---

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|/x/ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2001

Commission File Number 0-22334

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LodgeNet Entertainment Corporation(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

46-0371161(I.R.S. Employer
Identification Number)3900 West Innovation Street, Sioux Falls, South Dakota(Address of Principal Executive Offices)

57107(ZIP code)


(605) 988-1000(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report

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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. Yes /x/  No / /.

At
April 30, 2001, there were 12,213,539 shares outstanding of the Registrant's common stock, $0.01 par value.

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LodgeNet Entertainment Corporation    Index

|                                                                                             |                                                                                                      | Page
No.
|-------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | --------
|Part I. Financial Information                                                               
|Item 1Financial Statements:                                                                 |                                                                                                      |         
|                                                                                             | Consolidated Balance Sheets (Unaudited) as of March 31, 2001 and December 31, 2000                   |         
|                                                                                             | Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2001 and 2000 |         
|                                                                                             | Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2001 and 2000 |         
|                                                                                             | Notes to Consolidated Financial Statements (Unaudited)                                               |         
|Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                      | 9       
|Item 3Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                      | 14      
|Part II. Other Information                                                                  
|Item 1Legal Proceedings                                                                     |                                                                                                      | 15      
|Item 2Changes in Securities and Use of Proceeds                                             |                                                                                                      | 15      
|Item 3Defaults Upon Senior Securities                                                       |                                                                                                      | 15      
|Item 4Submission of Matters to a Vote of Security Holders                                   |                                                                                                      | 15      
|Item 5Other Information                                                                     |                                                                                                      | 15      
|Item 6Exhibits and Reports on Form 8-K                                                      |                                                                                                      | 15      
|Signatures                                                                                   |                                                                                                      | 16      

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As
used herein (unless the context otherwise requires) "LodgeNet", "the Company" and/or "the Registrant" means LodgeNet Entertainment Corporation and its majority-owned subsidiaries.

2

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Part IFinancial Information

Item 1Financial Statements

LodgeNet Entertainment Corporation  Consolidated Balance Sheets (Unaudited)  (Dollar amounts in thousands)

|                                                         |                                                                                                                                                                | March 31,
2001              |         | December 31,
2000 |        
|-------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------- | ----------------- | -------
|Assets                                                   |                                                                                                                                                                |                             |         |                   |        
|Current assets:                                          |                                                                                                                                                                |                             |         |                   |        
|                                                         | Cash and cash equivalents                                                                                                                                      |                             | $       | 6,541             |        
|                                                         | Marketable securities                                                                                                                                          |                             |         | 176               |        
|                                                         | Accounts receivable, net                                                                                                                                       |                             |         | 28,276            |        
|                                                         | Prepaid expenses and other                                                                                                                                     |                             |         | 4,014             |        
|                                                         |                                                                                                                                                                |                             |         |                   |        
|                                                         |                                                                                                                                                                | Total current assets        |         |                   | 39,007 
|Property and equipment, net                              |                                                                                                                                                                |                             | 227,560 |                   |        
|Investments in and advances to unconsolidated affiliates |                                                                                                                                                                |                             | 3,050   |                   |        
|Debt issuance costs, net                                 |                                                                                                                                                                |                             | 6,723   |                   |        
|Other assets, net                                        |                                                                                                                                                                |                             | 10,152  |                   |        
|                                                         |                                                                                                                                                                |                             |         |                   |        
|                                                         |                                                                                                                                                                | $                           | 286,492 |                   | $      
|                                                         |                                                                                                                                                                |                             |         |                   |        
|Liabilities and Stockholders' Deficit                    |                                                                                                                                                                |                             |         |                   |        
|Current liabilities:                                     |                                                                                                                                                                |                             |         |                   |        
|                                                         | Accounts payable                                                                                                                                               |                             | $       | 15,438            |        
|                                                         | Current maturities of long-term debt                                                                                                                           |                             |         | 26,309            |        
|                                                         | Accrued expenses and other                                                                                                                                     |                             |         | 15,364            |        
|                                                         | Deferred revenue                                                                                                                                               |                             |         | 2,777             |        
|                                                         |                                                                                                                                                                |                             |         |                   |        
|                                                         |                                                                                                                                                                | Total current liabilities   |         |                   | 59,888 
|Long-term debt                                           |                                                                                                                                                                |                             | 270,720 |                   |        
|Derivative instruments                                   |                                                                                                                                                                |                             | 3,628   |                   |        
|                                                         |                                                                                                                                                                |                             |         |                   |        
|                                                         |                                                                                                                                                                | Total liabilities           |         |                   | 334,236
|                                                         |                                                                                                                                                                |                             |         |                   |        
|Stockholders' deficit:                                   |                                                                                                                                                                |                             |         |                   |        
|                                                         | Common stock, $.01 par value, 20,000,000 shares authorized; 12,212,439 and 12,212,039 shares outstanding at March 31, 2001 and December 31, 2000, respectively |                             |         | 122               |        
|                                                         | Additional paid-in capital                                                                                                                                     |                             |         | 150,667           |        
|                                                         | Accumulated deficit                                                                                                                                            |                             |         | (192,763          | )      
|                                                         | Accumulated other comprehensive loss                                                                                                                           |                             |         | (5,770            | )      
|                                                         |                                                                                                                                                                |                             |         |                   |        
|                                                         |                                                                                                                                                                | Total stockholders' deficit |         |                   | (47,744
|                                                         |                                                                                                                                                                |                             |         |                   |        
|                                                         |                                                                                                                                                                | $                           | 286,492 |                   | $      
|                                                         |                                                                                                                                                                |                             |         |                   |        

The
accompanying notes are an integral part of these consolidated financial statements.

3

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LodgeNet Entertainment Corporation  Consolidated Statements of Operations (Unaudited)  (Dollar amounts, except per share amounts, in thousands)

|                                      |                                     | Three Months Ended March 31, |           
|------------------------------------- | ----------------------------------- | ---------------------------- | ----------
|
|Revenues:                             |                                     |                              |           
|                                      | Guest Pay                           |                              | $         
|                                      | Other                               |                              |           
|                                      |                                     |                              |           
|                                      |                                     | Total revenues               |           
|                                      |                                     |                              |           
|Direct costs:                         |                                     |                              |           
|                                      | Guest Pay                           |                              |           
|                                      | Other                               |                              |           
|                                      |                                     |                              |           
|                                      |                                     | Total direct costs           |           
|                                      |                                     |                              |           
|Gross profit                          |                                     |                              | 30,015    
|                                      |                                     |                              |           
|Operating expenses:                   |                                     |                              |           
|                                      | Guest Pay operations                |                              |           
|                                      | Selling, general and administrative |                              |           
|                                      | Depreciation and amortization       |                              |           
|                                      |                                     |                              |           
|                                      |                                     | Total operating expenses     |           
|                                      |                                     |                              |           
|Operating income (loss)               |                                     |                              | 876       
|Investment losses                     |                                     |                              | (480      
|Interest expense                      |                                     |                              | (7,131    
|Interest income                       |                                     |                              | 66        
|                                      |                                     |                              |           
|Loss before income taxes              |                                     |                              | (6,669    
|Provision for income taxes            |                                     |                              | (113      
|                                      |                                     |                              |           
|Net loss                              |                                     | $                            | (6,782    
|                                      |                                     |                              |           
|Per common share (basic and diluted): |                                     |                              |           
|                                      | Net loss                            |                              | $         
|                                      |                                     |                              |           
|Weighted average shares outstanding   |                                     |                              | 12,212,210
|                                      |                                     |                              |           

The
accompanying notes are an integral part of these consolidated financial statements.

4

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LodgeNet Entertainment Corporation  Consolidated Statements of Cash Flows (Unaudited)  (Dollar amounts in thousands)

|                                                 |                                                                                 | Three Months Ended March 31,                |                           
|------------------------------------------------ | ------------------------------------------------------------------------------- | ------------------------------------------- | --------------------------
|
|Operating activities:                            |                                                                                 |                                             |                           
|                                                 | Net loss                                                                        |                                             | $                         
|                                                 | Adjustments to reconcile net loss to net cash provided by operating activities: |                                             |                           
|                                                 |                                                                                 | Depreciation and amortization               |                           
|                                                 |                                                                                 | Investment losses                           |                           
|                                                 |                                                                                 | Change in operating assets and liabilities: |                           
|                                                 |                                                                                 |                                             | Accounts receivable, net  
|                                                 |                                                                                 |                                             | Prepaid expenses and other
|                                                 |                                                                                 |                                             | Accounts payable          
|                                                 |                                                                                 |                                             | Accrued expenses and other
|                                                 |                                                                                 |                                             | Other                     
|                                                 |                                                                                 |                                             |                           
|Net cash provided by operating activities        |                                                                                 |                                             | 13,346                    
|                                                 |                                                                                 |                                             |                           
|Investing activities:                            |                                                                                 |                                             |                           
|                                                 | Property and equipment additions                                                |                                             |                           
|                                                 | Proceeds from sale of investments                                               |                                             |                           
|                                                 | Proceeds from (investment in) affiliates                                        |                                             |                           
|                                                 |                                                                                 |                                             |                           
|Net cash used for investing activities           |                                                                                 |                                             | (16,708                   
|                                                 |                                                                                 |                                             |                           
|Financing activities:                            |                                                                                 |                                             |                           
|                                                 | Borrowings under revolving credit facility                                      |                                             |                           
|                                                 | Repayments of revolving credit facility                                         |                                             |                           
|                                                 | Repayment of long-term debt                                                     |                                             |                           
|                                                 | Repayment of capital lease obligations                                          |                                             |                           
|                                                 | Exercise of stock options                                                       |                                             |                           
|                                                 |                                                                                 |                                             |                           
|Net cash provided by financing activities        |                                                                                 |                                             | 5,881                     
|                                                 |                                                                                 |                                             |                           
|Effect of exchange rates on cash                 |                                                                                 |                                             | (37                       
|                                                 |                                                                                 |                                             |                           
|Increase in cash and cash equivalents            |                                                                                 |                                             | 2,482                     
|Cash and cash equivalents at beginning of period |                                                                                 |                                             | 4,059                     
|                                                 |                                                                                 |                                             |                           
|Cash and cash equivalents at end of period       |                                                                                 | $                                           | 6,541                     
|                                                 |                                                                                 |                                             |                           
|Supplemental cash flow information:              |                                                                                 |                                             |                           
|                                                 | Cash paid for interest                                                          |                                             | $                         
|                                                 |                                                                                 |                                             |                           

The
accompanying notes are an integral part of these consolidated financial statements.

5

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LodgeNet Entertainment Corporation  Notes to Consolidated Financial Statements (Unaudited)

Note 1Basis of Presentation

The accompanying consolidated financial statements as of March 31, 2001, and for the three month periods ended March 31, 2001 and 2000, have been
prepared by LodgeNet Entertainment Corporation (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). The information
furnished in the accompanying consolidated financial statements reflects all adjustments, consisting only of normal recurring adjustments, which, in the opinion of management, are necessary for a fair
presentation of such financial statements.

Certain
information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or
omitted pursuant to the rules and regulations of the Commission. Although the Company believes that the disclosures are adequate to make the information presented herein not misleading, it is
recommended that these unaudited consolidated financial statements be read in conjunction with the more detailed information contained in the Company's Annual Report on Form 10-K
for 2000, as filed with the Commission. The results of operations for the three-month period ended March 31, 2001 are not necessarily indicative of the results of operations for the full year.

The
consolidated financial statements include the accounts of LodgeNet Entertainment Corporation and its majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Note 2Property and Equipment, Net

Property and equipment was comprised as follows at (in thousands):

March 31,
2001

December 31,
2000Land, building and equipment

$
64,897

$
62,432Free-to-guest equipment


21,229


20,175Guest Pay systems:Installed


360,492


349,313System components


25,585


24,565Software costs


13,398


12,816Total


485,601


469,301Lessdepreciation and amortization


(258,041
)

(244,374
)Property and equipment, net

$
227,560

$
224,927


Note 3Comprehensive Income (Loss)

Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income," provides standards for reporting and disclosure of
comprehensive income and its components. Comprehensive income reflects the changes in equity during a period from transactions and other

6

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events and circumstances from non-owner sources. For the Company, comprehensive loss was as follows for the quarters ended March 31 (in thousands):

2001

2000Net loss

$
(6,782
)
$
(7,682
)Foreign currency translation adjustment


(582
)

(20
)Unrealized loss on marketable securities


(330
)

(13,603
)Cumulative effect of adoption of SFAS No. 133


(1,287
)

Unrealized loss on derivative instruments


(2,341
)

Comprehensive loss

$
(11,322
)
$
(21,305
)


Note 4Accounting for Derivative Instruments and Hedging Activities

Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge accounting.

At
January 1, 2001, the Company had interest rate swap agreements on $100 million of long-term debt. The swap agreements, which expire $50 million in
March 2003 and $50 million in December 2005, have been designated as, and meet the criteria for cash flow hedges. Initial adoption of SFAS No. 133 resulted in the recording
of a liability for the fair value of the swap agreements of $1.3 million, with the offset recorded in equity as a component of accumulated other comprehensive loss.

Note 5Long-term Debt and Credit Facilities

Long-term debt was comprised as follows at (in thousands):

March 31,
2001

December 31,
2000Bank Credit Facility:Bank term loan

$
75,000

$
75,000Revolving credit facility


40,000


34,00010.25% senior notes


150,000


150,00011.50% senior notes


30,000


30,000Less unamortized discount


(470
)

(523
)Capital leases


1,614


1,287Other


885


895297,029


290,659Less current maturities


(26,309
)

(21,563
)$
270,720

$
269,096


Bank Credit FacilityIn February 1999, the Company amended and restated its bank credit facility, increasing the
size of the facility to $150 million, comprised of a $75 million term loan and a $75 million revolving credit facility (which may be increased to $100 million, subject to
certain limitations). Quarterly repayments on the term loan begin in April 2001. The revolving credit facility

7

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matures in February 2005. Loans bear interest, payable quarterly, at the Company's option of (1) the bank's base rate (as defined) plus a margin of from 1.00% to 1.75%, depending on
leverage as defined, or (2) the eurodollar rate plus a margin of from 2.00% to 2.75%, depending on leverage as defined. The margins applicable to the bank's base rate and/or the eurodollar rate
loans are subject to quarterly adjustment as defined in the agreement. Weighted average interest rates as of March 31, 2001 were 7.31% for the term loan and 7.19% for the revolving credit
facility. The loans are secured by a first priority security interest in all of the Company's assets. The facility provides for the issuance of letters of credit up to $12 million, subject to
customary terms and conditions. As of March 31, 2001, the Company had outstanding letters of credit totaling $2.0 million.

The
facility includes terms and conditions which require the maintenance of certain financial ratios and place limitations on capital expenditures, additional indebtedness, liens,
investments, guarantees and certain payments or distributions in respect of the common stock. As of March 31, 2001, the Company was in compliance with all covenants, terms and conditions of the
bank credit facility.

10.25% Senior NotesIn December 1996, the Company issued $150 million of unsecured 10.25% senior notes (the
"10.25% Notes"), due December 15, 2006. The 10.25% Notes are unsecured, rankpari passuin right of payment with future unsubordinated unsecured
indebtedness and rank senior in right of payment to all subordinated indebtedness of the Company. The 10.25% Notes require semi-annual interest payments and contain certain restrictive
covenants. As of March 31, 2001, the Company was in compliance with all covenants, terms, and conditions of the 10.25% Notes.

The
10.25% Notes are redeemable at the option of the Company, in whole or in part, on or after December 15, 2001, initially at 105.125% of their principal amount (plus accrued
and unpaid interest) declining ratably to 100% of their principal amount (plus accrued and unpaid interest) on or after December 15, 2003.

11.50% Senior NotesDuring 1995, the Company issued $30 million principal amount of unsecured 11.50% senior notes
(the "11.50% Notes"). Mandatory annual principal payments of $6 million commence in July 2001 continuing through July 2005. Semi-annual interest payments are required.
The Company issued a total of 480,000 warrants to purchase common stock of the Company in connection with the issuance of the 11.50% Notes and the value of the warrants, $1.68 million, was
recorded as additional paid-in capital and shown as a discount on the 11.50% Notes. As part of the refinancing transaction in which the 10.25% Notes were issued, the holders of the 11.50%
Notes adopted the covenants and ranking of the 10.25% Notes.

Long-term
debt has the following scheduled principal maturities for the years ended December 31 (in thousands of dollars): 2001$21,563;
2002$25,161; 2003$25,805; 2004$28,652; 2005$40,000; thereafter$149,478.

8

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Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information concerning our results of operations and financial condition. This
discussion should be read in conjunction with the accompanying consolidated financial statements and the notes thereto.

Special Note Regarding Forward-Looking StatementsCertain statements in this Quarterly Report on
Form 10-Q constitute forward-looking statements. When used in this Quarterly Report, the words "expects," "anticipates," "estimates," "believes," "no assurance," and similar
expressions, and statements which are made in the future tense, are intended to identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties
and other factors, which may cause the Company's actual performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such
forward-looking statements. In addition to the risks and uncertainties discussed in this Quarterly Report, such factors include, among others, the following: the impact of competition and changes to
the competitive environment for the Company's products and services, changes in technology, reliance on strategic partners, uncertainty of litigation, changes in government regulation and other
factors detailed, from time to time, in the Company's filings with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this Quarterly Report. The
Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's
expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Overview

LodgeNet is an interactive services provider specializing in the delivery of interactive television and Internet access services to the lodging industry.
Utilizing broadband technology, the Company provides services throughout the United States, Canada and select international markets. These services include on-demand movies, music and
music videos, Nintendo® video games, Internet-enhanced television, high-speed Internet access, and other interactive television services designed to serve the needs of the
lodging industry and the traveling public.

Guest Pay Interactive Services.Guest Pay interactive services are purchased by guests on a per-view,
hourly, or daily basis and include on-demand movies, music and music videos, network-based Nintendo video games, Internet enhanced television, and high-speed Internet access
services. Guest Pay packages may also include satellite-delivered basic and premium cable television programming that is paid for by
the hotel and provided to guests at no charge, and other interactive services such as video review of room charges, video checkout, guest surveying, advertising and merchandising services.

The
Company's Guest Pay interactive revenues depend on a number of factors, including the number of rooms equipped with the Company's systems, hotel occupancy rates and guest
demographics, and the popularity, pricing, and availability of programming. The primary direct costs of providing Guest Pay interactive services are (i) license fees paid to studios for
non-exclusive distribution rights to recently-released major motion pictures, (ii) nominal one-time license fees paid for independent films, (iii) license fees
for other interactive services, (iv) Internet connectivity costs, and (v) the commission retained by the hotel. Guest Pay operating expenses include costs of system maintenance and
support, programming delivery and distribution, data retrieval, insurance and personal property taxes.

9

---

The Company installed its systems in the following number of rooms, net of de-installations, during the three months and twelve months ended March 31, 2001:

Periods Ended
March 31, 2001Three
Months

Twelve
MonthsGuest Pay interactive rooms

19,512

63,869Nintendo video game rooms

19,774

65,596Internet services rooms

23,189

41,563


The
room installations for the twelve months ended March 31, 2001 represent increases of 9.4% for Guest Pay interactive rooms, 10.1% for Nintendo video game rooms, and 317% for
Internet services rooms over the number of installed rooms at March 31, 2000. De-installation activity is generally less than 2% of the installed number of rooms.

The
Company's base of installed rooms was comprised as follows at March 31:

2001

2000Guest Pay interactive rooms (1)

744,587

680,718Nintendo video game rooms

717,477

651,881Internet services rooms

54,691

13,128Total rooms served (2)

832,899

777,745


---

Free-to-Guest and Other Services.In addition to Guest Pay interactive services, the Company
provides satellite-delivered basic and premium cable television programming for which the hotel, rather than its guests, pays the charges. The hotel pays the Company a fixed monthly charge per room
for each programming channel provided. The Company obtains its free-to-guest programming pursuant to multi-year agreements and pays a monthly fee per room, which
varies depending on incentive programs in effect from time to time.

To
meet the needs of its hotel customers related to the Company's service offerings, the Company provides a variety of other services to its hotel customers including the sale of
system equipment and service parts and labor. Results from these other services and free-to-guest services delivered to rooms not receiving Guest Pay interactive services are
included in the "other" components of revenues and direct costs in the statements of operations.

InnMedia LLC.During the fourth quarter of 2000, the Company entered into an arrangement with Hilton Hotels Corporation
to form a new broadband, interactive media company, InnMedia LLC, to offer hotel guests new and innovative interactive television content such as high speed Internet access through the
television as well as customized hotel and guest information. Under this arrangement, InnMedia will supply Internet portal and interactive television content to Hilton and other hotels using
LodgeNet's broadband, interactive system. InnMedia will report the operations of these activities, of which LodgeNet and Hilton will equally share, and will pay LodgeNet a fee for use of LodgeNet's
system. The arrangement includes $5 million financing commitments from both LodgeNet and Hilton to fund start-up and near-term operational costs. InnMedia is expected to
begin delivery of content and services during the third quarter of 2001.

10

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Discussion and Analysis of Results of Operations  Three Months Ended March 31, 2000 and 2001

Revenue Analysis.The Company's total revenue for the first quarter of 2001 increased 6.9%, or $3.3 million, in
comparison to the first quarter of 2000. The following table sets forth the components of revenue (in thousands) for the quarter ending March 31:

|         |           | 2001 |        | 2000  
|-------- | --------- | ---- | ------ | ------
|
|Revenue: |           |      |        |       
|         | Guest Pay |      | $      | 48,781
|         | Other     |      |        | 2,257 
|         |           |      |        |       
|         |           | $    | 51,038 |       
|         |           |      |        |       

Guest
Pay interactive revenue increased 7.4%, or $3.4 million, in the first quarter of 2001 in comparison to the same quarter of 2000. This increase was attributable to a 9.3%
increase in the average number of installed Guest Pay interactive rooms, partially offset by a 1.7% decrease in average monthly revenue per room. The following table sets forth information in regard
to average monthly revenue per Guest Pay room for the quarter ending March 31:

2001

2000Average monthly revenue per room:Movie revenue

$
18.03

$
18.74Other interactive service revenue


4.21


3.89Total per Guest Pay room

$
22.24

$
22.63


Average
movie revenue per room decreased 3.8% due to a less popular line-up of major motion pictures in the first quarter of 2001 compared to 2000. Average other
interactive service revenue per room increased 8.2% due to increased revenue from Internet access services and cable television programming services.

Revenue
from other sources includes revenue from free-to-guest services provided to hotels not receiving Guest Pay services and sales of televisions, system
equipment, and service parts and labor. Other revenue decreased $77,000 or 3.3% due to lower revenue from free-to-guest services and decreased sales of televisions.

Gross Profit.Gross profit totaled $30.0 million for the three months ended March 31, 2001, an increase
of 9.6% over the first quarter of 2000 on a 6.9% increase in revenue.

2001

2000Gross profit:Guest Pay

$
29,132

$
26,635Other


883


742$
30,015

$
27,377Gross profit margin:Guest Pay


59.7
%

58.7
%Other


39.1
%

31.8
%Composite


58.8
%

57.4
%


11

---

Gross
profit on Guest Pay interactive services increased 9.4%, or $2.5 million, on a 7.4% increase in related revenue. Guest Pay direct costs (primarily studio license fees,
video game license fees and the commission retained by the hotel) generally tend to vary directly with revenue. The gross profit margin increase from 58.7% to 59.7% was primarily due to decreased
movie license fees.

Gross
profit on other services increased $141K or 19% in the first quarter of 2001 from the prior year quarter and the gross profit margin increased from 31.8% to 39.1%. These
increases were due to lower costs related to cable television programming services resulting from more favorable pricing arrangements.

The
Company's overall gross profit margin increased to 58.8% in the current quarter from 57.4% in the year earlier quarter due to a shift in sales from other revenue to the more
profitable Guest Pay interactive services (95.1% in the first quarter of 2000 to 95.6% in the first quarter of 2001) and the increase in gross margin from Guest Pay interactive services and other
revenue as described above.

Operating Expenses.The following table sets forth information in regard to the Company's operating expenses for the
quarter ending March 31 (dollar amounts in thousands):

|                    |                                     | 2001                     |   | 2000  
|------------------- | ----------------------------------- | ------------------------ | - | ------
|
|Operating expenses: |                                     |                          |   |       
|                    | Guest Pay operations                |                          | $ | 7,344 
|                    | Selling, general and administrative |                          |   | 5,294 
|                    | Depreciation and amortization       |                          |   | 16,501
|                    |                                     |                          |   |       
|                    |                                     | Total operating expenses |   | $     
|                    |                                     |                          |   |       

Guest
Pay operations expenses consist of costs directly related to the operation of systems at hotel sites. The increase in Guest Pay operations expenses of $296,000 or 4.2% from the
prior year quarter was due to a 9.3% increase in average installed rooms, partially offset by lower per room operating costs, including certain non-recurring costs incurred in the first
quarter of 2000. Per average installed room, Guest Pay operations expenses were $3.35 per month in the first quarter of 2001 as compared to $3.51 per month in the first quarter of 2000.

Selling,
general and administrative expenses increased $522,000 or 10.9% in the first quarter of 2001 compared to the year earlier quarter due to increased payroll related expenses
and approximately $250,000 of one-time fees related to an employee benefit plan.

Operating Income (Loss).Due to increased revenue from Guest Pay interactive services, improved gross profit margin and
decreased operating expenses as a percent of revenue, the Company generated
operating income of $876,000 in the first quarter of 2001 compared to an operating loss of $865,000 in the first quarter of 2000.

Investment Losses.Global Interactive Communications Corporationthe Company owns a minority interest in
Global Interactive Communications Corporation ("GICC") resulting from the merger transaction involving ResNet Communications LLC (formerly the Company's majority-owned subsidiary) in 1998. Losses of
$183,000 were recorded relating to this investment under the equity method of accounting for an investment in the first quarter of 2001.

InnMedia
LLCAs previously described, InnMedia was formed by LodgeNet and Hilton during the fourth quarter of 2000. The Company has a 50% equity interest in InnMedia and
recorded losses under the equity method of accounting for an investment of $293,000 in the first quarter of 2001.

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Interest Expense.Interest expense increased $172,000 or 2.5%, to $7.1 million during the first quarter of 2001
due to increases in long-term debt to fund the Company's continuing expansion of its business. Average principal amount of long-term debt outstanding during the quarter ended
March 31, 2001 was approximately $292 million (at an average interest rate of approximately 9.8%) as compared to an average principal amount outstanding of approximately
$284 million (at an average interest rate of approximately 9.8%) during the comparable period of 2000.

Net Loss.For the reasons previously described, the Company's net loss decreased to $6.8 million in the first
quarter of 2001 from a net loss of $7.7 million in the prior year quarter.

EBITDA.EBITDA (defined by the Company as earnings before interest, income taxes, depreciation, amortization and other
non-operating income or expenses) increased 11.7% to $17.4 million in the first quarter of 2001 as compared to $15.6 million in the prior year quarter. This increase is
primarily due to a 9.3% increase in the average number of installed rooms receiving Guest Pay interactive services and the related increase in Guest Pay revenue, as well as increased gross profit
earned on Guest Pay revenue and other revenue as described above. As a percentage of total revenue, EBITDA increased to 34.0% in the current quarter compared to 32.6% in the prior year quarter.

EBITDA
is not intended to represent an alternative to net income or cash flows from operating, financing or investing activities (as determined in accordance with generally accepted
accounting principles) as a measure of performance, and is not representative of funds available for discretionary use due to the Company's financing obligations. EBITDA, as defined by the Company,
may not be calculated consistently among other companies reporting similarly titled measures. EBITDA is included herein because it is a widely accepted financial indicator used by certain investors
and financial analysts
to assess and compare companies on the basis of operating performance. Management believes that EBITDA provides an important additional perspective on the Company's operating results and the Company's
ability to service its long-term debt and to fund the Company's continuing growth.

Recent Accounting Developments

See Note 4 in the notes to consolidated financial statements.

Seasonality

The Company's quarterly operating results are subject to fluctuation depending upon hotel occupancy rates and other factors. Typically, occupancy rates are
higher during the second and third calendar quarters due to seasonal travel patterns.

Liquidity and Capital Resources

Historically, the growth of the Company's business has required substantial amounts of capital. The Company has incurred operating and net losses due in large
part to the depreciation, amortization and interest expenses related to the capital required to expand its business. Historically, cash flow from operations has not been sufficient to fund the cost of
expanding the Company's business and to service existing indebtedness. For 2000, capital expenditures were $60.2 million and net cash provided by operating activities was $41.2 million.
During the first quarter of 2001, capital expenditures were $17.9 million as compared to $17.6 million in the first quarter of 2000, and net cash provided by operating activities was
$13.3 million as compared to $14.7 million in the same period of 2000.

Depending
on the rate of growth of its business and other factors, the Company expects to incur capital expenditures between $70 to $80 million during 2001. The Company's cash
requirements for 2001 are expected to include $21.6 million of payments for principal maturities of long-term debt. In addition, the Company has committed up to $5 million of
financing to InnMedia LLC, of which the

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Company expects to fund the remaining $4 million during 2001. The Company also has a $20.9 million net working capital deficit as of March 31, 2001.

As
of March 31, 2001, the Company has $35 million available for borrowing under its $75 million revolving credit facility. The revolving credit facility may be
increased to $100 million subject to certain conditions. The Company is presently in discussion with two major financial institutions to replace the current credit facility with a larger credit
facility. The Company expects the new facility to be in place by the end of the second quarter. While there can be no assurances that the Company will be able to complete a new agreement, the
Company's predictable and growing cash flow and its relationships within the financial community are positive indicators that a new facility is likely to be completed at market rates and conditions.
The actual amount and timing of the Company's capital expenditures will vary (and such variations could be material) depending upon the number of new contracts for services entered into by the
Company, the costs of installations, the timing of the completion of the new credit facility as described above, and other factors.

Item 3Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to various market risks, including potential losses resulting from adverse changes in interest rates and foreign currency exchange
rates. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest.At March 31, 2001, the Company had debt totaling $297 million. The Company has interest rate
swap arrangements covering debt with a notional amount of $100 million to effectively change the underlying debt from a variable interest rate to a fixed interest rate for the term of the swap
agreements. After giving effect to the interest rate swap arrangements the Company had fixed rate debt of $282 million and variable rate debt of $15 million at March 31, 2001. For
fixed rate debt, interest rate changes affect the fair market value but do not impact earnings or cash flows. Conversely, for variable rate debt, interest rate changes generally do not affect the fair
market value but do impact future earnings and cash flows, assuming other factors are held constant. Assuming other variables remain constant (such as debt levels), a one percentage point increase in
interest rates would decrease the unrealized fair market value of the fixed rate debt by an estimated $26.6 million. The impact on earnings and cash flow for the next year resulting from a one
percentage point increase in interest rates would be approximately $150,000 assuming other variables remain constant.

Foreign Currency Transactions.A portion of the Company's revenues are derived from the sale of Guest Pay services in
Canada. The results of operations and financial position of the Company's operations in Canada are measured in Canadian dollars and translated into U.S. dollars. The effects of foreign currency
fluctuations in Canada are somewhat mitigated by the fact that expenses and liabilities are generally incurred in Canadian dollars. The reported income of the Company's Canadian subsidiary will be
higher or lower depending on a weakening or strengthening of the U.S. dollar against the Canadian dollar. In addition, a portion of the Company's assets are based in Canada and are translated into
U.S. dollars at foreign currency exchange rates in effect as of the end of each period. Accordingly, the Company's consolidated assets will fluctuate depending on the weakening or strengthening of the
U.S. dollar against the Canadian dollar. No significant foreign currency fluctuations occurred in the first quarter of 2001 to materially impact consolidated results of operations or financial
condition.

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Part IIOther Information

Item 1Legal Proceedings

The Company is subject to litigation arising in the ordinary course of business. As of the date hereof, the Company believes the resolution of such litigation
will not have a material adverse effect upon the Company's financial condition or results of operations.

Item 2Changes in Securities and Use of Proceeds

Not applicable.

Item 3Defaults Upon Senior Securities

Not applicable.

Item 4Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5Other Information

Not applicable.

Item 6Exhibits and Reports on Form 8-K



|10.35 |  | Form of Executive Severance Agreement between the Company and Gary H. Ritondaro dated March 1, 2001.
|----- |  | ----------------------------------------------------------------------------------------------------
|10.36 |  | Form of Employment Agreement between the Company and Gary H. Ritondaro dated March 1, 2001.         



The Company filed no Reports on Form 8-K during the quarter ended March 31, 2001.

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LodgeNet Entertainment Corporation

Signature

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                   |  | LodgeNet Entertainment Corporation(Registrant)                                                                     
|------------------ |  | -------------------------------------------------------------------------------------------------------------------
|Date: May 10, 2001 |  | /s/ Scott C. PetersenScott C. Petersen
President and Chief Executive Officer
(Principal Executive Officer)         
|Date: May 10, 2001 |  | /s/ Gary H. RitondaroGary H. Ritondaro
Senior Vice President, Chief Financial Officer
(Principal Financial Officer)
|Date: May 10, 2001 |  | /s/ Ronald W. PierceRonald W. Pierce
Vice President, Corporate Controller
(Principal Accounting Officer)           

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