,345
    
    
    
    275,758Equity escrow
    
    
    6
    
    
    
    1,564Other assets
    
    
    10,591
    
    
    
    8,298Goodwill
    
    
    200,387
    
    
    
    218,727Total assets
    
    $
    621,949
    
    
    $
    592,414LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    1,834
    
    
    $
    27,794Accounts payable
    
    
    23,265
    
    
    
    31,506Accrued expenses
    
    
    10,459
    
    
    
    10,466Advance deposits
    
    
    5,227
    
    
    
    3,129Other current liabilities
    
    
    1,776
    
    
    
    2,138Total current liabilities
    
    
    42,561
    
    
    
    75,033Long-term debt
    
    
    155,620
    
    
    
    102,813Other long-term liabilities
    
    
    11,981
    
    
    
    12,058Deferred tax liability
    
    
    22,531
    
    
    
    11,298Deferred compensation liability
    
    
    3,260
    
    
    
    2,891Total liabilities
    
    
    235,953
    
    
    
    204,093Commitments and contingenciesStockholders Equity:Common stock, $0.01 par value, 250,000,000 shares authorized, 30,262,308
shares issued and outstanding
    
    
    303
    
    
    
    303Additional paid in capital
    
    
    394,060
    
    
    
    394,060Preferred stock, $0.01 par value, 10,000,000 shares authorized, no
shares issued or outstanding
    
    
    
    
    
    
    Accumulated deficit
    
    
    (6,167
    )
    
    
    (3,842
    )Shares of common stock held in deferred compensation plan
    
    
    (2,200
    )
    
    
    (2,200
    )Total stockholders equity
    
    
    385,996
    
    
    
    388,321Total liabilities and stockholders equity
    
    $
    621,949
    
    
    $
    592,414
 See accompanying notes to condensed consolidated and combined financial statements. 3




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GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR 
 CONDENSED CONSOLIDATED
AND COMBINED STATEMENTS OF OPERATIONS Great WolfResorts, Inc.
    
    
    PredecessorThree months endedMarch 31,2005
    
    
    2004(Unaudited,dollars in thousands,except per share data)Revenues:Rooms
    
    $
    18,076
    
    
    $
    7,243Food and beverage
    
    
    4,758
    
    
    
    1,787Other resort operations
    
    
    4,162
    
    
    
    1,617Management fees  related parties
    
    
    
    
    
    
    405Development and other fees  related parties
    
    
    
    
    
    
    36026,996
    
    
    
    11,412Other revenue from managed properties
    
    
    
    
    
    
    3,340Total revenues
    
    
    26,996
    
    
    
    14,752Operating expenses by department:Rooms
    
    
    2,638
    
    
    
    1,049Food and beverage
    
    
    3,763
    
    
    
    1,461Other
    
    
    3,268
    
    
    
    1,277Other operating expenses:Selling, general and administrative
    
    
    7,238
    
    
    
    3,206Property operating costs
    
    
    6,057
    
    
    
    1,787Depreciation and amortization
    
    
    7,127
    
    
    
    2,71630,091
    
    
    
    11,496Other expenses from managed properties
    
    
    
    
    
    
    3,340Total operating expenses
    
    
    30,091
    
    
    
    14,836Net operating loss
    
    
    (3,095
    )
    
    
    (84
    )Interest income
    
    
    (292
    )
    
    
    (78
    )Interest expense
    
    
    1,056
    
    
    
    1,283Gain on sale of investments
    
    
    
    
    
    
    (1,072
    )Interest on mandatorily redeemable shares
    
    
    
    
    
    
    1,692Minority interests
    
    
    
    
    
    
    29Loss before income taxes
    
    
    (3,859
    )
    
    
    (1,938
    )Income tax benefit
    
    
    (1,534
    )
    
    
    Loss from continuing operations
    
    
    (2,325
    )
    
    
    (1,938
    )Income from discontinued operations
    
    
    
    
    
    
    20Net loss
    
    $
    (2,325
    )
    
    $
    (1,918
    )Basic loss per share
    
    $
    (0.08
    )Diluted loss per share
    
    $
    (0.08
    )Weighted average common shares outstanding:Basic
    
    
    30,132,896Diluted
    
    
    30,132,896
 See accompanying notes to condensed consolidated and combined financial statements. 4




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GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR 
 CONDENSED CONSOLIDATED
AND COMBINED STATEMENTS OF CASH FLOWS Great WolfResorts, Inc.
    
    
    PredecessorThree months endedMarch 31,2005
    
    
    2004(Unaudited, dollars in thousands)Operating activities:Net loss
    
    $
    (2,325
    )
    
    $
    (1,918
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    7,127
    
    
    
    3,043Non-cash employee compensation expense
    
    
    338
    
    
    
    Gain on sale of investments
    
    
    
    
    
    
    (1,072
    )Minority interests
    
    
    
    
    
    
    29Deferred tax benefit
    
    
    (1,534
    )
    
    
    Changes in operating assets and liabilities:Prepaid expenses and other assets
    
    
    (5,738
    )
    
    
    (392
    )Accounts payable, accrued expenses and other liabilities
    
    
    (6,512
    )
    
    
    1,353Net cash (used in) provided by operating activities
    
    
    (8,644
    )
    
    
    1,043Investing activities:Capital expenditures for property and equipment
    
    
    (32,183
    )
    
    
    (21,281
    )Proceeds from sale of assets
    
    
    
    
    
    
    7,925Decrease (increase) in equity escrow
    
    
    1,558
    
    
    
    (14,593
    )Net cash used in investing activities
    
    
    (30,625
    )
    
    
    (27,949
    )Financing activities:Principal payments on long-term debt
    
    
    (48,715
    )
    
    
    (6,608
    )Proceeds from issuance of long-term debt
    
    
    75,483
    
    
    
    16,049Payment of loan costs
    
    
    (1,572
    )
    
    
    (2,283
    )Member contributions
    
    
    
    
    
    
    25,191Member distributions
    
    
    
    
    
    
    (4,415
    )Changes in mandatorily redeemable ownership interests
    
    
    
    
    
    
    1,692Net distributions to minority investors
    
    
    
    
    
    
    635Net cash provided by financing activities
    
    
    25,196
    
    
    
    30,261Net increase (decrease) in cash and cash equivalents
    
    
    (14,073
    )
    
    
    3,355Cash and cash equivalents, beginning of period
    
    
    81,417
    
    
    
    3,553Cash and cash equivalents, end of period
    
    $
    67,344
    
    
    $
    6,908Supplemental Cash Flow Information-
Cash paid for interest, net of capitalized interest
    
    $
    552
    
    
    $
    1,294
 See accompanying notes to condensed consolidated and combined financial statements. 5




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GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND
GREAT LAKES PREDECESSOR 
 NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts)
 1. ORGANIZATION Background The terms Great Wolf Resorts, us, we and our are used in this report to refer to Great
Wolf Resorts, Inc. Through our controlling interest in GWR Operating Partnership,
L.L.L.P., or the Operating Partnership, and the
subsidiaries of the Operating Partnership, we develop, own and operate family entertainment
resorts. We were formed to succeed to certain businesses of the Great Lakes Predecessor (the
Predecessor), which was not a legal entity but rather a combination of numerous entities. The
Predecessor consisted of the following, all of which were under common management:  
    The Great Lakes Companies, Inc. (GLC), and its consolidated subsidiaries;
    Great Wolf Lodge of Traverse City, LLC;
    Great Wolf Lodge of Kansas City, LLC;
    Blue Harbor Resort Sheboygan, LLC;
    Great Wolf Lodge of Williamsburg, LLC; and
    Great Wolf Lodge of the Poconos, LLC. The Predecessor financial statements did not include entities that owned Great Wolf Lodges in
Wisconsin Dells, Wisconsin and Sandusky, Ohio. These entities, although they were managed by GLC,
were controlled by affiliates of AIG SunAmerica, Inc. The Predecessor had developed and operated hotels and multifamily housing projects since 1995.
In 1999, the Predecessor began its resort operations by purchasing the Great Wolf Lodge in
Wisconsin Dells, Wisconsin and developing the Great Wolf Lodge in Sandusky, Ohio, which opened in
2001. In 2003, the Predecessor opened two additional Great Wolf Lodge resorts, one in Traverse
City, Michigan and the other in Kansas City, Kansas. In June 2004, the Predecessor opened the Blue
Harbor Resort in Sheboygan, Wisconsin. Additionally in 2004, the Predecessor had two additional
Great Wolf Lodge resorts under construction, one in Williamsburg, Virginia and the other in the
Pocono Mountains region of Pennsylvania, and had licensed a resort owned by a third party that was
under construction in Niagara Falls, Ontario (Canada). The Great Wolf Lodge in Williamsburg,
Virginia, opened in March 2005. We were incorporated in May 2004 as a Delaware corporation in anticipation of the initial
public offering of our common stock (the IPO). The IPO closed on December 20, 2004, concurrently
with the completion of various formation transactions (the Formation Transactions). Pursuant to the Formation Transactions:  
    The Predecessor contributed its hotel management and multifamily housing management and
development assets, which were unrelated to the resort business, to two subsidiaries of the
Predecessor and then distributed the interests in those subsidiaries to the former
shareholders of GLC. 6




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
    We effected, through our Operating Partnership, the acquisition of GLC and each
resort-owning entity. Pursuant to these acquisitions, investors of GLC and the
resort-owning entities received cash, unregistered shares of our common stock or a
combination of cash and unregistered shares of our common stock. We issued 13,901,947
shares of our common stock and paid approximately $97,600 in cash in connection with these
acquisitions.
    We issued an aggregate of 130,949 shares of unregistered common stock to holders of
tenant in common interests in two of our resorts. These transactions consolidated the ownership of our resort properties and property interests
to Great Wolf Resorts. During the period from our formation until we commenced operations upon
closing of the IPO on December 20, 2004, we did not have any material corporate activity. The IPO consisted of the sale of 16,100,000 shares of common stock at a price per share of
$17.00, generating gross proceeds of $273,700. The net proceeds to us were approximately $248,700
after deducting an aggregate of $19,200 in underwriting discounts and commissions paid to the
underwriters and $5,800 in other expenses directly related to the issuance of common stock (such as
professional fees and printing fees) incurred in connection with the IPO. As of March 31, 2005, we own and operate five Great Wolf Lodge resorts, our signature
northwoods-themed resorts, and one Blue Harbor Resort, a nautical-themed property. In addition, we
own one Great Wolf Lodge resort in the Pocono Mountains, Pennsylvania, that we are developing and
that is under construction and scheduled to open for business in the fall of 2005. We are also the
licensor and manager of an additional Great Wolf Lodge resort in Niagara Falls, Ontario that is
owned and under development by an affiliate of Ripley Entertainment Inc., or Ripleys. Business Summary We are a family entertainment resort company that provides our guests with a high-quality
vacation at an affordable price. We are the largest owner, operator and developer in the United
States of drive-to family resorts featuring indoor waterparks and other family-oriented
entertainment activities. We provide a full-service entertainment resort experience to our target
customer base: families with children ranging in ages from 2 to 14 years old that live within a
convenient driving distance from our resorts. Our resorts are open year-round and provide a
consistent and comfortable environment where our guests can enjoy our various amenities and
activities. We provide our guests with a self-contained vacation experience and focus on capturing a
significant portion of their total vacation spending. We earn revenues through the sale of rooms,
which includes admission to our indoor waterpark, and other revenue-generating resort amenities.
Each of our resorts features a combination of the following revenue-generating amenities: themed
restaurants, an ice cream shop and confectionery, full-service spa, game arcade, gift shop and
meeting space. We also expect to generate revenues from licensing arrangements, management fees and
construction fees with respect to properties owned by third parties, such as the licensing
agreement we have entered into and management arrangement we have agreed to enter into with
Ripleys in connection with the Niagara Falls, Ontario resort. The following table presents an overview of our portfolio of operating resorts and resorts
under construction (including the Niagara resort that will be owned by a third party licensee): IndoorOpened/Target
    
    
    
    
    
    
    EntertainmentLocation
    
    Opening
    
    
    Rooms
    
    
    Area(1)(Approx. ft(2))Existing Resorts:Wisconsin Dells, WI
    
    May 1997(2)
    
    
    309
    (3)
    
    
    64,000Sandusky, OH(4)
    
    March 2001
    
    
    271
    
    
    
    41,000Traverse City, MI
    
    March 2003
    
    
    281
    
    
    
    51,000Kansas City, KS
    
    May 2003
    
    
    281
    
    
    
    49,000
 7




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IndoorOpened/Target
    
    
    
    
    
    
    EntertainmentLocation
    
    Opening
    
    
    Rooms
    
    
    Area(1)(Approx. ft(2))Sheboygan, WI(5)
    
    June 2004
    
    
    183
    (6)
    
    
    54,000Williamsburg, VA
    
    March 2005
    
    
    301
    
    
    
    66,000Resorts Under Construction:Pocono Mountains, PA
    
    Fall 2005
    
    
    400
    
    
    
    91,000Niagara Falls, ONT(7)
    
    Spring 2006
    
    
    404
    
    
    
    94,000
   (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, 3D virtual
reality theatre, Wileys Woods and party room in the resorts that have such amenities.(2)
    
    We purchased this property in November 1999.(3)
    
    Our Wisconsin Dells property also features 77 condominium units currently under construction.(4)
    
    Prior to May 2004, we operated this resort as a Great Bear Lodge.(5)
    
    Our Sheboygan property is branded as a Blue Harbor Resort. This resort is subject to a
98-year and 11-month ground lease with the Redevelopment Authority of the City of Sheboygan.(6)
    
    Our Sheboygan resort includes an additional 64 individually owned two and four bedroom
condominium units.(7)
    
    Ripleys, our licensee, owns this resort. We are assisting 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 and other
intellectual property for ten years after opening. We have agreed to enter into a management
agreement, pursuant to which we expect to operate the resort on behalf of Ripleys for five
years, and a central reservations agreement. In conjunction with this project, we expect to
receive a one-time construction fee and ongoing license, central reservation and management
fees. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General We have prepared these unaudited interim financial statements according to the rules
and regulations of the Securities and Exchange Commission. Accordingly, we have omitted certain
information and footnote disclosures that are normally included in annual financial statements
prepared in accordance with accounting principles generally accepted in the United States of
America. These interim financial statements should be read in conjunction with the financial
statements, accompanying notes and other information included in our Annual Report on Form 10-K for
the year ended December 31, 2004. Certain 2004 amounts have been reclassified to conform with the
2005 presentation. In our opinion, the accompanying unaudited consolidated and combined interim
financial statements reflect all adjustments, which are of a normal and recurring nature, necessary
for a fair presentation of the financial condition and results of operations and cash flows for the
periods presented. The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires us to make estimates and assumptions.
Such estimates and assumptions affect the reported amounts of assets and liabilities, as well as
the disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Our actual results could
differ from those estimates. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the entire year. Income Taxes At the end of each interim reporting period, we estimate the effective tax rate
expected to be applicable for the full fiscal year. The rate determined is used in providing for
income taxes on a year-to-date basis. Stock Based Compensation We have issued stock options under our 2004 Incentive Stock Plan.
As permitted under Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation, we have elected to account for such options in accordance with APB Opinion No. 25
(APB 25), Accounting for Stock 8




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Issued to Employees. Under APB 25, the total compensation expense recognized is equal to the
difference between the awards exercise price and the underlying stocks market prices at the
measurement date. Our stock options were granted with an exercise price equal to their fair market
value; therefore no compensation expense was recorded in the three months ended March 31, 2005. Had
compensation costs been determined under the fair value method as set forth in SFAS 123, our pro
forma net loss and net loss per share for the three months ended March 31, 2005, would have been as
follows: Net loss, as reported
    
    $
    (2,325
    )Compensation expense, SFAS 123 fair value method
    
    
    (328
    )Pro forma net loss
    
    $
    (2,653
    )Pro forma net loss per share  Basic
    
    $
    (0.09
    )Pro forma net loss per share  Diluted
    
    $
    (0.09
    )
 The
weighted average fair value for the options granted is $4.94. The SFAS 123 fair value of options granted in the three months ended March 31,
2005, was estimated using a Black-Scholes option-pricing model with the following assumptions: Dividend yield
    
    
    Weighted-average, risk free interest rate
    
    
    3.65
    %Weighted-average, expected life of option
    
    6.0 yearsExpected stock price volatility
    
    
    40
    %
 SegmentsWe view our operations as principally one segment and the financial information
disclosed herein represents all of the financial information related to our principal segment. Recent Accounting PronouncementsIn January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, (FIN 46) an interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial Statements. In December 2003, the FASB issued a revision
of FIN 46 (FIN 46R) to clarify some of its provisions. FIN 46R deferred the effective date for FIN
46 for arrangements entered into before February 1, 2003 and results in multiple effective dates
based on the nature as well as the creation date of the variable interest entity. Variable interest
entities created after January 31, 2003 but prior to December 24, 2003, may be accounted for either
based on the original or the revised interpretations. Variable interest entities created after
December 24, 2003 must be accounted for under the revised interpretations. FIN 46R is effective for
periods ending after March 15, 2004. The Predecessor applied FIN 46 to variable interest entities created after January 31, 2003
for the year ended December 31, 2003. The Predecessor applied FIN 46R to variable interest entities
effective January 1, 2004. Prior to the implementation of FIN 46 and FIN 46R, the Predecessor
consolidated entities for which it controlled major management and operating decisions. There was
no financial statement impact from the adoption of FIN 46 and FIN 46R. In December 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment
(SFAS 123R), that requires companies to expense the value of employee stock options, discounts on
employee stock purchase plans and similar awards. Under SFAS 123R, share-based payment awards
result in compensation expense that will be measured at fair value on the awards grant date, based
on the estimated number of awards that are expected to vest. SFAS 123R is effective for periods
beginning the first fiscal year after June 15, 2005, and applies to all outstanding and unvested
share-based payment awards at the adoption date. We have not completed our evaluation of the impact
of adopting SFAS 123R. 3. PURCHASE ACCOUNTING IN CONNECTION WITH THE IPO The IPO closed on December 20, 2004. In conjunction with the Formation Transactions completed
on that date, we issued a total of 14,032,896 shares of our common stock. We also paid cash of
approximately $97,600 to buy-out certain investors in the resort-owning entities and interests held
by AIG SunAmerica, Inc. in the Wisconsin Dells and Sandusky entities. 9




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We recorded the Formation Transactions by applying the purchase method of accounting in
connection with our acquisition of the seven resort-owning entities. In conjunction with purchase
accounting we:  
    Recorded property and equipment, other assets, debt and other liabilities at their
preliminarily estimated fair values;
    Recorded a deferred tax liability resulting from the difference between the
preliminarily estimated fair values and the tax bases of assets acquired from the seven
resort-owning entities. We recorded this liability at our anticipated effective tax rate of
40%;
    Eliminated mandatorily redeemable interests of the Predecessor due to the conversion of
those ownership interests to our common stock in conjunction with the Formation
Transactions; and
    Recorded as goodwill the excess of consideration in the purchase transaction over the
fair value of net tangible assets acquired from the seven resort-owning entities. As a result of this process, we had $218,727 of goodwill at December 31, 2004, all of which
related to the application of purchase accounting in conjunction with the Formation Transactions.
Some of the values and amounts used in the initial application of purchase accounting for our
consolidated balance sheet were based on preliminary estimates and assumptions. During the three
months ended March 31, 2005, we continued to refine and finalize these estimates and assumptions.
As a result of this process, we recorded adjustments to the estimated fair market values of
property and equipment acquired, resulting in an increase to property and equipment of $30,700, an
increase to accrued expenses of $301, an increase in deferred tax liability of $12,059, and a
decrease in goodwill of $18,340. In the first quarter of 2005, we changed our estimate of the useful lives used to depreciate
our property and equipment. This change in accounting estimate was adopted to more appropriately
match the depreciation lives of our property and equipment to their expected useful lives.
During the first quarter of 2005, we commissioned a third-party study, which provided information
on our property and equipments fair values, and expected useful lives. The effect of the change
in estimated fair values and depreciation lives, in the three months ended March 31, 2005, was a
decrease in depreciation expense of $296. It is impracticable to estimate the effect on future
periods. We expect to continue our process of refining and finalizing our purchase accounting estimates
and assumptions during the remainder of 2005. As a result, these preliminary estimates and
assumptions are subject to possible additional changes as we finalize them in 2005. 4. PROPERTY AND EQUIPMENT Property and equipment consist of the following: March 31
    
    
    December 312005
    
    
    2004Land
    
    $
    29,688
    
    
    $
    12,064Building and improvements
    
    
    114,343
    
    
    
    89,294Furniture, fixtures and equipment
    
    
    132,987
    
    
    
    82,470Construction in process
    
    
    61,768
    
    
    
    92,544338,786
    
    
    
    276,372Less accumulated depreciation
    
    
    (5,441
    )
    
    
    (614
    )Property and equipment, net
    
    $
    333,345
    
    
    $
    275,758
 10




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5. LONG-TERM DEBT AND OTHER LONG-TERM LIABILITIES Long-term debt and other long-term liabilities consists of the following: March 31,
    
    
    December 31,2005
    
    
    2004Long-Term Debt:Senior credit facility
    
    $
    
    
    
    $
    Traverse City/Kansas City Mortgage Loan
    
    
    74,794
    
    
    
    75,000Sheboygan Mortgage Loan
    
    
    29,391
    
    
    
    29,475Junior Subordinated Debentures
    
    
    51,550
    
    
    
    Other mortgage debt
    
    
    1,523
    
    
    
    1,523Williamsburg Construction Loan
    
    
    
    
    
    
    19,011Poconos Construction Loan
    
    
    
    
    
    
    5,598Other Long-Term Liabilities:City of Sheboygan bonds
    
    
    8,098
    
    
    
    8,063City of Sheboygan loan
    
    
    4,079
    
    
    
    3,995169,435
    
    
    
    142,665Less current portion of long-term debt
    
    
    (1,834
    )
    
    
    (27,794
    )$
    167,601
    
    
    $
    114,871
 Senior Credit Facility Upon closing the IPO, we entered into a $75,000 senior secured
revolving credit facility with a syndicate of banks. The loan is secured by our Wisconsin Dells and
Sandusky resorts and is not drawn as of March 31, 2005. Future borrowings under this facility will
bear interest at LIBOR plus a margin of 2.25% to 3.00% depending upon our leverage ratio from time
to time. The maximum amount of indebtedness we may incur under the facility is equal to 3.75
multiplied by the combined EBITDA (adjusted for non-recurring items, unusual items, infrequent
items and asset impairment charges) of the two resorts securing the facility plus up to $5,400
relating to enhancements to the waterpark facility for the Wisconsin Dells property. The facility
has customary bank covenants including the maximum level of total debt, the minimum level of
interest coverage, and the minimum level of fixed charge coverage. The facility also includes an
annual unused commitment fee of 0.5%. Traverse City/Kansas City Mortgage Loan Upon closing the IPO, we entered into a $75,000,
ten-year loan secured by our Traverse City and Kansas City resorts. The loan bears interest at a
fixed rate of 6.96% and is subject to a 25-year principal amortization schedule. The loan has
customary financial and operating debt compliance covenants, including a minimum debt service
coverage ratio, representing the combined EBITDA (adjusted for non-recurring items, unusual items,
infrequent items and asset impairment charges) of the two resorts divided by their combined annual
interest expense and principal amortization. The loan also has customary prohibitions on our
ability to prepay the loan prior to maturity. We were in compliance with all mortgage loan
covenants at March 31, 2005. Sheboygan Mortgage Loan The Sheboygan mortgage loan is secured by our Sheboygan resort. The
loan converted from a construction loan into a mortgage loan in January 2005. The loan matures in
January 2008 and bears interest at a floating rate of prime plus 200 basis points and is subject to
a 20-year principal amortization schedule. The loan has customary covenants associated with a
single asset mortgage. There are no prohibitions or fees associated with the repayment of the loan
principal. We were in compliance with the mortgage loan covenants at March 31, 2005. Junior Subordinated Debentures In March 2005, we completed a private offering of $50,000 of
trust preferred securities through Great Wolf Capital Trust I (the Trust), a Delaware statutory
trust which is our subsidiary. The securities pay holders cumulative cash distributions at an
annual rate which is fixed at 7.80% through March 2015 and then floats at LIBOR + 310 basis points.
The securities mature in March 2035 and are callable at no premium after March 2010. In addition,
we invested $1,500 in the Trusts common securities, representing 3% of the total capitalization of
the Trust. The
Trust used the proceeds of the offering and our investment to purchase from us $51,550 of
our junior subordinated debentures with payment terms that mirror the distribution terms of the
trust securities. The costs of the 11




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trust preferred offering totaled $1,600, including $1,500 of underwriting commissions and
expenses and $100 of costs incurred directly by the Trust. The Trust paid these costs utilizing an
investment from us. These costs are being amortized over a 30-year period. The proceeds from our
debenture sale, net of the costs of the trust preferred offering and our investment in the Trust,
were $48,400. We used the net proceeds to retire the Poconos construction loan. As a result of the issuance of FIN46R and the accounting professions application of the
guidance provided by the FASB, issuer trusts, like the Trust, are generally variable interest
entities. We have determined that we are not the primary beneficiary under the Trust, and
accordingly we do not consolidate the financial statements of the Trust into our consolidated
financial statements. Based on the foregoing accounting authority, these consolidated financial statements present
the debentures issued to the Trust as long-term debt. Our investment in the Trust is accounted as
a cost investment and is included in other assets. For financial reporting purposes, we record
interest expense on the corresponding debentures in our consolidated statements of operations. Williamsburg Construction Loan The Williamsburg construction loan was incurred to construct
the Williamsburg resort property. In February 2005, after drawing an additional $10,242 on this
loan, we retired the loan in full using cash on hand. Poconos Construction Loan The Poconos construction loan was incurred to construct the
Poconos resort property. In March 2005, after drawing an additional $13,550 on this loan, we
retired the loan in full using cash on hand and the proceeds of junior subordinated debentures we
issued in March 2005. City of Sheboygan bonds The City of Sheboygan (the City) bonds amount represents the face
amount of bond anticipation notes (BANs) issued by the City in November 2003 in conjunction with
the Predecessors construction of the Blue Harbor Resort in Sheboygan, Wisconsin. In accordance
with the provisions of EITF Issue No. 91-10, we have recognized as a liability the obligations for
these BANs. The notes bear interest at 3.95% and mature in 2008. The notes are not a general
obligation of the City and are payable from (a) the proceeds of bond anticipation notes or other
funds appropriated by the City for the payment of interest on the BANs and (b) the proceeds to be
delivered from the issuance and sale of securities by the City. We have an obligation to fund
payment of these BANs. Our obligation to fund repayment of the notes will be satisfied by certain
minimum guaranteed amounts of room tax payments to be made by the Blue Harbor Resort through 2028. City of Sheboygan loan The City of Sheboygan loan amount represents a loan made by the City
in 2004 to the Predecessor in conjunction with the Predecessors construction of the Blue Harbor
Resort in Sheboygan, Wisconsin. The loan is noninterest-bearing and matures in 2018. Our obligation
to repay the loan will be satisfied by certain minimum guaranteed amounts of real and personal
property tax payments to be made by the Blue Harbor Resort through 2018. Future Maturities Future principal requirements on long-term debt and other long-term
liabilities are as follows: ThroughMarch 31,2006
    
    $
    1,8342007
    
    
    2,0082008
    
    
    29,5692009
    
    
    1,5592010
    
    
    1,696Thereafter
    
    
    132,769Total
    
    $
    169,435
 12




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6. EARNINGS PER SHARE We calculate our basic earnings per common share by dividing net loss available to common
shareholders by the weighted average number of shares of common stock outstanding. Our diluted
earnings per common share assumes the issuance of common stock for all potentially dilutive stock
equivalents outstanding. In periods in which there is a loss, potentially dilutive stock
equivalents are excluded from the computation of diluted weighted average shares outstanding as the
effect of those potentially dilutive items is anti-dilutive. The trust that holds the assets to pay obligations under our deferred compensation plan has
129,412 shares of our common stock. In accordance with the provisions
of EITF Issue No.
97-14, Accounting for Deferred Compensation Arrangements Where Amounts earned Are Held in a Rabbi
Trust and Invested, those shares of common stock are treated as treasury stock for purposes
of our earnings per share computations and therefore excluded from the basic and diluted earnings
per share calculations. Basic and diluted earnings per common share are as follows: Three monthsendedMarch 31,2005Net loss attributable to common shares
    
    $
    (2,325
    )Weighted average common shares outstanding  basic and diluted
    
    
    30,133Net loss per share  basic and diluted
    
    $
    (0.08
    )
 7. DISCONTINUED OPERATIONS As of March 31, 2004, the Predecessor had two hotels classified as held for sale. Operating
results and the gain on disposition for the hotels classified as held for sale are included in
income (loss) from discontinued operations in the combined statements of operations for the quarter
ended March 31, 2004. On December 20, 2004, in connection with the Formation Transactions, the Predecessor spun-off
its non-resort interests to the existing shareholders of GLC. As a result, we have included the
operations of the spun-off entities in discontinued operations for the quarter ended March 31,
2004. Operating activity of the discontinued operations consisted of the following: Three monthsendedMarch 31,2004Revenues
    
    $
    1,501Expenses
    
    
    (1,481
    )Income (loss) from discontinued operations
    
    $
    20
 8. SUBSEQUENT EVENTS On May 4, 2005, we announced the formation of a joint venture with Paramount Parks, Inc., a
unit of Viacom Inc., to develop a 39-acre, $100+ million Great Wolf Lodge resort and conference
center at Paramounts Kings Island in Mason, Ohio. 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 by contributing the land needed for the resort.
The resort will be a 404-suite resort with a comprehensive package of first-class destination
lodging amenities and activities. Construction on the resort is scheduled to begin in the summer
of 2005 with opening slated for late 2006. 
 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. 13




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Overview Formation.The terms Great Wolf Resorts, us, we and our are used in this report refer
to Great Wolf Resorts, Inc. Through our controlling interest in Great Wolf Resort Operating
Partnership, L.L.L.P., or the Operating Partnership, of which we are the sole general partner,
and the subsidiaries of the Operating Partnership, we develop, own and operate family entertainment
resorts. We were formed to succeed to certain businesses of the Great Lakes Predecessor (the
Predecessor), which was not a legal entity but rather a combination of numerous entities. The
Predecessor consisted of the following, all of which were under common management:  
    The Great Lakes Companies, Inc. (GLC) and its consolidated subsidiaries;
    Great Wolf Lodge of Traverse City, LLC;
    Great Wolf Lodge of Kansas City, LLC;
    Blue Harbor Resort Sheboygan, LLC;
    Great Wolf Lodge of Williamsburg, LLC; and
    Great Wolf Lodge of the Poconos, LLC. The Predecessor financial statements did not include entities that owned Great Wolf Lodges in
Wisconsin Dells, Wisconsin and Sandusky, Ohio. These entities, although they were managed by GLC,
were controlled by affiliates of AIG SunAmerica, Inc. The Predecessor had developed and operated hotels since 1995. In 1999, the Predecessor began
its resort operations by purchasing the Great Wolf Lodge in Wisconsin Dells, Wisconsin and
developing the Great Wolf Lodge in Sandusky, Ohio, which opened in 2001. In 2003, the Predecessor
opened two additional Great Wolf Lodge resorts, one in Traverse City, Michigan and the other in
Kansas City, Kansas. In June 2004, the Predecessor opened the Blue Harbor Resort in Sheboygan,
Wisconsin. Subsequently, the Predecessor had two additional Great Wolf Lodge resorts under
construction, one in Williamsburg, Virginia and the other in the Pocono Mountains region of
Pennsylvania, and had licensed a resort owned by a third party that was under construction in
Niagara Falls, Ontario (Canada). ). The Great Wolf Lodge in Williamsburg, Virginia, opened in
March 2005. We were incorporated in May 2004 as a Delaware corporation in anticipation of our initial
public offering of common stock (the IPO). The IPO closed on December 20, 2004, concurrently with
the completion of various formation transactions (the Formation Transactions). Pursuant to the Formation Transactions:  
    The Predecessor contributed its hotel management and multifamily housing management and
development assets, which were unrelated to the resort business, to two subsidiaries of the

Predecessor and then distributed the interests in those subsidiaries to the former
shareholders of the Predecessor.
    We effected, through our Operating Partnership, the acquisition of GLC and each
resort-owning entity. Pursuant to these acquisitions, investors of GLC and the
resort-owning entities received cash, unregistered shares of our common stock or a
combination of cash and unregistered shares of our common stock. We issued 13,901,947
shares of our common stock and paid approximately $97,600 in cash in connection with these
acquisitions. 14




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##### Table of Contents




    We issued an aggregate of 130,949 shares of unregistered common stock to holders of
tenant in common interests in two of our resorts. These transactions consolidated the ownership of our resort properties and property interests to
Great Wolf Resorts. During the period from our formation until we commenced operations upon closing
of our IPO on December 20, 2004, we did not have any material corporate activity. The IPO consisted of the sale of 16,100,000 shares of common stock at a price per share of
$17.00, generating gross proceeds of $273,700. The net proceeds to us were approximately $248,700
after deducting an aggregate of $19,200 in underwriting discounts and commissions paid to the
underwriters and $5,800 in other expenses incurred in connection with the IPO. As of March 31, 2005, we own and operate five Great Wolf Lodge resorts, our signature
northwoods-themed resorts, and one Blue Harbor Resort, a nautical-themed property. In addition, we
own one Great Wolf Lodge resort in the Pocono Mountains, Pennsylvania, that is under construction
and scheduled to open for business in the fall of 2005. We are also the licensor and manager of an
additional Great Wolf Lodge resort in Niagara Falls, Ontario that is owned and under development by
an affiliate of Ripley Entertainment Inc., or Ripleys. Business.We are a family entertainment resort company that provides our guests with a
high-quality vacation at an affordable price. We are the largest owner, operator and developer in
the United States of drive-to family resorts featuring indoor waterparks and other family-oriented
entertainment activities. We provide a full-service entertainment resort experience to our target
customer base: families with children ranging in ages from 2 to 14 years old that live within a
convenient driving distance from our resorts. Our resorts are open year-round and provide a
consistent and comfortable environment where our guests can enjoy our various amenities and
activities. We provide our guests with a self-contained vacation experience and focus on capturing a
significant portion of their total vacation spending. We earn revenues through the sale of rooms,
which includes admission to our indoor waterpark, and other revenue-generating resort amenities.
Each of our resorts features a combination of the following revenue-generating amenities: themed
restaurants, an ice cream shop and confectionery, full-service spa, game arcade, gift shop and
meeting space. We also expect to generate revenues from licensing arrangements, management fees and
construction fees with respect to properties owned by third parties, such as the licensing
agreement we have entered into and management arrangement we have agreed to enter into with
Ripleys in connection with the Niagara Falls, Ontario resort. The following table presents an overview of our portfolio of operating resorts and resorts
under construction (including the Niagara resort that will be owned by a third party licensee): IndoorOpened/Target
    
    
    
    
    
    
    EntertainmentLocation
    
    Opening
    
    
    Rooms
    
    
    Area(1)(Approx. ft(2))Existing Resorts:Wisconsin Dells, WI
    
    May 1997(2)
    
    
    309
    (3)
    
    
    64,000Sandusky, OH(4)
    
    March 2001
    
    
    271
    
    
    
    41,000Traverse City, MI
    
    March 2003
    
    
    281
    
    
    
    51,000Kansas City, KS
    
    May 2003
    
    
    281
    
    
    
    49,000Sheboygan, WI(5)
    
    June 2004
    
    
    183
    (6)
    
    
    54,000Williamsburg, VA
    
    March 2005
    
    
    301
    
    
    
    66,000Resorts Under Construction:Pocono Mountains, PA
    
    Fall 2005
    
    
    400
    
    
    
    91,000Niagara Falls, ONT(7)
    
    Spring 2006
    
    
    404
    
    
    
    94,000
   (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, 3D virtual
reality theatre, Wileys Woods and party room in the resorts that have such amenities. 15




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(2)
    
    We purchased this property in November 1999.(3)
    
    Our Wisconsin Dells property also features 77 condominium units currently under construction.(4)
    
    Prior to May 2004, we operated this resort as a Great Bear Lodge.(5)
    
    Our Sheboygan property is branded as a Blue Harbor Resort. This resort is subject to a
98-year and 11-month ground lease with the Redevelopment Authority of the City of Sheboygan.(6)
    
    Our Sheboygan resort includes an additional 64 individually owned two and four bedroom
condominium units.(7)
    
    Ripleys, our licensee, owns this resort. We are assisting 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 and other
intellectual property for ten years after opening. We have agreed to enter into a management
agreement, pursuant to which we expect to operate the resort on behalf of Ripleys for five
years, and a central reservations agreement. In conjunction with this project, we expect to
receive a one-time construction fee and ongoing license, central reservation and management
fees. Subsequent Event.On May 4, 2005, we announced the formation of a joint venture with
Paramount Parks, a unit of Viacom Inc., to develop a 39-acre, $100+ million Great Wolf Lodge resort
at Paramounts Kings Island in Mason, Ohio. 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 by contributing the land needed for the resort. The
resort will be a 404-suite resort with a comprehensive package of first-class destination lodging
amenities and activities. Construction on the resort is scheduled to begin in the summer of 2005
with opening slated for late 2006. Industry Trends and Outlook.While no standard industry definition for a family entertainment
resort featuring an indoor waterpark has developed, we generally consider resorts with at least 200
rooms featuring indoor waterparks larger than 25,000 square feet, as well as a variety of water
slides and other water-based attractions, to be competitive with our resorts. The concept of a
family entertainment resort with an indoor waterpark was first introduced in Wisconsin Dells,
Wisconsin and has evolved there over the past 15 years. We believe those resorts have historically
outperformed standard hotels in that market. We believe that the rate premiums and increased market
share in Wisconsin Dells have been significant and that no other operator or developer other than
Great Wolf Resorts has established a regional portfolio of family entertainment resorts featuring
indoor waterparks. We intend to continue to expand our portfolio of owned resorts throughout the
United States and to selectively seek licensing and management opportunities domestically and
internationally. The resorts we are currently constructing and plan to develop in the future
require significant industry knowledge and substantial capital resources. We believe that a number
of other resort operators are developing or considering the development of family entertainment
resorts that will compete directly with our resorts. In particular, one of our competitors has
opened a resort in Sandusky and another has a resort under construction in Sandusky. Another
competitor is constructing a resort near Traverse City. Our primary business objective is to increase long-term stockholder value. We believe we can
increase stockholder value by executing our internal and external growth strategies. Our primary
internal growth strategies are to: maximize total resort revenue; minimize costs by leveraging our
economies of scale; and build upon our existing brand awareness and loyalty in order to compete
more effectively. Our primary external growth strategies are to: capitalize on our first-mover
advantage by being the first to develop and operate family entertainment resorts featuring indoor
waterparks in our selected target markets; focus on development and strategic growth opportunities
by seeking to develop and open at least two new owned resorts in target markets each year for the
next several years and target selected licensing opportunities; and continue to innovate by
leveraging our in-house expertise, in conjunction with the knowledge and experience of our
third-party suppliers and designers. In attempting to execute our internal and external growth strategies, we are subject to a
variety of business challenges and risks. These challenges include: development and licensing of
properties; increases in costs of constructing, operating and maintaining our resorts; competition
from other entertainment companies, both within 16




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and outside our industry segment; and external economic risks, including family vacation
patterns and trends. We seek to meet these challenges by providing sufficient management oversight
to site selection, development and resort operations, concentrating on growing and strengthening
awareness of our brand and demand for our resorts, and maintaining our focus on safety. Revenue and Key Performance Indicators.We seek to generate positive cash flows and net
income from each of our owned resorts. Our rooms revenue represents sales to guests of room nights
at our resorts, and is the largest contributor to our cash flows and profitability. Rooms revenue
accounted for approximately 67% of our total resort revenue for the three months ended March 31,
2005. We employ sales and marketing efforts to increase overall demand for rooms at our resorts. We
seek to optimize the relationship between room rates and occupancies through the use of yield
management techniques that attempt to project demand in order to selectively increase room rates
during peak demand. These techniques are designed to assist us in managing our higher occupancy
nights to achieve maximum rooms revenue, and include such practices as: 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. In addition, we seek to maximize the amount of time and money spent on-site by our
guests by providing a variety of revenue-generating amenities. We have several key indicators that we use to evaluate the performance of our business. These
indicators include the following:  
    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
    EBITDA. Occupancy, ADR and RevPAR are commonly used measures within the hospitality industry to
evaluate hotel operations and are defined as follows:  
    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. Occupancy allows us to measure the general overall demand for rooms at our resorts and the
effectiveness of our sales and marketing strategies. ADR allows us to measure the effectiveness of
our yield management strategies. ADR and RevPAR only include rooms revenue. Total RevPOR and Total
RevPAR include both rooms revenue and other revenue derived from food and beverage and other
amenities at our resorts. We consider Total RevPOR and Total RevPAR to be key performance
indicators for our business because we derive a significant portion of our revenue from food and
beverage and other amenities. For the three months ended March 31, 2005, approximately 33% of our
total resort revenues consisted of non-rooms revenue. We use RevPAR and Total RevPAR to evaluate the blended effect that changes in occupancy, ADR
and Total RevPOR have on our profitability. We focus on increasing ADR and Total RevPOR because
those increases can have the greatest positive impact on our profitability. In addition, we seek to
maximize occupancy, as increases in 17




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occupancy generally lead to greater total revenues at our resorts, and maintaining certain
occupancy levels is key to covering our fixed costs. Increases in total revenues as a result of
higher occupancy are, however, typically accompanied by additional incremental costs (including
housekeeping services, utilities and room amenity costs). In contrast, increases in total revenues
from higher ADR and Total RevPOR are typically accompanied by lower incremental costs, and result
in a greater increase in profitability. We also use EBITDA as a measure of the operating performance of each of our resorts. EBITDA is
a supplemental financial measure, and is not defined by accounting principles generally accepted in
the United States of America, or GAAP. See Non-GAAP Financial Measures for further discussion of
our use of EBITDA and a reconciliation to net income. Recent Accounting Pronouncements In December 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment
(SFAS 123R), that requires companies to expense the value of employee stock options, discounts on
employee stock purchase plans and the similar awards. Under SFAS 123R, share-based payment awards
result in compensation expense that will be measured at fair value on the awards grant date, based
on the estimated number of awards that are expected to vest. SFAS 123R is effective for periods
beginning the first fiscal year after June 15, 2005, and applies to all outstanding and unvested
share-based payment awards at the adoption date. We have not completed our evaluation of the impact
of adopting SFAS 123R. Non-GAAP Financial Measures We use EBITDA as a measure of our operating performance. EBITDA is a supplemental non-GAAP
financial measure. EBITDA is commonly defined as net income plus (a) interest expense, net; (b)
income taxes and (c) depreciation and amortization. EBITDA as calculated by us is not necessarily comparable to similarly titled measures
presented by other companies. In addition, EBITDA (a) does not represent net income or cash flows
from operations as defined by GAAP; (b) is not necessarily indicative of cash available to fund our
cash flow needs; and (c) should not be considered as an alternative to net income, operating
income, cash flows from operating activities or our other financial information as determined under
GAAP. We believe EBITDA is useful to an investor in evaluating our operating performance because:  
    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. Our management uses EBITDA:  
    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 18




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##### Table of Contents




    as one measure in determining the value of other acquisitions and dispositions. Covenants in our revolving credit facility also require us to meet financial tests based upon
EBITDA as adjusted for certain items. Using a measure such as EBITDA has material limitations. These limitations include the
difficulty associated with comparing results among companies and the inability to analyze certain
significant items, including depreciation and interest expense, which directly affect our net
income or loss. Management compensates for these limitations by considering the economic effect of
the excluded expense items independently, as well as in connection with its analysis of net income. The tables shown below reconcile net loss to EBITDA for the periods presented. Great WolfResorts
    
    
    PredecessorThree months ended March 31,2005
    
    
    2004Net loss
    
    $
    (2,325
    )
    
    $
    (1,918
    )Adjustments:Interest expense, net
    
    
    764
    
    
    
    1,518Income tax benefit
    
    
    (1,534
    )
    
    
    Depreciation and amortization
    
    
    7,127
    
    
    
    3,043EBITDA
    
    $
    4,032
    
    
    $
    2,643
 Results of Operations General Our and the Predecessors result of operations for the three months ended March 31, 2005 and
2004 are not directly comparable due primarily to the impact of the IPO and the Formation
Transactions, our new debt and the repayment of debt upon the consummation of the IPO. In
addition, in March 2005 our Great Wolf Lodge in Williamsburg, Virginia opened. Great Wolf Resorts Financial Information Great Wolf Resorts financial information includes:  
    our corporate entity that provides resort development and management services;
    our Wisconsin Dells, Sandusky, Traverse City, Kansas City, Sheboygan, and Williamsburg
operating resorts; and
    our Pocono Mountains resort that is under construction. Revenues.Our revenues consist of lodging revenue, which includes rooms, food and beverage,
and other department revenues from our resorts. Operating Expenses.Our departmental operating expenses consist of rooms, food and beverage
and other department expenses. Our other operating expenses include the following items:  
    selling, general and administrative expenses, which are associated with the 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; 19




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##### Table of Contents




    property operation and maintenance expenses; and
    depreciation and amortization. Great Lakes Predecessor Financial Information The Predecessor combined historical financial information included the following:  
    The Great Lakes Companies, Inc. and its consolidated subsidiaries, including
development of, ownership interests in, and management contracts with respect to, resorts
and certain non-resort hotels and multifamily housing development and management assets;
    the entities that owned our Traverse City, Kansas City and Sheboygan operating resorts; and
    the entities that owned our Williamsburg and Pocono Mountains resorts that were under construction. The Traverse City, Kansas City and Sheboygan resorts opened in March 2003, May 2003 and June
2004, respectively. Therefore, Predecessors historical results of operations only reflected
operating results for Traverse City, Kansas City and Sheboygan for those periods after the resort
opening dates. The Predecessors financial information did not include the entities that own the Wisconsin
Dells and Sandusky operating resorts as those entities were controlled by affiliates of AIG
SunAmerica. Revenues.The Predecessors revenues consisted of the following:  
    lodging revenue, which consists of rooms, food and beverage and other department
revenues from its consolidated and combined hotels and resorts;
    management fee revenue from both resort activity and non-resort activity, which
includes fees received under its management agreements; and
    other revenue, which consists of accounting fees, development fees, central reservation
fees, construction management fees and other fees. The Predecessor employed the staff at its managed properties. Under its management agreements,
the hotel and resort owners reimbursed Predecessor 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 Predecessors income
statement. Under this pronouncement, the reimbursement of payroll, benefits and costs is recorded
as revenue on Predecessors statements of operations, with a corresponding expense recorded as
other expenses from managed properties. Operating Expenses.The Predecessors departmental operating expenses consisted of rooms,
food and beverage and other department expenses. The Predecessors other operating expenses included the following items:  
    selling, general and administrative expenses, which were associated with the management
of hotels and 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; 20




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##### Table of Contents




    depreciation and amortization; and
    other expenses from managed properties, which are recorded as an expense in accordance
with EITF 01-14. Three months ended March 31, 2005 for Great Wolf Resorts, Inc. compared with the three months
ended March 31, 2004 for the Predecessor The following table shows key operating statistics for our resorts for the three months ended March
31, 2005 and 2004: All Properties
    
    
    
    Same Store Comparison (a)First Quarter
    
    
    
    First Quarter
    
    
    
    First Quarter
    
    
    
    Increase (Decrease)2005
    
    
    
    2005
    
    
    
    2004
    
    
    
    $
    
    
    
    %Occupancy
    
    
    
    69.9
    %
    
    
    
    71.7
    %
    
    
    
    68.0
    %
    
    
    
    N/A
    
    
    
    
    5.4
    %ADR
    
    
    $
    211.17
    
    
    
    $
    216.58
    
    
    
    $
    209.67
    
    
    
    $
    6.91
    
    
    
    
    3.3
    %RevPAR
    
    
    $
    147.55
    
    
    
    $
    155.33
    
    
    
    $
    142.66
    
    
    
    $
    12.67
    
    
    
    
    8.9
    %Total RevPOR
    
    
    $
    315.04
    
    
    
    $
    311.44
    
    
    
    $
    304.44
    
    
    
    $
    7.00
    
    
    
    
    2.3
    %Total RevPAR
    
    
    $
    220.13
    
    
    
    $
    223.36
    
    
    
    $
    207.14
    
    
    
    $
    16.22
    
    
    
    
    7.8
    %
    The Traverse City, Kansas City, Sheboygan, and Williamsburg resorts opened in March 2003, May
2003, June 2004, and March 2005, respectively. We acquired the Wisconsin Dells and Sandusky resorts
as part of the IPO in December 2004. As a result, comparisons of changes in total revenue, rooms
revenue and other revenue between the three month periods ended March 31, 2005 (during which five
resorts were open for the entire period and one resort opened) and March 31, 2004 (during which two
resorts were open) are not meaningful. Presented below are selected amounts from the statements of operations for the quarters ended
March 31, 2005 and 2004. Three months endedMarch 31,Great WolfResorts
    
    
    Predecessor
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)Revenues
    
    $
    26,996
    
    
    $
    14,752
    
    
    $
    12,244Departmental operating expenses
    
    
    9,669
    
    
    
    3,787
    
    
    
    5,882Selling, general and administrative
    
    
    7,238
    
    
    
    3,206
    
    
    
    4,032Property operating costs
    
    
    6,057
    
    
    
    1,787
    
    
    
    4,270Depreciation and amortization
    
    
    7,127
    
    
    
    2,716
    
    
    
    4,411Net operating loss
    
    
    (3,095
    )
    
    
    (84
    )
    
    
    (3,011
    )Net interest expense
    
    
    764
    
    
    
    1,205
    
    
    
    (441
    )Gain on sale of investments
    
    
    
    
    
    
    (1,072
    )
    
    
    1,072Interest on mandatorily redeemable shares
    
    
    
    
    
    
    1,692
    
    
    
    (1,692
    )
 21




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##### Table of Contents



Three months endedMarch 31,Great WolfResorts
    
    
    Predecessor
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)Income tax benefit
    
    
    (1,534
    )
    
    
    
    
    
    
    (1,534
    )Loss from continuing operations
    
    
    (2,325
    )
    
    
    (1,938
    )
    
    
    1,938Net loss
    
    $
    (2,325
    )
    
    $
    (1,918
    )
    
    $
    (407
    )
 Revenues.Total revenues increased primarily due to revenues related to the resorts in
Wisconsin Dells and Sandusky, which were purchased as part of the IPO in December 2004, and the
opening of the Sheboygan resort in June 2004. Revenues for the resorts in Wisconsin Dells,
Sandusky and Sheboygan were $5,066, $5,662 and $3,204, respectively, for the three months ended
March 31, 2005. This increase in revenue was offset by $3,340 of revenue recorded in the three
months ended March 31, 2004, related to revenue from managed properties. We had no revenue from
managed properties in the three months ended March 31, 2005. Operating expenses.Total departmental expenses increased primarily due to expenses related
to the resorts in Wisconsin Dells and Sandusky, which were purchased as part of the IPO in December
2004, and the opening of the Sheboygan resort in June 2004. Departmental expenses for the resorts
in Wisconsin Dells, Sandusky and Sheboygan were $1,879, $1,881 and $1,609, respectively, for the
three months ended March 31, 2005. Total other operating expenses increased primarily due to expenses related to the resorts in
Wisconsin Dells and Sandusky, which were purchased as part of the IPO in December 2004, and the
opening of the Sheboygan resort in June 2004.  
    Selling, general and administrative expenses for the resorts in Wisconsin Dells,
Sandusky and Sheboygan were $1,039, $1,146 and $1,087, respectively, for the three
months ended March 31, 2005.
    Property operating costs for the resorts in Wisconsin Dells, Sandusky and Sheboygan
were $701, $644 and $348, respectively, for the three months ended March 31, 2005. We
also incurred $2,600 of pre-opening costs related to our Williamsburg resort.
    Depreciation and amortization for the resorts in Wisconsin Dells, Sandusky and
Sheboygan were $809, $899 and $1,061, respectively, for the three months ended March 31,
2005. Loan fees of $731 and $1,385 for Williamsburg and Poconos, respectively, were
written off to amortization expense at the time the construction loans were paid off
during the three months ended March 31, 2005. Net loss.Net loss increased due to the following:  
    Our increased operating loss in the 2005 period.
    A gain on sale of investments in the 2004 period (we did not have any comparable
sales in the 2005 period). This decrease was partially offset by:  
    Interest on mandatorily redeemable shares incurred in the 2004 period was not
incurred in the 2005 period due to the conversion of the mandatorily redeemable
interests to common stock in conjunction with the Formation Transactions.
    Income tax benefit in the 2005 period with no income tax benefit in the 2004 period,
reflecting our structure after the IPO as a C Corporation that pays income taxes, as
opposed to the Predecessors pass-through entities with no income tax obligations in
the 2004 period. Liquidity and Capital Resources As of March 31, 2005, we had total indebtedness of $169,435 summarized as follows: 22




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##### Table of Contents



March 31,2005Long-Term Debt:Senior credit facility
    
    $
    Traverse City/Kansas City Mortgage Loan
    
    
    74,794Sheboygan Mortgage Loan
    
    
    29,391Junior Subordinated Debentures
    
    
    51,550Other mortgage debt
    
    
    1,523Other Long-Term Liabilities:City of Sheboygan bonds
    
    
    8,098City of Sheboygan loan
    
    
    4,079169,435Less current portion of long-term debt
    
    
    (1,834
    )$
    167,601
 Senior Credit Facility Upon closing the IPO, we entered into a $75,000 senior secured
revolving credit facility with a syndicate of banks. The loan is secured by our Wisconsin Dells and
Sandusky resorts and was not drawn as of March 31, 2005. Future borrowings under this facility will
bear interest at LIBOR plus a margin of 2.25% to 3.00% depending upon our leverage ratio from time
to time. The maximum amount of indebtedness we may incur under the facility is equal to 3.75
multiplied by the combined EBITDA (adjusted for non-recurring items, unusual items, infrequent
items and asset impairment charges) of the two resorts securing the facility plus up to $5,400
relating to enhancements to the waterpark facility for the Wisconsin Dells property. The facility
has customary bank covenants including the maximum level of total debt, the minimum level of
interest coverage, and the minimum level of fixed charge coverage. The facility also includes an
annual unused commitment fee of 0.5%. Traverse City/Kansas City Mortgage Loan Upon closing the IPO, we entered into a $75,000,
ten-year loan secured by our Traverse City and Kansas City resorts. The loan bears interest at a
fixed rate of 6.96% and is subject to a 25-year principal amortization schedule. The loan has
customary financial and operating debt compliance covenants, including a minimum debt service
coverage ratio, representing the combined EBITDA (adjusted for non-recurring items, unusual items,
infrequent items and asset impairment charges) of the two resorts divided by their combined annual
interest expense and principal amortization. The loan also has customary prohibitions on our
ability to prepay the loan prior to maturity. We were in compliance with all mortgage loan
covenants at March 31, 2005. Sheboygan Mortgage Loan The Sheboygan mortgage loan is secured by our Sheboygan resort. The
loan converted from a construction loan into a mortgage loan in January 2005. The loan matures in
January 2008 and bears interest at a floating rate of prime plus 200 basis points and is subject to
a 20-year principal amortization schedule. The loan has customary covenants associated with a
single asset mortgage. There are no prohibitions or fees associated with the repayment of the loan
principal. We were in compliance with the mortgage loan covenants at March 31, 2005. Junior Subordinated Debentures In March 2005, we completed a private offering of $50,000 of
trust preferred securities through Great Wolf Capital Trust I (the Trust), a Delaware statutory
trust which is our subsidiary. The securities pay holders cumulative cash distributions at an
annual rate which is fixed at 7.80% through March 2015 and then floats at LIBOR + 310 basis points.
The securities mature in March 2035 and are callable at no premium after March 2010. In addition,
we invested $1,500 in the Trusts common securities, representing 3% of the total capitalization of
the Trust. The
Trust used the proceeds of the offering and our investment to purchase from us $51,550 of
our junior subordinated debentures with payment terms that mirror the distribution terms of the
trust securities. The costs of the trust preferred offering totaled $1,600, including $1,500 of
underwriting commissions and expenses and $100 of costs incurred directly by the Trust. The Trust
paid these costs utilizing an investment from us. These costs are being amortized over a 30-year
period. The proceeds from our debenture sale, net of the costs of the trust preferred
offering and our investment in the Trust, were $48,400. We used the net proceeds to retire the
Poconos construction loan. 23




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##### Table of Contents



As a result of the issuance of FIN46R and the accounting professions application of the
guidance provided by the FASB, issuer trusts, like Great Wolf Capital Trust I, are generally
variable interest entities. We have determined that we are not the primary beneficiary under the
Trust, and accordingly we will not consolidate the financial statements of the Trust into its
consolidated financial statements. Based on the foregoing accounting authority, these consolidated financial statements present
the debentures issued to the Trust as long-term debt. Our investment in the Trust is accounted as
a cost investment and is included in other assets. For financial reporting purposes, we record
interest expense on the corresponding debentures in our consolidated statements of operations. City of Sheboygan bonds The City of Sheboygan (the City) bonds amount represents the face
amount of bond anticipation notes (BANs) issued by the City in November 2003 in conjunction with
the Predecessors construction of the Blue Harbor Resort in Sheboygan, Wisconsin. In accordance
with the provisions of EITF Issue No. 91-10, we have recognized as a liability the obligations for
these BANs. The notes bear interest at 3.95% and mature in 2008. The notes are not a general
obligation of the City and are payable from (a) the proceeds of bond anticipation notes or other
funds appropriated by the City for the payment of interest on the BANs and (b) the proceeds to be
delivered from the issuance and sale of securities by the City. We have an obligation to fund
payment of these BANs. Our obligation to fund repayment of the notes will be satisfied by certain
minimum guaranteed amounts of room tax payments to be made by the Blue Harbor Resort through 2028. City of Sheboygan loan The City of Sheboygan loan amount represents a loan made by the City
in 2004 to the Predecessor in conjunction with the Predecessors construction of the Blue Harbor
Resort in Sheboygan, Wisconsin. The loan is noninterest-bearing and matures in 2018. Our obligation
to repay the loan will be satisfied by certain minimum guaranteed amounts of real and personal
property tax payments to be made by the Blue Harbor Resort through 2018. Short-Term Liquidity Requirements Our short-term liquidity requirements consist primarily of funds necessary to pay operating
expenses, including:  
    recurring maintenance, repairs and other operating expenses necessary to properly maintain our resorts;
    property taxes and insurance expenses;
    interest expense and scheduled principal payments on outstanding indebtedness; and
    general and administrative expenses. Historically, we have satisfied our short-term liquidity requirements through operating cash
flows, proceeds from borrowings and equity contributions from investors. We believe that cash
provided by our operations, together with borrowing capacity under our line of credit, will be
sufficient to fund our requirements for working capital, capital expenditures and debt service for
the next twelve months. Long-Term Liquidity Requirements Our long-term liquidity requirements consist primarily of funds necessary to pay for scheduled
debt maturities, renovations, expansion and other non-recurring capital expenditures that need to
be made periodically to our resorts as well as the costs associated with the development of new
resorts. We expect to meet these needs through existing working capital, cash provided by
operations and a combination of mortgage financing on properties being developed, additional
borrowings under our revolving credit facility, and the issuance of equity instruments, including
common stock, or additional or replacement debt, if market conditions permit. We believe these
sources of capital will be sufficient to provide for our long-term capital needs. Our revolving credit facility and secured mortgage financing are material sources to satisfy
our long-term liquidity requirements. As such, compliance with their financial and operating debt
compliance covenants is material 24




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##### Table of Contents



to our liquidity. Non-compliance with the covenants would have a
material adverse effect on our financial condition and liquidity. As we develop future resorts, we expect to finance a portion of the total construction cost of
each resort through a stand-alone construction loan on the resort. We expect to fund the remainder
of the total construction cost through cash provided from a combination of sources, including our
revolving credit facility, sale of our condominiums, cash on hand and cash provided by operating
activities. We expect to consider converting stand-alone construction loans to longer-term
permanent financing after each resort commences operations. Contractual Obligations The following table summarizes our contractual obligations as of March 31, 2005: Payment TermsLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsLong-Term Debt Obligations(1)
    
    $
    169,435
    
    
    $
    1,834
    
    
    $
    31,577
    
    
    $
    3,255
    
    
    $
    132,769Operating Lease Obligations
    
    
    1,869
    
    
    
    401
    
    
    
    820
    
    
    
    648
    
    
    
    Construction Contracts
    
    
    28,621
    
    
    
    28,621
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    199,925
    
    
    
    30,856
    
    
    $
    32,297
    
    
    $
    3,903
    
    
    $
    132,769
   (1)
    
    Includes $8,098 of fixed rate debt recognized as a liability related to certain bonds issued
by the City of Sheboygan and $4,079 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 We
had $65,344 of available cash and cash equivalents and $33,059 of working capital
(current assets less current liabilities) at March 31, 2005,
compared to $79,417 of available cash and cash equivalents and
$11,034 of working capital at December 31, 2004. Cash at
December 31, 2004, was higher than at March 31, 2005;
mainly due to the proceeds of the IPO in December 2004. The increase
in working capital is mainly due to the payment of debt that was
classified as current at December 31, 2004. Cash Flows Three months ended March 31, 2005 for Great Wolf Resorts, Inc. compared with the three months
ended March 31, 2004 for the Predecessor Increase2005
    
    
    2004
    
    
    (Decrease)Net cash (used in) provided by operating activities
    
    $
    (8,644
    )
    
    $
    1,043
    
    
    $
    (9,687
    )Net cash used in investing activities
    
    
    (30,625
    )
    
    
    (27,949
    )
    
    
    (2,676
    )Net cash provided by financing activities
    
    
    25,196
    
    
    
    30,261
    
    
    
    (5,065
    )
 Operating Activities.The decrease in net cash provided by operating activities for the three
months ended March 31, 2005, as compared to the three months ended March 31, 2004, resulted
primarily from an increase in net loss, an increase in prepaid expenses and other assets, and a
decrease in accounts payable and other liabilities, partially offset by an increase in depreciation
and amortization. Investing Activities.The increase in net cash used in investing activities for the three
months ended March 31, 2005, as compared to the three months ended March 31, 2004, resulted
primarily from an increase in capital expenditures in the 2005 period as compared to the 2004
period and a decrease in the change in equity escrow. 25




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##### Table of Contents



Financing Activities.Net cash provided by financing activities decreased for the three
months ended March 31, 2005, as compared to the three months ended March 31, 2004, primarily due to
an increase in loan fees paid and a decrease in net member contributions, partially offset by an
increase in net borrowing activity. Inflation Our resort properties are able to change room and amenity rates on a daily basis, so the
impact of higher inflation can often be passed along to customers. However, a weak economic
environment that decreases overall demand for our products and services could restrict our ability
to raise room and amenity rates to offset rising costs. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our future income, cash flows and fair values relevant to financial instruments are dependent
upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes
in market prices and interest rates. In the future, we intend to use derivative financial
instruments to manage or hedge interest rate risks related to our borrowings. We do not intend to
use derivatives for trading or speculative purposes and anticipate entering into derivative
contracts only with major financial institutions with investment grade credit ratings. As of March 31, 2005, we had total indebtedness of approximately $169,435. This debt consisted
of:  
    $74,794 of fixed rate debt secured by two of our resorts. This debt bears interest at
6.96%.
    $29,391 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 7.75% at March
31, 2005.
    $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 + 310 basis points thereafter. The securities mature
in March 2035.
    $8,098 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 $4,079 of noninterest bearing
debt recognized as a liability related to a loan from the City of Sheboygan. These
liabilities will be satisfied by certain future minimum guaranteed amounts of real and
personal property tax payments and room tax payments to be made by the Sheboygan resort;
and
    $1,523 of other fixed rate debt. As of March 31, 2005, the fair values of the indebtedness described above approximate their
carrying values as the terms are similar to those currently available to us for indebtedness with
similar risks and remaining maturities. If the prime rate were to increase by 100 basis points, the increase in interest expense on
our variable rate debt would decrease future earnings and cash flows by approximately $294
annually. If the prime rate were to decrease by 1% or 100 basis points, the decrease in interest
expense on our variable rate debt would be approximately $294 annually. 
 ITEM 4.CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Based on evaluations at March 31, 2005, our principal executive officer and principal
financial officer, with the participation of our management team, have concluded that our
disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the
Securities Exchange Act) are effective to ensure that information required
to be disclosed by us in reports that we file or submit under the Securities Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the SEC. 26




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##### Table of Contents



Changes in Internal Controls During the period covered by this quarterly report on Form 10-Q, we have not made any
changes to our internal control over financial reporting (as referred to in Paragraph 4(c) of the
Certifications of our principal executive officer and principal financial officer included as
exhibits to this report) that have materially affected, or are reasonably likely to affect our
internal control over financial reporting. 27




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##### Table of Contents



PART II. OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS We are party to various legal actions in the ordinary course of our business. We believe that
these actions are routine in nature and incidental to the operation of our business. While the
outcome of these actions cannot be predicted with certainty, we believe that the ultimate
resolution of these matters will not have a material, adverse impact on our business, financial
condition or prospects. 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 
 ITEM 5. OTHER INFORMATION None. 
 ITEM 6. EXHIBITS The exhibits listed below are incorporated herein by reference to prior SEC filings by the
Registrant or are included as exhibits in this Form 10-Q. 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
 28




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##### Table of Contents



ExhibitNumber
    
    DescriptionChase 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
    
    Revolving Credit Agreement, by and among Great Wolf Resorts, Inc., GWR
Operating Partnership, L.L.L.P., the Subsidiary Guarantors named therein,
Citicorp North America, Inc., Societe Generale, Citigroup Global Markets,
Inc., SG Americas Securities LLC and Calyon New York Branch (incorporated
herein by reference to Exhibit 10.15 to the Companys Registration
Statement on Form S-1 filed January 21, 2005) as amended by First Letter
Amendment dated February 10, 2005 (filed herewith) and by Second Letter
Amendment dated as of April 25, 2005 (filed herewith).10.2
    
    Purchase Agreement, dated as of March 15, 2005, among Great Wolf Resorts,
Inc., Great Wolf Capital Trust I, Taberna Preferred Funding I, Ltd and
Merrill Lynch International (incorporated herein by reference to Exhibit
1.1 to the Companys Current Report on Form 8-K filed March 18, 2005)31.1*
    
    Certification of Chief Executive Officer of Periodic Report Pursuant to
Rule 13a  14(a) and Rule 15d  14(a)31.2*
    
    Certification of Chief Financial Officer of Periodic Report Pursuant to
Rule 13a  14(a) and Rule 15d  14(a)32.1*.
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C Section 135032.2*
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
   *
    
    Filed herewith.+
    
    Indicated management contract or compensatory plan or arrangement required to be filed as an
exhibit pursuant to Item 15(c) of Form 10-K. 29




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##### Table of Contents



SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized. GREAT WOLF RESORTS, INC./s/ James A. CalderJames A. CalderChief Financial Officer(Duly authorized officer)(Principal financial and accounting officer)
 Dated: May 12, 2005 30