##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 Commission File Number 000-51064
 GREAT WOLF RESORTS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    51-0510250(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)122 West Washington Avenue
    
    53703Madison, Wisconsin 53703
    
    (Zip Code)(Address of principal executive offices)
 (608) 661-4700
 þ o
  o þ o
 o þ




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##### 



Great Wolf Resorts, Inc.
 Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2007
 INDEX
  
 PageNo.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and
six months ended June 30, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3. Defaults Upon Senior Securities
    
    
    36Item 4. Submission of Matters to a Vote of Security Holders
    
    
    36Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37Signatures
    
    
    39Certification of Chief Executive OfficerCertification of Chief Financial Officer1350 Certification of Chief Executive Officer1350 Certification of Chief Financial Officer
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    26,479
    
    
    $
    96,778Accounts receivable, net of allowance for doubtful accounts of $117 and $205
    
    
    2,616
    
    
    
    2,680Accounts receivable  affiliates
    
    
    2,118
    
    
    
    2,223Inventory
    
    
    3,854
    
    
    
    2,825Advances to affiliates
    
    
    3,027
    
    
    
    Other current assets
    
    
    7,046
    
    
    
    4,638Total current assets
    
    
    45,140
    
    
    
    109,144Property and equipment, net
    
    
    560,760
    
    
    
    489,968Investments in and advances to affiliates
    
    
    51,840
    
    
    
    25,028Other assets
    
    
    21,595
    
    
    
    19,450Other intangible assets
    
    
    23,829
    
    
    
    23,829Goodwill
    
    
    17,927
    
    
    
    16,020Total assets
    
    $
    721,091
    
    
    $
    683,439LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    1,470
    
    
    $
    1,432Accounts payable
    
    
    19,465
    
    
    
    25,882Accrued payroll
    
    
    2,442
    
    
    
    2,768Accrued expenses
    
    
    13,202
    
    
    
    12,740Accrued expenses  affiliates
    
    
    378
    
    
    
    443Advance deposits
    
    
    7,980
    
    
    
    7,165Gift certificates payable
    
    
    2,652
    
    
    
    3,349Total current liabilities
    
    
    47,589
    
    
    
    53,779Mortgage debt
    
    
    249,304
    
    
    
    224,161Other long-term debt
    
    
    92,549
    
    
    
    63,796Other long-term liabilities
    
    
    391
    
    
    
    391Deferred tax liability
    
    
    14,031
    
    
    
    15,846Deferred compensation liability
    
    
    2,535
    
    
    
    2,200Total liabilities
    
    
    406,399
    
    
    
    360,173Minority interest
    
    
    
    
    
    
    5,757Commitments and contingenciesStockholders equity:Common stock, $0.01 par value; 250,000,000 shares authorized;
30,700,619 and 30,509,320 shares issued and outstanding, at June 30,
2007, and December 31, 2006, respectively
    
    
    307
    
    
    
    305Additional paid in capital
    
    
    397,592
    
    
    
    396,909Preferred stock, $0.01 par value, 10,000,000 shares authorized, no
shares issued or outstanding
    
    
    
    
    
    
    Accumulated deficit
    
    
    (81,166
    )
    
    
    (77,505
    )Deferred compensation
    
    
    (2,200
    )
    
    
    (2,200
    )Accumulated other comprehensive income, net of tax
    
    
    159
    
    
    
    Total stockholders equity
    
    
    314,692
    
    
    
    317,509Total liabilities and stockholders equity
    
    $
    721,091
    
    
    $
    683,439
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##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 AND COMPREHENSIVE INCOME (LOSS)
 (Unaudited; dollars in thousands, except per share data)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Rooms
    
    $
    28,033
    
    
    $
    21,453
    
    
    $
    56,905
    
    
    $
    44,140Food and beverage
    
    
    7,254
    
    
    
    5,200
    
    
    
    15,044
    
    
    
    10,971Other hotel operations
    
    
    6,600
    
    
    
    4,908
    
    
    
    13,584
    
    
    
    10,429Management and other fees
    
    
    641
    
    
    
    593
    
    
    
    1,248
    
    
    
    741Management and other fees  related parties
    
    
    1,017
    
    
    
    670
    
    
    
    2,188
    
    
    
    1,39743,545
    
    
    
    32,824
    
    
    
    88,969
    
    
    
    67,678Other revenue from managed properties
    
    
    2,802
    
    
    
    3,003
    
    
    
    5,838
    
    
    
    5,985Total revenues
    
    
    46,347
    
    
    
    35,827
    
    
    
    94,807
    
    
    
    73,663Operating expenses by department:Rooms
    
    
    3,834
    
    
    
    2,877
    
    
    
    7,989
    
    
    
    5,874Food and beverage
    
    
    6,457
    
    
    
    4,485
    
    
    
    13,110
    
    
    
    9,355Other
    
    
    5,878
    
    
    
    4,012
    
    
    
    11,591
    
    
    
    8,338Other operating expenses:Selling, general and administrative
    
    
    11,458
    
    
    
    10,952
    
    
    
    24,579
    
    
    
    22,603Property operating costs
    
    
    6,289
    
    
    
    4,699
    
    
    
    14,172
    
    
    
    9,575Depreciation and amortization
    
    
    8,818
    
    
    
    6,169
    
    
    
    17,462
    
    
    
    12,267Loss on sale of property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57842,734
    
    
    
    33,194
    
    
    
    88,903
    
    
    
    68,590Other expenses from managed properties
    
    
    2,802
    
    
    
    3,003
    
    
    
    5,838
    
    
    
    5,985Total operating expenses
    
    
    45,536
    
    
    
    36,197
    
    
    
    94,741
    
    
    
    74,575Net operating income (loss)
    
    
    811
    
    
    
    (370
    )
    
    
    66
    
    
    
    (912
    )Interest income
    
    
    (659
    )
    
    
    (769
    )
    
    
    (1,814
    )
    
    
    (1,452
    )Interest expense
    
    
    3,582
    
    
    
    1,720
    
    
    
    7,275
    
    
    
    3,582Loss before income taxes, minority interests, and
equity in losses of unconsolidated affiliates
    
    
    (2,112
    )
    
    
    (1,321
    )
    
    
    (5,395
    )
    
    
    (3,042
    )Income tax benefit
    
    
    (917
    )
    
    
    (511
    )
    
    
    (1,961
    )
    
    
    (1,185
    )Minority interests, net of tax
    
    
    (193
    )
    
    
    (23
    )
    
    
    (486
    )
    
    
    (37
    )Equity in loss of unconsolidated affiliates, net of tax
    
    
    654
    
    
    
    615
    
    
    
    713
    
    
    
    525Net loss
    
    $
    (1,656
    )
    
    $
    (1,402
    )
    
    $
    (3,661
    )
    
    $
    (2,345
    )Other comprehensive income, net of tax:Unrealized gain on interest rate swaps
    
    
    159
    
    
    
    
    
    
    
    159
    
    
    
    Comprehensive loss
    
    $
    (1,497
    )
    
    $
    (1,402
    )
    
    $
    (3,502
    )
    
    $
    (2,345
    )Net loss per share-basic
    
    $
    (0.05
    )
    
    $
    (0.05
    )
    
    $
    (0.12
    )
    
    $
    (0.08
    )Net loss per share-diluted
    
    $
    (0.05
    )
    
    $
    (0.05
    )
    
    $
    (0.12
    )
    
    $
    (0.08
    )Weighted average common shares outstanding:Basic
    
    
    30,566,218
    
    
    
    30,299,896
    
    
    
    30,496,174
    
    
    
    30,223,896Diluted
    
    
    30,566,218
    
    
    
    30,299,896
    
    
    
    30,496,174
    
    
    
    30,223,896
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GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited; dollars in thousands)
 Six months endedJune 30,2007
    
    
    2006Operating activities:Net loss
    
    $
    (3,661
    )
    
    $
    (2,345
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    17,462
    
    
    
    12,267Non-cash employee compensation expense
    
    
    1,406
    
    
    
    1,672Loss on sale of property
    
    
    
    
    
    
    578Equity in losses of unconsolidated affiliates
    
    
    1,121
    
    
    
    877Minority interests
    
    
    (764
    )
    
    
    (62
    )Deferred tax benefit
    
    
    (2,091
    )
    
    
    (1,511
    )Changes in operating assets and liabilities:Accounts receivable and other assets
    
    
    (4,914
    )
    
    
    2,803Accounts payable, accrued expenses and other liabilities
    
    
    (484
    )
    
    
    (6,690
    )Net cash provided by operating activities
    
    
    8,075
    
    
    
    7,589Investing activities:Capital expenditures for property and equipment
    
    
    (92,594
    )
    
    
    (49,755
    )Cash distributions from unconsolidated affiliates
    
    
    
    
    
    
    18,816Investments in and advances to affiliates
    
    
    (19,455
    )
    
    
    (357
    )Investment in development
    
    
    (9,470
    )
    
    
    Purchase of minority interest
    
    
    (6,900
    )
    
    
    Issuance of notes receivable
    
    
    (3,264
    )
    
    
    Proceeds from sale of assets
    
    
    
    
    
    
    2,010Increase in restricted cash
    
    
    (2
    )
    
    
    (836
    )Decrease in escrows
    
    
    277
    
    
    
    487Net cash used in investing activities
    
    
    (131,408
    )
    
    
    (29,635
    )Financing activities:Principal payments on long-term debt
    
    
    (686
    )
    
    
    (992
    )Proceeds from issuance of long-term debt
    
    
    54,619
    
    
    
    26,019Payment of loan costs
    
    
    (899
    )
    
    
    (563
    )Net cash provided by financing activities
    
    
    53,034
    
    
    
    24,464Net (decrease) increase in cash and cash equivalents
    
    
    (70,299
    )
    
    
    2,418Cash and cash equivalents, beginning of period
    
    
    96,778
    
    
    
    54,782Cash and cash equivalents, end of period
    
    $
    26,479
    
    
    $
    57,200Supplemental Cash Flow Information-Cash paid for interest, net of capitalized interest
    
    $
    6,761
    
    
    $
    3,231Cash paid for income taxes, net of refunds
    
    $
    135
    
    
    $
    288Non-cash items:Change in construction in process accruals
    
    $
    5,203
    
    
    $
    6,425
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##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands, except per share amounts)
 1. ORGANIZATION
  Business Summary
    IndoorOwnership
    
    
    
    
    
    Guest
    
    Condo
    
    EntertainmentPercentage
    
    Opening
    
    Suites
    
    Units
    
    Area (1)(Approx. ft2)Existing Resorts:Wisconsin Dells, WI (2)
    
    
    30
    %
    
    
    1997
    
    
    
    308
    
    
    
    77
    
    
    
    102,000Sandusky, OH (2)
    
    
    30
    %
    
    
    2001
    
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI (3)
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    51,000Kansas City, KS
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    49,000Sheboygan, WI
    
    
    100
    %
    
    
    2004
    
    
    
    182
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    
    2005
    
    
    
    405
    
    
    
    
    
    
    
    78,000Pocono Mountains, PA
    
    
    100
    %
    
    
    2005
    
    
    
    401
    
    
    
    
    
    
    
    91,000Niagara Falls, ONT (4)
    
    
    
    
    
    
    2006
    
    
    
    406
    
    
    
    
    
    
    
    94,000Mason, OH (5)
    
    
    100
    %
    
    
    2006
    
    
    
    401
    
    
    
    
    
    
    
    93,000Resorts Announced or Under Construction:Grapevine, TX (6)
    
    
    100
    %
    
    Late 2007
    
    
    402
    
    
    
    
    
    
    
    98,000Grand Mound, WA (7)
    
    
    49
    %
    
    Early 2008
    
    
    398
    
    
    
    
    
    
    
    78,000Charlotte (metropolitan area), NC
(8)
    
    
    100
    %
    
    Early 2009
    
    
    400
    
    
    
    
    
    
    
    95,000
 6




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##### Table of Contents



(1)
    
    Our indoor entertainment areas generally include our indoor waterpark, game arcade,
childrens activity room and fitness room, as well as our Aveda spa in the resorts that have
such amenities.(2)
    
    These properties are owned by a joint venture. CNL Income Properties, Inc. (CNL), a real
estate investment trust focused on leisure and lifestyle properties, owns a 69.68% interest in
the joint venture, and we have a 30.32% interest. We operate the properties and license the
Great Wolf Lodge brand to the joint venture under long-term agreements, subject to earlier
termination in certain situations.(3)
    
    Construction for the expansion of a 9,000 square foot conference center space began in May
2007. We expect to complete the expansion in late 2007.(4)
    
    An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this resort. We have
granted Ripley a license to use the Great Wolf Lodge name for this resort through April 2016.
We manage the resort on behalf of Ripley and also provide central reservation services.(5)
    
    We initially entered into a joint venture agreement with a subsidiary of CBS Corporation
(CBS) to build this resort and attached conference center. In June 2007 we purchased CBS
equity interest in this joint venture, and we now own 100% of the resort.(6)
    
    We are developing a Great Wolf Lodge resort in Grapevine, Texas. The northwoods-themed,
eight-story resort will provide a comprehensive package of first-class destination lodging
amenities and activities. Construction on the resort began in June 2006 with expected
completion in late 2007.(7)
    
    We have entered into a joint venture agreement with The Confederated Tribes of the Chehalis
Reservation (Chehalis) to build this resort. We will operate the resort under our Great Wolf
Lodge brand. Chehalis will lease the land needed for the resort to the joint venture, and they
will have a majority equity interest in the joint venture. Construction on the resort began in
October 2006 with expected completion in early 2008.(8)
    
    We have announced plans to develop a Great Wolf Lodge resort in the Charlotte, North Carolina
metropolitan area. The northwoods-themed, approximately 400-suite resort will provide a
comprehensive package of first-class destination lodging amenities and activities.
Construction on the resort is expected to begin in late 2007 with expected completion in early
2009. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 General
  7




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Principles of Consolidation
 Investments
in and Advances to Affiliates
 
    
    A 30.32% interest in a joint venture that owns Great Wolf Lodge resorts in Wisconsin Dells, Wisconsin and Sandusky, Ohio.
    
    A 49% interest in a joint venture that owns a Great Wolf Lodge resort under construction in Grand Mound, Washington.
  Minority Interest 
 Income Taxes
 Other Comprehensive Income
 Segments
 
    
    resort ownership/operation-revenues derived from our consolidated owned resorts; and
    
    resort third-party management-revenues derived from management, license and other
related fees from unconsolidated managed resorts.
  8




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Resort
    
    
    Resort Third-
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Other
    
    
    StatementsThree months ended June 30,
2007Revenues
    
    $
    41,887
    
    
    $
    4,460
    
    
    $
    
    
    
    $
    46,347EBITDA, excluding certain items
    
    
    9,085
    
    
    
    1,658
    
    
    
    (1,114
    )
    
    $
    9,629Depreciation and amortization
    
    
    (8,582
    )
    
    
    
    
    
    
    (236
    )
    
    
    (8,818
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,923
    )Loss before income taxes,
minority interests, and equity
in earnings of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,112
    )Additions to long-lived assets
    
    
    48,898
    
    
    
    
    
    
    
    104
    
    
    $
    49,002
 Resort
    
    
    Resort Third-
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Other
    
    
    StatementsSix months ended June 30, 2007Revenues
    
    $
    85,533
    
    
    $
    9,274
    
    
    $
    
    
    
    $
    94,807EBITDA, excluding certain items
    
    
    17,507
    
    
    
    3,436
    
    
    
    (3,415
    )
    
    $
    17,528Depreciation and amortization
    
    
    (17,168
    )
    
    
    
    
    
    
    (294
    )
    
    
    (17,462
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,461
    )Loss before income taxes,
minority interests, and equity
in loss of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (5,395
    )Additions to long-lived assets
    
    
    92,252
    
    
    
    
    
    
    
    342
    
    
    $
    92,594Total assets
    
    
    592,245
    
    
    
    2,532
    
    
    
    126,314
    
    
    $
    721,091
 Resort
    
    
    Resort Third-
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Other
    
    
    StatementsThree months ended June 30,
2006Revenues
    
    $
    31,561
    
    
    $
    4,266
    
    
    $
    
    
    
    $
    35,827EBITDA, excluding certain items
    
    
    7,943
    
    
    
    1,263
    
    
    
    (3,407
    )
    
    $
    5,799Depreciation and amortization
    
    
    (6,046
    )
    
    
    
    
    
    
    (123
    )
    
    
    (6,169
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (951
    )Loss before income taxes,
minority interests, and equity
in loss of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,321
    )Additions to long-lived assets
    
    
    23,991
    
    
    
    
    
    
    
    190
    
    
    $
    24,181
 9




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##### Table of Contents



Resort
    
    
    Resort Third-
    
    
    
    
    
    
    Totals perOwnership/
    
    
    Party
    
    
    
    
    
    
    FinancialOperation
    
    
    Management
    
    
    Other
    
    
    StatementsSix months ended June 30, 2006Revenues
    
    $
    65,540
    
    
    $
    8,123
    
    
    $
    
    
    
    $
    73,663EBITDA, excluding certain items
    
    
    16,044
    
    
    
    2,138
    
    
    
    (6,827
    )
    
    $
    11,355Depreciation and amortization
    
    
    (12,041
    )
    
    
    
    
    
    
    (226
    )
    
    
    (12,267
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,130
    )Loss before income taxes,
minority interests, and equity
in loss of unconsolidated
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,042
    )Additions to long-lived assets
    
    
    49,443
    
    
    
    
    
    
    
    312
    
    
    $
    49,755Total assets
    
    
    498,973
    
    
    
    1,569
    
    
    
    119,170
    
    
    $
    619,712
  Recent Accounting Pronouncements
     10




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##### Table of Contents



3. SHARE-BASED COMPENSATION
 Share-Based Payment Accounting
for Stock Issued to Employees
    Stock Options
    WeightedWeighted
    
    AverageAverage
    
    RemainingExercise
    
    ContractualShares
    
    Price
    
    LifeNumber of shares under option:Outstanding at beginning of period
    
    
    1,064,500
    
    
    $
    17.55Granted
    
    
    Exercised
    
    
    (167
    )
    
    $
    12.40Forfeited
    
    
    (76,833
    )
    
    $
    20.90Outstanding at end of period
    
    
    987,500
    
    
    $
    17.29
    
    
    7.53 yearsExercisable at end of period
    
    
    648,348
    
    
    $
    17.36
    
    
    7.50 years
 11




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##### Table of Contents



Market Condition Share Awards
    
    
    53,006 are based on our common stocks performance in 2007 relative to a stock
index, as designated by the Compensation Committee of the Board of Directors. These
shares vest ratably over a three-year period, 2007-2009. The per share fair value
of these market condition shares was $7.25.The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    5.05
    %Expected stock price volatility
    
    
    42.13
    %Expected stock price volatility (small-cap stock index)
    
    
    16.64
    %
 We used an expected dividend yield of 0% as we do not currently pay a dividend and do
not contemplate paying a dividend in the foreseeable future. The weighted average,
risk free interest rate is based on the one-year T-bill rate. Our expected stock price
volatility was estimated using daily returns data of our stock for a two-year period
ending on the grant date. The expected stock price volatility for the small cap stock
index was estimated using daily returns data for a two-year period ending on the grant
date.
    
    81,293 are based on our common stocks absolute performance during the three-year
period 2007-2009. Half of these shares vest on December 31, 2009, and the other
half vest on December 31, 2010. The per share fair value of these market condition
shares was $6.65.The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    4.73
    %Expected stock price volatility
    
    
    42.13
    %
 We used an expected dividend yield of 0% as we do not currently pay a dividend and do
not contemplate paying a dividend in the foreseeable future. The weighted average,
risk free interest rate is based on the four-year T-bill rate. Our expected stock
price volatility was estimated using daily returns data of our stock for a two-year
period ending on the grant date.
 12




---



##### Table of Contents




    
    81,293 are based on our common stocks performance in 2007-2009 relative to a
stock index, as designated by the Compensation Committee of the Board of Directors.
Half of these shares vest on December 31, 2009, and the other half vest on December
31, 2010. The per share fair value of these market condition shares was $8.24.The fair value of these market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    4.73
    %Expected stock price volatility
    
    
    42.13
    %Expected stock price volatility (small-cap stock index)
    
    
    16.64
    %
 We used an expected dividend yield of 0% as we do not currently pay a dividend and do
not contemplate paying a dividend in the foreseeable future. The weighted average,
risk free interest rate is based on the four-year T-bill rate. Our expected stock
price volatility was estimated using daily returns data of our stock for a two-year
period ending on the grant date. The expected stock price volatility for the small
cap stock index was estimated using daily returns data for a two-year period ending on
the grant date.
  
    
    81,820 were based on our common stocks performance in 2006 relative to
a stock index, as designated by the Compensation Committee of the Board of
Directors. The per share fair value of these market condition shares was $5.76.The fair value of the market condition shares was determined using a Monte Carlo
simulation and the following assumptions:
 Dividend yield
    
    
    Weighted average, risk free interest rate
    
    
    4.12
    %Expected stock price volatility (peer group of companies)
    
    
    31.00
    %Expected stock price volatility (small-cap stock index)
    
    
    17.50
    %
 We used an expected dividend yield of 0% as we do not currently pay a dividend and do
not contemplate paying a dividend in the foreseeable future. The weighted average,
risk free interest rate is based on the one year T-bill rate. Our expected stock
price volatility was estimated using daily returns data for the three-year period
ending on the grant date for peer group companies. The expected stock price
volatility for the small cap stock index was estimated using three-year return
averages.Based on our common stock performance in 2006, employees earned and were issued 81,820
market condition shares in February 2007.
 Performance Share Awards
  13




---



##### Table of Contents



Deferred Compensation Awards
  Non-vested Shares
   WeightedAverageGrant Date
    
    AggregateShares
    
    Fair Value
    
    Intrinsic ValueNon-vested shares balance at beginning of period
    
    
    245,000Granted
    
    
    143,711
    
    
    $
    13.47Forfeited
    
    
    (5,000
    )
    
    $
    10.79Vested
    
    
    (45,000
    )
    
    $
    11.61Non-vested shares balance at end of period
    
    
    338,711
    
    
    $
    12.35
    
    
    $
    645
  14




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##### Table of Contents



4. PROPERTY AND EQUIPMENT
  June 30,
    
    
    December 31,2007
    
    
    2006Land and improvements
    
    $
    38,121
    
    
    $
    38,058Building and improvements
    
    
    218,435
    
    
    
    178,464Furniture, fixtures and equipment
    
    
    254,893
    
    
    
    243,991Construction in process
    
    
    108,841
    
    
    
    71,848620,290
    
    
    
    532,361Less accumulated depreciation
    
    
    (59,530
    )
    
    
    (42,393
    )Property and equipment, net
    
    $
    560,760
    
    
    $
    489,968
  5. LONG-TERM DEBT
  June 30,
    
    
    December 31,2007
    
    
    2006Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    72,174
    
    
    $
    72,801Mason mortgage loan
    
    
    71,648
    
    
    
    55,792Pocono Mountains mortgage loan
    
    
    97,000
    
    
    
    97,000Grapevine construction loan
    
    
    9,769
    
    
    
    Junior subordinated debentures
    
    
    80,545
    
    
    
    51,550Other Debt:City of Sheboygan bonds
    
    
    8,410
    
    
    
    8,383City of Sheboygan loan
    
    
    3,777
    
    
    
    3,863343,323
    
    
    
    289,389Less current portion of long-term debt
    
    
    (1,470
    )
    
    
    (1,432
    )Total long-term debt
    
    $
    341,853
    
    
    $
    287,957
 Traverse City/Kansas City Mortgage Loan
 Mason Mortgage Loan
  15




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##### Table of Contents



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




---



##### Table of Contents



City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughJune 30,2008
    
    $
    1,4702009
    
    
    3,1782010
    
    
    5,0592011
    
    
    74,1072012
    
    
    10,819Thereafter
    
    
    248,690Total
    
    $
    343,323
 6. COMPREHENSIVE INCOME
  7. EARNINGS PER SHARE
  17




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##### Table of Contents



Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss attributable to common shares
    
    $
    (1,656
    )
    
    $
    (1,402
    )
    
    $
    (3,661
    )
    
    $
    (2,345
    )Weighted average common shares outstanding  basic
    
    
    30,566,218
    
    
    
    30,299,896
    
    
    
    30,496,174
    
    
    
    30,223,896Weighted average common shares outstanding 
diluted
    
    
    30,566,218
    
    
    
    30,299,896
    
    
    
    30,496,174
    
    
    
    30,223,896Net loss per share  basic
    
    $
    (0.05
    )
    
    $
    (0.05
    )
    
    $
    (0.12
    )
    
    $
    (0.08
    )Net loss per share  diluted
    
    $
    (0.05
    )
    
    $
    (0.05
    )
    
    $
    (0.12
    )
    
    $
    (0.08
    )
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this report. We make statements in this section that are
forward-looking statements within the meaning of the federal securities laws. For a complete
discussion of forward-looking statements, see the section in Item 1 of our Annual Report on Form
10-K entitled, Forward-Looking Statements. All dollar amounts in this discussion, except for per
share data and operating statistics, are in thousands.
 Overview
  Business.
   18




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##### Table of Contents



IndoorOwnership
    
    
    
    
    
    Guest
    
    Condo
    
    EntertainmentPercentage
    
    Opening
    
    Suites
    
    Units
    
    Area (1)(Approx. ft2)Existing Resorts:Wisconsin Dells, WI (2)
    
    
    30
    %
    
    
    1997
    
    
    
    308
    
    
    
    77
    
    
    
    102,000Sandusky, OH (2)
    
    
    30
    %
    
    
    2001
    
    
    
    271
    
    
    
    
    
    
    
    41,000Traverse City, MI (3)
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    51,000Kansas City, KS
    
    
    100
    %
    
    
    2003
    
    
    
    281
    
    
    
    
    
    
    
    49,000Sheboygan, WI
    
    
    100
    %
    
    
    2004
    
    
    
    182
    
    
    
    64
    
    
    
    54,000Williamsburg, VA
    
    
    100
    %
    
    
    2005
    
    
    
    405
    
    
    
    
    
    
    
    78,000Pocono Mountains, PA
    
    
    100
    %
    
    
    2005
    
    
    
    401
    
    
    
    
    
    
    
    91,000Niagara Falls, ONT (4)
    
    
    
    
    
    
    2006
    
    
    
    406
    
    
    
    
    
    
    
    94,000Mason, OH (5)
    
    
    100
    %
    
    
    2006
    
    
    
    401
    
    
    
    
    
    
    
    93,000Resorts Announced or Under Construction:Grapevine, TX (6)
    
    
    100
    %
    
    Late 2007
    
    
    402
    
    
    
    
    
    
    
    98,000Grand Mound, WA (7)
    
    
    49
    %
    
    Early 2008
    
    
    398
    
    
    
    
    
    
    
    78,000Charlotte (metropolitan area), NC
(8)
    
    
    100
    %
    
    Early 2009
    
    
    400
    
    
    
    
    
    
    
    95,000
 
 (1)
    
    Our indoor entertainment areas generally include our indoor waterpark, game arcade,
childrens activity room and fitness room, as well as our Aveda spa in the resorts that have
such amenities.(2)
    
    These properties are owned by a joint venture. CNL Income Properties, Inc. (CNL), a real
estate investment trust focused on leisure and lifestyle properties, owns a 69.68% interest in
the joint venture, and we have a 30.32% interest. We operate the properties and license the
Great Wolf Lodge brand to the joint venture under long-term agreements, subject to earlier
termination in certain situations.(3)
    
    Construction for the expansion of a 9,000 square foot conference center space began in May
2007. We expect to complete the expansion in late 2007.(4)
    
    An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this resort. We have
granted Ripley a license to use the Great Wolf Lodge name for this resort through April 2016.
We manage the resort on behalf of Ripley and also provide central reservation services.(5)
    
    We initially entered into a joint venture agreement with a subsidiary of CBS Corporation
(CBS) to build this resort and attached conference center. In June 2007 we purchased CBS
equity interest in this joint venture, and we now own 100% of the resort.(6)
    
    We are developing a Great Wolf Lodge resort in Grapevine, Texas. The northwoods-themed,
eight-story resort will provide a comprehensive package of first-class destination lodging
amenities and activities. Construction on the resort began in June 2006 with expected
completion in late 2007.(7)
    
    We have entered into a joint venture agreement with The Confederated Tribes of the Chehalis
Reservation (Chehalis) to build this resort. We will operate the resort under our Great Wolf
Lodge brand. Chehalis will lease the land needed for the resort to the joint venture, and they
will have a majority equity interest in the joint venture. Construction on the resort began in
October 2006 with expected completion in early 2008. 19




---



##### Table of Contents



(8)
    
    We have announced plans to develop a Great Wolf Lodge resort in the Charlotte, North Carolina
metropolitan area. The northwoods-themed, approximately 400-suite resort will provide a
comprehensive package of first-class destination lodging amenities and activities.
Construction on the resort is expected to begin in late 2007 with expected completion in early
2009. Industry Trends.
    Outlook.
   20




---



##### Table of Contents



Revenue and Key Performance Indicators.
 
    
    Monitoring our historical trends for occupancy and estimating our high occupancy nights;
    
    Offering the highest discounts to previous guests in off-peak periods to build customer
loyalty and enhance our ability to charge higher rates in peak periods;
    
    Structuring rates to allow us to offer our previous guests the best rate while
simultaneously working with a promotional partner or offering internet specials;
    
    Monitoring sales of room types daily to evaluate the effectiveness of offered discounts; and
    
    Offering specials on standard suites and yielding better rates on larger suites when standard suites sell out.
   
    
    Occupancy;
    
    Average daily room rate, or ADR;
    
    Revenue per available room, or RevPAR;
    
    Total revenue per available room, or Total RevPAR;
 21




---



##### Table of Contents




    
    Total revenue per occupied room, or Total RevPOR; and
    
    Earnings before interest, taxes, depreciation and amortization, or EBITDA.
  
    
    Occupancy is calculated by dividing total occupied rooms by total available rooms.
    
    ADR is calculated by dividing total rooms revenue by total occupied rooms.
    
    RevPAR is the product of occupancy and ADR.
  
    
    Total RevPAR is calculated by dividing total revenue by total available rooms.
    
    Total Rev POR is calculated by dividing total revenue by total occupied rooms.
    Recent Accounting Pronouncements
  22




---



##### Table of Contents



Non-GAAP Financial Measures
    
    
    a significant portion of our assets consists of property and equipment that are
depreciated over their remaining useful lives in accordance with GAAP. Because depreciation
and amortization are non-cash items, we believe that presentation of EBITDA is a useful
measure of our operating performance;
    
    it is widely used in the hospitality and entertainment industries to measure operating
performance without regard to items such as depreciation and amortization; and
    
    we believe it helps investors meaningfully evaluate and compare the results of our
operations from period to period by removing the impact of items directly resulting from our
asset base, primarily depreciation and amortization, from our operating results.
 23




---



##### Table of Contents




    
    as a measurement of operating performance because it assists us in comparing our
operating performance on a consistent basis as it removes the impact of items directly
resulting from our asset base, primarily depreciation and amortization, from our operating
results;
    
    for planning purposes, including the preparation of our annual operating budget;
    
    as a valuation measure for evaluating our operating performance and our capacity to incur
and service debt, fund capital expenditures and expand our business; and
    
    as one measure in determining the value of other acquisitions and dispositions.
   Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (1,656
    )
    
    $
    (1,402
    )
    
    $
    (3,661
    )
    
    $
    (2,345
    )Adjustments:Interest expense, net
    
    
    2,923
    
    
    
    951
    
    
    
    5,461
    
    
    
    2,130Income tax benefit
    
    
    (1,180
    )
    
    
    (906
    )
    
    
    (2,091
    )
    
    
    (1,511
    )Depreciation and amortization
    
    
    8,818
    
    
    
    6,169
    
    
    
    17,462
    
    
    
    12,267EBITDA
    
    $
    8,905
    
    
    $
    4,812
    
    
    $
    17,171
    
    
    $
    10,541
 Results of Operations
 General
   
    
    our subsidiary entity that provides resort development and management/licensing services;
    
    our Traverse City, Kansas City, Sheboygan, Williamsburg, Pocono Mountains and Mason operating resorts;
    
    equity interests in resorts in which we have ownership interests but which we do not consolidate; and
    
    our resorts that are under construction which we will consolidate.
 Revenues.
 24




---



##### Table of Contents




    
    lodging revenue, which includes rooms, food and beverage, and other department revenues from our resorts;
    
    management fee and other revenue from resorts, which includes fees received under our
management, license, development and construction management agreements; and
    
    other revenue from managed properties. We employ the staff at our managed properties
(except for the Niagara Falls resort). Under our management agreements, the resort owners
reimburse us for payroll, benefits and certain other costs related to the operations of the
managed properties. Emerging Issues Task Force, or EITF, Issue No. 01-14, Income Statement
Characteristics of Reimbursements for Out-of-Pocket Expenses (EITF 01-14), establishes
standards for accounting for reimbursable expenses in our statements of operations. Under
this pronouncement, the reimbursement of payroll, benefits and costs is recorded as revenue
on our statements of operations, with a corresponding expense recorded as other expenses
from managed properties.
 Operating Expenses.
  
    
    selling, general and administrative expenses, which are associated with the operations
and management of resorts and which consist primarily of expenses such as corporate payroll
and related benefits, operations management, sales and marketing, finance, legal,
information technology support, human resources and other support services, as well as
general corporate expenses;
    
    property operation and maintenance expenses, such as utility costs and property taxes;
    
    depreciation and amortization; and
    
    other expenses from managed properties, which are recorded as an expense in accordance with EITF 01-14.
 Three months ended June 30, 2007, compared with the three months ended June 30, 2006
  All Properties (a)
    
    Same Store Comparison (b)Three months
    
    Three months
    
    Three monthsended
    
    ended
    
    ended
    
    Increase (Decrease)June 30, 2007
    
    June 30, 2007
    
    June 30, 2006
    
    $
    
    %Occupancy
    
    
    61.2
    %
    
    
    63.3
    %
    
    
    62.9
    %
    
    
    N/A
    
    
    
    0.6
    %ADR
    
    $
    237.57
    
    
    $
    236.60
    
    
    $
    231.80
    
    
    $
    4.80
    
    
    
    2.1
    %RevPAR
    
    $
    145.28
    
    
    $
    149.73
    
    
    $
    145.69
    
    
    $
    4.04
    
    
    
    2.8
    %Total RevPOR
    
    $
    358.72
    
    
    $
    356.61
    
    
    $
    347.60
    
    
    $
    9.01
    
    
    
    2.6
    %Total RevPAR
    
    $
    219.37
    
    
    $
    225.68
    
    
    $
    218.47
    
    
    $
    7.21
    
    
    
    3.3
    %
 
 (a)
    
    Includes results for properties that were open for any portion of the period, for all owned
and/or managed resorts.(b)
    
    Same store comparison includes properties that were open for the full periods in 2007 and
2006 (that is, our Wisconsin Dells, Sandusky, Traverse City, Kansas City, Sheboygan,
Williamsburg, Poconos, and Niagara Falls resorts). 25




---



##### Table of Contents



Three months endedJune 30,Increase2007
    
    2006
    
    (Decrease)Revenues
    
    $
    46,347
    
    
    $
    35,827
    
    
    $
    10,520Operating expenses:Departmental operating expenses
    
    
    16,169
    
    
    
    11,374
    
    
    
    4,795Selling, general and administrative
    
    
    11,458
    
    
    
    10,952
    
    
    
    506Property operating costs
    
    
    6,289
    
    
    
    4,699
    
    
    
    1,590Depreciation and amortization
    
    
    8,818
    
    
    
    6,169
    
    
    
    2,649Net operating income (loss)
    
    
    811
    
    
    
    (370
    )
    
    
    1,181Net interest expense
    
    
    2,923
    
    
    
    951
    
    
    
    1,972Income tax benefit
    
    
    (917
    )
    
    
    (511
    )
    
    
    (406
    )Net loss
    
    
    (1,656
    )
    
    
    (1,402
    )
    
    
    (254
    )
 Revenues.
 Operating expenses.
 
    
    Departmental expenses increased by $4,935 for the three months ended June 30, 2007, as
compared to the three months ended June 30, 2006, due to the opening of our Mason resort,
the expansion of our Williamsburg resort and increased marketing efforts at our Williamsburg
and Pocono Mountains resorts.
    
    Total selling, general and administrative expenses increased by $506 for the three months
ended June 30, 2007, as compared to the three months ended June 30, 2006. Selling, general
and administrative expenses increased by $2,672 due to the opening of our Mason resort, the
expansion of our Williamsburg resort and increased marketing efforts at our Williamsburg and
Pocono Mountains resorts, while corporate selling, general and administrative expenses
decreased by $2,142 due to decreased legal costs; more capitalizable
labor, due to increased development activity; and higher level
of start-up costs (which are included in property operating costs) for the three months
ended June 30, 2007, as compared to the three months ended June 30, 2006.
    
    Total property operating costs (exclusive of opening costs) increased $1,507 for the
three months ended June 30, 2007, as compared to the three months ended June 30, 2006, due
to the opening of our Mason resort, as well as increased repairs and maintenance expense
and increased utilities expense related to the expansion of our Williamsburg resort and
amenity additions to several of our other resorts. Opening costs related to our resorts
were $1,097 for the three months ended June 30, 2007, as compared to $1,014 for the three
months ended June 30, 2006.
    
    Total depreciation and amortization increased mainly due to the opening of our Mason
resort and the expansion at our Williamsburg resort. The total increase in depreciation and
amortization at these two resorts was $2,247 during the three months ended June 30, 2007 as
compared to three months ended June 30, 2006.
 26




---



##### Table of Contents



Net operating income.
 Net loss.
 
    
    An increase in net interest expense of $1,972 mainly due to mortgage debt related our
Pocono Mountains and Mason resorts.
  
    
    An increase in operating income from $(370) for the three months ended June 30, 2006, to
$811 for the three months ended June 30, 2007; and
    
    An increase of $406 in income tax benefit recorded in the three months ended June 30,
2007, as compared to the three months ended June 30, 2006.
 Six months ended June 30, 2007, compared with the six months ended June 30, 2006
  All Properties (a)
    
    Same Store Comparison (b)Six months ended
    
    Six months ended
    
    Six months ended
    
    Increase (Decrease)June 30, 2007
    
    June 30, 2007
    
    June 30, 2006
    
    $
    
    %Occupancy
    
    
    62.7
    %
    
    
    64.5
    %
    
    
    64.7
    %
    
    
    N/A
    
    
    
    (0.3
    )%ADR
    
    $
    242.88
    
    
    $
    241.63
    
    
    $
    234.77
    
    
    $
    6.86
    
    
    
    2.9
    %RevPAR
    
    $
    152.18
    
    
    $
    155.79
    
    
    $
    151.78
    
    
    $
    4.01
    
    
    
    2.6
    %Total RevPOR
    
    $
    368.71
    
    
    $
    364.61
    
    
    $
    353.94
    
    
    $
    10.67
    
    
    
    3.0
    %Total RevPAR
    
    $
    231.02
    
    
    $
    235.09
    
    
    $
    228.83
    
    
    $
    6.26
    
    
    
    2.7
    %
 
 (a)
    
    Includes results for properties that were open for any portion of the period, for all owned
and/or managed resorts.(b)
    
    Same store comparison includes properties that were open for the full periods in 2007 and
2006 (that is, our Wisconsin Dells, Sandusky, Traverse City, Kansas City, Sheboygan,
Williamsburg, and Poconos resorts).   Six months endedJune 30,Increase2007
    
    2006
    
    (Decrease)Revenues
    
    $
    94,807
    
    
    $
    73,663
    
    
    $
    21,144Operating expenses:Departmental operating expenses
    
    
    32,690
    
    
    
    23,567
    
    
    
    9,123Selling, general and administrative
    
    
    24,579
    
    
    
    22,603
    
    
    
    1,976Property operating costs
    
    
    14,172
    
    
    
    9,575
    
    
    
    4,597Depreciation and amortization
    
    
    17,462
    
    
    
    12,267
    
    
    
    5,195Loss on sale of property
    
    
    
    
    
    
    578
    
    
    
    (578
    )Net operating income (loss)
    
    
    66
    
    
    
    (912
    )
    
    
    978Net interest expense
    
    
    5,461
    
    
    
    2,130
    
    
    
    3,331Income tax benefit
    
    
    (1,961
    )
    
    
    (1,185
    )
    
    
    (776
    )Net loss
    
    
    (3,661
    )
    
    
    (2,345
    )
    
    
    (1,316
    )
 27




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##### Table of Contents



Revenues.
 Operating expenses.
 
    
    Departmental expenses increased by $9,473 for the six months ended June 30, 2007, as
compared to the six months ended June 20, 2006, due to the opening of our Mason resort, the
expansion of our Williamsburg resort and increased marketing efforts at our Williamsburg and
Pocono Mountains resorts.
    
    Total selling, general and administrative expenses increased by $1,976 for the six months
ended June 30, 2007, as compared to the six months ended June 30, 2006. Selling, general
and administrative expenses increased by $5,006 due to the opening of our Mason resort, the
expansion of our Williamsburg resort and increased marketing efforts at our Williamsburg and
Pocono Mountains resorts, while corporate selling, general and administrative expenses
decreased by $1,831 due to decreased legal costs; more capitalizable
labor, due to increased development activity; and higher level
of start-up costs (which are included in property operating costs) for the six months ended
June 30, 2007, as compared to the six months ended June 30, 2006
    
    Total property operating costs (exclusive of opening costs) increased $2,914 for the
six months ended June 30, 2007, as compared to June 20, 2006, mainly due to the opening of
our Mason resort, as well as increased repairs and maintenance expense, and increased
utilities expense related to the expansion of our Williamsburg resort and amenity additions
to several of our other resorts. Opening costs related to our resorts were $3,423 for the
six months ended June 30, 2007, as compared to $1,740 for the six months ended June 30,
2006.
    
    Total depreciation and amortization increased mainly due to the opening of our Mason
resort and the expansion at our Williamsburg resort. The total increase in depreciation and
amortization at these two resorts was $4,488 during the six months ended June 30, 2007, as
compared to six months ended June 30, 2006.
 Net operating income.
 Net loss.
 
    
    An increase in net interest expense of $3,331 mainly due to mortgage debt related to our
Pocono Mountains and Mason resorts.
  
    
    An increase in operating income from $(912) for the six months ended June 30, 2006, to
$66 for the six months ended June 30, 2007.
    
    An increase of $776 in income tax benefit recorded in the six months ended June 30, 2007,
as compared to the six months ended June 30, 2006.
 28




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##### Table of Contents



Segments
  
    
    resort ownership/operation-revenues derived from our consolidated owned resorts; and
    
    resort third-party management-revenues derived from management, license and other
related fees from unconsolidated managed resorts.
  Three months ended June 30,
    
    Six months ended June 30,Increase
    
    
    
    
    
    
    
    
    
    Increase2007
    
    2006
    
    (Decrease)
    
    2007
    
    2006
    
    (Decrease)Resort Ownership/OperationRevenues
    
    $
    41,887
    
    
    $
    31,561
    
    
    $
    10,326
    
    
    $
    85,533
    
    
    $
    65,540
    
    
    $
    19,993EBITDA, excluding certain items
    
    
    9,085
    
    
    
    7,943
    
    
    
    1,142
    
    
    
    17,507
    
    
    
    16,044
    
    
    
    1,463Resort Third-Party MgmtRevenues
    
    
    4,460
    
    
    
    4,266
    
    
    
    194
    
    
    
    9,274
    
    
    
    8,123
    
    
    
    1,151EBITDA, excluding certain items
    
    
    1,658
    
    
    
    1,263
    
    
    
    395
    
    
    
    3,436
    
    
    
    2,138
    
    
    
    1,298OtherRevenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EBITDA, excluding certain items
    
    
    (1,114
    )
    
    
    (3,407
    )
    
    
    2,293
    
    
    
    (3,415
    )
    
    
    (6,827
    )
    
    
    3,412
  Liquidity and Capital Resources
  June 30,
    
    
    December 31,2007
    
    
    2006Long-Term Debt:Traverse City/Kansas City mortgage loan
    
    $
    72,174
    
    
    $
    72,801Mason mortgage loan
    
    
    71,648
    
    
    
    55,792Pocono Mountains mortgage loan
    
    
    97,000
    
    
    
    97,000Grapevine construction loan
    
    
    9,769
    
    
    
    Junior subordinated debentures
    
    
    80,545
    
    
    
    51,550Other Debt:City of Sheboygan bonds
    
    
    8,410
    
    
    
    8,383City of Sheboygan loan
    
    
    3,777
    
    
    
    3,863343,323
    
    
    
    289,389Less current portion of long-term debt
    
    
    (1,470
    )
    
    
    (1,432
    )Total long-term debt
    
    $
    341,853
    
    
    $
    287,957
 29




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##### Table of Contents



Traverse City/Kansas City Mortgage Loan
 Mason Mortgage Loan
  Pocono Mountains Mortgage Loan 
 Grapevine Construction Loan
 Junior Subordinated Debentures
  30




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##### Table of Contents



City of Sheboygan Bonds
 City of Sheboygan Loan
 Future Maturities
 ThroughJune 30,2008
    
    $
    1,4702009
    
    
    3,1782010
    
    
    5,0592011
    
    
    74,1072012
    
    
    10,819Thereafter
    
    
    248,690Total
    
    $
    343,323
 31




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##### Table of Contents



Short-Term Liquidity Requirements
  
    
    recurring maintenance, repairs and other operating expenses necessary to properly
maintain and operate our resorts;
    
    property taxes and insurance expenses;
    
    interest expense and scheduled principal payments on outstanding indebtedness;
    
    general and administrative expenses; and
    
    income taxes.
  Long-Term Liquidity Requirements
  
    
    scheduled debt maturities;
    
    capital contributions and loans to unconsolidated joint ventures;
    
    renovations, expansions and other non-recurring capital expenditures that need to be
made periodically to our resorts; and
    
    costs associated with the development of new resorts.
   32




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##### Table of Contents



Off Balance Sheet Arrangements
  
    
    Our joint venture with CNL Income Properties, Inc. (CNL) owns two resorts, Great Wolf
Lodge-Wisconsin Dells, Wisconsin and Great Wolf Lodge-Sandusky, Ohio. We are a limited
partner in the CNL joint venture with a 30.32% ownership interest. At June 30, 2007, the
joint venture had aggregate outstanding indebtedness to third parties of approximately
$63,000. This loan is a mortgage loan that is non-recourse to us.
    
    We entered into our joint venture with The Confederated Tribes of the Chehalis
Reservation to develop a Great Wolf Lodge resort and conference center on a 39-acre land
parcel in Grand Mound, Washington. This resort is currently under construction and is
expected to open in early 2008. This joint venture is a limited liability company; we are
a member of that limited liability company with a 49% ownership interest.
  Contractual Obligations
  Payment TermsLess
    
    
    
    
    
    
    
    
    
    
    MoreThan
    
    
    1-3
    
    
    3-5
    
    
    ThanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsDebt obligations (1)
    
    $
    343,323
    
    
    $
    1,470
    
    
    $
    8,237
    
    
    $
    84,926
    
    
    $
    248,690Operating lease obligations
    
    
    950
    
    
    
    403
    
    
    
    547
    
    
    
    
    
    
    
    Construction contracts
    
    
    40,836
    
    
    
    40,836
    
    
    
    
    
    
    
    
    
    
    
    Reserve on unrecognized tax benefits
    
    
    955
    
    
    
    
    
    
    
    
    
    
    
    955
    
    
    
    Total
    
    $
    386,064
    
    
    $
    42,709
    
    
    $
    8,784
    
    
    $
    85,881
    
    
    $
    248,690
 
 (1)
    
    Includes $8,410 of fixed rate debt recognized as a liability related to certain bonds issued
by the City of Sheboygan and $3,777 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
  33




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##### Table of Contents



Cash Flows
 Six months ended June 30, 2007, compared with the six months ended June 30, 2006
 Increase2007
    
    
    2006
    
    
    (Decrease)Net cash provided by operating activities
    
    $
    8,075
    
    
    $
    7,589
    
    
    $
    486Net cash used in investing activities
    
    
    (131,408
    )
    
    
    (29,635
    )
    
    
    101,773Net cash provided by financing activities
    
    
    53,034
    
    
    
    24,464
    
    
    
    28,570
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Inflation
  
 ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    $72,174 of fixed rate debt secured by two of our resorts. This debt bears interest at
6.96%.
    
    $51,550 of subordinated debentures that bear interest at a fixed rate of 7.80% through
March 2015 and then at a floating rate of LIBOR plus 310 basis points thereafter. The
securities mature in March 2035.
 34




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##### Table of Contents




    
    $28,995 of subordinated debentures that bear interest at a fixed rate of 7.90% through
June 2012 and then at a floating rate of LIBOR plus 300 basis points thereafter. The
securities mature in June 2017.
    
    $97,000 of fixed rate debt secured by one of our resorts. This debt bears interest at
6.10%
    
    $71,648 of variable rate debt secured by one of our resorts. This debt bears interest at
a floating rate of 30-day LIBOR plus a spread of 265 basis points. The total rate was 7.97%
at June 30, 2007. $71,000 of this debt is effectively fixed at a rate of 7.65% due to the
interest rate swap described above.
    
    $9,769 of variable rate debt secured by one of our resorts. This debt bears interest at
a floating rate of 30-day LIBOR plus a spread of 260 basis points. The total rate was 7.92%
at June 30, 2007.
    
    $8,410 of fixed rate debt (effective interest rate of 10.67%) recognized as a liability
related to certain bonds issued by the City of Sheboygan and $3,777 of noninterest bearing
debt recognized as a liability related to a loan from the City of Sheboygan. These
liabilities will be satisfied by certain future minimum guaranteed amounts of real and
personal property tax payments and room tax payments to be made by the Sheboygan resort; and
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes In Internal Control
  35




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  FOR
    
    WITHHELDJoseph Vittoria
    
    
    24,776,670
    
    
    
    1,033,480John Emery
    
    
    25,587,781
    
    
    
    222,369Elan Blutinger
    
    
    24,778,870
    
    
    
    1,031,280Randy Churchey
    
    
    23,524,932
    
    
    
    2,285,218Michael M. Knetter
    
    
    24,711,770
    
    
    
    1,098,380Alissa N. Nolan
    
    
    24,357,470
    
    
    
    1,452,680Edward Rensi
    
    
    24,665,422
    
    
    
    1,144,728Howard Silver
    
    
    24,366,927
    
    
    
    1,443,223
  36




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##### Table of Contents



ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description2.1
    
    Form of Merger Agreement (Delaware) (incorporated herein by reference to
Exhibit 2.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)2.2
    
    Form of Merger Agreement (Wisconsin) (incorporated herein by reference to
Exhibit 2.2 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)3.1
    
    Form of Amended and Restated Certificate of Incorporation for Great Wolf
Resorts, Inc. dated December 9, 2004 (incorporated herein by reference to
Exhibit 3.1 to the Companys Registration Statement on Form S-1 filed
August 12, 2004)3.2
    
    Form of Amended and Restated Bylaws of Great Wolf Resorts, Inc. effective
September 12, 2006 (incorporated herein by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed September 18, 2006)4.1
    
    Form of the Common Stock Certificate of Great Wolf Resorts, Inc.
(incorporated herein by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-1 filed October 21, 2004)4.2
    
    Junior Subordinated Indenture, dated as of March 15, 2005, between Great
Wolf Resorts, Inc. and JP Morgan Chase Bank, National Association, as
trustee (incorporated herein by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K filed March 18, 2005)4.3
    
    Amended and Restated Trust Agreement, dated as of March 15, 2005, by and
among Chase Manhattan Bank USA, National Association, as Delaware trustee;
JP Morgan Chase Bank, National Association, as property trustee; Great
Wolf Resorts, Inc., as depositor; and James A. Calder, Alex P. Lombardo
and J. Michael Schroeder, as administrative trustees (incorporated herein
by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K
filed March 18, 2005)4.4
    
    Junior Subordinated Indenture, dated as of June 15, 2007, between Great
Wolf Resorts, Inc. and Wells Fargo Bank, N.A., as trustee (incorporated
herein by reference to Exhibit 4.1 to the Companys Current Report on Form
8-K filed June 19, 2007)4.5
    
    Amended and Restated Trust Agreement, dated as of June 15, 2007, by and
among Great Wolf Resorts, Inc., as depositor, Wells Fargo Bank, N.A., as
property trustee, Wells Fargo Delaware Trust Company, as Delaware trustee,
and James A. Calder, Alex P. Lombardo and J. Michael Schroeder, as
administrative trustees (incorporated herein by reference to Exhibit 4.2
to the Companys Current Report on Form 8-K filed June 19, 2007)
 37




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##### Table of Contents



ExhibitNumber
    
    Description31.1*
    
    Certification of Chief Executive Officer of Periodic Report Pursuant to
Rule 13a14(a) and Rule 15d14(a)31.2*
    
    Certification of Chief Financial Officer of Periodic Report Pursuant to
Rule 13a14(a) and Rule 15d14(a)32.1*
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 135032.2*
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
 
 *
    
    Filed herewith. 38




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##### Table of Contents



SIGNATURE
  GREAT WOLF RESORTS, INC./s/ James A. CalderJames A. CalderChief Financial Officer
(Duly authorized officer)
(Principal Financial and Accounting Officer)  39