---

---

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

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 June 30, 2001

Commission file number 0-22334

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 57107(Address of Principal Executive Offices)    (ZIP code)

(605) 988-1000(Registrants telephone number,
including area code)

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

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
July 31, 2001, there were 12,249,173 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 June 30, 2001 and December 31, 2000                                  |         
|                                                                                             | Consolidated Statements of Operations (Unaudited) for the Three Months and Six Months Ended June 30, 2001 and 2000 |         
|                                                                                             | Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2001 and 2000                  |         
|                                                                                             | Notes to Consolidated Financial Statements (Unaudited)                                                             |         
|Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                    | 10      
|Item 3Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                    | 18      
|Part II. Other Information                                                                  
|Item 1Legal Proceedings                                                                     |                                                                                                                    | 19      
|Item 2Changes in Securities and Use of Proceeds                                             |                                                                                                                    | 19      
|Item 3Defaults Upon Senior Securities                                                       |                                                                                                                    | 19      
|Item 4Submission of Matters to a Vote of Security Holders                                   |                                                                                                                    | 19      
|Item 5Other Information                                                                     |                                                                                                                    | 20      
|Item 6Exhibits and Reports on Form 8-K                                                      |                                                                                                                    | 20      
|Signatures                                                                                   |                                                                                                                    | 21      

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)

|                                                         |                                                                                                                                                               | June 30, 2000               |         | December 31, 2001 |        
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------- | ----------------- | -------
|Assets                                                   |                                                                                                                                                               |                             |         |                   |        
|Current assets:                                          |                                                                                                                                                               |                             |         |                   |        
|                                                         | Cash and cash equivalents                                                                                                                                     |                             | $       | 750               |        
|                                                         | Marketable securities                                                                                                                                         |                             |         |                  |        
|                                                         | Accounts receivable, net                                                                                                                                      |                             |         | 27,761            |        
|                                                         | Prepaid expenses and other                                                                                                                                    |                             |         | 3,186             |        
|                                                         |                                                                                                                                                               |                             |         |                   |        
|                                                         |                                                                                                                                                               | Total current assets        |         |                   | 31,697 
|Property and equipment, net                              |                                                                                                                                                               |                             | 234,021 |                   |        
|Investments in and advances to unconsolidated affiliates |                                                                                                                                                               |                             | 335     |                   |        
|Debt issuance costs, net                                 |                                                                                                                                                               |                             | 6,404   |                   |        
|Other assets, net                                        |                                                                                                                                                               |                             | 10,130  |                   |        
|                                                         |                                                                                                                                                               |                             |         |                   |        
|                                                         |                                                                                                                                                               | $                           | 282,587 |                   | $      
|                                                         |                                                                                                                                                               |                             |         |                   |        
|Liabilities and Stockholders' Deficit                    |                                                                                                                                                               |                             |         |                   |        
|Current liabilities:                                     |                                                                                                                                                               |                             |         |                   |        
|                                                         | Accounts payable                                                                                                                                              |                             | $       | 12,890            |        
|                                                         | Current maturities of long-term debt                                                                                                                          |                             |         | 23,520            |        
|                                                         | Accrued expenses and other                                                                                                                                    |                             |         | 10,041            |        
|                                                         | Deferred revenue                                                                                                                                              |                             |         | 2,878             |        
|                                                         |                                                                                                                                                               |                             |         |                   |        
|                                                         |                                                                                                                                                               | Total current liabilities   |         |                   | 49,329 
|Long-term debt                                           |                                                                                                                                                               |                             | 281,142 |                   |        
|Derivative instruments                                   |                                                                                                                                                               |                             | 2,974   |                   |        
|                                                         |                                                                                                                                                               |                             |         |                   |        
|                                                         |                                                                                                                                                               | Total liabilities           |         |                   | 333,445
|                                                         |                                                                                                                                                               |                             |         |                   |        
|Stockholders' deficit:                                   |                                                                                                                                                               |                             |         |                   |        
|                                                         | Common stock, $.01 par value, 20,000,000 shares authorized; 12,243,439 and 12,212,039 shares outstanding at June 30, 2001 and December 31, 2000, respectively |                             |         | 122               |        
|                                                         | Additional paid-in capital                                                                                                                                    |                             |         | 151,004           |        
|                                                         | Accumulated deficit                                                                                                                                           |                             |         | (197,690          | )      
|                                                         | Accumulated other comprehensive loss                                                                                                                          |                             |         | (4,294            | )      
|                                                         |                                                                                                                                                               |                             |         |                   |        
|                                                         |                                                                                                                                                               | Total stockholders' deficit |         |                   | (50,858
|                                                         |                                                                                                                                                               |                             |         |                   |        
|                                                         |                                                                                                                                                               | $                           | 282,587 |                   | $      
|                                                         |                                                                                                                                                               |                             |         |                   |        

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
June 30, |            | Six Months Ended
June 30, |       
|------------------------------------- | ----------------------------------- | --------------------------- | ---------- | ------------------------- | ------
|
|Revenues:                             |                                     |                             |            |                           |       
|                                      | Guest Pay                           |                             | $          | 52,323                    |       
|                                      | Other                               |                             |            | 2,775                     |       
|                                      |                                     |                             |            |                           |       
|                                      |                                     | Total revenues              |            |                           | 55,098
|                                      |                                     |                             |            |                           |       
|Direct costs:                         |                                     |                             |            |                           |       
|                                      | Guest Pay                           |                             |            | 21,418                    |       
|                                      | Other                               |                             |            | 1,834                     |       
|                                      |                                     |                             |            |                           |       
|                                      |                                     | Total direct costs          |            |                           | 23,252
|                                      |                                     |                             |            |                           |       
|Gross profit                          |                                     |                             | 31,846     |                           |       
|                                      |                                     |                             |            |                           |       
|Operating expenses:                   |                                     |                             |            |                           |       
|                                      | Guest Pay operations                |                             |            | 7,120                     |       
|                                      | Selling, general and administrative |                             |            | 5,417                     |       
|                                      | Depreciation and amortization       |                             |            | 16,371                    |       
|                                      |                                     |                             |            |                           |       
|                                      |                                     | Total operating expenses    |            |                           | 28,908
|                                      |                                     |                             |            |                           |       
|Operating income (loss)               |                                     |                             | 2,938      |                           |       
|Investment losses                     |                                     |                             | (418       | )                         |       
|Interest expense                      |                                     |                             | (7,230     | )                         |       
|Other income (expense), net           |                                     |                             | (11        | )                         |       
|                                      |                                     |                             |            |                           |       
|Loss before income taxes              |                                     |                             | (4,721     | )                         |       
|Provision for income taxes            |                                     |                             | (207       | )                         |       
|                                      |                                     |                             |            |                           |       
|Net loss                              |                                     | $                           | (4,928     | )                         | $     
|                                      |                                     |                             |            |                           |       
|Per common share (basic and diluted): |                                     |                             |            |                           |       
|                                      | Net loss                            |                             | $          | (0.40                     | )     
|                                      |                                     |                             |            |                           |       
|Weighted average shares outstanding   |                                     |                             | 12,230,234 |                           |       
|                                      |                                     |                             |            |                           |       

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)

|                                                 |                                                                                 | Six Months Ended June 30,                   |                           
|------------------------------------------------ | ------------------------------------------------------------------------------- | ------------------------------------------- | --------------------------
|
|Operating activities:                            |                                                                                 |                                             |                           
|                                                 | Net loss                                                                        |                                             | $                         
|                                                 | Adjustments to reconcile net loss to net cash provided by operating activities: |                                             |                           
|                                                 |                                                                                 | Depreciation and amortization               |                           
|                                                 |                                                                                 | Investment losses                           |                           
|                                                 |                                                                                 | Other, net                                  |                           
|                                                 |                                                                                 | 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        |                                                                                 |                                             | 19,478                    
|                                                 |                                                                                 |                                             |                           
|Investing activities:                            |                                                                                 |                                             |                           
|                                                 | Property and equipment additions                                                |                                             |                           
|                                                 | Proceeds from sale of investments                                               |                                             |                           
|                                                 | Proceeds from affiliates, net                                                   |                                             |                           
|                                                 |                                                                                 |                                             |                           
|Net cash used for investing activities           |                                                                                 |                                             | (36,277                   
|                                                 |                                                                                 |                                             |                           
|Financing activities:                            |                                                                                 |                                             |                           
|                                                 | Borrowings under revolving credit facility                                      |                                             |                           
|                                                 | Repayments of revolving credit facility                                         |                                             |                           
|                                                 | Repayment of long-term debt                                                     |                                             |                           
|                                                 | Repayment of capital lease obligations                                          |                                             |                           
|                                                 | Debt issuance costs                                                             |                                             |                           
|                                                 | Exercise of stock options                                                       |                                             |                           
|                                                 |                                                                                 |                                             |                           
|Net cash provided by financing activities        |                                                                                 |                                             | 13,502                    
|                                                 |                                                                                 |                                             |                           
|Effect of exchange rates on cash                 |                                                                                 |                                             | (12                       
|                                                 |                                                                                 |                                             |                           
|Increase (decrease) in cash and cash equivalents |                                                                                 |                                             | (3,309                    
|Cash and cash equivalents at beginning of period |                                                                                 |                                             | 4,059                     
|                                                 |                                                                                 |                                             |                           
|Cash and cash equivalents at end of period       |                                                                                 | $                                           | 750                       
|                                                 |                                                                                 |                                             |                           
|Supplemental cash flow information:              |                                                                                 |                                             |                           
|                                                 | Cash paid for interest                                                          |                                             | $                         
|                                                 |                                                                                 |                                             |                           
|                                                 | Cash paid for taxes                                                             |                                             | $                         
|                                                 |                                                                                 |                                             |                           

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 June 30, 2001, and for the three and six month periods ended June 30, 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 and six month period ended June 30, 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):

June 30,
2001

December 31,
2000Land, building and equipment

$
66,368

$
62,432Free-to-guest equipment


23,397


20,175Guest Pay systems:Installed


374,891


349,313System components


26,918


24,565Software costs


13,825


12,816Total


505,399


469,301Lessdepreciation and amortization


(271,378
)

(244,374
)Property and equipment, net

$
234,021

$
224,927


6

---

Note 3Long-term Debt and Credit Facilities

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

June 30,
2001

December 31,
2000Bank Credit Facility:Bank term loan

$
67,500

$
75,000Revolving credit facility


55,000


34,00010.25% senior notes


150,000


150,00011.50% senior notes


30,000


30,000Less unamortized discount


(416
)

(523
)Capital leases


1,703


1,287Other


875


895304,662


290,659Less current maturities


(23,520
)

(21,563
)$
281,142

$
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 began in April 2001. The revolving credit facility 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. The
facility provides for the issuance of letters of credit up to $12 million, subject to customary terms and conditions. As of June 30, 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 June 30, 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 June 30, 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

7

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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.

Note 4Accounting for Derivative Instruments and Hedging Activities

Effective
January 1, 2001, the Company adopted Statement of Financial Accounting Standard ("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Comprehensive Income (Loss)

Statement
of Financial Accounting Standard 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 events and circumstances from non-owner sources. For the Company, comprehensive
loss was as follows for the periods ended June 30 (in thousands):

|                                                 |  | Three Months Ended
June 30, |        | Six Months Ended
June 30, |  
|------------------------------------------------ |  | --------------------------- | ------ | ------------------------- | -
|
|Net loss                                         |  | $                           | (4,928 | )                         | $
|Foreign currency translation adjustment          |  |                             | 492    |                           |  
|Unrealized gain (loss) on marketable securities  |  |                             | 330    |                           |  
|Cumulative effect of adoption of SFAS No. 133    |  |                             |       |                           |  
|Unrealized gain (loss) on derivative instruments |  |                             | 654    |                           |  
|                                                 |  |                             |        |                           |  
|Comprehensive loss                               |  | $                           | (3,452 | )                         | $
|                                                 |  |                             |        |                           |  

8

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Note 6Effect of Recently Issued Accounting Standards

In
July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" which eliminates the pooling-of-interests
method of accounting for business combinations and modifies the application of the purchase accounting method. The elimination of the pooling-of-interests method is effective
for transactions initiated after June 30, 2001. The remaining provisions in this statement will be
effective for transactions accounted for using the purchase method that are completed after June 30, 2001. The adoption of this statement will not impact the Company's consolidated financial
statements.

In
July 2001, the Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and Other Intangible Assets" which eliminates the current requirement to amortize
goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with a defined life and addresses the impairment testing and recognition for goodwill and intangible
assets. The provisions in this statement are effective January 1, 2002. The Company has not determined the potential impact on its consolidated financial statements.

9

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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.

10

---

The Company installed its systems in the following number of rooms, net of de-installations, during the three months and twelve months ended June 30, 2001:

Periods Ended
June 30, 2001Three Months

Twelve MonthsGuest Pay interactive rooms

24,626

72,278Nintendo video game rooms

25,424

74,390Internet services rooms

32,125

70,596


The
room installations for the twelve months ended June 30, 2001 represent increases of 10.4% for Guest Pay interactive rooms, 11.1% for Nintendo video game rooms, and 435% for
Internet services rooms over the number of installed rooms at June 30, 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 June 30:

2000

2001Guest Pay interactive rooms(1)

769,213

696,935Nintendo video game rooms

742,901

668,511Internet services rooms

86,816

16,220Total rooms served(2)

849,769

784,042


---

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. The Company accounts for its investment in InnMedia using the equity method of accounting and has recorded equity losses of
$710,000 for the first six months of 2001.

11

---

Discussion and Analysis of Results of Operations  Three Months Ended June 30, 2001 and 2000

Revenue Analysis.The Company's total revenue for the second quarter of 2001 increased 14.5%, or $7.0 million,
in comparison to the second quarter of 2000. The following table sets forth the components of revenue (in thousands) for the quarter ending June 30:

|         |           | 2001 |        | 2000  
|-------- | --------- | ---- | ------ | ------
|
|Revenue: |           |      |        |       
|         | Guest Pay |      | $      | 52,323
|         | Other     |      |        | 2,775 
|         |           |      |        |       
|         |           | $    | 55,098 |       
|         |           |      |        |       

Guest
Pay interactive revenue increased 14.7%, or $6.7 million, in the second quarter of 2001 in comparison to the same quarter of 2000. This increase was attributable to a
9.7% increase in the average number of installed Guest Pay interactive rooms and a 4.5% increase 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 June 30:

2001

2000Average monthly revenue per room:Movie revenue

$
18.55

$
17.86Other interactive service revenue


4.59


4.28Total per Guest Pay room

$
23.14

$
22.14


Average
movie revenue per room increased 3.9% due to higher average movie prices and a relatively more popular selection of major motion pictures in the second quarter of 2001
compared to 2000, partially offset by a decline in occupancy levels. Average other interactive service revenue per room increased 7.2% 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 system equipment and
service parts and labor. Other revenue increased $269,000 or 10.7% due to increased equipment sales to international licensees.

Gross Profit.Gross profit totaled $31.8 million for the second quarter ended June 30, 2001, an increase
of 13.9% over the second quarter of 2000 on a 14.5% increase in revenue.

2001

2000Gross profit:Guest Pay

$
30,905

$
27,141Other


941


825$
31,846

$
27,996Gross profit margin:Guest Pay


59.1
%

59.5
%Other


33.9
%

32.9
%Composite


57.8
%

58.1
%


12

---

Gross
profit on Guest Pay interactive services increased 13.9%, or $3.8 million, on a 14.7% 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 decreased from 59.5% to 59.1% primarily due to increased revenue from Internet services which
generally earn a lower profit margin in relation to movie revenue.

Gross
profit on other services increased $116,000 or 14.1% in the second quarter of 2001 from the prior year quarter and the gross profit margin increased from 32.9% to 33.9%. 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 decreased to 57.8% in the current quarter from 58.1% in the year earlier quarter due the decrease in gross margin from Guest Pay interactive
services as described above.

Operating Expenses.The following table sets forth information in regard to the Company's operating expenses for the
quarter ending June 30 (dollar amounts in thousands):

|                    |                                     | 2001                     |   | 2000  
|------------------- | ----------------------------------- | ------------------------ | - | ------
|
|Operating expenses: |                                     |                          |   |       
|                    | Guest Pay operations                |                          | $ | 7,120 
|                    | Selling, general and administrative |                          |   | 5,417 
|                    | Depreciation and amortization       |                          |   | 16,371
|                    |                                     |                          |   |       
|                    |                                     | 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 $365,000 or 5.4% from the
prior year quarter was due to a 9.7% increase in average installed rooms, partially offset by lower per room operating costs as a result of greater operating efficiencies. Per average installed room,
Guest Pay operations expenses were $3.15 per month in the second quarter of 2001 as compared to $3.28 per month in the second quarter of 2000.

Selling,
general and administrative expenses increased $734,000 or 15.7% in the second quarter of 2001 compared to the year earlier quarter due to increased payroll related expenses
and other professional fees.

Depreciation
and amortization expenses increased 1.6% to $16.4 million in the second quarter of 2001 from $16.1 million in the year earlier quarter. This increase was
due to the increase in the number of installed Guest Pay interactive rooms in service since the prior year quarter, offset by the continued increase in fully-depreciated assets remaining in service.
As a percentage of revenue, depreciation and amortization expenses decreased to 29.7% in the current quarter from 33.5% in the second quarter of 2000.

Operating Income (Loss).Due to increased revenue from Guest Pay interactive services and decreased operating expenses
as a percent of revenue, the Company generated operating income of $2.9 million in the second quarter of 2001 compared to $409,000 in the second quarter of 2000.

Investment Losses.Global Interactive Communications CorporationPrior to the second quarter of 2001, the
Company owned 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. In the second quarter of 2001, the Company sold its

13

---

equity interest in GICC and has no further financing obligation to GICC. No losses were recorded relating to this investment under the equity method of accounting in the second 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 $417,000 in the second quarter of 2001.

Interest Expense.Interest expense increased $334,000 or 4.8%, to $7.2 million during the second 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
June 30, 2001 was approximately $297 million (at an average interest rate of approximately 9.7%) as compared to an average principal amount outstanding of approximately
$279 million (at an average interest rate of approximately 9.9%) during the comparable period of 2000.

Net Loss.For the reasons previously described, the Company's net loss decreased to $4.9 million in the second
quarter of 2001 from a net loss of $6.5 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 16.8% to $19.3 million in the second quarter of 2001 as compared to $16.5 million in the prior year quarter. This increase is
primarily due to a 9.7% increase in the average number of installed rooms receiving Guest Pay interactive services, the related increase in Guest Pay revenue and greater operating efficiencies as
described above. As a percentage of total revenue, EBITDA increased to 35.0% in the current quarter compared to 34.3% 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.

14

---



Discussion and Analysis of Results of Operations  Six Months Ended June 30, 2001 and 2000

Revenue Analysis.The Company's total revenue for the six months ended June 30, 2001 increased 10.7%, or
$10.3 million, in comparison to the six months ended June 30, 2000. The following table sets forth the components of revenue (in thousands) for the six months ending June 30:

|         |           | 2001 |         | 2000   
|-------- | --------- | ---- | ------- | -------
|
|Revenue: |           |      |         |        
|         | Guest Pay |      | $       | 101,104
|         | Other     |      |         | 5,032  
|         |           |      |         |        
|         |           | $    | 106,136 |        
|         |           |      |         |        

Guest
Pay interactive revenue increased 11.1%, or $10.1 million, in the first half of 2001 in comparison to the same period of 2000. This increase was attributable to a 9.5%
increase in the average number of installed Guest Pay interactive rooms and a 1.3% increase in average monthly revenue per room. The
following table sets forth information in regard to average monthly revenue per Guest Pay room for the six months ending June 30:

2001

2000Average monthly revenue per room:Movie revenue

$
18.29

$
18.29Other interactive service revenue


4.40


4.09Total per Guest Pay room

$
22.69

$
22.38


Average
movie revenue per room decreased slightly due to lower occupancy levels in the first half of 2001 compared to 2000, partially offset by higher movie prices. Average other
interactive service revenue per room increased 7.6% 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 system equipment and
service parts and labor. Other revenue increased $192,000 or 4.0% due to increased equipment sales to international licensees.

Gross Profit.Gross profit totaled $61.9 million for the six months ended June 30, 2001, an increase of
11.8% over the first half of 2000 on a 10.7% increase in revenue.

2001

2000Gross profit:Guest Pay

$
60,037

$
53,776Other


1,824


1,567$
61,861

$
55,343Gross profit margin:Guest Pay


59.4
%

59.1
%Other


36.2
%

32.4
%Composite


58.3
%

57.7
%


Gross
profit on Guest Pay interactive services increased 11.6%, or $6.3 million, on an 11.1% increase in related revenue. Guest Pay direct costs (primarily studio license fees,
video game license

15

---

fees and the commission retained by the hotel) generally tend to vary directly with revenue. The gross profit margin increase from 59.1% to 59.4% was primarily due to slightly lower content license
fees.

Gross
profit on other services increased $257,000 or 16.4% in the first half of 2001 from the prior year first half and the gross profit margin increased from 32.4% to 36.2%. 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 58.3% in the first half of this year from 57.7% in the prior year first half due to a shift in sales from other revenue to the
more profitable Guest Pay interactive services (95.0% in the first half of 2000 to 95.3% in the first half 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
period ending June 30 (dollar amounts in thousands):

|                    |                                     | 2001                     |   | 2000  
|------------------- | ----------------------------------- | ------------------------ | - | ------
|
|Operating expenses: |                                     |                          |   |       
|                    | Guest Pay operations                |                          | $ | 14,464
|                    | Selling, general and administrative |                          |   | 10,710
|                    | Depreciation and amortization       |                          |   | 32,872
|                    |                                     |                          |   |       
|                    |                                     | 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 $661,000 or 4.8% from the
prior year first half was due to a 9.5% increase in average installed rooms, partially offset by lower per room operating costs as a result of greater operating efficiencies. Per average installed
room, Guest Pay operations expenses were $3.25 per month in the first six months of 2001 as compared to $3.39 per month in the same period of 2000.

Selling,
general and administrative expenses increased $1.3 million or 13.3% in the first half of 2001 compared to the year earlier period due to increased payroll related
expenses and other professional fees. In addition, the Company incurred approximately $250,000 of one-time fees related to an employee benefit plan.

Depreciation
and amortization expenses increased $331,000 or 1.0% to $32.9 million in the first half of 2001 from $32.5 million in the year earlier period. This increase
was due to the increase in the number of installed Guest Pay interactive rooms in service since the prior year quarter, offset by the continued increase in fully-depreciated assets remaining in
service. As a percentage of revenue, depreciation and amortization expenses decreased to 31.0% in the first half of 2001 from 33.9% in the year earlier period.

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 $3.8 million in the first six months of 2001 compared to an operating loss of $456,000 in the
first six months of 2000.

Investment Losses.Global Interactive Communications CorporationPrior to the second quarter of 2001, the
Company owned 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. In the second quarter of 2001, the Company sold its

16

---

equity interest in GICC and has no further financing obligation to GICC. In the first quarter of 2001, losses of $183,000 relating to this investment were recorded under the equity method of
accounting.

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 $710,000 in the first six months of 2001.

Interest Expense.Interest expense increased $506,000 or 3.7%, to $14.4 million in the first half 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 six months ended
June 30, 2001 was approximately $294 million (at an average interest rate of approximately 9.8%) as compared to an average principal amount outstanding of approximately
$282 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 $11.7 million in the first
six months of 2001 from a net loss of $14.2 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 14.3% to $36.7 million in the first six months of 2001 as compared to $32.1 million in the first half of 2000. This increase is
primarily due to a 9.5% increase in the average number of installed rooms receiving Guest Pay interactive services, the related increase in Guest Pay revenue, greater operating efficiencies and
increased gross profit earned on Guest Pay revenue and other revenue as described above. As a percentage of total revenue, EBITDA increased to 34.6% in the current period compared to 33.5% in the same
period of 2000.

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 6 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 six months of 2001, capital expenditures were

17

---

$39.2 million as compared to $31.7 million in the first six months of 2000, and net cash provided by operating activities was $19.5 million as compared to $23.1 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 $35 and $40 million during the second half of 2001.
The Company's cash requirements for the last half of 2001 are expected to include $13.8 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 $2.5 million has been funded. The Company expects to fund the remaining $2.5 million during the second half of
2001. The Company also has a $17.6 million net working capital deficit as of June 30, 2001.

As
of June 30, 2001, the Company has $20 million available for borrowing under its $75 million revolving credit facility, which may be increased to
$100 million subject to certain conditions. The Company has entered into an agreement, underwritten by CIBC World Markets Corp. and Bear, Stearns & Co. Inc. as co-lead
arrangers and U.S. Bank as documentation agent, for a new $225.0 million credit facility. The Company is currently in the syndication phase of the transaction and expects to close the
transaction by the end of August. The facility is intended to replace the Company's existing credit facility, be used for general corporate purposes and provide the Company with sufficient credit
availability to meet its business plan until it becomes free cash flow positive in the later half of 2003. 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 June 30, 2001, the Company had debt totaling $305 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 $23 million at June 30, 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 $26.4 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 $225,000 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 second quarter of 2001 to materially impact consolidated results of operations or financial condition.

18

---



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







|                    |  | For        |  | Against |  | Withheld |  | Abstentions
|------------------- |  | ---------- |  | ------- |  | -------- |  | -----------
|Lawrence Flinn, Jr. |  | 10,508,345 |  |        |  | 400,550  |  |           
|Scott C. Petersen   |  | 10,063,999 |  |        |  | 844,896  |  |           



For

Against

Abstain8,428,181

2,478,101

2,613




For

Against

Abstain

No Voting Authority6,352,695

2,591,543

1,513

1,963,144


19

---



For

Against

Abstain10,906,695

1,100

1,100


Item 5Other Information

Not applicable.

Item 6Exhibits and Reports on Form 8-K





20

---



LodgeNet Entertainment Corporation

Signatures

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)
|--------------- |  | ----------------------------------------------
|August 13, 2001 |  | By:                                           
|August 13, 2001 |  | By:                                           

21

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