##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  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 September 30, 2004 or [  ]   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from  to Commission File Number 0-22334 LodgeNet Entertainment Corporation  Delaware
    
    46-0371161(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)3900 West Innovation Street, Sioux Falls, South Dakota 57107(Address of Principal Executive Offices)
    
    (ZIP code)
 (605) 988-1000     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 [  ]. Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] 
No [  ]. At November 2, 2004, there were 17,622,914 shares outstanding of the
Registrants common stock, $0.01 par value.




---



LodgeNet Entertainment Corporation
    
    Form 10-Q
 LodgeNet Entertainment Corporation and Subsidiaries Index  
 PageNo.Part I. Financial InformationItem 1  Financial Statements:Consolidated Balance Sheets (Unaudited) as of September 30, 2004 and December 31, 2003
    
    
    3Consolidated Statements of Operations (Unaudited) for
the Three Months and Nine Months Ended September 30, 2004 and 2003
    
    
    4Consolidated Statements of Cash Flows (Unaudited) for
the Nine Months Ended September 30, 2004 and 2003
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2  Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    12Item 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4  Controls and Procedures
    
    
    26Part II. Other InformationItem 1  Legal Proceedings
    
    
    27Item 2  Changes in Securities and Use of Proceeds
    
    
    27Item 3  Defaults Upon Senior Securities
    
    
    27Item 4  Submission of Matters to a Vote of Security Holders
    
    
    27Item 5  Other Information
    
    
    27Item 6  Exhibits and Reports on Form 8-K
    
    
    27Signatures
    
    
    29Form of Restricted Stock AgreementRule 13a-14(a)/15(d)-14(a) CertificationsSection 1350 Certifications
   As used herein (unless the context otherwise requires) LodgeNet, the
Company and/or the Registrant means LodgeNet Entertainment Corporation and
its majority-owned subsidiaries. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 
 Part I  Financial Information 
 Item 1  Financial Statements LodgeNet Entertainment Corporation and Subsidiaries 
 Consolidated Balance Sheets (Unaudited)
 September 30,
    
    December 31,2004
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    33,488
    
    
    $
    2,772Accounts receivable, net
    
    
    32,132
    
    
    
    28,150Prepaid expenses and other
    
    
    1,874
    
    
    
    3,233Total current assets
    
    
    67,494
    
    
    
    34,155Property and equipment, net
    
    
    215,458
    
    
    
    227,037Debt issuance costs, net
    
    
    9,746
    
    
    
    11,036Intangible assets, net
    
    
    5,537
    
    
    
    8,270Other assets
    
    
    2,638
    
    
    
    2,770$
    300,873
    
    
    $
    283,268Liabilities and Stockholders Equity (Deficiency)Current liabilities:Accounts payable
    
    $
    21,462
    
    
    $
    15,012Current maturities of long-term debt
    
    
    2,524
    
    
    
    8,638Accrued expenses
    
    
    19,347
    
    
    
    12,697Deferred revenue
    
    
    4,364
    
    
    
    3,918Total current liabilities
    
    
    47,697
    
    
    
    40,265Long-term debt
    
    
    310,082
    
    
    
    359,610Other long-term liability
    
    
    3,999
    
    
    
    3,999Derivative instruments
    
    
    7,299
    
    
    
    8,396Total liabilities
    
    
    369,077
    
    
    
    412,270Commitments and contingenciesStockholders equity (deficiency):Preferred stock, $.01 par value, 5,000,000 shares authorized;
no shares issued or outstandingCommon stock, $.01 par value, 50,000,000 shares authorized;
17,622,914 and 12,722,267 shares outstanding at September 30,
2004 and December 31, 2003, respectively
    
    
    176
    
    
    
    127Additional paid-in capital
    
    
    226,855
    
    
    
    155,163Accumulated deficit
    
    
    (291,271
    )
    
    
    (276,567
    )Accumulated other comprehensive loss
    
    
    (3,964
    )
    
    
    (7,725
    )Total stockholders equity (deficiency)
    
    
    (68,204
    )
    
    
    (129,002
    )$
    300,873
    
    
    $
    283,268
 The accompanying notes are an integral part of these consolidated financial statements. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 LodgeNet Entertainment Corporation and Subsidiaries 
 Consolidated Statements of Operations (Unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Revenues:Guest Pay
    
    $
    69,902
    
    
    $
    66,304
    
    
    $
    196,443
    
    
    $
    185,121Other
    
    
    1,748
    
    
    
    1,464
    
    
    
    5,319
    
    
    
    4,697Total revenues
    
    
    71,650
    
    
    
    67,768
    
    
    
    201,762
    
    
    
    189,818Direct costs:Guest Pay
    
    
    31,979
    
    
    
    30,408
    
    
    
    87,830
    
    
    
    83,454Other
    
    
    694
    
    
    
    701
    
    
    
    2,156
    
    
    
    2,182Total direct costs (exclusive
of other operating expenses
shown separately below)
    
    
    32,673
    
    
    
    31,109
    
    
    
    89,986
    
    
    
    85,636Gross profit (exclusive of other
operating expenses shown separately
below)
    
    
    38,977
    
    
    
    36,659
    
    
    
    111,776
    
    
    
    104,182Operating expenses:Guest Pay operations
    
    
    8,503
    
    
    
    8,092
    
    
    
    24,980
    
    
    
    23,518Selling, general and administrative
    
    
    5,939
    
    
    
    5,446
    
    
    
    17,823
    
    
    
    15,742Depreciation and amortization
    
    
    19,162
    
    
    
    19,447
    
    
    
    58,292
    
    
    
    59,157Total operating expenses
    
    
    33,604
    
    
    
    32,985
    
    
    
    101,095
    
    
    
    98,417Operating income
    
    
    5,373
    
    
    
    3,674
    
    
    
    10,681
    
    
    
    5,765Investment gains
    
    
    
    
    
    
    243
    
    
    
    
    
    
    
    250Loss on early retirement of debt
    
    
    (810
    )
    
    
    
    
    
    
    (810
    )
    
    
    (7,061
    )Interest expense
    
    
    (8,108
    )
    
    
    (8,749
    )
    
    
    (24,479
    )
    
    
    (25,765
    )Other income (expense), net
    
    
    89
    
    
    
    (497
    )
    
    
    187
    
    
    
    52Loss before income taxes
    
    
    (3,456
    )
    
    
    (5,329
    )
    
    
    (14,421
    )
    
    
    (26,759
    )Provision for income taxes
    
    
    (26
    )
    
    
    (100
    )
    
    
    (283
    )
    
    
    (345
    )Net loss
    
    $
    (3,482
    )
    
    $
    (5,429
    )
    
    $
    (14,704
    )
    
    $
    (27,104
    )Net loss per common share (basic and
diluted)
    
    $
    (0.20
    )
    
    $
    (0.43
    )
    
    $
    (1.01
    )
    
    $
    (2.18
    )Weighted average shares outstanding
    
    
    17,244,562
    
    
    
    12,503,325
    
    
    
    14,487,717
    
    
    
    12,455,494
 The accompanying notes are an integral part of these consolidated financial statements. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 LodgeNet Entertainment Corporation and Subsidiaries 
 Consolidated Statements of Cash Flows (Unaudited)
 Nine Months EndedSeptember 30,2004
    
    2003Operating activities:Net loss
    
    $
    (14,704
    )
    
    $
    (27,104
    )Adjustments to reconcile net loss to net cash provided
by operating activities:Depreciation and amortization
    
    
    58,292
    
    
    
    59,157Investment gains
    
    
    
    
    
    
    (250
    )Loss on early retirement of debt, less cash portion
    
    
    810
    
    
    
    2,477Change in operating assets and liabilities:Accounts receivable
    
    
    (3,945
    )
    
    
    (1,897
    )Prepaid expenses and other
    
    
    225
    
    
    
    757Accounts payable
    
    
    6,436
    
    
    
    7,852Accrued expenses and deferred revenue
    
    
    6,473
    
    
    
    4,427Other
    
    
    122
    
    
    
    321Net cash provided by operating activities
    
    
    53,709
    
    
    
    45,740Investing activities:Property and equipment additions
    
    
    (41,259
    )
    
    
    (41,305
    )Note receivable repayments (advances)
    
    
    567
    
    
    
    (1,000
    )Proceeds from affiliates, net
    
    
    
    
    
    
    250Net cash used for investing activities
    
    
    (40,692
    )
    
    
    (42,055
    )Financing activities:Proceeds from long-term debt
    
    
    
    
    
    
    200,000Repayment of long-term debt
    
    
    (48,125
    )
    
    
    (157,926
    )Payment of capital lease obligations
    
    
    (818
    )
    
    
    (782
    )Borrowings under revolving credit facility
    
    
    13,000
    
    
    
    18,500Repayments of revolving credit facility
    
    
    (20,000
    )
    
    
    (52,500
    )Debt issuance costs
    
    
    (838
    )
    
    
    (7,902
    )Proceeds from sale of interest rate swap
    
    
    3,052
    
    
    
    Proceeds from issuance of common stock, net of
offering costs
    
    
    66,767
    
    
    
    Exercise of stock options
    
    
    4,587
    
    
    
    147Net cash provided by (used for) financing activities
    
    
    17,625
    
    
    
    (463
    )Effect of exchange rates on cash
    
    
    74
    
    
    
    278Increase in cash and cash equivalents
    
    
    30,716
    
    
    
    3,500Cash and cash equivalents at beginning of period
    
    
    2,772
    
    
    
    1,107Cash and cash equivalents at end of period
    
    $
    33,488
    
    
    $
    4,607
 The accompanying notes are an integral part of these consolidated financial statements. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 LodgeNet Entertainment Corporation and Subsidiaries 
 Notes to Consolidated Financial Statements (Unaudited)
 Note 1  Basis of Presentation The accompanying consolidated financial statements as of September 30, 2004,
and for the three and nine month periods ended September 30, 2004 and 2003,
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 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 annual
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 2003, as filed with the
Commission. The results of operations for the three and nine month periods
ended September 30, 2004 and 2003 are not necessarily indicative of the results
of operations for the full year due to inherent seasonality within the
business, among other factors. The consolidated financial statements include the accounts of LodgeNet
Entertainment Corporation and its wholly-owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated in consolidation.
The Company manages it operations as one reportable segment. Note 2  Property and Equipment, Net Property and equipment was comprised as follows (in thousands): September 30,
    
    December 31,2004
    
    2003Land, building and equipment
    
    $
    80,272
    
    
    $
    76,519Free-to-guest equipment
    
    
    32,195
    
    
    
    30,990Guest Pay systems:Installed system costs
    
    
    441,784
    
    
    
    428,757Customer acquisition costs
    
    
    49,998
    
    
    
    47,095System components
    
    
    24,694
    
    
    
    27,674Software costs
    
    
    20,029
    
    
    
    19,217Total
    
    
    648,972
    
    
    
    630,252Less  depreciation and amortization
    
    
    (433,514
    )
    
    
    (403,215
    )Property and equipment, net
    
    $
    215,458
    
    
    $
    227,037
 Note 3  Intangible Assets The Company has intangible assets consisting of an acquired business, certain
acquired technology, patents, trademarks and licensee fees. The Company
accounts for these assets in accordance with SFAS No. 142, Goodwill and Other
Intangible Assets. The intangible assets have been deemed to have definite
useful lives and are amortized over their current estimated useful lives
ranging from three to five years. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 The Company has the following intangible assets (in thousands of dollars): September 30, 2004
    
    December 31, 2003Carrying
    
    Accumulated
    
    Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Amount
    
    AmortizationAssets subject to
amortization:Acquired technology
    
    $
    14,291
    
    
    $
    12,191
    
    
    $
    14,291
    
    
    $
    10,406Acquired intangibles
    
    
    5,774
    
    
    
    2,502
    
    
    
    5,774
    
    
    
    1,636Other
    
    
    539
    
    
    
    374
    
    
    
    539
    
    
    
    292$
    20,604
    
    
    $
    15,067
    
    
    $
    20,604
    
    
    $
    12,334
 The Company recorded amortization expense of $909,000 and $845,000,
respectively, for the three months ended September 30, 2004 and 2003, and
$2,733,000 and $2,428,000, respectively, for the nine months ended September
30, 2004 and 2003. The Company estimates amortization expense for the twelve
months ended September 30, as follows: 2005  $2,873,000; 2006  $1,661,000;
2007  $966,000. The future amortization expense is an estimate. Actual
amounts may change from such estimated amounts due to additional intangible
asset acquisitions, potential impairment, accelerated amortization, or other
events. Note 4  Loss Per Share Computation The Company follows SFAS No. 128, Earnings Per Share, which requires the
computation and disclosure of two EPS amounts, basic and diluted. Basic EPS is
computed based only on the weighted average number of common shares actually
outstanding during the period. Diluted EPS is computed based on the weighted
average number of common shares outstanding plus all potentially dilutive
common shares outstanding during the period. Potential common shares that have
an anti-dilutive effect are excluded from diluted earnings per share. The loss per common share for the three months ended September 30, 2004 and
2003, and the nine months ended September 30, 2004 and 2003 is based on
17,244,562 and 12,503,325, 14,487,717 and 12,455,494 weighted average shares
outstanding during the respective periods. Potential dilutive common shares
were not included in the computation of diluted earnings per share because
their inclusion would be anti-dilutive. As of September 30, 2004 and 2003, the
number of potential dilutive common shares was approximately 4,508,000 and
4,946,000, respectively. Such potential dilutive common shares consist of
stock options, restricted stock and warrants. Note 5  Stock-Based Compensation The Company measures compensation costs associated with its stock option plans
using the intrinsic value method. Accordingly, compensation costs for stock
options are measured as the excess, if any, of the quoted market price of the
Companys stock at the date of grant over the amount an employee must pay to
acquire the stock. Had compensation costs been determined based on the fair
value methodology at the date of grant for awards, net loss and loss per share
would have changed to the pro forma amounts as follows for the periods ended
September 30 (in thousands of dollars, except per share amounts): September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net loss, as reported
    
    $
    (3,482
    )
    
    $
    (5,429
    )
    
    $
    (14,704
    )
    
    $
    (27,104
    )Add: stock based employee
compensation expense determined
under fair value method, net of
related tax effects
    
    
    (102
    )
    
    
    (862
    )
    
    
    (1,790
    )
    
    
    (1,811
    )Less: stock based employee
compensation expense included in
reported net loss
    
    
    (30
    )
    
    
    
    
    
    
    (118
    )
    
    
    Net loss, pro forma
    
    $
    (3,614
    )
    
    $
    (6,291
    )
    
    $
    (16,612
    )
    
    $
    (28,915
    )Loss per share (basic and diluted)As reported
    
    $
    (0.20
    )
    
    $
    (0.43
    )
    
    $
    (1.01
    )
    
    $
    (2.18
    )Pro forma
    
    
    (0.21
    )
    
    
    (0.50
    )
    
    
    (1.15
    )
    
    
    (2.32
    )
 In January 2004, the Company awarded 22,500 shares of restricted stock to
executive officers of the Company. The shares vest over four years from the
date of grant with 50% vested at the end of year three and 50% at the end of
year four. The fair value of the restricted shares on the date of grant is
amortized ratably over the vesting period. As result of this transaction, the
Company recorded $91,000 as compensation expense during the nine months ended
September 30, 2004. Note 6  Accrued Expenses Accrued expenses were comprised as follows (in thousands of dollars): September 30,
    
    December 31,2004
    
    2003Accrued taxes
    
    $
    3,627
    
    
    $
    3,160Accrued compensation
    
    
    4,739
    
    
    
    4,049Accrued interest
    
    
    7,273
    
    
    
    1,559Other
    
    
    3,708
    
    
    
    3,929$
    19,347
    
    
    $
    12,697
 Note 7  Long-term Debt and Credit Facilities Long-term debt was comprised as follows (in thousands): September 30,
    
    December 31,2004
    
    2003Bank Credit Facility:Bank term loan
    
    $
    110,500
    
    
    $
    146,625Revolving credit facility
    
    
    
    
    
    
    7,0009.50% senior notes
    
    
    200,000
    
    
    
    200,00011.50% senior notes
    
    
    
    
    
    
    12,000Less unamortized discount
    
    
    
    
    
    
    (82
    )Capital leases
    
    
    2,106
    
    
    
    2,705312,606
    
    
    
    368,248Less current maturities
    
    
    (2,524
    )
    
    
    (8,638
    )$
    310,082
    
    
    $
    359,610
 September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Bank Credit Facility On August 29, 2001, the Company entered into a $225.0
million bank credit facility, comprised of a $150.0 million term loan and a
$75.0 million revolving credit facility that may be increased to $100.0
million, subject to certain limitations. The term loan matures in August 2008
and quarterly repayments began in December 2001. The term loan bears interest
at the Companys option of (1) the banks base rate plus a margin of 1.50% or
(2) LIBOR plus a margin originally established at 4.00%. In January 2004, the
Company and the holders of the term loan amended the LIBOR pricing to be LIBOR
plus a margin of 3.50%. In April 2004, the Company and the holders of the term
loan executed another amendment to establish the LIBOR pricing at LIBOR plus a
margin of 2.75%. The term loan interest rate as of September 30, 2004 was
4.73% based on LIBOR pricing. The revolving credit facility matures in August
2007 and loans bear interest at the Companys option of (1) the banks base
rate plus a margin of 1.00% to 1.75%, or (2) LIBOR plus a margin of 2.25% to
3.00%. As of September 30, 2004, there were no amounts outstanding under the
revolving credit facility. Loans under the credit facility are collateralized
by a first priority interest in all of the Companys assets. On June 16, 2004, the Company and the holders of the term loan amended the
credit agreement. The amendment was required by the note holder to allow for
the use of proceeds from the Companys equity offering (see Note
10) for
repayment of the 11.50% senior notes provided the Company also use proceeds to
prepay a portion of the term loan. On July 6, 2004, the Company completed its
equity offering and repaid $35.0 million of the term loan with a portion of the
proceeds. In connection with the debt repayment, the Company incurred a loss
on the early retirement of debt of $810,000 in the third quarter of 2004. The facility provides for the issuance of letters of credit up to $10.0
million, subject to customary terms and conditions. As of September 30, 2004,
the Company had outstanding letters of credit totaling $1.5 million. The facility includes terms and conditions which require compliance with a
material adverse effect covenant as well as the maintenance of certain
financial ratios and place limitations on capital expenditures, additional
indebtedness, liens, investments, guarantees, asset sales and certain payments
or distributions in respect of the common stock. As of September 30, 2004, the
Company was in compliance with all covenants, terms and conditions of the bank
credit facility. The Companys consolidated leverage ratio was 3.53 compared
to the maximum allowable of 4.50, the consolidated senior secured leverage
ratio was 1.27 compared to the maximum allowable of 2.50 and the consolidated
interest coverage ratio was 2.69 compared to the minimum allowable of 2.25. 9.50%
Senior Notes In June 2003, the Company issued $200.0 million of
unsecured 9.50% Senior Subordinated Notes (the 9.50% Notes), due June 15,
2013. The 9.50% Notes are unsecured, are subordinated in right of payment to
all existing and future senior debt of the Company and rank pari passuin right
of payment with any future senior subordinated indebtedness of the Company.
The 9.50% Notes require semi-annual interest payments and contain covenants
which restrict the ability of the Company to incur additional indebtedness,
create liens, pay dividends or make certain distributions with respect to its
common stock, redeem capital stock, issue or sell stock of subsidiaries in
certain circumstances, effect certain business combinations and effect certain
transactions with affiliates or stockholders. As of September 30, 2004, the
Company was in compliance with all covenants, terms, and conditions of the
9.50% Notes. The 9.50% Notes are redeemable at the option of the Company, in whole or in
part, on or after June 15, 2008, initially at 104.75% 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 June 15, 2011.
At any time prior to June 15, 2006, the Company may redeem up to 35% of the
aggregate principal amount at 109.50% of the principal amount (plus accrued and
unpaid interest) with the cash proceeds of certain equity offerings. 11.50% Senior Notes During 1995, the Company issued $30.0 million principal
amount of unsecured 11.50% senior notes (the 11.50% Notes). The 11.50% Notes
were unsecured, ranked pari passuin right of payment with future
unsubordinated unsecured indebtedness and ranked senior in right of payment to
all subordinated indebtedness of the Company. Annual principal payments of
$6.0 million commenced in July 2001 and were to continue through July 2005.
The 11.50% Notes required semi-annual interest payments and contained certain
covenants including limitations on indebtedness, liens, guarantees, asset sales
and certain payments or distributions with respect to capital stock. On July
15, 2004, the total principal amount outstanding with accrued interest, plus
$583,000 of interest within the Notes make-whole provision, was repaid with
proceeds from the Companys equity offering (see Note 10). September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 In 1995, 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. Each
warrant entitles the holder to purchase one share of common stock at an
exercise price of $7.00 per share. 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. On January 23, 2004, John Hancock, a holder of the 11.50% Notes,
exercised 240,000 warrants as provided for by the 11.50% Notes which resulted
in the Company issuing 150,256 shares of common stock. Capital Leases As of September 30, 2004, the Company has total capital lease
obligations of $2,106,000. Equipment acquired under capital lease
arrangements totaled $785,000 during the year ended December 31, 2003, and
$301,000 during the nine months ended September 30, 2004. Long-term debt has the following scheduled principal maturities for the twelve
months ended September 30 (in thousands of dollars): 2005  $2,524; 2006 
$2,252; 2007  $1,785; 2008  $106,045; 2009  $; and thereafter $200,000. The Company does not utilize special purpose entities or off-balance sheet
financial arrangements. Note 8  Accounting for Derivative Instruments and Hedging Activities In August 2003, the Company entered into a $50.0 million interest rate swap
agreement, expiring in June 2013, to effectively change the underlying debt
from a fixed interest rate to a variable interest rate. In March 2004, the
Company terminated the swap arrangement and received proceeds of $3.1 million
of which $2.6 million was recorded as a deferred gain. The deferred gain is
classified within derivative instruments on the Companys consolidated balance
sheet and will be recognized ratably over the remaining term of the swap
agreement. In addition, the Company has existing interest rate swap agreements on $100.0
million of long-term debt, of which $50.0 million expires in December 2005 and
$50.0 million expires in March 2006, to effectively change the underlying debt
from a variable interest rate to a fixed interest rate for the term of the swap
agreements. The two swap arrangements carry interest rates of 6.61% and 5.78%,
respectively, plus LIBOR. As of September 30, 2004, LIBOR was 1.98%. The swap
agreements have been designated as, and meet the criteria for, cash flow
hedges. The Company is required by its bank credit facility to have a minimum
of 50% of its term loan balance covered under interest rate swap arrangements
and cannot exceed $150.0 million in swap agreements. The Company does not
utilize these instruments for speculative or trading purposes. Net amounts paid
or received are reflected as adjustments to interest expense. Note 9  Comprehensive Loss Statement of Financial Accounting Standard No. 130, Reporting Comprehensive
Income, provides standards for reporting and disclosure of comprehensive loss
and its components. Comprehensive loss reflects the changes in equity during a
period from transactions and other events and circumstances. For the Company,
comprehensive loss was as follows for the periods ended September 30 (in
thousands): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net loss
    
    $
    (3,482
    )
    
    $
    (5,429
    )
    
    $
    (14,704
    )
    
    $
    (27,104
    )Foreign currency translation adjustment
    
    
    618
    
    
    
    (72
    )
    
    
    206
    
    
    
    1,961Unrealized gain on derivative instruments
    
    
    679
    
    
    
    3,506
    
    
    
    3,555
    
    
    
    3,448Comprehensive loss
    
    $
    (2,185
    )
    
    $
    (1,995
    )
    
    $
    (10,943
    )
    
    $
    (21,695
    )
 September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Components of accumulated other comprehensive loss as shown on the Companys
consolidated balance sheets were as follows (in thousands): September 30,
    
    December 31,2004
    
    2003Unrealized loss on derivative instruments
    
    $
    (4,841
    )
    
    $
    (8,396
    )Foreign currency translation adjustment
    
    
    877
    
    
    
    671Accumulated other comprehensive loss
    
    $
    (3,964
    )
    
    $
    (7,725
    )
 Note 10  Common Stock Offering On July 6, 2004, the Company completed a public offering of common stock
registered pursuant to its shelf registration statement filed with the
Securities and Exchange Commission in April 2004. In connection with the
offering, the Company issued 3.95 million shares at a price of $16.50 per
share. In addition, on August 4, 2004, the Company issued 392,500 shares with
the underwriters exercise of their over-allotment option. The net proceeds
from the offering (including over-allotment) were $66.8 million after deducting
underwriting and offering expenses of approximately $5.0 million. The Company
used the net proceeds to repay $35.0 million of its bank credit facility term
loan and the remaining $12.0 million of its 11.50% Notes. The remaining
proceeds of approximately $18.5 million were retained as cash for use in
general corporate purposes. In connection with the debt repayment, the Company
incurred a loss on the early retirement of debt of $810,000 in the third
quarter of 2004. Additionally, the Company incurred in the third quarter,
$583,000 in interest expense resulting from a make-whole provision related to
the early retirement of the 11.50% Notes. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 
 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, intends, 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 within the meaning of the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended, are subject to risks,
uncertainties, and other factors that could cause the Companys actual results,
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 elsewhere in
this Report, such factors include, among others, the following: the effects of
economic conditions, including in particular the economic condition of the
lodging industry, competition, programming availability and quality,
technological developments, developmental difficulties and delays,
relationships with clients and property owners, the availability of capital to
finance growth, the impact of government regulations, international crises,
acts of terrorism, public health issues, 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. Executive Overview LodgeNet Entertainment Corporation is one of the worlds largest and leading
providers of interactive television systems and broadband services to hotels,
resorts and casinos throughout the United States and Canada as well as select
international markets. It is estimated that more than 260 million guests a year
have access to a wide variety of LodgeNets interactive television services
which are designed to make their stay more enjoyable, productive and
convenient. As of September 30, 2004, the Company provided television services
to approximately 5,900 hotel properties serving more than one million rooms. For the first nine months of 2004, the Company continued to execute on its
operating plans and delivered increased revenue and higher gross margins,
improved operating income, reduced net loss, achieved positive cash flow
(defined as cash provided by operating activities exceeding cash used for
investing) as compared to the first nine months of 2003. Additionally, the
Company expanded its digital room base to 49% of its interactive room base
(approximately 469,000 rooms) while reducing its cost of installation for both
new rooms and converted rooms. Guest Pay Interactive Services.The Companys primary source of revenue is
providing in-room, interactive television services to the lodging industry, for
which the hotel guest pays on a per-view, hourly or daily basis. The Companys
services include on-demand movies, video games, music and music videos,
Internet on television (which does not require a laptop), and television
on-demand programming. The Companys total guest generated revenue depends on a number of factors,
including:  
    
    The number of rooms equipped with the Companys system.The Company
can increase revenue over time by increasing the number of rooms
served by its interactive systems. The Companys ability to expand
its room base is dependent on a number of factors, including the
attractiveness of the Companys technology and service and support to
hotels currently operating without an interactive television system,
and the number of newly constructed hotel properties and hotels with
expiring contracts currently served by one of the Companys
competitors. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
  
    
    The variety of services offered at the hotel.Rooms equipped with the
Companys digital system generate higher revenue than rooms equipped
with the Companys tape-based system, primarily because they offer a
greater variety of services and content choices. The Company plans to
continue to grow the revenue it generates per average room by the
installation of its digital system in all newly contracted rooms and
by converting selected tape-based rooms to the Companys digital
system in exchange for long-term contract extensions.  
    
    The popularity of content offered at the hotel.The Companys
revenues vary to a certain degree with the number and popularity of
major motion pictures available for viewing. Historically, a decrease
in the availability of popular major motion pictures has from
time-to-time adversely impacted revenue. Although not completely
within the Companys control, the Company seeks to program and promote
the available major motion pictures and other content to maximize
revenue and gross profit.  
    
    The price of the service purchased by the hotel guest.The Company
controls the prices charged for its products and services and manages
pricing in an effort to maximize revenue and overall gross profit.
The Company establishes pricing based on such things as the
demographics of the property served and the popularity of the content.  
    
    The occupancy rate at the property.The Companys revenue also varies
depending on hotel occupancy rates, which are subject to a number of
factors, including seasonality, general economic conditions and world
events, such as terrorist threats or public health issues. The Company
targets higher occupancy properties in diverse demographic and
geographic locations in an effort to mitigate occupancy-related risks. Key Metrics: Rooms Served One of the metrics the Company monitors is the growth, net of de-installations,
of its Guest Pay interactive room base. De-installation activity has not had a
material effect on the Companys growth and historically averages approximately
2% of total installed rooms per year. The Company installed its systems in the
following number of net new rooms and had the following total rooms installed
as of September 30: September 30,2004
    
    2003Net new Guest Pay interactive rooms for the three months (1)
    
    
    10,549
    
    
    
    13,345Net new Guest Pay interactive rooms for the nine months
ended (1)
    
    
    28,904
    
    
    
    36,770Total Guest Pay interactive rooms (2)
    
    
    953,547
    
    
    
    913,118Total rooms served (3)
    
    
    1,014,538
    
    
    
    983,158
  (1)
    
    All Guest Pay interactive rooms installations in 2004 and 2003 received
the Companys digital interactive television system.  (2)
    
    Guest Pay interactive rooms are equipped with the Companys interactive
television system, including digital systems. The high-speed, two-way
digital communications design of the Companys system architecture enables
the Company to provide interactive features such as on-demand movies,
network-based video games, music services, Internet on television, and
television programming.  (3)
    
    Total rooms served, representing rooms receiving one or more of the
Companys services, including rooms served by international licensees and
properties receiving only basic and premium television programming. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
   Digital Room Growth The Company continues to expand its digital base as it installs its digital
system in all newly contracted rooms as well as converting select tape-based
served rooms to the digital system in exchange for long-term contract
extensions. The Companys goal is to have approximately 75% of its room base
installed with a digital system by the end of 2006. September 30,2004
    
    2003Net digital room installations for the three months ended
(1)
    
    
    27,191
    
    
    
    32,734Net digital room installations for the nine months ended (1)
    
    
    84,014
    
    
    
    91,322Total digital rooms installed
    
    
    469,440
    
    
    
    356,419Digital rooms as a percent of total Guest Pay interactive
rooms
    
    
    49
    %
    
    
    39
    %
  (1)
    
    Digital room installations include both newly contracted rooms and rooms
that have been converted from a tape-based system to a digital system in
exchange for a long-term contract extension. Cost of Installation In addition to the continued expansion of the Companys digital base, the
Company will continue monitoring capital expenditures per new or converted
room. The cost per new digital installed room averaged $375 during the current
quarter, compared to $373 during the second quarter of 2004. The increase was
due to the mix of services installed, property sizes and certain fixed costs.
The following table sets forth the Companys average installation and
conversion cost per room during the quarters ended: September 30,
    
    June 30,
    
    March 31,
    
    December 31,
    
    September 30,2004
    
    2004
    
    2004
    
    2003
    
    2003Average cost per room 
new installation
    
    $
    375
    
    
    $
    373
    
    
    $
    382
    
    
    $
    391
    
    
    $
    396Average cost per room 
conversion
    
    $
    275
    
    
    $
    296
    
    
    $
    305
    
    
    $
    332
    
    
    $
    330
 Cash Flow One of the Companys goals is to generate cash from operations in excess of all
investing activities and reduce its reliance on external financing to grow its
business. Accordingly, the Company views the level of cash provided by
operating activities as an important measure of its ability to finance growth
from internally generated funds. In addition to increasing revenue and
controlling expenses, the Company intends to manage its actions related to this
goal by reducing the per-room installation cost of a digital room and by
varying the number of rooms it installs with the digital system in any given
period. The Companys cash flow from operations, net of investing activities, for the
three and nine months ended is set forth in the following table (dollar amounts
in thousands): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Cash provided by operating activities
    
    $
    25,538
    
    
    $
    19,979
    
    
    $
    53,709
    
    
    $
    45,740Cash used for investing activities
    
    
    (14,605
    )
    
    
    (13,006
    )
    
    
    (40,692
    )
    
    
    (42,055
    )Difference
    
    $
    10,933
    
    
    $
    6,973
    
    
    $
    13,017
    
    
    $
    3,685
 September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Operating Expense Per Room The Company seeks to manage operating and SG&A expenses, balancing the
Companys growth objective with economic conditions. The following table sets
forth the Companys operating expenses and SG&A per average Guest Pay room and
as a percent of revenue during the periods ended September 30: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Guest Pay operating expenses
    
    $
    3.00
    
    
    $
    2.98
    


    $
    2.96
    
    
    $
    2.93SG&A expense
    
    
    2.09
    
    
    
    2.01
    
    
    
    2.11
    
    
    
    1.96$
    5.09
    
    
    $
    4.99
    
    
    $
    5.07
    
    
    $
    4.89Guest Pay operating expenses as a percent
of total revenue
    
    
    11.9
    %
    
    
    11.9
    %
    
    
    12.4
    %
    
    
    12.4
    %SG&A as a percent of total revenue
    
    
    8.3
    %
    
    
    8.0
    %
    
    
    8.8
    %
    
    
    8.3
    %
 Liquidity and Capital Resources The Company historically has required substantial amounts of capital to fund
operations, expand the Companys business and service existing indebtedness.
During the first nine months of 2003, cash flow from operations was sufficient
to cover all long-term debt service as well as all capital investments,
including growth capital. For the first nine months of 2004, cash flow from
operations exceeded all long-term debt service as well as all capital
investments, including growth capital by $13.0 million. Capital expenditures
for the first nine months of 2004 were $41.3, comparable to the same period of
2003. During the first nine months of 2004, the Company installed
approximately 84,000 digital rooms versus 91,000 digital rooms in the first
nine months of 2003. Net cash provided by operating activities was $53.7
million as compared to $45.7 million in the same period of 2003. This resulted
in cash flow net of investing of $13.0 million for the first nine months of
2004 versus $3.7 million in the prior year. On July 6, 2004, the Company completed a public offering of common stock
registered pursuant to its shelf registration statement filed with the
Securities and Exchange Commission in April 2004. In connection with the
offering, the Company issued 3.95 million shares at a price of $16.50 per
share. In addition, on August 4, 2004, the Company issued 392,500 shares with
the underwriters exercise of their over-allotment option. The net proceeds
from the offering (including over-allotment) were $66.8 million after deducting
underwriting and offering expenses of approximately $5.0 million. The Company
used the net proceeds to repay $35.0 million of its bank credit facility term
loan and the remaining $12.0 million of its 11.50% senior notes. The remaining
proceeds of approximately $18.5 million were retained as cash for use in
general corporate purposes. Depending on the rate of growth in its business and other factors, the Company
expects to incur capital expenditures of $57.0 to $58.0 million in 2004. Based
on expected capital expenditures, the Company estimates it will install in the
range of 49,000 to 50,000 net new rooms and convert in the range of 52,000 to
53,000 existing rooms from tape-based to digital systems in exchange for
long-term contract extensions in 2004. The Company believes that its cash on hand from the equity offering proceeds,
operating cash flow and borrowing available under the Credit Facility maturing
in 2007 will be sufficient for the foreseeable future to fund the Companys
future growth and financing obligations. As of September 30, 2004, working
capital was $19.8 million, compared to negative $(12.2) million at September
30, 2003 due to an increased cash balance from the equity offering proceeds. The Companys principal sources of liquidity are its cash on hand, operating
cash flow and its Credit Facility. In order to continue to operate and expand
its business, the Company must remain in compliance with covenants imposed by
its Credit Facility and Senior Notes. As of September 30, 2004, the Company
was in compliance with all covenants, terms and conditions related to its
Credit Facility and Senior Notes. Given the Companys current business plan
for September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 projected capital investment during the balance of 2004, the Company believes
it will remain in compliance in 2004 with all covenants, terms and conditions
related to its Credit Facility and Senior Notes. The Company is not aware of
any events that qualify under the material adverse effect clause of the Credit
Facility. The total amount of long-term debt outstanding, including that
portion of debt classified as current, as of September 30, 2004 was $312.6
million versus $368.2 million as of December 31, 2003. The Companys leverage and interest coverage ratios were as follows for the
periods ended September 30: 2004
    
    2003Actual consolidated total leverage ratio (1) (4)
    
    
    3.53
    
    
    
    4.41Maximum per covenant
    
    
    4.50
    
    
    
    5.00Actual senior secured leverage ratio (2) (4)
    
    
    1.27
    
    
    
    1.83Maximum per covenant
    
    
    2.50
    
    
    
    2.50Actual consolidated interest coverage ratio (3) (4)
    
    
    2.69
    
    
    
    2.45Minimum per covenant
    
    
    2.25
    
    
    
    2.25
  (1)
    
    The Companys maximum consolidated leverage ratio is a function of total
indebtedness divided by operating income exclusive of depreciation and
amortization and other miscellaneous non-recurring items as defined by the
covenant.  (2)
    
    The Companys maximum senior secured leverage ratio is a function of
total indebtedness less total unsecured indebtedness, divided by operating
income exclusive of depreciation and amortization and other miscellaneous
non-recurring items as defined by the covenant.  (3)
    
    The Companys minimum consolidated interest coverage ratio is a function
of operating income exclusive of depreciation and amortization and other
miscellaneous non-recurring items divided by interest expense as defined
by the covenant.  (4)
    
    Maximum consolidated leverage, maximum senior secured leverage ratio, and
minimum consolidated interest coverage ratios are not statistics based on
generally accepted accounting principles. The statistics are presented
here to demonstrate compliance with lenders covenants, as noncompliance
with such covenants could have a material adverse effect on the Company,
and the statistics are not presented as alternative measures of operating
performance or liquidity. The Companys future debt covenant ratios are outlined below: Q4 2004
    
    Q1 2005
    
    Q4 2005
    
    Q1 2006Maximum consolidated total
leverage ratio
    
    
    4.50
    
    
    
    4.25
    
    
    
    4.00
    
    
    
    3.75Maximum senior secured
leverage ratio
    
    
    2.50
    
    
    
    2.25
    
    
    
    2.25
    
    
    
    2.25Minimum consolidated
interest coverage ratio
    
    
    2.25
    
    
    
    2.50
    
    
    
    2.50
    
    
    
    2.75
 September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 In January 2004, the Company and the holders of the term loan portion of the
existing Credit Facility amended the LIBOR pricing to be LIBOR plus a margin of
3.50%, down from LIBOR plus a margin of 4.0% previously. In April 2004, the
Company and the holders of the term loan executed another amendment to
establish the LIBOR pricing at LIBOR plus a margin of 2.75%. The Company does not utilize special purpose entities or off-balance sheet
financial arrangements. The Companys average interest rate on long-term debt outstanding during the
third quarter of 2004 was approximately 10.0% as compared to approximately 9.5%
during the comparable period of 2003. During the first nine months of 2004,
the average interest rate on long-term debt outstanding was approximately 9.4%
as compared to approximately 9.6% during the same period of 2003. Excluding a
$583,000 interest charge resulting from a make-whole provision related to the
early retirement of the 11.50% Notes, the Companys average interest rate for
the three and nine month periods ended September 30, 2004, was approximately
9.3% and 9.1%, respectively. In the event of significant international crises, adverse economic conditions,
acts of terrorism, public health issues, or catastrophic events, the Company
believes that the general economy and the lodging industry could be negatively
affected. If such a crisis is protracted or the effects on the lodging
industry are severe, the effect on the Companys financial performance could
result in the Company being in violation of one or more of its bank or note
covenants. This could require the Company to renegotiate its covenants,
significantly reduce its growth plans and/or curtail expenditures for operating
expenses. While the Company believes it could renegotiate its covenants, there
is no assurance that this could be accomplished, nor can it determine at this
time the financial cost of such a renegotiation or that refinancing, if
required, would be available on terms favorable to the Company. The foregoing statements regarding capital expenditures and cash requirements
are forward-looking statements and there can be no assurance actual results
will not vary from expected results. The Companys actual cash flow and cash
requirements will vary (and such variations could be material) depending upon
the number of new contracts for services entered into by the Company, the cost
of installations, demand for the Companys services, competitive factors, hotel
occupancy rates, general economic factors and other factors including, without
limitation, those set forth above under the Special Note Regarding
Forward-Looking Statements and elsewhere herein.
Obligations and Commitments as of September 30, 2004 (dollar amounts in
thousands): September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Payments due by periodLess than
    
    2  3
    
    4  5
    
    OverTotal
    
    1 year
    
    years
    
    years
    
    5 yearsContractual obligations:Long-term debt(s)
    
    $
    312,606
    
    
    $
    2,524
    
    
    $
    4,037
    
    
    $
    106,045
    
    
    $
    200,000Interest on fixed rate debt
    
    
    171,000
    
    
    
    19,000
    
    
    
    38,000
    
    
    
    38,000
    
    
    
    76,000Other long-term obligations (1)
    
    
    8,308
    
    
    
    2,035
    
    
    
    3,383
    
    
    
    2,872
    
    
    
    18Purchase obligations
    
    
    3,071
    
    
    
    3,071
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    494,985
    
    
    $
    26,630
    
    
    $
    45,420
    
    
    $
    146,917
    
    
    $
    276,018
 Amount of commitment expiration per periodLess than
    
    1  3
    
    4  5
    
    OverTotal
    
    1 year
    
    years
    
    years
    
    5 yearsOther commercial commitments:Standby letters of credit
    
    $
    1,500
    
    
    $
    1,500
    
    
    $
    
    
    
    $
    
    
    
    $
    
  (1)
    
    Other long-term obligations include future minimum operating lease
payments and payments to Hilton Hotels Corporation for the acquired rights
to provide Internet on television access and television on-demand
programming services to participating hotels and the right to
independently pursue and further develop interactive television content. 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. Dependence on Performance of Lodging Industry The Companys business is closely connected to the performance of the hotel
industry where occupancy rates may fluctuate resulting from various factors.
Reduction in hotel occupancy resulting from business, economic, significant
international crises, acts of terrorism,public health issues, or catastrophic
events could adversely impact the Companys results of operations. While the average occupancy rate for the Companys served hotels is typically
higher than the average of the entire lodging industry, the Companys business
is clearly linked to the continued effects of changes in occupancy levels. For
the first nine months of 2004, occupancy rates for properties served by the
Company were 140 basis points higher than experienced in the first nine months
of 2003. If hotel occupancy rates were to decline significantly below current
levels, the Companys revenues would be adversely affected. The Company plans to reassess its operating and capital expenditure plans
periodically to respond to changes in occupancy. Additionally, the Companys
room base is geographically diversified, with more than two-thirds of
properties served being in highway or suburban locations. Less than 5% of the
room base is concentrated in each of the top ten urban areas of the United
States. By serving a wide variety of geographically dispersed properties, the
Company mitigates reliance on any one geographic sector. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Discussion and Analysis of Results of Operations
Three Months Ended September 30, 2004 and 2003 Revenue Analysis. The Companys total revenue for the third quarter of 2004
increased 5.7%, or $3.9 million, in comparison to the third quarter of 2003.
The following table sets forth the components of revenue (in thousands) for the
quarter ended September 30: 2004
    
    2003Percent
    
    
    
    
    
    Percentof Total
    
    
    
    
    
    of TotalAmount
    
    Revenues
    
    Amount
    
    RevenuesRevenues:Guest Pay
    
    $
    69,902
    
    
    
    97.6
    
    
    $
    66,304
    
    
    
    97.8Other
    
    
    1,748
    
    
    
    2.4
    
    
    
    1,464
    
    
    
    2.2$
    71,650
    
    
    
    100.0
    
    
    $
    67,768
    
    
    
    100.0
 Guest Pay interactive revenue increased 5.4%, or $3.6 million, in the third
quarter of 2004 in comparison to the same quarter of 2003. This increase was
attributable to a 4.4% increase in the average number of installed Guest Pay
interactive rooms and the continued deployment of digital systems (113,000
additional digital rooms deployed compared to the third quarter of 2003). On a
per room basis, revenue increased 0.9% to $24.65 per month in the third quarter
of 2004 from $24.42 per month in the third quarter of 2003. The following
table sets forth information in regard to average monthly revenue per Guest Pay
room for the quarter ended September 30: 2004
    
    2003Average monthly revenue per room:Movie revenue
    
    $
    18.90
    
    
    $
    18.99Other interactive service revenue
    
    
    5.75
    
    
    
    5.43Total per Guest Pay room
    
    $
    24.65
    
    
    $
    24.42
 Average movie revenue per room decreased from $18.99 to $18.90. The Company
believes that movie revenue was adversely impacted by the Summer Olympics
during the quarter (televised during August) and less popular movie content
available in the Companys window this year as compared to 2003. Other interactive service revenue increased 5.9%, driven by the continued
expansion of services available through the companys digital television and
high-speed Internet access systems, and price changes associated with basic
cable services. Other revenue includes revenue from free-to-guest services provided to hotels
not receiving Guest Pay services, sales of system equipment and service parts
and labor, and other revenue. Other revenue increased $284,000, or 19.4%, in
comparison to the third quarter of 2003. The increase is a result of reseller
commissions received for programming services. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Gross Profit (exclusive of other operating expenses discussed separately
below).Gross profit totaled $39.0 million for the third quarter ended
September 30, 2004, an increase of 6.3% over the third quarter of 2003. The
following table sets forth the components of gross profit (in thousands) and
gross profit margin for the quarter ended September 30: 2004
    
    2003Gross profit:Guest Pay
    
    $
    37,923
    
    
    $
    35,896Other
    
    
    1,054
    
    
    
    763$
    38,977
    
    
    $
    36,659Gross profit margin:Guest Pay
    
    
    54.3
    %
    
    
    54.1
    %Other
    
    
    60.3
    %
    
    
    52.1
    %Total
    
    
    54.4
    %
    
    
    54.1
    %
 Gross profit on Guest Pay interactive services increased 5.6%, or $2.0 million
on a 5.4% increase in related revenue. Guest Pay direct costs, which generally
fluctuate directly with revenue, include movie license fees, license fees for
other interactive services, and the commission retained by the hotel. Guest
Pay direct costs that are fixed include Internet connectivity fees and one-time
programming license fees, which are independent of changes to revenue or
occupancy. As a percentage of revenue, the increase to Guest Pay gross profit
margin from 54.1% to 54.3% was due to decreased programming costs for movies
and games partially offset by slightly higher hotel commissions and
connectivity costs for TV Internet. Gross profit on other services increased $291,000, or 38.1%, in the third
quarter of 2004 from the prior year quarter and the gross profit margin
increased to 60.3% from 52.1%. The increase in gross profit margin was
attributable to reseller commissions described above. As a percentage of revenue, the Companys overall gross profit margin was 54.4%
compared to 54.1% in the prior year quarter. In addition to the information
provided above, the following table sets forth the primary change drivers of
composite gross profit margin for the quarter ended September 30: 2004
    
    2003
    
    ChangeGross profit margin
    
    
    54.4
    %
    
    
    54.1
    %
    
    
    0.3
    %Change drivers:Programming costs
    
    
    
    
    
    
    
    
    
    
    0.7TV Internet
    
    
    
    
    
    
    
    
    
    
    -0.2Hotel commissions
    
    
    
    
    
    
    
    
    
    
    -0.20.3
    %
 September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Operating Expenses.The following table sets forth information in regard to
the Companys operating expenses for the quarter ended September 30 (dollar
amounts in thousands): 2004
    
    2003Percent
    
    
    
    
    
    Percentof Total
    
    
    
    
    
    of TotalAmount
    
    Revenues
    
    Amount
    
    RevenuesOperating expenses:Guest Pay operations
    
    $
    8,503
    
    
    
    11.9
    
    
    $
    8,092
    
    
    
    11.9Selling, general and administrative
    
    
    5,939
    
    
    
    8.3
    
    
    
    5,446
    
    
    
    8.0Depreciation and amortization
    
    
    19,162
    
    
    
    26.7
    
    
    
    19,447
    
    
    
    28.7Total operating expenses
    
    $
    33,604
    
    
    
    46.9
    
    
    $
    32,985
    
    
    
    48.7
 Guest Pay operations expenses consist of costs directly related to the
operation and maintenance of systems at hotel sites. Guest Pay operations
expenses increased by $411,000, or 5.1%, in 2004 from the prior year quarter.
The increase was primarily due to the 4.4% increase in average rooms served by
the Company. As a percentage of revenue, Guest Pay operations expenses
remained at 11.9% in the third quarter of 2004. Per average installed room,
Guest Pay operations expense was $3.00 per month in the third quarter of 2004
as compared to $2.98 per month in the prior year quarter. Selling, general and administrative expenses were $5.9 million, an increase of
$493,000 compared to $5.4 million in the third quarter of 2003. As a
percentage of revenue, SG&A increased to 8.3% in the current quarter compared
to 8.0% for third quarter 2003. Per average Guest Pay room, SG&A expenses
increased to $2.09 in the third quarter of 2004 from $2.01 in the prior year
quarter. The increase was primarily related to higher payroll expenses and
accounting fees associated with Sarbanes-Oxley compliance. Depreciation and amortization expenses decreased to $19.2 million in the
current year quarter versus $19.4 million in the second quarter of 2003. The
decrease was primarily due to higher-cost assets becoming fully depreciated
while the cost was lower for new assets being added to the base. As a
percentage of revenue, depreciation and amortization decreased to 26.7% in the
third quarter of 2004 versus 28.7% in the third quarter of 2003. Operating Income.As a result of the factors described above, the Company
generated operating income of $5.4 million, a 46% increase, in the third
quarter of 2004 compared to $3.7 million in the third quarter of 2003. Loss on Early Retirement of Debt.The Company incurred a charge of $810,000
during the third quarter of 2004 as a result of the early retirement of $35
million of the Companys Term B notes under its bank credit facility. Interest Expense.Interest expense decreased $641,000, or 7.3%, to $8.1
million during the third quarter of 2004. Average principal amount of
long-term debt outstanding during the quarter ended September 30, 2004 was
approximately $324.7 million (at an average interest rate of approximately
10.0%) as compared to an average principal amount outstanding of approximately
$367.6 million (at an average interest rate of approximately 9.5%) during the
comparable period of 2003. The change to the average interest rate for the
third quarter of 2004 was due to the $583,000 interest charge resulting from a
make-whole provision related to the early retirement of the 11.50% Notes.
Excluding this payment the average interest rate for the third quarter of 2004
was approximately 9.3%. Taxes.For the third quarter of 2004, the Company incurred franchise tax of
$26,000 versus $100,000 during the third quarter of 2003. The decrease in
taxes is due to approximately $75,000 of Canadian tax refunds received during
the third quarter of 2004. Net Loss.For the reasons previously described, the Companys net loss
decreased to $3.5 million in the third quarter of 2004 from a net loss of $5.4
million in the prior year quarter. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Discussion and Analysis of Results of Operations
Nine Months Ended September 30, 2004 and 2003 Revenue Analysis. The Companys total revenue for the first nine months of
2004 increased 6.3%, or $11.9 million, in comparison to the same period of
2003. The following table sets forth the components of revenue (in thousands)
for the nine months ended September 30: 2004
    
    2003Percent
    
    
    
    
    
    Percentof Total
    
    
    
    
    
    of TotalAmount
    
    Revenues
    
    Amount
    
    RevenuesRevenues:Guest Pay
    
    $
    196,443
    
    
    
    97.4
    
    
    $
    185,121
    
    
    
    97.5Other
    
    
    5,319
    
    
    
    2.6
    
    
    
    4,697
    
    
    
    2.5$
    201,762
    
    
    
    100.0
    
    
    $
    189,818
    
    
    
    100.0
 Guest Pay interactive revenue increased 6.1%, or $11.3 million, in the first
nine months of 2004 in comparison to the same period of 2003. This increase
was attributable to a 4.9% increase in the average number of installed Guest
Pay interactive rooms and the continued deployment of digital systems (113,000
additional digital rooms deployed since September 30, 2003). On a per room
basis, revenue increased 1.2% to $23.30 per month in the first nine months of
2004 from $23.03 per month in the first nine months of 2003. The following
table sets forth information in regard to average monthly revenue per Guest Pay
room for the first nine months ended September 30: 2004
    
    2003Average monthly revenue per room:Movie revenue
    
    $
    17.75
    
    
    $
    17.95Other interactive service revenue
    
    
    5.55
    
    
    
    5.08Total per Guest Pay room
    
    $
    23.30
    
    
    $
    23.03
 Average movie revenue per room decreased from $17.95 to $17.75. The Company
believes the decrease in average movie revenue per room is primarily due to
less popular movie content available in its window this year as compared to
2003, partially offset by a 140 basis point increase in occupancy levels. Other interactive service revenue increased 9.3%, driven by expanding revenue
from services available through the Companys digital television and high-speed
Internet access systems and price changes associated with basic cable services. Other revenue includes revenue from free-to-guest services provided to hotels
not receiving Guest Pay services, sales of system equipment and service parts
and labor, and other revenue. Other revenue increased $622,000, or 13.2%, in
comparison to the first nine months of 2003. The increase is a result of
reseller commissions received from programming services offset by decreases in
equipment sales to international licensees and lower revenue from free-to-guest
services. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Gross Profit (exclusive of other operating expenses discussed separately
below).Gross profit totaled $111.8 million for the first nine months ended
September 30, 2004, an increase of 7.3% over the first nine months of 2003.
The following table sets forth the components of gross profit (in thousands)
and gross profit margin for the nine months ended September 30: 2004
    
    2003Gross profit:Guest Pay
    
    $
    108,613
    
    
    $
    101,667Other
    
    
    3,163
    
    
    
    2,515$
    111,776
    
    
    $
    104,182Gross profit margin:Guest Pay
    
    
    55.3
    %
    
    
    54.9
    %Other
    
    
    59.5
    %
    
    
    53.5
    %Total
    
    
    55.4
    %
    
    
    54.9
    %
 Gross profit on Guest Pay interactive services increased 6.8%, or $6.9 million
on a 6.1% increase in related revenue. Guest Pay direct costs, which generally
fluctuate directly with revenue, include movie license fees, license fees for
other interactive services, and the commission retained by the hotel. Guest
Pay direct costs that are fixed include Internet connectivity fees and one-time
programming license fees, which are independent of changes to revenue or
occupancy. As a percentage of revenue, the increase to Guest Pay gross profit
margin from 54.9% to 55.3% was due to decreased programming costs for movies
and games, offset by slightly higher Internet connectivity costs and hotel
commissions. Gross profit on other services increased $648,000, or 25.8%, in the first nine
months of 2004 from the prior year nine months and the gross profit margin
increased from 53.5% to 59.5%. The increase in gross profit margin was
primarily attributable to reseller commissions received from programming
services. As a percentage of revenue, the Companys overall gross profit margin was 55.4%
compared to 54.9% in the first nine months of 2003. In addition to the
information provided above, the following table sets forth the primary change
drivers of composite gross profit margin for the nine months ended September
30: 2004
    
    2003
    
    ChangeGross profit margin
    
    
    55.4
    %
    
    
    54.9
    %
    
    
    0.5
    %Change drivers:Programming costs
    
    
    
    
    
    
    
    
    
    
    0.8TV Internet
    
    
    
    
    
    
    
    
    
    
    -0.1Hotel commissions
    
    
    
    
    
    
    
    
    
    
    -0.20.5
    %
 September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Operating Expenses.The following table sets forth information in regard to
the Companys operating expenses for the first nine months ended September 30
(dollar amounts in thousands): 2004
    
    2003Percent
    
    
    
    
    
    Percentof Total
    
    
    
    
    
    of TotalAmount
    
    Revenues
    
    Amount
    
    RevenuesOperating expenses:Guest Pay operations
    
    $
    24,980
    
    
    
    12.4
    
    
    $
    23,518
    
    
    
    12.4Selling, general and administrative
    
    
    17,823
    
    
    
    8.8
    
    
    
    15,742
    
    
    
    8.3Depreciation and amortization
    
    
    58,292
    
    
    
    28.9
    
    
    
    59,157
    
    
    
    31.2Total operating expenses
    
    $
    101,095
    
    
    
    50.1
    
    
    $
    98,417
    
    
    
    51.8
 Guest Pay operations expenses consist of costs directly related to the
operation and maintenance of systems at hotel sites. Guest Pay operations
expenses increased by $1.5 million, or 6.2%, in 2004 from the prior year first
nine months. The increase was primarily due to the 4.9% increase in average
rooms served by the Company. As a percentage of revenue, Guest Pay operations
expenses remained at 12.4% in the first nine months of 2004. Per average
installed room, Guest Pay operations expenses increased to $2.96 per month in
the first nine months of 2004 from $2.93 per month in the prior year first nine
months. Selling, general and administrative expenses were $17.8 million, an increase of
$2.1 million compared to $15.7 million in the first nine months of 2003. The
increase was driven by professional and compliance costs, labor and
compensation related expenses, marketing expenses and engineering development
costs. In addition, contributing to the difference was a one-time insurance
settlement received last year for reimbursement of legal expenses. As a
percentage of revenue, SG&A increased to 8.8% in the current nine months
compared to 8.3% for first nine months 2003. Per average Guest Pay room, SG&A
expenses increased to $2.11 in the first nine months of 2004 from $1.96 in the
prior year first nine months. Depreciation and amortization expenses decreased $865,000 or 1.5% to $58.3
million in the current year first nine months versus $59.2 million in the first
nine months of 2003. The decrease was primarily due to assets becoming fully
depreciated while the cost was lower for new assets being added to the base.
As a percentage of revenue, depreciation and amortization decreased to 28.9% in
the first nine months of 2004 versus 31.2% in the first nine months of 2003. Operating Income.As a result of the factors described above, the Company
generated operating income of $10.7 million, an 85% increase, in the first nine
months of 2004 compared to $5.8 million in the first nine months of 2003. Loss on Early Retirement of Debt.The Company incurred a charge of $810,000
during the third quarter of 2004 as a result of the early retirement of $35
million of the Companys Term B notes under its bank credit facility. In the
second quarter of 2003, the Company incurred a $7.1 million loss on the write
off of related debt issuance costs, payment of call and tender premiums, and
transaction expenses, as a result of the early retirement of the 10.25% Senior
Notes. Interest Expense.Interest expense decreased $1.3 million, or 5.0%, to $24.5
million during the first nine months of 2004. Average principal amount of
long-term debt outstanding during the first nine months ended September 30,
2004 was approximately $348.9 million (at an average interest rate of
approximately 9.4%) as compared to an average principal amount outstanding of
approximately $359.7 million (at an average interest rate of approximately
9.6%) during the comparable period of 2003. Taxes.For the first nine months of 2004, the Company incurred franchise tax
of $283,000 versus $345,000 during the first nine of 2003. The decrease in
taxes is due to approximately $75,000 of Canadian tax refunds received during
the third quarter of 2004. Net Loss.For the reasons previously described, the Companys net loss
decreased to $14.7 million in the first nine months of 2004 from a net loss of
$27.1 million in the prior year first nine months. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 Critical Accounting Policies Managements discussion and analysis of financial condition and results of
operations are based upon the Companys financial statements, which have been
prepared in conformity with accounting principles generally accepted in the
United States of America. The Companys primary cost drivers are fact-based
with predetermined rates, such as hotel commissions, license fees paid for
major motion pictures, or one-time flat fees for independent films. However,
the preparation of financial statements requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of revenues and expenses during the reporting period. The
Company bases its estimates on historical experience and on various other
assumptions that the Company believes to be reasonable based upon the available
information. The following critical policies relate to the more significant
judgments and estimates used in the preparation of the financial statements: Revenue recognition.The Company recognizes revenue from the sale of
interactive television services in the period the related services are provided
to the hotel or guest. No future performance obligations exist on a service
that has been provided. The prices related to the Companys products or
services are fixed prior to delivery of the products or services. Revenue from
the sale of system equipment and service parts and labor is recognized when the
equipment is delivered or the service has been provided. The Company also has
advance billings for certain free-to-guest programming services where the
revenue is deferred and recognized in the periods that services are provided. Allowance for doubtful accounts.The Company determines the estimate of the
allowance for doubtful accounts considering several factors, including: (1)
historical experience, (2) aging of the accounts receivable, and (3) contract
terms between the hotel and the Company. In accordance with the Companys hotel
contracts, monies collected by hotels for interactive television services are
held on behalf of the Company. Collectibility is reasonably assured as
supported by the Companys nominal write-off history. For the nine months ended
September 30, 2004 and 2003, charges to the allowance for doubtful account for
related interactive television services were $306,000 and $425,000,
respectively. If the financial condition of a hotel chain or group of hotels
were to deteriorate and reduce the ability to remit the Companys monies, the
Company may be required to increase its allowance by recording additional bad
debt expense. Allowance for excess or obsolete system components.The Company regularly
evaluates component levels to ascertain build requirements based on its backlog
and service requirements based on its current installed base. When a certain
system component becomes obsolete due to technological changes and it is
determined that the component cannot be utilized within its current installed
base, the Company records a provision for excess and obsolete component
inventory based on estimated forecasts of product demand and service
requirements. The Company makes every effort to ensure the accuracy of its
forecasts of service requirements and future production, however any
significant unanticipated changes in demand or technological advances could
have an impact on the value of system components and reported operating
results. Property and equipment.The Companys property and equipment is stated at
cost, net of accumulated depreciation and amortization. Installed Guest Pay
and free-to-guest systems consist of equipment, related costs of installation,
including certain payroll costs, sales commissions and customer acquisition
costs. Maintenance costs, which do not significantly extend the useful lives of
the respective assets, and repair costs are charged to Guest Pay operations as
incurred. The Company begins depreciating Guest Pay and free-to-guest systems
when such systems are installed and activated. Depreciation of other equipment
begins when such equipment is placed in service. The Company attributes no
salvage value to equipment, and depreciation and amortization are computed
using the straight-line method over the following useful lives: YearsBuildings
    
    
    30Guest Pay systems:Installed system costs
    
    
    2 - 7Customer acquisition costs
    
    
    5 - 7System components
    
    
    5 - 7Software costs
    
    
    3 - 5Other equipment
    
    
    3 - 10
 September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 
 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 September 30, 2004, the Company had debt totaling $312.6 million.
The Company has interest rate swap arrangements covering debt with a notional
amount of $100.0 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 $302.1 million and variable rate debt of $10.5
million at September 30, 2004. 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 $29.3 million. The impact on earnings and cash flow from a one
percentage point increase in interest rates would be approximately negative
$105,000 on an annualized basis 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 nine months of 2004 to materially
impact consolidated results of operations or financial condition. 
 Item 4  Controls and Procedures With the participation of management, the Companys chief executive officer and
chief financial officer evaluated the Companys disclosure controls and
procedures as of September 30, 2004. Based upon this evaluation, the chief
executive officer and chief financial officer concluded that the Companys
disclosure controls and procedures are effective in ensuring that material
information required to be disclosed is included in the reports that it files
with the Securities and Exchange Commission. There were no changes in the Companys internal controls or, to the knowledge
of management of the Company, other factors that could significantly affect
internal controls subsequent to the date of the Companys most recent
evaluation of its disclosure controls and procedures utilized to compile
information in this filing. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 
 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. In connection with the Companys effort to support the development of
technology, which could utilize the Companys interactive system, the Company
advanced $1.0 million to Gamet Technology, Inc. pursuant to a written
promissory note (the Note) during the first quarter of 2003. The Note was
personally guaranteed by Steve and Margaret Urie, the principal owners of Gamet
and collateralized by the unconditional assignment of rights to receive
quarterly payments due to the principal owner pursuant to a long-term note held
by the principal owner in connection with the sale of a prior business. The
Note was due and payable on April 18, 2003. On July 2, 2003, the Company filed
a lawsuit in U.S. District Court, Southern Division, in South Dakota, against
Gamet and against the Uries, demanding payment of the Note. On August 12,
2003, the defendants submitted an answer denying liability on the Note. Gamet
also asserted counterclaims against LodgeNet alleging that LodgeNets failure
to procure private financing for PointOne Technologies, L.L.C., a joint venture
between LodgeNet and Gamet, caused Gamet to suffer damages in an undetermined
amount. On December 29, 2003, the Uries and various companies owned or
controlled by the Uries, including Gamet, filed for Chapter 11 reorganization
in the U.S. Bankruptcy Court of the District of Nevada. It is expected that
the various bankruptcy cases will be consolidated for court management and
trustee administration purposes into one case. As a result of the bankruptcy
filings, LodgeNets claims against the Uries and Gamet are stayed. Based on
the Companys current expectation and analysis, collection on the Note is
expected to begin in 2005 and to be completed by 2008. 
 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  a.
    
    Exhibits:  10.31
    
    Form Of Restricted Stock Agreement*31
    
    Rule 13a-14(a)/15(d)-14(a) Certifications32
    
    Section 1350 Certifications  *
    
    Management compensatory plan.b.
    
    Reports onForm 8-K: On August 4, 2004, the Company filed a Report on Form 8-K to furnish under Item
5 a copy of a Press Release dated August 4, 2004, announcing the Companys
closing on the purchase by the underwriters of an additional 392,500 shares of
common stock pursuant to underwriters over-allotment option. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 On September 8, 2004, the Company filed a Report on Form 8-K to furnish under
Item 7.01 and Item 9.01 a copy of a PowerPoint slide presentation presented on
September 8, 2004, to the Kaufman Bros. 7th Annual Communications, Media &
Technology Conference in New York, New York and a copy of a press release
concerning information announced during the Companys presentation at the
Kaufman Bros. 7th Annual Communications, Media & Technology Conference,
including confirmation that the Company expects that results for the third
quarter 2004 will come within previously issued financial guidance. On October 20, 2004, the Company filed a Report on Form 8-K to furnish under
Item 2.02 and Item 9.01 a copy of a press release regarding its financial
results for the fiscal quarter ended September 30, 2004 and certain other
information and a copy of a PowerPoint presentation posted on the Companys web
site as part of an earnings teleconference held on October 19, 2004. September 30, 2004




---



##### Table of Contents



LodgeNet Entertainment Corporation
    
    Form 10-Q
 LodgeNet Entertainment Corporation and Subsidiaries 
 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)Date: November 5, 2004
    
    
    
    / s / Scott C. PetersenScott C. PetersenPresident, Chief Executive Officer andChairman of the Board of Directors(Principal Executive Officer)Date: November 5, 2004
    
    
    
    / s / Gary H. RitondaroGary H. RitondaroSenior Vice President, Chief Financial Officer(Principal Financial & Accounting Officer)
 September 30, 2004